<PAGE>
First Chicago NBD Corporation and Subsidiaries
Financial Supplement and Form 10-Q
<TABLE>
<CAPTION>
CONTENTS PAGE
- - --------------------------------------------------------------------------------
<S> <C>
Five-Quarter Summary of Selected Financial Information 1
Business Segments 2
Earnings Analysis 6
Liquidity Risk Management 11
Market Risk Management 12
Credit Risk Management 15
Derivative Financial Instruments 19
Technology Risk -- Year 2000 Compliance Issues 20
Capital Management 20
Consolidated Financial Statements 24
Notes To Consolidated Financial Statements 28
Selected Statistical Information 31
Form 10-Q 36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
F I V E - Q U A R T E R S U M M A R Y O F S E L E C T E D F I N A N C I A L I N F O R M A T I O N
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
- - ---------------------------------------------------------------------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
(Dollars in millions, except per-share data) 1998 1997 1997 1997 1997
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA FOR THE QUARTER
Net interest income.......................... $ 861 $ 872 $ 899 $ 925 $ 876
Tax-equivalent adjustment.................... 17 16 22 26 31
-------- -------- -------- -------- --------
Net interest income--tax-equivalent basis.. 878 888 921 951 907
Provision for credit losses.................. 179 167 191 180 187
Noninterest income........................... 739 727 701 644 679
Operating expense............................ 848 872 835 825 800
Net income................................... 383 382 385 378 380
- - ---------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic...................................... $ 1.32 $ 1.30 $ 1.28 $ 1.22 $ 1.19
Diluted.................................... 1.30 1.28 1.26 1.20 1.17
- - ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL PERFORMANCE RATIOS
Return on assets............................. 1.38% 1.38% 1.40% 1.40% 1.47%
Return on common stockholders' equity........ 19.9 19.5 19.1 18.1 17.8
Return on stockholders' equity............... 19.5 19.1 18.7 17.7 17.2
Net interest margin
Reported................................... 3.67 3.71 3.88 4.12 4.11
Adjusted................................... 4.25 4.27 4.47 4.70 4.73
Operating efficiency ratio................... 52.4 54.0 51.5 51.7 50.4
- - ---------------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
Assets....................................... $114,804 $114,096 $113,306 $112,595 $109,133
Loans........................................ 69,590 68,724 67,822 67,510 66,536
Deposits..................................... 68,170 68,489 67,565 68,018 64,927
Long-term debt (1)........................... 10,294 10,088 9,906 9,016 8,514
Common stockholders' equity.................. 7,816 7,770 7,792 8,181 8,495
Stockholders' equity......................... 8,006 7,960 8,082 8,471 8,785
- - ---------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets....................................... $112,914 $109,976 $108,950 $108,292 $105,133
Loans........................................ 67,773 66,859 66,782 66,301 65,177
Earning assets............................... 96,988 95,009 94,104 92,625 89,352
Deposits..................................... 66,346 66,416 64,859 64,586 62,389
Common stockholders' equity.................. 7,781 7,709 7,893 8,279 8,517
Stockholders' equity......................... 7,971 7,951 8,183 8,569 8,936
- - ---------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA
Common-equity-to-assets ratio................ 6.8% 6.8% 6.9% 7.3% 7.8%
Regulatory leverage ratio (1)(2)............. 7.6 7.8 8.2 8.6 9.2
Risk-based capital (1)(2)
Tier 1 capital ratio....................... 7.8 7.9 8.1 8.6 9.1
Total capital ratio........................ 11.4 11.7 11.9 12.4 13.1
- - ---------------------------------------------------------------------------------------------------------------------------
COMMON SHARE AND STOCKHOLDER DATA
FOR THE QUARTER ENDED
Market price
High....................................... $91.6250 $85.8750 $78.8125 $65.6250 $63.6250
Low........................................ 71.0625 67.1250 60.7500 50.5000 51.5000
At quarter-end............................. 88.1250 83.5000 75.2500 60.5000 54.1250
Book value (at quarter-end)................. 27.21 26.87 26.62 27.08 27.20
Dividends declared per common share.......... 0.44 0.44 0.40 0.40 0.40
Dividend payout ratio........................ 33.8% 34.4% 31.7% 33.3% 34.2%
Average number of shares (in millions)....... 288.1 290.3 296.8 306.8 312.1
Average number of shares, assuming
full dilution (in millions)................ 293.0 295.2 301.6 310.9 320.8
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes trust preferred capital securities.
(2) March 1998 and December 1997 ratios include the activities of FCCM.
1
<PAGE>
BUSINESS SEGMENTS
Financial results are reported by major business lines, principally structured
around the customer segments served: Regional Banking, Corporate Banking,
Corporate Investments, and Credit Card.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
Regional Corp. Banking Other
(Dollars in millions, Banking and Corp. Inv. Credit Card Activities
------------------- ----------------- ---------------- -------------------
except where noted) 1998 1997 1998 1997 1998 1997 1998 1997
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income....................... $ 178 $ 162 $ 135 $ 147 $ 72 $ 77 $ (2) $ (6)
Return on equity................. 20% 18% 20% 21% 21% 23% N/M N/M
Average assets (presecuritized)
(in billions).................... $38.7 $38.9 $64.8 $57.6 $17.8 $17.4 $ 0.1 --
Average common equity
(in billions).................... 3.5 3.6 2.8 2.8 1.4 1.3 0.1 0.8
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M - Not meaningful.
EARNINGS CONTRIBUTION BY BUSINESS LINES*
FOR THE THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Corporate Banking and
Corporate Investments 35% 38%
Regional Banking 46% 42%
Credit Card 19% 20%
</TABLE>
* Excludes the impact of Other Activities
To facilitate analysis of trends, Credit Card results are presented before the
securitization of credit card receivables ("presecuritized"). For more
information, see the discussion of net interest income beginning on page 7 as
well as the reconciliation of reported to presecuritized results on page 32.
Business segment results are derived from the internal profitability reporting
systems and reflect full allocation of all institutional and overhead items.
These systems use a detailed funds transfer methodology and a capital allocation
based on risk elements. The method for assigning capital to business units can
be found in the "Capital Management" section, beginning on page 20.
Revenues and costs for investment management and insurance products are aligned
with customers and, therefore, are reported within the appropriate business
segments. Certain corporate revenues and expenses, generally unusual or one-
time in nature, are included in "Other Activities."
2
<PAGE>
<TABLE>
<CAPTION>
REGIONAL BANKING
- - ---------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions, except where noted) 1998 1997
- - ---------------------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis...... $ 530 $ 541
Provision for credit losses.................... 20 34
Noninterest income............................. 242 195
Noninterest expense............................ 465 440
Net income..................................... 178 162
Return on equity............................... 20% 18%
Operating efficiency ratio..................... 60% 60%
Average loans (in billions).................... $35.0 $35.5
Average assets (in billions)................... 38.7 38.9
Average common equity (in billions)............ 3.5 3.6
- - ---------------------------------------------------------------------------
</TABLE>
Regional Banking serves four specific customer markets: general consumers,
private banking and investments clients, small businesses, and middle market
companies. These markets are grouped as Retail and Middle Market for financial
reporting, and together contributed 46% of the Corporation's first quarter 1998
earnings. Net income increased 10%, to $178 million, for the first quarter -
the result of significantly higher fee growth and better credit quality. Return
on equity improved to 20%.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Retail Banking Middle Market Banking
-------------------- ---------------------------
Three Months Ended March 31
(Dollars in millions, except where noted) 1998 1997 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis..... $ 310 $ 315 $ 220 $ 226
Provision for credit losses................... 21 22 (1) 12
Noninterest income............................ 181 138 61 57
Noninterest expense........................... 335 315 130 125
Net income.................................... 84 72 94 90
Return on equity.............................. 19% 16% 21% 20%
Operating efficiency ratio.................... 68% 70% 46% 44%
Average loans (in billions)................... $16.1 $17.8 $18.9 $17.7
Average assets (in billions).................. 18.3 19.9 20.4 19.0
Average common equity (in billions)........... 1.7 1.8 1.8 1.8
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income for the Retail Banking segment improved 17% to $84 million for the
first quarter, and return on equity grew to 19%. Noninterest income was the key
driver of the earnings improvement, increasing 31%. Strong fee growth and asset
sales gains contributed to this increase. Expenses rose to fund important
technology investments. The decline in loan volume reflected sales of mortgage
loans.
Net income for the Middle Market segment increased to $94 million for the first
quarter. Return on equity was a healthy 21%. Lower net charge offs and higher
fee income were instrumental factors.
3
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BANKING AND CORPORATE INVESTMENTS
- - ---------------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions, except where noted) 1998 1997
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis......... $ 171 $ 161
Provision......................................... 24 (1)
Noninterest income................................ 273 271
Noninterest expense............................... 230 207
Net income........................................ 135 147
Return on equity.................................. 20% 21%
Operating efficiency ratio........................ 52% 48%
Average loans (in billions)....................... $23.6 $20.6
Average assets (in billions)...................... 64.8 57.6
Average common equity (in billions)............... 2.8 2.8
- - ---------------------------------------------------------------------------------
</TABLE>
Large corporations, institutions and governments are the principal customers of
Corporate Banking, which provides credit instruments, cash management services,
capital markets products and other services. Corporate Investments represents a
variety of functions and businesses, including the investment account, funding,
venture capital, leveraged leasing and tax-advantaged products. Together, these
business lines are analogous to the "global banking" or "wholesale banking"
businesses of other major U.S. banking companies. Their contribution to the
Corporation's earnings was $135 million, or about 35% of total net income.
Return on equity was 20% for the three-month period.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Corporate Banking Corporate Investments
------------------ ---------------------
Three Months Ended March 31
(Dollars in millions, except where noted) 1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis.......... $ 140 $ 136 $ 31 $ 25
Provision.......................................... 24 (1) - -
Noninterest income................................. 195 177 78 94
Noninterest expense................................ 218 194 12 13
Net income......................................... 58 75 77 72
Return on equity................................... 12% 14% 43% 45%
Operating efficiency ratio......................... 65% 62% 12% 11%
Average loans (in billions)........................ $21.3 $19.1 $ 2.3 $ 1.5
Average assets (in billions)....................... 43.7 40.8 21.1 16.8
Average common equity (in billions)................ 2.1 2.1 0.7 0.7
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Net income for Corporate Banking was $58 million for the first quarter of 1998,
and return on equity was 12%. Although total revenue grew 7%, increases in
technology expense and a higher provision for credit losses reduced down.
