<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-7127
-------
FIRST CHICAGO NBD CORPORATION
---------------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 38-1984850
-------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60670
---------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
312-732-4000
---------------------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGE
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997.
Class Number of Shares Outstanding
- ------------------------- -----------------------------
Common Stock $1 par value 295,652,137
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FIVE-QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION
First Chicago NBD Corporation and Subsidiaries
- --------------------------------------------------------------------------------------------------------------------------
June 30 March 31 December 31 September 30 June 30
(Dollars in millions, except per share data) 1997 1997 1996 1996 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Data for the Quarter
Net interest income........................... $925 $876 $883 $942 $910
Tax-equivalent adjustment..................... 26 31 24 25 25
------ ------ ----- ------ ------
Net interest income--tax-equivalent basis... 951 907 907 967 935
Provision for credit losses................... 180 187 190 185 185
Noninterest income............................ 644 679 682 597 643
Operating expense............................. 825 800 813 798 814
FDIC special assessment....................... - - - 18 -
Net income.................................... 378 380 377 358 361
- --------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Primary..................................... $1.20 $1.18 $1.15 $1.09 $1.10
Fully diluted............................... 1.20 1.17 1.14 1.08 1.09
- --------------------------------------------------------------------------------------------------------------------------
Net Interest Margin
Reported.................................... 4.12% 4.11% 4.11% 4.00% 3.74%
Adjusted.................................... 4.70 4.73 4.64 4.51 4.38
- --------------------------------------------------------------------------------------------------------------------------
At Quarter-End
Assets........................................ $112,595 $109,133 $104,619 $106,694 $113,714
Loans......................................... 67,510 66,536 66,414 66,602 66,431
Deposits...................................... 68,018 64,927 63,669 63,679 64,593
Long-term debt................................ 9,016 8,514 8,454 7,967 7,951
Common stockholders' equity................... 8,181 8,495 8,563 8,612 8,339
Stockholders' equity.......................... 8,471 8,785 9,007 9,087 8,827
- --------------------------------------------------------------------------------------------------------------------------
Average Balances
Assets........................................ $108,292 $105,133 $102,687 $110,715 $116,280
Loans......................................... 66,301 65,177 65,494 65,962 64,534
Earning assets................................ 92,625 89,352 87,896 96,123 100,564
Deposits...................................... 64,586 62,389 61,580 63,482 65,162
Common stockholders' equity................... 8,279 8,517 8,565 8,352 8,183
Stockholders' equity.......................... 8,569 8,936 9,030 8,839 8,672
- --------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on common stockholders' equity......... 18.1% 17.8% 17.2% 16.7% 17.4%
Return on stockholders' equity................ 17.7 17.2 16.6 16.1 16.7
Return on assets.............................. 1.40 1.47 1.46 1.29 1.25
- --------------------------------------------------------------------------------------------------------------------------
Capital Data (1)
Common-equity-to-assets ratio................. 7.3% 7.9% 8.2% 8.1% 7.6%
Regulatory leverage ratio..................... 8.6 9.2 9.3 8.1 7.6
Risk-based capital
Tier 1 capital ratio..................... 8.6 9.1 9.2 8.4 8.1
Total capital ratio...................... 12.4 13.1 13.3 12.4 12.2
- --------------------------------------------------------------------------------------------------------------------------
Common Share and Stockholder Data
For the Quarter Ended
Market price
High........................................ $65 1/8 $63 5/8 $58 7/8 $45 1/4 $45 1/2
Low......................................... 51 3/8 51 1/2 45 36 5/8 38 5/8
At quarter-end.............................. 60 1/2 54 1/8 53 3/4 45 1/4 39 1/8
Book value (at quarter-end)................... 27.08 27.20 27.31 27.11 26.31
Dividends declared per common share........... 0.40 0.40 0.40 0.36 0.36
Dividend payout ratio......................... 33.3% 33.9% 34.8% 33.0% 32.7%
Average number of common and common-equivalent
shares (in millions)......................... 310.9 316.5 321.4 320.2 320.2
Average number of shares, assuming full
dilution (in millions)....................... 311.3 320.8 327.6 327.5 326.9
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of investment in First Chicago Capital Markets, Inc.
1
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30
Regional Corp. & Inst. Banking Other
(Dollars in millions, Credit Card Banking and Corp. Inv. Activities
except where noted) ----------- ------- ------------- ----------
1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income ............................... $66 $83 $189 $155 $124 $120 $ (1) $3
Return on equity.......................... 20% 29% 21% 17% 18% 14% N/M N/M
Average assets (presecuritized)
(in billions)............................ $17.2 $17.6 $40.2 $38.6 $59.0 $67.3 0.4 _
Average common equity (in
billions)................................ 1.3 1.1 3.6 3.4 2.8 3.3 0.6 0.4
----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
Regional Corp. & Inst Banking Other
(Dollars in millions, Credit Card Banking and Corp. Inv. Activities
except where noted) ----------- ------- ------------- ----------
1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Net income .............................. $139 $159 $348 $303 $268 $228 $3 $11
Return on equity......................... 21% 28% 19% 17% 19% 13% N/M N/M
Average assets (presecuritized)
(in billions)........................... $17.4 $17.6 $39.5 $39.2 $58.2 $69.3 0.4 0.1
Average common equity (in
billions)............................... 1.3 1.1 3.6 3.4 2.8 3.3 0.7 0.3
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M - Not meaningful
Financial results are reported by major business lines, principally structured
around the customer segments served. These major businesses are: Credit Card,
Regional Banking (retail and middle market), and Corporate & Institutional
Banking and Corporate Investments. Investment management activities, while
managed separately, serve customers in both the Regional and Corporate &
Institutional Banking segments. Therefore, investment management's financial
results are captured within those businesses. To facilitate analysis of trends,
Credit Card results are presented before the securitization of credit card
receivables ("presecuritized"). See the discussion of net interest income
beginning on page 7 and a reconciliation of reported to presecuritized results
on page 32. Certain corporate revenues and expenses not allocable to specific
lines of business are included in Other Activities.
Results are derived from internal profitability reporting systems, which use a
detailed funds transfer methodology, and reflect full allocation of all
institutional and overhead items.
Beginning in 1997, the Corporation adopted a revised method of assigning capital
to business units. Common equity is allocated based on two separate risk types:
portfolio risk (potential losses arising from credit, market and investment
risks) and business risk (including operating risk, event risk and technology
risk, as well as goodwill). Under the revised methodology, risk assessment
changed for most lines of business in 1997. The capital at risk for the Credit
Card and Regional Banking segments increased, while the risk profile of
Corporate & Institutional Banking improved, leading to a lower capital
allocation for that business.
Capital assigned to the business units reflects a standard corporate structure
composed of a fixed proportion of common (90%) and other (10%) equity. Any
residual equity is held in Other Activities. See page 21 for more information on
the Corporation's capital management practices.
2
<PAGE>
Line-of- business financial results for 1996 have been adjusted to reflect the
key tenets of the enhanced capital methodology, as well as for organizational
changes.
EARNINGS CONTRIBUTION BY BUSINESS LINES
FOR THE SIX MONTHS ENDED JUNE 30
[PIE CHART APPEARS HERE]
1997 1996
---- ----
Corporate & Institutional Banking
and Corporate Investments 35% 33%
Regional Banking 46 43
Credit Card 18 23
Other Activities 1 1
<TABLE>
<CAPTION>
CREDIT CARD
___________________________________________________________________________________________________________________________________
Three Months Ended Six Months Ended
(Presecuritized) June 30 June 30
(Dollars in millions, except where noted) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income-tax-equivalent basis................ $398 $367 $783 $732
Provision for credit losses............................. 327 261 645 481
Noninterest income...................................... 180 157 366 286
Noninterest expense..................................... 143 131 278 286
Net income.............................................. 66 83 139 159
Return on equity........................................ 20% 29% 21% 28%
Efficiency ratio (1).................................... 25% 25% 24% 28%
Average loans (in billions)............................. $17.2 $17.4 $17.4 $17.4
Average common equity (in billions)..................... 1.3 1.1 1.3 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
The Corporation reaches consumers nationally through its Credit Card business,
known as First Card, which is one of the largest issuers of bank credit cards in
the U.S. This segment contributes about one-fifth of the Corporation's earnings.
Net income for Credit Card was $66 million for the second quarter of 1997,
versus $83 million a year ago. For the first six months of 1997, net income was
$139 million with a return on equity of 21%, down from 28% in 1996. The lower
return reflects both the reduction in net income and the higher capital
allocation.
Revenues increased more than 10% for both the quarter and year-to-date periods,
driven by pricing initiatives. Second quarter expense levels were higher in 1997
due to the timing of advertising expenses. Expenses for the first six months,
however, were down 3% from a year ago, reflecting lower overall marketing costs.
The positive revenue and expense trends were offset by significantly higher
credit costs, up $164 million through June. The rate of increase in credit costs
has slowed during 1997, with delinquency rates trending down since the end of
1996.
3
<PAGE>
REGIONAL BANKING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions, June 30 June 30
except where noted) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income -- tax-equivalent basis........ $559 $523 $1,099 $1,037
Provision for credit losses........................ 25 24 58 53
Noninterest income................................. 227 193 432 388
Noninterest expense................................ 457 444 912 887
Net income......................................... 189 155 348 303
Return on equity................................... 21% 17% 19% 17%
Efficiency ratio (1)............................... 58% 62% 60% 62%
Average loans (in billions)........................ $35.6 $34.5 $35.4 $34.2
Average assets (in billions)....................... 40.2 38.6 39.5 39.2
Average common equity (in billions)................ 3.6 3.4 3.6 3.4
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
The Corporation's Regional Banking business serves local consumers, small
businesses and middle market customers through more than 650 offices in
Michigan, Indiana and Illinois in addition to a niche business in Florida.
Second quarter net income of $189 million was up 22% from a year earlier.
Regional Banking contributed net income of $348 million, or 46% of the
Corporation's earnings, for the six months June 30, 1997. Return on equity for
this segment improved to 21% for the quarter and 19% for the first half.
Retail Banking
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions, June 30 June 30
except where noted) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income -- tax-equivalent basis........ $324 $297 $635 $590
Provision for credit losses........................ 19 17 40 30
Noninterest income................................. 167 139 310 280
Noninterest expense................................ 324 315 650 632
Net income......................................... 91 64 157 129
Return on equity................................... 20% 15% 18% 15%
Efficiency ratio (1)............................... 66% 72% 69% 73%
Average loans (in billions)........................ $17.7 $17.1 $17.5 $16.9
Average assets (in billions)....................... 20.2 19.4 19.6 19.6
Average common equity (in billions)................ 1.8 1.7 1.8 1.7
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Middle Market Banking
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions, June 30 June 30
except where noted) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income -- tax-equivalent basis........ $235 $226 $464 $447
Provision for credit losses........................ 6 7 18 23
Noninterest income................................. 60 54 122 108
Noninterest expense................................ 133 129 262 255
Net income......................................... 98 91 191 174
Return on equity................................... 21% 20% 21% 20%
Efficiency ratio (1)............................... 45% 46% 45% 46%
Average loans (in billions)........................ $17.9 $17.4 $17.9 $17.3
Average assets (in billions)....................... 20.0 19.2 19.9 19.6
Average common equity (in billions)................ 1.8 1.7 1.8 1.7
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
4
<PAGE>
Retail Banking
Net income for the Retail Banking segment of Regional Banking was $91 million
for the second quarter, for a return on equity of 20%. For the first half, net
income was $157 million, a 22% increase over a year ago.
The 42% increase in earnings for the second quarter over a year ago was driven
by strong fundamental revenue growth, augmented by branch and asset sales gains,
combined with tight expense control. The increase in the year-over-year
provision reflects the deterioration of consumer credit quality.
