-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, c8hiRnhp3nPIZBqWsBS4o/Kw55eJwVRI9NIekWv7wcZF9waGhZr/IRl35bVox7zm tUaLycZj5qKsM/yTdmCr3w== 0000950131-94-000273.txt : 19940307 0000950131-94-000273.hdr.sgml : 19940307 ACCESSION NUMBER: 0000950131-94-000273 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CHICAGO CORP CENTRAL INDEX KEY: 0000036161 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 362669970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06052 FILM NUMBER: 94514526 BUSINESS ADDRESS: STREET 1: ONE FIRST NATL PLZ MAIL STE 0287 CITY: CHICAGO STATE: IL ZIP: 60670 BUSINESS PHONE: 3127324000 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 1-6052 FIRST CHICAGO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 36-2669970 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60670 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE) Registrant's telephone number, including area code: (312) 732-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------- ----------------------- Common Stock, $5.00 par value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends ($50 stated value), no par value New York Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends, Series B ($100 stated value), no par value New York Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends, Series C ($100 stated value), no par value New York Stock Exchange 10% Cumulative Preferred Stock, Series D ($25 stated value), no par value New York Stock Exchange Depositary Shares, each representing one-twenty-fifth of a share of 8.45% Cumulative Preferred Stock, Series E ($625 stated value), no par value New York Stock Exchange Depositary Shares, each representing one-hundredth of a share of 5 3/4% Cumulative Convertible Preferred Stock, Series B ($5,000 stated value), no par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange 8 1/2% Notes Due June 1, 1998 New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF CLASS - -------------- 8.45% Cumulative Preferred Stock, Series E ($625 stated value) 5 3/4% Cumulative Convertible Preferred Stock, Series B ($5,000 stated value)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the Corporation as of December 31, 1993, was approximately $3,528,000,000. At December 31, 1993, the Corporation had 86,398,605 shares of its Common Stock, $5.00 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE CORPORATION'S 1993 ANNUAL REPORT TO STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PARTS I, II AND IV HEREOF, AND PORTIONS OF THE CORPORATION'S DEFINITIVE PROXY STATEMENT DATED MARCH 4, 1994, ARE INCORPORATED BY REFERENCE INTO PART III HEREOF. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FIRST CHICAGO CORPORATION FORM 10-K INDEX
PAGE ---- PART I Item 1. Business................................................... 2 Description of Business.................................... 2 Employees.................................................. 5 Competition................................................ 5 Monetary Policy and Economic Controls...................... 5 Supervision and Regulation................................. 6 Financial Review........................................... 10 Certain Statistical Information............................ 10 Item 2. Properties................................................. 19 Item 3. Legal Proceedings.......................................... 20 Item 4. Submission of Matters to a Vote of Security Holders........ 20 Executive Officers of the Registrant..................................... 20 PART II Item 5. Market for Registrant's Common Equity and Related 20 Stockholder Matters....................................... Item 6. Selected Financial Data.................................... 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 20 Item 8. Financial Statements and Supplementary Data................ 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 21 PART III Item 10. Directors and Executive Officers of the Registrant......... 21 Item 11. Executive Compensation..................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and 21 Management................................................ Item 13. Certain Relationships and Related Transactions............. 21 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on 21 Form 8-K..................................................
1 PART I ITEM 1. BUSINESS DESCRIPTION OF BUSINESS General First Chicago Corporation (the "Corporation") is a multibank holding company incorporated in Delaware in l969. The principal asset of the Corporation is the capital stock of The First National Bank of Chicago ("FNBC"). The Corporation also owns all the outstanding capital stock of American National Corporation ("ANC") and FCC National Bank. ANC is the holding company for American National Bank and Trust Company of Chicago ("ANB"), American National Bank of Libertyville, and American National Bank and Trust Company of Wisconsin. FCC National Bank is a Delaware-based bank primarily engaged in the issuance of VISA and MasterCard credit cards. Together with these banking organizations, the Corporation, directly or indirectly, owns the stock of various nonbank companies engaged in businesses related to banking and finance, including venture capital and leasing subsidiaries. In November 1993, the Corporation and Lake Shore Bancorp., Inc. ("Lake Shore") signed a definitive agreement providing for the purchase of all outstanding shares of Lake Shore by the Corporation for approximately $323 million of the Corporation's common stock. Lake Shore, a Chicago area bank holding company with eight offices in the Chicago metropolitan area, owns Lake Shore National Bank and Bank of Hinsdale. Each share or share equivalent of Lake Shore common stock will be exchanged for common stock of the Corporation valued at $31.08. The exchange ratio will be determined based on the average closing price of the Corporation's common stock during a 20-day period ending just prior to the closing of the transaction, with a minimum price of $37 and a maximum price of $53 per share. The transaction is subject to approval of Lake Shore's stockholders and various bank regulatory authorities, and is expected to close in mid-1994. In addition to its equity investments in subsidiaries, the Corporation, directly or indirectly, raises funds principally to finance the operations of its nonbank subsidiaries. A substantial portion of the Corporation's annual income typically has been derived from dividends from its subsidiaries and from interest on loans to its subsidiaries. The Corporation's business strategy focuses on three major sectors: corporate and institutional banking, consumer banking and middle market banking. Each of these businesses is supported through the organizational structures of the Corporation's banking and nonbanking subsidiaries, as described below. The Corporation's U.S. offices and international facilities are listed on page 69 of the Corporation's 1993 Annual Report to Stockholders, and such listing is expressly incorporated herein by reference. Corporate and Institutional Banking Corporate and institutional banking encompasses the broad range of commercial and investment banking products and services that FNBC, along with the subsidiaries referenced below, provides to domestic and foreign customers. The principal focus of corporate and institutional banking activities is the delivery of corporate financial services and noncredit services and the extension of credit to commercial, financial and governmental customers. Serving the larger business marketplace within the United States, Canada, Europe, the Middle East, Africa and the Asia-Pacific regions, corporate and institutional banking provides products and services to industries including: retailing, commodities, banking, finance, insurance, transportation, securities, real estate, mortgage banking, communications, utilities, and petroleum and mining, as well as health, education and service organizations, and municipalities. Upper middle market customers within the Midwest are also served by corporate and institutional banking. 2 In the global financial marketplace, corporate and institutional banking is responsible for FNBC's investment activities in U.S. government securities, municipal money markets, fixed income securities, federal agency securities, foreign exchange and the futures markets. Risk insurance products, such as foreign exchange options, interest rate options, and interest rate and currency swaps, are also provided. A separate subsidiary of the Corporation, First Chicago Capital Markets, Inc. ("FCCM"), is a primary government bond dealer and, as such, reports its positions daily to the Federal Reserve Open Market Committee Trading Desk. FCCM also is responsible for activities in the securities of states, municipalities and other governmental entities, and certain corporate entities, including trading, sales, underwriting, research, and maintenance of an active secondary market with national sales distribution. Certain financial products and services such as global merchant banking, private placement of debt securities, merger and acquisition advisory services, subordinated debt investments, highly leveraged transaction financings, asset sales and distributions, loan syndications, and financial advisory services to troubled companies are coordinated with corporate and institutional banking. These products and services are provided through FNBC, through nonbank subsidiaries of the Corporation, and through international banking subsidiaries of FNBC. Corporate and institutional banking also develops, markets and delivers cash management, operating, clearing and other noncredit products, both overseas and domestically. These include money transfer, collection, disbursement, documentary, remittance, trade finance, international securities clearing, custody, corporate trust and shareholder services. Corporate and institutional banking includes the operations of three subsidiaries of the Corporation and FNBC: First Chicago National Processing Corporation, which provides noncredit clearing services, including lock box processing, on a nationwide basis; First Chicago International, which provides clearing and documentary services; and First Chicago Trust Company of New York, a New York state-chartered trust company, which provides custody, corporate trust, special agency, stock transfer, and securities issuing, paying and clearance services. In addition, the First Chicago Clearing Center in London is that city's principal depository for certificates of deposit and other short- term securities. Consumer Banking The consumer banking business consists of two principal business groups: Community Banking and First Card. Community Banking has primary responsibility for developing and marketing diversified financial services to individuals and privately held businesses located in the Chicago metropolitan area. These services include traditional deposit and loan services, investment advisory and trust services, discount brokerage, mutual funds, annuities and mortgage loans. Consumer banking services are distributed through more than 70 consumer banking facilities and more than 370 automatic teller machines ("ATM"s), and through Bank-by-Mail, Bank-at-Work and computer home-banking programs. In 1993, the Corporation continued to consolidate and streamline its community banking operations by merging its remaining local community banking subsidiaries into FNBC. ATM services are provided to consumer banking clients in the Chicago market through a shared network called CASH STATION and through the CIRRUS system nationwide. First Card has primary responsibility for developing and marketing the Corporation's credit card services to individuals nationwide using direct response, telemarketing and other techniques that do not require a local physical presence. While VISA and MasterCard accounts are the primary products sold by First Card, other services include check-accessed lines of credit and certificates of deposit. 3 The majority of the Corporation's credit card accounts are owned and administered by FCC National Bank ("FCCNB"), headquartered in Wilmington, Delaware. First Card operations centers are located in Wilmington, Delaware; Elgin, Illinois; and Uniondale (Long Island), New York. During 1993, First Card continued to expand, primarily through marketing programs offering FCCNB's proprietary First Card line of VISA and MasterCard accounts. The Corporation's subsidiaries in the aggregate rank among the largest issuers of bank credit cards in the United States. Middle Market Banking Middle market banking is conducted primarily through ANC, which, through ANB and ANC's other subsidiaries, offers a wide range of banking and financial products and services, with primary emphasis on the middle market corporate customer in the Chicago metropolitan area. ANB has 15 Chicago and suburban branches, including its main office in downtown Chicago and a new office in Matteson, Illinois. Other suburban branches are located in Arlington Heights, Bensenville, Deerfield, Des Plaines, Elgin, Lisle, Melrose Park, Skokie and Willowbrook. ANB maintains one foreign branch in Grand Cayman. ANC also owns American National Bank and Trust Company of Wisconsin and American National Bank of Libertyville, whose activities are coordinated with those of ANB. ANB is organized into three major lines of business: Banking, Trust and Investment Management. There are also four support divisions within ANB: Financial Services, Auditing, Marketing and Personnel. The Banking Department comprises Commercial Banking, Correspondent and Institutional Banking, International Banking, Personal Banking, Corporate Finance, Banking Operations and the Treasury Division. The Banking Department provides services to commercial and correspondent bank customers, including commercial loans, demand deposit and time deposit accounts, commercial finance and real estate mortgage loans, cash management services, financial advisory services and investment services. The department also provides personal banking services, including personal consumer loans, deposit services and safe deposit facilities. The Trust business is composed of Corporate Trust Services and Personal Trust and Investment Management. Corporate Trust Services acts as trustee and performs other services related to the issuance of public debt. Personal Trust and Investment Management provides estate planning, fiduciary management and investment management services to individuals, particularly business owners, executives and professionals. The Investment Management business is conducted through ANB Investment Management & Trust Company, a wholly owned subsidiary of ANB, which provides investment management and related administrative services for employee benefit and retirement plans and for other tax-exempt funds. ANB Investment Management & Trust Company manages a wide array of equity and fixed income funds, actively managed equity and fixed income funds, and balanced funds. This subsidiary manages approximately $18 billion of assets for clients in the Chicago area and throughout the U.S. Other Subsidiaries In addition to the banking subsidiaries described above, the Corporation owns subsidiaries that are engaged in businesses related to banking and finance, including leasing real and personal property; providing specialized financing that supplements FNBC's commercial lending activities; and engaging in certain permissible investment banking activities. First Chicago Financial Corporation raises funds to finance the operations of its subsidiaries: First Chicago Leasing Corporation, First Chicago Investment Corporation and FCCM. First Chicago Leasing Corporation provides advice on, and invests in, leases for commercial aircraft, facilities and other major industrial equipment. First Chicago Investment Corporation provides various forms of equity financing for acquisitions, management buyouts and growing businesses. FCCM engages in certain permissible securities distribution and trading activities as described on page 3 of this Form 10-K. 4 First Capital Corporation of Chicago, a small business investment company licensed under the Small Business Investment Act of 1958, offers equity financing for small business ventures. Financial Policy The Corporation's Policy Committee maintains ultimate responsibility for the establishment of financial policies and strategies which are consistent with the Corporation's overall business objectives. The Policy Committee is responsible to the Board of Directors for reporting such policies and strategies. The Finance Committee oversees the implementation and execution of policies established by the Policy Committee relating to the financial management of the Corporation, specifically: liquidity management, interest rate risk management, investment accounts, tax planning, and accounting risk. The Finance Committee is chaired by the Corporation's Chief Financial Officer. Credit Strategy and Market Risk Policy The Credit Strategy Committee is responsible for providing strategic direction and senior management oversight for the credit risk management process. This process includes identifying, measuring and managing potential credit risk inherent in loans, leases, letters of credit, and other product offerings such as interest rate and currency risk insurance products, service products, securities placement products and trading products. The Market Risk Committee is responsible for providing strategic direction and senior management oversight for the market risk management process. This process includes identifying, measuring and managing potential capital, balance sheet and income effects associated with interest rate, exchange rate and other market risks. Staff Departments Staff support for FNBC, the Corporation and certain of their subsidiaries is supplied by the Administration, Audit, Corporate and Community Affairs, Corporate Strategy, Credit and Market Risk Policy, Economic Forecasting, Human Resources and Law Departments, and the Finance Group. EMPLOYEES As of December 3l, 1993, the Corporation and its subsidiaries had approximately 17,355 employees on a full-time-equivalent basis. COMPETITION All phases of the Corporation's activities, including banking, are highly competitive. The Corporation's banking subsidiaries (the "Banks") compete actively with money market mutual funds, national and state banks, mutual savings banks, savings and loan associations, finance companies, credit unions and other financial institutions located throughout the U.S. For international business, the Banks compete with other U.S. financial institutions that have foreign installations, and with other major banks and financial institutions throughout the world. In addition, the Corporation's subsidiaries are subject to competition from a variety of financial and other institutions that provide a wide array of products and services. MONETARY POLICY AND ECONOMIC CONTROLS The earnings of the Banks and, therefore, the earnings of the Corporation, are affected by the policies of regulatory authorities, including the Board of Governors of the Federal Reserve System (the "Board"). An important function of the Board is to promote orderly economic growth by influencing interest rates and the supply of money and credit. Among the methods that have been used to achieve this objective are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, interest rates on loans and securities, and rates paid for deposits. 5 The Board's monetary policies strongly influence the behavior of interest rates and can, therefore, have a significant effect on the operating results of commercial banks. During the second half of 1993, economic growth accelerated. If growth continues to be strong, inflationary pressures will begin to develop. Given such circumstances, the Board has begun to tighten credit conditions, pushing up interest rates. The effects of the various measures used by the Board on the future business and earnings of the Banks and the Corporation cannot be predicted. Other economic controls also have affected the Corporation's operations in the past. The Corporation cannot predict the nature or extent of any effects that possible future governmental controls or legislation may have on its business and earnings. SUPERVISION AND REGULATION Bank Holding Company Regulation The Corporation is a bank holding company as defined under the Bank Holding Company Act of 1956, as amended (the "Act"), and is registered as such with the Board. Under the Act, bank holding companies are prohibited, with certain exceptions, from engaging in, or from acquiring more than 5 percent of the voting stock of any company engaging in, activities other than banking, or managing or controlling banks, or performing services for their subsidiaries. The Act authorizes the Board to permit bank holding companies to engage in, and to acquire or retain shares of companies that engage in, activities that the Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Board has determined that a number of activities meet this standard. Among the activities so approved are: making and servicing loans; performing certain fiduciary functions; leasing real and personal property; underwriting and dealing in government obligations and certain money market instruments; underwriting and dealing, to a limited extent, in corporate debt obligations and other securities that banks may not deal in; providing foreign exchange advisory and transactional services; acting as a futures commission merchant; and owning, controlling or operating a savings association if the association engages only in deposit-taking activities, lending and other activities that are permissible for bank holding companies. The Board, from time to time, may revise and expand the list of permitted activities. The Act also prohibits bank holding companies from acquiring more than 5 percent of the voting shares of any bank that is not already majority-owned without the prior approval of the Board. No application to acquire shares of a bank (as defined in the Act) located outside the state in which the operations of the applicant's banking subsidiaries are principally conducted may be approved by the Board unless such acquisition is specifically authorized by a statute of the state in which the bank whose shares are to be acquired is located. At present, nearly all states have adopted legislation permitting some form of acquisition by an out-of-state bank holding company of the shares of an in-state bank. In some of these states, only banks with limited powers may be established; in other jurisdictions, the laws permit only specific out-of-state bank holding companies to acquire in-state banks. Some states permit emergency bank acquisitions by out-of-state bank holding companies. In addition, the laws of some other states permit an out-of-state bank holding company to own a bank within their state only if a bank holding company within such state would be permitted to own a bank in the state of the out-of-state bank holding company. Certain reciprocal statutes are limited to specific regions of the country, and the U.S. Supreme Court has sustained the constitutionality of certain of these regional interstate banking statutes. Additional developments by state and federal authorities, including federal legislation, with respect to interstate banking may occur in the future. The impact of any such developments on the Corporation and the Banks cannot be predicted at this time. The Illinois Bank Holding Company Act (the "Illinois Act") provides that any out-of-state bank holding company whose principal place of business is in a state that grants Illinois bank holding companies reciprocal authority may acquire control of an Illinois bank or bank holding company. The approval of the Illinois 6 Commissioner of Banks and Trust Companies is required to complete such an interstate acquisition in Illinois. The Illinois Act also permits intrastate acquisitions throughout Illinois by Illinois bank holding companies. All interstate and intrastate bank acquisitions by the Corporation are subject to the approval of the Board. The Corporation is required to file with the Board annual reports and such additional information as the Board may require pursuant to the Act. The Board periodically examines the Corporation and its nonbank subsidiaries, and is authorized to impose reserve requirements and interest rate limitations on certain debt obligations issued by bank holding companies. As a bank holding company, the Corporation and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit or providing property or services. The Board has adopted risk-based capital guidelines for bank holding companies that require bank holding companies to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) of 8%. At least half of total capital has to be composed of common stockholders' equity, noncumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred stock, less disallowed intangibles (primarily goodwill) ("Tier I capital"). The remainder ("Tier II capital") may consist of subordinated debt, other preferred stock, certain other instruments and a limited amount of loan loss reserves. At December 31, 1993, the Company's consolidated Tier I capital and total capital ratios were 8.8% and 13.6%, respectively. In addition, the Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier I capital to total average assets, less disallowed intangibles (primarily goodwill) (the "leverage ratio") of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The Corporation's leverage ratio at December 31, 1993, was 8.0%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Board has indicated that it will consider a "tangible Tier I capital leverage ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities. Banking Regulation The Corporation and its nonbank subsidiaries are affiliates of the Banks within the meaning of the Federal Reserve Act. The Corporation and its nonbank subsidiaries are subject to certain restrictions on loans made by the Banks to the Corporation or such other subsidiaries, on investments made by the Banks in their stock or securities, on the Banks taking such stock and securities as collateral for loans, and on the terms of transactions between the Banks and other subsidiaries. The Corporation and its subsidiaries, including the Banks, are also subject to certain restrictions with respect to engaging in the issuance, flotation, underwriting, public sale or distribution of securities. There are various additional requirements and restrictions in the laws of the U.S. and the State of Illinois affecting the Banks and their operations, including the requirement to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made by the Banks, and restrictions related to investments and other activities of the Banks. The Banks are subject to regulation by the Office of the Comptroller of the Currency (the "Comptroller"), the Board and the Federal Deposit Insurance Corporation ("FDIC"). As national banks, they are examined by the Comptroller. FNBC's and ANB's operations in other countries are subject to various restrictions imposed by the laws of such countries. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") significantly expanded the regulatory and enforcement powers of federal banking regulators and has important consequences for the Corporation, the Banks and other depository institutions located in the U.S. 7 A major feature of FDICIA is the comprehensive directions it gives to federal banking regulators to promptly direct or require the correction of problems at inadequately capitalized banks in the manner that is least costly to the federal deposit insurance funds. The degree of corrective regulatory involvement in the operations and management of banks and their holding companies is, under FDICIA, largely determined by the actual or anticipated capital position of the subject institution. FDICIA established five tiers of capital measurement for regulatory purposes ranging from "well capitalized" to "critically undercapitalized." FDICIA requires banking regulators to take increasingly strong corrective steps, based on the capital tier of any subject bank, to cause such bank to achieve and maintain capital adequacy. Even if a bank is adequately capitalized, however, the banking regulators are authorized to apply corrective measures if the bank is determined to be in an unsafe or unsound condition or engaging in an unsafe or unsound activity. Depending on the capital level of an insured depository institution, the banking regulatory agencies' corrective powers can include: requiring a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to reduce total assets; requiring the institution to issue additional stock (including voting stock) or to be acquired; placing restrictions on transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election for the institution's board of directors; requiring that certain senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; prohibiting the institution's parent bank holding company from making capital distributions without prior regulatory approval; and, ultimately, appointing a receiver or conservator for the institution. If an insured depository institution is undercapitalized, the parent bank holding company is required to guarantee that the institution will comply with any capital restoration plan submitted to, and approved by, the appropriate federal banking agency in an amount equal to the lesser of (i) 5% of the institution's total assets at the time the institution became undercapitalized or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with the capital restoration plan. If such parent bank holding company guarantee is not obtained, the capital restoration plan may not be accepted by the banking regulators. As a result, such institution would be subject to the more severe restrictions imposed on significantly undercapitalized institutions. Further, the failure of such a depository institution to submit an acceptable capital plan is grounds for the appointment of a conservator or receiver. FDICIA also contains a number of other provisions affecting depository institutions, including the creation of additional reporting and independent auditing requirements, the establishment of safety and soundness standards, the changing of FDIC insurance premiums from flat amounts to a new system of risk- based assessments, as described below, a review of accounting standards, and supplemental disclosures and limits on the ability of depository institutions to acquire brokered deposits. FDICIA will likely result in increased costs for the banking industry due to higher assessments and more limitations on the activities of all but the most well-capitalized banks. In addition to FDICIA, there have been a number of legislative and regulatory proposals designed to strengthen the federal deposit insurance system and to improve the overall financial stability of the U.S. banking system. These include proposals to increase capital requirements above presently published guidelines, to place special assessments on banks to increase funds available to the FDIC, and to allow national banks to branch on an interstate basis. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond current levels. Each of the Banks and the Corporation were in compliance with applicable minimum capital requirements as of December 31, 1993. The management of the Corporation, however, is unable to predict whether higher capital requirements will be imposed and, if so, at what levels and on what schedule. 8 The Banks are subject to FDIC deposit insurance assessments. FDICIA provides that FDIC deposit insurance assessments change from flat rate premiums to a new system of risk-based premium assessments. In June 1993, the FDIC adopted final rules effective January 1, 1994, for the implementation of the risk-based assessment system. Under this system, the assessment rates for an insured depository institution vary according to the level of risk incurred in its activities. Under the FDIC's risk-based assessment system, the prior flat assessment rate of 0.23% per annum on the amount of domestic deposits has been changed to a rate based upon classification of a depository institution in one of nine risk assessment categories. Such classification is based upon the institution's capital level and upon certain supervisory evaluations of the institution by its primary regulator. The assessment rate schedule adopted creates a 0.08% spread in assessment rates, ranging from 0.23% per annum to 0.31% per annum, between banks classified as strongest and weakest by the FDIC. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), among other things, provides generally that, upon the default of any bank of a multi-unit holding company, the FDIC may assess an affiliated insured depository institution for the estimated losses incurred by the FDIC. Specifically, FIRREA provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver. "In danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. All of the Banks are FDIC-insured depository institutions. Additionally, there are certain regulatory limitations on the payment of dividends to the Corporation by the Banks. Dividend payments by a national bank are limited to the lesser of (i) the level of "undivided profits then on hand" less the amount of bad debts, as defined, in excess of the allowance for credit losses, and (ii) absent regulatory approval, an amount not in excess of its "net profits" for the current year combined with the "retained net profits" for the preceding two years. As of December 3l, 1993, the Banks could have declared additional dividends of approximately $445 million without approval of the Comptroller. The payment of dividends by any Bank may also be affected by other factors, such as the maintenance of adequate capital for such Bank. In addition, the Comptroller has authority to prohibit a national bank from paying dividends if, in the Comptroller's opinion, the payment of dividends would, in light of the financial condition of such bank, constitute an unsafe or unsound practice. FNBC and ANB are registered with the Comptroller as transfer agents and are subject to the rules and regulations of the Securities and Exchange Commission (the "Commission") and the Comptroller with respect to their activities as transfer agents. Certain organizational units within FNBC and ANB are registered with the Commission as municipal securities dealers. These units are subject to the applicable rules and regulations of the Commission and the Municipal Securities Rulemaking Board with respect to transactions in municipal securities performed in a municipal securities dealer capacity. FNBC also is a regulated government securities broker and dealer under the Government Securities Act, and is subject to regulations issued thereunder in connection with the conduct of its U.S. government securities business. In addition, First Chicago Investment Services, Inc. ("FCIS"), a discount brokerage subsidiary of FNBC, is registered as a broker-dealer with the Commission and is a member of the National Association of Securities Dealers ("NASD"). The brokerage activities of FCIS are subject to the applicable rules and regulations of the Commission and the NASD. Also, FCCM is registered as a broker-dealer with the Commission and is a member of the NASD. The securities distribution and trading activities of FCCM are subject to the applicable rules and regulations of the Board, the Commission and the NASD. 9 First Chicago Futures, Inc. ("FCFI"), a subsidiary of FNBC that conducts a commodities brokerage business and is a market maker in foreign currency options, is registered with the Commission as a broker-dealer and with the Commodity Futures Trading Commission ("CFTC") as a futures commission merchant, and is a member of the National Futures Association ("NFA"). FCFI is subject to the applicable rules and regulations of the Commission, the CFTC, the NFA, and certain commodities and securities exchanges of which FCFI is a member with respect to its activities as a foreign currency market maker and a futures commission merchant. FINANCIAL REVIEW Additional information responsive to this Item 1 is set forth in the Corporation's 1993 Annual Report to Stockholders on pages 17-37 of the "Financial Review" section and is expressly incorporated herein by reference. CERTAIN STATISTICAL INFORMATION In addition to the statistical information set forth on the following pages of this Form 10-K, the information set forth in "Selected Statistical Information" on pages 64-67 of the Corporation's 1993 Annual Report to Stockholders is expressly incorporated herein by reference. INVESTMENT SECURITIES
1993 1992 1991 DECEMBER 31 (IN MILLIONS) ------ ------ ------ Debt securities U.S. government and federal agency Held for investment..................................... $ -- $ 330 $ 501 Held to maturity........................................ 245 -- -- Available for sale...................................... 243 195 -- ------ ------ ------ Total................................................. 488 525 501 States & political subdivisions Held for investment..................................... -- 244 305 Held to maturity........................................ 162 -- -- ------ ------ ------ Total................................................. 162 244 305 Bonds, notes and debentures Held for investment..................................... -- 134 136 Held to maturity........................................ 4 -- -- Available for sale...................................... 15 -- -- ------ ------ ------ Total................................................. 19 134 136 ------ ------ ------ Total debt securities................................. 669 903 942 Equity securities (1)...................................... 1,587 1,497 911 ------ ------ ------ Total................................................. $2,256 $2,400 $1,853 ====== ====== ======
- -------- (1) Includes venture capital portfolio and Federal Reserve stock. 10 As of December 31, 1993, debt investment securities had the following maturity and yield characteristics.
HELD TO AVAILABLE MATURITY FOR SALE TOTAL ----------- ----------- ----------- BOOK BOOK BOOK VALUE YIELD VALUE YIELD VALUE YIELD (DOLLARS IN MILLIONS) ----- ----- ----- ----- ----- ----- U.S. GOVERNMENT AND FEDERAL AGENCY Maturing within one year................... $ 73 5.23% $238 3.39% $311 3.82% Maturing after one but within five years... 170 4.64 -- -- 170 4.64 Maturing after five but within ten years... -- -- -- -- -- -- Maturing after ten years................... 2 8.32 5 7.43 7 7.68 ---- ---- ---- ---- ---- ---- $245 4.85% $243 3.46% $488 4.16% ==== ==== ==== ==== ==== ==== STATES AND POLITICAL SUBDIVISIONS* Maturing within one year................... $ 13 9.99% -- -- $ 13 9.99% Maturing after one but within five years... 59 9.32 -- -- 59 9.32 Maturing after five but within ten years... 40 9.02 -- -- 40 9.02 Maturing after ten years................... 50 9.61 -- -- 50 9.61 ---- ---- ---- ---- ---- ---- $162 9.39% -- -- $162 9.39% ==== ==== ==== ==== ==== ==== OTHER BONDS, NOTES AND DEBENTURES Maturing within one year................... $ 1 5.59% $ 11 5.29% $ 12 5.31% Maturing after one but within five years... 2 5.66 1 4.92 3 5.44 Maturing after five but within ten years... -- -- -- -- -- -- Maturing after ten years................... 1 2.64 3 5.95 4 5.26 ---- ---- ---- ---- ---- ---- $ 4 5.14% $ 15 5.68% $ 19 5.57% ==== ==== ==== ==== ==== ====
- -------- *Yields for obligations of states and political subdivisions are calculated on a tax-equivalent basis using a tax rate of 35 percent. LOAN COMPOSITION
1993 1992 1991 1990 1989 DECEMBER 31 (IN MILLIONS) ------- ------- ------- ------- ------- Commercial risk Domestic Commercial............................ $ 6,007 $ 7,020 $ 8,612 $ 9,037 $ 8,855 Commercial real estate(1) Construction......................... 315 432 867 1,170 1,553 Other................................ 2,094 2,240 3,387 3,596 2,919 Financial institutions................ 1,292 1,307 1,180 1,259 1,366 Other................................. 2,746 2,712 2,425 2,783 2,880 ------- ------- ------- ------- ------- Total domestic......................... 12,454 13,711 16,471 17,845 17,573 Foreign office Commercial............................ 783 937 1,380 1,777 1,977 Governments and official institutions. 166 222 298 419 825 Banks and other financial institutions......................... 754 766 871 1,004 1,064 Real estate(1)........................ 65 123 149 161 130 Other................................. 207 61 167 76 266 ------- ------- ------- ------- ------- Total foreign office................... 1,975 2,109 2,865 3,437 4,262 ------- ------- ------- ------- ------- Total commercial.................... 14,429 15,820 19,336 21,282 21,835 ------- ------- ------- ------- ------- Consumer risk Credit cards.......................... 5,778 4,135 3,843 3,930 5,099 Secured by real estate Mortgage............................. 1,469 1,319 1,125 1,110 1,511 Home equity.......................... 780 827 782 703 552 Other................................. 647 591 575 681 728 ------- ------- ------- ------- ------- Total consumer...................... 8,674 6,872 6,325 6,424 7,890 ------- ------- ------- ------- ------- Total loans......................... $23,103 $22,692 $25,661 $27,706 $29,725 ======= ======= ======= ======= =======
- -------- (1) December 31, 1989, amounts exclude real estate-related loans. 11 FOREIGN OUTSTANDINGS The Corporation's cross-border outstandings to countries where such outstandings exceeded 1.0 percent of the Corporation's total assets ($526 million as of December 31, 1993, $493 million as of December 31, 1992, and $490 million as of December 31, 1991) are shown in the table below. They consist of loans (including accrued interest), acceptances, interest-bearing deposits with other banks, equity investments, other interest-bearing investments and other nonlocal currency monetary assets.
BANKS AND GOVERNMENT OTHER COMMERCIAL (IN MILLIONS) AND OFFICIAL FINANCIAL AND COUNTRY DECEMBER 31 INSTITUTIONS INSTITUTIONS INDUSTRIAL OTHER TOTAL - ------------- ----------- ------------ ------------ ---------- ----- ------ Japan............ 1993 $-- $3,617 $ 77 $ 21 $3,715 1992 -- 3,263 81 33 3,377 1991 -- 3,585 75 3 3,663 Canada........... 1993 $ 1 $ 289 $183 $ 60 $ 533 1992 4 535 113 5 657 1991 1 269 148 78 496 Italy............ 1993 $ 7 $ 600 $ -- $ -- $ 607 1992 4 564 15 -- 583 1991 * * * * * France........... 1993 $ * $ * $ * $ * $ * 1992 6 551 2 2 561 1991 * * * * * United Kingdom... 1993 $ * $ * $ * $ * $ * 1992 * * * * * 1991 34 371 235 40 680
- -------- *Outstandings less than 1 percent. At year-end 1993, the only country for which cross-border outstandings totaled between 0.75 percent and 1.0 percent of the Corporation's total assets was Korea; such outstandings totaled $489 million. At December 31, 1992, the countries for which cross-border outstandings totaled between 0.75 percent and 1.0 percent of the Corporation's total assets were Korea and the United Kingdom; such outstandings totaled $962 million. At December 31, 1991, the only country for which cross-border outstandings totaled between 0.75 percent and 1.0 percent of the Corporation's total assets was Korea; such outstandings totaled $405 million. HIGHLY LEVERAGED TRANSACTIONS The Corporation originates and syndicates highly leveraged transactions (HLTs). Policies and procedures are maintained for the management and reporting of HLT exposure. The Corporation continues to disclose this exposure using the HLT definition previously established by federal banking regulatory agencies. HLT CREDIT EXPOSURE
1993 1992 1991 DECEMBER 31 (IN MILLIONS) ------ ------ ------ Loans................................................ $ 711 $1,256 $2,669 Other credit exposure................................ 303 378 1,089 ------ ------ ------ Total HLT credit exposure........................ $1,014 $1,634 $3,758 ====== ====== ======
12 HLT exposure continued to decrease during 1993, due mainly to the delisting of credits originally designated as HLTs. These reductions were made in accordance with the federal banking regulatory agencies' delisting criteria. Credit exposure to communications-related industries represented the only significant HLT concentration. This concentration represented approximately 33 percent of HLT credit exposure at year-end 1993, compared with 35 percent a year earlier. Net charge-offs of HLT loans totaled $6 million in 1993, $46 million in 1992 and $77 million in 1991. Nonperforming HLT loans totaled $1 million, or less than 1 percent of total HLT loans, at December 31, 1993, compared with $82 million, or 6 percent, at December 31, 1992. During 1993, the Corporation originated HLT transactions for 18 customers, representing total credit exposure of $317 million. At year-end, $225 million of this exposure was outstanding. While the Corporation's activities related to HLTs contribute to its ongoing results, a total cessation of such activities would not have a significant impact on its ongoing profitability. The Corporation's venture capital subsidiaries have invested in companies that have substantially higher leverage than would normally exist in their industries. At December 31, 1993, this portfolio consisted of 43 HLT investments with a carrying value of $397 million. At December 31, 1993, gross unrealized gains related to HLT investments totaled $66 million, while gross unrealized losses were $82 million. At December 31, 1992, the carrying value of HLT investments in the venture capital portfolio totaled $531 million. Unfunded commitments related to the HLT segment of the venture capital portfolio totaled $2 million at December 31, 1993. At December 31, 1993, $5 million of the venture capital investments was classified as nonperforming, compared with $12 million at December 31, 1992. There were no credit charge-offs related to subordinated debt positions in 1993. MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY OF LOANS The following table shows a distribution of the maturity of loans and, for those loans due after one year, a breakdown between those loans that have floating interest rates and those that have predetermined interest rates. The amounts exclude domestic consumer loans, residential mortgage loans and domestic lease-financing receivables.
ONE YEAR ONE TO OVER DECEMBER 31, 1993 OR LESS FIVE YEARS FIVE YEARS TOTAL (IN MILLIONS) -------- ---------- ---------- ------- Domestic Commercial............................ $1,530 $ 665 $3,812 $ 6,007 Real estate........................... 524 758 1,127 2,409 Financial institutions................ 78 -- 1,214 1,292 Other................................. 1,229 130 376 1,735 ------ ------ ------ ------- Total domestic...................... 3,361 1,553 6,529 11,443 Foreign................................. 863 470 642 1,975 ------ ------ ------ ------- Total............................... $4,224 $2,023 $7,171 $13,418 ====== ====== ====== ======= Loans with floating interest rates...... $1,443 $6,471 $ 7,914 Loans with predetermined interest rates. 580 700 1,280 ------ ------ ------- Total............................... $2,023 $7,171 $ 9,194 ====== ====== =======
13 LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING INTEREST
DECEMBER 31 1993 1992 1991 1990 1989 (IN MILLIONS) ---- ---- ---- ---- ---- Domestic............................................... $63 $59 $121 $68 $78 Foreign................................................ -- -- 3 -- -- --- --- ---- --- --- Total.............................................. $63 $59 $124 $68 $78 === === ==== === ===
Loans to troubled borrowers that were restructured during 1993 but continued to yield an effective market rate totaled $58 million at December 31, 1993. INTEREST SHORTFALL ON NONPERFORMING LOANS Interest at original contract rates (based on average outstanding balances) and interest actually recorded for those periods at December 31 was as follows.