Improved trading results and continued strength in cash management products
contributed to the revenue increase.
Corporate Investments earned $77 million for the first quarter of 1998. Return
on equity was 43%. Market-driven revenue, in particular equity securities
gains, generated a significant portion of revenue. Additionally, the lower tax
rate for this segment reflects the impact of tax-advantaged investments.
4
<PAGE>
<TABLE>
<CAPTION>
CREDIT CARD
- - -------------------------------------------------------------------------
Three Months Ended
(Presecuritized) March 31
(Dollars in millions, except where noted) 1998 1997
- - -------------------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis........ $ 353 $ 388
Provision for credit losses...................... 283 319
Noninterest income............................... 197 192
Noninterest expense.............................. 150 137
Net income....................................... 72 77
Return on equity................................. 21% 23%
Operating efficiency ratio....................... 27% 24%
Average loans (in billions)...................... $17.5 $17.5
Average common equity (in billions).............. 1.4 1.3
- - -------------------------------------------------------------------------
</TABLE>
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
and is one of its most profitable businesses. Net income for Credit Card was $72
million for the first quarter of 1998, and return on equity was 21%, down from a
23% return in 1997. Net income for the first quarter of 1997 was $77 million.
Increased volumes of introductory rate products caused a reduction in Credit
Card spreads. Fee revenue, however, remained strong. First-quarter expense
levels were higher in 1998 due to the timing of new account solicitation costs.
Credit quality continued to show improvement, with the net charge-off rate
dropping to 6.7% for the first quarter of 1998, from 7.3% for the first quarter
of 1997.
<TABLE>
<CAPTION>
OTHER ACTIVITIES
- - -------------------------------------------------------------------------
Three Months Ended
(Dollars in millions, March 31
except where noted) 1998 1997
- - -------------------------------------------------------------------------
<S> <C> <C>
Net income (loss)............................ $ (2) $ (6)
Average assets (in billions)................. 0.1 --
- - -------------------------------------------------------------------------
</TABLE>
Net income from Other Activities includes unallocated revenue and expense as
well as earnings associated with capital not required by specific business
units. No significant unusual items were included in the 1998 first quarter
results.
5
<PAGE>
EARNINGS ANALYSIS
SUMMARY
The Corporation reported record earnings of $1.30 per diluted share for the
first quarter of 1998. Net income was $383 million compared with $380 million,
or $1.17 per share, for the year-ago quarter. Return on common stockholders'
equity was 19.9% compared with 17.8% a year ago.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions, except per-share data) 1998 1997
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis................................ $ 878 $ 907
Provision for credit losses.............................................. 179 187
Noninterest income....................................................... 739 679
Operating expense........................................................ 848 800
Net income............................................................... 383 380
Earnings Per Share
Basic................................................................... $ 1.32 $ 1.19
Average shares (in millions)............................................ 288.1 312.1
Assuming full dilution.................................................. $ 1.30 $ 1.17
Average shares (in millions)............................................ 293.0 320.8
Return on assets......................................................... 1.38% 1.47%
Return on common stockholders' equity.................................... 19.9 17.8
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
First-quarter 1998 highlights were:
. Adjusted fee-based revenue rose 9% from a year ago, reflecting strong
results from both Corporate and Regional Banking businesses.
. The provision for credit losses on a managed receivables basis was
essentially unchanged from the fourth quarter of 1997. The net charge-off
rate for total managed credit card receivables continued its positive
trend, declining to 6.7% from 7.1% in the fourth quarter and from 7.3% a
year ago.
. Market-driven revenues were $114 million, above the targeted range of $90
million to $100 million per quarter. Combined trading profits reached $46
million, the best quarterly result in more than two years. Equity and
investment securities gains totaled $68 million.
. The Corporation's operating efficiency ratio for the quarter was 52.4%,
reflecting continued expense discipline despite increasing technology-
related expenditures.
. On April 10, 1998, the Corporation and BANC ONE CORPORATION signed a
definitive agreement providing for a merger of equals, forming one of the
country's largest financial institutions. Pending approvals, the merger is
targeted to be completed during the fourth quarter of 1998. For more
information on this agreement, see Note 8 on page 30.
6
<PAGE>
NET INTEREST INCOME
Net interest income includes fundamental spreads on earning assets as well as
such items as loan fees, cash interest collections on problem loans, dividend
income, interest reversals, and income or expense on interest rate derivatives
used to manage interest rate risk. Net interest margin measures 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).
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 for the first quarter of 1998, compared with $8.8 billion for the
first quarter of 1997.
FCCM is the Corporation's wholly owned subsidiary engaged in permissible
investment banking activities. Because its capital requirements 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 first quarter of 1998 was below that of a
year ago due to reduced spreads in the Credit Card and Regional Banking
businesses. In addition, the average volume of thinly-priced earning assets
including large corporate loans, short-term investments and arbitrage assets
increased from a year ago. These factors, along with the effect of the share
repurchase program, contributed to the decline in net interest margin. As a
result, adjusted net interest margin was 4.25%, compared with 4.73% a year ago.
The following charts illustrate trends in net interest income on a tax-
equivalent ("TEA") basis, and in net interest margin, both reported and
adjusted, over the past five quarters.
<TABLE>
<CAPTION>
Net Interest Income--TEA
In Millions
1Q97 2Q97 3Q97 4Q97 1Q98
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Reported $ 907 $ 951 $ 921 $ 888 $ 878
Adjusted $1,101 $1,135 $1,103 $1,068 $1,052
</TABLE>
<TABLE>
<CAPTION>
Net Interest Margin
1Q97 2Q97 3Q97 4Q97 1Q98
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Reported 4.11% 4.12% 3.88% 3.71% 3.67%
Adjusted 4.73% 4.70% 4.47% 4.27% 4.25%
</TABLE>
7
<PAGE>
PROVISION FOR CREDIT LOSSES
Details of the Corporation's credit risk management and performance during the
quarter ended March 31, 1998, are presented in the Credit Risk Management
section, beginning on page 15.
NONINTEREST INCOME
The following table provides a breakdown of the components of noninterest income
for the first quarter of 1998 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
March 31 Increase
(Dollars in millions) 1998 1997 (Decrease)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined trading profits................................. $ 46 $ 28 64%
Equity securities gains.................................. 58 54 7
Investment securities gains.............................. 10 25 (60)
----- -----
Market-driven revenue................................... 114 107 7
Credit card fee revenue (1).............................. 204 199 3
Fiduciary and investment management fees................. 106 105 1
Deposit fees (includes deficient balance fees)........... 108 109 (1)
Other service charges and commissions.................... 143 104 38
----- -----
Adjusted fee-based revenue.............................. 561 517 9
Other income............................................. 34 20 70
----- -----
Adjusted noninterest income............................. $ 709 $ 644 10
===== =====
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net fee revenue related to the securitized receivables, which is excluded
here, totaled $30 million and $35 million for the three months ended March
31, 1998 and 1997, respectively.
Combined trading activities generated gains of $46 million for the first quarter
of 1998, compared with gains of $28 million for the year-ago quarter. Derivative
trading contributed to much of the increase, while foreign exchange trading was
in line with the year-ago levels.
Equity securities gains were $58 million for the first quarter of 1998, compared
with $54 million for the first quarter of 1997. Minor repositionings in the
investment securities portfolio generated gains of $10 million for the 1998
first quarter, compared with $25 million a year ago.
Adjusted credit card fee revenue was $204 million for the first quarter of 1998,
up 3% from $199 million for the year-earlier period.
Other service charges and commissions increased 38% from the year-ago quarter.
Strong results from loan syndication activities, investment management fees and
retail banking fees contributed to this excellent performance.
8
<PAGE>
The following chart presents market-driven revenue and the major 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 net fee revenue associated with
securitized credit card receivables.
Noninterest Income
(In millions)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1Q97 2Q97 3Q97 4Q97 1Q98
<S> <C> <C> <C> <C> <C>
Market-Driven Revenue $107 $ 86 $ 68 $ 45 $114
Adjusted Credit Card Fees $199 $191 $198 $207 $204
Serv. Chgs. & Commissions $213 $227 $235 $261 $251
Fiduciary & Inv. Mgmt. Fees $105 $ 99 $102 $101 $106
Other Revenue $20 $25 $63 $90 $34
---- ---- ---- ---- ----
Total $644 $628 $666 $704 $709
</TABLE>
Noninterest Expense
Operating expense for the first quarter of 1998 was $848 million, compared with
$800 million for the first quarter of 1997. In addition, the operating
efficiency ratio improved for 1998's first three months to 52.4% from 54.0% for
the fourth quarter of 1997.
Overall operating expense levels and operating efficiency ratios are reflected
in the following charts.
Operating Expense
[BAR CHART APPEARS HERE]
(In Millions)
<TABLE>
<CAPTION>
Salaries & Other
Benefits Operating Total
<S> <C> <C> <C>
1Q97 $425 $375 $800
2Q97 $426 $399 $825
3Q97 $440 $395 $835
4Q97 $457 $415 $872
1Q98 $440 $408 $848
</TABLE>
<TABLE>
<CAPTION>
Operating Efficiency (1)
[GRAPH APPEARS HERE]
<S> <C>
1Q97 50.4%
2Q97 51.7%
3Q97 51.5%
4Q97 54.0%
1Q98 52.4%
</TABLE>
(1) Operating expense as a percentage of total revenue.