Middle Market Banking
Net income for the Middle Market segment was $98 million for the second quarter.
In the first half of 1997, net income was $191 million, a 10% increase over
1996. Return on equity was a healthy 21% for both the second quarter and first
half. This strong performance resulted from solid revenue growth, lower credit
costs and tight management of expenses.
<TABLE>
<CAPTION>
CORPORATE & INSTITUTIONAL BANKING AND CORPORATE INVESTMENTS
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in millions, except where noted) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax equivalent basis.................. $ 171 $ 195 $ 343 $ 385
Provision for credit losses................................ 1 17 1 41
Noninterest income......................................... 233 250 493 483
Noninterest expense........................................ 221 237 430 465
Net income................................................. 124 120 268 228
Return on equity........................................... 18% 14% 19% 13%
Efficiency ratio(1)........................................ 55% 53% 51% 54%
Average loans (in billions)................................ $21.7 $20.3 $21.4% $20.2
Average assets (in billions)............................... 59.0 67.3 58.2 69.3
Average common equity (in billions)........................ 2.8 3.3 2.8 3.3
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
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 segments contributed $124 million, or
about one-third of the Corporation's second quarter net income.
Earnings were $268 million for the first half of 1997, representing an 18%
increase over last year. The earnings improvement resulted from significantly
lower operating expenses, coupled with virtually no credit costs. Return on
equity was 19% for the six-month period.
<TABLE>
<CAPTION>
Corporate & Institutional Banking
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in millions, except where noted) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net increase income--tax equivalent basis..................... $ 141 $ 169 $ 284 $ 325
Provision for credit losses................................... 1 17 1 41
Noninterest income............................................ 154 149 322 316
Noninterest expense........................................... 210 223 407 438
Net income.................................................... 58 50 129 103
Return on equity.............................................. 10% 7% 12% 7%
Efficiency ratio(1)........................................... 71% 70% 67% 68%
Average loans (in billions)................................... $20.1 $18.9 $19.9 $18.9
Average assets (in billions).................................. 40.4 46.7 40.5 49.0
Average common equity (in billions)........................... 2.2 2.8 2.2 2.8
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
5
<PAGE>
<TABLE>
<CAPTION>
Corporate Investments
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in millions, except where noted) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income-tax-equivalent basis................. $ 30 $ 26 $ 59 $ 60
Provision for credit losses.............................. - - - -
Noninterest income....................................... 79 101 171 167
Noninterest expense...................................... 11 14 23 27
Net income............................................... 66 70 139 125
Return on equity......................................... 42% 53% 44% 48%
Efficiency ratio (1)..................................... 10% 11% 10% 12%
Average loans (in billions).............................. $ 1.6 $ 1.4 $ 1.5 $ 1.3
Average assets (in billions)............................. 18.6 20.6 17.7 20.3
Average common equity (in billions)...................... 0.6 0.5 0.6 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
Corporate & Institutional Banking
Net income for the Corporate & Institutional Banking segment was $58 million for
the second quarter of 1997. The segment results benefitted from a 6% decline in
expenses and low credit costs, which offset the overall decline in revenues.
Revenue was adversely impacted by the strategic decision to exit the global
custody and master trust businesses. Return on equity was 10%, up from 7% for
the year-ago quarter. The improved profitability reflects the lower capital
allocation to this business in 1997 as well as the success of the targeted asset
reduction program, which lowered earning assets and net interest income while
increasing margins and returns.
In the first half of the 1997, Corporate & Institutional Banking earned $129
million, a 25% increase from a year ago. Lower credit costs and operating
expenses drove this improvement. Return on equity increased to 12% from 7% for
the first half of 1996.
Corporate Investments
Corporate Investments earned $66 million, or 17% of consolidated net income, for
the second quarter of 1997, with a return on equity of 42%. For the first half
of 1997, net income was $139 million, for a return on equity of 44%. Leasing
revenue and strong trading results led to the first half's 11% earnings
improvement. Lower average asset levels reflected the substantial decline in
investment securities and short-term assets resulting from last year'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.
<TABLE>
<CAPTION>
OTHER ACTIVITIES
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions June 30 June 30
except where noted) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income ..................... $ (1) $ 3 $ 3 $ 11
Average assets (in billions)... 0.4 - 0.4 0.1
- --------------------------------------------------------------------------------
</TABLE>
Net income from Other Activities includes unallocated revenue and expense as
well as earnings associated with excess capital held at the corporate level. Net
income in 1996 included the gain from the sale of the Corporation's Ohio
branches.
6
<PAGE>
EARNINGS ANALYSIS
Summary
The Corporation reported record earnings of $1.20 per share for the second
quarter of 1997. Net income was $378 million compared with $361 million, or
$1.09 per share, for the year-ago quarter.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in millions, except per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis....................... $ 951 $ 935 $1,858 $1,848
Provision for credit losses..................................... 180 185 367 360
Noninterest income.............................................. 644 643 1,323 1,269
Noninterest expense............................................. 825 814 1,625 1,642
Net income...................................................... 378 361 758 701
Common Share Data
Primary earnings per share.................................... $ 1.20 $ 1.10 $ 2.38 $ 2.14
Average common and common-equivalent
shares (in millions)........................................ 310.9 320.2 313.7 319.7
Fully diluted earnings per share.............................. $ 1.20 $ 1.09 $ 2.37 $ 2.12
Average shares, assuming full dilution (in millions).......... 311.3 326.9 316.2 326.4
Return on assets................................................ 1.40% 1.25% 1.43% 1.19%
Return on common stockholders' equity........................... 18.1 17.4 17.9 17.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Second-quarter 1997 highlights were:
. The adjusted net interest margin was 4.70% for the quarter, reflecting a
more profitable mix of earning assets compared with the year-ago quarter.
. The provision for credit losses was $180 million, down from both the $185
million reported a year ago and the $187 million for the first quarter of
1997.
. Market-driven revenues were $86 million, down from the year-ago quarter as
well as from the first quarter of 1997.
. Adjusted fee-based revenue rose 12% from a year ago. This growth was driven
by increased credit card fee revenue and higher levels of fees associated
with both retail and corporate banking products.
. Operating expense was $825 million, up 1% from $814 million one year ago.
The operating efficiency ratio was 51.7%, compared with 51.6% for the
second quarter of 1996.
. The Corporation's stock repurchase program has been pursued aggressively
with approximately 26 million shares or 65% of the targeted 40 million
shares repurchased as of June 30, 1997.
Net Interest Income
Net interest income includes fundamental spreads on earning assets as well as
such items as loan fees, cash interest collections on problem loans, dividend
income, interest reversals, and income or expense on interest rate derivatives
used to manage interest rate risk. Net interest margin measures 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 First
Chicago Capital Markets, Inc. (FCCM).
7
<PAGE>
When credit card receivables are sold in securitization transactions, the net
interest income related to these high-yield assets is replaced by fee revenue,
net of related credit losses. The average level of securitized receivables was
$8.5 billion in the second quarter of 1997, compared with $7.5 billion in the
second quarter of 1996.
FCCM is the Corporation's wholly owned subsidiary engaged in permissible
investment banking activities. Because capital requirements for FCCM are risk-
exposure driven rather than based on asset levels, FCCM can generate substantial
volumes of relatively riskless, thin-spread earning assets that require little
additional capital. The Corporation's net interest margin trends can be better
analyzed if these earning assets and related margins are excluded.
Adjusted net interest income in the second quarter of 1997 was $1.1 billion,
unchanged from a year ago. Improved spreads were essentially offset by the
reduced level of total average earning assets.
Adjusted net interest margin for the second quarter of 1997 was 4.70%, compared
with 4.38% for the year-ago quarter. The increase was attributable to an
improved average earning asset mix, principally reflecting the Corporation's
successful efforts to reduce low-margin earning assets.
The following charts illustrate trends in net interest income on a tax-
equivalent ("TEA") basis, both reported and adjusted, as well as net interest
margin over the past five quarters.
Net Interest Income Net Interest Margin
[BAR CHART APPEARS HERE] [GRAPH APPEARS HERE]
In Millions
Net Interest Adjusted Net Reported Adjusted
Income-TEA Interest Income-TEA
2Q96 $ 935 $1,100 2Q96 3.74% 4.38%
3Q96 967 1,115 3Q96 4.00% 4.51%
4Q96 907 1,084 4Q96 4.11% 4.64%
1Q97 907 1,101 1Q97 4.11% 4.73%
2Q97 951 1,135 2Q97 4.12% 4.70%
8
<PAGE>
Provision for Credit Losses
Details of the Corporation's credit risk management and performance during the
quarter ended June 30, 1997, are presented in the Credit Risk Management
section, beginning on page 16.
Noninterest Income
The following table provides a breakdown of the components of noninterest income
for the second quarter and the first six months of 1997 as compared with a year
ago. In order to provide a more meaningful trend analysis, credit card fee
revenue and total noninterest income exclude the amount of net fee revenue
(spread income less credit costs) associated with securitized credit card
receivables.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Percent Six Months Ended Percent
June 30 Increase June 30 Increase
(Dollars in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Combined trading profits........... $ 36 $ 22 64% $ 64 $ 58 10%
Equity securities gains............ 46 85 (46) 100 134 (25)
Investment securities gains........ 4 3 33 29 25 16
----- ----- ------ ------
Market-driven revenue............. 86 110 (22) 193 217 (11)
Credit card fee revenue (1)........ 191 169 13 390 306 27
Fiduciary and investment
management fees................... 99 98 1 204 198 3
Deposit fees (includes
deficient balance fees)........... 112 101 11 221 202 9
Other service charges and
commissions....................... 115 94 22 219 182 20
----- ----- ------ ------
Adjusted fee-based revenue........ 517 462 12 1,034 888 16
Other income....................... 25 20 25 45 43 5
----- ----- ------ ------
Adjusted noninterest income....... $ 628 $ 592 6 $1,272 $1,148 11
===== ===== ====== ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net fee revenue related to the securitized receivables, which is excluded
here, totaled $16 million and $51 million for the second quarters of 1997
and 1996, respectively, and $51 million and $121 million for the six months
ended 1997 and 1996, respectively.
Combined trading activities generated gains of $36 million for the second
quarter of 1997. For the quarter, combined trading profits were above 1996
levels, reflecting increased trading profits in both the global derivatives and
foreign exchange trading businesses.
Equity securities gains were $46 million for the second quarter of 1997,
compared with $85 million for the second quarter of 1996. Investment securities
gains totaled $4 million for the second quarter of 1997, up from the $3 million
reported a year ago.
Adjusted for credit card securitizations, credit card fee revenue was $191
million for the second quarter of 1997, up 13% from $169 million in the year-
earlier period. The increase primarily reflects higher transaction volume and
pricing changes instituted during 1996 to mitigate rising credit costs.
Fiduciary and investment management fees of $99 million were in line with the
year-ago quarter, but down slightly from the first quarter of 1997, which
included higher revenue from specialized services in the shareholder service
business.
Deposit fees increased to $112 million in 1997 from $101 million in 1996. Higher
retail deposit and cash management fees contributed to this year-over-year
growth. The growth in deposit fees reflects the successful restructuring of
deposit-based product offerings, while the growth in cash management fees
reflects the expansion of these product offerings to the regional banking
business.
9
<PAGE>
Other service charges and commissions increased 22% from the year-ago quarter.
Increased transaction flow in the loan syndication management business, as well
as higher levels of fees from the sale of investment management products in the
retail banking network, contributed to this excellent performance.
The following chart compares market-driven revenue and the significant
components of fee-based revenue for the past five quarters. Fee-based revenue
continues to be a significant contributor to overall profitability, with some
seasonal effects associated with credit card fee revenue. Credit card fee
revenue and total noninterest income have been adjusted to exclude the effect of
credit card securitizations in order to provide a more meaningful trend
analysis.