1993 1992 ---------------------------------- ---------------------------------- ACCELERATED ACCELERATED DISPOSITION DISPOSITION DOMESTIC FOREIGN PORFOLIO TOTAL DOMESTIC FOREIGN PORTFOLIO TOTAL (IN MILLIONS) -------- ------- ----------- ----- -------- ------- ----------- ----- Interest at original contract rates......... $14 $ 9 $ 3 $26 $22 $23 $13 $58 Interest actually recog- nized.................. 6 3 2 11 7 3 4 14 --- --- --- --- --- --- --- --- Interest shortfall, be- fore income tax effect. $ 8 $ 6 $ 1 $15 $15 $20 $ 9 $44 === === === === === === === ===
At December 31, 1993 and 1992, the Corporation was committed to lend additional funds of approximately $12 million and $40 million, respectively, in connection with nonperforming loans and nonperforming loans in the accelerated asset disposition portfolio. 14 ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
1993 1992 1991 1990 1989 (IN MILLIONS) ---- ---- ---- ------ ------ Balance, beginning of year Commercial.................................. $488 $627 $770 $1,073 $1,208 Consumer.................................... 136 132 127 159 108 ---- ---- ---- ------ ------ Total balance, beginning of year......... 624 759 897 1,232 1,316 Provision for credit losses Commercial.................................. 78 261 274 322 243 Consumer.................................... 192 164 166 172 223 ---- ---- ---- ------ ------ Total provision for credit losses........ 270 425 440 494 466 Provision for loans held for accelerated disposition................................. -- 491 -- -- -- Charge-offs Commercial Domestic Commercial................................ 31 68 41 29 26 Real estate (1)........................... 53 116 183 83 16 Other..................................... 6 48 149 20 6 Foreign, other than TCD (2)................ 16 48 29 35 3 Troubled-country debtor.................... 17 16 49 489 384 Consumer Credit card (3)............................ 149 157 168 191 171 Other...................................... 7 8 8 6 4 ---- ---- ---- ------ ------ Total charge-offs........................ 279 461 627 853 610 Recoveries Commercial Domestic Commercial................................ 21 12 5 3 33 Real estate (1)........................... 2 1 -- 4 1 Other..................................... 6 6 2 2 2 Foreign, other than TCD.................... 10 17 19 11 17 Troubled-country debtor.................... 6 5 8 11 1 Consumer Credit card................................ 51 46 41 39 36 Other...................................... 1 1 2 2 2 ---- ---- ---- ------ ------ Total recoveries......................... 97 88 77 72 92 Net charge-offs Commercial.................................. 78 255 417 625 381 Consumer.................................... 104 118 133 156 137 ---- ---- ---- ------ ------ Total net charge-offs.................... 182 373 550 781 518 Charge-offs of loans upon transfer to accelerated disposition portfolio (commercial)................................ -- 636 -- -- -- Other Commercial.................................. -- -- -- -- 3 Consumer (4)................................ (29) (42) (28) (48) (35) ---- ---- ---- ------ ------ Total other.............................. (29) (42) (28) (48) (32) Balance, end of year Commercial.................................. 488 488 627 770 1,073 Consumer.................................... 195 136 132 127 159 ---- ---- ---- ------ ------ Total balance, end of year............... $683 $624 $759 $ 897 $1,232 ==== ==== ==== ====== ======
- -------- (1) 1989 excludes real estate-related loans. (2) 1992 amounts include $12 million defined as commercial real estate. (3) As of January 1, 1991, the Corporation no longer charges off unpaid interest and fees on credit cards to the allowance for credit losses but instead reverses them against their respective income statement lines. Charge-offs and the provision for credit losses decreased by $21.0 million in 1990 and $16.0 million in 1989. (4) Primarily reflects the reclassification of reserves related to securitized credit card receivables to other assets for all periods presented. 15 ALLOCATED ALLOWANCE FOR CREDIT LOSSES While the allowance for credit losses is available to absorb credit losses in the entire portfolio, the tables below present an estimate of the allowance for credit losses allocated by loan type and the percentage of loans in each category to total loans.
1993 1992 1991 1990 1989 DECEMBER 31 (DOLLARS IN MILLIONS) ---- ---- ---- ---- ------ Commercial Domestic Commercial (1)............................ $367 $365 $417 $439 $ 266 Real estate............................... 24 19 51 46 24 Other (2)................................. 24 29 27 16 19 Foreign (1)(3).............................. 73 75 132 269 764 Consumer Credit card (4)............................. 188 129 124 121 152 Other....................................... 7 7 8 6 7 ---- ---- ---- ---- ------ Total..................................... $683 $624 $759 $897 $1,232 ==== ==== ==== ==== ====== Percentage of loans in each category to total loans Commercial Domestic Commercial................................ 26% 31% 33% 33% 30% Real estate............................... 10 12 17 17 15 Other..................................... 17 18 14 15 14 Foreign..................................... 9 9 11 12 14 Consumer Credit card................................. 25 18 15 14 17 Other....................................... 13 12 10 9 10 --- --- --- --- --- Total..................................... 100% 100% 100% 100% 100% === === === === ===
- -------- (1) Includes allocation for potential losses not specifically identified in the commercial segment of the portfolio. (2) Includes financial institutions, lease-financing and other. (3) Includes $699 million related to troubled-country debt in 1989. (4) Adjusted to exclude reserves for securitized credit card receivables. DEPOSITS The following tables show a maturity distribution of domestic time certificates of deposit of $100,000 and over, other domestic time deposits of $100,000 and over, and deposits in foreign offices, predominantly in amounts in excess of $100,000, at December 31, 1993. DOMESTIC TIME CERTIFICATES OF DEPOSIT
AMOUNT PERCENT (DOLLARS IN MILLIONS) ------ ------- Three months or less....................................... $ 631 40% Over three months to six months............................ 354 22 Over six months to twelve months........................... 336 21 Over twelve months......................................... 264 17 ------ --- Total.................................................. $1,585 100% ====== ===
16 DOMESTIC OTHER TIME DEPOSITS
AMOUNT PERCENT (DOLLARS IN MILLIONS) ------ ------- Three months or less....................................... $ 906 88% Over three months to six months............................ 14 1 Over six months to twelve months........................... 5 1 Over twelve months......................................... 103 10 ------ --- Total.................................................. $1,028 100% ====== ===
FOREIGN OFFICES
AMOUNT PERCENT (DOLLARS IN MILLIONS) ------ ------- Three months or less....................................... $7,382 98% Over three months to six months............................ 124 2 Over six months to twelve months........................... 30 -- Over twelve months......................................... -- -- ------ --- Total.................................................. $7,536 100% ====== ===
The following table shows the breakdown of deposits on an average basis for the past three years. DEPOSITS--AVERAGE BALANCES
1993 1992 1991 (IN MILLIONS) ------- ------- ------- Domestic Demand deposits................................. $ 6,980 $ 6,136 $ 5,235 Savings and time deposits....................... 11,357 11,915 10,906 Time certificates of deposit over $100,000...... 2,137 3,286 5,263 ------- ------- ------- Total domestic................................ 20,474 21,337 21,404 Foreign offices................................... 9,203 10,357 11,415 ------- ------- ------- Total deposits................................ $29,677 $31,694 $32,819 ======= ======= =======
FUNDS BORROWED Federal funds purchased, securities under repurchase agreements and commercial paper are other major nonretail sources of funds. Details on the outstandings and rates of these instruments during the past three years follow.
1993 1992 1991 (DOLLARS IN MILLIONS) ------- ------- ------- Federal funds purchased and securities under repurchase agreements Outstanding at year-end.......................... $ 8,255 $ 6,962 $ 5,145 Highest outstanding at any month-end............. 12,588 12,930 10,238 Average interest rate at year-end................ 2.95% 3.34% 4.50% Commercial paper Outstanding at year-end.......................... $ 164 $ 172 $ 226 Highest outstanding at any month-end............. 239 334 335 Average interest rate at year-end................ 2.90% 3.73% 4.40% Other funds borrowed Outstanding at year-end.......................... $ 5,843 $ 3,997 $ 2,712 Highest outstanding at any month-end............. 7,991 4,554 4,236 Average interest rate at year-end................ 4.19% 5.15% 6.64% Total funds borrowed Daily average outstanding during the year........ $17,155 $14,177 $10,958 Approximate daily average interest rate during the year........................................ 3.52% 4.13% 6.23%
17 The maturities of other funds borrowed as of December 31, 1993, were (in millions): Other Funds Borrowed 1994............................................................. $4,838 1995............................................................. 434 1996............................................................. 308 1997............................................................. 204 1998 and beyond.................................................. 59 ------ Total.......................................................... $5,843 ======
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- FINANCIAL RATIOS Net income as a percentage of: Average stockholders' equity.................. 20.7% 2.8% 4.0% 9.0% 14.1% Average common stockholders' equity........... 24.2 1.8 3.2 9.4 15.5 Average total assets.......................... 1.42 0.17 0.22 0.47 0.74 Average earning assets........................ 1.66 0.20 0.26 0.55 0.85 Stockholders' equity at year-end as a percentage of: Total assets at year-end...................... 8.1 6.9 6.1 5.5 5.6 Total loans at year-end....................... 18.5 15.0 11.6 10.1 9.1 Total deposits at year-end.................... 15.1 11.4 9.3 8.6 8.2 Average stockholders' equity as a percentage of: Average assets................................ 6.8 6.1 5.6 5.2 5.2 Average loans................................. 17.7 13.6 10.8 9.0 8.7 Average deposits.............................. 13.1 10.5 9.0 8.1 7.8 Income to fixed charges: Excluding interest on deposits................ 2.7x 0.7x* 1.2x 1.3x 1.5x Including interest on deposits................ 1.9x 0.9x* 1.1x 1.1x 1.1x
*In 1992, earnings (as defined) were insufficient to cover fixed charges. The coverage deficiency was approximately $201 million. 18 ANALYSIS OF CHANGES IN NET INTEREST MARGIN The following table shows the approximate effect on the net interest margin of volume and rate changes for the years 1993 and 1992. For purposes of this table, changes that are not due solely to volume or rate changes are allocated to volume.
1993 OVER 1992 1992 OVER 1991 YEAR ENDED DECEMBER 31 ------------------------- ------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL (IN MILLIONS) ------- ------- ------- ------- ------- ------- Increase (decrease) in Interest income Due from banks-- interest-bearing...... $ 2.6 $ (62.6) $ (60.0) $ 40.4 $(158.6) $(118.2) Federal funds sold and securities under resale agreements..... 100.8 (40.8) 60.0 87.5 (132.0) (44.5) Trading account assets. 18.4 (54.9) (36.5) 70.8 (41.5) 29.3 Investment securities U.S. government and federal agency....... 8.4 (9.1) (0.7) 4.3 (8.0) (3.7) States and political subdivisions......... (4.9) (0.4) (5.3) (5.0) (0.2) (5.2) Other................. 1.9 0.8 2.7 8.1 (21.3) (13.2) Loans Domestic offices...... (139.0) (10.9) (149.9) (178.2) (334.5) (512.7) Foreign offices....... (38.8) (23.1) (61.9) (50.9) (37.3) (88.2) Assets held for accelerated disposition (1)....... 8.3 2.0 10.3 17.5 -- 17.5 ------- ------- ------- ------- ------- ------- Total................ (42.3) (199.0) (241.3) (5.5) (733.4) (738.9) Increase (decrease) in Interest expense Deposits Savings............... 9.2 (48.6) (39.4) 43.1 (106.2) (63.1) Time.................. (57.7) (105.4) (163.1) (105.4) (266.2) (371.6) Foreign offices....... (42.3) (84.8) (127.1) (47.5) (258.0) (305.5) Federal funds purchased and securities under repurchase agreements. 6.3 (43.5) (37.2) 86.0 (168.9) (82.9) Commercial paper....... (1.2) (1.5) (2.7) 0.8 (5.8) (5.0) Other funds borrowed... 118.8 (61.0) 57.8 41.9 (50.4) (8.5) Long-term debt......... 23.5 (0.1) 23.4 10.7 (12.1) (1.4) ------- ------- ------- ------- ------- ------- Total................ 56.6 (344.9) (288.3) 29.6 (867.6) (838.0) ------- ------- ------- ------- ------- ------- Increase (decrease) in net interest margin..... $ (98.9) $ 145.9 $ 47.0 $ (35.1) $ 134.2 $ 99.1 ======= ======= ======= ======= ======= =======
- -------- (1) Excludes other real estate held for accelerated disposition. ITEM 2. PROPERTIES The Corporation and FNBC occupy space in a 60-story combined bank and office building at One First National Plaza, Chicago, Illinois. One First National Plaza is master-leased by FNBC from an owner trust that purchased the building from FNBC's wholly owned subsidiary, First Chicago Building Corporation, in May 1993, pursuant to a leveraged lease financing transaction. The building has approximately l,850,000 square feet of rentable space, of which the Corporation occupies approximately 59% and the balance is sub-leased to others. It is located on the north half of a block in the heart of the Chicago "Loop," the entire block being owned by FNBC. The south half of the block includes a plaza, parking and restaurant facilities, and a general-purpose auditorium. In addition, the Corporation, or its subsidiaries, own or lease more than 130 bank locations throughout the Chicago metropolitan area and occupy leased office space in various other locations as required for the conduct of business. 19 ITEM 3. LEGAL PROCEEDINGS The information required by this Item is set forth in Note 18 on page 61 of the Corporation's 1993 Annual Report to Stockholders and is expressly incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT
PRESENT POSITION HELD WITH THE CORPORATION AND EFFECTIVE DATE FIRST ELECTED OTHER POSITIONS HELD NAME AND AGE TO OFFICE INDICATED DURING PAST FIVE YEARS ------------ ---------------------------- ---------------------- Richard L. Thomas Director and Chairman of the * (63) Board (1-1-92) Leo F. Mullin (51) Director and President * (11-15-93) David J. Vitale (47) Director and Vice Chairman of * the Board (11-15-93) W.G. Jurgensen (42) Executive Vice President Various executive posi- (1-11-91) tions with Norwest Corpo- ration and its subsidiar- ies (banking) J. Mikesell Thomas Executive Vice President * (43) (6-12-87) Marvin James Alef, Executive Vice President * Jr. (49) (1-10-92) John W. Ballantine Executive Vice President * (47) (1-10-92) Jerry C. Bradshaw Executive Vice President * (62) (6-14-91) Sherman I. Goldberg Executive Vice President * (51) (1-12-90), General Counsel and Secretary (4-8-88) Donald R. Hollis Executive Vice President * (58) (1-10-86) Scott P. Marks, Jr. Executive Vice President * (47) (1-12-90) Robert A. Rosholt Executive Vice President * (43) (1-14-94) and Chief Financial Officer (1-1-93)
- -------- *Has served as an officer of the Corporation or a subsidiary for at least the past five years. Officers of the Corporation serve until the annual meeting of the Board of Directors (April 8, 1994). PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is set forth in the fourth paragraph on page 9 of this Form 10-K, and in the Corporation's 1993 Annual Report to Stockholders in the "Five-Year Summary of Selected Financial Information" on page 18, the "Common Stock and Stockholder Data" table on page 64, the "Quarterly Earnings and Market Price Summary" table on page 65, the "Consolidated Summary of Quarterly Financial Information" table on page 65, and under "Corporate Information" on page 70; such portions of the Annual Report are expressly incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is set forth in the "Financial Ratios" table on page 18 of this Form 10-K, and in the Corporation's 1993 Annual Report to Stockholders in the "Five-Year Summary of Selected Financial Information" on page 18 which is expressly incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth in the Corporation's 1993 Annual Report to Stockholders on pages 17-37 of the "Financial Review" section and is expressly incorporated herein by reference. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth under "Certain Statistical Information" on pages 10-19 of this Form 10-K, and in the Corporation's 1993 Annual Report to Stockholders in the consolidated financial statements and the notes thereto on pages 38-61, the "Report of Independent Public Accountants" on page 63, and in the "Selected Statistical Information" section on pages 64-67; such portions of the Annual Report are expressly incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item pertaining to executive officers of the Corporation is set forth in Part I of this Form 10-K under the heading Executive Officers of the Registrant. The information required by this Item pertaining to directors of the Corporation is set forth on pages 2-6 of the Corporation's definitive proxy statement dated March 4, 1994, and is expressly incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth on pages 11-19 of the Corporation's definitive proxy statement dated March 4, 1994, and is expressly incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth on pages 10-11 of the Corporation's definitive proxy statement dated March 4, 1994, and is expressly incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is set forth on pages 8 and 19-20 of the Corporation's definitive proxy statement dated March 4, 1994, and is expressly incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS (See Item 8 for a listing of all financial statements). (2) FINANCIAL STATEMENT SCHEDULES. All schedules normally required by Form 10-K are omitted since they either are not applicable or the required information is shown in the financial statements or the notes thereto. (3) EXHIBITS. 3(A). Restated Certificate of Incorporation of the Corporation, as amended. 3(B). By-Laws of the Corporation, as amended [Exhibit 4(B) to the Corporation's Form S-3 Registration Statement (File No. 33-37717) incorporated herein by reference]. 10(A). Stock Incentive Plan [Exhibit 10(A) to the Corporation's 1990 Annual Report on Form 10-K (File No. 1-6052) incor- porated herein by reference].* 10(B). Strategic Stock Incentive Plan, as amended [Exhibit 10(A) to the Corporation's 1988 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].*
21 10(C). l983 Stock Option Plan, as amended and restated [Exhibit 28 to the Corporation's Post-Effective Amendment No. 1 to Form S-8 Registration Statement (File No. 33-15779) in- corporated herein by reference].* 10(D). First Chicago Corporation Compensation Agreement, as amended [Exhibit 10(D) to the Corporation's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(E). The First National Bank of Chicago Compensation Agreement, as amended [Exhibit 10(E) to the Corporation's 1992 An- nual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(F). Director Retainer Stock Plan [Exhibit 10(G) to the Corpo- ration's 1990 Annual Report on Form 10-K (File No. 1- 6052) incorporated herein by reference].* 10(G). 401(k) Savings Incentive Plan, as amended [Exhibit 99 to the Corporation's Form S-8 Registration Statement (File No. 33-51713) incorporated herein by reference].* 10(H). 401(k) Supplemental Savings Incentive Plan [Exhibit 10(I) to the Corporation's 1990 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(I). Executive Retirement Plan [Exhibit 10(I) to the Corpora- tion's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(J). Change of Control Employment Agreement [Exhibit 10(J) to the Corporation's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(K). First Chicago Corporation Trust Agreement (Trust A) [Ex- hibit 10(k) to the Corporation's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by refer- ence].* 10(L). First Chicago Corporation Trust Agreement (Trust B) [Ex- hibit 10(L) to the Corporation's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by refer- ence].* 12. Statements re computation of ratios. 13. The Corporation's l993 Annual Report to Stockholders. 21. Subsidiaries of the Corporation. 23. Consents of experts and counsel.
(b) The Corporation filed the following Current Reports on Form 8-K during the quarter ended December 31, 1993:
DATE ITEM REPORTED ---- ------------- October 13, 1993 The Corporation's earnings for the quarter ended September 30, 1993. November 15, 1993 Announcement that the Corporation increased the common stock quarterly dividend and that the Corporation will, from time to time, buy back up to 2.5 million shares of its common stock on the open market or through privately negotiated transactions. November 22, 1993 Announcement that the Corporation signed a definitive agreement to purchase all outstanding shares of Lake Shore Bancorp., Inc.
- -------- *Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. 22 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, THIS 11TH DAY OF FEBRUARY, 1994. First Chicago Corporation (Registrant) /s/ Richard L. Thomas By___________________________________ Richard L. Thomas Chairman of the Board and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE CORPORATION AND IN THE CAPACITIES INDICATED, THIS 11TH DAY OF FEBRUARY, 1994. /s/ John H. Bryan - ---------------------- John H. Bryan Director /s/ Dean L. Buntrock - ---------------------- Dean L. Buntrock Director /s/ Frank W. Considine - ---------------------- Frank W. Considine Director /s/ James S. Crown - ---------------------- James S. Crown Director /s/ Donald V. Fites - ---------------------- Donald V. Fites Director /s/ Donald P. Jacobs - ---------------------- Donald P. Jacobs Director /s/ Andrew J. McKenna - ---------------------- Andrew J. McKenna Director /s/ Richard M. Morrow - ---------------------- Richard M. Morrow Director /s/ Leo F. Mullin - ---------------------- Leo F. Mullin Director /s/ Earl L. Neal - ---------------------- Earl L. Neal Director /s/ James J. O'Connor ---------------------------------------- James J. O'Connor Director /s/ Jerry K. Pearlman ---------------------------------------- Jerry K. Pearlman Director /s/ Jack F. Reichert ---------------------------------------- Jack F. Reichert Director /s/ Patrick G. Ryan ---------------------------------------- Patrick G. Ryan Director /s/ Adele Simmons ---------------------------------------- Adele Simmons Director /s/ Roger W. Stone ---------------------------------------- Roger W. Stone Director /s/ Richard L. Thomas ---------------------------------------- Richard L. Thomas Director and Principal Executive Officer /s/ David J. Vitale ---------------------------------------- David J. Vitale Director /s/ Robert A. Rosholt ---------------------------------------- Robert A. Rosholt Principal Financial Officer /s/ William J. Roberts ---------------------------------------- William J. Roberts Principal Accounting Officer 23 EXHIBIT INDEX
EXHIBIT PAGE NUMBER EXHIBIT DESCRIPTION NUMBER ------- ------------------- ------ 3(A). Restated Certificate of Incorporation of the Corporation, as amended. 3(B). By-Laws of the Corporation, as amended (incorporated herein by reference). N/A 10(A). Stock Incentive Plan (incorporated herein by reference). N/A 10(B). Strategic Stock Incentive Plan, as amended (incorporated herein by reference). N/A 10(C). 1983 Stock Option Plan, as amended and restated (incorpo- rated herein by reference). N/A 10(D). First Chicago Corporation Compensation Agreement, as amended (incorporated herein by reference). N/A 10(E). The First National Bank of Chicago Compensation Agreement, as amended (incorporated herein by reference). N/A 10(F). Director Retainer Stock Plan (incorporated herein by refer- ence). N/A 10(G). 401(k) Savings Incentive Plan, as amended (incorporated herein by reference). N/A 10(H). 401(k) Supplemental Savings Incentive Plan (incorporated herein by reference). N/A 10(I). Executive Retirement Plan (incorporated herein by reference). N/A 10(J). Change of Control Employment Agreement (incorporated herein by reference). N/A 10(K). First Chicago Corporation Trust Agreement (Trust A) (incorporated herein by reference). N/A 10(L). First Chicago Corporation Trust Agreement (Trust B) (incorporated herein by reference). N/A 12. Statements re computation of ratios. 13. The Corporation's 1993 Annual Report to Stockholders. 21. Subsidiaries of the Corporation. 23. Consents of experts and counsel.
EX-3.A 2 ARTICLES OF INCORP EXHIBIT 3(A) STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF JANUARY, A.D. 1969, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902038 DATE: 05/18/1993 723138037 CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION ------------ FIRST. The name of the corporation is FIRST CHICAGO CORPORATION SECOND. The address of its registered office in the State of Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 1,010 shares which shall be divided into two classes as follows: 10 shares of Preferred Stock without par value (Preferred Stock) and 1,000 shares of Common Stock of the par value of $20.00 per share (Common Stock). The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock and other general provisions relating thereto shall be as follows: PART I PREFERRED STOCK --------------- 1. Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects except the dates from which dividends accrue or accumulate with respect thereto may vary. 2. The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited but not to exceed one vote per share, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Direc- 2 tors, and as are not stated and expressed in this Certificate of Incorporation, or any amendment thereto, including (but without limiting the generality of the foregoing) the following: (a) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors. (b) The dividend rate or rates on the shares of such series and the relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate. (c) Whether the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemption, the time or times when, the price or prices at which and the manner in which such shares shall be redeemable, including the manner of selecting shares of such series for redemption if less than all shares are to be redeemed. 3 (d) The rights to which the holders of shares of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and, if voluntary, may vary at different dates. (e) Whether the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof. (f) Whether the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of capital stock of the corporation, and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other 4 terms and conditions of such conversion or exchange. (g) The voting powers, full and/or limited, if any, of the shares of such series; and whether and under what conditions the shares or such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the corporation in case of dividend arrearages or other specified events, or upon other matters. (h) Whether the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series. (i) Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. 3. No dividends shall be paid or declared or set apart on any particular series of Preferred Stock in respect of any period 5 unless accumulated dividends shall be or shall have been paid, or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series, so that the amount of dividends declared on such particular series shall bear the same ratio to the amount declared on each such other series as the dividend rate of such particular series shall bear to the dividend rate of such other series. 4. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock pursuant to this Part I, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. 5. Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the corporation, or which have been issued and reacquired in any manner, shall, upon compliance with any applicable provisions of the General Corporation Law of the State of Delaware, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the Board of Directors as part of the series of which they were 6 originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all subject to the protective conditions or restrictions of any outstanding series of Preferred Stock. PART II COMMON STOCK ------------ 1. Except as provided by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the corporation on all matters voted upon by the stockholders. 2. Subject to the preferential dividend rights, if any, applicable to shares of Preferred Stock and subject to applicable requirements, if any, with respect to the setting aside of sums for purchase, retirement or sinking funds for Preferred Stock, the holders of Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. 3. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, after distribution in full of the preferential 7 amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefor in cash, stock or obligations of such other corporation, trust or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Common Stock. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the corporation for the purposes of this paragraph. 4. Such numbers of shares of Common Stock as may from time to time be required for such purpose shall be reserved for issuance (i) upon conversion of any shares of Preferred Stock or any obligation of the corporation convertible into shares of 8 Common Stock which is at the time outstanding or issuable upon exercise of any options or warrants at the time outstanding and (ii) upon exercise of any options or warrants at the time outstanding to purchase shares of Common Stock. PART III GENERAL PROVISIONS ------------------ 1. At any meeting of stockholders, the presence in person or by proxy of the holders of record of outstanding shares of stock of the corporation entitled to vote a majority of the votes entitled to be voted at such meeting shall constitute a quorum for all purposes, except as otherwise provided by this Certificate of Incorporation or required by applicable law. 2. Subject to the protective conditions or restrictions of any outstanding series of Preferred Stock, any amendment to this Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the corporation. 3. No holder of stock of any class of the corporation shall be entitled as a matter of right to purchase or subscribe for any part of any unissued stock of any class, or of any ad- 9 ditional stock of any class of capital stock of the corporation, or of any bonds, certificates of indebtedness, debentures, or other securities convertible into stock of the corporation, now or hereafter authorized, but any such stock or other securities convertible into stock may be issued and disposed of pursuant to resolution by the Board of Directors to such persons, firms, corporations or associations and upon such terms and for such consideration (not less than the par value or stated value thereof) as the Board of Directors in the exercise of its discretion may determine and as may be permitted by law without action by the stockholders. The Board of Directors may provide for payment therefor to be received by the corporation in cash, personal property, real property (or leases thereof) or services. Any and all shares of stock so issued for which the consideration so fixed has been paid or delivered, shall be deemed fully paid and not liable to any further call or assessment. 4. Any corporate action upon which a vote of stockholders is required or permitted may be taken without a meeting or vote of stockholders with the written consent of stockholders having not less than a majority of all of the stock entitled to vote upon the action if a meeting were held; provided, that in no case shall the written consent be by holders having less than the minimum percentage of the vote required by statute fixed for 10 the proposed corporate action and further provided that prompt notice be given to all stockholders of the corporation of the taking of corporate action without a meeting and by less than unanimous written consent. FIFTH. The name and mailing address of the incorporator are: Name Mailing Address ---- --------------- Kenneth G. Pigott 1400 First National Bank Building Chicago, Illinois 60603 SIXTH. Elections of directors need not be by written ballot unless the By-laws of the corporation shall so provide. SEVENTH. Subject to the provisions of this Certificate of Incorporation requiring an increase or increases in the number of directors, the number of directors constituting the Board of Directors shall be that number as shall be fixed by the By-laws of the corporation. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-laws of the corporation. Wherever the term "Board of Directors" is used in this Certificate of Incorporation, such term shall mean the Board of Directors of the corporation; provided, however, that, to 11 the extent any committee of directors of the corporation is lawfully entitled to exercise the powers of the Board of Directors, such committee may exercise any right or authority of the Board of Directors under this Certificate of Incorporation. EIGHTH. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by a vote sufficient for such purpose without counting the vote of the interested director or directors; or (b) The material facts as to his interest and as to the contract or transaction are disclosed or are known to the stock- 12 holders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. NINTH. (a) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or 13 proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or plea of nolo ---- contendere or its equivalent, shall not, of itself, create a presumption that - ---------- the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in 14 good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper. (c) To the extent that any person referred to in paragraphs (a) and (b) of this Article has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to therein or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a de- 15 termination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum (as defined in the By-laws of the corporation) consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or,even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. (f) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, By-law, agreement, vote or stockholders or disinterested directors or otherwise, both as to action in his official capacity and as 16 to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Notwithstanding the provisions of this Article, the corporation may indemnify any person referred to in paragraphs (a) and (b) of this Article to the full extent permitted under the laws of Delaware and any other applicable laws, now or hereafter in effect. (g) The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. TENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the 17 laws of Delaware, and all rights conferred herein upon stockholders and directors are granted subject to this reservation. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereto set my hand this 21st day of January, 1969. /s/ Kenneth G. Pigott ------------------------------------------- STATE OF ILLINOIS) ) SS. COUNTY OF COOK ) BE IT REMEMBERED that on this 21st day of January, A.D. 1969, personally came before me, a Notary Public for the State of Illinois, KENNETH G. PIGOTT, the party to the foregoing Certificate of Incorporation, known to me personally to be such, and acknowledged said certificate to be the act and deed of the signer and that the facts stated therein are true. GIVEN under my hand and seal of office the day and year aforesaid. NANCY STEHNO NOTARY PUBLIC COOK COUNTY, ILL. /s/ Nancy Stehno ----------------------------------------- Notary Public 18 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RESTATED CERTIFICATE OF INCORPORATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE TWENTY-FIFTH DAY OF JUNE, A.D. 1969, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902040 DATE: 05/18/1993 723138037 DRAFT OF CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION Pursuant to Title 8, Sections 242 and 245 of the Delaware Code. ------------------- Original Certificate of Incorporation was filed with the Secretary of State of Delaware on January 23, 1969. -------------------- FIRST. The name of the corporation is FIRST CHICAGO CORPORATION SECOND. The address of its registered office in the State of Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 14,500,000 shares which shall be divided into two classes as follows: 1,000,000 shares of Preferred Stock without par value (Preferred Stock) and 13,500,000 shares of Common Stock of the par value of $20.00 per share (Common Stock). The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock and other general provisions relating thereto shall be as follows: PART I PREFERRED STOCK --------------- 1. Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects except the dates from which dividends accrue or accumulate with respect thereto may vary. 2. The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited but not to exceed one vote per share, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as -2- shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in this Certificate of Incorporation, or any amendment thereto, including (but without limiting the generality of the foregoing) the following: (a) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors. (b) The dividend rate or rates on the shares of such series and the relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate. (c) Whether the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemption, the time or times when, the price or prices at which and the manner in which such shares shall be redeemable, including the -3- manner of selecting shares of such series for redemption if less than all shares are to be redeemed. (d) The rights to which the holders of shares of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and, if voluntary, may vary at different dates. (e) Whether the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such funds shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof. (f) Whether the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of capital stock of the corporation, and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange -4- and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange. (g) The voting powers, full and/or limited, if any, of the shares of such series; and whether and under what conditions the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the corporation in case of dividend arrearages or other specified events, or upon other matters. (h) Whether the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series. (i) Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. 3. No dividends shall be paid or declared or set apart on any particular series of Preferred Stock in respect of any period unless accumulated dividends shall be or shall have been paid, -5- or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series, so that the amount of dividends declared on such particular series shall bear the same ratio to the amount declared on each such other series as the dividend rate of such particular series shall bear to the dividend rate of such other series. 4. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock pursuant to this Part I, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. 5. Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the corporation, or which have been issued and reacquired in any manner, shall, upon compliance with any applicable provisions of the General Corporation Law of the State of Delaware, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the Board of Directors as part of the series of which they were originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all sub- -6- ject to the protective conditions or restrictions of any outstanding series of Preferred Stock. PART II COMMON STOCK 1. Except as provided by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the corporation on all matters voted upon by the stockholders. 2. Subject to the preferential dividend rights, if any, applicable to shares of Preferred Stock and subject to applicable requirements, if any, with respect to the setting aside of sums for purchase, retirement or sinking funds for Preferred Stock, the holders of Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. 3. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to -7- receive all of the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefor in cash, stock or obligations of such other corporation, trust or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Common Stock. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the corporation for the purposes of this paragraph. 4. Such numbers of shares of Common Stock as may from time to time be required for such purpose shall be reserved for issuance (i) upon conversion of any shares of Preferred Stock or any obligation of the corporation convertible into shares of Common Stock which is at the time outstanding or issuable upon exercise of any options or warrants at the time outstanding and -8- (ii) upon exercise of any options or warrants at the time outstanding to purchase shares of Common Stock. PART III GENERAL PROVISIONS 1. At any meeting of stockholders, the presence in person or by proxy of the holders of record of outstanding shares of stock of the corporation entitled to vote a majority of the votes entitled to be voted at such meeting shall constitute a quorum for all purposes, except as otherwise provided by this Certificate of Incorporation or required by applicable law. 2. Subject to the protective conditions or restrictions of any outstanding series of Preferred Stock, any amendment to this Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the corporation. 3. No holder of stock of any class of the corporation shall be entitled as a matter of right to purchase or subscribe for any part of any unissued stock of any class, or of any additional stock of any class of capital stock of the corporation, or of any bonds, certificates of indebtedness, debentures, or -9- other securities convertible into stock of the corporation, now or hereafter authorized, but any such stock or other securities convertible into stock may be issued and disposed of pursuant to resolution by the Board of Directors to such persons, firms, corporations or associations and upon such terms and for such consideration (not less than the par value or stated value thereof) as the Board of Directors in the exercise of its discretion may determine and as may be permitted by law without action by the stockholders. The Board of Directors may provide for payment therefor to be received by the corporation in cash, personal property, real property (or leases thereof) or services. Any and all shares of stock so issued for which the consideration so fixed has been paid or delivered, shall be deemed full paid and not liable to any further call or assessment. 4. Any corporate action upon which a vote of stockholders is required or permitted may be taken without a meeting or vote of stockholders with the written consent of stockholders having not less than a majority of all of the stock entitled to vote upon the action if a meeting were held; provided, that in no case shall the written consent by holders having less than the minimum percentage of the vote required by statute fixed for the proposed corporate action and further provided that prompt notice be given to all stockholders of the corporation of the -10- taking of corporate action without a meeting and by less than unanimous written consent. FIFTH. The name and mailing address of the incorporator are: NAME MAILING ADDRESS ---- --------------- Kenneth G. Pigott 1400 First National Bank Building Chicago, Illinois 60603 SIXTH. Elections of directors need not be by written ballot unless the By-laws of the corporation shall so provide. SEVENTH. Subject to the provisions of this Certificate of Incorporation requiring an increase or increases in the number of directors, the number of directors constituting the Board of Directors shall be that number as shall be fixed by the By-laws of the corporation. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-laws of the corporation. Wherever the term "Board of Directors" is used in this Certificate of Incorporation, such term shall mean the Board of Directors of the corporation; provided, however, that, to the extent any committee of directors of the corporation is lawfully entitled to exercise the powers of the Board of Direc- -11- tors, such committee may exercise any right or authority of the Board of Directors under this Certificate of Incorporation. EIGHTH. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by a vote sufficient for such purpose without counting the vote of the interested director or directors; or (b) The material facts as to his interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or -12- (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. NINTH. (a) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or -13- proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged -14- to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper. (c) To the extent that any person referred to in paragraphs (a) and (b) of this Article has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to therein or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum (as defined in the -15- By-laws of the corporation) consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such acton, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. (f) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnificiation may be entitled under any statute, By-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Notwithstanding the provisions of this Article, the corporation -16- may indemnify any person referred to in paragraphs (a) and (b) of this Article to the full extent permitted under the laws of Delaware and any other applicable laws, now or hereafter in effect. (g) The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. TENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of Delaware, and all rights conferred herein upon stockholders and directors are granted subject to this reservation. I, RUDOLPH E. PALLUCK, Executive Vice President of the aforesaid corporation, hereby certify that the foregoing Restated Certificate of Incorporation of said corporation was adopted by its Board of Directors and adopted separately by -17- the stockholders of said corporation in accordance with the provisions of Title 8, Sections 141, 242 and 245 of the Delaware Code. WITNESS my hand and the seal of said FIRST CHICAGO CORPORATION this 13th day of June, 1969. /s/ Rudolph E. Palluck ---------------------------------------- Rudolph E. Palluck Executive Vice President FIRST CHICAGO CORPORATION (Corporate Seal) DELAWARE 1969 ATTEST: /s/ Christopher W. Wilson - ----------------------------- Christopher W. Wilson Secretary -18- STATE OF ILLINOIS) ) SS COUNTY OF COOK ) BE IT REMEMBERED, that on this 13th day of June, 1969, personally came before me, LOUISE KAEHLER, a Notary Public in and for said State and County, RUDOLPH E. PALLUCK, Executive Vice President of FIRST CHICAGO CORPORATION, the corporation described in the foregoing Certificate, known to me personally to be such Officer, and he duly acknowledged said Certificate to be the act and deed of said corporation, and that the facts stated therein are true. IN WITNESS WHEREOF, I have hereto set my hand and official seal the day and year aforesaid. /s/ Louise Kaehler ----------------------------------- Notary Public LOUISE KAEHLER NOTARY PUBLIC COOK COUNTY, ILL. -19- STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE THIRD DAY OF SEPTEMBER, A.D. 1971, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) ------------------------------------ William T. Quillen, Secretary of State AUTHENTICATION: *3902041 DATE: 05/18/1993 723138067 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the first sentence of Article Fourth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 28,000,000 shares which shall be divided into two classes as follows: 1,000,000 shares of Preferred Stock without par value (Preferred Stock) and 27,000,000 shares of Common Stock of the par value of $10.00 per share (Common Stock).'" Second: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Gaylord Freeman, its Chairman of the Board, and attested to by Neil McKay, its Secretary, this 1st day of September, 1971. /s/ Gaylord Freeman By ____________________________________________ Chairman of the Board ATTEST: /s/ Neil McKay ____________________________________ Secretary (CORPORATE SEAL) STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) Be it remembered that on this 1st day of September, A.D. 1971 personally came before me, Karen F. Kizer, a Notary Public in and for the county and State aforesaid, Gaylord Freeman, Chairman of the Board of FIRST CHICAGO CORPORATION, a corporation of the State of Delaware, the corporation described in and which executed the foregoing Certificate, known to me personally to be such, and he, the said Chairman of the Board, as such Chairman of the Board, duly executed said Certificate before me and acknowledged the said Certificate to be his act and deed and the act and deed of said corporation; that the signature of the said Chairman of the Board of said corporation to said foregoing Certificate is in the handwriting of the said Chairman of the Board of said corporation, and that the seal affixed to said Certificate is the common or corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. /s/ Karen F. Kizer _____________________________________ Notary Public (SEAL) NOTARIAL SEAL STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE NINTH DAY OF APRIL, A.D. 1976, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) ------------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902044 DATE: 05/18/1993 723138037 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and that said amendment be submitted for the consideration and approval of the stockholders of said corporation at the Annual Meeting of Stockholders of said corporation to be held on April 9, 1976. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the first sentence of Article Fourth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 59,000,000 shares which shall be divided into two classes as follows: 5,000,000 shares of Preferred Stock without par value (Preferred Stock) and 54,000,000 shares of Common Stock of the par value of $5.00 per share (Common Stock).'" Second: That thereafter, the Annual Meeting of Stockholders of said corporation was duly held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That the capital of said corporation shall not be reduced under or by reason of said amendment. Fifth: That said amendment shall become effective at the close of business on the day it is filed in the office of the Secretary of State of Delaware. IN WITNESS WHEREOF, said FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Neil McKay, Vice Chairman of the Board, and attested to be Laurence Goldman, Assistant Secretary, this 9th day of April, 1976. /s/ Neil McKay By _________________________________________ Neil McKay Vice Chairman of the Board ATTEST: /s/ Laurence Goldman _____________________________ Assistant Secretary (CORPORATE SEAL) STATE OF DELAWARE OFFICE OF SECRETARY OF STATE ---------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF OCTOBER, A.D. 1982, AT 2 O'CLOCK P.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902046 DATE: 05/18/1993 723138037 CERTIFICATE OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS (Without Par Value) OF FIRST CHICAGO CORPORATION ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of First Chicago Corporation, a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on October 8, 1982, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of First Chicago Corporation, a Delaware corporation (the "Corporation"), by the Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 2,500,000 shares, and hereby fixes the designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "Preferred Stock with Cumulative and Adjustable Dividends" (hereinafter called this "Series") and the number of shares constituting this Series is 2,500,000. Shares of this Series shall have a stated value of $50 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board and by the filing of a certificate pursuant to the provisions of the 2 General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Dividend rates on the shares of this Series shall be: (i) for the period (the "Initial Dividend Period") from the date of their original issue to and including December 31, 1982, at such rate per annum as shall be approved by a resolution duly adopted by the Board of Directors of the Corporation, or by a committee of the Board duly authorized by the Board to fix such rate, and (ii) for each quarterly dividend period (hereinafter referred to as a "Quarterly Dividend Period"; and the Initial Dividend Period or any Quarterly Dividend Period being hereinafter individually referred to as a "Dividend Period" and collectively referred to as "Dividend Periods") thereafter, which Quarterly Dividend Periods shall commence on January 1, April 1, July 1 and October 1 in each year and shall end on and include the day next preceding the first day of the next Quarterly Dividend Period, at a rate per annum of the stated value thereof 1.00% below the Applicable Rate (as defined in paragraph (2) of this Section (b) in respect of such Quarterly Dividend Period. Anything to the contrary herein notwithstanding, the dividend rate for any Quarterly Dividend Period shall in no event be less than 7.00% or greater than 15.00% per annum. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable, when and as declared by the Board, on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 1982. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. (2) Except as provided below in this paragraph, the "Applicable Rate" for any Quarterly Dividend Period 3 shall be the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such Dividend Period. In the event that the Corporation determines in good faith that for any reason one or more of such rates cannot be determined for any Quarterly Dividend Period, then the Applicable Rate for such Dividend Period shall be the higher of whichever of such rates can be so determined. In the event that the Corporation determines in good faith that none of such rates can be determined for any Quarterly Dividend Period, then the Applicable Rate in effect for the preceding Dividend Period shall be continued for such Dividend Period. (3) Except as provided below in this paragraph, the "Treasury Bill Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the March 31, June 30, September 30 or December 31, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum market discount rate during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published 4 during the relevant Calendar Period as provided below) for all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason no such U.S. Treasury Bill Rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable noninterest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Treasury Bill Rate for any Quarterly Dividend Period as provided above in this paragraph, the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (4) Except as provided below in this paragraph, the "Ten Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the March 31, 5 June 30, September 30 or December 31, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Ten Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Ten Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than twelve years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three 6 recognized U.S. Government securities dealers selected by the Corporation. (5) Except as provided below in this paragraph, the "Twenty Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the March 31, June 30, September 30 or December 31, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Twenty Year Average Yield during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Twenty Year Average Yield shall not be published by any Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eighteen nor more than twenty-two years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Twenty Year Constant 7 Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eighteen nor more than twenty-two years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (6) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate shall each be rounded to the nearest five hundredths of a percentage point. (7) The dividend rate with respect to each Quarterly Dividend Period will be calculated as promptly as practicable by the Corporation according to the appropriate method described herein. The mathematical accuracy of each such calculation will be confirmed in writing by independent accountants of recognized standing. The Corporation will cause each dividend rate to be published in a newspaper of general circulation in New York City prior to the commencement of the new Quarterly Dividend Period to which it applies and will cause notice of such dividend rate to be enclosed with the dividend payment checks next mailed to the holders of shares of this Series. (8) For purposes of this Section (b), the term (i) "Calendar Period" shall mean 14 calendar days; (ii) "Special Securities" shall mean securities which can, at the option of the holder, be surrendered at face value in payment of any Federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were originally issued at a deep or substantial discount; 8 (iii) "Ten Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years); and (iv) "Twenty Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). (9) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (10) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (9) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a 9 parity with this Series as to dividends or upon liquidation, nor shall any Common Stock nor any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (11) Dividends payable on each share of this Series for each full Quarterly Dividend Period shall be computed by dividing the dividend rate for such Quarterly Dividend Period by four and applying such rate against the stated value per share of this Series. Dividends payable on this Series for any period less than a full Quarterly Dividend Period, and for the Initial Dividend Period, shall be computed on the basis of a 360 day year consisting of 30 day months. (c) Redemption. (1) The shares of this Series shall not be redeemable prior to October 1, 1987. On and after October 1, 1987, the Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price (i) in the case of any redemption on a redemption date occurring on or after October 1, 1987, and prior to October 1, 1992, of $51.50 per share, and (ii) in the case of any redemption on a redemption date occurring on or after October 1, 1992, of $50 per share, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method as may be determined by the Board in its sole discretion to be equitable. 