9
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Salaries and Employee Benefits Three Months Ended Percent
March 31 Increase
(Dollars in millions) 1998 1997 (Decrease)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries............................................ $ 362 $ 350 3%
Employee benefits................................... 78 75 4
------- -------
Total.............................................. $ 440 $ 425 4
======= =======
Average full-time-equivalent employees.............. 34,512 33,832 2
======= =======
- - -------------------------------------------------------------------------------------------------
</TABLE>
Overall salary and benefit costs for the first quarter were 4% above 1997
levels. Annual salary increases and the higher cost of stock compensation
programs, partially linked to the increase in the Corporation's common stock
value, contributed to this increase.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Other Noninterest Expense Three Months Ended Percent
March 31 Increase
(Dollars in millions) 1998 1997 (Decrease)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net premises and equipment expense.................. $ 115 $ 120 (4)%
Purchased services.................................. 77 63 22
Marketing and public relations...................... 27 24 13
Amortization of intangible assets................... 12 18 (33)
Telephone........................................... 25 23 9
Freight and postage................................. 24 23 4
Travel and entertainment............................ 12 12 -
Stationery and supplies............................. 15 12 25
Software expense.................................... 13 9 44
Other............................................... 88 71 24
----- -----
Total............................................ $ 408 $ 375 9
===== =====
- - -------------------------------------------------------------------------------------------------
</TABLE>
Other operating expense was $408 million for the first quarter of 1998, compared
with $375 million for the year-ago quarter. Much of the year-over-year increase
resulted from work related to Year 2000 compliance activities, and systems
integration initiatives, as well as business reengineering efforts. In addition,
marketing costs, primarily associated with the Corporation's Credit Card and
Retail Banking activities, increased over year-ago levels.
Intangible amortization expense declined in the first quarter of 1998 as certain
purchased account relationships associated with the Credit Card business became
fully amortized.
APPLICABLE INCOME TAXES
The Corporation's income tax expense and related effective tax rate are show in
the table below.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions) 1998 1997
- - ---------------------------------------------------------------------------
<S> <C> <C>
Income before income taxes................... $ 573 $ 568
Applicable income taxes...................... 190 188
Effective tax rate........................... 33.2% 33.1%
- - -----------------------------------------------------------------------------
</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.
10
<PAGE>
LIQUIDITY RISK MANAGEMENT
Liquidity risk management encompasses the ability to meet all present and future
financial obligations in a timely manner. The Corporation considers strong
capital ratios, credit quality and core earnings as essential to retaining high
credit ratings and, consequently, cost-effective access to market liquidity.
The Statement of Cash Flows, on page 27, 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 March 31, 1998, 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 purchased funds for funding core assets. As of March 31,
1998, its major banking subsidiaries collectively funded 75% of core assets with
core liabilities, accessing the wholesale market for only 25% of core asset
funding needs. By limiting dependence on the wholesale market, the risk of a
disruption to the lending business from an adverse liquidity event is minimized.
The following table shows the total funding source mix for the periods
indicated.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Deposits and Other Purchased Funds
At period end March 31 December 31 September 30 June 30 March 31
(In millions) 1998 1997 1997 1997 1997
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand............................... $16,440 $16,069 $16,548 $17,142 $15,016
Savings.............................. 21,681 21,437 21,097 21,154 21,381
Time
Under $100,000...................... 9,378 9,507 9,610 9,775 9,788
$100,000 and over................... 5,972 5,671 5,517 5,205 5,290
Foreign offices......................... 14,699 15,805 14,793 14,742 13,452
------- ------- ------- ------- -------
Total deposits..................... 68,170 68,489 67,565 68,018 64,927
- - ------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities
under repurchase agreements............ 10,176 9,271 9,650 10,053 9,656
Commercial paper........................ 1,342 1,089 1,344 876 830
Other short-term borrowings............. 9,116 8,621 9,389 8,972 7,687
Long-term debt (1)...................... 10,294 10,088 9,906 9,016 8,514
------- ------- ------- ------- -------
Total other purchased funds........ 30,928 29,069 30,289 28,917 26,687
------- ------- ------- ------- -------
Total.............................. $99,098 $97,558 $97,854 $96,935 $91,614
======= ======= ======= ======= =======
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes trust preferred capital securities.
11
<PAGE>
MARKET RISK MANAGEMENT
OVERVIEW
Market risk arises from changes in interest rates, exchange rates, equity prices
and commodity prices. The Corporation has risk management policies to monitor
and limit exposure to market risk. Through its trading activities, the
Corporation strives to take advantage of profit opportunities available in
interest rate and exchange rate movements. In asset and liability management
activities, policies are in place that are designed to minimize structural
interest rate and foreign exchange rate risk. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
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 equity index and
commodity options.
Trading activities are primarily customer-oriented, and trading positions are
established as necessary for customers. In order to accommodate customer demand,
an inventory in capital markets instruments is carried, and access to market
liquidity is maintained by making bid-offer prices to other market makers.
Although these two activities constitute proprietary trading business, they are
essential to providing customers with capital markets products at competitive
prices.
Many trading positions are kept open for brief periods of time, often less than
one day. Other trading positions are held for longer periods, and these
positions are valued at prevailing market rates on a present value basis.
Realized and unrealized gains and losses on these positions are included in
noninterest income as combined trading profits.
The Corporation manages its market risk through a value-at-risk measurement and
control system, and through dollar limits imposed on trading desks and
individual dealers. Value-at-risk is intended to measure the maximum amount of
potential loss in a particular position, given a specified confidence level over
a given period of time. The overall market risk that any business can assume, as
measured by value-at-risk, is approved by the Risk Management Committee of the
Board of Directors. Value-at-risk limits and exposures are monitored in each
significant trading portfolio on a daily basis.
The following table shows the value-at-risk at March 31, 1998, for trading
activities and other activities, primarily certain investment securities
classified as available-for-sale, that are monitored like trading risk.
VALUE-AT-RISK
<TABLE>
<CAPTION>
MARCH 31, 1998 (IN MILLIONS)
Individual market risks
<S> <C>
Interest rate..................................................... $34
Exchange rate..................................................... 3
Equity price...................................................... 2
Commodity price................................................... -
Risk reduction (due to diversification)........................... (3)
---
Aggregate portfolio market risk..................................... $36
</TABLE>
Trading revenue, which totaled $75 million for the first quarter of 1998 and
$54 million for the year-ago period, includes trading profits and net interest
income.
The value-at-risk calculation measures potential losses in fair value and is
based on a methodology that uses a one-day holding period and a 99.87%
confidence level. Value-at-risk is calculated using various statistical models
and techniques for cash and derivative positions, including options. Through
the use of observed statistical correlations, the Corporation has made attempts
to recognize offsets across different trading portfolios. However, the reported
value-at-risk remains somewhat overstated because all offsets and correlations
are not fully considered in the calculation.
12
<PAGE>
STRUCTURAL INTEREST RATE RISK MANAGEMENT
Interest rate risk exposure from the Corporation's non-trading activities is
actively managed with the goal of minimizing the impact of interest rate
volatility on current earnings and on the market value of equity. The
measurement tools used to monitor the overall interest rate risk exposure of
both the on- and off-balance-sheet positions include static gap analysis,
earnings sensitivity modeling and market value sensitivity (value-at-risk)
analysis.
Static gap analysis is a representation of the net difference between the amount
of assets, liabilities, equity and off-balance-sheet instruments repricing
within a cumulative calendar period. Earnings simulation analysis and value-at-
risk are more dynamic measures designed to capture the interest rate risk of the
embedded option positions that cannot be measured through static gap analysis.
The embedded options include interest rate, prepayment and early withdrawal
options, lagged interest rate changes, administered interest rate products, and
certain off-balance-sheet sensitivities. These positions are complex risk
positions that are difficult to offset completely, and thus, represent the
primary risk of loss to the Corporation.
Earnings sensitivity analysis measures the estimated change to pretax earnings
of various interest rate movements. The Corporation is modeled as an ongoing
business, including assumptions on anticipated changes in balance sheet mix,
planned growth, asset sales and/or asset securitizations. The base case
scenario is established using current market interest rates. The comparative
scenarios assume an immediate parallel shock of the current yield curve in
increments of +100 basis point and +200 basis point rate movements. The
comparative interest rate scenarios are used for analytical purposes and do not
necessarily represent management's view of future market movements. Estimated
earnings for each scenario are calculated over a forward-looking 12-month
horizon.
For residential mortgage whole loans and mortgage-backed securities, the
earnings simulation modeling captures the changing prepayment behavior under
changing interest rate environments. Industry estimates are used to dynamically
model the prepayment speeds of the various coupon segments of the portfolio.
Additionally, the model measures the impact of interest rate caps and floors on
adjustable-rate mortgage products.
Management assumptions regarding the level of interest rate or balance changes
on indeterminate maturity deposit products (passbook savings, money market, NOW
and demand deposits) for a given level of market rate changes have been
developed through a combination of historical analysis and future expected
pricing behavior. Interest rate caps and floors on all products are included to
the extent that they are exercised in the 12-month simulation period.
Sensitivity of service fee income to market interest rate levels, such as those
related to securitized credit card receivables, cash management products and
mortgage servicing, is included as well. Interest rate risk in trading
activities and other activities, primarily certain investment securities
classified as available-for-sale, is managed principally as trading risk.
The Corporation's policy is to limit the change in annual pretax earnings to
$100 million from an immediate parallel change in interest rates of 200 basis
points. As of March 31, 1998, the estimated earnings sensitivity profile was
as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Immediate Change in Rates
-----------------------------
(In millions) +200 bp -200 bp
--------------------------------------------------------------------------
<S> <C> <C>
Pretax earnings change....................... $28 $(14)
--------------------------------------------------------------------------
</TABLE>
While the earnings sensitivity analysis includes management's best estimate of
interest rate and balance sheet reaction to various market rate movements, the
actual behavior will likely differ from that projected. Recalibration of the
assumptions and adjustments to the modeling techniques are made as needed to
improve the accuracy of the risk measurement results. Interpretation of the
results must also consider that the actual movements of the market interest
rates can include changes in the shape of the yield curve and changes in the
basis relationship between various market rates, neither of which is captured in
the sensitivity measure. Finally, for some embedded option positions, the risk
exposure occurs at a time period beyond the twelve months captured in the
earnings sensitivity analysis. Management utilizes the value-at-risk technique
to measure these longer-term risk positions.