Noninterest Income
[Bar chart appears here]
<TABLE>
<CAPTION>
(In millions)
Market Driven Adjusted Credit Serv. Chgs & Fiduciary & Inv Other Total
Revenue Card Fees Commissions Mgmt. Fees Revenue
<S> <C> <C> <C> <C> <C> <C>
2Q96 $110 $169 $195 $ 98 $20 $592
3Q96 40 183 201 100 28 552
4Q96 83 205 218 102 20 628
1Q97 107 199 213 105 20 644
2Q97 86 191 227 99 25 628
</TABLE>
Noninterest Expense
Operating expense for the second quarter of 1997 was $825 million, versus $814
million for the second quarter of 1996. For the first six months of 1997,
operating expense was 1% below that of a year ago. In addition, the operating
efficiency ratio improved to 51.1% for 1997 from 52.7% for the first six months
of 1996.
Over the past five quarters, overall expense levels have been maintained within
a narrow range, with resultant operating efficiency ratios remaining strong, as
indicated by the following charts
Operating Expense
[Bar chart appears here]
(In millions)
Salaries & Benefits Other Operating Total
2Q96 $426 $388 $814
3Q96* 419 379 798
4Q96 426 387 813
1Q97 425 375 800
2Q97 426 399 825
* Excludes FDIC Special Assessment of $18 million.
Operating Efficiency (1)
[Graph appears here]
<TABLE>
<S> <C>
2Q96 51.6%
3Q96 51.0
4Q96 51.2
1Q97 50.4
2Q97 51.7
</TABLE>
(1) Operating expense as a percentage of total revenue.
10
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Salaries and Employee Benefits Three Months Ended Percent Six Months Ended Percent
June 30 Increase June 30 Increase
(Dollars in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries.......................... $354 $355 -% $704 $711 (1)%
Employee benefits................. 72 71 1 147 151 (3)
---- ---- ---- ----
Total...................... $426 $426 - $851 $862 (1)
==== ==== ==== ====
Average full-time-equivalent
employees....................... 33,724 34,079 (1) 33,794 34,317 (2)
====== ====== ====== ======
- -------------------------------------------------------------------------------------------------
</TABLE>
Overall salary and benefit costs for the second quarter of 1997 were flat with
1996 levels. Annual salary increases were offset by reduced staff levels,
resulting from the implementation of both merger-related and business
reengineering initiatives.
In conjunction with the integration of the Corporation's various employee
benefit programs, postretirement medical benefits were discontinued. As a
result, a curtailment gain was recorded that reduced other benefit costs by
approximately $6 million for the first quarter of 1997. Aside from this item,
employee benefit costs were essentially flat for both the second quarter and
first six months of 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Other Noninterest Expense Three Months Ended Percent Six Months Ended Percent
June 30 Increase June 30 Increase
(Dollars in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Occupancy expense of premises,
net.................................. $ 63 $ 64 (2)% $129 $131 (2)%
Equipment rentals, depreciation and
maintenance.......................... 52 55 (5) 106 110 (4)
Marketing and public relations........ 34 28 21 58 70 (17)
Amortization of intangible assets..... 18 19 (5) 36 39 (8)
Telephone............................. 24 20 20 47 40 18
Freight and postage................... 19 22 (14) 42 44 (5)
Travel and entertainment.............. 14 14 - 26 26 -
Stationery and supplies............... 14 12 17 26 23 13
Other................................. 161 154 5 304 297 2
---- ---- ---- -----
Total............................ $399 $388 3 $774 $780 (1)
==== ==== ==== ====
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other operating expense was $399 million for the second quarter of 1997, up 3%
from 1996. Increased marketing costs in the Credit Card and Regional Banking
businesses contributed to this increase. For the six-month period, other
operating expense was down 1% from a year ago. Merger savings continued to be
channeled into investments in technology and used to fund growth in selected
businesses.
<TABLE>
<CAPTION>
Applicable Income Taxes
- ----------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in millions) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes........... $564 $554 $1,132 $1,062
Applicable income taxes.............. 186 193 374 361
Effective tax rate................... 33.0% 34.8% 33.0% 34.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Tax expense in both periods included benefits from tax-exempt income and general
business tax credits partially offset by the effect of nondeductible expenses,
including goodwill.
11
<PAGE>
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the possibility of being unable to meet all present and future
financial obligations in a timely manner. The Corporation considers strong
capital ratios, credit quality and core earnings essential to retaining high
credit ratings and, thereby, cost-effective access to market liquidity.
The Statement of Cash Flows, on page 28, presents data on cash and cash
equivalents provided and used in operating, investing and financing activities.
The Corporation's ability to attract wholesale funds on a regular basis and at a
competitive cost is fostered by strong ratings from the major credit rating
agencies. As of June 30, 1997, the parent company and the major banking
subsidiaries had the following long- and short-term debt ratings.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Debt Short-Term Debt
- -------------------------------------------------------------------------------------------------------------------------
S&P Moody's S&P Moody's
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Chicago NBD Corporation (parent)................... A+ A1 A-1 P-1
The Principal Banks...................................... AA- Aa3 A-1+ P-1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A large customer deposit base is one of the significant strengths of the
Corporation's liquidity position. The Corporation has established a 35% limit on
the use of wholesale funds for funding core assets. As of June 30, 1997, its
major banking subsidiaries collectively funded 78% of core assets with core
liabilities, accessing the wholesale market for only 22% of core asset funding
needs.
The following table shows the total funding source mix for the past five
quarters.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Deposits and Other Purchased Funds
At period end June 30 March 31 December 31 September 30 June 30
(In millions) 1997 1997 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand................................... $17,142 $15,016 $15,702 $16,242 $14,482
Savings.................................. 21,154 21,381 21,722 20,882 20,890
Time
Under $100,000......................... 9,775 9,788 9,851 9,944 9,952
$100,000 and over...................... 5,205 5,290 5,143 5,900 5,864
Foreign offices............................. 14,742 13,452 11,251 10,711 13,405
------- ------- ------- ------- -------
Total deposits....................... 68,018 64,927 63,669 63,679 64,593
- ------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities
under repurchase agreements................. 10,053 9,656 7,859 8,193 11,630
Commercial paper............................. 876 830 762 864 743
Other short-term borrowings.................. 8,972 7,687 6,810 8,966 11,754
Long-term debt............................... 9,016 8,514 8,454 7,967 7,951
------- ------- ------- ------- -------
Total other purchased funds........... 28,917 26,687 23,885 25,990 32,078
------- ------- ------- ------- -------
Total................................. $96,935 $91,614 $87,554 $89,669 $96,671
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
MARKET RISK MANAGEMENT
Overview
Market risk arises from changes in interest rates, exchange rates, commodity
prices and equity prices. The Corporation maintains risk management policies to
monitor and limit exposure to market risk. Through its trading activities, the
Corporation strives to take advantage of profit opportunities available in
interest rate, exchange rate, and other market movements. In asset and
liability management activities, policies are in place to minimize structural
interest rate and foreign exchange rate risk. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
Trading Activities
The Corporation 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 for such transactions, an inventory in capital
markets instruments is carried, and access to market liquidity is maintained by
making bid-offer prices to other market makers. Although these two activities
constitute proprietary trading, they are essential to providing customers with
capital markets products at competitive prices.
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. Risk
points measure the market risk (potential overnight loss) in a capital markets
product. Value at risk is monitored in each significant trading portfolio on a
daily basis. The following tables show average, maximum and minimum daily value
at risk for the second quarter of 1997 and the preceding four quarters, and the
actual trading revenue for each quarter.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Daily Value at Risk June 30 March 31 December 31 September 30 June 30
(In millions) 1997 1997 1996 1996 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average................. $24 $21 $24 $26 $32
Maximum................. 27 25 27 30 37
Minimum................. 21 18 21 23 28
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Quarter Ended June 30 March 31 December 31 September 30 June 30
(In millions) 1997 1997 1996 1996 1996
- --------------------------------------------------------------------------------------------------
Trading revenue*........ $58 $54 $33 $19 $55
- --------------------------------------------------------------------------------------------------
</TABLE>
*Includes trading profits and related net interest income.
Value at risk is estimated using statistical models calibrated at a three-
standard-deviation confidence interval. The reported value at risk remains
somewhat overstated because all offsets and correlations across different
trading portfolios are not fully considered in the calculation.
Structural Interest Rate Risk Management
Movements in interest rates can create fluctuations in net interest income and
economic value due to an imbalance in the repricing or maturity of assets and
liabilities. Asset and liability positions are actively managed with the goal
of minimizing the impact of interest rate volatility on current earnings and on
the market value of equity.
The following table details the Corporation's interest rate gap position as of
June 30, 1997. Interest rate risks in trading and overseas asset and liability
positions are assumed to be matched and are managed principally as trading
risks. Credit card securitizations, which subject fee revenue to interest rate
risk, are included in the gap analysis measure.
13
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Interest Rate Sensitivity
June 30, 1997 0-90 91-180 181-365 1-5 Beyond
(Dollars in millions) days days days years 5 years Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans................................ $46,651 $ 3,189 $ 4,128 $13,003 $ 3,092 $ 70,063
Investment securities................ 1,196 365 963 3,787 1,328 7,639
Other earning assets................. 24,923 178 32 69 - 25,202
Nonearning assets.................... 14,694 75 149 1,368 1,626 17,912
------- ------- ------- ------- ------- --------
Total assets.................... $87,464 $ 3,807 $ 5,272 $18,227 $ 6,046 $120,816
- ---------------------------------------------------------------------------------------------------
Deposits............................. $29,799 $ 3,351 $ 4,531 $14,519 $ 979 $ 53,179
Other interest-bearing liabilities... 42,466 2,339 2,402 2,127 2,950 52,284
Noninterest-bearing liabilities...... 6,174 7 (9) (4) 713 6,881
Equity............................... 395 305 409 3,272 4,091 8,472
------- ------- ------- ------- ------- --------
Total liabilities and equity.... $78,834 $ 6,002 $ 7,333 $19,914 $ 8,733 $120,816
- ---------------------------------------------------------------------------------------------------
Balance sheet sensitivity gap........ $ 8,630 $(2,195) $(2,061) $(1,687) $(2,687) -
- ---------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets 7.1% 5.3% 3.6% 2.2% - -
- ---------------------------------------------------------------------------------------------------
Effect of off-balance-sheet ALM
derivative transactions:
Specific transactions............. $(4,368) $ 481 $ 1,806 $ 611 $ 1,470 -
Specific asset or liability pools. (2,854) 170 454 2,136 94 -
- ---------------------------------------------------------------------------------------------------
Interest rate sensitivity gap........ $ 1,408 $(1,544) $ 199 $ 1,060 $(1,123) -
- ---------------------------------------------------------------------------------------------------
Cumulative gap....................... $ 1,408 $ (136) $ 63 $ 1,123 - -
- ---------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets 1.2% (0.1)% 0.1% 0.9% - -
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's policy is to limit the cumulative one-year gap position,
including asset and liability management ("ALM") derivatives, to within 4% of
total assets. As of June 30, 1997, the cumulative one-year gap position was
0.1% of total assets. The Corporation uses off-balance-sheet transactions,
principally interest rate swaps, to adjust the interest rate sensitivity of
specific transactions, as well as pools of assets or liabilities, to remain
structurally neutral to interest rate changes. As shown in the table above, the
net result of ALM derivatives was to reduce the cumulative one-year gap position
from 3.6% to 0.1% of total assets.