10 (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are 11 simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion or Exchange. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Voting. The shares of this Series shall not have any voting powers either general or special, except that (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of 12 this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled 13 by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (f) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $50 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this 14 Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Secton (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series. (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be 15 different from those of this Series, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes." IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by J. Mikesell Thomas, its Vice President, and the same to be attested by Kenneth G. Arneson, its Secretary, this 15th day of October, 1982. FIRST CHICAGO CORPORATION by /s/ J. Mikesell Thomas -------------------------- Vice President [Corporate Seal] ATTEST: /s/ Kenneth G. Arneson - -------------------------- Secretary STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE TWENTY-SECOND DAY OF FEBRUARY, A.D. 1983, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902047 DATE: 05/18/1993 723138037 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS, SERIES B (Without Par Value) OF FIRST CHICAGO CORPORATION -------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of First Chicago Corporation, a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on February 11, 1983, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of First Chicago Corporation, a Delaware corporation (the "Corporation"), by the Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 1,250,000 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "Preferred Stock with Cumulative and Adjustable Dividends, Series B" (hereinafter called this "Series") and the number of shares constituting this Series is 1,250,000. Shares of this Series shall have a stated value of $100 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board and by the filing of a certificate pursuant to the provisions of the 2 General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Dividend rates on the shares of this Series shall be: (i) for the period (the "Initial Dividend Period") from the date of their original issue to and including May 31, 1983, at such rate per annum as shall be approved by a resolution duly adopted by the Board of Directors of the Corporation, or by a committee of the Board duly authorized by the Board to fix such rate, and (ii) for each quarterly dividend period (hereinafter referred to as a "Quarterly Dividend Period"; and the Initial Dividend Period or any Quarterly Dividend Period being hereinafter individually referred to as a "Dividend Period" and collectively referred to as "Dividend Periods") thereafter, which Quarterly Dividend Periods shall commence on March 1, June 1, September 1 and December 1 in each year and shall end on and include the day next preceding the first day of the next Quarterly Dividend Period, at a rate per annum of the stated value thereof 3.75% below the Applicable Rate (as defined in paragraph (2) of this Section (b)) in respect of such Quarterly Dividend Period. Anything to the contrary herein notwithstanding, the dividend rate for any Quarterly Dividend Period shall in no event be less than 6.00% or greater than 12.00% per annum. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable, when and as declared by the Board, on the last day of February, May, August and November of each year, commencing the last day of May, 1983. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. (2) Except as provided below in this paragraph, the "Applicable Rate" for any Quarterly Dividend Period 3 shall be the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such Dividend Period. In the event that the Corporation determines in good faith that for any reason one or more of such rates cannot be determined for any Quarterly Dividend Period, then the Applicable Rate for such Dividend Period shall be the higher of whichever of such rates can be so determined. In the event that the Corporation determines in good faith that none of such rates can be determined for any Quarterly Dividend Period, then the Applicable Rate in effect for the preceding Dividend Period shall be continued for such Dividend Period. (3) Except as provided below in this paragraph, the "Treasury Bill Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calander Period as provided below) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum market discount rate during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published 4 during the relevant Calendar Period as provided below) for all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason no such U.S. Treasury Bill Rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable noninterest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Treasury Bill Rate for any Quarterly Dividend Period as provided above in this paragraph, the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (4) Except as provided below in this paragraph, the "Ten Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding 5 the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Ten Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Ten Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than twelve years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three 6 recognized U.S. Government securities dealers selected by the Corporation. (5) Except as provided below in this paragraph, the "Twenty Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Twenty Year Average Yield during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Twenty Year Average Yield shall not be published by any Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eighteen nor more than twenty-two years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Twenty Year Constant 7 Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eighteen nor more than twenty-two years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (6) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate shall each be rounded to the nearest five hundredths of a percentage point. (7) The dividend rate with respect to each Quarterly Dividend Period will be calculated as promptly as practicable by the Corporation according to the appropriate method described herein. The mathematical accuracy of each such calculation will be confirmed in writing by independent accountants of recognized standing. The Corporation will cause each dividend rate to be published in a newspaper of general circulation in New York City prior to the commencement of the new Quarterly Dividend Period to which it applies and will cause notice of such dividend rate to be enclosed with the dividend payment checks next mailed to the holders of shares of this Series. (8) For purposes of this Section (b), the term (i) "Calendar Period" shall mean 14 calendar days; (ii) "Special Securities" shall mean securities which can, at the option of the holder, be surrendered at face value in payment of any Federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were orginally issued at a deep or substantial discount; 8 (iii) "Ten Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years); and (iv) "Twenty Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). (9) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (10) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (9) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a 9 parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (11) Dividends payable on each share of this Series for each full Quarterly Dividend Period shall be computed by dividing the dividend rate for such Quarterly Dividend Period by four and applying such rate against the stated value per share of this Series. Dividends payable on this Series for any period less than a full Quarterly Dividend Period, and for the Initial Dividend Period, shall be computed on the basis of a 360 day year consisting of 30 day months. (c) Redemption. (1) The shares of this Series shall not be redeemable prior to March 1, 1988. On and after March 1, 1988, the Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price (i) in the case of any redemption on a redemption date occurring on or after March 1, 1988, and prior to March 1, 1993, of $103 per share, and (ii) in the case of any redemption on a redemption date occurring on or after March 1, 1993, of $100 per share, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method as may be determined by the Board in its sole discretion to be equitable. 10 (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) he place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are 11 simultaneously redeemed, and the Corporatioon shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion or Exchange. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Voting. The shares of this Series shall not have any voting powers either general or special, except that (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of 12 this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist. (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled 13 by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (f) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $100 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be 15 different from those of this Series, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes." IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by J. Mikesell Thomas, its Vice President, and the same to be attested by Laurence Goldman, its Assistant Secretary, this 17th day of February, 1983. FIRST CHICAGO CORPORATION by /s/ J. Mikesell Thomas ____________________________ Vice President [Corporate Seal] ATTEST: /s/ Laurence Goldman ______________________ Assistant Secretary STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE SEVENTEENTH DAY OF FEBRUARY, A.D. 1984, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902049 DATE: 05/18/1993 723138037 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS, SERIES C (Without Par Value) OF FIRST CHICAGO CORPORATION -------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of First Chicago Corporation, a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on November 18, 1983, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of First Chicago Corporation, a Delaware corporation (the "Corporation"), by the Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 750,000 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "Preferred Stock with Cumulative and Adjustable Dividends, Series C" (hereinafter called this "Series") and the number of shares constituting this Series is 750,000. Shares of this Series shall have a stated value of $100 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board and by the filing 2 of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Dividend rates on the shares of this Series shall be: (i) for the period (the "Initial Dividend Period") from the date of their original issue to and including May 31, 1984, at such rate per annum as shall be approved by a resolution duly adopted by the Board of Directors of the Corporation, or by a committee of the Board duly authorized by the Board to fix such rate, and (ii) for each quarterly dividend period (hereinafter referred to as a "Quarterly Dividend Period"; and the Initial Dividend Period or any Quarterly Dividend Period being hereinafter individually referred to as a "Dividend Period" and collectively referred to as "Dividend Periods") thereafter, which Quarterly Dividend Periods shall commence on March 1, June 1, September 1 and December 1 in each year and shall end on and include the day next preceding the first day of the next Quarterly Dividend Period, at a rate per annum of the stated value thereof % below the Applicable Rate (as defined in paragraph (2) of this Section (b)) in respect of such Quarterly Dividend Period. Anything to the contrary herein notwithstanding, the dividend rate for any Quarterly Dividend Period shall in no event be less than 6.50% or greater than 12.50% per annum. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable, when and as declared by the Board, on the last day of February, May, August and November of each year, commencing the last day of May 1984. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. 3 (2) Except as provided below in this paragraph, the "Applicable Rate" for any Quarterly Dividend Period shall be the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such Dividend Period. In the event that the Corporation determines in good faith that for any reason one or more of such rates cannot be determined for any Quarterly Dividend Period, then the Applicable Rate for such Dividend Period shall be the higher of whichever of such rates can be so determined. In the event that the Corporation determines in good faith that none of such rates can be determined for any Quarterly Dividend Period, then the Applicable Rate in effect for the preceding Dividend Period shall be continued for such Dividend Period. (3) Except as provided below in this paragraph, the "Treasury Bill Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum market discount rate during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market 4 discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason no such U.S. Treasury Bill Rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable noninterest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Treasury Bill Rate for any Quarterly Dividend Period as provided above in this paragraph, the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (4) Except as provided below in this paragraph, the "Ten Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve 5 Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Ten Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Ten Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than twelve years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be 6 generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (5) Except as provided below in this paragraph, the "Twenty Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Twenty Year Average Yield during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Twenty Year Average Yield shall not be published by any Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eighteen nor more than twenty-two years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the 7 Corporation cannot determine the Twenty Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eighteen nor more than twenty-two years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Coporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (6) the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate shall each be rounded to the nearest five hundreths of a percentage point. (7) The dividend rate with respect to each Quarterly Dividend Period will be calculated as promptly as practicable by the Corporation according to the appropriate method described herein. The mathematical accuracy of each such calculation will be confirmed in writing by independent accountants of recognized standing. The Corporation will cause each dividend rate to be published in a newspaper of general circulation in New York City prior to the commencement of the new Quarterly Dividend Period to which it applies and will cause notice of such dividend rate to be enclosed with the dividend payment checks next mailed to the holders of shares of this Series. (8) For purposes of this Section (b), the term (i) "Calendar Period" shall mean 14 calendar days; (ii) "Special Securities" shall mean securities which can, at the option of the holder, be surrendered at face value in payment of any Federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were originally issued at a deep or substantial discount; 8 (iii) "Ten Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years); and (iv) "Twenty Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). (9) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (10) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (9) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a 9 parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (11) Dividends payable on each share of this Series for each full Quarterly Dividend Period shall be computed by dividing the dividend rate for such Quarterly Dividend Period by four and applying such rate against the stated value per share of this Series. Dividends payable on this Series for any period less than a full Quarterly Dividend Period, and for the Initial Dividend Period, shall be computed on the basis of a 360 day year consisting of 30 day months. (c) Redemption. (1) The shares of this Series shall not be redeemable prior to March 1, 1989. On and after March 1, 1989, the Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price (i) in the case of any redemption on a redemption date occurring on or after March 1, 1989, and prior to March 1, 1994, of $103 per share, and (ii) in the case of any redemption on a redemption date occurring on or after March 1, 1994, of $100 per share, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method as may be determined by the Board in its sole discretion to be equitable. 10 (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are 11 simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion or Exchange. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Voting. The shares of this Series shall not have any voting powers either general or special, except that (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or priviledges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of 12 this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled 13 by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter- yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (f) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $100 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this 14 Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be 15 different from those of this Series, if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes." IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by J. Mikesell Thomas, its Senior Vice President, and the same to be attested by Laurence Goldman, its Assistant Secretary, this 17th day of February, 1984. FIRST CHICAGO CORPORATION by /s/ J. Mikesell Thomas ----------------------------- Senior Vice President (Corporate Seal) ATTEST: /s/ Laurence Goldman - ----------------------- Assistant Secretary STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF APRIL, A.D. 1984, AT 12 O'CLOCK P.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902051 DATE: 05/18/1993 723138037 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and that said amendment be submitted for the consideration and approval of the stockholders of said corporation at the Annual Meeting of Stockholders of said corporation to be held on April 13, 1984. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the first sentence of Article Fourth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 64,000,000 shares which shall be divided into two classes as follows: 10,000,000 shares of Preferred Stock without par value (Preferred Stock) and 54,000,000 shares of Common Stock of the par value of $5.00 per share (Common Stock).'" Second: That thereafter, the Annual Meeting of Stockholders of said corporation was duly held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That the capital of said corporation shall not be reduced under or by reason of said amendment. Fifth: That said amendment shall become effective at the close of business on the day it is filed in the office of the Secretary of State of Delaware. IN WITNESS WHEREOF, FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Richard L. Thomas, President of the Corporation, and attested to by Michael E. Jehle, Assistant Secretary, this 13th day of April, 1984. /s/ Richard L. Thomas ----------------------------------------- Richard L. Thomas President ATTEST: /s/ Michael E. Jehle - ---------------------------- Assistant Secretary (CORPORATE SEAL) STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF CERTIFICATE OF CHANGE OF ADDRESS OF REGISTERED AGENT AS IT APPLIES TO "FIRST CHICAGO CORPORATION" AS RECEIVED AND FILED IN THIS OFFICE ON THE TWENTH-SEVENTH DAY OF JULY, A.D. 1984 AT 4:30 O'CLOCK P.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902052 DATE: 05/18/1993 723138037 CERTIFICATE OF CHANGE OF ADDRESS OF REGISTERED OFFICE AND OF REGISTERED AGENT PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE To: DEPARTMENT OF STATE Division of Corporations Townsend Building Federal Street Dover, Delaware 19903 Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code, the undersigned Agent for service of process, in order to change the address of the registered office of the corporations for which it is registered agent, hereby certifies that: 1. The name of the agent is: The Corporation Trust Company 2. The address of the old registered office was: 100 West Tenth Street Wilmington, Delaware 19801 3. The address to which the registered office is to be changed is: Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 The new address will be effective on July 30, 1984. 4. The name of the corporations represented by said agent are set forth on the list annexed to this certificate and made a part hereof by reference. IN WITNESS WHEREOF, said agent has caused this certificate to be signed on its behalf by its Vice-President and Assistant Secretary this 25th day of July, 1984. THE CORPORATION TRUST COMPANY ------------------------------------------- (Name of Registered Agent) /s/ Virginia Colvell By ----------------------------------------- (Vice-President) ATTEST: /s/ Mary G. Murray - ------------------------------ (Assistant Secretary) PAGE 218 STATE OF DELAWARE - DIVISION OF CORPORATIONS CHANGE OF ADDRESS FILING FOR CORPORATION TRUST AS OF JULY 27, 1984 DOMESTIC 0700130 FIRST CHICAGO CORPORATION 01/23/1969 D DE STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF APRIL, A.D. 1985, AT 2 O'CLOCK P.M. * * * * * * * * * * /s/ WILLIAM T. QUILLEN (SEAL) ---------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902054 DATE: 05/18/1993 723138037 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and that said amendment be submitted for the consideration and approval of the stockholders of said corporation at the Annual Meeting of Stockholders of said corporation to be held on April 12, 1985. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the first sentence of Article Fourth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 90,000,000 shares which shall be divided into two classes as follows: 10,000,000 shares of Preferred Stock without par value (Preferred Stock) and 80,000,000 shares of Common Stock of the par value of $5.00 per share (Common Stock).'" Second: That thereafter, the Annual Meeting of Stockholders of said corporation was duly held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That the capital of said corporation shall not be reduced under or by reason of said amendment. Fifth: That said amendment shall become effective at the close of business on the day it is filed in the office of the Secretary of State of Delaware. IN WITNESS WHEREOF, FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Richard L. Thomas, President of the Corporation, and attested to by Michael E. Jehle, Assistant Secretary, this 12th day of April, 1985. /s/ RICHARD L. THOMAS ------------------------------------------- Richard L. Thomas President ATTEST: /s/ MICHAEL E. JEHLE - ---------------------------- Assistant Secretary (CORPORATE SEAL) 3120S STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE --------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CORRECTION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF APRIL, A.D. 1987, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ WILLIAM T. QUILLEN ---------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902056 DATE: 05/18/1993 723138037 CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS SERIES C (WITHOUT PAR VALUE) OF FIRST CHICAGO CORPORATION FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON FEBRUARY 17, 1984 First Chicago Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the Corporation is First Chicago Corporation. 2. That a CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS SERIES C (WITHOUT PAR VALUE) OF FIRST CHICAGO CORPORATION was filed by the Secretary of State of Delaware on February 17, 1984 and that said certificate requires correction as permitted by subsection (F) of section 103 of The General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said certificate to be corrected is as follows: To insert a number in a blank in the calculation of the dividend rate on the Preferred Stock, Series C. 4. Paragraph (b)(1) of the certificate is corrected to read as follows: Dividend rates on the shares of this Series shall be: (i) for the period (the "Initial Dividend Period") from the date of their original issue to and including May 31, 1984, at such rate per annum as shall be approved by a resolution duly adopted by the Board of Directors of the Corporation, or by a committee of the Board duly authorized by the Board to fix such rate, and (ii) for each quarterly dividend period (hereinafter referred to as a "Quarterly Dividend Period"; and the Initial Dividend Period or any Quarterly Dividend Period being hereinafter individually referred to as a "Dividend Period" and collectively referred to as "Dividend Periods") thereafter, which Quarterly Dividend Periods shall commence on March 1, June 1, September 1 and December 1 in each year and shall end on and include the day next preceding the first day of the next Quarterly Dividend Period, at a rate per annum of the stated value thereof 1.80% below the Applicable Rate (as defined in paragraph (2) of this Section (b)) in respect of such Quarterly Dividend Period. Anything to the contrary herein notwithstanding, the dividend rate for any Quarterly Dividend Period shall in no event be less than 6.50% or greater than 12.50% per annum. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable, when and as declared by the Board, on the last day of February, May, August and November of each year, commencing the last day of May 1984. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. IN WITNESS WHEREOF, FIRST CHICAGO CORPORATION has caused this certificate to be signed by Kenneth G. Arnesen, its Executive Vice President, General Counsel and Secretary, and attested by Ilona M. Berry, its Assistant Secretary, this 10th day of April, 1987. First Chicago Corporation By /s/ Kenneth G. Arnesen ---------------------------------- Kenneth G. Arnesen Executive Vice President, General Counsel and Secretary ATTEST: By: /s/ Ilona M. Berry ------------------- Assistant Secretary (CORPORATE SEAL) 7851E STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF ''FIRST CHICAGO CORPORATION'' FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF APRIL, A.D. 1987, AT 10:01 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902058 DATE: 05/18/1993 723138037 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and that said amendment be submitted for the consideration and approval of the stockholders of said corporation at the Annual Meeting of Stockholders of said corporation to be held on April 10, 1987. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that Article Ninth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'NINTH. (a) No director shall be personally liable to the corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of Title 8 of the Delaware Code (relating to the General Corporation Law of Delaware) or any amendment thereto or successor provision thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, he (i) shall have breached his duty of loyalty to the corporation or its stockholders, (ii) shall not have acted in good faith or, in failing to act, shall not have acted in good faith, (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (iv) shall have derived an improper personal benefit. (b) The corporation shall indemnify and hold harmless each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, or a person of whom he is the legal respresentative,is or was a director, officer or employee of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,partnership, joint venture, trust or other enterprise, to the fullest extent permitted by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expenses (including attorney's fees, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by him in connection therewith. The corporation may, by action of the Board of Directors, provide indemnification to agents of the corporation with a lesser or the same scope and effect as the foregoing indemnification of directors, officers and employees of the corporation. (c) Expenses incurred by a director, officer or employee in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer or employee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation. Such expenses incurred by agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (d) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article Ninth shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any statute, By-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his offical capacity and as to action in another capacity while holding such office. (e) Neither the amendment nor repeal of this Article Ninth, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article Ninth, shall eliminate or reduce the effect of this Article Ninth in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article Ninth, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provison.' '' Second: That thereafter, the Annual Meeting of Stockholders of said corporation was duly held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That said amendment shall become effective at the close of business on the day it is filed in the office of the Secretary of State of Delaware. IN WITNESS WHEREOF, FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Kenneth G. Arnesen, Executive Vice President, General Counsel and Secretary of the Corporation, and attested to by Ilona M. Berry, Assistant Secretary, this 10th day of April, 1987. /s/ Kenneth G. Arnesen ---------------------------------- Kenneth G. Arnesen Executive Vice President, General Counsel and Secretary ATTEST: /s/ Ilona M. Berry - ------------------------ Assistant Secretary (CORPORATE SEAL) 7851E STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE THIRTIETH DAY OF SEPTEMBER, A.D. 1987, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902060 DATE: 05/18/1993 723138037 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS, OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE $3.75 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A (Without Par Value) OF FIRST CHICAGO CORPORATION ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of First Chicago Corporation, a Delaware corporation (hereinafter called the "Corporation''), at a meeting duly convened and held on May 8, 1987, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of the Corporation, by the Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 2,150,000 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "$3.75 Cumulative Convertible Preferred Stock, Series A" (hereinafter called this "Series") and the number of shares constituting the Series is 2,150,000. Shares of this Series shall have a stated value of $50 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Shares of this Series shall be entitled to receive dividends at a fixed annual rate of $3.75 per share. Such dividends shall be cumulative from the date of original issue of such shares, that is, October 1, 1987, and shall be payable, when and as declared by the Board, on the first day of January, April, July and October of each year, commencing the first day of January, 1988. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on the applicable record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board which shall not exceed 45 days preceding such dividend payment date thereof. (2) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (3) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (2) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking -2- junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (4) Dividends payable on this Series for any period less than a full quarterly dividend period, and for the dividend period beginning on the date of issuance of the shares of this Series, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on shares of this Series for each full quarterly dividend period shall be computed by dividing by four the annual rate per share set forth in Section (b)(1). (c) Redemption. (1) The shares of this Series shall not be redeemable prior to October 1, 1992. On and after October 1, 1992, the Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time prior to the conversion thereof pursuant to Section (d) hereof, at a redemption price per share as indicated below, if such redemption is during the periods indicated:
If redeemed during Redemption the twelve month Price period beginning Per Share ------------------ ---------- October 1, 1992 $51.50 October 1, 1993 $51.20 October 1, 1994 $50.90 October 1, 1995 $50.60 October 1, 1996 $50.30 October 1, 1997 and thereafter $50.00
plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method as may be determined by the Board in its sole discretion to be equitable. -3- (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the day on which conversion rights will terminate with respect to shares called for redemption as determined pursuant to paragraph (d)(1). (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series (i) upon the conversion of the Series into shares of Common Stock pursuant to Section (d), (ii) in exchange for shares of Common Stock or any other class of stock ranking junior to the Series as to dividends or upon -4- liquidation, or (iii) pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion. (1) Subject to the provisions for adjustment hereinafter set forth, each share of the Series shall be convertible at the option of the holder thereof, in the manner hereinafter set forth, into fully paid and nonassessable shares of Common Stock (as hereinafter defined) at the conversion rate, determined as hereinafter set forth, provided that if any shares of the Series are called for redemption, the conversion rights pertaining thereto will terminate at the close of business on the day which is five Business Days (as hereinafter defined) prior to the redemption date. Common Stock shall be delivered upon conversion of shares of the Series at an initial rate (the "Conversion Rate") of 1.391 shares of Common Stock for each share of this Series. The Conversion Rate shall be adjusted in certain instances as provided in paragraph (2) of this Section (d). Any holder of shares of the Series desiring to convert such shares into shares of Common Stock shall surrender the certificate or certificates for the shares being converted, duly endorsed or assigned to the Corporation or in blank, at the principal office of the Corporation or at a bank or trust company appointed by the Corporation for that purpose, accompanied by a written notice of conversion specifying the number of shares of the Series to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued; in case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issue of shares of Common Stock in such name or names. Promptly after receipt of such notice of conversion, the Corporation shall issue and deliver or cause to be issued and delivered to such holder a certificate or certificates for shares of Common Stock resulting from such conversion. In case less than all of the shares of the Series represented by a certificate are to be converted by a holder, upon such conversion the Corporation shall also issue and deliver or cause to be issued and delivered to such holder a certificate or certificates for the shares of the Series not so converted. The holders of shares of the Series at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares (except shares redeemed on a redemption date between such record date and the dividend payment date) on the corresponding dividend payment date notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due on such dividend payment date; provided, however, that shares surrendered for conversion during the period from the close of business on any dividend payment record date for the Series to the opening of business on the corresponding dividend payment date (except shares called for -5- redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares on a dividend payment record date who (or whose transferee) converts shares on a dividend payment date will receive the dividend payable on such shares by the Corporation on such date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares for conversion. Except as provided above, no payment or adjustment will be made on account of accrued or unpaid dividends upon the conversion of shares of the Series. (2) The Conversion Rate shall be adjusted from time to time as follows: (A) In case the Corporation shall pay or make a dividend or other distribution on all shares of any class of capital stock of the Corporation in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by multiplying such Conversion Rate by a fraction of which the numerator shall be the sum of (i) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the total number of shares constituting such dividend or other distribution, and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. (B) In case the Corporation shall issue rights or warrants to all holders of its shares of Common Stock entitling them to subscribe for or purchase Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (3) hereof) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by multiplying such Conversion Rate by a fraction of which the numerator shall be the sum of (i) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the number of shares of Common Stock so offered for subscription or purchase, and the denominator shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (y) the number of shares of Common Stock which the aggregate offering price of the total number of shares of -6- Common Stock so offered for subscription or purchase would purchase at such current market price, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. In the event that any such rights or warrants are not so issued, or to the extent any such rights or warrants expire without having been exercised, the Conversion Rate shall again be readjusted retroactively to the Conversion Rate which would then be in effect if such record date had not been fixed with respect to such unissued or expired rights or warrants; such subsequent adjustment shall not affect the number of Common Shares issued upon any conversion prior to the date such subsequent adjustment is made. (C) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (D) In case the Corporation shall, by dividend or otherwise, distribute to all holders of shares of Common Stock evidences of indebtedness or assets (including securities, but excluding any rights or warrants referred to in paragraph (2)(B), any dividend or distribution paid in cash out of the surplus or retained earnings of the Corporation and any dividend or distribution referred to in paragraph (2)(A)), the Conversion Rate shall be adjusted so that it shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction, the numerator of which shall be the current market price per share (determined as provided in paragraph (3)) of the Common Stock on the date fixed for such determination, the denominator of which shall be such current market price per share of Common Stock less the then fair market value (as determined by the Board of the Corporation, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed allocable to one share of Common Stock, such adjustment to become effective immediately prior to the opening of -7- business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. (E) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which paragraph (6) applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (2)(D)), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective", or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (2)(C) of this Section (d)). (3) For the purpose of any computation under paragraphs (2)(B) and (D), the current market price per share of Common Stock on any day shall be deemed to be the average of the daily Closing Prices (as hereinafter defined) per share of Common Stock for the 30 consecutive Trading Days (as hereinafter defined) ending five Trading Days before the day in question. (4) Notwithstanding the provisions of paragraph (2) above, no adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (4)) would require an increase or decrease of at least 2 1/2% in such Conversion Rate; provided, however, that any adjustments which by reason of this paragraph (4) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section (d) shall be made to the nearest one-thousandth of a Common Share. (5) The Corporation may make such increases in the Conversion Rate, in addition to those required by this Section (d), as it considers to be advisable in order to avoid or diminish any income tax liability to any holder of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. The Corporation shall have the power to resolve any ambiguity or correct any error in this Section (d) and its actions in so doing shall be final and conclusive in the absence of manifest error. -8- (6) In case the Corporation shall effect any capital reorganization of the Common Stock (other than a subdivision, combination, capital reorganization or reclassification provided for in paragraph (2)) or shall consolidate, merge or engage in a statutory share exchange with or into any other corporation (other than a consolidation, merger or share exchange in which the Corporation is the surviving corporation and each share of Common Stock outstanding immediately prior to such consolidation or merger is to remain outstanding immediately after such consolidation or merger) or shall sell or transfer all or substantially all its assets to any other corporation, lawful provision shall be made as a part of the terms of such transaction whereby the holders of shares of the Series shall receive upon conversion thereof, in lieu of each share of Common Stock which would have been issuable upon conversion of such stock if converted immediately prior to the consummation of such transaction, the same kind and amount of stock (or other securities, cash or property, if any) as may be issuable or distributable in connection with such transaction with respect to each share of Common Stock outstanding at the effective time of such transaction, subject to subsequent adjustments for subsequent stock dividends and distributions, subdivisions or combinations of shares, capital reorganizations, reclassifications, consolidations, mergers or share exchanges, as nearly equivalent as possible to the adjustments provided for in this Section (d). (7) Whenever the Conversion Rate is adjusted as herein provided: (A) the Corporation shall compute the adjusted Conversion Rate and shall cause to be prepared a certificate signed by the chief financial or accounting officer or treasurer of the Corporation setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based and the computation thereof and such certificate shall forthwith be filed with each transfer agent for the Series; and (B) a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate shall, as soon as practicable, be mailed to the holders of record of outstanding shares of the Series. (8) Conversion shall be deemed to have been made as of the date of surrender of certificates for the shares of this Series to be converted, and the giving of written notice and payment, as prescribed in paragraph (1) of this Section (d); and the person entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such Common Stock on such date. The Corporation shall not be required to deliver -9- certificates for shares of its Common Stock while the stock transfer books for such stock or for this Series are duly closed for any purpose, but certificates for shares of Common Stock shall be issued and delivered as soon as practicable after the opening of such books. (9) The term "Common Stock" as used in this resolution means the Corporation's Common Stock, $5.00 par value per share, as the same exists at the date of filing of the Certificate of Designation relating to this Series or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (10) Any shares of this Series which shall at any time have been converted shall, after such conversion, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of issuance upon conversion of shares of the Series, the full number of shares of Common Stock then issuable upon the conversion of all shares of the Series then outstanding and shall take all action necessary so that shares of Common Stock so issued will be validly issued, fully paid and non-assessable; provided, however, that nothing contained herein shall preclude the Corporation from satisfying its obligations in respect of the conversion of the shares by delivery of purchased shares of Common Stock which are held in the treasury of the Corporation. (11) The Corporation will pay any and all stamp or similar taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion of shares of the Series. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of the Series so converted were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid. (12) No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of shares of the Series. If any such conversion would otherwise require the issuance of such a fractional share (determined to the extent of four decimal places after taking into account all shares of the Series being converted into Common Stock by the holder), an amount equal to such fraction multiplied by the Closing Price per share of Common Stock for the day of conversion shall be paid to the holder in cash by the Corporation. -10- (13) Notwithstanding anything elsewhere contained herein, any funds which at any time shall have been deposited by the Corporation or on its behalf with any paying agent for the purpose of paying dividends on or the redemption price of any shares of the Series and which shall not be required for such purposes because of the conversion of such shares shall after such conversion be repaid to the Corporation by the paying agent. (14) The certificate of any independent firm of public accountants of recognized standing selected by the Board verifying the correctness of any computation made under this Section (d) shall, in the absence of manifest error, be conclusive and final. (15) For purposes of this resolution, the term (i) "Closing Price" shall mean the last sale price as shown on the New York Stock Exchange Composite Transactions Tape, or in case no such sale takes place on such day, the average of the closing bid and asked prices on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if it is not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Board for such purposes (other than the Corporation or a subsidiary thereof). (ii) "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a day which is a Business Day. (iii) "Business Day" shall mean a day which is not a Saturday, Sunday or other day on which commercial banking institutions in the City of Chicago, Illinois or The City of New York, New York are authorized or obligated by law or executive order to close. -11- (e) Voting ------ (1) The shares of this Series shall not have any voting powers either general or special, except that: (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provision of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (C) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends (as defined below) on the Preferred Stock shall exist, the number of directors constituting the Board of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such -12- term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (2) A holder of shares of this Series shall be entitled to one vote per share of the Series held by him when such holder is permitted to vote pursuant to the foregoing. (f) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $50 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). -13- (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (q) Priority. For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series B (Without Par Value) or Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (h) Sinking or Retirement Fund. The shares of this Series shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such stock." IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by Robert A. Rosholt, its Senior Vice President and Treasurer, and the same to be attested by Jeffrey S. Lillien, its Assistant Secretary, this 29th day of September, 1987. FIRST CHICAGO CORPORATION /s/ Robert A. Rosholt By:_____________________________ Senior Vice President and Treasurer (Corporate Seal) ATTEST: /s/ Jeffrey S. Lillien _________________________ Assistant Secretary STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF DECEMBER, A.D. 1987, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) ---------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902063 DATE: 05/18/1993 723138037 CERTIFICATE OF INCREASE TO CERTIFICATE OF AMENDMENT OF FIRST CHICAGO CORPORATION ----------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- The undersigned DOES HEREBY CERTIFY that the following action was taken pursuant to authority granted by the Board of Directors of First Chicago Corporation, a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on May 8, 1987, at which a quorum was present and acting throughout: The Certificate of Stock Designation relating to the Corporation's $3.75 Cumulative Convertible Preferred Stock, Series A, executed on September 29, 1987, and adopted pursuant to a resolution of the corporation's Board of Directors on May 8, 1987 is amended as follows: That the authorized number of shares of the series of "$3.75 Cumulative Convertible Preferred Stock, Series A" be increased from 2,150,000 to 2,152,462 shares; and This increase shall be deemed made as of the original effective date of the Corporation's Certificate of Designation relating to its $3.75 Cumulative Convertible Preferred Stock Series A. IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by Robert A. Rosholt, its Senior vice President and Treasurer, and the same to be attested by Paul K. Johnson, its Assistant Secretary, this 11th day of December, 1987. FIRST CHICAGO CORPORATION /s/ Robert A. Rosholt By: ______________________________ Senior Vice President and Treasurer (Corporate Seal) /s/ Paul K. Johnson Attest: _______________________ Assistant Secretary STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE EIGHTH DAY OF APRIL, A.D. 1988, AT 12 O'CLOCK P.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) ---------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902066 DATE: 05/18/1993 723138037 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and that said amendment be submitted for the consideration and approval of the stockholders of said corporation to be held on April 8, 1988. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the first sentence of Article Fourth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is 115,000,000 shares which shall be divided into two classes as follows: 15,000,000 shares of Preferred Stock without par value (Preferred Stock) and 100,000,000 shares of Common Stock of the par value of $5.00 per share (Common Stock).'" Second: That thereafter, the Annual Meeting of Stockholders of said corporation was duly held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That the capital of said corporation shall not be reduced under or by reason of said amendment. Fifth: That said amendment shall become effective at the close of business on the day it is filed in the office of the Secretary of State of Delaware. IN WITNESS WHEREOF, FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by J. Mikesell Thomas, Executive Vice President and Chief Financial Officer of the Corporation, and attested to by Laurence Goldman, Assistant Secretary, this 8th day of April, 1988. /s/ J. Mikesell Thomas ----------------------------------------- J. Mikesell Thomas Executive Vice President and Chief Financial Officer ATTEST: /s/ Laurence Goldman - ---------------------------- Assistant Secretary (CORPORATE SEAL) 723138037 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE TWENTIETH DAY OF JANUARY, A.D. 1989, AT 10 O'CLOCK A.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) ---------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902068 DATE: 05/18/1993 723138037 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of FIRST CHICAGO CORPORATION (Pursuant to Section 151 of the Delaware General Corporation Law) -------------------------------- First Chicago Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on November 18, 1988: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 1,000,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $5.00 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Comon Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as pro- -2- vided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Each share of Series A Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation. -3- (B) Except as otherwise provided herein, in any other Certificate of Designation, Preferences and Rights creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire -4- shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be enti- -5- tled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common -6- Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of any class of the Corporation's Preferred Stock. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporatin by J. Mikesell Thomas, its Executive Vice President and Chief Financial Officer, and attested by an Assistant Secretary of the Corporation this 20th day of January, 1989. /s/ J. Mikesell Thomas ------------------------------------ J. Mikesell Thomas Executive Vice President and Chief Financial Officer Attest: /s/ Laurence Goldman - --------------------- Assistant Secretary [SEAL] -7- STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE TWENTIETH DAY OF APRIL, A.D. 1990, AT 2:30 O'CLOCK P.M. * * * * * * * * * * /s/ William T. Quillen (SEAL) ---------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902072 DATE: 05/18/1993 723138037 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO CORPORATION FIRST CHICAGO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: First: That at a meeting of the Board of Directors of FIRST CHICAGO CORPORATION resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and that said amendment be submitted for the consideration and approval of the stockholders of said corporation to be held on April 20, 1990. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the first sentence of Article Fourth of the Corporation's Restated Certificate of Incorporation be amended to read as follows: 'FOURTH. The total number of shares of all classes of stock which the corporation shall have the authority to issue is 165,000,000 shares which shall be divided into two classes as follows: 15,000,000 shares of Preferred Stock without par value (Preferred Stock) and 150,000,000 shares of Common Stock of the par value of $5.00 per share (Common Stock).'" Second: That thereafter, the Annual Meeting of Stockholders of said corporation was duly held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. Third: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Fourth: That the capital of said corporation shall not be reduced under or by reason of said amendment. Fifth: That said amendment shall become effective at the close of business on the day it is filed in the office of the Secretary of State of Delaware. IN WITNESS WHEREOF, FIRST CHICAGO CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Robert A. Rosholt, Senior Vice President and Treasurer of the Corporation, and attested to by Laurence Goldman, Assistant Secretary, this 20th day of April, 1990. /s/ Robert A. Rosholt ---------------------------------------------- Robert A. Rosholt Senior Vice President and Treasurer ATTEST: /s/ Laurence Goldman - ---------------------------- Assistant Secretary (CORPORATE SEAL) STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF MAY, A.D. 1991, AT 4:30 O'CLOCK P.M. * * * * * * * * * * /s/ William T. Quillen (Seal) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: 3902073 DATE: 05/18/1993 723138037 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE 10% CUMULATIVE PREFERRED STOCK SERIES D (Stated Value $25 per share) OF FIRST CHICAGO CORPORATION ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- The undersigned DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors (the "Board of Directors") of First Chicago Corporation, a Delaware corporation (the "Corporation"), and by the Preferred Stock Committee of the Board of Directors (the "Preferred Stock Committee"), respectively, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation of the Corporation which authorizes the issuance of up to 15,000,000 shares of Preferred Stock without par value, and pursuant to authority conferred upon the Preferred Stock Committee by Section 141(c) of the General Corporation Law of the State of Delaware, by Article III, Section 10 of the By-Laws of the Corporation, by Section 141(f) of the General Corporation Law of the State of Delaware, and by the resolutions of the Board of Directors adopted at a meeting duly convened and held on June 8, 1990, at which a quorum was present and acting throughout: 1. The Board of Directors on June 8, 1990 adopted the following resolutions: RESOLVED, that the Corporation issue up to 6,000,000 shares of its Preferred Stock, without par value, having an aggregate issuance price of not more than $150,000,000 (the "Preferred Shares") by filing with the Secretary of the State of Delaware, pursuant to Section 151 of the General Corporation Law of the State of Delaware, a certificate prepared in accordance with such Section 151 (the "Certificate of Designation") in such form as is approved by subsequent action of the Board of Directors or by the Preferred Stock Committee of the Board of Directors (the "Preferred Stock Committee") relating to such Preferred Shares; and that the resolution set forth in said Certificate of Designation be, and it hereby is, adopted by the Board of Directors, and that the proper officers of the Corporation are authorized to execute and file such Certificate of Designation pursuant to the General Corporation Law of the State of Delaware; FURTHER RESOLVED, that the Board of Directors appoints a Preferred Stock Committee, composed of Messrs. Barry F. Sullivan and Richard L. Thomas, which shall have the powers set forth in these resolutions and in the General Corporation Law of the State of Delaware and that execution and delivery of any document or certificate signed by any member of the Preferred Stock Committee or by the Secretary of the Corporation shall be conclusive evidence of the action taken by the Preferred Stock Committee as contemplated, required or authorized by these resolutions; and the Preferred Stock Committee or any member thereof be, and they hereby are, given full power and authority to authorize the execution of such documents and the taking of such actions (including the filings with all necessary governmental or regulatory agencies) as may be necessary or desirable to effectuate the issuance and sale of the Preferred Shares as contemplated by these resolutions; FURTHER RESOLVED, that the Preferred Stock Committee is authorized and empowered, with full power and authority, to act on behalf and in the stead of the Board of Directors to authorize the issuance of the Preferred Shares, to fix the dividend rate or rates of the Preferred Shares, to determine the number of Preferred Shares, to determine the price at which the Preferred Shares will be sold by the Corporation, to determine whether the Preferred Shares shall be convertible into shares of the Corporation's Common Stock, $5 par value per share (the "Common Shares") and, if determined to be so convertible, the basis (which may be by formula) and terms upon which the shares of Preferred Shares shall be so convertible into the Common Shares, to determine the liquidation preference (which may be less than the offering price) of the Preferred Shares, to determine any redemption provisions of the Preferred Shares and to determine the designations, preferences and privileges, the relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, to the fullest extent permitted by the General Corporation Law of the State of Delaware as it now exists or is hereafter amended; FURTHER RESOLVED, that the Certificate of Designation for the Preferred Shares shall provide that such series of Preferred Stock (the "Series") shall have the following voting rights: (1) The shares of this Series shall not have any voting powers either general or special, except that: (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorportion or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (C) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends (as defined below) on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (2) A holder of shares of this Series shall be entitled to one vote per share of the Series held by him when such holder is permitted to vote pursuant to the foregoing. 2. The Preferred Stock Committee on May 22, 1991, pursuant to the authority conferred upon the Preferred Stock Committee by Section 141(c) of the General Corporation Law of the State of Delaware, by Article III, Section 10 of the By-Laws of the Corporation and Section 141(f) of the General Corporation Law of the State of Delaware and by the resolutions of the Board of Directors set forth above, adopted the following resolutions: RESOLVED, that pursuant to authority conferred upon the Preferred Stock Committee of the Corporation, pursuant to resolutions adopted by the Board of Directors of the Corporation on June 8, 1990, the Preferred Stock Committee hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 6,000,000 shares, and hereby fixes the designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "10% Cumulative Preferred Stock, Series D" (hereinafter called this "Series") and the number of shares constituting this Series is 6,000,000. Shares of this Series shall have a stated value of $25 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board of Directors or the Preferred Stock Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Shares of this Series shall be entitled to receive dividends at a fixed annual rate of $2.50 per share. Such dividends shall be cumulative from the date of original issue of such shares, that is, May 30, 1991, and shall be payable, when and as declared by the Board of Directors, on the first day of January, April, July and October of each year, commencing the first day of July, 1991. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on the applicable record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board of Directors which shall not exceed 45 days preceding such dividend payment date thereof. (2) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (3) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (2) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (4) Dividends payable on this Series for any period less than a full quarterly dividend period, and for the dividend period beginning on the date of issuance of the shares of this Series, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on shares of this Series for each full quarterly dividend period shall be computed by dividing by four the annual rate per share set forth in Section (b)(1). (c) Redemption. (1) The shares of this Series shall not be redeemable prior to June 1, 1994. On and after June 1, 1994, the Corporation, at its option, and with the prior consent of the Board of Governors of the Federal Reserve System may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price per share as indicated below, if such redemption is during the periods indicated:
If redeemed during Redemption the twelve month Price period beginning Per Share ------------------ ---------- June 1, 1994 $25.75 June 1, 1995 $25.375 June 1, 1996 and thereafter $25.00
plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (6) Nothwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $25 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (e). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (e), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (e), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (e) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (f) Priority. For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holder of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends (Without Par Value), Preferred Stock Cumulative and Adjustable Dividends, Series B (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value), or the Corporation's $3.75 Cumulative Convertible Preferred Stock, Series A (Without Par Value) or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (g) Sinking or Retirement Fund. The shares of this Series shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such stock." IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by Richard L. Thomas, its President, and the same to be attested by Mark K. Cullen, its Assistant Secretary, this 22nd day of May, 1991. FIRST CHICAGO CORPORATION By: /s/ Richard L. Thomas ---------------------- President (Corporate Seal) ATTEST: /s/ Mark K. Cullen - ------------------- Assistant Secretary 7489E STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF FIRST CHICAGO CORPORATION FILED IN THIS OFFICE ON THE TWELFTH DAY OF NOVEMBER, A.D. 1992, AT 9 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. * * * * * * * * * * /s/ William T. Quillen (SEAL) -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902075 DATE: 05/18/1993 723138037 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE 8.45% CUMULATIVE PREFERRED STOCK, SERIES E (Stated Value $625 per share) OF FIRST CHICAGO CORPORATION ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- The undersigned DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors (the "Board of Directors") of First Chicago Corporation, a Delaware corporation (the "Corporation"), and by the Preferred Stock Committee of the Board of Directors (the "Preferred Stock Committee"), respectively, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation of the Corporation which authorizes the issuance of up to 15,000,000 shares of Preferred Stock without par value, and pursuant to authority conferred upon the Preferred Stock Committee by Section 141(c) of the General Corporation Law of the State of Delaware, by Article III, Section 10 of the By-Laws of the Corporation, by Section 141(f) of the General Corporation Law of the State of Delaware, and by the resolutions of the Board of Directors adopted by means of a unanimous written consent of the Board of Directors dated August 21, 1992: 1. The Board of Directors on August 21, 1992 adopted the following resolutions: RESOLVED, that the Corporation issue up to 480,000 shares of its Preferred Stock, without par value, having an aggregate issuance price of not more than $300,000,000 (the "Preferred Shares") by filing with the Secretary of State of Delaware, pursuant to Section 151 of the General Corporation Law of the State of Delaware, a certificate prepared in accordance with such Section 151 (the "Certificate of Designation") in such form as is approved by subsequent action of the Board of Directors or by the Preferred Stock Committee of the Board of Directors (the "Preferred Stock Committee") relating to such Preferred Shares; and that the resolution set forth in said Certificate of Designation be, and it hereby is, adopted by the Board of Directors, and that the proper officers of the Corporation are authorized to execute and file such Certificate of STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 11/12/1992 732317001 - 700130 Designation pursuant to the General Corporation Law of the State of Delaware; FURTHER RESOLVED, that the Board of Directors appoints a Preferred Stock Committee, composed of Messrs. Richard L. Thomas and John H. Bryan, which shall have the powers set forth in these resolutions and in the General Corporation Law of the State of Delaware and that execution and delivery of any document or certificate signed by any member of the Preferred Stock Committee or by the Secretary of the Corporation shall be conclusive evidence of the action taken by the Preferred Stock Committee as contemplated, required or authorized by these resolutions; and the Preferred Stock Committee or any member thereof be, and they hereby are, given full power and authority to authorize the execution of such documents and the taking of such actions (including the filings with all necessary governmental or regulatory agencies) as may be necessary or desirable to effectuate the issuance and sale of the Preferred Shares as contemplated by these resolutions; FURTHER RESOLVED, that the Preferred Stock Committee is authorized and empowered, with full power and authority, to act on behalf and in the stead of the Board of Directors to authorize the issuance of the Preferred Shares, to fix the dividend rate or rates of the Preferred Shares, to determine the number of Preferred Shares, to determine the price at which the Preferred Shares will be sold by the Corporation, to determine whether the Preferred Shares shall be convertible into shares of the Corporation's Common Stock, $5 par value per share (the "Common Shares") and, if determined to be so convertible, the basis (which may be by formula) and terms upon which the shares of Preferred Shares shall be so convertible into the Common Shares, to determine whether the Preferred Shares shall be represented by depositary shares (the "Depositary Shares") and, if so determined, the fractional interest of a Preferred Share to be represented by each Depositary Share, to determine the liquidation preference (which may be less than the offering price) of the Preferred Shares, to determine any redemption provisions of the Preferred Shares and to determine the designations, preferences and privileges, the relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, to the fullest extent permitted by the General Corporation Law of the State of Delaware as it now exists or is hereafter amended; FURTHER RESOLVED, that the Certificate of Designation for the Preferred Shares shall provide that such series of Preferred Stock (the "Series") shall have the following voting rights: (1) The shares of this Series shall not have any voting powers either general or special, except that: (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (C) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends (as defined below) on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (2) A holder of shares of this Series shall be entitled to one vote per share of the Series held by him when such holder is permitted to vote pursuant to the foregoing. 2. The Preferred Stock Committee on November 5, 1992, pursuant to the authority conferred upon the Preferred Stock Committee by Section 141(c) of the General Corporation Law of the State of Delaware, by Article III, Section 10 of the By-Laws of the Corporation and Section 141(f) of the General Corporation Law of the State of Delaware and by the resolutions of the Board of Directors set forth above, adopted the following resolutions: RESOLVED, that pursuant to authority conferred upon the Preferred Stock Committee of the Corporation, pursuant to resolutions adopted by the Board of Directors of the Corporation on August 21, 1992, the Preferred Stock Committee hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 160,000 shares, and hereby fixes the designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "8.45% Cumulative Preferred Stock, Series E" (hereinafter called this "Series") and the number of shares constituting this Series is 160,000. Shares of this Series shall have a stated value of $625 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board of Directors or the Preferred Stock Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Shares of this Series shall be entitled to receive dividends at a fixed annual rate of $52.8125 per share. Such dividends shall be cumulative from the date of original issue of such shares, that is, November 16, 1992, and shall be payable, when and as declared by the Board of Directors, on the first day of January, April, July and October of each year, commencing the first day of January, 1993. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on the applicable record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board of Directors which shall not exceed 45 days preceding such dividend payment date thereof. (2) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (3) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (2) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (4) Dividends payable on this Series for any period less than a full quarterly dividend period, and for the dividend period beginning on the date of issuance of the shares of this Series, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on shares of this Series for each full quarterly dividend period shall be computed by dividing by four the annual rate per share set forth in Section (b)(1). (c) Redemption. (1) The shares of this Series shall not be redeemable prior to November 16, 1997. On and after November 16, 1997, the Corporation, at its option, and with the prior consent of the Board of Governors of the Federal Reserve System may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price per share of $625, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion. The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $625 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (e). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (e), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (e), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (e) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (f) Priority. For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holder of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series B (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value), $3.75 Cumulative Convertible Preferred Stock, Series A (Without Par Value), or the Corporation's 10% Cumulative Peferred Stock, Series D (stated value $25 per share), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (g) Sinking or Retirement Fund. The shares of this Series shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such stock. IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by Robert A. Rosholt, its Treasurer, and the same to be attested by Michael Lipsitz, its Assistant Secretary, this 5th day of November, 1992. FIRST CHICAGO CORPORATION /s/ Robert A. Rosholt By:______________________________ Senior Vice President and Treasurer (Corporate Seal) ATTEST: /s/ Michael Lipsitz ___________________________ Assistant Secretary 1295E/1-9 PAGE 1 State of Delaware Office of the Secretary of State -------------------------------- I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "FIRST CHICAGO CORPORATION" FILED IN THIS OFFICE ON THE FIFTH DAY OF MARCH, A.D. 1993, AT 10 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. * * * * * * * * * * (SEAL) /s/ William T. Quillen -------------------------------------- William T. Quillen, Secretary of State AUTHENTICATION: *3902077 DATE: 05/18/1993 723138037 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 10:00 AM 03/05/1993 733064007-700130 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE 5 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B (Stated Value $5,000 per share) OF FIRST CHICAGO CORPORATION -------------- Pursuant to Secton 151 of the General Corporation Law of the State of Delaware -------------- The undersigned DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors (the "Board of Directors") of First Chicago Corporation, a Delaware corporation (the "Corporation"), and by the Preferred Stock Committee of the Board of Directors (the "Preferred Stock Committee"), respectively, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation of the Corporation which authorizes the issuance of up to 15,000,000 shares of Preferred Stock without par value, and pursuant to authority conferred upon the Preferred Stock Committee by Section 141(c) of the General Corporation Law of the State of Delaware, by Article III, Section 10 of the By-Laws of the Corporation, by Section 141(f) of the General Corporation Law of the State of Delaware, and by the resolutions of the Board of Directors adopted by means of a unanimous written consent of the Board of Directors dated August 21, 1992 and by resolutions adopted by the Board of Directors on February 12, 1993: 1. The Board of Directors on August 21, 1992 adopted the following resolutions: RESOLVED, that the Corporation issue up to 480,000 shares of its Preferred Stock, without par value, having an aggregate issuance price of not more than $300,000,000 (the "Preferred Shares") by filing with the Secretary of the State of Delaware, pursuant to Section 151 of the General Corporation Law of the State of Delaware, a certificate prepared in accordance with such Section 151 (the "Certificate of Designation") in such form as is approved by subsequent action of the Board of Directors or by the Preferred Stock Committee of the Board of Directors (the "Preferred Stock Committee") relating to such Preferred Shares; and that the resolution set forth in said Certificate of Designation be, and it hereby is, adopted by the Board of Directors, and that the proper 1 officers of the Corporation are authorized to execute and file such Certificate of Designation pursuant to the General Corporation Law of the State of Delaware; FURTHER RESOLVED, that the Board of Directors appoints a Preferred Stock Committee, composed of Messrs. Richard L. Thomas and John H. Bryan, which shall have the powers set forth in these resolutions and in the General Corporation Law of the State of Delaware and that execution and delivery of any document or certificate signed by any member of the Peferred Stock Committee or by the Secretary of the Corporation shall be conclusive evidence of the action taken by the Preferred Stock Committee as contemplated, required or authorized by these resolutions; and the Preferred Stock Committee or any member thereof be, and they hereby are, given full power and authority to authorize the execution of such documents and the taking of such actions (including the filings with all necessary governmental or regulatory agencies) as may be necessary or desirable to effectuate the issuance and sale of the Preferred Shares as contemplated by these resolutions; FURTHER RESOLVED, that the Preferred Stock Committee is authorized and empowered, with full power and authority, to act on behalf and in the stead of the Board of Directors to authorize the issuance of the Preferred Shares, to fix the dividend rate or rates of the Preferred Shares, to determine the number of Preferred Shares, to determine the price at which the Preferred Shares will be sold by the Corporation, to determine whether the Preferred Shares shall be convertible into shares of the Corporation's Common Stock, $5 par value per share (the "Common Shares") and, if determined to be so convertible, the basis (which may be by formula) and terms upon which the shares of Peferred Shares shall be so convertible into the Common Shares, to determine whether the Preferred Shares shall be represented by depositary shares (the "Depositary Shares") and, if so determined, the fractional interest of a Preferred Share to be represented by each Depositary Share, to determine the liquidation preference (which may be less than the offering price) of the Preferred Shares, to determine any redemption provisions of the Preferred Shares and to determine the designations, preferences and privileges, the relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, to the fullest extent permitted by the General Corporation Law of the State of Delaware as it now exists or is hereafter amended; FURTHER RESOLVED, that the Certificate of Designation for the Preferred Shares shall provide that such series of Preferred Stock (the "Series") shall have the following voting rights: (1) The shares of this Series shall not have any voting powers either general or special, except that: (A) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 2 66 2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisons of the Certificate of Incorportion or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (B) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (C) If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends (as defined below) on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at such meeting, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporaton to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of 3 Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (2) A holder of shares of this Series shall be entitled to one vote per share of the Series held by him when such holder is permitted to vote pursuant to the foregoing. 2. The Board of Directors on February 12, 1993 adopted the following resolutions: RESOLVED, that the second paragraph of the Resolution duly adopted by this Board of Directors on August 12, 1993 (the "Resolution") providing for the appointment of a Preferred Stock Committee of this Board of Directors is hereby amended and restated in its entirety as follows: FURTHER RESOLVED, that the Board of Directors appoints a Preferred Stock Committee, composed of Messrs. Richard L. Thomas, Leo F. Mullin and David J. Vitale, which shall have the powers set forth in these resolutions and in the General Corporation Law of the State of Delaware and that execution and delivery of any document or certificate signed by any member of the Preferred Stock Committee or by the Secretary of the Corporation shall be conclusive evidence of the action taken by the Peferred Stock Committee as contemplated, required or authorized by these resolutions; and the Preferred Stock Committee or any member thereof be, and they hereby are, given full power and authority to authorize the execution of such documents and the taking of such actions (including 4 the filings with all necessary governmental or regulatory agencies) as may be necessary or desirable to effectuate the issuance and sale of the Shares (as defined below) as contemplated by these resolutions; FURTHER RESOLVED, that except as set forth above, the Resolution is and shall be in full force and effect as of its date. 3. The Preferred Stock Committee on March 1, 1993, pursuant to the authority conferred upon the Preferred Stock Committee by Section 141(c) of the General Corporation Law of the State of Delaware, by Article III, Section 10 of the By-Laws of the Corporation and Section 141(f) of the General Corporation Law of the State of Delaware and by the resolutions of the Board of Directors set forth above, adopted the following resolutions: RESOLVED, that pursuant to authority conferred upon the Preferred Stock Committee of the Corporation, pursuant to resolutions adopted by the Board of Directors of the Corporation on August 21, 1992, as amended on February 12, 1993, the Preferred Stock Committee hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 40,000 shares, and hereby fixes the designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. The designation of the series of Preferred Stock created by this resolution shall be "5 3/4% Cumulative Convertible Preferred Stock, Series B" (hereinafter called this "Series") and the number of shares constituting this Series is 40,000. Shares of this Series shall have a stated value of $5,000 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board of Directors or the Preferred Stock Committee and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. (1) Shares of this Series shall be entitled to receive dividends at a fixed annual rate of $287.50 per share. Such dividends shall be cumulative from the date of original issue of such shares, that is, March 9, 1993, and shall be payable, when and as declared by the Board of Directors, on the first day of January, April, July and October of each year, commencing the first day of July, 1993. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on the applicable record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past dividend periods may be declared and paid at any time. 5 without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board of Directors which shall not exceed 45 days preceding such dividend payment date thereof. (2) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Peferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Peferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (3) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (2) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (4) Dividends payable on this Series for any period less than a full quarterly dividend period, and for the dividend period beginning on the date of issuance of the shares of this Series, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on shares of this Series for each full quarterly dividend period shall be computed by dividing by four the annual rate per share set forth in Section (b)(1). 6 (c) Redemption. (1) The shares of this Series shall not be redeemable prior to April 1, 1997. On and after April 1, 1997, the Corporation, at its options, and with the prior consent of the Board of Governors of the Federal Reserve System may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price as set forth below, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption: If Redeemed During the Twelve-Month Period Redemption Price Beginning on April 1, per share ---------------------- ---------------- 1997 $5,172.50 1998 5,143.75 1999 5,115.00 2000 5,086.25 2001 5,057.50 2002 5,028.75 2003 and thereafter 5,000.00 (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the then current Conversion Price (as defined herein), together with a statement that all conversion rights with respect to the shares of the Series called for redemption will terminate at the close of business on the fifth Business Day preceding the redemption date; (v) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption 7 date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series (i) upon the conversion of shares of the Series into shares of Common Stock pursuant to Section (d) hereof or (ii) pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion. (1) (A) Subject to the provisions for adjustment hereinafter set forth, each share of the Series shall be convertible at the option of the holder thereof, in whole or part, in the manner hereinafter set forth, into fully paid and nonassessable shares of Common Stock (as hereinafter defined) at the conversion price, determined as hereinafter provided, in effect on the date of conversion, each share of the Series being credited at its stated value; provided that if any shares of the Series are called for redemption, the conversion rights pertaining thereto will terminate at the close of business on the fifth Business Day preceding the redemption date, unless the Corporation shall default in providing money for the payment of the redemption price as provided in Section (c) hereof. The price at which shares of Common Stock shall be delivered upon conversion of the shares of the Series (hereinafter referred to as the "Conversion Price") shall be initially $53.625 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in paragraph (2) of this Section (d). 8 (B) Any holder of shares of the Series desiring to convert such stock into shares of Common Stock shall surrender the certificate or certificates for the shares of the Series being converted, duly endorsed or assigned to the Corporation or in blank, at the principal office of the Corporation for that purpose, accompanied by a written notice of conversion specifying the number of shares of the Series to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued; in case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issue of shares of Common Stock in such name or names. In case less than all of the shares of the Series represented by a certificate are to be converted by a holder, upon such conversion the Corporation shall issue and deliver or cause to be issued and delivered to such holder a certificate or certificates for the shares of the Series not so converted. The holders of shares of the Series at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares of the Series (except shares of the Series redeemed on a redemption date between such record date and the dividend payment date) on the corresponding dividend payment date notwithstanding the subsequent conversion thereof or the Corporation's default in payment of the dividend due on such dividend payment date. However, shares of the Series surrendered for conversion during the period from the close of business on any dividend payment record date for the Series to the opening of business on the corresponding dividend payment date (except shares of the Series called for redemption on a redemption date after the dividend payment record date and on or before the fifth business day following the dividend payment date) must be accompanied by payment of an amount equal to the dividend payable on such shares of the Series on such dividend payment date. A holder of shares of the Series on a dividend payment record date who (or whose transferee) converts shares of the Series on a dividend payment date will receive the dividend payable on such shares of the Series by the Corporation on such date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of the Series for conversion. Except as provided above, no payment or adjustment will be made on account of accrued or unpaid dividends upon the conversion of shares of the Series. (C) As promptly as practicable after the surrender of certificates for shares of the Series as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this Section (d), and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be promptly settled as provided in paragraph (11) of this Section (d). (D) Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of the Series shall have been surrendered and such notice (and if applicable, payment of an amount equal to the dividend payable on such shares) received by the Corporation as aforesaid; 9 the shares of the Series so surrendered for conversion shall no longer be deemed to be outstanding and all rights with respect to such shares of the Series shall cease, except the right of the holders thereof to receive full shares of Common Stock in exchange therefor and payment for any fractional shares; and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice received by the Corporation. All shares of Common Stock delivered upon conversions of shares of the Series will upon delivery be duly and validly issued and fully paid and nonassessable. (2) The Conversion Price shall be adjusted from time to time as follows: (A) In case the Corporation shall pay or make a dividend or other distribution on any class of capital stock of the Corporation in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, and the denominator shall be the sum of (i) such number of shares and (ii) the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the date following the date fixed for such determination. (B) In case the Corporation shall issue rights or warrants (in each case, other than the Preferred Share Purchase Rights) to all holders of its shares of Common Stock entitling them to subscribe for or purchase Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (3)) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the date following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the sum of (i) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus (ii) the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price, and the denominator shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus 10 (y) the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the date following the date fixed for such determination. (C) In case the Corporation shall, by dividend or otherwise, distribute to all holders of shares of Common Stock evidences of indebtedness or assets (including securities, but excluding any rights or warrants referred to in paragraph (2)(B), the Preferred Share Purchase Rights, any dividend or distribution paid in cash out of the surplus or retained earnings of the Corporation and any dividend or distribution referred to in paragraph (2)(A)), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (3)) of the Common Stock on the date fixed for such determination, less the then fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed allocable to one share of Common Stock, and the denominator shall be such current market price per share of Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event that the Corporation shall distribute or shall have distributed any rights or warrants to acquire capital stock ("Rights") pursuant to this subparagraph (C), this distribution of separate certificates representing the Rights subsequent to their initial distribution (whether or not the initial distribution of the Rights shall have occurred prior to the date of the issuance of the Series) shall be deemed to be the distribution of the Rights for purposes of this subparagraph (C); provided that the Corporation may, in lieu of making any adjustment pursuant to this subparagraph (C) upon a distribution of separate certificates representing the Rights, make proper provision so that each holder of the Series who converts the shares of this Series (or any portion thereof) (i) on or before the record date for such distribution of separate certificates shall be entitled to receive upon conversion shares of Common Stock issued with Rights and (ii) after such record date and prior to the expiration, redemption or termination of the Rights shall be entitled to receive upon conversion, in addition to the shares of Common Stock issuable upon conversion, the same number of Rights as would a holder of the number of shares of Common Stock that the shares of such Series so converted would have entitled the holder thereof to purchase in accordance with the terms and provisions applicable to the Rights if the shares of such Series were converted immediately prior to the record date for such distribution. Common Stock owned by or held for the account of the Corporation or any majority owned subsidiary shall not be deemed outstanding for the purpose of any adjustment required under this subparagraph (C). (D) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares, the Conversion Price in effect at the opening of business on 11 the date following the date upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares, the Conversion Price in effect at the opening of business on the date following the date upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the date upon which such subdivision or combination becomes effective. (E) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which paragraph (6) applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (2)(C)), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock oustanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective," or "the day upon which such combination becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (2)(D) of this Section (d)). (3) For the purpose of any computation under paragraphs (2)(B) and (2)(C), the current market price per share of Common Stock on any day shall be deemed to be the average of the daily Closing Prices (as hereinafter defined) per share of Common Stock for the 30 consecutive Trading Days (as hereinafter defined) ending on the fifth Trading Day before the day in question. (4) Notwithstanding the provisions of paragraph (2) above, no adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (4)) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (4) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. Notwithstanding any other provisions of this Section (d), the Corporation shall not be required to make any adjustment to the Conversion Price for the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under such plan. All calculations under this Section (d) shall be made to the nearest 1/100 of a cent (with $.00005 being rounded upward) or to the nearest 1/10,000 of a share (with .00005 of a share being rounded upward), as the case may be. 12 (5) The Corporation may make such reductions in the Conversion Price, in addition to those required by this Section (d), as it considers to be advisable in order to avoid or diminish any income tax to any holder of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. The Corporation shall have the power to resolve any ambiguity or correct any error in this Section (d) and its actions in so doing shall be final and conclusive. (6) In case the Corporation shall effect any capital reorganization of the Common Stock (other than a subdivision, combination, capital reorganization or reclassification provided for in paragraph (2)) or shall consolidate, merge or engage in a statutory share exchange with or into any other corporation (other than a consolidation, merger or share exchange in which the Corporation is the surviving corporation and each share of Common Stock outstanding immediately prior to such consolidation or merger is to remain outstanding immediately after such consolidation or merger) or shall sell or transfer all or substantially all its assets to any other corporation, lawful provision shall be made as a part of the terms of such transaction whereby the holders of shares of the Series shall receive upon conversion thereof, in lieu of each share of Common Stock which would have been issuable upon conversion of such stock if converted immediately prior to the consummation of such transaction, the same kind and amount of stock (or other securities, cash or property, if any) as may be issuable or distributable in connection with such transaction with respect to each share of Common Stock outstanding at the effective time of such transaction subject to subsequent adjustments for subsequent stock dividends and distributions, subdivisions or combinations of shares, capital reorganizations, reclassifications, consolidations, mergers or share exchanges, as nearly equivalent as possible to the adjustments provided for in this Section (d). (7) Whenever the Conversion Price is adjusted as herein provided: (A) the Corporation shall compute the adjusted Conversion Price and shall cause to be prepared a certificate signed by the chief financial or accounting officer of the Corporation setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based and the computation thereof and such certificate shall forthwith be filed with each transfer agent for the Series; and (B) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall, as soon as practicable, be mailed to the holders of record of outstanding shares of the Series. (8) In case: (A) the Corporation shall declare a dividend or other distribution on the Common Stock other than in cash out of its surplus or retained earnings and other than the Preferred Share Purchase Rights; 13 (B) the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants (other than the Preferred Share Purchase Rights) entitling them to subscribe for or purchase any shares of capital stock of any class or of any other rights (other than the Preferred Share Purchase Rights); (C) of any reclassification of the Common Stock (other than a subdivision or combination of outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or of the sale or transfer of all or substantially all the assets of the Corporation; or (D) of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; then the Corporation shall cause to be mailed to each transfer agent for the Series and to the holders of record of the outstanding shares of the Series, at least 20 days (or 10 days in any case specified in paragraphs (A) or (B) above) prior to the applicable record or effective date hereinafter specified, a notice stating (i) the date as of which the holders of record of shares of Common Stock to be entitled to such dividend, distribution, rights or warrants are be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, liquidation, dissolution or winding up. Such notice shall also state whether such transaction will result in any adjustment in the Conversion Price applicable to the Series and, if so, shall state what the adjusted Conversion Price will be and when it will become effective. Neither the failure to give the notice required by this paragraph (8), nor any defect therein, to any particular holder shall affect the sufficiency of the notice or the legality or validity of the proceedings described in paragraphs (8)(A) through (8)(D). (9) Any shares of this Series which shall at any time have been converted shall, after such conversion, have the status as authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock for the purpose of issuance upon conversion of shares of the Series, the full number of shares of Common Stock then issuable upon the conversion of all shares of the Series then outstanding and shall take all action necessary so that shares of Common Stock so issued will be validly issued, fully paid and nonassessable; provided, however, that nothing contained herein shall preclude the Corporation from satisfying its obligations in respect of the conversion of the shares by delivery of purchased shares of Common Stock which are held in the treasury of the Corporation. 14 (10) The Corporation will pay any and all stamp or similar taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion of shares of the Series. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of the Series so converted were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid. (11) No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of shares of the Series. If any such conversion would otherwise require the issuance of such a fractional share (determined to the extent of four decimal places after taking into account all shares of the Series being converted into Common Stock by the holder), an amount equal to such fraction multiplied by the Closing Price per share of Common Stock for the day of conversion shall be paid to the holder in cash by the Corporation. Any share of the Series may be converted, at the request of its holder, in part into Common Stock. If a part of a share of the Series is converted, then the Corporation will convert such shares into the requested shares of Common Stock (subject to this paragraph (11)) and issue a fractional share of the Series evidencing the remaining interest of such holder. (12) Notwithstanding anything elsewhere contained herein, any funds which at any time shall have been deposited by the Corporation or on its behalf with any paying agent for the purpose of paying dividends on, or the redemption price of, any shares of the Series and which shall not be required for such purposes because of the conversion of such shares shall after such conversion be repaid to the Corporation by the paying agent. (13) In any case in which paragraph (2) of this Section (d) provides that an adjustment shall become effective on the day next following a record date for an event, the Corporation may defer until the occurrence of such event (a) issuance to the holder of any share of this Series converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (11) of this Section (d). (14) If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section 7, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (15) If the Corporation shall take any action affecting the Common Stock, other than action described in this Section (d), that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of the Series, the Conversion Price for the Series may be adjusted, to the extent permitted by law, in such 15 manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. (16) The certificate of any independent firm of public accountants of recognized standing selected by the Board shall be presumptive evidence of the correctness of any computation made under this Section (d). (17) For purposes of this resolution, the following terms shall have the following meanings: (i) "Closing Price" shall mean the last sale price as shown on the New York Stock Exchange Composite Transactions Tape, or in case no such sale takes place on such day, the average of the closing bid and asked prices on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if it is not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for such purposes (other than the Corporation or a subsidiary thereof). (ii) "Common Stock" shall mean the Corporation's Common Stock, $5.00 par value per share, as the same exists at the date of filing of the Certificate of Designation relating to this Series or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (iii) "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a day which is a Business Day. (iv) "Business Day" shall mean a day which is not a Saturday, Sunday or other day on which commercial banking institutions in the City of Chicago, Illinois or The City of New York, New York are authorized or obligated by law or executive order to close. (v) "Preferred Share Purchase Rights" shall mean the preferred share purchase rights of the Corporation which were declared as a dividend on each outstanding share of the Corporation's Common Stock on November 18, 1988, and are described in that certain Rights Agreement dated November 18, 1988 between the Corporation and Bankers Trust Company, as Rights Agent, and as amended from time to time, or rights 16 to purchase any capital stock of the Corporation under any successor shareholder rights plan or plan adopted in replacement of the Corporation's Rights Agreement. (e) Liquidation Rights. (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $5,000 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (e). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (e), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (e), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (e) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (f) Priority. For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: 17 (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holder of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series B (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value), $3.75 Cumulative Convertible Preferred Stock, Series A (Without Par Value), 10% Cumulative Preferred Stock, Series D (Stated Value $25 per share), or the Corporation's 8.45% Cumulative Preferred Stock, Series E (Stated Value $625 per share), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (g) Sinking or Retirement Fund. The shares of this Series shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such stock. 18 IN WITNESS WHEREOF, First Chicago Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by David P. Bolger, its Treasurer, and the same to be attested by Michael Lipsitz, its Assistant Secretary, this 4th day of March, 1993. FIRST CHICAGO CORPORATION David P. Bolger By:_______________________________ Senior Vice President and Treasurer (Corporate Seal) ATTEST: Michael Lipsitz _________________________ Assistant Secretary 19 EX-12 3 COMPUTATION OF RATIOS EXHIBIT 12. STATEMENTS RE COMPUTATION OF RATIOS The ratios of income to fixed charges have been computed on the basis of the total enterprise (as defined by the Commission) by dividing income before fixed charges and income taxes by fixed charges. Fixed charges consist of interest expense on all long-term and short-term borrowings, excluding or including interest on deposits as indicated. The computations of other ratios presented in the Corporation's 1993 Annual Report to Stockholders and incorporated by reference into the Form 10-K are evident from the information presented in the 1993 Annual Report to Stockholders. EX-13 4 ANNUAL REPORT FIRST CHICAGO CORPORATION (FIRST CHICAGO LOGO) ANNUAL REPORT 1993
F I N A N C I A L H I G H L I G H T S ---------------------------------------- (Dollars in millions, except per share data) 1993 1992 Change - ---------------------------------------------------------------------------------------------------------------------- FOR THE YEAR Net interest income--tax-equivalent basis...................................... $1,264.0 $1,217.0 + 4% Combined credit provisions..................................................... 274.2 1,106.9 -75 Noninterest income............................................................. 2,202.4 1,488.2 +48 Noninterest expense*........................................................... 1,853.9 1,764.4 + 5 Income (loss) before cumulative effect of changes in accounting principles..... 804.5 (114.5) -- Net income..................................................................... 804.5 93.5 -- Return on assets............................................................... 1.42% 0.17% Return on common stockholders' equity.......................................... 24.2% 1.8% - ---------------------------------------------------------------------------------------------------------------------- AT YEAR-END Assets......................................................................... $52,560 $49,281 + 7% Deposits....................................................................... 28,186 29,740 - 5 Loans.......................................................................... 23,103 22,692 + 2 Common stockholders' equity.................................................... 3,503 2,732 +28 Risk-based capital ratio....................................................... 13.6% 10.8% - ---------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Assets......................................................................... $56,854 $54,768 + 4% Loans.......................................................................... 21,997 24,347 -10 Deposits....................................................................... 29,677 31,694 - 6 - ---------------------------------------------------------------------------------------------------------------------- COMMON SHARE DATA Earnings per share--primary Income (loss) before cumulative effect of changes in accounting principles... $ 8.78 $(2.08) -- Net income................................................................... 8.78 0.64 -- Earnings per share--fully diluted Income (loss) before cumulative effect of changes in accounting principles... 8.43 (2.08) -- Net income................................................................... 8.43 0.64 -- Dividends declared............................................................. 1.30 1.20 + 8% Book value, year-end........................................................... 40.55 33.19 +22 Market price, year-end......................................................... 43.25 36.75 +18 - ---------------------------------------------------------------------------------------------------------------------- NONFINANCIAL DATA (YEAR-END) Number of employees (full-time-equivalent)..................................... 17,355 16,998 Number of common stockholders of record........................................ 15,034 15,995 - ---------------------------------------------------------------------------------------------------------------------- *Excludes provisions for other real estate.