13
<PAGE>
Access to the derivatives market is an important element in maintaining the
Corporation's interest rate risk position within policy guidelines. In general,
the assets and liabilities generated through ordinary business activities do not
naturally create offsetting positions with respect to repricing or maturity
characteristics. Using off-balance-sheet instruments, principally interest rate
swaps (asset and liability management ("ALM") derivatives), the interest rate
sensitivity of specific on-balance-sheet transactions, as well as pools of
assets or liabilities, is adjusted to maintain the desired interest rate risk
profile. At March 31, 1998, the notional value of ALM interest rate swaps
totaled $9.235 billion, including $4.824 billion against specific transactions
and $4.411 billion against specific pools of assets or liabilities.
<TABLE>
<CAPTION>
ASSET AND LIABILITY MANAGEMENT DERIVATIVES--NOTIONAL PRINCIPAL
- - -------------------------------------------------------------------------------------------------------------
March 31, 1998 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.............................. $ - $ 401 $ 96 $ - $ - $ 497
Investment securities.............. - - 203 - - 203
Deposits........................... 50 2,695 - - - 2,745
Funds borrowed (including
long-term debt)................... 4,100 - 375 75 1,240 5,790
------ ------ ---- ------- ---------- ------
Total.............................. $4,150 $3,096 $674 $ 75 $ 1,240 $9,235
====== ====== ==== ======= ========== ======
Other ALM Contracts (1)........................................................................... $ 881
======
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Primarily reflects the use of forward contracts.
Swaps used to adjust the interest rate sensitivity of specific transactions will
not need to be replaced at maturity since the corresponding asset or liability
will mature along with the swap. However, swaps against the asset and liability
pools will have an impact on the overall risk position as they mature and may
need to be reissued to maintain the same interest rate risk profile. These
swaps could create modest earnings sensitivity to changes in interest rates.
Substantially all ALM interest rate swaps are standard swap contracts.
Contractual maturities and weighted average pay and receive rates for the ALM
swap position at March 31, 1998, are summarized below. The variable interest
rates, which generally are the prime rate, federal funds rate or the one-month,
three-month and six-month London interbank offered rates ("LIBOR") in effect on
the date of repricing, are assumed to remain constant. However, the variable
interest rates will change and consequently will affect the related weighted
average information presented in the table.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
Asset and Liability Management Swaps--Maturities and Rates
(Dollars in millions) 1998 1999 2000 2001 2002 Thereafter Total
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay
floating swaps
Notional amount....... $1,738 $1,516 $ 784 $1,178 $ 384 $1,646 $7,246
Weighted average
Receive rate......... 6.24% 6.00% 6.17% 6.71% 7.58% 6.66% 6.42%
Pay rate............. 5.79% 5.79% 5.80% 5.81% 5.85% 5.77% 5.79%
Pay fixed/receive
floating swaps
Notional amount....... $ 59 $ 88 $ 241 $ 33 $ 291 $ 37 $ 749
Weighted average
Receive rate......... 5.95% 5.91% 5.71% 5.93% 5.78% 5.89% 5.80%
Pay rate............. 7.99% 7.89% 6.56% 7.64% 6.48% 7.51% 6.89%
Basis swaps
Notional amount........ $1,015 $ 225 - - - - 1,240
Weighted average
Receive rate......... 5.82% 5.79% - - - - 5.81%
Pay rate............. 5.76% 5.75% - - - - 5.75%
- - ---------------------------------------------------------------------------------------------
Total notional amount..... $2,812 $1,829 $1,025 $1,211 $ 675 $1,683 $9,235
- - ---------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FOREIGN EXCHANGE RISK MANAGEMENT
Whenever possible, foreign currency-denominated assets are funded with liability
instruments denominated in the same currency. If a liability denominated in the
same currency is not immediately available or desired, a forward foreign
exchange contract is used to fully hedge the risk due to cross-currency funding.
To minimize the earnings and capital impact of translation gains or losses
measured on an after-tax basis, the Corporation uses forward foreign exchange
contracts to hedge the exposure created by investments in overseas branches and
subsidiaries.
CREDIT RISK MANAGEMENT
The Corporation has developed policies and procedures to manage the level and
composition of risk in its credit portfolio. The objective of this process is
to quantify and manage credit risk on a portfolio basis as well as to reduce the
risk of a loss resulting from a customer's failure to perform according to the
terms of a transaction.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Selected Statistical Information March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 1998 1997 1997 1997 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At period-end
Loans outstanding............................. $69,590 $68,724 $67,822 $67,510 $66,536
Nonperforming loans........................... 352 311 330 329 257
Other real estate, net........................ 12 15 15 14 28
Nonperforming assets.......................... 364 326 345 343 285
Allowance for credit losses................... 1,408 1,408 1,408 1,408 1,408
Nonperforming assets/loans outstanding
and other real estate, net................... 0.5% 0.5% 0.5% 0.5% 0.4%
Allowance for credit losses/loans
outstanding.................................. 2.0 2.0 2.1 2.1 2.1
Allowance for credit losses/nonperforming
loans........................................ 400 453 427 428 548
For the quarter ended
Average loans................................. $67,773 $66,859 $66,782 $66,301 $65,177
Net charge-offs............................... 179 167 191 180 186
Net charge-offs/average loans................. 1.1% 1.0% 1.1% 1.1% 1.1%
- - ------------------------------------------------------------------------------------------------------------
</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>
- - --------------------------------------------------------------------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
Loan Composition (In millions) 1998 1997 1997 1997 1997
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial risk
Domestic
Commercial........................ $30,020 $28,939 $27,685 $27,851 $28,181
Real estate
Construction..................... 1,402 1,380 1,292 1,272 1,159
Other............................ 5,257 5,324 5,269 5,309 5,159
Lease financing................... 2,192 2,144 2,003 1,954 1,848
Foreign............................ 5,060 4,515 4,168 4,362 4,022
------- ------- ------- ------- -------
Total commercial............... 43,931 42,302 40,417 40,748 40,369
------- ------- ------- ------- -------
Consumer risk
Credit cards........................ 8,952 9,693 9,720 9,031 8,668
Secured by real estate (1).......... 9,192 8,911 9,715 9,698 9,483
Automotive (2)...................... 3,814 4,040 4,203 4,306 4,342
Other............................... 3,701 3,778 3,767 3,727 3,674
------- ------- ------- ------- -------
Total consumer................. 25,659 26,422 27,405 26,762 26,167
------- ------- ------- ------- -------
Total.......................... $69,590 $68,724 $67,822 $67,510 $66,536
======= ======= ======= ======= =======
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
(2) Includes auto-lease receivables.
15
<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 on prevailing economic conditions.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Allowance for Credit Losses March 31 December 31 September 30 June 30 March 31
(In millions) 1998 1997 1997 1997 1997
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter...... $1,408 $1,408 $1,408 $1,408 $1,407
- - ------------------------------------------------------------------------------------------------------------------------
Provision for credit losses........ 179 167 191 180 187
- - ------------------------------------------------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial................... 30 31 39 33 21
Real estate.................. 1 1 3 4 2
Lease financing.............. 2 1 2 - 2
Foreign........................ 10 - - - -
Consumer
Credit card.................. 160 161 159 170 168
Other........................ 30 32 29 27 31
------ ------ ------ ------ ------
Total charge-offs........... 233 226 232 234 224
- - ------------------------------------------------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial................... 15 23 9 21 10
Real estate.................. 4 4 7 6 4
Lease financing.............. - - - 1 -
Foreign........................ - 9 1 - 2
Consumer
Credit card.................. 25 14 15 15 11
Other........................ 10 9 9 11 11
------ ------ ------ ------ ------
Total recoveries............ 54 59 41 54 38
- - ------------------------------------------------------------------------------------------------------------------------
Net charge-offs.................... 179 167 191 180 186
------ ------ ------ ------ ------
Balance, end of quarter............ $1,408 $1,408 $1,408 $1,408 $1,408
====== ====== ====== ====== ======
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets at March 31, 1998, were $364 million, or 0.5% of total
loans and other real estate, compared with $326 million, or 0.5% at December 31,
1997. The following charts illustrate the trends in this area for the periods
indicated.
Nonperforming Assets--Period End
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
In Millions 1Q97 2Q97 3Q97 4Q97 1Q98
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans $257 $329 $330 $311 $352
OREO $ 28 $ 14 $ 15 $ 15 $ 12
---- ---- ---- ---- ----
Total $285 $343 $345 $326 $364
</TABLE>
Nonperforming Assets as a Percentage of
Loans and Other Real Estate--Period End
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
1Q97 0.4%
2Q97 0.5%
3Q97 0.5%
4Q97 0.5%
1Q98 0.5%
</TABLE>
CONSUMER RISK MANAGEMENT
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Consumer Loans March 31 December 31 September 30 June 30 March 31
(In millions) 1998 1997 1997 1997 1997
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans............................ $ 8,952 $ 9,693 $ 9,720 $ 9,031 $ 8,668
Securitized credit card receivables.......... 8,264 8,639 7,847 8,221 8,596
------- ------- ------- ------- -------
Total managed credit card receivables..... 17,216 18,332 17,567 17,252 17,264
Other consumer loans
Secured by real estate (1).................. 9,192 8,911 9,715 9,698 9,483
Automotive (2).............................. 3,814 4,040 4,203 4,306 4,342
Other....................................... 3,701 3,778 3,767 3,727 3,674
------- ------- ------- ------- -------
Other consumer loans...................... 16,707 16,729 17,685 17,731 17,499
------- ------- ------- ------- -------
Total managed consumer loans.............. $33,923 $35,061 $35,252 $34,983 $34,763
======= ======= ======= ======= =======
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
(2) Includes auto-lease receivables.
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 6.7%
for the first quarter of 1998, representing a decrease from the prior four
quarters. While this is an encouraging sign, the Corporation continues to
aggressively manage its credit and collection policies in this business.