In addition to static gap analysis, an earnings simulation analysis and a value-
at-risk measure are performed to identify more dynamic interest rate risk
exposures of the businesses, including embedded option positions. The earnings
simulation analysis estimates the effect that specific interest rate changes
would have on pretax earnings. The Corporation's policy is to limit the change
in annual pretax earnings to $100 million from an immediate parallel change in
interest rates of 200 basis points. As of June 30, 1997, the estimated earnings
sensitivity profile was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Immediate Change in Rates
-----------------------------
<S> <C> <C>
(In millions) +200 bp -200 bp
- ---------------------------------------------------------------------------------
Pretax earnings change......................... $(14) $31
- ---------------------------------------------------------------------------------
</TABLE>
Access to the derivatives market is an important element in maintaining the
interest rate risk position within policy guidelines. At June 30, 1997, the
notional principal amount of ALM interest rate swaps totaled $9.6 billion,
including $4.6 billion against specific transactions and $5.0 billion against
specific pools of assets or liabilities. The following table summarizes the
interest rate swaps used for asset and liability management purposes.
14
<PAGE>
<TABLE>
<CAPTION>
Asset and Liability Management Swaps--Notional Principal
- ----------------------------------------------------------------------------------------------------------------
June 30, 1997 Receive Fixed Pay Fixed Basis
(In millions) Pay Floating Receive Floating Swaps Total
- ----------------------------------------------------------------------------------------------------------------
Specific Pool Specific Pool Pool
-------- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Swaps associated with:
Loans............................. $ 10 $ 754 $ 38 $ - $ - $ 802
Investment securities............. - - 240 - - 240
Securitized credit card
receivables...................... - 333 - - - 333
Deposits.......................... 50 2,925 - - - 2,975
Funds borrowed (including
long-term debt)................. 4,274 - - 125 890 5,289
------ ------ ---- ---- ---- ------
Total........................... $4,334 $4,012 $278 $125 $890 $9,639
====== ====== ==== ==== ==== ======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Substantially all ALM interest rate swaps are standard swap contracts.
Contractual maturities and weighted average pay and receive rates for the ALM
swap position at June 30, 1997, are summarized below. The variable interest
rates, which generally are the one-month, three-month and six-month LIBOR rates
in effect on the date of repricing, are assumed to remain constant. However,
the variable interest rates will change and would affect the related weighted
average information presented in the table.
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1998 1999 2000 2001 Thereafter Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay
floating swaps
Notional amount.......... $1,462 $2,757 $ 633 $ 769 $ 768 $1,957 $8,346
Weighted average
Receive rate............ 5.97% 6.18% 6.23% 6.17% 7.17% 6.87% 6.40%
Pay rate................ 5.91% 5.87% 5.99% 5.89% 5.95% 5.92% 5.91%
Pay fixed/receive
floating swaps
Notional amount.......... $ 90 $ 57 $ 83 $ 110 $ 25 $ 38 $ 403
Weighted average
Receive rate............ 5.92% 6.06% 5.86% 5.87% 5.96% 5.96% 5.92%
Pay rate................ 7.27% 8.07% 7.99% 7.74% 8.01% 8.01% 7.78%
Basis swaps
Notional amount.......... $ 50 $ 815 $ 25 - - - $ 890
Weighted average
Receive rate............ 5.84% 5.89% 5.91% - - - 5.89%
Pay rate................ 5.92% 5.90% 5.89% - - - 5.90%
- ----------------------------------------------------------------------------------------------------------
Total notional amount.......... $1,602 $3,629 $ 741 $ 879 $ 793 $1,995 $9,639
- ----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
CREDIT RISK MANAGEMENT
The Corporation has developed policies and procedures to manage the level and
composition of risk in its credit portfolio. The objective of this credit risk
process is to quantify and manage credit risk on a portfolio basis as well as
reduce the risk of a loss resulting from a customer's failure to perform
according to the terms of a transaction.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Selected Statistical Information
June 30 March 31 December 31 September 30 June 30
(Dollars in millions) 1997 1997 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At period-end
Loans outstanding............................. $67,510 $66,536 $66,414 $66,602 $66,431
Nonperforming loans........................... 329 257 262 309 356
Other real estate, net........................ 14 28 28 26 33
Nonperforming assets.......................... 343 285 290 335 389
Allowance for credit losses................... 1,408 1,408 1,407 1,447 1,430
Nonperforming assets/loans outstanding
and other real estate, net................... 0.5% 0.4% 0.4% 0.5% 0.6%
Allowance for credit losses/loans
outstanding.................................. 2.1 2.1 2.1 2.2 2.2
Allowance for credit losses/nonperforming
loans........................................ 428 548 537 468 402
For the quarter ended
Average loans................................. $66,301 $65,177 $65,494 $65,962 $64,534
Net charge-offs............................... 180 186 190 182 153
Net charge-offs/average loans................. 1.1% 1.2% 1.2% 1.1% 0.9%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
For analytical purposes, the Corporation's portfolio is divided into commercial
(domestic and foreign) and consumer (credit card and other consumer) segments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Loan Composition June 30 March 31 December 31 September 30 June 30
(In millions) 1997 1997 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial risk
Domestic
Commercial......................... $27,851 $28,181 $27,718 $27,537 $26,237
Real estate
Construction...................... 1,272 1,159 1,057 1,094 1,193
Other............................. 5,309 5,159 5,103 5,446 5,665
Lease financing..................... 1,954 1,848 1,820 1,683 1,644
Foreign.............................. 4,362 4,022 3,656 3,587 3,790
------- ------- ------- ------- -------
Total commercial............... 40,748 40,369 39,354 39,347 38,529
------- ------- ------- ------- -------
Consumer risk
Credit cards........................ 9,031 8,668 9,601 9,888 10,441
Secured by real estate (1).......... 9,698 9,483 9,406 9,334 9,231
Automotive.......................... 4,306 4,342 4,423 4,411 4,463
Other............................... 3,727 3,674 3,630 3,622 3,767
------- ------- ------- ------- -------
Total consumer................. 26,762 26,167 27,060 27,255 27,902
------- ------- ------- ------- -------
Total.......................... $67,510 $66,536 $66,414 $66,602 $66,431
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
16
<PAGE>
Allowance for Credit Losses
The allowance for credit losses is maintained at a level that in management's
judgment is adequate to provide for estimated probable credit losses inherent in
on- and off-balance-sheet credit exposure attributable to various financial
instruments. The amount of the allowance is based on formal review and analysis
of potential credit losses, as well as prevailing economic conditions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Allowance for Credit Losses June 30 March 31 December 31 September 30 June 30
(In millions) 1997 1997 1996 1996 1996
------- -------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter....... $1,408 $1,407 $1,447 $1,430 $1,383
- ----------------------------------------------------------------------------------------------------------------------
Provision for credit losses......... 180 187 190 185 185
- ----------------------------------------------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial................... 33 21 20 30 21
Real estate.................. 4 2 7 2 7
Lease financing.............. - 2 - 3 2
Foreign.......... - - - 2 -
Consumer
Credit card.................. 170 168 163 159 141
Other........................ 27 31 42 22 20
------ ------ ------ ------ ------
Total charge-offs.......... 234 224 232 218 191
- ----------------------------------------------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial................... 21 10 11 13 9
Real estate.................. 6 4 4 6 9
Lease financing.............. 1 - - 1 -
Foreign......................... - 2 11 1 2
Consumer
Credit card.................. 15 11 10 6 10
Other........................ 11 11 6 9 8
------ ------ ------ ------ ------
Total recoveries........... 54 38 42 36 38
- ----------------------------------------------------------------------------------------------------------------------
Net charge-offs..................... 180 186 190 182 153
- ----------------------------------------------------------------------------------------------------------------------
Other, net................... - - (40) 14 15
- ----------------------------------------------------------------------------------------------------------------------
Balance, end of quarter............. $1,408 $1,408 $1,407 $1,447 $1,430
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Consumer Risk Management
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Consumer Loans June 30 March 31 December 31 September 30 June 30
(In millions) 1997 1997 1996 1996 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans............................ $ 9,031 $ 8,668 $ 9,601 $ 9,888 $10,441
Securitized credit card receivables.......... 8,221 8,596 8,888 8,039 7,336
------- ------- ------- ------- -------
Total managed credit card receivables..... 17,252 17,264 18,489 17,927 17,777
Other consumer loans
Secured by real estate (1)................ 9,698 9,483 9,406 9,334 9,231
Automotive................................ 4,306 4,342 4,423 4,411 4,463
Other..................................... 3,727 3,674 3,630 3,622 3,767
------- ------- ------- ------- -------
Other consumer loans................... 17,731 17,499 17,459 17,367 17,461
------- ------- ------- ------- -------
Total.................................. $34,983 $34,763 $35,948 $35,294 $35,238
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
Consumer risk management focuses on the credit card segment separately from
other parts of the portfolio. For the credit card segment, loss potential is
tested using statistically expected levels of losses based on delinquencies and
on the source, age and other characteristics of the portfolio.
For the other segments of the consumer portfolio, reserve factors are based on
historical loss rates.
Credit card receivables represent the most significant risk element in the
consumer portfolio. The net charge-off rate for credit card receivables was
7.7% for the second quarter of 1997. While this represents an increase over the
first quarter, the rate of increase has slowed from the prior two quarters.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Credit Card Receivables For the Quarter Ended
June 30 March 31 December 31 September 30 June 30
(Dollars in millions) 1997 1997 1996 1996 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balances:
Credit card loans....................... $ 8,613 $ 8,673 $ 9,421 $10,497 $ 9,814
Securitized credit card receivables..... 8,460 8,816 8,058 7,219 7,544
------- ------- ------- ------- -------
Total average managed credit card
receivables........................ $17,073 $17,489 $17,479 $17,716 $17,358
======= ======= ======= ======= =======
Total net charge-offs
(including securitizations)............ $ 326 $ 319 $ 294 $ 265 $ 254
======= ======= ======= ======= =======
Net charge-offs/average total managed
receivables............................ 7.7% 7.4% 6.7% 5.9% 5.9%
======= ======= ======= ======= =======
Credit Card Delinquency Rate--
Managed Receivables-Period End
30 or more days....................... 4.3% 4.4% 4.5% 4.3% 3.8%
90 or more days....................... 1.7 1.9 1.8 1.6 1.4
- ---------------------------------------------------------------------------------------------------
</TABLE>
Credit card receivables generally are charged off no later than 180 days past
due, or earlier in the event of bankruptcy.
18
<PAGE>
Commercial Risk Management
The commercial risk portfolio includes all domestic and foreign commercial
credit exposure. Credit exposure includes the credit risks associated with both
on- and off-balance-sheet financial instruments.
Commercial loans totaled $40.7 billion at June 30, 1997, up 4% from December 31,
1996, and up 6% from June 30, 1996.
In the commercial portfolio, credit quality is rated according to defined levels
of credit risk. The lower categories of credit risk are generally 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 paid
without restructuring the credit.
Each quarter, the Corporation conducts a review of significant lower-rated
credit or country exposures. Potential losses are identified during this
review, and reserves are adjusted accordingly.
During the second quarter, charge-offs net of recoveries were $9 million in the
commercial portfolio. Nonperforming assets totaled $343 million at June 30,
1997.
Commercial Real Estate
Commercial real estate loans include loans secured by real estate as well as
certain loans that are real estate-related. A loan is categorized as real
estate-related when 80% or more of the borrower's revenues are derived from real
estate activities and the loan is not collateralized by cash or marketable
securities.
Commercial real estate loans totaled $6.6 billion at June 30, 1997, compared
with $6.9 billion a year ago. Commercial real estate loans were $6.2 billion at
year-end 1996.
During the second quarter, net recoveries in the commercial real estate
portfolio were $2 million. Nonperforming commercial real estate assets,
including other real estate, totaled $85 million at June 30, 1997, compared with
$135 million a year ago and $128 million at year-end 1996.