T A B L E O F C O N T E N T S ----------------------------------- Letter to Stockholders.............................. 2 Overview of Products and Services................... 7 Board of Directors.................................. 16 Financial Review.................................... 17 Executive Officers.................................. 68 U.S. Offices and International Facilities........... 69 Corporate Information............................... 70 1 TO THE OWNERS OF FIRST CHICAGO ------------------------------ Nineteen ninety-three was a year of great accomplishment for First Chicago--a year in which the decisions and actions taken in 1992 began to produce intended results. Details of the significant aspects of our 1993 performance will follow in this letter and in the Financial Review section of this Annual Report. Most notably, in 1993 First Chicago firmly reestablished itself as a high-performing banking company. We believe that the Corporation is better positioned today to compete against all challengers in our chosen market segments than in many, many years, and that we are capable of producing attractive returns for stockholders. The basis for our confidence lies in the competence and dedication of our employees, in our product expertise and marketing skills, in our total commit- ment to quality, in our outstanding client base and market positions, and in our increasingly robust financial position. In the aggregate, these attributes represent a very strong franchise. In large corporate banking, First Chicago has the leading market share in greater Chicago and the Midwest, and is a major player in both national and international markets. We have the leading positions in serving both small and medium-size businesses as well as the consumer mar- ket in metropolitan Chicago. And our credit card is a strong competitor nationally with good growth prospects. While serving customers is the essence of what we do, converting this activity into attractive financial results is the ultimate objective. And in that regard, 1993 was a highly satisfying year. Earnings of $804 million, or $8.78 per share, far exceeded those of any previous year. Even if venture capital earnings were excluded, earnings of $600 million were a new record. The return on equity was 24 percent on a reported basis, and 21 percent excluding venture capital. In addition to the record level of earnings, the quality of those earnings has improved significantly. Indeed, provisions for commercial credit losses in 1993, at $78 million, were the lowest in many years. At the same time, we have placed relatively greater emphasis on fee-based advisory and operating busi- nesses. Noninterest revenues, excluding trading results and equity gains, grew more than 20 percent in 1993. Although trading operations have become a more significant contributor to earnings, we believe that their inherent volatility is mitigated both by the lower risk profile of our commercial portfolio and by the less volatile earnings from our fee-generating businesses. Further, as our trading activities are based primarily on customer transactions as opposed to proprietary position taking, and as our trading covers a broader range of products than previously, we believe that the resulting revenue stream should be more consistent than in earlier years. We also emphasized balance sheet strength in 1993, with gratifying results. Regulatory capital ratios at year-end exceeded ``well-capitalized'' guidelines by a wide margin, and our intention is to operate with strong ratios going forward. Equally as important, credit quality improved substantially. Key credit quality indicators, such as reserve ratios and nonperforming asset ratios, are now much better than peer averages. Nonperforming assets at December 31, 1993, were 1.2 percent of related assets, or $277 million, the lowest absolute level since 1976. In addition, large corporate loans represent a substantially smaller percentage of our total assets, and our overall credit exposure is increasingly diversified by product, and by industries and customers served. Much of the balance sheet improvement is attributable to the highly successful execution of the accelerated asset disposition program that was initiated in September 1992. At that time, $2.4 billion of lower-quality real estate exposure was written down to $1.2 billion. At year-end 1993, the carrying value of the remaining portfolio was $126 million, or 26 percent of original exposure. Based on the Corporation's 1993 earnings performance and a careful assessment of our prospects, the Board of Directors in November approved a 33 per- 2 +-----------------------------------------------------------+ box with photo of 3 men listed below +-----------------------------------------------------------+ ............................................................ Leo F. Mullin Richard L. Thomas David J. Vitale cent increase in the dividend on our common stock, from an annual rate of $1.20 to $1.60, and also approved a program to buy back up to 2.5 million common shares. ............................................................................... Line of Business Results ............................................................................... All of the major business units performed above expectations in 1993 and contributed importantly to overall corporate results. Particularly strong performances were turned in by our credit card (First Card) and corporate banking units, with both achieving record levels of earnings. In addition to achieving record earnings, First Card reached several other milestones in 1993. Managed receivables grew 24 percent over 1992 and passed the $10 billion mark in December. Our 10-millionth account was added late in the year as well. In fact, during 1993 we added 2.3 million new accounts, and by most measures our market share in the U.S. increased for the third year in a row. Our strengths in operating efficiency, marketing savvy and credit management will be the basis for continued growth. Corporate and institutional banking operations accounted for the greatest positive swing in earnings, from a modest profit in 1992 to a record level in 1993. Dramatic improvement in credit quality, driven by the asset disposition program and diligent management of the core loan portfolio, was the largest factor in the turnaround. In addition, trading and other market-driven activities achieved record results, and the units that provide operating products and services performed well. Perhaps most important is a renewed sense of enthusiasm and confidence in our ability to serve corporate and institutional customers effectively and profitably. With emphasis on providing quality products and services to our customer base and with a strong focus on profitability, we are optimistic about continued success in serving this market. American National Corporation, our lead provider of banking services to medium-size businesses in Chicagoland, built its market position, improved its credit quality, and recorded another impressive year of earnings growth. We are confident that American National now has the capability and momentum to achieve further growth in income and market share in 1994 and beyond. In our local retail banking activities, significant operational progress was achieved by the conversion of all local subsidiary banks into branches of The First National Bank of Chicago, and by continued 3 ........................................ ---------------------------------------- ---------------------------------------- Heavily-ruled box between 2 columns with photo. Caption runs below. ---------------------------------------- ---------------------------------------- An important contributor to First Chicago's earnings, First Card consistently ranks among the top four bank card issuers in the U.S. and is the largest issuer of Visa Gold/R/ cards in the world. ........................................ systems integration into the First Chicago network. Consumer banking is undergoing tremendous technological change, and with our leading market posi- tions in metropolitan Chicago, we are establishing a foundation for substantial earnings progress in the years to come. On November 22, 1993, First Chicago announced an agreement to acquire the $1.3 billion-asset Lake Shore Bancorp for $323 million, payable in shares of First Chicago common stock. We expect this acquisition to be completed in mid-1994. This transaction is fully priced. However, from our perspective Lake Shore is a unique franchise, combining a splendid reputation and record with a commanding presence on North Michigan Avenue and attractive operations in two suburbs where First Chicago has no existing locations. North Michigan Avenue is one of the most active retail, commercial and residential markets in the country, and we consider it critical that we achieve a major penetration in this market. After realizing substantial cost reductions and aggressively building on the strengths of Lake Shore in Chicago and the suburbs, we believe that this acquisition will be a valuable addition to the First Chicago franchise. We are not compelled to make acquisitions in order to generate growth and attractive returns for our stockholders. But we remain opportunistic in our outlook and plan to hold to our disciplined approach regarding acquisition strategy and pricing. ............................................................................... Venture Capital ............................................................................... A special note about our venture capital business is appropriate. Since 1962, First Chicago has been regarded as one of the premier companies engaged in venture capital. Over the past 30 years, and especially during the past 10, this business has been a major contributor to corporate earnings. However, in 1992, because of anticipated regulatory restraints, growing capital requirements and the inherent volatility of the business, we began a program of reducing the existing portfolio of investments over time in such a way as to generate maximum returns for our stockholders. Concurrent with this decision, we changed our accounting treatment for venture capital assets from the lower of cost or market value to fair value accounting. Since the adoption of fair value accounting, and as a result of disposition activities, gains of $406 million have been realized in cash, and $552 million of appreciation has been recognized through December 31, 1993. Consequently, at year-end 1993 the carrying value of the portfolio had grown to $1.5 billion, up from $1.4 billion at September 30, 1992. We believe that our remaining portfolio should produce incremental earnings for several years, over and above current carrying values. As we generate cash from the sale of our holdings and free up capital, our priority will be to use the proceeds to further strengthen or expand our core businesses. However, if we determine that prospective returns are not sufficiently attractive, we will return excess capital to our stockholders over time. ............................................................................... Outlook ............................................................................... We are optimistic that we should be able to generate further earnings growth in our core businesses without compromising First Chicago's improved risk profile. Several factors underly our confidence: . Revenue Growth Revenue growth will be critical to enhancing profits over the next few years. We believe that our franchise strengths and business mix should enable us to increase revenues at a satisfactory rate. The dynamics of the credit card business suggest annual revenue growth in the 12 to 15 percent range for the industry, and we plan to do at least as well. Our targeted revenue growth rate in the middle market 4 ........................................ ---------------------------------------- ---------------------------------------- Heavily-ruled box between 2 columns with photo. Caption runs below. ---------------------------------------- ---------------------------------------- Providing retail customers with sophisticated investment resources for every generation under the theme ``Invest Where You Bank,'' First Chicago makes investment services available throughout its 70-plus branch network. ........................................ business is 8 to 10 percent, which we believe will be achievable through continued growth in the Midwestern economy, combined with our planned increases in market share. Finally, our goals for the retail banking and large corporate businesses are to grow revenues in the 6 to 8 percent range. In sum, the Corporation should be able to generate core revenue growth of 8 to 10 percent per annum on average for the next few years, which should be sufficient for attractive earnings growth. . Resource Allocation and Expense Control Given the competitive pressures in banking today, close control over expenses will continue to be critical to success. It is also important to be disciplined in the allocation of expenses, so that available expense dollars are invested in the areas offering the greatest potential returns while expenses are sharply curtailed in those areas with limited prospects. We have followed this practice at First Chicago in recent years, and we are determined to sustain this discipline. In 1993, for example, we chose to invest heavily in our credit card operation (as we did in 1992), and total expense in that area rose 18 percent. This investment was more than justified by the growth in earnings and market share produced by the credit card operation. The increase in base operating expenses of all other businesses was held below 5 percent for the year, although there was substantial differentiation among these businesses as well. We believe this represents a very credible performance. We will continue to work to improve the operating efficiency of our retail banking and processing businesses, and we intend to maintain the favorable trends we have begun to establish. . Risk Management Practices Our confidence about revenue growth is related to our approach to managing interest rate risk. For a number of years, we have carefully limited our expo- sure to rising or falling interest rates. As a result, we have not benefited from falling rates over the past 18 months to the same extent as some of our competitors. On the other hand, we believe we are well protected against margin pressures that might develop should interest rates rise significantly. In addition, over the past several years we have built, installed and implemented sophisticated credit risk and market risk policies and procedures. Given the constantly changing nature of markets and technological developments--the derivatives area being a very timely example--this must be an ongoing process, and there is no such thing as perfection. However, we believe that we are now among the leaders in the industry in our understanding and management of credit and market risks. It is important to remember that we are not in business to avoid risk but to manage risk, and to make sure that the risk/reward ratio is appropriate. As we expand our various trading operations, for example, we intend to assess thoroughly and understand the potential risks in new products and to determine that the potential rewards justify the exposures we will incur. We believe the Corporation's risk profile today is the best it has been for many years. ............................................................................... External Environment ............................................................................... As we enter 1994, indicators for continued growth in the U.S. economy are encouraging. The fourth quarter of 1993 was the most robust in terms of in- dustrial production growth since the second quarter of 1987, and it appears that the momentum will carry well into 1994. The economy of the greater Midwest is doing considerably better than the national average, which augurs well for First Chicago. In a larger context, passage of the General Agreement on Tariffs and Trade and the North American Free Trade Agreement, strong growth in Southeast Asia and signs of a modest upturn in Europe are all positive develop- ments. Thus, the near-term environment for our 5 ........................................ ---------------------------------------- ---------------------------------------- Heavily-ruled box between 2 columns with photo. Caption runs below. ---------------------------------------- ---------------------------------------- FirstWindow 2000, innovative and easy to use, is our award-winning, fully auto- mated, PC-based global payment system that helps corporate customers access wire transfer systems and retrieve and store bank account information. ........................................ customers, and consequently for First Chicago, should continue to be positive. The Administration, mindful of the importance of a strong banking system, has proposed new initiatives to improve the effectiveness of the regulatory process, and is also supportive of legislation that would permit interstate banking. While we applaud the thrust of these initiatives, their outcome will not be known for several months, and efforts to achieve more fundamental reform face an uphill battle in Congress. Meanwhile, we and others in our industry are expending enormous time and effort to protect the authority we already have to offer insurance and other products. At the same time, we seek to build support in Congress for the repeal of the Glass-Steagall Act and for passage of other measures that will enable us to compete more effectively by offering services that our customers now obtain from other providers. U.S. commercial banks are at a distinct disadvantage in global competition with foreign banks and with nonbank providers of financial services in the U.S. We encourage you to express your support for legislative proposals that would improve our relative position. ............................................................................... Commitment to Community ............................................................................... First Chicago's success is tied closely to the quality of life and the economic health of the Chicago area and the state of Illinois. Consequently, as a corporate citizen and as individual officers and employees, we are engaged in a wide variety of activities that we hope and expect will make a difference in our communities. Specifically, we are involved with a number of neighborhood development programs; we are active lenders in the inner city; and, through our charitable contributions, we assist many deserving social and economic development agencies. Our employees also volunteer their time generously, work- ing with many agencies and institutions as directors, trustees and volunteers. Perhaps the most dramatic example of how First Chicago employees care is that our 1993 United Way/Crusade of Mercy giving increased by a substantial margin over 1992. Our employee campaign in Chicago raised $3.4 million. Including our corporate gifts, the local First Chicago family contributed nearly $5 million--roughly 5 percent of the projected total--to the campaign. Non-Chicago area employees gave generously as well. We are tremendously proud of all our employees for this outpouring of support. ................................................................................ Conclusion ................................................................................ We are pleased and gratified by our 1993 accomplishments. Although the banking industry faces many challenges in 1994 and beyond, we are confident that we have established a platform for producing attractive financial returns for our stockholders. We have the market positions, the products, the finan- cial strength and the customer base on which to build. And we have the people, the will and the determination to achieve our objectives. To our stockholders, customers and all of our employees, we greatly appreciate your support and your confidence. /s/ Richard L. Thomas Richard L. Thomas Chairman /s/ Leo F. Mullin Leo F. Mullin President /s/ David J. Vitale David J. Vitale Vice Chairman 6 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- With more than 17,000 employees and offices throughout Chicagoland, across the nation and around the world, First Chicago serves a broad group of customers ranging from individual consumers to large corporate and institutional clients. While the products and services that we offer also differ in scope and com- plexity, we seek to deliver them with the highest standards of personal integrity and commitment to customer service. In the pages that follow, we present ``Windows of First Chicago'' -- a visual representation of the many markets and customers that create the totality that is First Chicago Corporation. Emphasizing ever-higher levels of customer service through expanded use of technology, increased availability of banking and credit services, and ongoing commitment to customer relationships, these ``windows'' illustrate the ways in which First Chicago strives to be the provider of choice in all of the markets that we serve. We invite your close review of these highlights of our capabilities. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 7 ............................................................................... PROVIDING VALUE TO CUSTOMERS over the long term is the key to success in the middle market. For over 60 years, American National Corporation, our lead pro- vider of services to mid-sized businesses, has built long-standing customer relationships by understanding each customer's individual needs. With a singular focus on business banking, our bankers respond quickly to the challenges and opportunities that arise. Delivering the financial services that support customers' operating and management plans has earned for us the leading position in middle market banking in the Chicago area. We intend to maintain that position by continuing to seek financial solutions that meet not just today's needs, but also consider the impact of today's decisions on tomorrow. ............................................................................... GROCERIES ARE ONE EXAMPLE of purchases that increasingly are being made with First Chicago's skyline banking cards and Visa and MasterCard credit cards. Offering more security than carrying cash and more convenience than writing checks, our family of cards can be used in many Chicago-area supermarkets and at more than 10 million merchant locations worldwide--an important convenience for our customers. ................................................................................ INTERNATIONAL CAPABILITIES are vital in today's worldwide marketplace. Serving customers throughout the Americas, in Europe, the Middle East, Africa, Asia and the Pacific Basin, First Chicago provides specialized expertise in foreign exchange, derivatives products, international cash management and trade finance, as well as traditional credit origination and structuring services. ................................................................................ WITH OVER 350 ATMs (automatic teller machines), First Chicago provides customers more access to no-fee ATMs than any other Chicago bank. Averaging more than 100,000 ATM transactions a day, First Chicago customers value ATMs' convenience and flexibility for everyday banking needs: deposits, withdrawals, loan payments and balance inquiries. Customers can also use ATM cards for purchases at over 2,300 merchant locations in the Chicago area, including Amoco and Mobil gas stations and Jewel food stores. Cash Station's intended merger with the Magic Line network will add an additional 1,600 merchant locations. Increasing ATM locations and expanding the uses for the ATM card are just a few of the ways that First Chicago is working to make banking more accessible and shopping more convenient for our customers. .............................................................................. 9 ............................................................................... SMALL BUSINESSES provide economic vitality for communities, and First Chicago provides the financial tools to help them thrive. With a leading share in this market, we offer the business banking services and the personal attention that small businesses require, including commercial loans; checking accounts; lockbox collection, balance and transaction reporting, money transfer and disbursement products; trust and investment services; and direct deposit of payroll services. Meeting small businesses' needs often extends to counseling them on business plans, cash flow, or retirement planning and identifying government or other nonprofit agencies that assist small business. With the resources of a large bank and the convenience of our 70-plus locations, we will continue to help small businesses grow and strengthen communities across our service area. ................................................................................ MILEAGE PLUS FIRST CARD, the co-branded credit card that we launched with United Airlines in 1987, is extremely popular. Mileage Plus cardmembers earned more than nine billion frequent flyer miles in 1993. With the convenience of our credit card and the attractiveness of United as our partner, Mileage Plus First Card continues to be a winner for everyone. ................................................................................ SERVING CUSTOMERS in the middle market means providing customized financial solutions and responding one-on-one to their needs as conditions change. Whether financing a growth opportunity or recapitalizing a business during a cyclical downturn, our bankers work creatively to use our capabilities in commercial banking, asset-based financing, and corporate finance to meet the needs of mid-sized businesses. ............................................................................... LARGE CORPORATE CUSTOMERS look to First Chicago for a broad range of financial advisory services, including loans, operating products and capital markets offerings. Ranking first in the Midwest and among the top banks in the nation serving the large corporate and institutional market, we are a recognized leader in cash management services, the premier Midwest provider of corporate trust services and the nation's largest provider of shareholder services. As a prominent arranger and syndicator of credit facilities, First Chicago is also a major player in the secondary distribution and trading of long-term credits. Our success depends on understanding our customers' strategies and selecting the right mix of banking products and services to help their businesses prosper. ............................................................................... 10 ............................................................................... TRADING ACTIVITIES contribute significantly to First Chicago's earnings and to its reputation in international banking. We have well-recognized capabilities in foreign exchange, and we are a major structurer, underwriter and distributor of tax-exempt securities. A leader in sophisticated risk management products, we are well known for our innovative interest rate and currency option derivative products. In the emerging markets, First Chicago ranks among the top institutions trading public and private sector loans and bonds. We have demonstrated expertise in the Latin American debt market, with increasing presence in the countries of Eastern Europe, the Middle East and Asia. In 1993, we traded $45 billion of emerging market debt. ............................................................................... SUPERMARKET BRANCHES give customers the opportunity of banking where they shop with the convenience of seven-day-a-week and evening-hour availability. Offering consumer loans, checking and savings accounts, investment services and safe deposit boxes, supermarket branches allow us to expand our network quickly and economically, particularly in previously underserved com- munities. ................................................................................ NEW USES FOR FIRST CARD credit products include purchases of medical services, tuition expenses, fast food, movie tickets and, in some areas, telephone and utility bills. With the convenience of MasterCard and Visa acceptance at over 10 million locations worldwide, First Card customers also benefit from the flexibility of payment options and the financial recordkeeping provided by monthly statements. ............................................................................... UNDERSTANDING MIDDLE MARKET CUSTOMERS means visiting them on-site, learning about their businesses to help them achieve their objectives, and extending credit in a timely manner that is suited to their particular circumstances. Middle market customers may also benefit from risk management products, financial advisory services, and support for their international trade activities. Cash management products such as lockbox services are also valuable tools in shaping a strong relationship with a middle market customer. Where appropriate, investment management services for the business owner and the company's pension and profit-sharing plans provide a continuity of service that underscores the important linkage between the personal and professional require- ments of middle market businesses. ............................................................................... 13 ............................................................................... PURCHASING OFFICE SUPPLIES with First Chicago's new Procurement Card is one way corporate customers can improve controls related to purchasing activity and reduce payment processing expenses. Building on the existing MasterCard system, the Procurement Card was officially launched in 1993 as a business-to-business product. Combining purchasing and payment in one step, it is fully integrated with a corporation's cash management system and offers the convenience of being readily accepted in the worldwide MasterCard network. ................................................................................ ADVISORY SERVICES for large corporate and institutional customers are increasingly important for First Chicago. Utilizing extensive levels of internal expertise, groups of specialists work with customers to develop solutions for their financing needs. Our advisory services include securitization, asset disposition, restructuring, financial engineering, tax-oriented leasing, and structured private placements. Working as partners with our customers, we help them stay ahead of changing business, economic and market conditions. With our global presence and innovative advisory services, we are committed to providing them with the highest quality financial products and services. ................................................................................ FINANCING A HOME PURCHASE is the most important transaction that many people undertake, so we work hard to provide a variety of mortgage products tailored to our customers' plans and abilities. We offer fixed and variable rate con- ventional mortgages including attractive jumbo loans, FHA/VA programs and fi- nancing for multi-unit dwellings. We have developed a special mortgage program for first-time home buyers, and we work with community groups to prepare these buyers for the mortgage process. Our variable rate equity credit lines provide homeowners convenient, tax-advantaged financing for important purchases such as home improvements, education and automobiles. We offer a variety of refi- nancing options to help customers take advantage of lower interest rate oppor- tunities. ................................................................................ COMMITMENT AND TRUST are essential to a mutually rewarding banking relationship. While technologies are ever-evolving and competition continues to increase, First Chicago is dedicated to satisfying customers with quality prod- ucts and services in all of the markets that we serve. With this focus, we move forward with confidence and pride that we are First Chicago Corporation. ............................................................................... 14 B O A R D O F D I R E C T O R S ------------------------------------- Richard L. Thomas Chairman of the Board and Chief Executive Officer First Chicago Corporation Leo F. Mullin President and Chief Operating Officer First Chicago Corporation David J. Vitale Vice Chairman of the Board First Chicago Corporation John H. Bryan* Chairman of the Board and Chief Executive Officer Sara Lee Corporation Global manufacturer and marketer of brand name products Dean L. Buntrock Chairman of the Board and Chief Executive Officer WMX Technologies, Inc. Comprehensive environmental and engineering services company James S. Crown General Partner Henry Crown and Company (Not Incorporated) Diversified investments Donald V. Fites Chairman of the Board and Chief Executive Officer Caterpillar Inc. Manufacturer of a wide range of construction, earthmoving and material handling equipment and engines Donald P. Jacobs Dean of the J.L. Kellogg Graduate School of Management Northwestern University Education and research Andrew J. McKenna* Chairman of the Board, President and Chief Executive Officer Schwarz Paper Company Printer, converter and distributor of packaging materials Richard M. Morrow Retired Chairman and Chief Executive Officer Amoco Corporation Diversified international petroleum company Earl L. Neal* Principal Earl L. Neal & Associates Law firm James J. O'Connor Chairman and Chief Executive Officer Commonwealth Edison Company Production, distribution and sale of electric energy Jerry K. Pearlman Chairman and Chief Executive Officer Zenith Electronics Corporation Manufacturer and distributor of a diversified line of electronics products Jack F. Reichert Chairman of the Board and Chief Executive Officer Brunswick Corporation A multinational company with leader- ship positions in marine power, pleasure boating and recreation Patrick G. Ryan President and Chief Executive Officer Aon Corporation A broad-based insurance holding company Adele Simmons President The John D. and Catherine T. MacArthur Foundation Philanthropic foundation Roger W. Stone Chairman of the Board, President and Chief Executive Officer Stone Container Corporation Manufacturer of paper, paper-related products and packaging systems equipment *Member of the Audit Committee Director Retirements: Ernestine M. Raclin, Chairman of the Board, 1st Source Corporation, retired from First Chicago's Board of Directors on October 8, 1993. Mrs. Raclin had been a Director since 1978. In addition, pursuant to the Corporation's retirement policy, Frank W. Considine, Honorary Chairman of the Board and Chairman of the Executive Committee, American National Can Company, a Director since 1979, is not standing for reelection this year. We extend our great appreciation to Mrs. Raclin and Mr. Considine for their support, dedication and commitment during their long tenures. 16
- ------------------------------------------------------------------------------ I N D E X T O F I N A N C I A L R E V I E W - ------------------------------------------------------------------------------ Five-Year Summary of Selected Financial Information 18 - ------------------------------------------------------------------------------ Business Segments 19 - ------------------------------------------------------------------------------ Earnings Analysis 21 - ------------------------------------------------------------------------------ Risk Management 24 - ------------------------------------------------------------------------------ Liquidity Risk Management 24 - ------------------------------------------------------------------------------ Market Risk Management 26 - ------------------------------------------------------------------------------ Credit Risk Management 29 - ------------------------------------------------------------------------------ Derivative Financial Instruments 35 - ------------------------------------------------------------------------------ Capital Management 36 - ------------------------------------------------------------------------------ Consolidated Financial Statements 38 - ------------------------------------------------------------------------------ Notes to Consolidated Financial Statements 42 - ------------------------------------------------------------------------------ Report of Management on Responsibility for Financial Reporting 62 - ------------------------------------------------------------------------------ Report of Independent Public Accountants 63 - ------------------------------------------------------------------------------ Selected Statistical Information 64 - ------------------------------------------------------------------------------
17
- -------------------------------------------------------------------------------------------------------------------------- F I V E - Y E A 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 Corporation and Subsidiaries - -------------------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share data) 1993 1992 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL DATA FOR THE YEAR Net interest income............................ $1,225.8 $1,183.0 $1,080.0 $1,197.6 $1,235.0 Tax-equivalent adjustment...................... 38.2 34.0 37.9 44.2 48.1 -------- -------- -------- -------- -------- Net interest income--tax-equivalent basis...... 1,264.0 1,217.0 1,117.9 1,241.8 1,283.1 Combined credit provisions Assets held for accelerated disposition...... -- 625.0 -- -- -- Other........................................ 274.2 481.9 544.3 518.8 468.4 Noninterest income............................. 2,202.4 1,488.2 1,225.2 1,199.3 1,135.2 Noninterest expense (1)........................ 1,853.9 1,764.4 1,597.0 1,565.9 1,430.2 Income (loss) before cumulative effect of changes in accounting principles............. 804.5 (114.5) 116.3 249.3 358.7 Cumulative effect of changes in accounting principles................................... -- 208.0 -- -- -- Net income..................................... 804.5 93.5 116.3 249.3 358.7 - -------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE Primary Income (loss) before cumulative effect of changes in accounting principles........ $8.78 $(2.08) $1.15 $3.35 $5.10 Net income................................... 8.78 0.64 1.15 3.35 5.10 Fully diluted Income (loss) before cumulative effect of changes in accounting principles........ 8.43 (2.08) 1.15 3.32 4.99 Net income................................... 8.43 0.64 1.15 3.32 4.99 Dividends declared per common share............ 1.30 1.20 2.00 2.00 1.80 - -------------------------------------------------------------------------------------------------------------------------- AT YEAR-END Assets......................................... $52,560 $49,281 $48,963 $50,779 $47,907 Deposits....................................... 28,186 29,740 32,091 32,543 32,935 Loans.......................................... 23,103 22,692 25,661 27,706 29,725 Long-term debt................................. 2,065 1,705 1,725 1,428 1,351 Common stockholders' equity.................... 3,503 2,732 2,401 2,393 2,273 Stockholders' equity........................... 4,264 3,401 2,970 2,812 2,692 - -------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Assets......................................... $56,854 $54,768 $52,655 $53,097 $48,534 Earning assets................................. 48,517 46,706 44,512 45,502 42,290 Loans.......................................... 21,997 24,347 27,281 30,609 29,239 Deposits....................................... 29,677 31,694 32,819 34,213 32,420 Common stockholders' equity.................... 3,092 2,733 2,431 2,343 2,119 Stockholders' equity........................... 3,886 3,314 2,938 2,762 2,538 - -------------------------------------------------------------------------------------------------------------------------- FINANCIAL RATIOS Return on stockholders' equity................. 20.7% 2.8% 4.0% 9.0% 14.1% Return on common stockholders' equity.......... 24.2 1.8 3.2 9.4 15.5 Return on assets............................... 1.42 0.17 0.22 0.47 0.74 - -------------------------------------------------------------------------------------------------------------------------- CAPITAL RATIOS Common-equity-to-assets (2).................... 7.2% 5.9% 5.1% 4.8% 4.5% Regulatory leverage ratio...................... 8.0 6.6 5.8 5.0 4.9 Risk-based capital Tier 1 ratio................................. 8.8 6.7 5.5 4.9 4.7 Total capital ratio.......................... 13.6 10.8 9.4 8.3 8.0 Tier 1 capital............................... $4,098 $3,223 $2,804 $2,642 $2,517 Total capital................................ 6,292 5,221 4,762 4,441 4,307 - -------------------------------------------------------------------------------------------------------------------------- COMMON SHARE AND STOCKHOLDER DATA Market price, end of year...................... $43-1/4 $36-3/4 $24-5/8 $16-1/2 $37-1/8 Book value, end of year........................ 40.55 33.19 34.90 36.27 34.82 Common dividends............................... 109.6 89.3 135.5 131.8 114.5 Preferred dividends............................ 57.0 44.6 38.2 29.8 29.9 Dividend payout ratio.......................... 14.8% 187.5% 174.0% 59.7% 35.3% Number of common stockholders of record........ 15,034 15,995 13,089 12,445 12,855 Average common and common-equivalent shares.... 85,173,941 76,496,506 67,666,850 65,525,045 64,455,138 - --------------------------------------------------------------------------------------------------------------------------
(1) Excludes provisions for other real estate. (2) Net of investment in First Chicago Capital Markets, Inc. 18
- ---------------------------------------------------------------------------------------------------------------------------------- BUSINESS SEGMENTS - ---------------------------------------------------------------------------------------------------------------------------------- Corporate & Institutional Other Corporate Banking Consumer Banking Middle Market Banking Activities (1) ------------------------- ------------------ --------------------- ------------------ (Dollars in millions, except where noted) 1993 1992 1991 1993 1992 1991 1993 1992 1991 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income-- tax-equivalent basis.......... $416 $482 $459 $634 $548 $491 $224 $213 $201 $(10) $(26) $(33) Combined credit provisions.................... 35 261 272 197 169 168 42 53 105 -- 624 (1) Noninterest income.............. 825 556 551 867 681 534 81 72 63 429 179 77 Noninterest expense (2)......... 771 721 705 869 755 648 192 184 165 22 104 79 Net income (loss)............... 247 38 18 258 182 124 44 29 (5) 255 (155) (21) Return on equity (3)............ 15% 1% 1% 35% 30% 21% 13% 9% (2)% N/M N/M N/M Efficiency ratio (4)............ 62% 69% 70% 58% 61% 63% 63% 65% 63% N/M N/M N/M Average assets (in billions).... $40.0 $39.2 $37.9 $9.6 $8.5 $8.3 $5.5 $5.5 $5.5 $1.8 $1.6 $0.9 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes results from the accelerated asset disposition portfolio, the venture capital group, other special corporate expense provisions, and the cumulative effect of changes in accounting principles. See Note 4 on pages 45 and 46 for further detail. (2) Excludes provision for other real estate. (3) The capital allocation methodology was changed in 1993. Prior results have been restated to reflect this change, which did not have a material impact on results. (4) Noninterest expense as a percentage of total revenue. N/M--Not meaningful. The Corporation reports business segment information to promote a greater understanding of its financial performance and strategic direction. Segmentation is based on markets served: large corporate and institutional cus- tomers, consumers and middle market businesses. In addition, results from venture capital, the accelerated disposition portfolio (since its segregation in September 1992), and other items not specifically associated with a core seg- ment are reported separately as other corporate activities. . Corporate and Institutional Banking encompasses the business serving large commercial customers, investors, governments and institutions nationally and internationally. Products and services include lending, trading, corporate finance, cash management and securities services. The Corporation ranks first in Chicago and the Midwest, and is among the leading U.S. banking com- panies serving this market worldwide. . Consumer Banking includes all retail banking, small business and professional services delivered through the Corporation's network of more than 70 branches throughout Chicagoland. First Chicago is the leader in this market. Consumer Banking also includes the national credit card product. First Card is among the four largest issuers of bank credit cards in the U.S. . Middle Market Banking is represented by American National Corporation, the leading provider of banking services to Chicago's middle market businesses. Segment financial results are derived from the Corporation's internal profitability reporting system and reflect full allocation of all items, including institutional assets and overhead items. The Corporation maintains a detailed funds transfer pricing system that charges or credits assets and liabilities based on known or assumed repricing characteristics. In cases where liquidity characteristics differ significantly from repricing characteristics, a liquidity charge or credit is assigned. Common equity is allocated to each segment based on the measured risk of that segment using historical loss and volatility data. CORPORATE AND INSTITUTIONAL BANKING In 1993, Corporate and Institutional Banking earned $247 million, a dramatic improvement from $38 million in 1992, and a reflection of the renewed emphasis on profitable customer relationships. This business achieved a return on equity of 15 percent in 1993, within the Corporation's target range of 14-16 percent. These results reflected a variety of favorable trends: . Commercial credit costs were down substantially, due largely to the asset disposition program initiated in 1992. . Combined trading profits reached a record level: $276 million, up 63 percent from 1992. Foreign exchange trading, interest rate derivative transactions, and trading in emerging markets securities were strong contributors to this performance. . Fee-based revenues, principally from operating products and services and corporate finance activities, grew 18 percent in 1993. This revenue source represented an increasing proportion of total revenues in Corporate and Institutional Banking. . Average loan volume declined to $8.8 billion from $11.8 billion in 1992 (excluding the asset disposition portfolio) as the commercial loan product continued to be used selectively. 19 - -------------------------------------------------------------------- Revenue performance by activity, which includes both net interest income and fee revenue, is summarized in the following table.
- -------------------------------------------------------------------- (In millions) 1993 1992 - -------------------------------------------------------------------- Trading.................................... $ 387 $ 332 Servicing.................................. 370 316 Lending.................................... 213 186 Financing.................................. 208 117 Other...................................... 63 87 ------ ------ Total.................................... $1,241 $1,038 ====== ====== - --------------------------------------------------------------------
Growth in noninterest expense was held to 7 percent although total revenues increased nearly 20 percent for the year. Much of the expense increase was due to higher incentive compensation accruals resulting from the year's excellent performance. CONSUMER BANKING Consumer Banking was the largest contributor to corporate earnings in 1993, generating net income of $258 million. This was up sharply, 42 percent, from $182 million in 1992. Return on equity was 35 percent, up from 30 percent in 1992. The national credit card product produced the bulk of this segment's earnings. Average receivables grew to $9 billion in 1993, an excellent growth rate of 21 percent over 1992. This performance substantially boosted both net interest income and noninterest income. At the same time, provisions for credit card losses increased, and continued investment for growth caused credit card expenses to rise 18 percent for the year. The overall financial performance of local retail banking has been negatively affected by low interest rates that reduce the value assigned to core deposits. In 1993, the integration of the retail branch network was completed, and noninterest expense included modest one-time charges related to this branch conversion and other restructuring efforts. MIDDLE MARKET BANKING Middle Market Banking contributed $44 million in net income in 1993, for a 13 percent return on equity. (Before purchase accounting and other allocations, American National Corporation earned $60 million.) Middle Market earnings in 1992 were $29 million. The 1993 improvement resulted in part from a 21 percent decline in combined credit provisions. Total revenues grew 7 percent, while noninterest expense increases were constrained to 4 percent. OTHER CORPORATE ACTIVITIES Other corporate activities include the financial results from the venture capital business and the accelerated asset disposition portfolio. In addition, special corporate expense provisions and the cumulative impact of accounting changes have been included in this category. Venture capital generated net income of $204 million in 1993, up from $80 million in 1992. This improved performance reflected market appreciation in the portfolio as well as cash gains from sales. Unrealized gains, which already have been recognized in earnings, were $510 million pretax at year-end 1993; the Corporation has undertaken a major effort to lock in these gains. Net gains from asset disposition portfolio activities were $60 million in 1993. At year-end, the carrying value of this portfolio was $126 million, down from $1 billion at December 31, 1992. Special corporate expenses totaled $14 million in 1993, primarily for corporate contributions and litigation. This compares with $86 million in 1992 and $67 million in 1991. Included in 1992 net income is the cumulative positive impact of accounting changes, which totaled $208 million. STAFFING LEVELS Staff levels for each of the three business segments as well as corporate and utility support functions were as follows.
- -------------------------------------------------------------------- Average Full-Time- Equivalent Staff 1993 1992 1991 - -------------------------------------------------------------------- Corporate and Institutional........ 6,280 6,178 6,632 Consumer........................... 7,304 7,028 6,536 Middle Market...................... 2,032 2,090 2,201 Corporate Support.................. 1,502 1,530 1,649 ------ ------ ------ First Chicago Corporation....... 17,118 16,826 17,018 ====== ====== ====== - --------------------------------------------------------------------
20 - -------------------------------------------------------------------------- EARNINGS ANALYSIS SUMMARY Net income for 1993 was a record $804.5 million, or $8.78 per common share, versus $93.5 million, or 64 cents per share, in 1992 and $116.3 million, or $1.15 per share, in 1991.