17
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Credit Card Receivables For the Quarter Ended
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 1998 1997 1997 1997 1997
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balances:
Credit card loans....................... $ 9,081 $ 8,894 $ 9,147 $ 8,613 $ 8,673
Securitized credit card receivables..... 8,501 8,505 8,092 8,460 8,816
------- ------- ------- ------- -------
Total average managed credit card
receivables........................ $17,582 $17,399 $17,239 $17,073 $17,489
======= ======= ======= ======= =======
Total net charge-offs
(including securitizations).......... $ 283 $ 308 $ 293 $ 326 $ 319
======= ======= ======= ======= =======
Net charge-offs/average total managed
receivables (1)...................... 6.7% 7.1% 6.8% 7.6% 7.3%
======= ======= ======= ======= =======
Credit Card Delinquency Rate--
Managed Receivables-Period End
30 or more days...................... 4.1% 4.3% 4.5% 4.3% 4.4%
90 or more days...................... 1.8 1.7 1.8 1.7 1.9
- - ----------------------------------------------------------------------------------------------------
</TABLE>
(1) March 31, 1998 excludes $12 million from the sale of recovery rights
related to charged-off accounts.
Credit card receivables generally are charged off no later than 180 days past
due, or earlier in the event of bankruptcy.
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 $43.9 billion at March 31, 1998, up 4% from December
31, 1997, and up 9% from March 31, 1997.
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 first quarter, net charge-offs in the commercial portfolio were $24
million. Nonperforming commercial assets totaled $364 million at March 31, 1998,
and $326 million at year-end 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 $6.7 billion at March 31, 1998, compared
with $6.3 billion a year ago and $6.7 billion at year-end 1997.
During the first quarter, net recoveries in the commercial real estate portfolio
were $3 million. Nonperforming commercial real estate assets, including other
real estate, totaled $85 million at March 31, 1998, and $77 million at year-end
1997.
18
<PAGE>
FOREIGN OUTSTANDINGS
The table below presents a breakout of foreign outstandings for March 31, 1998,
and December 31, 1997, where such outstandings exceed 1.0% of total assets. The
amounts have been prepared using the Federal Financial Institutions Examination
Council's reporting guidelines. Under these guidelines, local country claims,
which include both local and nonlocal currency activity, are reported net of
local country liabilities. Included in claims are loans, balances with banks,
acceptances, securities, equity investments, current credit exposure under
derivative contracts - net of master netting agreements, accrued interest, and
other monetary assets.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
Cross-Border Claims
-----------------------------------
Total Cross
Governments Net Local Border & Net
& Official Country Local Country
(In millions) Banks Institutions Other Claims Claims
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Japan (1)....... Mar. 31, 1998 $2,707 $ - $418 $ - $3,125
Dec. 31, 1997 4,225 - 386 - 4,611
France.......... Mar. 31, 1998 1,293 226 81 - 1,600
Dec. 31, 1997 1,137 231 249 - 1,617
Korea (2)....... Mar. 31, 1998 111 481 557 187 1,336
Dec. 31, 1997 570 10 685 256 1,521
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At March 31, 1998, and December 31, 1997, net local country claims were
reduced by local country liabilities of $256 million and $83 million,
respectively.
(2) At March 31, 1998, and December 31, 1997, net local country claims were
reduced by local country liabilities of $27 million and $31 million,
respectively.
At March 31, 1998, the only countries for which cross-border and net local
country claims totaled between 0.75% and 1.0% of total assets were the
Netherlands and Germany. Such outstandings totaled $1.959 billion.
At December 31, 1997, the only country for which cross-border and net local
country claims totaled between 0.75% and 1.0% of total assets was the
Netherlands. Such outstandings totaled $1.114 billion.
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, spot, 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 net
interest margin reflects the effective use of these derivatives. Without their
use, net interest income would have been lower by $4.3 million for the first
quarter of 1998 and by $6.6 million for the first quarter of 1997.
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.
19
<PAGE>
The table below shows the impact of these master netting agreements at March 31,
1998, and December 31, 1997:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
March 31 December 31
(In millions) 1998 1997
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross replacement cost.......................................................... $14,182 $14,675
Less: Adjustment due to master netting agreements.......................... 9,834 10,035
------- -------
Current credit exposure......................................................... 4,348 4,640
Less: Unrecognized net gains due to nontrading activity.................... 115 93
------- -------
Balance sheet exposure.......................................................... $ 4,233 $ 4,547
======= =======
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
The $4.3 billion of total current credit exposure at March 31, 1998, 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 in asset and liability management
activities 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 $7.2 billion higher than the current
exposure at March 31, 1998, and $6.9 billion higher at December 31, 1997.
YEAR 2000 COMPLIANCE ISSUES
The Corporation has established an overall plan to address systems-related Year
2000 issues. The plan calls for either system modification to, or replacement
of, approximately 700 existing business system applications. The cost of the
Year 2000 compliance program is estimated at approximately $100 million, of
which approximately $45 million was incurred by December 31, 1997. Such costs
are charged to expense as incurred. The Corporation currently anticipates that
substantially all of the remaining work under this program, including the
testing of critical systems, will be completed by the end of 1998.
A contingency plan has been established for critical business system
applications to mitigate potential problems/delays associated with either new
system replacements or established vendor delivery dates. The Corporation,
however, continues to bear some risk related to the Year 2000 issue and could be
adversely affected if other entities (e.g., vendors or customers) not affiliated
with the Corporation do not appropriately address their own Year 2000 compliance
issues.
CAPITAL MANAGEMENT
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
Selected Capital Ratios March 31 December 31 September 30 June 30 March 31 Corporate
1998 1997 1997 1997 1997 Guideline
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets.............. 6.8% 6.8% 6.9% 7.3% 7.8% N/A
Tangible common equity ratio............ 6.5 6.5 6.5 6.9 7.4 N/A
Stockholders' equity/total assets....... 7.0 7.0 7.1 7.5 8.0 N/A
Risk-based capital ratios (1)(2)
Tier 1............................. 7.8 7.9 8.1 8.6 9.1 7-8%
Total.............................. 11.4 11.7 11.9 12.4 13.1 11-12%
Regulatory leverage ratio (1)(2)........ 7.6 7.8 8.2 8.6 9.2 5.5-7%
Double leverage ratio (2)............... 117 117 118 111 106 less than or
equal to 120%
------------
Dividend payout ratio................... 33.8 34.4 31.7 33.3 34.2 30-40%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) March 1998 and December 1997 ratios include the activities of FCCM.
(2) Includes trust preferred capital securities.
N/A - Not Applicable.
20
<PAGE>
Capital represents the stockholders' investment on which the Corporation strives
to generate attractive returns. It supports business growth and provides
protection to depositors and creditors. Management believes that capital is the
foundation of a cohesive risk management framework because it links return with
risk. Capital adequacy objectives have been developed for the Corporation and
its major banking subsidiaries to meet these needs and also to maintain a
well-capitalized regulatory position.
ECONOMIC CAPITAL
An economic capital framework 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.
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 average 8% over the course of a year, 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
During the first quarter, the Corporation repurchased 2.9 million shares at an
average price of $78.03 per share. In April, the Corporation rescinded its stock
repurchase program that had been established in the fourth quarter of 1997.
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 that 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.
21
<PAGE>
TIER 1 AND TOTAL CAPITAL RATIOS--PERIOD END
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
3/97 12/97 3/98
----- ----- ----
<S> <C> <C> <C>
Tier 1 9.1% 7.9% 7.8%
Regulatory Guidelines-Tier 1 6.0% 6.0% 6.0%
Total 13.1% 11.7% 11.4%
Regulatory Guidelines-Total 10.0% 10.0% 10.0%
</TABLE>
The following table shows the components of the Corporation's regulatory
risk-based capital and risk-weighted assets for the periods indicated.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(In millions) 1998 1997 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regulatory Risk-Based Capital
Tier 1 capital.................................................. $ 8,603 $ 8,541 $ 9,266
Tier 2 capital and other adjustments............................ 4,062 4,118 4,127
-------- -------- --------
Total capital.............................................. $ 12,665 $ 12,659 $ 13,393
======== ======== ========
Regulatory Risk-Weighted Assets
Balance sheet risk-weighted assets.............................. $ 79,109 $ 76,700 $ 71,878
Off-balance-sheet risk-weighted assets.......................... 31,760 31,883 30,158
-------- -------- --------
Total risk-weighted assets................................. $110,869 $108,583 $102,036
======== ======== ========
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Included in Tier 1 capital are trust preferred capital securities totaling $996
million for each of the periods shown above.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Intangible Assets March 31 December 31 March 31
(In millions) 1998 1997 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill........................................................... $ 357 $ 365 $ 388
Other nonqualifying intangibles.................................... 3 3 4
----- ----- -----
Subtotal...................................................... 360 368 392
Qualifying intangibles............................................. 66 64 58
----- ----- -----
Total intangibles............................................. $ 426 $ 432 $ 450
===== ===== =====
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Tier 1 and total capital have been reduced by goodwill and other nonqualifying
intangible assets, which totaled $360 million at March 31, 1998, $368 million at
December 31, 1997, and $392 million at March 31, 1997.
22
<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), NBD Bank
(Michigan), FCC National Bank (FCCNB), American National Bank and Trust Company
of Chicago (ANB), 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>
March 31, 1998
Risk-based capital ratios
Tier 1 capital...................... 7.7% 7.9% 12.8% 8.4% 8.4%
Total capital....................... 11.3 11.4 15.5 11.5 11.3
Regulatory leverage ratio................ 7.6 8.2 12.9 9.1 8.0
- - ------------------------------------------------------------------------------------------------------------------------------
NBD NBD
FNBC Michigan FCCNB ANB Indiana
- - ------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
Risk-based capital ratios
Tier 1 capital...................... 7.7% 9.0% 11.6% 8.5% 8.4%
Total capital....................... 11.0 13.5 14.3 11.7 11.3
Regulatory leverage ratio................ 7.6 8.9 12.6 9.3 7.8
- - ------------------------------------------------------------------------------------------------------------------------------
NBD NBD
FNBC Michigan FCCNB ANB Indiana
- - ------------------------------------------------------------------------------------------------------------------------------
March 31, 1997
Risk-based capital ratios
Tier 1 capital...................... 7.7% 9.4% 12.0% 8.5% 9.9%
Total capital....................... 11.2 13.7 15.1 11.2 11.2
Regulatory leverage ratio................ 7.5 9.9 11.7 9.2 9.0
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amendments to the risk-based capital requirements, incorporating market risk,
became effective January 1, 1998. Under the new market risk requirements,
capital is allocated to support the amount of market risk related to ongoing
trading activities. The March 31, 1998, capital ratios for the Corporation and
FNBC have been prepared using the new market risk rules. The other banking units
were not subject to the market risk rules, due to their limited trading
activities.