19
<PAGE>
Nonperforming Assets
Nonperforming assets at June 30, 1997, were $343 million, or 0.5% of total loans
and other real estate, compared with $290 million, or 0.4%, at year-end 1996 and
$285 million, or 0.4%, at March 31, 1997. The transfer of one commercial
credit to nonperforming status in the second quarter of 1997 accounts for the
increase. The following charts illustrate the trends in this area over the last
five quarters.
Nonperforming Assets--Period End Nonperforming Assets as
a Percentage of Loans and
Other Real Estate--Period End
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
(In millions)
Loans Oreo Total
<S> <C> <C> <C> <C> <C>
2Q96 $356 $33 $389 2Q96 0.6%
3Q96 309 26 335 3Q96 0.5
4Q96 262 28 290 4Q96 0.4
1Q97 257 28 285 1Q97 0.4
2Q97 329 14 343 2Q97 0.5
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses a variety of derivative financial instruments in its
trading, asset and liability management, and Corporate Investment activities.
These instruments include interest rate, currency, commodity and equity swaps,
forwards, futures, options, caps, floors, forward rate agreements and other
conditional or exchange contracts, and include both exchange-traded and over-
the-counter contracts.
The Corporation uses interest rate derivative financial instruments to reduce
structural interest rate risk and the volatility of net interest margin. The
trend in net interest margin reflects the effective use of these derivatives.
Without their use, net interest income would have been lower by $10.0 million
for the second quarter of 1997 and by $15.2 million for the second quarter of
1996.
The sale of fixed- and floating-rate credit card receivables as securities to
investors subjects fee 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, net fee
revenue would have been lower by $0.5 million for the second quarter of 1997 and
by $2.3 million for the second quarter of 1996.
20
<PAGE>
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 June 30, 1997, and December 31,
1996:
<TABLE>
<CAPTION>
June 30 December 31
(In billions) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross replacement cost........................................... $13.7 $14.9
Less: Adjustment due to master netting agreements............. 9.9 9.8
----- -----
Current credit exposure.......................................... 3.8 5.1
Less: Unrecognized net gains due to nontrading activity....... - 0.1
----- -----
Balance sheet exposure........................................... $ 3.8 $ 5.0
===== =====
- --------------------------------------------------------------------------------------------------
</TABLE>
The $3.8 billion of total current credit exposure at June 30, 1997, represents
the total loss that the Corporation would have suffered had every counterparty
been in default on that date. This amount is reduced by any 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 contracts within the customer's portfolio. In total, the
potential credit exposure was approximately $6.2 billion higher than the current
exposure at June 30, 1997.
For the first six months of 1997, there were no charge-offs associated with
derivative financial instruments.
CAPITAL MANAGEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Selected Capital Ratios June 30 March 31 December 31 September 30 June 30 Corporate
1997 1997 1996 1996 1996 Guideline
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets (1)........ 7.3% 7.9% 8.2% 8.1% 7.6% N/A
Tangible common equity ratio (1)...... 7.1 7.6 7.8 7.7 7.1 N/A
Stockholders' equity/total assets..... 7.5 8.0 8.6 8.5 7.8 N/A
Risk-based capital ratios (1)(2)
Tier 1........................... 8.6 9.1 9.2 8.4 8.1 7-8%
Total............................ 12.4 13.1 13.3 12.4 12.2 11-12%
Regulatory leverage ratio (1)(2)...... 8.6 9.2 9.3 8.1 7.6 5.5-7.0%
Double leverage ratio(2).............. 111 106 105 113 114 less than or equal to 120%
Dividend payout ratio................. 33 34 34 33 33 30-40%
- -------------------------------------------------------------------------------------------------------------------------------
(1) Net of investment in FCCM.
(2) Includes trust preferred capital securities.
N/A - Not Applicable.
</TABLE>
Capital represents the stockholders' investment on which the Corporation strives
to generate attractive returns. It supports business growth and provides
protection to depositors and creditors. Management believes that capital is the
foundation of a cohesive risk management framework because it links return with
risk. Capital adequacy objectives have been developed for the Corporation and
its major banking subsidiaries to meet these needs and also to maintain a well-
capitalized regulatory position.
21
<PAGE>
Economic Capital
An economic capital framework is used to allocate capital to lines of business,
products and customers based on the level and type of risk inherent in the
activities. 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. Beginning in the first quarter of 1997,
the Corporation's economic capital model has been revised as referenced in the
Business Segments section, on page 2. Enhancements to the model incorporate a
more complete and up-to-date assessment of risk based on the evolving nature of
the Corporation's activities.
Capital is allocated for two types of risk: portfolio and business. Portfolio
risk capital covers the potential for loss of value arising from credit, market
and investment risks. The amount of such capital is calculated to absorb losses
to a desired level of statistical confidence. Business risk capital is
determined by identifying publicly traded companies with activities comparable
with the Corporation's, where possible, and applying their capital structures to
the business units. This approach incorporates hard-to-quantify risks such as
event, technology and operating margin risks.
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, as measured by the economic capital framework. The long-
term target for the Tier 1 ratio is 7% to 8%. This ratio is currently managed
to 8%, which is used for line of business capital allocations. Excess capital,
defined as common equity above that required for the 8% Tier 1 target, is
available for investments and acquisitions. If attractive long-term
opportunities are not available over time in core businesses, management intends
to return excess capital to stockholders, typically by way of stock repurchase
programs and/or dividend increases.
Other Capital Activities
In October 1996, the Board of Directors authorized the purchase of up to 40
million shares of the Corporation's common stock over the subsequent two to
three years. Purchases occur periodically in open market or private
transactions. The Corporation bought approximately 11 million shares during the
second quarter of 1997 at an average price of $57.394 per share. Through June
30, approximately 26 million shares had been repurchased under this program.
In February 1997, the Corporation authorized the redemption on April 1 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. At March 31, 1997, essentially all of this Series B Preferred Stock had
been converted to shares of the Corporation's common stock.
22
<PAGE>
Regulatory Capital
The Corporation endeavors to maintain regulatory capital ratios, including those
of the major banking subsidiaries, in excess of the well-capitalized guidelines.
To ensure this goal is met, target ranges of 7% to 8% have been established for
Tier 1 capital and 11% to 12% for total risk-based capital. The Corporation's
risk-based capital ratios for Tier 1 and total capital exceeded the regulatory
well-capitalized guidelines of 6% and 10%, respectively.
Tier 1 and Total Capital Ratios--Period End
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Tier 1 Total
<S> <C> <C>
6/30/96 8.1% 12.2%
12/31/96 9.2 13.3
6/30/97 8.6 12.4
Regulatory
Guidelines 6% 10%
</TABLE>
In January 1997, a wholly owned consolidated trust subsidiary of the Corporation
issued in the aggregate $250 million of preferred securities, bringing the total
trust preferred securities issued on behalf of the Corporation to $1 billion.
These "Trust Preferred Capital Securities" are tax-advantaged issues that
qualify for Tier 1 capital treatment and are included in long-term debt in the
Corporation's balance sheet.
The following table shows the components of the Corporation's regulatory risk-
based capital and risk-weighted assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30
(In millions) 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regulatory Risk-Based Capital
Tier 1 capital........................................... $ 8,930 $ 9,186 $ 8,260
Tier 2 capital and other adjustments..................... 4,009 4,146 4,093
-------- -------- --------
Total capital....................................... $ 12,939 $ 13,332 $ 12,353
======== ======== ========
Regulatory Risk-Weighted Assets
Balance sheet risk-weighted assets....................... $ 73,755 $ 71,177 $ 71,937
Off-balance-sheet risk-weighted assets................... 30,340 29,078 29,634
-------- -------- --------
Total risk-weighted assets.......................... $104,095 $100,255 $101,571
======== ======== ========
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Intangible Assets June 30 December 31 June 30
(In millions) 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------
Goodwill................................................. $ 381 $ 397 $ 412
Other nonqualifying intangibles.......................... 3 3 4
-------- -------- --------
Subtotal............................................ 384 400 416
Qualifying intangibles................................... 52 69 84
-------- -------- --------
Total intangibles................................... $ 436 $ 469 $ 500
======== ======== ========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Tier 1 and total capital have been reduced by goodwill and other nonqualifying
intangible assets, which totaled $384 million at June 30, 1997, $400 million at
December 31, 1996, and $416 million at June 30, 1996.
23
<PAGE>
The Corporation's major banking subsidiaries exceed the regulatory well-
capitalized guidelines as shown in the following tables. Major banking
subsidiaries include: The First National Bank of Chicago (FNBC), FCC National
Bank (FCCNB), American National Bank and Trust Company of Chicago (ANB), NBD
Bank (Michigan), and NBD Bank, N.A. (Indiana). By maintaining well-capitalized
regulatory status, these banks benefit from lower FDIC deposit premiums.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NBD NBD
FNBC Michigan FCCNB ANB Indiana
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1997
Risk-based capital ratios
Tier 1 capital....................... 7.6% 9.9% 11.7% 8.4% 9.8%
Total capital........................ 11.3 14.3 14.5 11.6 11.1
Regulatory leverage ratio................. 7.4 10.0 12.2 9.2 9.0
- ------------------------------------------------------------------------------------------------------------------------------
NBD NBD
FNBC Michigan FCCNB ANB Indiana
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
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
Regulatory leverage ratio................. 7.6 9.6 10.6 9.4 8.9
- ------------------------------------------------------------------------------------------------------------------------------
NBD NBD
FNBC Michigan FCCNB ANB Indiana
- ------------------------------------------------------------------------------------------------------------------------------
June 30, 1996
Risk-based capital ratios
Tier 1 capital....................... 7.0% 8.9% 8.6% 8.9% 10.6%
Total capital........................ 10.5 12.6 11.5 11.2 11.8
Regulatory leverage ratio................. 5.8 9.5 9.4 9.4 8.7
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In September 1996, the U.S. bank regulators amended their risk-based capital
requirements to incorporate a measure for market risk inherent in the trading
portfolio. Under the new market risk requirements, capital will be allocated to
support the amount of market risk related to the Corporation's trading
activities. The market risk rules are not effective until 1998 and will apply
only to institutions with significant trading activities. It is anticipated that
both the Corporation and FNBC will be subject to these new rules. It is
currently estimated that the rules will not significantly affect the risk-based
capital ratios of either entity.