- -------------------------------------------------------------------------- (In millions, except per share data) 1993 1992 1991 1990 1989 - -------------------------------------------------------------------------- NET INCOME Income (loss) before cumu- lative effect of changes in accounting principles........ $804.5 $(114.5) $116.3 $249.3 $358.7 Cumulative effect of changes in accounting principles................... -- 208.0 -- -- -- Net income..................... $804.5 $ 93.5 $116.3 $249.3 $358.7 PRIMARY EARNINGS PER SHARE Income (loss) before cumu- lative effect of changes in accounting principles........ $ 8.78 $ (2.08) $ 1.15 $ 3.35 $ 5.10 Cumulative effect of changes in accounting principles................... -- 2.72 -- -- -- Net income..................... $ 8.78 $ 0.64 $ 1.15 $ 3.35 $ 5.10 - -------------------------------------------------------------------------
The 1993 results reflected significant improvement from core lines of business. Highlights included: . Earnings from the credit card business grew considerably in 1993. The level of average managed credit card receivables grew 21 percent, contributing to both improved net interest income and a notable increase in fee revenue. . Market-driven revenues, which consist primarily of profits from combined trading activities and equity securities gains, nearly doubled in 1993. The venture capital portfolio's performance was superior, generating $381 mil- lion in securities gains. Combined trading profits reached a record $285 million for the year. . Substantial improvement in credit quality was achieved. Combined credit provisions declined from $1.107 billion in 1992 to $274 million in 1993. . By the end of 1993, approximately 89 percent of the net value of the accelerated asset disposition portfolio had been liquidated, and net gains of $60 million were recognized as a result of transaction activity during the year. . Net interest income on a tax-equivalent basis rose 4 percent, primarily as a result of increased earning assets volumes. Return on common equity was 24.2 percent for 1993, compared with 1.8 percent for 1992 and 3.2 percent for 1991. Return on assets was 1.42 percent for 1993 and 0.17 percent for 1992. The Corporation's year-end 1993 common equity-to-assets ratio, net of its investment in First Chicago Capital Markets, Inc.(FCCM), was 7.2 percent, compared with 5.9 percent at December 31, 1992. The Corporation's regulatory capital ratios continued to exceed the required minimums and the well-capitalized guidelines. The risk-based capital ratio increased to 13.6 percent at year-end 1993, while the regulatory leverage ratio increased to 8 percent. These ratios were 10.8 percent and 6.6 percent, respectively, at December 31, 1992. The Corporation increased regulatory capital in 1993 by issuing approximately $200 million of cumulative convertible preferred stock and by increasing subordinated debt by $120 million. In 1993, the Corporation added $107 million in common equity through the successful conversion of cumulative convertible preferred stock into approximately 3 million shares of the Corporation's common stock. 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 income is a function of average earning assets and the net interest margin, which are presented in the following table.
- ----------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------- Net interest income--tax- equivalent basis.... $ 1,264 $ 1,217 $ 1,118 $ 1,242 $ 1,283 Average earning assets.............. $48,517 $46,706 $44,512 $45,502 $42,290 Net interest margin... 2.61% 2.61% 2.51% 2.73% 3.03% - -----------------------------------------------------------------------
Net interest margin measures the efficiency of the use of the Corporation's earning assets and its underlying capital. In order to analyze fundamental trends in net interest margin, it is useful to adjust for: 1) securitization of credit card receivables and 2) the activities of FCCM. When credit card receivables are sold in securitization transactions, the Corporation's earnings are unchanged. However, the net interest income related to these high-yield assets is displaced by increased servicing fees, net of related credit losses. The average levels of securitized receivables were $4.8 billion in 1993, $3.9 billion in 1992 and $3.3 billion in 1991. Additional information on the effect of securitization transactions on the Corporation's financial results is presented on page 64. FCCM is the Corporation's wholly owned subsidiary engaged in permissible investment banking activities. Because capital requirements for FCCM are risk-exposure driven rather than based on asset levels, FCCM can generate substantial volumes of relatively riskless, thin-spread earning assets that require little additional capital. The Corporation's net interest margin trends can be better analyzed if these earning assets and related margins are excluded. The following table reflects the elements of net interest margin adjusted for credit card securitizations and the activities of FCCM.
- ----------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------- Adjusted net interest income--tax- equivalent basis... $ 1,724 $ 1,554 $ 1,401 $ 1,421 $ 1,444 Adjusted average earning assets..... $46,610 $44,994 $44,857 $45,607 $43,618 Adjusted net interest margin............. 3.70% 3.45% 3.12% 3.12% 3.31% - -----------------------------------------------------------------------
21 - ------------------------------------------------------------------------------- Steadily improved margins over the past three years were the result of a more profitable earning assets mix as well as higher net available demand deposits and capital. The more profitable earning assets mix resulted from an increase in average credit card receivables offset by a decline in average commercial loan volume. Gains on Brazilian bonds and the revaluation of the leveraged lease portfolio because of the change in the federal tax rate added 9 basis points to the adjusted net interest margin in 1993. The cost of carrying nonperforming assets declined as average nonperforming assets (including nonperforming assets held for accelerated disposition) decreased 50 percent in 1993 to $0.6 billion. Average nonperforming assets in 1992 were $1.2 billion. Cash interest collections on troubled-country debtor loans were $28.4 million in 1993 and $21.4 million in 1992, primarily related to Brazilian debt. PROVISION FOR CREDIT LOSSES AND PROVISION FOR LOANS HELD FOR ACCELERATED DISPOSITION Details of the Corporation's 1993 credit risk management strategy and performance, including the provision for credit losses and provision for loans held for accelerated disposition, are presented in the Credit Risk Management section beginning on page 29. NONINTEREST INCOME Noninterest income increased 48 percent to $2.202 billion in 1993 from $1.488 billion in 1992.
- ----------------------------------------------------------------------------- (In millions) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------- Trading account profits.............. $ 179.7 $ 67.8 $ 90.7 $ 60.6 $ 62.7 Foreign exchange trading profits...... 104.9 109.5 95.1 102.8 75.9 Equity securities gains................ 480.2 204.6 63.0 105.2 109.1 Investment securi- ties gains (losses).. 0.3 8.6 (3.3) 7.5 1.7 -------- -------- -------- -------- -------- Market-driven revenue.............. 765.1 390.5 245.5 276.1 249.4 Fiduciary and invest- ment manage- ment fees............ 200.7 189.8 174.8 168.3 162.8 Credit card fee revenue.............. 694.2 516.1 411.8 354.5 325.2 Other service revenue and fees..... 368.6 320.0 282.4 245.9 216.2 International fees..... 63.9 61.0 66.3 61.5 64.0 Gain on lease- financing residuals............ 18.1 3.0 14.7 1.6 51.0 Other.................. 31.8 7.8 14.7 35.9 6.2 -------- -------- -------- -------- -------- Subtotal....... 2,142.4 1,488.2 1,210.2 1,143.8 1,074.8 Accelerated dispo- sition portfolio gains................ 60.0 -- -- -- -- Gain on sale of investment advi- sory business........ -- -- 15.0 -- 60.4 Gain on partial set- tlement of pension obligations.......... -- -- -- 55.5 -- -------- -------- -------- -------- -------- Total.......... $2,202.4 $1,488.2 $1,225.2 $1,199.3 $1,135.2 ======== ======== ======== ======== ======== - -----------------------------------------------------------------------------
Market-driven revenues, which include trading account profits, foreign exchange trading profits, equity securities gains and investment securities gains, increased 96 percent to $765.1 million in 1993. Trading account profits for 1993 were a record $179.7 million, up substantially from $67.8 million in 1992 and $90.7 million in 1991. Trading of interest rate derivatives generated profits of $89.8 million in 1993, $58 million in 1992 and $36.7 million in 1991. This continued improvement reflects strong performances in interest rate derivatives, international debt, municipal and loan trading. Foreign exchange trading produced revenue of $104.9 million, compared with $109.5 million in 1992 and $95.1 million in 1991. During 1993, the foreign exchange markets experienced considerable realignment within the European monetary system. This provided opportunities for the Corporation to generate revenue based on high market volatility and strong customer demand. Equity securities gains were $480.2 million in 1993, up from $204.6 million in 1992 and $63.0 million in 1991. The venture capital portfolio accounted for $380.7 million of the 1993 gains, a significant portion of which related to a single investment in the telecommunication services industry. Equity securities gains arise principally from the Corporation's venture capital activities, although gains also arise from corporate finance activities and from the sale of securities received in troubled-debt restructurings, as presented in the following schedule.
- -------------------------------------------------------------------- (In millions) 1993 1992 1991 - -------------------------------------------------------------------- Venture capital..................... $380.7 $188.1 $ 84.0 Corporate finance................... 65.0 6.3 (27.9) Debt restructuring.................. 34.5 10.2 6.9 ------ ------ ------ Total equity securities gains....... $480.2 $204.6 $ 63.0 ====== ====== ====== - --------------------------------------------------------------------
The venture capital and corporate finance gains for 1993 and 1992 include changes in the fair value of the investments. The 1991 results reflect transaction-driven gains realized under the prior historical cost accounting method. Details of the venture capital activities are presented on page 29. Fiduciary and investment management fees increased to $200.7 million in 1993 from $189.8 million in 1992 and $174.8 million in 1991. First Chicago Trust Company of N.Y., a leading provider of corporate shareholder services, generated $81.4 million of these revenues in 1993, compared with $72 million in 1992 and $59.5 million in 1991. This revenue increase primarily reflected an increased customer base. Excluding the effects of credit card securitization, credit card fee growth was 26 percent in 1993 and 22 percent in 1992. Revenue growth in both periods resulted from increased transaction volume, due mainly to a growing card- holder base. The number of accounts at year-end 1993 was 10.3 million, compared with 8.9 million in 1992 and 7.1 million in 1991. 22 - ------------------------------------------------------------------------------- Other service revenue and fees for 1993 increased 15 percent to $368.6 million from $320.0 million in 1992. The growth was due primarily to increased service charges on deposit accounts, including deficient balance fees. Transaction activity related to assets in the accelerated disposition portfolio resulted in net gains of $60 million in 1993. Details of the asset disposition portfolio activities are presented on page 30 in the Credit Risk Management section. Other noninterest income for 1993 includes $8.5 million from the operations of other real estate assets. In 1992 and 1991, net losses of $9.3 million and $11.9 million, respectively, were incurred. NONINTEREST EXPENSE Operating expense in 1993 was $1.854 billion, compared with $1.764 billion in 1992 and $1.530 billion in 1991. Expense growth in 1993 reflected higher staff costs as well as volume-driven expense increases in specific business units.
- ------------------------------------------------------------------------------ (Dollars in millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------ Salaries and em- ployee benefits...... $ 853.9 $ 748.0 $ 722.8 $ 688.8 $ 677.4 Occupancy expense of premises, net..... 147.7 186.0 152.8 138.9 123.1 Equipment rentals, depreciation, and maintenance.......... 110.3 111.2 107.5 101.5 93.0 Amortization of intangible assets.... 87.4 76.1 69.5 68.3 63.2 Deposit insurance expense.............. 52.9 49.9 44.0 23.2 15.6 Other.................. 601.7 593.2 433.4 526.7 457.9 -------- -------- -------- -------- -------- Operating expense.......... 1,853.9 1,764.4 1,530.0 1,547.4 1,430.2 Provision for other real estate held for accelerated disposition.......... -- 134.0 -- -- -- Provision for other real estate.......... 4.2 56.9 104.3 24.8 2.4 Restructuring provision............ -- -- 67.0 18.5 -- -------- -------- -------- -------- -------- Total.......... $1,858.1 $1,955.3 $1,701.3 $1,590.7 $1,432.6 ======== ======== ======== ======== ======== Average Full-Time- Equivalent Staff..... 17,118 16,826 17,018 17,153 15,644 ======== ======== ======== ======== ======== - ------------------------------------------------------------------------------
Salaries and benefits increased due to higher performance-related expense accruals, reduced pension credits, increased 401(k) contributions and the impact of higher staff levels. Occupancy expense decreased 21 percent in 1993. In 1992, $29.1 million of charges were incurred to establish accruals for relocations and space reductions in Chicago, New York and London. Excluding these charges, occupancy expense was 6 percent lower in 1993 than in 1992. Amortization expense in 1993 included a $12.4 million charge for accelerated amortization of certain acquired intangibles. In 1993, other operating expense included $13.8 million of special corporate expenses, primarily for litigation and other corporate activities. In 1992, $57 million of special charges related to the accelerated disposition program and to litigation. Excluding these charges, 1993 other operating expense increased 10 percent. The higher level of operating expense reflects increased volume-driven costs in both the corporate and institutional and the consumer banking businesses. Higher levels of bankcard solicitation costs and community banking integration costs were key factors in the increase. APPLICABLE INCOME TAXES The following table shows the Corporation's income before income taxes, applicable income taxes and effective tax rate for each of the past five years.
- ---------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------- Income (loss) before income taxes....... $1,300.1 $(200.1) $163.9 $312.2 $471.6 Applicable income taxes (benefit).... 495.6 (85.6) 47.6 62.9 112.9 Effective tax rate... 38.1% 42.8% 29.0% 20.1% 23.9% - ----------------------------------------------------------------------
Income tax expense for 1990 and 1989 was reduced by tax benefits related to the 1987 book net operating loss and tax credit carryforwards. These benefits totaled $28.2 million in 1990 and $23.5 million in 1989. Excluding these benefits, the effective tax rate was 29.2 percent in 1990 and 28.9 percent in 1989. Differences in the adjusted effective tax rates are caused by the relationship between tax-exempt income and the level of income (loss) before income taxes. 23 - -------------------------------------------------------------------------------- RISK MANAGEMENT The Corporation's various business activities generate liquidity, market and credit risks. . Liquidity risk is the possibility of being unable to meet all present and future financial obligations in a timely manner. . Market risk is the possibility that future changes in market rates or prices might make the Corporation's positions less valuable. . Credit risk is the possibility that a loss might occur from the failure of a customer to perform according to the terms of a transaction. The Corporation is compensated by customers for assuming these risks, which is reflected in interest income, trading profits and fee income. The Corporation is a party to a broad range of financial instruments that create risks that may or may not be reflected on a traditional balance sheet. The Corporation's risk management policies monitor and limit exposure to liquidity, market and credit risks that arise from all of these financial instruments, which can be subdivided into three categories: . Cash financial instruments, generally characterized as on-balance-sheet transactions, include instruments such as loans, bonds, stocks and deposits. . Credit-related financial instruments include instruments such as commitments to extend credit and standby letters of credit. . Derivative financial instruments include instruments such as interest rate, foreign exchange, commodity price and equity price contracts, including forwards, swaps and options. Credit-related and derivative financial instruments generally are characterized as off-balance-sheet transactions. LIQUIDITY RISK MANAGEMENT In order to maintain sufficient resources to meet all present and future financial obligations, the Corporation has developed liquidity policies and guidelines that are approved by the Corporation's Finance Committee and reviewed by the Examining Committee of the Board of Directors. These policies cover balance sheet assets and liabilities as well as off-balance-sheet items that are potential sources or uses of liquidity. Asset management policies set guidelines for minimum levels of liquid assets, determined largely by the Corporation's total asset volume, its off-balance-sheet funding exposures, and its ability to access market funding sources. Liability management policies emphasize diversification of funding sources across customers, maturities, products and markets. The Corporation's Statement of Cash Flows, on page 41, presents data about cash and cash equivalents provided and used by the Corporation in its operating, investing and financing activities. ASSET LIQUIDITY The Corporation believes that asset liquidity is one of the most effective means for managing overall liquidity. Short-term assets defined as liquid are federal funds sold and interest-bearing deposit placements with other banks. In 1993, the Corporation targeted a range of 10 percent to 15 percent minimum ratio of liquid assets to total assets for The First National Bank of Chicago (FNBC) and FCC National Bank (FCCNB). During 1993, the Corporation maintained an average liquid asset ratio of 20 percent. The cost of maintaining this level of lower-spread liquid assets has been carefully considered against the value that these assets provide to the Corporation's overall funding strategy. This relatively high degree of liquidity allows greater flexibility in balancing the fluctuating borrowing requirements of customers against the Corporation's daily funding capacity. The investment securities portfolio, trading account assets and securities purchased under resale agreements provide secondary sources of liquidity to the balance sheet. Generally, the debt investment securities are used to fulfill collateral-pledging requirements for certain customer deposits. Certain debt securities are available for sale in conjunction with the execution of the Corporation's asset/liability management strategy, in response to changes in interest rates or prepayment patterns, or in response to a need to increase regulatory capital, and are carried at fair value. Equity securities held in the investment securities portfolio primarily represent the Corporation's venture capital investments, which are accounted for on a fair value basis. While ultimately providing an additional source of liquidity, these investments generally are not readily saleable due to the form or size of the Corporation's equity interest in the underlying entity. For further information on the venture capital portfolio, see the discussion of venture capital activities on page 29. The Corporation can sell or securitize loans to enhance balance sheet liquidity. During 1993, $1.7 billion of credit card receivables were securitized. At year-end 1993, a total of $5.0 billion in credit card receivables had been securitized. Asset securitizations enable the Corporation to diversify its funding sources and to access large amounts of term funding in a cost-effective manner. 24 - -------------------------------------------------------------------------------- LIABILITY LIQUIDITY The diversification of the Corporation's liabilities among instruments, maturities and depositors is intended to minimize the total expense of gathering funds, while matching anticipated cash needs with cash sources. FNBC has direct access to the local retail market as a source of funds. In addition, retail certificates of deposit are gathered nationally through a network of brokers. American National Bank and Trust Company of Chicago (ANBC) also has access to the local retail, business and financial institutions market. Although retail deposits represent a growing proportion of the Corporation's funding, most of its funding is raised from nonretail sources. Management has enhanced the stability of its wholesale deposits by stressing direct dis- tribution and diversification of funding sources across customers, markets, products and maturities. FNBC maintains relationships with large institutional depositors through established distribution networks, domestically and overseas. This approach has proved successful in creating reliable sources of funds. Overseas, funding is raised primarily from corporations, central banks and official institutions rather than through the interbank market. FNBC benefits from a diversified institutional customer base, in which concentrations among funding sources are closely monitored. FNBC and ANBC obtain demand deposits from large corporations, middle market companies and individual consumers. Commercial paper, deposit notes, bank notes, bank investment contracts, medium-term notes and long-term debt also provide funding for the Corporation and its subsidiaries. The Corporation has reduced its use of time deposits over the past two years and has increased its use of short-term borrowings (bank notes) in order to better match asset repricing and maturity characteristics. The Corporation's policies and guidelines for the management of off-balance-sheet funding exposure are integrated into all its liquidity risk management activities. In sum, the Corporation believes that its liquidity is adequate to cover anticipated needs based upon its assessment of asset liquidity, core deposit levels, direct funding sources, and contractual asset and liability maturities. The following table shows the Corporation's deposits and other purchased funds.
DEPOSITS AND OTHER PURCHASED FUNDS - ------------------------------------------------------------------------------------------------ December 31 (In millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------ Domestic offices Demand........................................... $ 8,184 $ 7,575 $ 6,200 $ 7,065 $ 5,614 Savings.......................................... 7,541 7,618 7,059 5,166 4,525 Time Under $100,000................................. 2,312 2,737 3,865 3,828 4,326 $100,000 and over.............................. 2,613 3,525 5,666 6,074 5,821 Foreign offices Banks in foreign countries....................... 2,463 2,693 2,599 2,372 2,964 Foreign governments and official institutions.... 750 926 983 784 1,033 Other time and savings........................... 4,126 4,493 5,439 7,022 8,513 Other demand..................................... 197 173 280 232 139 ------- ------- ------- ------- ------- Total deposits............................. 28,186 29,740 32,091 32,543 32,935 - ------------------------------------------------------------------------------------------------ Federal funds purchased and securities under repurchase agreements............................ 8,255 6,962 5,145 6,250 3,676 Commercial paper................................... 164 172 226 237 952 Other funds borrowed............................... 5,843 3,997 2,712 2,770 2,596 Long-term debt..................................... 2,065 1,705 1,725 1,428 1,351 ------- ------- ------- ------- ------- Total other purchased funds................ 16,327 12,836 9,808 10,685 8,575 ------- ------- ------- ------- ------- Total...................................... $44,513 $42,576 $41,899 $43,228 $41,510 ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------
25 - ------------------------------------------------------------------------------- The following table summarizes the Corporation's credit-related financial instruments, which include both commitments to extend credit and letters of credit, all of which are considered in its liquidity risk management practices.
- -------------------------------------------------------------------- December 31 (In billions) 1993 1992 - -------------------------------------------------------------------- Unused commercial loan commitments............ $27.4 $26.7 Unused credit card lines...................... 46.3 35.2 Unused home equity lines...................... 0.7 0.6 Commercial letters of credit.................. 0.7 0.8 Standby letters of credit and foreign office guarantees................... 4.7 6.2 - --------------------------------------------------------------------
Since many of the Corporation's unused commitments are expected either to expire unused or to be used only partially, the total amount of unused commitments in the table above does not necessarily represent future cash requirements. MARKET RISK MANAGEMENT OVERVIEW Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Corporation maintains risk management policies that monitor and limit exposure to market risks. It strives to take advantage of the profit opportunities available in interest and exchange rate movements through its trading activities. In asset and liability management activities, the Corporation attempts to eliminate structural interest rate and foreign exchange rate risk. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on-and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about fair value of financial instruments, which reflect changes in market prices and rates, begin on page 58. TRADING ACTIVITES The Corporation maintains active trading positions in a variety of markets and instruments, including U.S. government securities, municipal securities and money market securities. It also maintains positions in derivative products associated with these markets and instruments, such as interest rate and currency swaps, and commodity and equity index options. Most of the Corporation's trading activities are customer-oriented, and trading positions are established as necessary for customers. However, in order to anticipate customer demand for such transactions, the Corporation also carries an inventory in capital markets instruments, and maintains its access to market liquidity by making bid-offer prices to other market makers. These two activities constitute its proprietary trading business, but are essential in order to continue 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 maintained for longer periods, and these positions are valued at prevailing market rates on a present value basis. Realized and unrealized gains and losses on these trading positions are also included in noninterest income as trading account profits and foreign exchange trading profits. Trading positions are strictly monitored at all times. The overall market risk that any business unit can assume is approved by the Examining Committee of the Board of Directors through a risk point limit. Risk points represent the amount of potential overnight loss in a capital markets product. Products that have more inherent price volatility incur more risk points. A business unit will use up more of its risk point limit if it trades in the more volatile products. The risk point system, therefore, is the means by which the Corporation limits earnings volatility from market risk. The Examining Committee of the Board of Directors also approves the Corporation's overall policies governing market risk. More detailed market risk policies are approved by the Corporation's Market Risk Committee, which is composed of senior capital markets managers. In addition to managing market risk through its risk point system, each business unit establishes dollar limits governing intra-day trading activity, and allocates them to the dealers depending on their trading experience. These dol- lar limits are reviewed and approved by the Market Risk Committee. This committee also reviews and approves statistical models used for measuring market risk, or for pricing and hedging transactions; reviews audit and internal control issues arising from the Corporation's trading operations; and approves the business plans for new capital markets activities. Independent oversight of trading activities is provided by the Market Risk Management Department. As part of this oversight role, the Market Risk Management Department monitors the credit risk associated with capital market products. The credit exposure for certain derivative financial instruments fluctuates as market prices change. As a result, the credit exposure for these derivative instruments includes both the current fair value of the instrument and an incre- mental amount that represents the potential movement in its fair value over the remaining life. This incremental amount of credit exposure is calculated using statistical models that estimate the change over time in exchange rates, interest rates and other market indices. The resultant credit exposure is used in monitoring total customer credit exposure and in the management of credit risks associated with capital markets products. 26 - ------------------------------------------------------------------------------- STRUCTURAL INTEREST RATE RISK MANAGEMENT The Corporation manages interest rate risk in several ways, including limitations on earnings volatility, monitoring of duration of equity, stress testing of net interest income and traditional gap analysis. The Corporation's interest rate risk profile has been minimal, operating within a policy intended to limit volatility of annual earnings due to interest rate changes. A 100 basis point change in interest rates would affect the Corporation's annual pretax earnings by only an estimated $14 million. This minimal sensitivity has largely been accomplished through asset-pricing strategies and disciplined funding procedures. Whenever possible, assets are funded with liability instruments of similar interest rate sensitivity, thereby reducing structural interest rate risk and stabilizing returns. If a liability with the desired characteristics is not readily available in the cash market, derivatives such as interest rate swaps are used to alter the characteristics of those liabilities that are readily available. Interest rate swaps are entered into covering the specific amount and term of the associated liability. The notional principal amount of these matched interest rate swaps totaled $2.8 billion as of December 31, 1993. Since matched swaps are associated only with contractual financial instruments that have spe- cific rates and maturities, the Corporation has no exposure to roll-over risk since the amount and maturity of the swap and the related liability are identical. Substantially all interest rate swaps used in this activity are "plain vanilla" interest rate swaps. Certain assets have indefinite maturities or interest rate sensitivities and are not readily matched with specific liabilities. Such assets are funded by liability pools based on the asset's estimated maturity and repricing characteristics. For example, domestic floating-rate loans are funded by a short-term liability pool that reprices frequently, while fixed-rate credit card loans are funded by a longer-term liability pool that reprices less frequently. Overall, this matched funding strategy has resulted in a more stable net interest margin for the Corporation. This disciplined approach to matching the interest rate risk characteristics of assets and liabilities significantly reduces the structural interest rate risk inherent in the Corporation's balance sheet. Residual structural interest rate risk can be further reduced through the use of interest rate derivatives (gap swaps) used to offset net overall positions rather than specific assets or liabilities. At year-end 1993, the Corporation had $3.4 billion notional principal amount of interest rate swap contracts outstanding that were used to manage gap exposure. Of this amount, $1.3 billion matures during 1994, and $0.9 billion will mature in 1995. Interest rate derivative financial instruments used by the Corporation to manage interest rate exposure reduce the volatility of net interest margin. Without the use of these instruments, net interest margin would have declined by 35 basis points in 1993; by 32 basis points in 1992; and by 8 basis points in 1991.
ASSET AND LIABILITY MANAGEMENT SWAPS - -------------------------------------------------------------------------------------------- (Dollars in millions) Specific Exposures Gap Exposures Total ------------------ -------------- -------------- Expiry Amount Yield Amount Yield Amount Yield - -------------------------------------------------------------------------------------------- 1994.......................... $1,591 4.58% $1,321 5.42% $2,912 4.96% 1995.......................... 507 6.44 887 4.66 1,394 5.31 1996.......................... 799 7.14 989 7.01 1,788 7.07 1997.......................... 865 6.00 189 6.11 1,054 6.02 1998.......................... 192 6.13 2 6.35 194 6.13 1999.......................... 55 8.84 -- -- 55 8.84 2000.......................... 32 4.99 -- -- 32 4.99 2001.......................... 308 8.26 -- -- 308 8.26 2002.......................... 207 7.69 -- -- 207 7.69 2003.......................... 406 6.68 -- -- 406 6.68 2004 and beyond............... 194 6.70 -- -- 194 6.70 ------ ---- ------ ---- ------ ---- Total..................... $5,156 6.09% $3,388 5.72% $8,544 5.95% ====== ==== ====== ==== ====== ==== - --------------------------------------------------------------------------------------------
27 - ------------------------------------------------------------------------------- The sale of floating- and fixed-rate credit card receivables as securities to investors subjects the Corporation's servicing revenue to interest rate risk. The Corporation uses interest rate derivatives to reduce the volatility of the servicing income on credit card securitizations. Without the use of these instruments, credit card fee revenue would have been reduced by $67 million in 1993, $57 million in 1992, and $19 million in 1991. The terms of these deriv- atives match the terms of the credit card securitizations. The degree of structural interest rate sensitivity (i.e. mismatching) is monitored using various methods, including interest rate gap analysis. An interest rate gap is the difference between volumes of assets and liabilities maturing or repricing during a future time interval. To reflect anticipated prepayments, certain asset and liability categories are stated at an estimated rather than a contractual maturity. This ``managerial'' gap is used to monitor the Corporation's domestic earning assets. Interest rate risks in trading positions and in overseas earning asset positions are excluded from gap analysis and are controlled as trading risks. Securitized credit card receivables are added to the gap analysis since, as discussed above, they subject the Corporation to interest rate risk. These securitized receivables amounted to $5 billion at the end of 1993. At December 31, 1993, assets repricing within one year exceeded liabilities repricing within one year by $683 million, or less than 2 percent of total domestic assets, operating within the Corporation's policy of limiting earnings volatility. With a positive gap, the net interest margin will widen with an increase in interest rates and narrow with a decrease in rates. The "managerial" gaps are presented in the following table.
INTEREST RATE SENSITIVITY - ------------------------------------------------------------------------------------------------------------------------------ December 31, 1993 Up to 1 to 3 3 to 6 6 Months After (In millions) 1 Month Months Months to 1 Year 1 Year Total - ------------------------------------------------------------------------------------------------------------------------------ Assets Loans............................................ $15,519 $ 2,721 $ 965 $ 335 $ 6,036 $25,576 Investment securities............................ 302 222 254 127 1,350 2,255 Other assets..................................... 16,376 1,225 58 7 2,452 20,118 ------- ------- ------ ------- ------- ------- Total assets................................... $32,197 $ 4,168 $1,277 $ 469 $ 9,838 $47,949 ======= ======= ====== ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------------ Liabilities and equity Deposits......................................... $ 6,484 $ 5,152 $ 840 $ 1,228 $ 5,633 $19,337 Other liabilities................................ 15,481 1,715 397 918 5,837 24,348 Equity........................................... 121 191 150 -- 3,802 4,264 Effect of off-balance-sheet instruments.................................... 3,625 3,331 (767) (1,438) (4,751) -- ------- ------- ------ ------- ------- ------- Total liabilities and equity (including effect of off-balance-sheet instruments)....... $25,711 $10,389 $ 620 $ 708 $10,521 $47,949 ======= ======= ====== ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------------ Gap (assets less liabilities and equity, including effect of off-balance-sheet instruments)......... $ 6,486 $(6,221) $ 657 $ (239) $ (683) $ -- - ------------------------------------------------------------------------------------------------------------------------------ Cumulative gap................................... $ 6,486 $ 265 $ 922 $ 683 $ -- $ -- - ------------------------------------------------------------------------------------------------------------------------------
The following table presents the gross notional principal amounts of outstanding interest rate swap agreements included in the interest rate sensitivity table, identified by the underlying interest rate exposures.
- -------------------------------------------------------------------- DECEMBER 31, (In millions) 1993 - -------------------------------------------------------------------- Swaps associated with loans............................ $ 468 Swaps associated with securitized credit card receivables.............................. 1,845 Swaps associated with deposits......................... 543 Swaps associated with other liabilities................ 2,300 Swaps against gap position............................. 3,388 ------ Total............................................ $8,544 ====== - --------------------------------------------------------------------
Gap analysis provides a static view of interest rate sensitivity caused by mismatching. Forecasts and simulations of net interest margin and product behavior are used to supplement gap analysis and to identify dynamic interest rate sensitivity. In addition, the Corporation employs duration analysis to estimate the amount of equity value at risk due to interest rate changes. 28 - ------------------------------------------------------------------------------- FOREIGN EXCHANGE RISK MANAGEMENT Wherever possible, foreign currency-denominated assets are funded with liability instruments denominated in the same currency. If a liability denominated in the same currency is not immediately available or desired, a forward foreign exchange contract is used to fully hedge the foreign exchange 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. VENTURE CAPITAL ACTIVITIES The Corporation's portfolio of venture capital investments is composed of publicly traded equity securities held directly, publicly traded equity securities held indirectly (e.g., through limited partnerships), and investments in private companies. During 1992, the Corporation announced its intent to alter significantly its participation in the venture capital business. The existing portfolio is planned to be liquidated in an orderly fashion over the next five to seven years. New investments will be made primarily through participation in a venture capital fund that has been established by the former management of the Corporation's venture capital subsidiaries, and other existing commitments. Also during 1992, the Corporation adopted fair value accounting for its venture capital portfolio. Under this method, fair value of publicly traded securities is determined by quoted market valuations, adjusted for illiquidity of the investments due to the size or nature of the Corporation's holdings. Privately held securities are valued using traditional valuation techniques applied in a conservative manner.
VENTURE CAPITAL PORTFOLIO - -------------------------------------------------------------------- Investments Investments December 31, 1993 Held Held (Dollars in millions) Directly Indirectly Total - -------------------------------------------------------------------- Publicly traded equity investments Gross value.................. $ 452 $ 572 $1,024 Discount..................... (105) (145) (250) ----- ----- ------ Fair value................. $ 347 $ 427 774 ===== ===== Number of investments.......... 16 25 Discount ranges................ 0%-25% 25% Investments in private companies.................... 691 ------ Total.......................... $1,465 ====== - --------------------------------------------------------------------
Fair value accounting for venture capital investments significantly increased the volatility of the Corporation's reported earnings. During 1993, the Corporation embarked on a program intended to reduce that volatility to a specified objective through sale of investments and hedging using equity derivatives. Under this program, the Corporation purchases put options on specific securities, and simultaneously sells call options of identical term and volume. As of December 31, 1993, approximately 9 percent of the venture capital portfolio had been hedged in this manner. Without the use of equity derivatives, equity securities gains would have been increased by $20 million in 1993. During 1994, management intends to employ this and other techniques to more fully hedge the price risk inherent in this portfolio. The following table provides fair value and sale information on the portfolio during 1993.
VENTURE CAPITAL PORTFOLIO ACTIVITY - --------------------------------------------------------------------- Publicly Traded Private (In millions) Companies Companies Total - --------------------------------------------------------------------- Fair value, December 31, 1992.... $ 542 $ 939 $1,481 Additional investments........... 14 174 188 Appreciation recorded as equity securities gains........ 417 49 466 Sales and dispositions........... (284) (240) (524) Other (1)(2)..................... 85 (231) (146) ------ ----- ------ Fair value, December 31, 1993.... $ 774 $ 691 $1,465 ====== ===== ====== Unrealized appreciation (depreciation) at December 31, 1993............ $ 531 $ (21) $ 510 ====== ===== ====== - ---------------------------------------------------------------------
(1) For publicly traded companies, primarily transfers from private classification. (2) For private companies, primarily cash distributions from limited partnership interests, transfers to public classification and principal repayments. In addition to the $1.5 billion of investments in the venture capital portfolio at December 31, 1993, there were unfunded commitments of $287 million. CREDIT RISK MANAGEMENT OVERVIEW The Corporation has developed policies and procedures to manage the level and composition of risk in its credit portfolio. The objective of this credit risk management process is to reduce the risk of a loss resulting from a customer's failure to perform according to the terms of a transaction. Customer transactions create credit exposure that is reported both on and off the Corporation's balance sheet. On-balance-sheet credit exposure consists of cash financial instruments such as loans, leases and acceptances. Off-balance-sheet credit exposure includes credit-related and derivative financial instruments. Credit exposure is managed according to a clearly defined process. The Credit Strategy Committee is responsible for the strategic direction and management oversight of that process, the elements of which include: . identifying the types of customers that are consistent with the Corporation's strategic business objectives; . assessing the credit structure, return and potential risk of loss for any extension of credit within market-driven guidelines and prudent banking practice; . monitoring the financial performance and compliance with contractual obligations of credit customers in order to identify deterioration on a timely basis; . reviewing the credit portfolio to verify the risk assessment of individual credits and to assess the risk profile and composition of the portfolio; . verifying that policies and procedures have been followed in the initial underwriting and ongoing monitoring of the credit portfolio. 29 - ------------------------------------------------------------------------------- A major element of the credit risk management process is portfolio diversification, which is achieved by limiting credit concentrations in a number of ways. Concentrations to individual customers or a related group of customers are limited according to the degree of repayment risk. In addition, concentrations are limited on a portfolio basis by risk rating, credit product, industry and geography. ACCELERATED ASSET DISPOSITION PORTFOLIO In the third quarter of 1992, the Corporation initiated an accelerated disposition program, and certain real estate-related assets were transferred to this portfolio at their estimated disposition values. The assets in this portfolio are carried at the lower of this established carrying value or estimated disposition value. Significant progress has been made in reducing the accelerated disposition portfolio. After 15 months, the Corporation was far ahead of the ``price and pace'' goals it established for this program. Approximately 89 percent of the portfolio's net value had been liquidated by year-end 1993. During 1993, assets having nearly $1.8 billion in original contractual exposure were sold or otherwise liquidated. This resulted in a $911 million reduction in the portfolio's carrying value and the recognition of net gains of $60 million in other income during 1993. The carrying value of the remaining assets in the portfolio was $126 million at year-end 1993, representing 26 percent of their original contractual exposure. The following tables show the composition of the accelerated asset disposition portfolio since December 31, 1992.