23
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- - ------------------------------------------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(Dollars in millions) 1998 1997 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................................. $ 7,907 $ 7,223 $ 6,800
Interest-bearing due from banks..................................................... 5,163 6,904 7,169
Federal funds sold and securities under resale agreements........................... 7,735 8,501 6,635
Trading assets...................................................................... 3,841 4,198 5,192
Derivative product assets........................................................... 4,233 4,547 5,363
Investment securities............................................................... 11,594 9,330 7,500
Loans (net of unearned income--$929, $961 and $814, respectively)................... 69,590 68,724 66,536
Less allowance for credit losses............................................... (1,408) (1,408) (1,408)
------------ ------------ ------------
Loans, net..................................................................... 68,182 67,316 65,128
Premises and equipment.............................................................. 1,468 1,439 1,416
Customers' acceptance liability..................................................... 560 708 576
Other assets........................................................................ 4,121 3,930 3,354
------------ ------------ ------------
Total assets................................................................... $ 114,804 $ 114,096 $ 109,133
============ ============ ============
- - ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand......................................................................... $ 16,440 $ 16,069 $ 15,016
Savings........................................................................ 21,681 21,437 21,381
Time........................................................................... 15,350 15,178 15,078
Foreign offices................................................................ 14,699 15,805 13,452
------------ ------------ ------------
Total deposits............................................................... 68,170 68,489 64,927
Federal funds purchased and securities under repurchase agreements.................. 10,176 9,271 9,656
Other short-term borrowings......................................................... 10,458 9,710 8,517
Long-term debt...................................................................... 9,298 9,092 7,518
Guaranteed preferred beneficial interest in the Corporation's junior subordinated
debt............................................................................ 996 996 996
Acceptances outstanding............................................................. 560 708 576
Derivative product liabilities...................................................... 4,129 4,616 5,134
Other liabilities................................................................... 3,011 3,254 3,024
------------ ------------ ------------
Total liabilities ........................................................... 106,798 106,136 100,348
- - ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock..................................................................... 190 190 290
Common stock--$1 par value.......................................................... 320 320 320
March 31,1998 Dec. 31, 1997 March 31, 1997
------------- ------------- --------------
Number of shares authorized....... 750,000,000 750,000,000 750,000,000
Number of shares issued........... 319,508,976 319,509,114 319,509,175
Number of shares outstanding...... 287,187,823 289,137,449 312,362,710
Surplus............................................................................. 1,960 1,966 1,988
Retained earnings................................................................... 7,699 7,446 6,682
Accumulated other adjustments to stockholders' equity............................... 48 55 (4)
Deferred compensation............................................................... (109) (79) (88)
Treasury stock at cost--32,321,153; 30,371,665; and 7,146,465 shares, respectively.. (2,102) (1,938) (403)
------------ ------------ ------------
Stockholders' equity........................................................... 8,006 7,960 8,785
------------ ------------ ------------
Total liabilities and stockholders' equity..................................... $ 114,804 $ 114,096 $ 109,133
============ ============ ============
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
- - --------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31 March 31 December 31
(In millions, except per-share data) 1998 1997 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees..................................................... $1,460 $1,401 $1,473
Bank balances............................................................. 101 96 121
Federal funds sold and securities under resale agreements................. 89 65 83
Trading assets............................................................ 71 69 74
Investment securities--taxable............................................ 120 78 105
Investment securities--tax-exempt......................................... 23 25 16
------ ------ ------
Total.................................................................. 1,864 1,734 1,872
- - --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits.................................................................. 558 499 575
Federal funds purchased and securities under repurchase agreements........ 142 114 126
Other short-term borrowings............................................... 131 102 132
Long-term debt............................................................ 172 143 167
------ ------ ------
Total.................................................................. 1,003 858 1,000
- - --------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME....................................................... 861 876 872
Provision for credit losses............................................... 179 187 167
------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES..................... 682 689 705
- - --------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses)......................................... 46 28 (15)
Equity securities gains................................................... 58 54 54
Investment securities gains............................................... 10 25 6
------ ------ ------
Market-driven revenue................................................. 114 107 45
------ ------ ------
Credit card fee revenue................................................... 234 234 230
Fiduciary and investment management fees.................................. 106 105 101
Service charges and commissions........................................... 251 213 261
------ ------ ------
Fee-based revenue...................................................... 591 552 592
------ ------ ------
Other income.............................................................. 34 20 90
------ ------ ------
Total.................................................................. 739 679 727
- - --------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits............................................ 440 425 457
Net premises, and equipment expense....................................... 115 120 111
Other..................................................................... 293 255 304
------ ------ ------
Total.................................................................. 848 800 872
- - --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES................................................ 573 568 560
Applicable income taxes................................................... 190 188 178
------ ------ ------
NET INCOME................................................................ $ 383 $ 380 $ 382
====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY.................... $ 381 $ 373 $ 378
====== ====== ======
- - --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic.................................................................. $1.32 $1.19 $1.30
Diluted................................................................ $1.30 $1.17 $1.28
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- - -------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
(In millions) 1998 1997
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period......................................................... $ 190 $ 444
Conversion of preferred stock........................................................ - (154)
------- ------
Balance, end of period............................................................... 190 290
------- ------
COMMON STOCK
Balance, beginning of period......................................................... 320 320
Issuance of stock.................................................................... - -
------- ------
Balance, end of period............................................................... 320 320
------- ------
CAPITAL SURPLUS
Balance, beginning of period......................................................... 1,966 2,149
Issuance of treasury stock........................................................... (23) (38)
Conversion of preferred stock........................................................ - (138)
Other................................................................................ 17 15
------- ------
Balance, end of period............................................................... 1,960 1,988
------- ------
RETAINED EARNINGS
Balance, beginning of period......................................................... 7,446 6,433
Net income........................................................................... 383 380
Cash dividends declared on common stock.............................................. (128) (124)
Cash dividends declared on preferred stock........................................... (2) (7)
------- ------
Balance, end of period............................................................... 7,699 6,682
------- ------
ACCUMULATED OTHER ADJUSTMENTS TO STOCKHOLDERS' EQUITY
Fair Value Adjustment on Investment Securities Available-for-Sale
Balance, beginning of period......................................................... 49 38
Change in fair value (net of taxes) and other........................................ (9) (48)
------- ------
Balance, end of period............................................................... 40 (10)
------- ------
Accumulated Translation Adjustment
Balance, beginning of period......................................................... 6 7
Translation gain (loss), net of taxes................................................ 2 (1)
------- ------
Balance, end of period............................................................... 8 6
------- ------
TOTAL ACCUMULATED OTHER ADJUSTMENTS TO STOCKHOLDERS' EQUITY............................. 48 (4)
------- ------
DEFERRED COMPENSATION
Balance, beginning of period......................................................... (79) (58)
Awards granted, net.................................................................. (42) (40)
Amortization of deferred compensation................................................ 18 9
Other................................................................................ (6) 1
------- ------
Balance, end of period............................................................... (109) (88)
------- ------
TREASURY STOCK
Balance, beginning of period......................................................... (1,938) (326)
Purchase of common stock............................................................. (229) (450)
Conversion of preferred stock........................................................ - 292
Issuance of stock.................................................................... 65 81
------- ------
Balance, end of period............................................................... (2,102) (403)
------- ------
Total Stockholders' Equity, end of period............................................... $ 8,006 $8,785
======= ======
TOTAL NET INCOME AND ACCUMULATED OTHER ADJUSTMENTS TO STOCKHOLDERS' EQUITY.............. $ 376 $ 331
======= ======
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- - --------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
(In millions) 1998 1997
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................................. $ 383 $ 380
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................................ 47 61
Provision for credit losses.............................................................. 179 187
Equity securities gains.................................................................. (58) (54)
Net (increase) in net derivative product balances........................................ (174) (9)
Net (increase) decrease in trading assets................................................ 358 (455)
Net (increase) decrease in loans held for sale........................................... 735 (32)
Net (increase) decrease in accrued income receivable..................................... (20) 14
Net increase (decrease) in accrued expenses payable...................................... (19) 27
Net (increase) decrease in other assets.................................................. (32) 9
Other noncash adjustments................................................................ 81 (20)
------- -------
Total adjustments........................................................................ 1,097 (272)
Net cash provided by operating activities................................................... 1,480 108
- - --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and securities under resale agreements........ 766 (2,438)
Purchase of investment securities--available-for-sale....................................... (4,821) (2,448)
Purchase of equity securities--fair value................................................... (42) (19)
Proceeds from maturities of debt securities--available-for-sale............................. 516 223
Proceeds from sales of investment securities--available-for-sale............................ 1,979 1,794
Proceeds from sales of equity securities--fair value........................................ 111 86
Net (increase) in loans..................................................................... (1,854) (299)
Loan recoveries............................................................................. 55 38
Net proceeds from sales of assets held for accelerated disposition.......................... 2 1
Purchases of premises and equipment......................................................... (86) (49)
Proceeds from sales of premises and equipment............................................... 22 4
------- -------
Net cash (used in) investing activities..................................................... (3,352) (3,107)
- - --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits......................................................... (345) 1,294
Net increase in federal funds purchased and securities under repurchase agreements.......... 904 1,797
Net increase in other short-term borrowings................................................. 748 945
Proceeds from issuance of long-term debt.................................................... 5,731 828
Repayment of long-term debt................................................................. (5,529) (669)
Net increase (decrease) in other liabilities................................................ (335) 109
Dividends paid.............................................................................. (129) (121)
Proceeds from issuance of common and treasury stock......................................... - 2
Repurchase of common stock.................................................................. (229) (450)
------- -------
Net cash provided by financing activities................................................... 816 3,735
- - --------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS................................ (1) (64)
- - --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ (1,057) 672
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................ 14,127 13,297
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................. $13,070 $13,969
======= =======
- - --------------------------------------------------------------------------------------------------------------------------
</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 three months of
1997, $154 million of the Corporation's 5 3/4% Cumulative Convertible Preferred
Stock, Series B, was converted into common stock; such issuance was redeemed in
April, 1997.