24
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Consolidated Balance Sheet
- ----------------------------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30
(Dollars in millions) 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks............................................................ $ 7,969 $ 7,823 $ 6,898
Interest-bearing due from banks.................................................... 7,705 5,474 7,348
Federal funds sold and securities under resale agreements.......................... 8,185 4,197 9,908
Trading assets..................................................................... 4,752 4,812 6,688
Derivative product assets.......................................................... 3,761 4,974 5,165
Investment securities.............................................................. 8,265 7,178 7,507
Loans (net of unearned income--$954, $764 and $664, respectively).................. 67,510 66,414 66,431
Less allowance for credit losses................................................. (1,408) (1,407) (1,430)
---------- ----------- -----------
Loans, net....................................................................... 66,102 65,007 65,001
Premises and equipment............................................................. 1,407 1,415 1,416
Customers' acceptance liability.................................................... 661 577 721
Other assets....................................................................... 3,788 3,162 3,062
---------- ----------- -----------
Total assets.................................................................. $ 112,595 $ 104,619 $ 113,714
========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits
Demand........................................................................... $ 17,142 $ 15,702 $ 14,482
Savings.......................................................................... 21,154 21,722 20,890
Time............................................................................. 14,980 14,994 15,816
Foreign offices.................................................................. 14,742 11,251 13,405
---------- ----------- -----------
Total deposits................................................................ 68,018 63,669 64,593
Federal funds purchased and securities under repurchase agreements................. 10,053 7,859 11,630
Other short-term borrowings........................................................ 9,848 7,572 12,497
Long-term debt..................................................................... 9,016 8,454 7,951
Acceptances outstanding............................................................ 661 577 721
Derivative product liabilities..................................................... 3,844 4,753 5,213
Other liabilities.................................................................. 2,684 2,728 2,282
---------- ----------- -----------
Total liabilities............................................................ 104,124 95,612 104,887
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock.................................................................... 290 444 488
Common stock--$1 par value......................................................... 320 320 319
June 30, 1997 Dec. 31, 1996 June 30, 1996
------------- ------------- -------------
Number of shares authorized..... 750,000,000 750,000,000 750,000,000
Number of shares issued......... 319,509,163 319,509,189 318,920,406
Number of shares outstanding.... 302,064,635 313,473,520 316,998,429
Surplus............................................................................ 1,985 2,149 2,176
Retained earnings.................................................................. 6,933 6,433 5,954
Fair value adjustment on investment securities available-for-sale.................. 18 38 17
Deferred compensation.............................................................. (87) (58) (58)
Accumulated translation adjustment................................................. 6 7 7
Treasury stock at cost--17,444,528; 6,035,669; and 1,921,977 shares, respectively.. (994) (326) (76)
---------- ----------- -----------
Stockholders' equity.......................................................... 8,471 9,007 8,827
---------- ----------- -----------
Total liabilities and stockholders' equity............................... $ 112,595 $ 104,619 $ 113,714
========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Consolidated Income Statement
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(In millions, except per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees....................................................... $1,484 $1,416 $2,885 $2,828
Bank balances............................................................... 114 123 210 269
Federal funds sold and securities under resale agreements................... 77 163 142 340
Trading assets.............................................................. 67 104 136 227
Investment securities--taxable.............................................. 89 94 167 203
Investment securities--tax-exempt........................................... 29 22 54 47
------ ------ ------ ------
Total............................................................. 1,860 1,922 3,594 3,914
- ------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits.................................................................... 544 545 1,043 1,137
Federal funds purchased and securities under repurchase agreements.......... 124 190 238 415
Other short-term borrowings................................................. 121 139 223 292
Long-term debt.............................................................. 146 138 289 275
------ ------ ------ ------
Total............................................................. 935 1,012 1,793 2,119
- -------------------------------------------------------------------------------------------------------------------------------
Net Interest Income......................................................... 925 910 1,801 1,795
Provision for credit losses................................................. 180 185 367 360
------ ------ ------ ------
Net Interest Income After Provision for Credit Losses....................... 745 725 1,434 1,435
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest Income
Combined trading profits.................................................... 36 22 64 58
Equity securities gains..................................................... 46 85 100 134
Investment securities gains................................................. 4 3 29 25
------ ------ ------ ------
Market-driven revenue............................................ 86 110 193 217
Credit card fee revenue..................................................... 207 220 441 427
Fiduciary and investment management fees.................................... 99 98 204 198
Service charges and commissions............................................. 227 195 440 384
------ ------ ------ ------
Fee-based revenue................................................. 533 513 1,085 1,009
------ ------ ------ ------
Other income................................................................ 25 20 45 43
------ ------ ------ ------
Total............................................................. 644 643 1,323 1,269
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits.............................................. 426 426 851 862
Occupancy expense of premises, net.......................................... 63 64 129 131
Equipment rentals, depreciation and maintenance............................. 52 55 106 110
Amortization of intangible assets........................................... 18 19 36 39
Other....................................................................... 266 250 503 500
------ ------ ------ ------
Total............................................................. 825 814 1,625 1,642
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes.................................................. 564 554 1,132 1,062
Applicable income taxes..................................................... 186 193 374 361
------ ------ ------ ------
Net Income.................................................................. $ 378 $ 361 $ 758 $ 701
====== ====== ====== ======
Net Income Attributable to Common Stockholders' Equity...................... $ 373 $ 353 $ 746 $ 685
====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Primary................................................................ $1.20 $1.10 $2.38 $2.14
Fully Diluted.......................................................... $1.20 $1.09 $2.37 $2.12
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
(In millions) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock
Balance, beginning of period......................................................... $ 444 $ 489
Conversion of preferred stock........................................................ (154) (1)
------- ------
Balance, end of period............................................................... 290 488
------- ------
Common Stock
Balance, beginning of period......................................................... 320 319
Issuance of stock.................................................................... - -
------- ------
Balance, end of period............................................................... 320 319
------- ------
Capital Surplus
Balance, beginning of period......................................................... 2,149 2,185
Issuance of treasury stock........................................................... (55) (40)
Conversion of preferred stock........................................................ (138) 17
Other................................................................................ 29 14
------- ------
Balance, end of period............................................................... 1,985 2,176
------- ------
Retained Earnings
Balance, beginning of period......................................................... 6,433 5,497
Net income........................................................................... 758 701
Cash dividends declared on common stock.............................................. (246) (228)
Cash dividends declared on preferred stock........................................... (12) (16)
------- ------
Balance, end of period............................................................... 6,933 5,954
------- ------
Fair Value Adjustment on Investment Securities Available-for-Sale
Balance, beginning of period......................................................... 38 112
Change in fair value (net of taxes) and other........................................ (20) (95)
------- ------
Balance, end of period............................................................... 18 17
------- ------
Deferred Compensation
Balance, beginning of period......................................................... (58) (39)
Awards granted, net.................................................................. (42) (31)
Amortization of deferred compensation................................................ 19 11
Other................................................................................ (6) 1
------- ------
Balance, end of period............................................................... (87) (58)
------- ------
Accumulated Translation Adjustment
Balance, beginning of period......................................................... 7 8
Translation gain (loss), net of taxes................................................ (1) (1)
------- ------
Balance, end of period............................................................... 6 7
------- ------
Treasury Stock
Balance, beginning of period......................................................... (326) (121)
Purchase of common stock............................................................. (1,056) (17)
Conversion of preferred stock........................................................ 292 -
Issuance of stock.................................................................... 96 62
------- ------
Balance, end of period............................................................... (994) (76)
------- ------
Total Stockholders' Equity, end of period.............................................. $ 8,471 $8,827
======= ======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Consolidated Statement of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
(In millions) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................................................ $ 758 $ 701
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization.......................................................... 123 125
Provision for credit losses............................................................ 367 360
Equity securities gains................................................................ (100) (134)
Net decrease in net derivative product balances...................................... 304 38
Net (increase) decrease in trading assets.............................................. (16) 1,479
Net (increase) decrease in loans held for sale......................................... 60 (13)
Net (increase) decrease in accrued income receivable................................... (36) 80
Net (decrease) in accrued expenses payable............................................ (50) (37)
Net (increase) in other assets......................................................... (471) (113)
Other noncash adjustments.............................................................. (36) (183)
------- -------
Total adjustments...................................................................... 145 1,602
Net cash provided by operating activities................................................. 903 2,303
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Net (increase) decrease in federal funds sold and securities under resale agreements...... (3,988) 1,790
Purchase of investment securities--available-for-sale..................................... (5,220) (2,164)
Purchase of equity securities--fair value................................................. (51) (49)
Proceeds from maturities of debt securities--available-for-sale........................... 639 1,825
Proceeds from sales of investment securities--available-for-sale.......................... 3,478 1,984
Proceeds from sales of equity securities--fair value...................................... 126 184
Net (increase) in loans................................................................... (1,600) (2,461)
Loan recoveries........................................................................... 92 67
Net proceeds from sales of assets held for accelerated disposition........................ 1 -
Purchases of premises and equipment....................................................... (88) (148)
Proceeds from sales of premises and equipment............................................. 9 56
Net cash and cash equivalents due to acquisitions and dispositions........................ - (250)
------- -------
Net cash provided by (used in) investing activities....................................... (6,602) 834
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in deposits....................................................... 4,367 (3,745)
Net increase (decrease) in federal funds purchased and securities under repurchase
agreements............................................................................. 2,193 (4,081)
Net increase in other short-term borrowings............................................... 2,276 2,695
Proceeds from issuance of long-term debt.................................................. 5,578 1,291
Repayment of long-term debt............................................................... (4,922) (1,534)
Net (decrease) in other liabilities....................................................... (47) (437)
Dividends paid............................................................................ (265) (243)
Proceeds from issuance of common and treasury stock....................................... - 17
Repurchase of common stock................................................................ (1,056) (17)
------- -------
Net cash provided by (used in) financing activities....................................... 8,124 (6,054)
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents.............................. (48) (375)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents...................................... 2,377 (3,292)
Cash and cash equivalents at beginning of period.......................................... 13,297 17,538
------- -------
Cash and cash equivalents at end of period................................................ $15,674 $14,246
======= =======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this statement, cash and cash equivalents consist of cash and
due from banks, whether interest-bearing or not. In the first six months of
1997, $154 million of the Corporation's 5 3/4% Cumulative Convertible Preferred
Stock, Series B, was converted into common stock.
28
<PAGE>
Notes to Consolidated Financial Statements
Note 1
The consolidated financial statements for the Corporation, including its
subsidiaries, have been prepared in conformity with generally accepted
accounting principles. Such preparation requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Although the interim amounts are unaudited, they do reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
results of operations for the interim periods. All such adjustments are of a
normal, recurring nature. Because the results from commercial banking
operations are so closely related and responsive to changes in economic
conditions, fiscal policy and monetary policy, and because the results for the
investment security and trading portfolios are largely market-driven, the
results for any interim period are not necessarily indicative of the results
that can be expected for the entire year.
Note 2
The Corporation presents earnings per share on both a primary and a fully
diluted basis. Primary earnings per share were computed by dividing net income,
after deducting dividends on preferred stock, by the average number of common
and common-equivalent shares outstanding during the period.
Common-equivalent shares consist of shares issuable under the Employee Stock
Purchase and Savings Plan and outstanding stock options. Fully diluted shares
also include the common shares that would result from the conversion of
convertible preferred stock.
To compute fully diluted earnings per share, net income was reduced by preferred
stock dividend requirements, except those related to convertible stock.
The net income, preferred stock dividends and shares used to compute primary and
fully diluted earnings per share are presented in the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Primary
<S> <C> <C> <C> <C>
Net income........................................................ $ 378 $ 361 $ 758 $ 701
Preferred stock dividends......................................... 5 8 12 16
------ ------ ------ ------
Net income attributable to common stockholders' equity............ $ 373 $ 353 $ 746 $ 685
====== ====== ====== ======
Average number of common and common-equivalent shares............. 310.9 320.2 313.7 319.7
====== ====== ====== ======
Fully diluted
Net income........................................................ $ 378 $ 361 $ 758 $ 701
Preferred stock dividends, excluding convertible Series B......... 5 5 10 10
------ ------ ------ ------
Fully diluted net income.......................................... $ 373 $ 356 $ 748 $ 691
====== ====== ====== ======
Average number of shares, assuming full dilution.................. 311.3 326.9 316.2 326.4
====== ====== ====== ======
- --------------------------------------------------------------------------------------------- ---------------------
</TABLE>
Note 3
- ------
At June 30, 1997, credit card receivables aggregated $9.0 billion. These
receivables are available for sale through credit card securitization programs.
29
<PAGE>
Note 4
Nonperforming loans are generally identified as "impaired loans." At June 30,
1997, the recorded investment in loans considered impaired was $329 million,
which required a related allowance for credit losses of $46 million.
Substantially all of the $329 million in impaired loans required the
establishment of an allocated reserve. The average recorded investment in
impaired loans was approximately $267 million for the quarter ended June 30,
1997. The Corporation recognized interest income associated with impaired loans
of $4 million during the quarter.
Loans 90 days or more past due and still accruing interest amounted to $256
million at June 30, 1997, compared with $268 million at December 31, 1996, and
$197 million at June 30, 1996.