ACCELERATED ASSET DISPOSITION PORTFOLIO--EXPOSURE - ----------------------------------------------------------------------------------------------------------- December 31 September 30 June 30 March 31 December 31 (Dollars in millions) 1993 1993 1993 1993 1992 - ----------------------------------------------------------------------------------------------------------- Loans Performing.................................... $ 20 $111 $163 $244 $ 504 Nonperforming................................. 16 21 27 70 115 Other real estate assets........................ 71 79 165 207 257 ---- ---- ---- ---- ------ Subtotal................................ 107 211 355 521 876 Off-balance-sheet exposure...................... 19 33 47 74 161 ---- ---- ---- ---- ------ Total portfolio......................... $126 $244 $402 $595 $1,037 ==== ==== ==== ==== ====== Disposition value as a percentage of original contractual exposure.......................... 26% 33% 38% 41% 46% === === === === === - -----------------------------------------------------------------------------------------------------------
RECONCILIATION OF DISPOSITION VALUE - -------------------------------------------------------------------- (In millions) 1993 1992 - -------------------------------------------------------------------- Disposition value at beginning of period.... $1,037 $1,192 Sales and settlements (1)................... (876) (154) Other, net (2).............................. (35) (1) ------ ------ Disposition value at end of period.......... $ 126 $1,037 ====== ====== - --------------------------------------------------------------------
(1) For the 12 months ended December 31, 1993, $128 million of proceeds were received in excess of the estimated disposition value, and $68 million of valuation adjustments were made to maintain the valuation of the portfolio at its estimated disposition value. (2) Primarily reflects partial payments and the expiration of unused commitments. REMAINING CREDIT PORTFOLIO The quality of the remaining credit portfolio, which includes all credit exposure that was not transferred to the accelerated asset disposition portfolio, improved in 1993. Nonperforming assets at year-end 1993 were $277 million, or 1.2 percent of related assets. This was the lowest absolute level of nonperforming assets since 1976. 30
- ------------------------------------------------------------------------------------------------------------------------------- FIVE-YEAR SELECTED STATISTICAL INFORMATION - ------------------------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------- At Year-End Loans outstanding........................................ $23,103 $22,692 $25,661 $27,706 $29,725 Nonperforming loans...................................... 234 391 843 854 953 Other real estate, net................................... 43 23 457 529 175 Nonperforming assets..................................... 277 414 1,300 1,383 1,128 Allowance for credit losses (1).......................... 683 624 759 897 1,232 Nonperforming loans/loans outstanding.................... 1.0% 1.7% 3.3% 3.1% 3.2% Nonperforming assets/loans outstanding and other real estate, net................................. 1.2 1.8 5.0 4.9 3.8 Allowance for credit losses/loans outstanding (1)........ 3.0 2.8 3.0 3.2 4.1 Allowance for credit losses/nonperforming loans (1)...... 292 160 90 105 129 For the Year Average loans outstanding................................ $21,997 $24,347 $27,281 $30,609 $29,239 Net charge-offs (2)...................................... 182 373 550 781 518 Net charge-offs/average loans............................ 0.8% 1.5% 2.0% 2.6% 1.8% - -------------------------------------------------------------------------------------------------------------------------------
(1) The reserve related to securitized credit card receivables has been transferred to other assets for all periods presented. (2) Excludes $636 million of loan charge-offs in 1992 recorded upon transfer to the accelerated disposition portfolio. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is maintained at a level considered adequate to provide for inherent losses in the credit portfolio. The Corporation evaluates the adequacy of the allowance each quarter and reports the findings to a committee of the Board of Directors. After reviewing the adequacy of the allowance, the committee approves the provision for credit losses. The Corporation's provision for credit losses decreased to $270 million in 1993 from $425 million in 1992. A $28 million increase in the consumer provision in 1993 was offset by a $183 million reduction in the commercial provision. The increase in the consumer provision was primarily the result of growth in credit card receivables. The decline in the commercial provision indicates improved overall portfolio quality. Although the allowance for credit losses is available to absorb potential losses inherent in the Corporation's total credit portfolio, its composition reflects an internal allocation to the consumer and commercial segments. The allowance for credit losses is tested by analyzing total credit exposure to customers including loans, federal funds sold, deposit placements and off-balance-sheet exposures for credit-related and derivative financial instruments. The method used to test the adequacy of the allowance has four elements. First, the consumer reserve is established based on a statistical analysis of historical loss. Second, specific reserves are allocated for commercial credits that have identified loss potential. Third, a reserve for potential losses not specifically identified, which are inherent in the commercial credit portfolio, is computed by assigning a specific reserve factor to each risk category of the portfolio based on a statistical analysis of the Corporation's history. Fourth, management's best judgment is applied to determine any additional amount needed for loss potential based largely on portfolio trends and an assessment of the impact of the current economic environment.
- -------------------------------------------------------------------- (Dollars in millions) 1993 - -------------------------------------------------------------------- Commercial Consumer Total - -------------------------------------------------------------------- Balance, beginning of period..... $488 $ 136 $ 624 Provision for credit losses...... 78 192 270 Net charge-offs.................. (78) (104) (182) Other, transferred to other assets, related to securitized receivables.................... -- (29) (29) ---- ----- ----- Balance, end of period........... $488 $ 195 $ 683 ==== ===== ===== Allowance as a percentage of loans outstanding.............. 3.4% 2.2% 3.0% Allowance as a percentage of nonperforming loans............ 209 -- 292 - -------------------------------------------------------------------- - -------------------------------------------------------------------- 1992 - -------------------------------------------------------------------- Commercial Consumer Total - -------------------------------------------------------------------- Balance, beginning of period.... $ 627 $ 132 $ 759 Provision for credit losses..... 261 164 425 Provision for loans held for accelerated disposition....... 491 -- 491 Net charge-offs................. (255) (118) (373) Charge-offs of loans upon transfer to accelerated disposition portfolio......... (636) -- (636) Other, transferred to other assets, related to securitized receivables................... -- (42) (42) ----- ----- ----- Balance, end of period.......... $ 488 $ 136 $ 624 ===== ===== ===== Allowance as a percentage of loans outstanding............. 3.1% 2.0% 2.8% Allowance as a percentage of nonperforming loans (1)....... 125 -- 160 - --------------------------------------------------------------------
(1) Excludes assets transferred to the accelerated disposition portfolio. At year-end 1993, the Corporation reclassified its reserve for securitized credit card receivables from the allowance for credit losses to other assets. This reclassification was made to conform to prevalent industry practice and had no impact on reserves available for losses or on reported earnings. All comparative data and related ratios have been adjusted to reflect this reclassification. 31 - ------------------------------------------------------------------------------- NONPERFORMING ASSETS Nonperforming assets, which consist of nonperforming loans and other real estate, decreased from $414 million at December 31, 1992, to $277 million at December 31, 1993. Although quarterly fluctuations may occur, the Corporation does not expect nonperforming assets to increase significantly in 1994.
NONPERFORMING ASSETS - ------------------------------------------------------------------------------------------------------------------------- December 31 (Dollars in millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------- Nonperforming loans Commercial real estate.................................. $108 $ 93 $ 309 $ 274 $ 172 Troubled-country debtor................................. 50 76 150 210 536 Other................................................... 76 222 384 370 245 ---- ---- ------ ------ ------ Total nonperforming loans............................. 234 391 843 854 953 Other real estate, net Owned assets............................................ 29 10 283 433 46 In-substance foreclosed assets.......................... 14 13 174 96 129 ---- ---- ------ ------ ------ Total other real estate, net.......................... 43 23 457 529 175 ---- ---- ------ ------ ------ Total nonperforming assets............................ $277 $414 $1,300 $1,383 $1,128 ==== ==== ====== ====== ====== - ------------------------------------------------------------------------------------------------------------------------- Nonperforming loans/loans outstanding..................... 1.0% 1.7% 3.3% 3.1% 3.2% Nonperforming assets/loans outstanding and other real estate, net.................................. 1.2 1.8 5.0 4.9 3.8 - -------------------------------------------------------------------------------------------------------------------------
NONPERFORMING LOANS Nonperforming loans include loans on which the Corporation does not accrue interest (nonaccrual loans) and loans that bear a rate of interest that has been reduced below market rates due to the deteriorating financial condition of the borrower (accrual renegotiated loans).
NONPERFORMING LOANS - ------------------------------------------------------------------------------------------------------------------------- December 31 (In millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------- Nonaccrual loans.......................................... $230 $386 $838 $844 $942 Accrual renegotiated loans................................ 4 5 5 10 11 ---- ---- ---- ---- ---- Total nonperforming loans..................... $234 $391 $843 $854 $953 ==== ==== ==== ==== ==== Nonperforming loans Domestic................................................ $171 $286 $645 $620 $381 Foreign................................................. 63 105 198 234 572 ---- ---- ---- ---- ---- Total nonperforming loans..................... $234 $391 $843 $854 $953 ==== ==== ==== ==== ==== - -------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF CHANGE IN NONPERFORMING LOANS - ----------------------------------------------------------------------------- Commercial (In millions) Real Estate Other Total - ----------------------------------------------------------------------------- Nonperforming loans-- December 31, 1992............. $ 93 $298 $ 391 Loans placed on nonperforming status.......... 263 99 362 Charge-offs..................... (53) (70) (123) Transferred to other real estate................... (51) -- (51) Sales and dispositions.......... -- (82) (82) Transferred to accrual status........................ (107) (60) (167) Other, principally payments...................... (37) (59) (96) ----- ---- ----- Nonperforming loans-- December 31, 1993............. $ 108 $126 $ 234 ===== ==== ===== - -----------------------------------------------------------------------------
OTHER REAL ESTATE Other real estate includes assets that either have been acquired in satisfaction of debt or have been classified as in-substance foreclosures. The Corporation believes that taking title to real estate assets improves its ability to sta- bilize property values and liquidate those assets. The Corporation had $43 million of other real estate at year-end 1993, compared with $23 million at year-end 1992. The provision for other real estate was $4 million in 1993, compared with $57 million (including provisions related to the transfer of assets to the asset disposition portfolio) in 1992. Operating results for other real estate assets were essentially break-even in 1993, versus $7 million in losses in 1992. 32
- ----------------------------------------------------------------------------------------------------------------- Consumer Loans - ----------------------------------------------------------------------------------------------------------------- December 31 (In millions) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------- Credit card loans.................................... $ 5,778 $ 4,135 $3,843 $3,930 $5,099 Other consumer loans................................. 2,896 2,737 2,482 2,494 2,791 Securitized credit card receivables.................. 4,958 4,500 3,573 3,130 1,595 ------- ------- ------ ------ ------ Total........................................ $13,632 $11,372 $9,898 $9,554 $9,485 ======= ======= ====== ====== ====== - ----------------------------------------------------------------------------------------------------------------- AVERAGE CREDIT CARD RECEIVABLES - ----------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------- Credit card loans outstanding........................ $4,170 $3,537 $3,516 $4,497 $4,190 Securitized credit card receivables.................. 4,839 3,918 3,320 2,063 1,800 ------ ------ ------ ------ ------ Total credit card receivables........................ $9,009 $7,455 $6,836 $6,560 $5,990 ====== ====== ====== ====== ====== Total net charge-offs (including securitizations).... $ 332 $ 316 $ 309 $ 245 $ 208 ====== ====== ====== ====== ====== Net charge-offs/average total receivables............ 3.7% 4.2% 4.5% 3.7% 3.5% === === === === === - -----------------------------------------------------------------------------------------------------------------
CONSUMER RISK MANAGEMENT Consumer loans consist of credit card receivables as well as home mortgage loans, home equity loans and other forms of installment credit. The consumer loan portfolio increased $1.8 billion during the year to $8.7 billion at year-end 1993. Including securitized credit card receivables, the consumer portfolio increased $2.3 billion, or 20 percent, to $13.6 billion at year-end 1993. The consumer risk management process focuses on the credit card segment separately from other parts of the portfolio. For both the on-balance-sheet and the securitized credit card portfolios, loss potential is tested using statistically expected levels of losses based on the source, age and other risk characteristics of each portfolio. For the other segments of the consumer portfolio, reserve factors are based on the Corporation's historical loss experience for similar credits, as well as on industry averages. At year-end 1993, the allowance for credit losses related to the consumer portfolio was $195 million, or 2.2 percent of loans. Comparable figures for 1992 were $136 million, or 2 percent. Net charge-offs in 1993 were $104 million, compared with $118 million in 1992. The 1993 decrease resulted from a higher level of securitized credit card receivables and the impact of the improving economy on the cardholder base. Total credit card receivables (held in the portfolio plus sold to investors through securitization transactions) were $10.7 billion at December 31, 1993, a 24 percent increase from $8.6 billion at December 31, 1992. Net charge-offs in 1993 for the total owned and securitized credit card portfolio were $332 million, or 3.7 percent of receivables, compared with $316 million, or 4.2 percent of receivables, in 1992. The Corporation expects the net charge-off rate in 1994 to be similar to that in 1993. Management continues to maintain tight approval standards for new accounts and has implemented policies and procedures intended to minimize losses from existing accounts. COMMERCIAL RISK MANAGEMENT The commercial risk portfolio includes all domestic commercial credit exposure and all foreign exposure, including obligors defined as troubled-country debtors in countries that have been unable or unwilling to service their external obligations on originally contracted terms. Credit exposure includes the credit risks associated with both on-and off-balance-sheet-financial instruments. Credit risks from off-balance-sheet instruments arise from credit-related and derivative financial instruments. See Note 15 on page 56 for information related to the credit exposure associated with these off-balance-sheet instruments. In the commercial portfolio, credit quality is rated according to nine defined levels of credit risk. The lower five categories of credit risk are equivalent to the four bank regulatory classifications: Special Mention, Substandard, Doubtful and Loss. These categories define levels of credit deterioration where it may be increasingly difficult for the Corporation to be fully repaid without restructuring the credit. Credits that are Doubtful are likely to result in some principal loss. Those portions of credits classified as Loss are charged off. Each quarter, the Corporation conducts an asset-by-asset review of significant lower-rated credit or country exposure. Potential losses are identified during this review, and reserves are established accordingly. Commercial loans declined 9 percent from $15.8 billion at December 31, 1992, to $14.4 billion at December 31, 1993. The reduction was due to a strategic decision by the Corporation to focus on improving the profitability of the loan product, which resulted in a reduction in credit exposure for certain relationships. Total net charge-offs in the commercial portfolio decreased to $78 million in 1993 from $255 million in 1992. The provision for commercial credit losses decreased to $78 million in 1993 from $261 million in 1992; this represents 54 basis points of related loans, a significant improvement from 165 basis points in 1992. The year-end commercial reserve of $488 million represented 3.4 percent of total commercial loans and 209 percent of related nonperforming loans. 33 - ------------------------------------------------------------------------------- COMMERCIAL REAL ESTATE Commercial real estate consists primarily of loans secured by real estate, as well as certain loans that are real estate-related. A loan is categorized as real estate-related when 80 percent or more of the borrower's revenues are derived from real estate activities and the loan is not collateralized by cash or marketable securities. At December 31, 1993, commercial real estate loans totaled $2.474 billion, of which 83 percent were loans under $20 million, with the remaining loans between $20 million and $40 million. Of the total, 97 percent were to domestic borrowers and the remaining 3 percent were to foreign borrowers. During 1993, net charge-offs in the commercial real estate portfolio segment were $51 million. Nonperforming commercial real estate assets, including other real estate, totaled $151 million, or 6 percent of related assets, at December 31, 1993. Some U.S. commercial real estate markets appear to be stabilizing while others remain depressed. As a result, individual assets in the existing commercial real estate portfolio may continue to deteriorate in 1994.
- ----------------------------------------------------------------------------------------------------- COMMERCIAL REAL ESTATE ASSETS - ----------------------------------------------------------------------------------------------------- December 31 (Dollars in millions) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------- Commercial real estate loans.............. $2,474 $2,795 $4,403 $4,927 $4,602 Nonperforming loans....................... 108 93 309 274 172 Other real estate, net.................... 43 23 457 529 175 Nonperforming assets...................... 151 116 766 803 347 Net loan charge-offs...................... 51 127 183 79 15 Nonperforming assets/loans outstanding and other real estate, net.............. 6.0% 4.1% 15.8% 14.7% 7.3% - -----------------------------------------------------------------------------------------------------
The real estate portfolio is diversified by geographic region, type of project and customer. The following table shows loans secured by real estate identified by both geographic region and collateral type. Since real estate-related loans are not in all cases geographic- or property-specific, such loans are not included in the table below. At December 31, 1993, real estate-related loans totaled $195 million, of which $3 million were nonperforming.
COMMERCIAL REAL ESTATE ASSETS - --------------------------------------------------------------------------------------------------------------- December 31, 1993 (Dollars in millions) - --------------------------------------------------------------------------------------------------------------- Industrial/ Office Shopping Land Service Geographic Region Buildings Hotels Centers Loans Centers Other Total Percent - --------------------------------------------------------------------------------------------------------------- Loans secured by real estate: Chicago............................ $242 $ 31 $150 $ 79 $554 $613 $1,669 73% Southeast.......................... 23 23 43 -- 5 6 100 5 Los Angeles........................ 32 11 16 -- 13 23 95 4 Other California................... 11 31 17 -- 10 23 92 4 Other Midwest...................... 33 5 14 3 7 4 66 3 Arizona/Colorado/Texas............. 3 15 -- 27 5 -- 50 2 Other.............................. 78 69 37 6 9 8 207 9 ---- ---- ---- ---- ---- ---- ------ --- Total loans secured by real estate........... $422 $185 $277 $115 $603 $677 $2,279 100% ==== ==== ==== ==== ==== ==== ====== === - --------------------------------------------------------------------------------------------------------------- Nonperforming loans secured by real estate................... $ 27 $ 2 $ 3 $ 28 $ 22 $ 23 $ 105 -- Other real estate.................. 1 -- 14 8 9 11 43 -- - ---------------------------------------------------------------------------------------------------------------
34 - ------------------------------------------------------------------------------ DERIVATIVE FINANCIAL INSTRUMENTS The Corporation enters into a variety of derivative financial instruments in its trading, asset and liability management, and venture capital activities. Derivative financial instruments include interest rate, currency, commodity and equity swaps, forwards, futures, options, caps, floors, collars, forward rate agreements, and other conditional or exchange contracts. See Note 15 on page 56 for a discussion of the nature and terms of derivative financial instruments. NOTIONAL PRINCIPAL OR CONTRACTUAL AMOUNTS OF DERIVATIVE FINANCIAL INSTRUMENTS The following table represents the gross notional principal or contractual amounts of outstanding derivative financial instruments used in the Corporation's trading, asset and liability management, and venture capital activities. The amounts do not represent the market or credit risk associated with these derivative financial instruments, but rather give an indication of the volume of the transactions. These amounts greatly exceed the credit risk associated with these derivative financial instruments and do not reflect the netting of offsetting transactions.
- -------------------------------------------------------------------- Asset and December 31, 1993 Liability Venture (In billions) Trading Management Capital Total - -------------------------------------------------------------------- Foreign exchange contracts............. $219.4 $ 1.1 $ -- $220.5 Interest rate contracts............. 200.7 8.5 -- 209.2 Other contracts......... 0.8 0.8 0.1 1.7 ------ ----- ---- ------ Total............... $420.9 $10.4 $0.1 $431.4 ====== ===== ==== ====== - --------------------------------------------------------------------
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments used in trading and venture capital activities are valued at prevailing market rates on a present value basis. Realized and unrealized gains and losses are included in noninterest income as trading account profits, foreign exchange trading profits and equity securities gains. Where appropriate, compensation for credit risk and ongoing servicing is deferred and taken into income over the term of the derivatives. Any gain or loss on the early termination of an interest rate swap used in trading activities is recognized currently in trading account profits. Interest rate derivative financial instruments are used to reduce the risk of a specific asset or liability position or to adjust a specific interest rate exposure that is identified by the Corporation's asset and liability monitoring process. Income or expense on most derivative financial instruments used to manage interest rate exposure is recorded on an accrual basis as an adjustment to the yield of the related interest rate exposures over the periods covered by the contracts. If an interest rate swap that is used to manage interest rate risk is terminated early, any resulting gain or loss is deferred and amortized as an adjustment to the yield of the underlying interest rate exposure position over the remaining periods originally covered by the terminated swap. INCOME RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS A discussion of the Corporation's noninterest income, which includes income resulting from derivatives used in trading and venture capital activities, is on pages 22 and 23. A discussion of the Corporation's structural interest rate risk management, which addresses income resulting from derivatives used in asset and liability management activities, is on pages 27 and 28. Deferred gains and losses on the early termination of interest rate swaps used to manage interest rate risk total a net deferred gain of $93 million as of December 31, 1993. A significant portion of these deferred gains related to securitized credit card receivables. This amount is scheduled to be amortized into income in the following periods: $44 million in 1994, $28 million in 1995, $19 million in 1996 and $2 million thereafter. CREDIT EXPOSURE RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS The Corporation maintains risk management policies that monitor and limit exposure to credit risks. For a further discussion of credit risks, see the Credit Risk Management discussion on page 29. The Corporation's credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of maximum adverse position exposure. The incremental amount of credit exposure for potential adverse movement is calculated by using a statistical model that estimates changes over time in exchange rates, interest rates and other relevant factors. Credit exposure amounts fluctuate as a function of maturity, interest rates, foreign exchange rates, commodity prices and equity prices. These amounts may be overstated because they do not consider collateral and other security or the offsetting of losses with the same counterparties based on legally enforceable termination and netting rights. Gross credit exposure is presented in the following table.
- -------------------------------------------------------------------- December 31 (In billions) 1993 1992 - -------------------------------------------------------------------- Interest rate contracts....................... $ 3.9 $ 2.8 Foreign exchange contracts.................... 2.6 5.3 ----- ----- Total fair value exposure................. 6.5 8.1 Additional exposure based on estimate of maximum adverse position exposure........... 4.1 3.7 ----- ----- Gross credit exposure......................... $10.6 $11.8 ===== ===== - --------------------------------------------------------------------
35
- ---------------------------------------------------------------------------------------- CAPITAL MANAGEMENT - ---------------------------------------------------------------------------------------- SELECTED CAPITAL RATIOS - ---------------------------------------------------------------------------------------- December 31 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------- Common equity/assets (1)................... 7.2% 5.9% 5.1% 4.8% 4.5% Common equity less goodwill/assets (1)..... 7.0 5.6 4.8 4.6 4.3 Tangible common equity ratio (1)........... 6.6 5.0 4.1 3.9 3.5 Stockholders' equity/assets................ 8.1 6.9 6.1 5.5 5.6 Risk-based capital ratio (1)(2) Tier 1................................... 8.8 6.7 5.5 4.9 4.7 Total.................................... 13.6 10.8 9.4 8.3 8.0 Double leverage ratio...................... 110 114 116 119 120 Dividend payout ratio...................... 15 188 174 60 35 - ----------------------------------------------------------------------------------------
(1) Net of investment in First Chicago Capital Markets, Inc. (2) Under 1992 risk-based capital rules. The Corporation's capital supports business growth, provides protection to depositors, and represents the investment of stockholders on which management strives to achieve adequate returns. The capital adequacy objectives of the Corporation and its principal bank subsidiaries have been developed to meet these needs. These objectives have been integrated with the Corporation's risk management policies to form a cohesive financial management framework. To help achieve these objectives, the Finance Committee, which oversees and approves the Corporation's capital goals, annually establishes a capital plan. The plan is intended to ensure that the Corporation and each of its sub- sidiaries have capital structures consistent with prudent management principles and regulatory requirements. The Corporation's principal capital adequacy objectives are: to maintain a capital base reasonably commensurate with the overall risk profile of the Corporation; to maintain strong capital ratios relative to its peers; and to meet all regulatory guidelines. Management believes that a strong capital base is instrumental in achieving enhanced stockholder returns over the long term. To determine the level of capital appropriate to the Corporation's risk profile, an economic capital framework has been developed that calculates capital required to absorb both expected and unexpected losses with a high degree of confidence. The framework encompasses credit risk, market risk and operating/fiduciary risk, and is a key tool for business decision-making within the Corporation. Management of differences between actual capital, economic capital requirements and regulatory capital requirements is a fundamental task of this capital planning process. In 1993, the Corporation issued $200 million of convertible preferred stock and $550 million of subordinated debt. An additional $200 million of subordinated debt was issued in January 1994. In addition, during 1993 the Cor- poration called its Series A Cumulative Convertible Preferred Stock for redemption. Virtually all holders of the Series A preferred elected to convert to common stock, resulting in the issuance of approximately 3 million addi- tional shares of the Corporation's common stock. In November 1993, the Corporation announced a share repurchase program intended to meet issuance requirements arising out of various employee benefit plans. Under the program, the Corporation may, from time to time, repurchase up to 2.5 million shares of its common stock. Through December 31, 1993, 200,000 shares had been repurchased at an average price of $42.21. 36 - ------------------------------------------------------------------------------- The Corporation has established an objective of ensuring that its regulatory capital ratios remain in excess of the well-capitalized minimums. To provide reasonable assurance of meeting this goal, the Corporation has established a target range of 7 percent to 8 percent for Tier 1 capital, and a target range of 11 percent to 12 percent for total risk-based capital. The following table shows the components of regulatory capital as defined by the banking regulators for risk-based capital and leverage ratio guidelines.
REGULATORY CAPITAL - -------------------------------------------------------------------- December 31 (In millions) 1993 1992 - -------------------------------------------------------------------- Tier 1 Capital Common stockholders' equity................. $3,503 $2,732 Preferred stock............................. 761 669 Less: 50% of investment in First Chicago Capital Markets, Inc.......... (69) (59) Less: Goodwill.............................. (97) (119) ------ ------ Tier 1 Capital............................ 4,098 3,223 Tier 2 Capital Allowance for credit losses (1)............. 581 605 Qualifying long-term debt................... 1,682 1,452 Less: 50% of investment in First Chicago Capital Markets, Inc.......... (69) (59) ------ ------ Tier 2 Capital............................ 2,194 1,998 ------ ------ Total Capital........................... $6,292 $5,221 ====== ====== - --------------------------------------------------------------------
(1) Limited to 1.25 percent of risk-weighted assets. As of December 31, 1993, all of the Corporation's banking subsidiaries exceeded the regulatory capital guidelines for well-capitalized status.
REGULATORY CAPITAL RATIOS - -------------------------------------------------------------------- Regulatory December 31 Requirements ------------- ---------------------- Well- 1993 1992 Minimum Capitalized - -------------------------------------------------------------------- Risk-Based Capital Ratios Tier 1 capital......... 8.8% 6.7% 4.0% 6.0% Total capital.......... 13.6 10.8 8.0 10.0 Leverage Ratio............. 8.0 6.6 3.0 5.0 - --------------------------------------------------------------------
The Corporation intends to ensure that its capital level is commensurate with its risk profile, and that capital resources on hand are adequately deployed to earn attractive returns for stockholders. If attractive deployment opportunities are not available, the Corporation will ultimately return excess capital to its stockholders. The Corporation's common dividend policy reflects its earnings outlook, its historical dividend payout ratio, peer comparisons, and the need to build capital or alternatives for attractive investment opportunities. During 1991, the Corporation paid dividends in excess of its reported earnings based on its expectation of improved future results. Due to high credit provisions resulting from continuing weakness in the commercial real estate market, the Corporation reduced its dividend payment by 40 percent in January 1992. Since establishing the accelerated disposition portfolio, the Corporation's quarterly earnings have consistently exceeded its dividend payouts. In November 1993, the Corporation increased its quarterly common dividend rate to $0.40 per share effective with the January 1994 payment. In the capitalization of all subsidiaries, the Corporation's policy is to limit double leverage (the use of holding company debt to finance equity investments in its subsidiaries) to no more than 125 percent at any one time, and no more than 115 percent on average. At year-end 1993, the Corporation's double leverage ratio was 110 percent, down from 114 percent at December 31, 1992. 37
- --------------------------------------------------------------------------------------------------------- C O N S O L I D A T E D B A L A N C E S H E E T First Chicago Corporation and Subsidiaries - --------------------------------------------------------------------------------------------------------- December 31 (Dollars in millions) 1993 1992 - --------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks--noninterest-bearing..................................... $ 3,916 $ 3,222 Due from banks--interest-bearing................................................. 6,037 6,116 Federal funds sold and securities under resale agreements........................ 8,783 6,892 Trading account assets........................................................... 4,536 3,312 Investment securities (fair values--$2,264 in 1993 and $2,408 in 1992)........... 2,256 2,400 Loans (net of unearned income--$282 in 1993 and $357 in 1992).................... 23,103 22,692 Less allowance for credit losses............................................... 683 624 ------- ------- Total loans, net............................................................... 22,420 22,068 Assets held for accelerated disposition.......................................... 107 876 Premises and equipment........................................................... 635 593 Accrued income receivable........................................................ 407 356 Customers' acceptance liability.................................................. 517 560 Currency options purchased....................................................... 536 622 Other assets..................................................................... 2,410 2,264 ------- ------- Total assets........................................................... $52,560 $49,281 ======= ======= - --------------------------------------------------------------------------------------------------------- LIABILITIES Deposits Demand......................................................................... $ 8,184 $ 7,575 Savings........................................................................ 7,541 7,618 Time........................................................................... 4,925 6,262 Foreign offices................................................................ 7,536 8,285 ------- ------- Total deposits......................................................... 28,186 29,740 Federal funds purchased and securities under repurchase agreements............... 8,255 6,962 Commercial paper................................................................. 164 172 Other funds borrowed............................................................. 5,843 3,997 Long-term debt................................................................... 2,065 1,705 Acceptances outstanding.......................................................... 517 560 Currency options written......................................................... 501 612 Other liabilities................................................................ 2,765 2,132 ------- ------- Total liabilities...................................................... 48,296 45,880 - ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY Preferred stock--without par value, authorized 15,000,000 shares Outstanding: - --------------------------------------------------------------------------------- 1993 1992 - --------------------------------------------------------------------------------- Series A ($ 50 stated value).................... 2,410,000 2,410,000 121 121 Series B ($100 stated value).................... 1,191,000 1,191,000 119 119 Series C ($100 stated value).................... 713,800 713,800 71 71 Series D ($ 25 stated value).................... 6,000,000 6,000,000 150 150 Series E ($625 stated value).................... 160,000 160,000 100 100 Convertible Series A ($50 stated value)......... -- 2,151,451 -- 108 Convertible Series B ($5,000 stated value)...... 40,000 -- 200 -- Common stock--$5 par value....................................................... 434 412 - --------------------------------------------------------------------------------- 1993 1992 - --------------------------------------------------------------------------------- Number of shares authorized....................... 150,000,000 150,000,000 Number of shares issued........................... 86,715,812 82,353,507 Number of shares outstanding...................... 86,398,605 82,331,001 Surplus.......................................................................... 1,724 1,599 Retained earnings................................................................ 1,358 721 Other adjustments................................................................ -- 1 ------- ------- Total.................................................................. 4,277 3,402 Less treasury stock at cost, 317,207 shares in 1993 and 22,506 shares in 1992.... 13 1 - --------------------------------------------------------------------------------------------------------- Stockholders' equity................................................... 4,264 3,401 ------- ------- Total liabilities and stockholders' equity............................. $52,560 $49,281 ======= ======= - ---------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of this balance sheet. 38
- ------------------------------------------------------------------------------------------------------------------- C O N S O L I D A T E D I N C O M E S T A T E M E N T First Chicago Corporation and Subsidiaries - ------------------------------------------------------------------------------------------------------------------- For the Year (In millions, except per share amounts) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans........................................................ $1,687.4 $1,894.4 $2,476.0 Interest on bank balances......................................................... 298.0 358.0 476.2 Interest on federal funds sold and securities under resale agreements............. 344.8 284.8 329.3 Interest on trading account assets................................................ 221.9 259.0 230.1 Interest on investment securities (including dividends)........................... 72.0 73.4 93.0 -------- -------- -------- Total................................................................... 2,624.1 2,869.6 3,604.6 - ------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits.............................................................. 644.1 973.7 1,713.9 Interest on federal funds purchased and securities under repurchase agreements.... 308.1 345.3 428.2 Interest on other funds borrowed.................................................. 295.8 240.7 254.2 Interest on long-term debt........................................................ 150.3 126.9 128.3 -------- -------- -------- Total................................................................... 1,398.3 1,686.6 2,524.6 - ------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME............................................................... 1,225.8 1,183.0 1,080.0 Provision for credit losses....................................................... 270.0 425.0 440.0 Provision for loans held for accelerated disposition.............................. -- 491.0 -- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES AND PROVISION FOR LOANS HELD FOR ACCELERATED DISPOSITION............................ 955.8 267.0 640.0 - ------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME Trading account profits........................................................... 179.7 67.8 90.7 Foreign exchange trading profits.................................................. 104.9 109.5 95.1 Equity securities gains........................................................... 480.2 204.6 63.0 Investment securities gains (losses).............................................. 0.3 8.6 (3.3) -------- -------- -------- Market-driven revenue........................................................... 765.1 390.5 245.5 Credit card fee revenue........................................................... 694.2 516.1 411.8 Service charges and commissions................................................... 432.5 381.0 348.7 Fiduciary and investment management fees.......................................... 200.7 189.8 174.8 Net gains from accelerated disposition portfolio activities....................... 60.0 -- -- Other income...................................................................... 49.9 10.8 44.4 -------- -------- -------- Total................................................................... 2,202.4 1,488.2 1,225.2 - ------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits.................................................... 853.9 748.0 722.8 Occupancy expense of premises, net................................................ 147.7 186.0 152.8 Equipment rentals, depreciation and maintenance................................... 110.3 111.2 107.5 Other expense..................................................................... 742.0 719.2 546.9 -------- -------- -------- Subtotal.................................................................. 1,853.9 1,764.4 1,530.0 Provision for other real estate held for accelerated disposition.................. -- 134.0 -- Provision for other real estate................................................... 4.2 56.9 104.3 Restructuring provision........................................................... -- -- 67.0 -------- -------- -------- Total................................................................... 1,858.1 1,955.3 1,701.3 - ------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES................................................. 1,300.1 (200.1) 163.9 Applicable income taxes (benefit)................................................. 495.6 (85.6) 47.6 -------- -------- -------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES........ 804.5 (114.5) 116.3 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES-- VALUATION OF VENTURE CAPITAL INVESTMENT SECURITIES.............................. -- 220.7 -- RECOGNITION OF CREDIT CARD SOLICITATION COSTS................................... -- (12.7) -- -------- -------- -------- NET INCOME........................................................................ $ 804.5 $ 93.5 $ 116.3 ======== ======== ======== NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY............................ $ 747.5 $ 48.9 $ 78.1 ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------- COMMON SHARE DATA PRIMARY Income (loss) before cumulative effect of changes in accounting principles...................................................... $8.78 $(2.08) $1.15 Cumulative effect of changes in accounting principles-- Valuation of venture capital investment securities............................ -- 2.89 -- Recognition of credit card solicitation costs................................. -- (0.17) -- ----- ------ ----- Net income........................................................................ $8.78 $ 0.64 $1.15 ===== ====== ===== FULLY DILUTED Income (loss) before cumulative effect of changes in accounting principles...... $8.43 $(2.08) $1.15 Cumulative effect of changes in accounting principles-- Valuation of venture capital investment securities............................ -- 2.89 -- Recognition of credit card solicitation costs................................. -- (0.17) -- ----- ------ ----- Net income........................................................................ $8.43 $ 0.64 $1.15 ===== ====== ===== - -------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of this statement. 39
- ------------------------------------------------------------------------------------------------------------------------- C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N S T O C K H O L D E R S ' E Q U I T Y First Chicago Corporation and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------- For the Three Years Ended Treasury December 31, 1993 Preferred Common Retained Other Stock (In millions) Stock Stock Surplus Earnings Adjustments (at Cost) Total - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1990........ $ 419 $330 $1,243 $818 $ 4 $ (2) $2,812 Net income...................... -- -- -- 116 -- -- 116 Issuance of common stock........ -- 15 51 -- -- -- 66 Issuance of preferred stock..... 150 -- (5) -- -- -- 145 Cash dividends declared Preferred stock............... -- -- -- (38) -- -- (38) Common stock.................. -- -- -- (136) -- -- (136) Other........................... -- -- 8 -- (1) (2) 5 - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1991........ $ 569 $345 $1,297 $760 $ 3 $ (4) $2,970 Net income...................... -- -- -- 94 -- -- 94 Issuance of common stock........ -- 67 306 -- -- -- 373 Issuance of preferred stock..... 100 -- (4) -- -- -- 96 Cash dividends declared Preferred stock............... -- -- -- (44) -- -- (44) Common stock.................. -- -- -- (89) -- -- (89) Other........................... -- -- -- -- (2) 3 1 - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992........ $ 669 $412 $1,599 $721 $ 1 $ (1) $3,401 Net income...................... -- -- -- 804 -- -- 804 Issuance of common stock........ -- 7 37 -- -- -- 44 Issuance of preferred stock..... 200 -- (4) -- -- -- 196 Redemption of preferred stock... (108) 15 92 -- -- -- (1) Cash dividends declared Preferred stock............... -- -- -- (57) -- -- (57) Common stock.................. -- -- -- (110) -- -- (110) Treasury stock purchases........ -- -- -- -- -- (8) (8) Other........................... -- -- -- -- (1) (4) (5) ----- ---- ------ ------ --- ---- ------ BALANCE, DECEMBER 31, 1993........ $ 761 $434 $1,724 $1,358 $-- $(13) $4,264 ===== ==== ====== ====== === ==== ====== - -------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of this statement. 40
- --------------------------------------------------------------------------------------------------------------------- C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S First Chicago Corporation and Subsidiaries - --------------------------------------------------------------------------------------------------------------------- For the Year (In millions) 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income........................................................... $ 804 $ 94 $ 116 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization...................................... 188 173 158 Combined credit provisions (including accelerated disposition provision)....................................................... 274 1,107 544 Gain on sale of investment advisory business....................... -- -- (15) Equity securities gains............................................ (480) (205) (63) Net gains from accelerated disposition portfolio activities........ (60) -- -- Cumulative effect of changes in accounting principles.............. -- (208) -- Net increase in trading account assets............................. (1,224) (1,346) (628) Net (increase) decrease in accrued income receivable............... (51) 174 388 Net decrease in other assets....................................... 76 678 442 Other noncash adjustments.......................................... 6 (87) (544) -------- --------- --------- Total adjustments.................................................. (1,271) 286 282 Net cash provided by (used in) operating activities.................. (467) 380 398 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in federal funds sold and securities under resale agreements................................. (1,891) (1,684) 685 Purchases of investment securities................................... (3,068) (1,202) (819) Proceeds from maturities of debt investment securities............... 3,047 703 623 Proceeds from sales of debt investment securities.................... -- 366 159 Proceeds from sales of equity investment securities.................. 598 244 222 Investment portfolio acquired........................................ -- -- (134) Net increase in credit card receivables.............................. (3,493) (1,515) (995) Credit card receivables securitized.................................. 1,700 1,000 1,000 Net decrease in loans of bank subsidiaries........................... 973 1,186 1,597 Loans made to customers and purchased from others by nonbank subsidiaries............................................ (142) (181) (143) Principal collected on and proceeds from sale of loans by nonbank subsidiaries............................................ 302 377 103 Loan portfolio acquired.............................................. -- -- (8) Loan recoveries...................................................... 97 88 77 Net proceeds from sales of assets held for accelerated disposition... 829 174 -- Purchases of premises and equipment.................................. (213) (151) (175) Proceeds from sales of premises and equipment........................ 71 63 54 -------- --------- --------- Net cash provided by (used in) investing activities.................. (1,190) (532) 2,246 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand and savings deposits.......................... 525 1,934 550 Net decrease in time deposits........................................ (1,342) (3,269) (1,409) Deposits acquired.................................................... 12 -- 1,516 Net decrease in deposits in foreign offices.......................... (687) (978) (602) Net increase (decrease) in federal funds purchased and securities under repurchase agreements............................. 1,293 1,817 (1,105) Net decrease in commercial paper..................................... (8) (54) (11) Proceeds from other funds borrowed................................... 80,869 110,418 249,896 Repayment of other funds borrowed.................................... (79,024) (109,134) (249,956) Proceeds from issuance of long-term debt............................. 826 234 334 Repayment of long-term debt.......................................... (471) (257) (43) Net increase (decrease) in other liabilities......................... 285 (1,102) (578) Dividends paid....................................................... (158) (145) (172) Proceeds from issuance of common stock............................... 41 375 52 Proceeds from reissuance of treasury stock........................... 4 6 2 Purchase of treasury stock........................................... (13) (1) -- Proceeds from issuance of preferred stock............................ 196 96 145 Payment for redemption of preferred stock............................ (1) -- -- -------- --------- --------- Net cash provided by (used in) financing activities.................. 2,347 (60) (1,381) - ---------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS......... (75) (45) (624) - ---------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. 615 (257) 639 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................... 9,338 9,595 8,956 -------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR............................. $ 9,953 $ 9,338 $ 9,595 ======== ========= ========= - ----------------------------------------------------------------------------------------------------------------------