27
<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
- - ------
In December 1997, the Corporation adopted SFAS No. 128 "Earnings Per Share", as
required, and all prior periods presented were restated. Basic EPS is computed
by dividing income available to common stockholders by the average number of
common shares outstanding for the period. The Statement also requires
presentation of EPS assuming full dilution. The diluted EPS calculation
includes net shares that may be issued under the Employee Stock Purchase and
Savings Plan, outstanding stock options, and common shares that would result
from the conversion of convertible preferred stock. In the diluted calculation,
income available to common stockholders is not reduced by preferred stock
dividend requirements related to convertible preferred stock, since such
dividends would not be paid if the preferred stock were converted to common
stock.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
(In millions) 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic
Net income................................................................... $ 383 $ 380
Preferred stock dividends.................................................... (2) (7)
-------- --------
Net income attributable to common stockholders' equity....................... $ 381 $ 373
======== ========
Diluted
Net income................................................................... $ 383 $ 380
Preferred stock dividends, excluding convertible Series B, where
applicable.................................................................. (2) (5)
-------- --------
Diluted income available to common stockholders.............................. $ 381 $ 375
======== ========
(In thousands, except per-share amounts)
Average shares outstanding..................................................... 288,126 312,124
Dilutive Shares
Employee Stock Purchase and Savings Plan..................................... 1,266 735
Stock options................................................................ 3,647 3,675
Convertible preferred stock.................................................. - 4,259
-------- --------
Average shares outstanding assuming full dilution.............................. 293,039 320,793
======== ========
Basic........................................................................ $ 1.32 $1.19
======== ========
Diluted...................................................................... $ 1.30 $1.17
======== ========
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Note 3
- - ------
At March 31, 1998, credit card receivables aggregated $9.0 billion. These
receivables are available for sale through credit card securitization programs.
Note 4
- - ------
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," on
January 1, 1998. The Statement defines comprehensive income as including net
income and certain other items that affect stockholders' equity. The other items
include "fair value adjustment on investment securities available for sale" and
"accumulated translation adjustment," which are reported in "Accumulated other
adjustments to stockholders' equity" on the Corporation's Consolidated Balance
Sheet. The Corporation has elected to disclose these items in its Consolidated
Statement of Stockholders' Equity. Since the Statement solely relates to display
and disclosure requirements, it has no effect on the Corporation's financial
results.
Note 5
- - ------
Nonperforming loans are generally identified as "impaired loans." At March 31,
1998, the recorded investment in loans considered impaired was $352 million,
which required a related allowance for credit losses of $47 million.
Substantially all of the $352 million in impaired loans required the
establishment of an allocated reserve. The average recorded investment in
impaired loans was approximately $347 million for the quarter ended March 31,
1998. The Corporation recognized interest income of $5 million associated with
impaired loans during the quarter.
Note 6
- - ------
Derivative financial instruments used in trading activities are valued at
estimated fair value. Such instruments include swaps, forwards, spot, futures,
options, caps, floors and forward rate agreements in the interest rate, foreign
exchange, equity and commodity 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 terms of the derivative financial instruments.
Derivative financial instruments used in 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 are effective in 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 that 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.
29
<PAGE>
Note 7
- - ------
The ratio of income to fixed charges for the three months ended March 31, 1998,
excluding interest on deposits, was 2.2x, 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
- - ------
On April 10, 1998, First Chicago NBD Corporation (the "Corporation" or "FCNBD")
and BANC ONE CORPORATION ("ONE") entered into an Agreement and Plan of
Reorganization (the "Agreement"), pursuant to which, subject to the conditions
and upon the terms stated therein, the Corporation and ONE will each merge into
a new company ("Newco") organized to effect the merger (such mergers,
collectively, the "Merger"). Newco will be renamed BANC ONE CORPORATION ("BANC
ONE").
It is anticipated that the merger will be accounted for as a pooling-of-
interests and that it will be consummated during the fourth quarter of 1998,
pending necessary approvals of stockholders of the Corporation and ONE,
regulatory approvals, and other customary conditions of closing. First Chicago
NBD's stock repurchase program has been rescinded.
In accordance with the Agreement, each share of the common stock, without par
value, of ONE ("ONE Common Stock") outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will at the Effective Time
be converted into one share of the common stock, without par value, of Newco
("Newco Common Stock"), and each share of the common stock, par value $1.00 per
share, of the Corporation ("FCN Common Stock") outstanding immediately prior to
the Effective Time will at the Effective Time be converted into the right to
receive 1.62 shares of Newco Common Stock. In addition, each share of the
Corporation's Preferred Stock with Cumulative and Adjustable Dividends, Series
B, and Preferred Stock with Cumulative and Adjustable Dividends, Series C, in
each case outstanding immediately prior to the Effective Time, will be converted
into the right to receive one share of a series of corresponding preferred stock
of Newco with substantially the same terms.
Note 9
- - ------
The Corporation and certain of its subsidiaries are defendants in various
lawsuits, including certain class actions, arising out of the normal course of
business, and the Corporation has received certain tax deficiency assessments.
Since the Corporation and certain of its subsidiaries, which are regulated by
one or more federal and state regulatory authorities, also are the subject of
numerous examinations and reviews by such authorities, the Corporation is and
will, from time to time, normally be engaged in various disagreements with
regulators, related primarily to banking matters. In the opinion of management
and the Corporation's general counsel, the ultimate resolution of the matters
referred to in this note will not have a material effect on the consolidated
financial statements.
30
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Investment Securities--Available-for-Sale
- - -------------------------------------------------------------------------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
(In millions) 1998 1997 1997 1997 1997
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury.................................. $ 3,117 $3,037 $3,069 $3,007 $2,911
U.S. government agencies
Mortgage-backed securities.................. 2,228 1,736 2,077 1,867 1,441
Collateralized mortgage obligations......... 279 186 475 296 99
Other....................................... 1,353 878 761 439 228
States and political subdivisions.............. 757 767 821 896 1,031
Other debt securities.......................... 2,622 1,538 768 704 737
Equity securities (1).......................... 1,238 1,188 1,054 1,056 1,053
------- ------ ------ ------ ------
Total..................................... $11,594 $9,330 $9,025 $8,265 $7,500
======= ====== ====== ====== ======
- - ---------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Investment Securities--Available-for-Sale
- - ----------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
March 31, 1998 (In millions) Cost Gains Losses (Book Value)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury....................................... $ 3,098 $ 22 $ 3 $ 3,117
U.S. government agencies
Mortgage-backed securities....................... 2,216 13 1 2,228
Collateralized mortgage obligations.............. 279 - - 279
Other............................................ 1,347 8 2 1,353
States and political subdivisions................... 728 30 1 757
Other debt securities............................... 2,624 2 4 2,622
Equity securities (1)............................... 1,144 142 48 1,238
------- ---- --- -------
Total.......................................... $11,436 $217 $59 $11,594
======= ==== === =======
- - ----------------------------------------------------------------------------------------------------------------
</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.
31
<PAGE>
IMPACT OF CREDIT CARD SECURITIZATION
Credit Card continues to service credit card accounts even after receivables are
securitized. Net interest income and certain fee revenue on the securitized
portfolio are not recognized; however, these are offset by servicing fees as
well as by lower provisions for credit losses.