Note 5
Derivative financial instruments used in trading activities are carried at
estimated fair value. Such instruments include swaps, forwards, spot, futures,
options, caps, floors and forward rate agreements in the interest rate, foreign
exchange, commodity and equity markets. The estimated fair values are based on
quoted market prices or pricing and valuation models on a present value basis
using current market information. 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.
Derivative financial instruments used in asset and liability management ("ALM")
activities, principally interest rate swaps, are required to meet specific
criteria. Such interest rate swaps are designated as ALM derivatives; are
linked to and adjust the interest rate sensitivity of a specific asset,
liability, firm commitment, or anticipated transaction or a specific pool of
transactions with similar risk characteristics; and have the effect of reducing
the Corporation's structural interest rate risk at inception. Interest rate
swaps that do not meet these criteria are designated as derivatives used in
trading activities and are accounted for at estimated fair value.
Income or expense on most ALM derivatives used to manage interest rate exposure
is recorded on an accrual basis, as an adjustment to the yield of the linked
exposures over the periods covered by the contracts. This matches the income
recognition treatment of the linked exposure, generally assets or liabilities
carried at historical cost, which are 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 linked interest rate exposure
position over the remaining periods originally covered by the terminated swap.
If all or part of a linked position is terminated, e.g., a linked asset is sold
or prepaid, or if the amount of an anticipated transaction is likely to be less
than originally expected, the related pro rata portion of any unrecognized gain
or loss on the swap is recognized in earnings at that time and the related pro
rata portion of the swap is subsequently accounted for at estimated fair value.
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. However, fair value amounts recognized for
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.
30
<PAGE>
Note 6
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS 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 October 1996, the FASB tentatively decided to
delay the effective date of certain provisions until January 1, 1998. The new
Statement primarily establishes criteria based on legal control to determine
whether a transfer of a financial asset is a sale or a secured borrowing.
Implementation of this Statement did not have a material effect on the results
of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
becomes effective for the 1997 Annual Report. Earlier application is not
permitted; however, restatement of all prior periods presented is required. The
Statement replaces primary earnings per share (EPS) with earnings per common
share (basic EPS). Basic EPS is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. The Statement also requires presentation of EPS assuming dilution. This
is computed similarly to the fully diluted EPS that is now required. Earnings
per common share for the second quarter of 1997 would have been $1.22 and
earnings per share assuming dilution would have been $1.20. Similarly, earnings
per common share for the second quarter of 1996 would have been $1.11 and
earnings per share assuming dilution would have been $1.09. Earnings per common
share for the six months ended June 30, 1997 would have been $2.41 and earnings
per share assuming dilution would have been $2.37. Earnings per common share for
the six months ended June 30, 1996 would have been $2.17 and earnings per share
assuming dilution would have been $2.12.
Note 7
The ratio of income to fixed charges for the six months ended June 30, 1997,
excluding interest on deposits was 2.5x, and including interest on deposits was
1.6x. The ratio has been computed on the basis of the total enterprise (as
defined by the Securities and Exchange Commission) by dividing income before
fixed charges and income taxes by fixed charges. Fixed charges consist of
interest expense on all long- and short-term borrowings, excluding or including
interest on deposits.
Note 8
The Corporation and certain of its subsidiaries are defendants in various
lawsuits, including certain class actions, arising out of the normal course of
business, and the Corporation has received certain tax deficiency assessments.
Since the Corporation and certain of its subsidiaries, which are regulated by
one or more federal and state regulatory authorities, also are the subject of
numerous examinations and reviews by such authorities, the Corporation is and
will, from time to time, normally be engaged in various disagreements with
regulators, related primarily to banking matters. In the opinion of management
and the Corporation's general counsel, the ultimate resolution of the matters
referred to in this note will not have a material effect on the consolidated
financial statements.
31
<PAGE>
First Chicago NBD Corporation and Subsidiaries
Selected Statistical Information
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Investment Securities--Available-for-Sale
- -----------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
June 30, 1997 (In millions) Cost Gains Losses (Book Value)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury................................................ $3,000 $ 13 $ 6 $3,007
U.S. government agencies
Mortgage-backed securities................................. 1,873 14 20 1,867
Collateralized mortgage obligations........................ 295 1 - 296
Other...................................................... 436 3 - 439
States and political subdivisions............................ 857 39 - 896
Other debt securities........................................ 704 1 1 704
Equity securities (1)........................................ 939 150 33 1,056
------ ---- --- ------
Total.............................................. $8,104 $221 $60 $8,265
====== ==== === ======
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes investments accounted for at fair value, in keeping with
specialized industry practice. 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.
Impact of Credit Card Securitization
For analytical purposes only, the following table shows income statement line
items adjusted for the net impact of securitization of credit card receivables.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1997 Three Months Ended June 30, 1996
-------------------------------- --------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis........ $ 951 $ 187 $ 1,138 $ 935 $ 168 $ 1,103
Provision for credit
losses...................... 180 171 351 185 117 302
Noninterest income............ 644 (16) 628 643 (51) 592
Noninterest expense........... 825 - 825 814 - 814
Net income.................... 378 - 378 361 - 361
Assets--quarter-end........... $112,595 $8,221 $120,816 $113,714 $7,336 $121,050
--average............... 108,292 8,460 116,752 116,280 7,544 123,824
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1997 Six Months Ended June 30, 1996
------------------------------ ------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis..... $ 1,858 $ 384 $ 2,242 $ 1,848 $ 336 $ 2,184
Provision for credit
losses................... 367 333 700 360 215 575
Noninterest income......... 1,323 (51) 1,272 1,269 (121) 1,148
Noninterest expense........ 1,625 - 1,625 1,642 - 1,642
Net income................. 758 - 758 701 - 701
Assets--quarter-end........ $112,595 $8,221 $120,816 $113,714 $7,336 $121,050
--average............ 106,721 8,637 115,358 118,494 7,706 126,200
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Five-Quarter Consolidated Income Statement
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions, except per share data) 1997 1997 1996 1996 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income
Loans, including fees........................................... $1,484 $1,401 $1,435 $1,482 $1,416
Bank balances................................................... 114 96 82 112 123
Federal funds sold and securities under resale agreements....... 77 65 57 113 163
Trading assets.................................................. 67 69 71 96 104
Investment securities--taxable.................................. 89 78 79 82 94
Investment securities--tax-exempt............................... 29 25 23 23 22
------ ------ ------ ------ ------
Total................................................. 1,860 1,734 1,747 1,908 1,922
- ----------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits........................................................ 544 499 511 527 545
Federal funds purchased and securities under repurchase
agreements..................................................... 124 114 107 149 190
Other short-term borrowings..................................... 121 102 104 156 139
Long-term debt.................................................. 146 143 142 134 138
------ ------ ------ ------ ------
Total................................................. 935 858 864 966 1,012
- ----------------------------------------------------------------------------------------------------------------
Net Interest Income............................................. 925 876 883 942 910
Provision for credit losses..................................... 180 187 190 185 185
------ ------ ------ ------ ------
Net Interest Income After Provision for Credit Losses........... 745 689 693 757 725
- ----------------------------------------------------------------------------------------------------------------
Noninterest Income
Combined trading profits (losses)............................... 36 28 12 (12) 22
Equity securities gains......................................... 46 54 71 50 85
Investment securities gains..................................... 4 25 - 2 3
------ ------ ------ ------ ------
Market-driven revenue...................................... 86 107 83 40 110
Credit card fee revenue......................................... 207 234 259 228 220
Fiduciary and investment management fees........................ 99 105 102 100 98
Service charges and commissions................................. 227 213 218 201 195
------ ------ ------ ------ ------
Fee-based revenue......................................... 533 552 579 529 513
------ ------ ------ ------ ------
Other income.................................................... 25 20 20 28 20
------ ------ ------ ------ ------
Total................................................. 644 679 682 597 643
- ----------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits.................................. 426 425 426 419 426
Occupancy expense of premises, net.............................. 63 66 64 64 64
Equipment rentals, depreciation and maintenance................. 52 54 61 56 55
Amortization of intangible assets............................... 18 18 20 20 19
Other........................................................... 266 237 242 257 250
------ ------ ------ ------ ------
Total................................................. 825 800 813 816 814
- ----------------------------------------------------------------------------------------------------------------
Income Before Income Taxes...................................... 564 568 562 538 554
Applicable income taxes......................................... 186 188 185 180 193
------ ------ ------ ------ ------
Net Income...................................................... $ 378 $ 380 $ 377 $ 358 $ 361
====== ====== ====== ====== ======
Net Income Attributable to Common Stockholders' Equity.......... $ 373 $ 373 $ 370 $ 350 $ 353
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------
Earnings Per Share
Primary..................................................... $1.20 $1.18 $1.15 $1.09 $1.10
Fully Diluted............................................... $1.20 $1.17 $1.14 $1.08 $1.09
- ----------------------------------------------------------------------------------------------------------------
Average number of common and common-equivalent shares (in 310.9 316.5 321.4 320.2 320.2
millions)......................................................
Average number of shares, assuming full dilution (in millions).. 311.3 320.8 327.6 327.5 326.9
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Selected Statistical Information
- ----------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1997 March 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing due from banks.................. $ 7,754 $ 114 5.90% $ 6,721 $ 96 5.78%
Federal funds sold and securities under resale
agreements...................................... 5,902 76 5.20 5,157 66 5.15
Trading assets................................... 4,797 67 5.62 5,016 69 5.57
Investment securities
U.S. government and federal agency............. 4,979 82 6.57 4,604 71 6.30
States and political subdivisions.............. 941 21 9.02 1,101 25 9.15
Other.......................................... 1,951 36 7.31 1,576 32 8.19
-------- ------ ---- -------- ------ ----
Total investment securities.................. 7,871 139 7.05 7,281 128 7.14
Loans (1)(2)
Domestic offices............................... 62,247 1,429 9.33 61,462 1,350 9.02
Foreign offices................................ 4,054 61 6.06 3,715 56 6.14
-------- ------ ---- -------- ------ ----
Total loans.................................. 66,301 1,490 9.13 65,177 1,406 8.85
-------- ------ ---- -------- ------ ----
Total earning assets (3)..................... 92,625 1,886 8.17 89,352 1,765 8.00
Cash and due from banks.......................... 6,594 6,556
Allowance for credit losses...................... (1,388) (1,386)
Other assets..................................... 10,461 10,611
-------- --------
Total assets................................. $108,292 $105,133
======== ========
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings........................................ $ 9,429 $ 52 2.22% $ 9,980 $ 53 2.20%
Money market................................... 11,792 101 3.44 11,423 99 3.52
Time........................................... 15,072 210 5.58 15,029 201 5.41
Foreign offices................................ 14,055 181 5.16 12,098 146 4.90
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing............. 50,348 544 4.33 48,530 499 4.17
Federal funds purchased and securities under
repurchase agreements............................ 9,393 124 5.32 8,849 114 5.20
Other short-term borrowings...................... 8,749 121 5.54 8,001 102 5.16
Long-term debt................................... 8,853 146 6.61 8,526 143 6.83
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities........... 77,343 935 4.85 73,906 858 4.71
Demand deposits.................................. 14,238 13,859
Other liabilities................................ 8,142 8,432
Preferred stock.................................. 290 419
Common stockholders' equity...................... 8,279 8,517
-------- --------
Total liabilities and stockholders' equity... $108,292 $105,133
======== ========
- ----------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)............... $1,886 8.17% $1,765 8.00%
Interest expense/earning assets.................. 935 4.05 858 3.89
------ ---- ------ ----
Net interest margin.............................. $ 951 4.12% $ 907 4.11%
====== ==== ====== ====
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average lease-financing receivables are reduced by related deferred tax
liabilities in calculating the average rate.