For analytical purposes only, the following table shows income statement line
items adjusted for the net impact of securitization of credit card receivables.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
--------------------------------- ---------------------------------
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........... $ 878 $ 178 $ 1,056 $ 907 $ 197 $ 1,104
Provision for credit losses..... 179 148 327 187 162 349
Noninterest income.............. 739 (30) 709 679 (35) 644
Noninterest expense............. 848 - 848 800 - 800
Net income...................... 383 - 383 380 - 380
Assets--quarter-end............. $114,804 $8,264 $123,068 $109,133 $8,596 $117,729
--average............. 112,914 8,501 121,415 105,133 8,816 113,949
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
FIVE-QUARTER CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31 Dec. 31 Sept. 30 June 30 March 31
(Dollars in millions, except per-share data) 1998 1997 1997 1997 1997
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees...................................................... $1,460 $1,473 $1,491 $1,484 $1,401
Bank balances.............................................................. 101 121 120 114 96
Federal funds sold and securities under resale agreements.................. 89 83 79 77 65
Trading assets............................................................. 71 74 67 67 69
Investment securities--taxable............................................. 120 105 97 89 78
Investment securities--tax-exempt.......................................... 23 16 27 29 25
------ ------ ------ ------ ------
Total................................................................. 1,864 1,872 1,881 1,860 1,734
- - -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits................................................................... 558 575 560 544 499
Federal funds purchased and securities under repurchase
agreements................................................................ 142 126 134 124 114
Other short-term borrowings................................................ 131 132 125 121 102
Long-term debt............................................................. 172 167 163 146 143
------ ------ ------ ------ ------
Total................................................................. 1,003 1,000 982 935 858
- - -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME........................................................ 861 872 899 925 876
Provision for credit losses................................................ 179 167 191 180 187
------ ------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES...................... 682 705 708 745 689
- - -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses).......................................... 46 (15) 32 36 28
Equity securities gains.................................................... 58 54 28 46 54
Investment securities gains................................................ 10 6 8 4 25
------ ------ ------ ------ ------
Market-driven revenue................................................. 114 45 68 86 107
------ ------ ------ ------ ------
Credit card fee revenue.................................................... 234 230 233 207 234
Fiduciary and investment management fees................................... 106 101 102 99 105
Service charges and commissions............................................ 251 261 235 227 213
------ ------ ------ ------ ------
Fee-based revenue..................................................... 591 592 570 533 552
------ ------ ------ ------ ------
Other income............................................................... 34 90 63 25 20
------ ------ ------ ------ ------
Total................................................................. 739 727 701 644 679
- - -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits............................................. 440 457 440 426 425
Net premises and equipment expense......................................... 115 111 116 115 120
Other...................................................................... 293 304 279 284 255
------ ------ ------ ------ ------
Total.................................................................. 848 872 835 825 800
- - -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES................................................. 573 560 574 564 568
Applicable income taxes.................................................... 190 178 189 186 188
------ ------ ------ ------ ------
NET INCOME................................................................. $ 383 $ 382 $ 385 $ 378 $ 380
====== ====== ====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY..................... $ 381 $ 378 $ 380 $ 373 $ 373
====== ====== ====== ====== ======
- - -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
BASIC................................................................. $1.32 $1.30 $1.28 $1.22 $1.19
DILUTED............................................................... $1.30 $1.28 $1.26 $1.20 $1.17
- - -------------------------------------------------------------------------------------------------------------------------------
Average number of shares (in millions)..................................... 288.1 290.3 296.8 306.8 312.1
Average number of shares, assuming full dilution (in millions)............. 293.0 295.2 301.6 310.9 320.8
</TABLE>
33
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- - -------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1998 December 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.............................. $ 6,690 $ 101 6.13% $ 7,954 $ 121 6.02%
Federal funds sold and securities under resale agreements.... 7,077 89 5.13 6,225 83 5.30
Trading assets............................................... 5,286 71 5.48 4,915 75 6.03
Investment securities
U.S. government agencies.................................. 6,273 102 6.56 5,817 107 7.26
States and political subdivisions......................... 730 16 8.68 796 18 9.04
Other..................................................... 3,159 38 4.80 2,443 7 1.09
-------- ------ ---- -------- ------ ----
Total investment securities............................... 10,162 156 6.16 9,056 132 5.76
Loans (1)(2)
Domestic offices.......................................... 63,303 1,391 9.04 62,592 1,408 9.06
Foreign offices........................................... 4,470 73 6.64 4,267 69 6.46
-------- ------ ---- -------- ------ ----
Total loans............................................... 67,773 1,464 8.88 66,859 1,477 8.89
-------- ------ ---- -------- ------ ----
Total earning assets (3).................................. 96,988 1,881 7.86 95,009 1,888 7.88
Cash and due from banks...................................... 6,653 6,545
Allowance for credit losses.................................. (1,402) (1,402)
Other assets................................................. 10,675 9,824
-------- --------
Total assets.............................................. $112,914 $109,976
======== ========
- - -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits--interest-bearing
Savings................................................... $ 9,393 $ 49 2.12% $ 8,930 $ 52 2.30%
Money market.............................................. 12,062 103 3.47 12,080 105 3.46
Time...................................................... 15,108 212 5.68 15,122 212 5.57
Foreign offices........................................... 15,144 194 5.20 15,580 206 5.25
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing.......................... 51,707 558 4.38 51,712 575 4.42
Federal funds purchased and securities under repurchase
agreements................................................ 10,816 142 5.34 8,982 126 5.57
Other short-term borrowings.................................. 9,869 131 5.37 9,705 132 5.39
Long-term debt (4)........................................... 10,368 172 6.72 9,983 167 6.61
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities........................ 82,760 1,003 4.91 80,382 1,000 4.93
Demand deposits.............................................. 14,639 14,704
Other liabilities............................................ 7,544 6,939
Preferred stock.............................................. 190 242
Common stockholders' equity.................................. 7,781 7,709
-------- --------
Total liabilities and stockholders' equity................ $112,914 $109,976
======== ========
- - -------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)........................... $1,881 7.86% $1,888 7.88%
Interest expense/earning assets.............................. 1,003 4.19 1,000 4.17
------ ---- ------ ----
Net interest margin.......................................... $ 878 3.67% $ 888 3.71%
====== ==== ====== ====
</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.
(4) Includes trust preferred capital securities.
34
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
September 30, 1997 June 30, 1997 March 31, 1997
- - ---------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7,789 $ 120 6.13% $ 7,754 $ 114 5.90% $ 6,721 $ 96 5.78%
5,984 79 5.24 5,902 76 5.20 5,157 66 5.15
4,976 67 5.34 4,797 67 5.62 5,016 69 5.57
5,589 92 6.50 4,979 82 6.57 4,604 71 6.30
835 18 8.71 941 21 9.02 1,101 25 9.15
2,149 31 5.81 1,951 36 7.31 1,576 32 8.19
-------- ------ ---- -------- ------ ---- -------- ------ ----
8,573 141 6.54 7,871 139 7.05 7,281 128 7.14
62,529 1,428 9.18 62,247 1,429 9.33 61,462 1,350 9.02
4,253 68 6.38 4,054 61 6.06 3,715 56 6.14
-------- ------ ---- -------- ------ ---- -------- ------ ----
66,782 1,496 9.00 66,301 1,490 9.13 65,177 1,406 8.85
-------- ------ ---- -------- ------ ---- -------- ------ ----
94,104 1,903 8.02 92,625 1,886 8.17 89,352 1,765 8.00
6,398 6,594 6,556
(1,401) (1,388) (1,386)
9,849 10,461 10,611
-------- --------- --------
$ 108,950 $ 108,292 $105,133
========= ========= ========
- - ---------------------------------------------------------------------------------------------------
$ 9,158 $ 52 2.25% $ 9,429 $ 52 2.22% $ 9,980 $ 53 2.20%
11,715 101 3.43 11,792 101 3.44 11,423 99 3.52
15,154 215 5.63 15,072 210 5.58 15,029 201 5.41
14,616 192 5.21 14,055 181 5.16 12,098 146 4.90
-------- ------ ---- -------- ------ ---- -------- ------ ----
50,643 560 4.39 50,348 544 4.33 48,530 499 4.17
9,877 134 5.37 9,393 124 5.32 8,849 114 5.20
9,045 125 5.49 8,749 121 5.54 8,001 102 5.16
9,620 163 6.74 8,853 146 6.61 8,526 143 6.83
-------- ------ ---- -------- ------ ---- -------- ------ ----
79,185 982 4.92 77,343 935 4.85 73,906 858 4.71
14,216 14,238 13,859
7,366 8,142 8,432
290 290 419
7,893 8,279 8,517
-------- -------- --------
$108,950 $ 108,292 $105,133
======== ======== ========
- - ---------------------------------------------------------------------------------------------------
$1,903 8.02% $ 1,886 8.17% $1,765 8.00%
982 4.14 935 4.05 858 3.89
------ ---- ------- ---- ------ ----
$ 921 3.88% $ 951 4.12% $ 907 4.11%
====== ==== ======= ==== ====== ====
- - ---------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
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 April 30, 1998.
Class Number of Shares Outstanding
- - ------------------------- ----------------------------
Common Stock $1 par value 287,331,676
36
<PAGE>
FORM 10-Q CROSS-REFERENCE INDEX
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
- - ----------------------------
Page
----
<S> <C>
Consolidated Balance Sheet --
March 31, 1998 and 1997, and December 31, 1997 24
Consolidated Income Statement --
Three Months Ended March 31, 1998 and 1997 25
Consolidated Statement of Stockholders' Equity --
Three Months Ended March 31, 1998 and 1997 26
Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1998 and 1997 27
Notes to Consolidated Financial Statements 28
Selected Statistical Information 1,
15-18
31-35
ITEM 2. Management's Discussion and Analysis of Financial
- - ---------------------------------------------------------
Condition and Results of Operations 2-23
-----------------------------------
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
</TABLE>
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
- - -----------------------------------------------------------
None
ITEM 5. Other Information
- - -------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
- - ----------------------------------------
(a) Exhibit 12 Statement re computation of ratio
Exhibit 27 Financial Data Schedule
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended March 31, 1998.
Date Item Reported
---- -------------
1/15/98 The Registrant's earnings for the quarter and year ended
December 31, 1997.
2/17/98 The Registrant's cross-border outstandings in Asian
countries.
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 May 15, 1998 Verne G. Istock
---------------------- --------------------------------
Verne G. Istock
Principal Executive Officer
Date May 15, 1998 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
40
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
The computation of the ratio of income to fixed charges is set forth in
Note 7 of Notes to Consolidated Financial Statements on page 32 of the Form
10-Q.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
Form 10-Q for the period ended 3/31/98 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,907
<INT-BEARING-DEPOSITS> 5,163
<FED-FUNDS-SOLD> 7,735
<TRADING-ASSETS> 3,841
<INVESTMENTS-HELD-FOR-SALE> 11,594
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 69,590
<ALLOWANCE> 1,408
<TOTAL-ASSETS> 114,804
<DEPOSITS> 68,170
<SHORT-TERM> 20,634
<LIABILITIES-OTHER> 7,140
<LONG-TERM> 10,294<F1>
<COMMON> 320
0
190
<OTHER-SE> 7,496<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 114,804
<INTEREST-LOAN> 1,460
<INTEREST-INVEST> 143
<INTEREST-OTHER> 261
<INTEREST-TOTAL> 1,864
<INTEREST-DEPOSIT> 558
<INTEREST-EXPENSE> 1,003
<INTEREST-INCOME-NET> 861
<LOAN-LOSSES> 179
<SECURITIES-GAINS> 10<F3>
<EXPENSE-OTHER> 848<F4>
<INCOME-PRETAX> 573
<INCOME-PRE-EXTRAORDINARY> 383
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 383
<EPS-PRIMARY> 1.32<F5>
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 3.67
<LOANS-NON> 352
<LOANS-PAST> 253
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,408
<CHARGE-OFFS> 233
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 1,408
<ALLOWANCE-DOMESTIC> 0<F6>
<ALLOWANCE-FOREIGN> 0<F6>
<ALLOWANCE-UNALLOCATED> 0<F6>
<FN>
<F1> Guaranteed Preferred Beneficial Interest in the Corporation's Junior
Subordinated Debt of $996 million is included in long-term debt.
<F2> Treasury stock of $2,102 million is included as a reduction of other
stockholders' equity.
<F3> Investment securities gains/losses do not include the Corporation's equity
Securities Gains which totaled $58 million.
<F4> Other expenses includes: Salaries and employee benefits of $440 million;
net premises, and equipment expense of $115 million; and other expenses
which totaled $293 million.
<F5> Primary earnings per share represent Basic earnings per share.
<F6> Items 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>