(2) Nonperforming loans are included in average balances used to determine the
average rate.
(3) Includes tax-equivalent adjustments based on a 35% federal income tax rate.
34
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31, 1996 September 30, 1996 June 30, 1996
- -----------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5,664 $ 82 5.76% $ 7,891 $ 112 5.65% $ 8,765 $ 123 5.64%
4,330 57 5.24 8,402 113 5.35 12,264 163 5.35
5,297 72 5.41 6,577 96 5.81 7,312 105 5.78
4,523 73 6.42 4,778 78 6.49 5,171 87 6.77
1,231 27 8.73 1,265 29 9.12 1,354 30 8.91
1,357 20 5.86 1,248 17 5.42 1,164 18 6.22
- -------- ------ ---- -------- ------ ---- -------- ------ ----
7,111 120 6.71 7,291 124 6.77 7,689 135 7.06
62,067 1,384 8.98 62,384 1,429 9.23 60,981 1,361 9.09
3,427 56 6.50 3,578 59 6.56 3,553 60 6.79
- -------- ------ ---- -------- ------ ---- -------- ------ ----
65,494 1,440 8.85 65,962 1,488 9.08 64,534 1,421 8.96
- -------- ------ ---- -------- ------ ---- -------- ------ ----
87,896 1,771 8.02 96,123 1,933 8.00 100,564 1,947 7.79
6,229 6,352 6,330
(1,417) (1,455) (1,378)
9,979 9,695 10,764
- -------- -------- --------
$102,687 $110,715 $116,280
======== ======== ========
- -----------------------------------------------------------------------------------------------------
$ 10,371 $ 60 2.30% $ 10,940 $ 61 2.22% $ 11,184 $ 59 2.12%
10,880 97 3.55 10,166 92 3.60 9,910 91 3.69
15,482 220 5.65 15,736 213 5.38 15,881 213 5.39
10,913 134 4.88 12,898 161 4.97 14,324 182 5.11
- -------- ------ ---- -------- ------ ---- -------- ------ ----
47,646 511 4.27 49,740 527 4.22 51,299 545 4.27
8,038 107 5.30 11,227 149 5.28 14,622 190 5.23
7,959 104 5.20 11,773 156 5.27 10,947 139 5.11
8,293 142 6.81 8,122 134 6.56 8,197 138 6.77
- -------- ------ ---- -------- ------ ---- -------- ------ ----
71,936 864 4.78 80,862 966 4.75 85,065 1,012 4.78
13,934 13,742 13,863
7,787 7,272 8,680
465 487 489
8,565 8,352 8,183
- -------- -------- --------
$102,687 $110,715 $116,280
======== ======== ========
- -----------------------------------------------------------------------------------------------------
$1,771 8.02% $1,933 8.00% $1,947 7.79%
864 3.91 966 4.00 1,012 4.05
------ ---- ------ ---- ------ ----
$ 907 4.11% $ 967 4.00% $ 935 3.74%
====== ==== ====== ==== ====== ====
- -----------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Selected Statistical Information
- ----------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1997 June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing due from banks.................. $ 7,240 $ 210 5.84% $ 9,226 $ 269 5.86%
Federal funds sold and securities under resale
agreements...................................... 5,532 142 5.17 12,864 340 5.32
Trading assets................................... 4,906 136 5.60 8,054 229 5.72
Investment securities
U.S. government and federal agency............. 4,793 153 6.44 5,684 192 6.79
States and political subdivisions.............. 1,020 46 9.09 1,391 62 8.96
Other.......................................... 1,764 67 7.70 1,215 35 5.79
-------- ------ ---- -------- ------ ----
Total investment securities.................. 7,577 266 7.09 8,290 289 7.01
Loans (1)(2)
Domestic offices............................... 61,857 2,779 9.18 60,649 2,719 9.13
Foreign offices................................ 3,885 117 6.10 3,513 121 6.93
-------- ------ ---- -------- ------ ----
Total loans.................................. 65,742 2,896 8.99 64,162 2,840 9.01
-------- ------ ---- -------- ------ ----
Total earning assets (3)..................... 90,997 3,650 8.09 102,596 3,967 7.77
Cash and due from banks.......................... 6,575 6,206
Allowance for credit losses...................... (1,387) (1,357)
Other assets..................................... 10,536 11,049
-------- --------
Total assets................................. $106,721 $118,494
======== ========
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings........................................ $ 9,703 $ 105 2.19% $ 11,228 $ 123 2.20%
Money market................................... 11,609 200 3.48 9,278 175 3.79
Time........................................... 15,050 410 5.50 16,411 447 5.48
Foreign offices................................ 13,082 327 5.04 15,015 392 5.25
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing............. 49,444 1,042 4.25 51,932 1,137 4.40
Federal funds purchased and securities under
repurchase agreements........................... 9,123 238 5.26 15,849 415 5.27
Other short-term borrowings...................... 8,377 223 5.36 11,361 292 5.17
Long-term debt................................... 8,690 289 6.72 8,138 275 6.80
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities........... 75,634 1,792 4.78 87,280 2,119 4.88
Demand deposits.................................. 14,050 13,609
Other liabilities................................ 8,286 8,998
Preferred stock.................................. 354 489
Common stockholders' equity...................... 8,397 8,118
-------- --------
Total liabilities and stockholders' equity... $106,721 $118,494
======== ========
- ----------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)............... $3,650 8.09% $3,967 7.77%
Interest expense/earning assets.................. 1,792 3.97 2,119 4.15
------ ---- ------ ----
Net interest margin.............................. $1,858 4.12% $1,848 3.62%
====== ==== ====== ====
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average lease-financing receivables are reduced by related deferred tax
liabilities in calculating the average rate.
(2) Nonperforming loans are included in average balances used to determine the
average rate.
(3) Includes tax-equivalent adjustments based on a 35% federal income tax rate.
36
<PAGE>
Form 10-Q Cross-Reference Index
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
- ----------------------------
Page
----
Consolidated Balance Sheet --
June 30, 1997 and 1996, and December 31, 1996 25
Consolidated Income Statement --
Three and Six months Ended June 30, 1997 and 1996 26
Consolidated Statement of Stockholders' Equity --
Six months Ended June 30, 1997 and 1996 27
Consolidated Statement of Cash Flows --
Six months Ended June 30, 1997 and 1996 28
Notes to Consolidated Financial Statements 29-31
Selected Statistical Information 1,
16-20,
32-36
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 2-24
-----------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 38
- -------------------------
ITEM 2. Changes in Securities 38
- -----------------------------
ITEM 3. Defaults Upon Senior Securities 38
- ---------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 38
- -----------------------------------------------------------
ITEM 5. Other Information 38
- -------------------------
ITEM 6. Exhibits and Reports on Form 8-K 38
- ----------------------------------------
Signatures 39
37
<PAGE>
PART II. - OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings
- -------------------------
None
ITEM 2. Changes in Securities
- -----------------------------
None
ITEM 3. Defaults Upon Senior Securities
- ---------------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
First Chicago NBD Corporation held its Annual Meeting of Stockholders on
Friday, May 9, 1997. A total of 269,024,638 shares were represented in
person or by proxy, or nearly 87% of the total shares outstanding.
Stockholders elected the 7 Class II Director nominees named in the Proxy
Statement. Each of the nominees received more than 265.9 million votes, in
excess of 98% of the shares voted at the meeting. The particulars are:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
John H. Bryan 266,229,915 2,794,723
Siegfried Buschmann 266,131,008 2,893,630
Verne G. Istock 266,190,767 2,833,871
Scott P. Marks 266,227,494 2,797,144
Andrew J. McKenna 265,943,008 3,081,630
Thomas E. Reilly, Jr. 266,196,114 2,828,524
Adele Simmons 265,977,154 3,047,484
</TABLE>
Stockholders ratified the appointment of Arthur Andersen LLP as the
Company's independent auditors for 1997. Of the shares present and
entitled to vote, 266,637,433 (99.1%) were voted for; 1,206,029 (0.4%)
were voted against; and 1,181,176 (0.4%) abstained.
ITEM 5. Other Information
- -------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit 12 Statement re computation of ratio
Exhibit 27 Financial Data Schedule
(b) The Registrant filed the following Current Reports on Form 8-K during the
quarter ended June 30, 1997.
Date Item Reported
---- -------------
4/14/97 The Registrant's earnings for the quarter ended March 31, 1997.
38
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CHICAGO NBD CORPORATION
-------------------------------
Date August 14, 1997 Verne G. Istock
------------------------- -------------------------------
Verne G. Istock
Principal Executive Officer
Date August 14, 1997 William J. Roberts
------------------------- -------------------------------
William J. Roberts
Principal Accounting Officer
39
<PAGE>
(Registrant)
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
- -------------- ----------------------
12 - Statement re computation of ratio
27 - Financial Data Schedule
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
The computation of the ratio of income to fixed charges is set forth in
Note 7 of Notes to Consolidated Financial Statements on page 31 of the
Form 10-Q.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1997 IN ITS REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,969
<INT-BEARING-DEPOSITS> 7,705
<FED-FUNDS-SOLD> 8,185
<TRADING-ASSETS> 4,752
<INVESTMENTS-HELD-FOR-SALE> 8,265
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 67,510
<ALLOWANCE> 1,408
<TOTAL-ASSETS> 112,595
<DEPOSITS> 68,018
<SHORT-TERM> 19,901
<LIABILITIES-OTHER> 6,528
<LONG-TERM> 9,016
0
290
<COMMON> 320
<OTHER-SE> 7,861<F1>
<TOTAL-LIABILITIES-AND-EQUITY> 112,595
<INTEREST-LOAN> 2,885
<INTEREST-INVEST> 221
<INTEREST-OTHER> 488
<INTEREST-TOTAL> 3,594
<INTEREST-DEPOSIT> 1,043
<INTEREST-EXPENSE> 1,793
<INTEREST-INCOME-NET> 1,801
<LOAN-LOSSES> 367
<SECURITIES-GAINS> 29<F2>
<EXPENSE-OTHER> 1,625<F3>
<INCOME-PRETAX> 1,132
<INCOME-PRE-EXTRAORDINARY> 1,132
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 758
<EPS-PRIMARY> 2.38
<EPS-DILUTED> 2.37
<YIELD-ACTUAL> 4.12
<LOANS-NON> 329
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,408
<CHARGE-OFFS> 234
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 1,408
<ALLOWANCE-DOMESTIC> 0<F4>
<ALLOWANCE-FOREIGN> 0<F4>
<ALLOWANCE-UNALLOCATED> 0<F4>
<FN>
<F1>TREASURY STOCK OF $994 MILLION IS INCLUDED AS A REDUCTION OF OTHER
STOCKHOLDERS' EQUITY.
<F2>INVESTMENT SECURITIES GAINS/LOSSES DO NOT INCLUDE THE CORPORATION'S EQUITY
SECURITIES GAINS WHICH TOTALED $100 MILLION.
<F3>OTHER EXPENSE INCLUDES: SALARIES AND EMPLOYEE BENEFITS OF $851 MILLION,
OCCUPANCY OF $129 MILLION, EQUIPMENT RENTALS, DEPRECIATION AND MAINTENANCE OF
$106 MILLION, AMORTIZATION OF INTANGIBLE ASSETS OF $36 MILLION, AND OTHER
EXPENSES WHICH TOTALED $503 MILLION.
<F4>ALLOWANCE-DOMESTIC, ALLOWANCE-FOREIGN, AND ALLOWANCE-UNALLOCATED ARE ONLY
DISCLOSED ON AN ANNUAL BASIS IN THE CORPORATION'S FORM 10-K, AND ARE,
THEREFORE, NOT INCLUDED IN THIS FINANCIAL DATA SCHEDULE.
</FN>
</TABLE>