Interest paid in cash by the Corporation totaled $1.4 billion in 1993, $1.9 billion in 1992 and $2.9 billion in 1991. Income taxes paid in cash by the Corporation totaled $175 million in 1993, $50 million in 1992 and $47 million in 1991. The Corporation financed the sale of other real estate in the amount of $2 million, $135 million and $86 million in 1993, 1992 and 1991, respectively. $51 million, $192 million and $222 million in loans were transferred to other real estate in 1993, 1992 and 1991, respectively. The accompanying notes to consolidated financial statements are an integral part of this statement. 41 - -------------------------------------------------------------------------------- N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S First Chicago Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements for First Chicago Corporation (the Corporation) and subsidiaries have been prepared in conformity with generally accepted accounting principles. A description of those accounting policies of particular significance follows. (a) PRINCIPLES OF CONSOLIDATION The Corporation's consolidated financial statements include the accounts of all subsidiaries more than 50 percent owned. All significant intercompany accounts and transactions have been eliminated in consolidation. (b) INTANGIBLE ASSETS Goodwill, representing the cost of investments in subsidiaries and affiliated companies in excess of the fair value of net assets acquired, is amortized on a straight-line basis over periods ranging from 10 to 25 years. Other intangible assets, such as the value of acquired customer lists, core deposits and credit card relationships, are amortized using various methods over the periods benefited, ranging from 5 to 17 years. (c) INVESTMENT SECURITIES In 1993, the Corporation prospectively adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, for debt and equity securities not held by its venture capital subsidiaries. This adoption did not have a material impact on the Corporation's financial statements. Debt securities, excluding those held by the venture capital subsidiaries, that the Corporation intends to and has the ability to hold to maturity, are carried at historical cost, adjusted for amortization of premiums and accretion of discounts. Previously, such accounting treatment was applied to debt securities that were intended to be held for long-term investment. Intent is designated at the time the security is acquired and is evaluated on an ongoing basis. Other debt and all equity securities, excluding those held by the venture capital subsidiaries, are classified as available for sale and are carried at fair value, with unrealized gains and losses and applicable income taxes excluded from earnings and reported in other adjustments in stockholders' equity. Previously, these securities were carried at the lower of cost or fair value. Realized gains and losses, and unrealized impairments in value that are not temporary, are computed using the specific identification method, and are reported in noninterest income as investment securities gains (losses) for debt securities and as equity securities gains for equity securities. The Corporation adopted fair value accounting for investments of its venture capital subsidiaries on January 1, 1992. Changes in the fair value of such investments are recognized in noninterest income as equity securities gains. Previously, such investments were carried at the lower of aggregate cost or fair value. The fair value of publicly traded investments takes into account their quoted market prices with adjustments made for market liquidity or sale restrictions. For investments that are not publicly traded, estimates of fair value have been made by management that consider the investees' financial results, conditions and prospects, and the values of comparable public companies. Because of the nature of these investments, the equity method of accounting is not used in situations where the Corporation has a greater than 20 percent ownership interest. It was not practicable to retroactively develop a valuation process for these investments for periods prior to January 1, 1992. As a result, pro forma net income and earnings per share amounts for 1991 are not presented. (d) TRADING ACCOUNT ACTIVITIES Trading account assets are stated at market value. Realized and unrealized gains and losses on trading account activities are reflected in noninterest income as trading account profits. (e) DERIVATIVE FINANCIAL INSTRUMENTS For a discussion of the Corporation's accounting policies for derivative financial instruments, see the Derivative Financial Instruments section on page 35. (f) NONPERFORMING LOANS Loans, including lease-financing receivables, are considered nonperforming when placed on nonaccrual status, or when terms are renegotiated to yield below current market rates. Loans, other than credit card loans, are placed on nonaccrual status when, in the opinion of management, there are doubts as to collectibility of interest or principal, or when principal or interest is past due 90 days or more, and the loan is not well secured and in the process of collection. Interest previously accrued but not collected is reversed and charged against interest income at the time the related loan is placed on nonaccrual status. Accrued interest on credit card loans is charged against interest income when 180 days past due. Interest payments received on nonaccrual loans are recorded as reductions of principal if the collection of the remaining carrying amount is doubtful; otherwise, such payments are recorded as interest income. Loans are considered to be renegotiated when the yield on the renegotiated assets is reduced below current market rates by an agreement with the borrower. Generally, this occurs when the borrower's cash flow is insufficient to service the loan under its original terms. Subject to the above nonaccrual policy, interest on these loans is accrued at the reduced rates. 42 - ------------------------------------------------------------------------------ (g) CREDIT CARD SECURITIZATION The Corporation actively packages and sells credit card receivables as securities to investors. Since the receivables are sold at par value, no gains or losses are recorded at the time of sale. The amount of credit card interest income and fee revenue in excess of interest paid to certificate holders, credit losses and other trust expenses is recognized monthly as servicing fees in credit card fee revenue over the term of the transaction. Other transaction costs are deferred and amortized as a reduction of servicing fees. During 1993, the Corporation reclassified the portion of the allowance for credit losses related to securitized credit card receivables to other assets, to offset the receivables recognized and to be received from the securitization trust. This balance sheet reclassification conforms to the more prevalent industry practice. Prior year amounts have been adjusted to be consistent with current year presentation. (h) OTHER REAL ESTATE Other real estate includes assets that have been either acquired in satisfaction of debt (assets owned) or substantively repossessed (in-substance foreclosures). In-substance foreclosures occur when the market value of the collateral is less than the legal obligation of the borrower and the Corporation expects repayment of the loan to come only from collateral. Other real estate is recorded at fair value at the date of transfer. Any valuation adjustments required at the date of transfer are charged to the allowance for credit losses. Subsequent to acquisition, other real estate is carried at the lower of cost or fair value, based on periodic evaluations that consider changes in market conditions, development and disposition costs, and estimated holding periods. Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and depreciation, are recorded in other noninterest income. (i) 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 from customer credit exposure resulting from loans, federal funds sold, deposit placements, and off-balance-sheet credit exposure for credit-related and derivative financial instruments. The amount of the allowance is based on management's formal review and analysis of potential credit losses, as well as prevailing economic conditions. The allowance is increased by provisions for credit losses, which are charged to earnings, and is reduced by charge-offs net of recoveries. (j) ASSETS HELD FOR ACCELERATED DISPOSITION In 1992, the Corporation segregated certain commercial real estate assets and related commitments in an accelerated disposition portfolio. The Corporation transferred assets to the accelerated disposition portfolio at their estimated disposition values. The assets in this portfolio are carried at the lower of the initially established carrying values or newly estimated disposition values. The credit and valuation process related to this portfolio is performed quarterly to assess the ongoing condition of each individual credit, to determine any change in credit risk classification, and to determine the need, if any, for additional valuation adjustments. Income recognition is based on the credit characteristics of the individual assets in the disposition portfolio. Net gains as a result of transaction activity related to disposition portfolio assets are included in noninterest income. (k) PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization, which are computed principally on the straight-line method over the estimated useful lives of the related assets. Gains and losses on dis- positions are reflected in other noninterest income. Maintenance and repairs are charged to noninterest expense as incurred. (l) FOREIGN CURRENCY TRANSLATION The Corporation's translation policies are based on a determination of the primary operating currency (functional currency) for each foreign installation. If a foreign installation's functional currency is the U.S. dollar, assets and liabilities carried in local currency are translated to U.S. dollars at current exchange rates except for premises and equipment, which are translated at historic rates. Translation effects and results of related hedging transactions, neither of which is material, are included in other noninterest income. If the foreign installation's functional currency is its local currency, all assets and liabilities are translated at current exchange rates. Translation adjustments, related hedging results and applicable income taxes are included in other adjustments within stockholders' equity. If a foreign installation is to be sold or liquidated, the related accumulated other adjustments balance is reversed and recognized as part of the gain or loss on disposition. Operating results of foreign installations are translated at averages of exchange rates prevailing during the year. The interest element of hedging transactions is included in interest expense. (m) INCOME TAXES The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109 as of January 1, 1992, which had no impact on its financial statements. SFAS No. 109 requires an asset and liability approach for accounting for income taxes. Its objective is to recognize the amount of taxes payable or refundable for the current year, and deferred tax assets and liabilities for the future tax consequences that have been recognized in a company's financial statements or tax returns. The measurement of tax assets and liabilities is based on the provisions of enacted tax laws. Prior to the adoption of SFAS No. 109, the Cor- poration accounted for income taxes under SFAS No. 96. (n) FEES RELATED TO LENDING ACTIVITIES Lending origination fees, net of costs, are deferred and amortized as interest income over the life of the related loan. Loan commitment fees generally are deferred and amortized into interest income over the life of any resulting loan. The deferred fees and costs are netted against outstanding loan balances. Certain credit-related fees, such as syndication management fees and fees on unused, available lines of credit, are recorded as service charges and commissions in noninterest income. Fees on commercial 43 - ------------------------------------------------------------------------------ letters of credit are recorded as service charges and commissions when earned. Fees on standby letters of credit and guarantees are recorded as service charges and commissions on a straight-line basis over the term of the related agreements. (o) PENSION, OTHER POSTRETIREMENT AND POSTEMPLOYMENT PLANS The Corporation maintains noncontributory defined benefit plans covering substantially all eligible, salaried domestic employees. Retirement benefits are primarily a function of both an employee's years of service and final levels of compensation. To the extent that contributions are deductible under existing federal tax regulations, the Corporation funds the plans according to an actuarial formula to provide for both current and future benefit payments. The annual return on investments and amortizations exceeded the normal service and interest costs, resulting in a net periodic credit to employee benefits expense. The initial transition asset is being amortized over 17 years. The period of amortization for experience gains and losses is three years. Vested former employees may elect to receive lump sum cash payments, which results in accelerated recognition of the transition asset and experience gains. These recurring gains are recorded as a component of the net periodic pension credit. These settlements have no effect on the level of benefits paid to current or future pensioners. Employees in foreign offices participate to varying degrees in local pension plans, the forms of which are often prescribed by local laws and customs. These plans in the aggregate are not significant. The Corporation has no material other postretirement or postemployment obligations. (p) CASH FLOW REPORTING The Corporation uses the indirect method to report cash flows from operating activities. Under this method, net income is adjusted to reconcile it to net cash flow from operating activities. Net reporting of cash transactions has been used when the balance sheet items consist predominantly of maturities of three months or less, or where otherwise permitted. Other items are reported gross. Cash flows related to sales of debt investment securities within one month of the maturity date are classified as maturities in the consolidated statement of cash flows. Cash and cash equivalents consist of cash and due from banks, whether interest-bearing or not. (q) ACCOUNTING FOR CREDIT CARD SOLICITATION COSTS The Corporation changed its accounting policy in 1992 to expense certain credit card solicitation costs. Previously, these costs were deferred and amortized over the estimated life of the account. The Corporation made this change to reflect the more prevalent industry practice. Retroactively applying this accounting change to 1991 would have produced a pro forma net income of $105.3 million, or $0.98 per share, as compared with reported earnings of $116.3 million, or $1.15 per share. (r) OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, was issued in March 1992. This interpretation is effective for financial statements issued for periods beginning after December 15, 1993. It is applicable to the balance sheet presentation of unrealized gains and losses recognized for derivative financial instruments. It requires the reporting of unrealized gains as assets and unrealized losses as liabilities unless a right of setoff exists. The interpretation does permit the netting of unrealized gain and loss amounts recognized for derivative financial instruments executed with the same counterparty under a master netting arrangement. The Corporation currently reports unrealized gains and losses related to certain derivative financial instruments on a net basis, which it believes is consistent with banking industry practice. The adoption of this interpretation for balance sheet presentation purposes will not affect the net income or capital of the Corporation. It also will not affect its risk-based capital ratios, which have historically incorporated the gross unrealized gains on these instruments. If this interpretation were currently effective, the Corporation's assets and liabilities as of December 31, 1993, would have increased by approximately $4.9 billion. The balance sheet impact of this interpretation at future dates will fluctuate as the unrealized gains and losses on these instruments increase or decrease with changes in remaining maturity and market rates, as well as the ability to net amounts under master netting arrangements. (s) ACCOUNTING FOR LOAN IMPAIRMENT In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan. This statement is effective for financial statements issued for periods beginning after December 15, 1994. SFAS No. 114 addresses the accounting for loans when it is probable that all principal and interest amounts that are due on a loan will not be collected in accordance with its contractual terms (i.e. ``impaired loans''). Pursuant to SFAS No. 114, to the extent the recorded investment of an impaired loan exceeds the present value of the loan's expected future cash flows discounted at the loan's effective interest rate or other measures of value, a valuation allowance is established for the difference. These SFAS No. 114 valuation allowances are to be considered in the Corporation's overall allowance for credit losses. See Note 1(i) on page 43 for more information. The Corporation does not expect the adoption of SFAS No. 114 to have a material impact on the results of operations and financial position. However, the future impact as of the adoption date is not currently determinable since it would be based on the existing impaired loans as of that date. SFAS No. 114 also changes the definition of In-Substance Foreclosures (ISF), with the result that a larger portion of currently reported ISFs would be reclassified as nonaccrual loans. The Corporation intends to adopt this new ISF definition concurrent with the adoption of the other provisions of SFAS No. 114. 44 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- N O T E 2 -- EARNINGS PER SHARE The Corporation presents earnings per share on both a primary and a fully diluted basis. Earnings per common and common-equivalent share amounts were computed by dividing net income, after deducting dividends on preferred stock, by the average number of common and common-equivalent shares outstanding during the period. Common-equivalent shares consist of shares issuable under the Employee Stock Purchase and Savings Plan and outstanding stock options. Fully diluted shares also include the common shares that would result from the conversion of convertible preferred stock. Net income was reduced by preferred stock dividend requirements to compute primary earnings per share. To compute fully diluted earnings per share, net income was reduced by preferred stock dividend requirements, except those related to convertible stock. The net income, preferred stock dividends and shares used to compute primary and fully diluted earnings per share are presented in the following table.
- ------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 - ------------------------------------------------------------- PRIMARY Net income...................... $804.5 $ 93.5 $116.3 Preferred stock dividends....... 57.0 44.6 38.2 ------ ------ ------ Net income attributable to common stockholders' equity... $747.5 $ 48.9 $ 78.1 ====== ====== ====== Average number of common and common-equivalent shares...... 85.2 76.5 67.7 FULLY DILUTED Net income...................... $804.5 N/M N/M Preferred stock dividends, excluding convertible Series A and B....................... 43.7 N/M N/M ------ ------ ------ Fully diluted net income........ $760.8 N/M N/M ====== ====== ====== Average number of shares, assuming full dilution........ 90.3 N/M N/M - -------------------------------------------------------------
N/M--Not meaningful. For both 1992 and 1991, the calculation of fully diluted earnings per share would have produced an anti-dilutive result and, therefore, is not shown in the table above. - -------------------------------------------------------------------------------- N O T E 3 -- BUSINESS ACQUISITIONS In November 1993, the Corporation and Lake Shore Bancorp., Inc. (Lake Shore) signed a definitive agreement providing for the acquisition of Lake Shore by the Corporation. Lake Shore, with $1.3 billion in assets as of December 31, 1993, and eight offices in the Chicago metropolitan area, is the holding company for Lake Shore National Bank, Chicago, Illinois, and Bank of Hinsdale, Hinsdale, Illinois. The total consideration to be paid for Lake Shore is approximately $323 million of newly issued common stock of the Corporation. The agreement provides that each share or share equivalent of Lake Shore common stock will be ex- changed for the Corporation's common stock valued at $31.08. The exchange ratio will be determined based on the average closing price of the Corporation's common stock during a 20-day trading period ending just prior to the close of the transaction, with a minimum price of $37 and a maximum price of $53 per share. The Corporation expects to account for the transaction as a pooling of interests. Lake Shore also has granted the Corporation an option to purchase up to 19.9 percent of the outstanding shares of Lake Shore common stock upon the occurrence of certain acquisition events with respect to Lake Shore. Completion of the transaction is subject to the approval of Lake Shore stockholders and various bank regulatory authorities, and is expected to occur in mid-1994. - ------------------------------------------------------------------------------- N O T E 4 -- BUSINESS SEGMENTS An analysis of the Corporation's results on a line-of-business basis is shown in the table on page 19. The following table further details results for other corporate activities that are not specifically allocated to a business segment (in millions).
- ------------------------------------------------------------------------ Venture Capital Other Activities Activities (1) ---------------------- ------------------- - ------------------------------------------------------------------------ 1993 1992 1991 1993 1992 1991 - ------------------------------------------------------------------------ Net interest income-- tax-equivalent basis... $ (30) $ (37) $(32) $ 20 $ 11 $ (1) Combined credit provisions............. -- (1) (1) -- 625 -- Noninterest income....... 371 179 77 58 -- -- Noninterest expense...... 4 12 12 18 92 67 Net income (loss)........ 204 80 19 51 (235) (40) Average assets........... $1,346 $1,295 $939 $474 $ 308 -- - ------------------------------------------------------------------------
(1) Includes disposition portfolio activities since initiated in September 1992, other special corporate expense provisions, and the cumulative effect of changes in accounting principles. 45 - ------------------------------------------------------------------------------ The Corporation is primarily engaged in the banking business, and with the continuing globalization of financial markets, the distinction between international and domestic activities has become less important. The following table shows the approximate amounts of consolidated revenues, expenses, income before income taxes, net income and total assets for the three years ended December 31, 1993, attributable to domestic and foreign operations by geographic area in accordance with current regulatory reporting requirements (in millions).
- -------------------------------------------------------------------------------------------------------------------------------- Income (Loss) Before Net Income Income Total 1993 Revenues(1) Expenses(2) Taxes (Loss) Assets - -------------------------------------------------------------------------------------------------------------------------------- Domestic operations............................................ $4,130 $2,966 $1,164 $712 $44,301 Foreign operations Europe-Middle East-Africa.................................... 399 348 51 32 3,937 Asia-Pacific................................................. 149 156 (7) (5) 2,921 Other........................................................ 148 56 92 65 1,401 ------ ------ ------ ---- ------- Total foreign operations..................................... 696 560 136 92 8,259 ------ ------ ------ ---- ------- Consolidated................................................... $4,826 $3,526 $1,300 $804 $52,560 ====== ====== ====== ==== ======= - -------------------------------------------------------------------------------------------------------------------------------- 1992 Domestic operations............................................ $3,620 $3,963 $(343) $(12) $40,163 Foreign operations Europe-Middle East-Africa.................................... 439 387 52 41 4,496 Asia-Pacific................................................. 160 149 11 7 2,887 Other........................................................ 139 59 80 58 1,735 ------ ------ ----- ---- ------- Total foreign operations..................................... 738 595 143 106 9,118 ------ ------ ----- ---- ------- Consolidated................................................... $4,358 $4,558 $(200) $ 94 $49,281 ====== ====== ===== ==== ======= - -------------------------------------------------------------------------------------------------------------------------------- 1991 Domestic operations............................................ $3,903 $4,057 $(154) $(148) $40,034 Foreign operations Europe-Middle East-Africa.................................... 480 413 67 55 4,079 Asia-Pacific................................................. 240 209 31 21 3,025 Other........................................................ 207 (13) 220 188 1,825 ------ ------ ----- ----- ------- Total foreign operations..................................... 927 609 318 264 8,929 ------ ------ ----- ----- ------- Consolidated................................................... $4,830 $4,666 $ 164 $ 116 $48,963 ====== ====== ===== ===== ======= - --------------------------------------------------------------------------------------------------------------------------------
(1) Includes interest income and noninterest income. (2) Includes interest expense, provision for credit losses and noninterest expense. The 1992 results from domestic operations include $611.3 million of provisions for assets held for accelerated disposition and $208.0 million related to the cumulative effect of changes in accounting principles. Results from foreign operations include provisions for credit losses of $(13) million in 1993, $(3) million in 1992 and $(93) million in 1991. A reduction in required reserves for the Corporation's troubled-country debtor portfolio was the primary reason for the negative provisions in the periods presented. Because many of the resources employed by the Corporation are common to both its foreign and domestic activities, it is difficult to segregate assets, related revenues and expenses into their foreign and domestic components. The amounts in the preceding table are estimated on the basis of internally developed assignment and allocation procedures, which to some extent are subjective. The principal internal allocations used to prepare this information are described in the following text. The allocation of corporate overhead expense is based on internal allocations appropriate to individual activities. Expenses incurred for the benefit of another geographic area, including certain domestic administrative expenses, are allocated to the area benefited. Total assets and revenues reflect the allocation of loans and related interest income among geographic areas based on the domicile of the customer. Deposit placements and related revenues are allocated among geographic areas based on the domicile of the depository institution. Differences between contractual spreads and actual funding results are reflected in the earnings of the areas providing the funding. Distribution of certain fee income among geographic areas is reflected on the basis of ser- vices rendered. Capital, with the exception of capital at foreign subsidiaries, has been allocated to domestic operations. 46
- --------------------------------------------------------------------------------------------------------------------------- N O T E 5 -- INVESTMENT SECURITIES Investment securities in the consolidated balance sheet at December 31, 1993 and 1992, are summarized as follows (in millions). - ---------------------------------------------------------------------------------------------------------------------------- Book Cost Unrealized Unrealized Fair DECEMBER 31, 1993 Value Basis Gains Losses Value - ---------------------------------------------------------------------------------------------------------------------------- U.S. government and federal agency Held to maturity......................................... $ 245 $ 245 $ 2 $ 1 $ 246 Available for sale....................................... 243 243 -- -- 243 ------ ------ ---- ---- ------ Total.............................................. 488 488 2 1 489 States and political subdivisions Held to maturity......................................... 162 162 7 -- 169 Available for sale....................................... -- -- -- -- -- ------ ------ ---- ---- ------ Total.............................................. 162 162 7 -- 169 Bonds, notes and debentures Held to maturity......................................... 4 4 -- -- 4 Available for sale....................................... 15 15 -- -- 15 ------ ------ ---- ---- ------ Total.............................................. 19 19 -- -- 19 Equity securities Venture capital.......................................... 1,465 955 627 117 1,465 Available for sale (1)(2)................................ 122 121 1 -- 122 ------ ------ ---- ---- ------ Total.............................................. 1,587 1,076 628 117 1,587 Total investment securities........................ $2,256 $1,745 $637 $118 $2,264 ====== ====== ==== ==== ====== - ---------------------------------------------------------------------------------------------------------------------------- Book Cost Unrealized Unrealized Fair December 31, 1992 Value Basis Gains Losses Value - ---------------------------------------------------------------------------------------------------------------------------- U.S. government and federal agency Held for investment...................................... $ 330 $ 330 $ 4 $ -- $ 334 Available for sale....................................... 195 195 -- -- 195 ------ ------ ---- ---- ------ Total.............................................. 525 525 4 -- 529 States and political subdivisions Held for investment...................................... 244 244 6 3 247 Available for sale....................................... -- -- -- -- -- ------ ------ ---- ---- ------ Total.............................................. 244 244 6 3 247 Bonds, notes and debentures................................ 134 134 -- -- 134 Equity securities Venture capital.......................................... 1,386 948 603 165 1,386 Other equity securities (1)(2)........................... 111 111 1 -- 112 ------ ------ ---- ---- ------ Total.............................................. 1,497 1,059 604 165 1,498 Total investment securities........................ $2,400 $1,962 $614 $168 $2,408 ====== ====== ==== ==== ====== - ----------------------------------------------------------------------------------------------------------------------------
(1) The fair values of certain securities for which market quotations were not available were estimated. In addition, the fair values reflect liquidity and other market-related factors. (2) Includes Federal Reserve stock. For the years ended December 31, 1993, 1992 and 1991, gross debt investment securities gains were $1.5 million, $8.6 million and $0.2 million, respectively, and gross debt investment securities losses were $1.2 million, $17 thousand and $3.5 million, respectively. The applicable income taxes (benefit) were $0.1 million, $3.2 million and $(1.2) million, respectively. Gross proceeds from the sales of debt investment securities were $0.2 million, $366 million and $159 million for the three years ended December 31, 1993, 1992 and 1991, respectively. 47 - ------------------------------------------------------------------------------- As of December 31, 1993, debt investment securities--held to maturity and available for sale--had the following maturity characteristics (in millions). - -------------------------------------------------------------------------------
Held to Maturity Available for Sale ------------------ ------------------ Cost Fair Cost Fair Basis Value Basis Value - ------------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT AND FEDERAL AGENCY Maturing within one year.............................................. $ 73 $ 73 $238 $238 Maturing after one but within five years.............................. 170 171 -- -- Maturing after five but within ten years.............................. -- -- -- -- Maturing after ten years.............................................. 2 2 5 5 ---- ---- ---- ---- $245 $246 $243 $243 ==== ==== ==== ==== - ------------------------------------------------------------------------------------------------------------------------ STATES AND POLITICAL SUBDIVISIONS Maturing within one year.............................................. $ 13 $ 14 $ -- $ -- Maturing after one but within five years.............................. 59 62 -- -- Maturing after five but within ten years.............................. 40 42 -- -- Maturing after ten years.............................................. 50 51 -- -- ---- ---- ---- ---- $162 $169 $ -- $ -- ==== ==== ==== ==== - ------------------------------------------------------------------------------------------------------------------------ OTHER BONDS, NOTES AND DEBENTURES Maturing within one year.............................................. $ 1 $ 1 $ 11 $ 11 Maturing after one but within five years.............................. 2 2 1 1 Maturing after five but within ten years.............................. -- -- -- -- Maturing after ten years.............................................. 1 1 3 3 ---- ---- ---- ---- $ 4 $ 4 $ 15 $ 15 ==== ==== ==== ==== - ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------- N O T E 6 -- LOANS Following is a breakdown of loans included in the con- solidated balance sheet as of December 31, 1993 and 1992 (in millions). - ------------------------------------------------------------- 1993 1992 - ------------------------------------------------------------- Commercial Risk Domestic Commercial....................... $ 6,007 $ 7,020 Real estate Construction................... 315 432 Other.......................... 2,094 2,240 Financial institutions........... 1,292 1,307 Other............................ 2,746 2,712 Foreign (including troubled- country debtors)................. 1,975 2,109 ------- ------- Subtotal..................... 14,429 15,820 - ------------------------------------------------------------- Consumer Risk Credit cards....................... 5,778 4,135 Secured by real estate Mortgage......................... 1,469 1,319 Home equity lines................ 780 827 Other.............................. 647 591 ------- ------- Subtotal..................... 8,674 6,872 ------- ------- Total........................ $23,103 $22,692 ======= ======= - -------------------------------------------------------------
See page 32 for a table setting forth nonaccrual and renegotiated loans. The amount of interest shortfall (the difference between contractual interest due and interest actually recorded) related to nonperforming loans at year-end was $14 million in 1993 and $35 million in 1992. Credit card receivables are available for sale through the Corporation's credit card securitization program. Since these receivables are sold at face value, there would be no impact on the Corporation's financial results upon their sale. The Corporation has loans outstanding to certain of its directors and executive officers and to partnerships or companies in which a director or executive officer has at least a 10 percent beneficial interest. At December 31, 1993 and 1992, $295 million and $392 million of such loans to related parties, respectively, were outstanding. An analysis of the activity during 1993 with respect to such loans includes additions of $165 million and reductions of $262 million. At December 31, 1993, there were no loans classified as nonperforming, versus $25 million in 1992. A former executive of one of the Corporation's subsidiaries is a general partner in a partnership that received loans from the subsidiary as part of a compensation arrangement. The loans aggregated $87 million at December 31, 1992, and were included in the total loans to related parties. Subsequent to December 31, 1992, the executive was no longer an officer of any of the Corporation's subsidiaries. 48 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- N O T E 7 -- ALLOWANCE FOR CREDIT LOSSES Changes in the allowance for credit losses for the three years ended December 31, 1993, were as follows (in millions).
- -------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------- Balance, beginning of year......... $ 624 $ 759 $ 897 Additions (deductions) Charge-offs...................... (279) (461) (627) Recoveries....................... 97 88 77 ----- ----- ----- Net charge-offs.................. (182) (373) (550) Provision for credit losses...... 270 425 440 Provision for loans held for accelerated disposition........ -- 491 -- Charge-offs of loans upon transfer to accelerated disposition portfolio........ -- (636) -- Other, transfers related to securitized receivables........ (29) (42) (28) ----- ----- ----- Balance, end of year............... $ 683 $ 624 $ 759 ===== ===== ===== - --------------------------------------------------------------------
The portion of the allowance for credit losses that relates to securitized credit card receivables was reclassified to other assets. See note 1(g) on page 43 for more information. The portion of the allowance related to securitized receivables totaled $196 million at year-end 1993, $167 million at year-end 1992 and $125 million at year-end 1991. - -------------------------------------------------------------------------------- N O T E 8 -- PLEDGED AND RESTRICTED ASSETS Assets carried at $11.9 billion in the consolidated balance sheet at December 31, 1993, were pledged as collateral for borrowings, to secure government and trust deposits, and for other purposes as required by law. Based on the types and amounts of deposits received, banks must maintain noninterest-bearing cash balances in accordance with Federal Reserve Bank reserve requirements. The average noninterest-bearing cash balance main- tained to meet reserve requirements was $574 million in 1993 and $525 million in 1992. - -------------------------------------------------------------------------------- N O T E 9 -- LEASE COMMITMENTS The Corporation has entered into a number of operating and capitalized lease agreements for premises and equipment. The minimum annual rental commitments under these leases at December 31, 1993, are shown below (in millions).
- -------------------------------------------------------------------- 1994................................................. $ 63 1995................................................. 62 1996................................................. 58 1997................................................. 58 1998................................................. 50 1999 and beyond...................................... 340 ---- Total........................................ $631 ==== - --------------------------------------------------------------------
Occupancy expense has been reduced by rental income from premises leased to others in the amount of $28.1 million in 1993, $25.0 million in 1992 and $21.2 million in 1991. - -------------------------------------------------------------------- N O T E 10 -- LONG-TERM DEBT Long-term debt consists of borrowings having an original maturity of seven years or more. Long-term debt at December 31, 1993 and 1992, was as follows (in millions).
- -------------------------------------------------------------------- 1993 1992 - -------------------------------------------------------------------- 3-1/2% notes due 1993............................ $ -- $ 24 8-1/2% notes due 1998............................ 99 99 Subordinated 9% notes due 1999................... 199 199 Subordinated 9-7/8% notes due 2000............... 99 99 Subordinated 9-1/5% notes due 2001............... 5 5 Subordinated 9-1/4% notes due 2001............... 100 100 Subordinated 10-1/4% notes due 2001.............. 100 100 Subordinated 11-1/4% notes due 2001.............. 96 100 Subordinated 8-7/8% notes due 2002............... 100 100 Subordinated 8-1/4% notes due 2002............... 100 100 Subordinated 7-5/8% notes due 2003............... 199 -- Subordinated 6-7/8% notes due 2003............... 200 -- Subordinated floating rate notes due 2003........ 149 -- Equity commitment notes Subordinated floating rate notes due 1994...... -- 100 Subordinated floating rate notes due 1996...... -- 125 Subordinated 9-7/8% notes due 1999............. 200 200 Equity contract notes Subordinated floating rate capital notes due 1996............................... 125 125 Subordinated floating rate capital notes due 1997............................... -- 199 Other long-term debt............................. 294 30 ------ ------ Total.................................... $2,065 $1,705 ====== ====== - --------------------------------------------------------------------
3-1/2% NOTES These notes were redeemed in full in December 1993. The notes were obligations of First Chicago Overseas Finance N.V. (FCOF), a wholly owned subsidiary of the Corporation. The notes were denominated in Swiss francs. 8-1/2% NOTES These notes are direct, unsecured obligations of the Corporation and are not subordinated to any other indebtedness of the Corporation. They may not be redeemed prior to their stated maturity. SUBORDINATED NOTES These notes are direct obligations of the Corporation and are subordinated to other indebtedness of the Corporation. They may not be redeemed prior to their stated maturity. They have fixed interest rates that range from 6-7/8 percent to 11-1/4 percent and maturities that range from 1999 to 2003. One note has a floating interest rate priced at the greater of 4-1/4 percent or the three-month London interbank offered rate plus 1/8 percent. Of the 11-1/4 percent subordinated notes, $3.4 million in principal was redeemed at a premium in open market transactions during the third quarter of 1993. The Corporation incurred a loss of approximately $419 thousand on this transaction. 49 - ------------------------------------------------------------------------------- EQUITY COMMITMENT NOTES The subordinated notes maturing in 1994 issued by FCOF were redeemed in full, prior to stated maturity, in August 1993. The subordinated notes maturing in 1996 were redeemed in full, prior to stated maturity, in July 1993. The subordinated notes maturing in 1999 are direct obligations of the Corporation. Such notes are subordinated to other indebtedness of the Corporation. The subordinated notes maturing in 1999 have a fixed interest rate of 9-7/8 per- cent and may not be redeemed prior to their stated maturity. The agreements under which these notes were issued require the Corporation, prior to maturity, to issue common stock, perpetual preferred stock or other forms of equity approved by the Federal Reserve Board in an amount equal to the original aggregate principal amount of the notes. As of December 31, 1993, the Corporation had issued all of the equity securities required by the agreements. EQUITY CONTRACT NOTES The subordinated floating rate capital notes maturing in 1996 are a direct obligation of the Corporation and are subordinated to other indebtedness of the Corporation. The interest rate on these notes is reset quarterly at 3/16 percent over the average offered rate quoted in the London interbank market for three-month Eurodollar deposits. The effective interest rate on this issue as of December 31, 1993, was 3.79 percent. The subordinated floating rate capital notes maturing in 1997 were redeemed in full, prior to stated maturity, in August 1993. OTHER LONG-TERM DEBT Other long-term debt of $294 million includes various notes with maturities ranging from 1994 to 2026 and interest rates at December 31, 1993, ranging from 3.9 percent to 13 percent. Of this amount, $267 million relates to the sale and leaseback of certain bank properties. The effective interest rate related to this transaction is 9.1 percent, with expected maturity in 2018. Original issue discount and deferred issuance costs are amortized over the terms of the related notes. - -------------------------------------------------------------------------------- N O T E 11 -- PREFERRED STOCK The Corporation currently is authorized to issue 15 million shares of preferred stock, without par value. The Board of Directors is authorized to fix the particular designations, preferences, rights, qualifications and restrictions for each series of preferred stock issued. In December 1988, the Corporation paid a dividend of one Preferred Share Purchase Right (a Right) for each outstanding share of common stock of the Corporation. Similar Rights are issued by the Corporation with each share of the Corporation's common stock issued after December 2, 1988, subject to adjustment. Until a person or group acquires beneficial ownership of, or begins a tender or exchange offer for, 20 percent or more of the Corporation's common stock, the Rights will not be exercisable and will be transferred upon the transfer of shares of the Corporation's common stock. Upon the occurrence of certain events, each Right entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, without par value, of the Corporation at a price of $130. Under certain other circumstances, the holder of a Right may have the right to receive upon payment of the Right's $130 exercise price (i) common stock of a company acquiring control of the Corporation that has a market value of two times the exercise price of the Right, or (ii) common stock of the Corporation having a market value of two times the exercise price of the Right. The Rights, which expire December 2, 1998, are redeemable in whole, but not in part, at the Corporation's option prior to the time they are exercisable, for a price of $.01 per Right. The Corporation has three series of adjustable-rate cumulative preferred stock outstanding, designated Series A, Series B and Series C. The dividend rate on each series is based on stated value and adjusted quarterly, based on a formula that considers the interest rates for selected short-and long-term U.S. Treasury securities prevailing at the time the rate is set. The Corporation issued 6 million shares of 10 percent Cumulative Preferred Stock, Series D, in May 1991, and 4 million depositary shares each representing a one twenty-fifth interest in a share of 8.45 percent Cumulative Preferred Stock, Series E, in November 1992. In March 1993, the Corporation issued 4 million depositary shares each representing a one-hundredth interest in a share of 5-3/4 percent Cumulative Convertible Preferred Stock, Series B. All preferred shares rank prior to common shares both as to dividends and liquidation, but have no general voting rights. The Series A Adjustable-Rate Preferred Stock is subject to a minimum and maximum dividend rate of 7 percent and 15 percent, respectively. The dividend rate for the quarterly dividend period ended March 31, 1994, is 7 percent. Shares of this series are redeemable, at the option of the Corporation, at their stated value of $50 per share plus accrued and unpaid dividends. The Series B Adjustable-Rate Preferred Stock is subject to a minimum and maximum dividend rate of 6 percent and 12 percent, respectively. The dividend rate for the quarterly period ended February 28, 1994, was 6 percent. Shares of this series are redeemable, at the option of the Corporation, at their stated value of $100 per share plus accrued and unpaid dividends. 50 - -------------------------------------------------------------------------------- The Series C Adjustable-Rate Preferred Stock is subject to a minimum and maximum dividend rate of 6.5 percent and 12.5 percent, respectively. The dividend rate for the quarterly period ended February 28, 1994, was 6.5 percent. Shares of this series are redeemable, at the option of the Corporation, at their stated value of $100 per share plus accrued and unpaid dividends. The annual dividend rate for the Series D Cumulative Preferred Stock is $2.50, or 10 percent of stated value, and was fixed at the date of issue. Shares of this series are redeemable at any time on or after June 1, 1994, at the option of the Corporation, at a redemption price equal to $25.75 per share during the 12-month period ending May 31, 1995, at a redemption price equal to $25.375 per share during the 12-month period ending May 31, 1996, and thereafter at their stated value of $25 per share plus accrued and unpaid dividends. The annual dividend rate for the Series E Cumulative Preferred Stock is $52.81, or 8.45 percent of stated value, and was fixed at the date of issue. For each related depositary share, the dividend rate is $2.11. Shares of this series are redeemable at any time on or after November 16, 1997, at the option of the Corporation, at their stated value of $625 per share or $25 per depositary share plus accrued and unpaid dividends. All shares of the Corporation's Series A Cumulative Convertible Preferred Stock were called for redemption on September 2, 1993. Each Series A share was convertible into 1.391 shares of the Corporation's common stock at the option of the stockholder, and approximately 2.1 million shares of the stock were so converted into approximately 3 million shares of common stock. Resultant fractional shares were paid in cash. On September 2, 1993, the Corporation redeemed the remaining shares of the Series A Convertible Preferred at the redemption price of $51.50 per share plus accrued and unpaid dividends. The Series B Cumulative Convertible Preferred Stock was issued in March 1993 and ranks on a parity with the Series A, B, C, D and E preferred stock. The annual dividend rate is $287.50, or 5.75 percent of stated value, and was fixed at the date of issue. For each related depositary share, the dividend rate is $2.875. Shares of this stock may be converted into shares of the Corporation's common stock at the option of the stockholders at any time at the conversion price of $53.625. For each depositary share, the equivalent conversion rate is .9324 share of common stock. Resultant fractional interests are paid in cash. Shares of this series are redeemable beginning April 1, 1997, at the option of the Corporation, at an original redemption price of $5,172.50 ($51.725 per depositary share), with the redemption price decreasing annually over the remaining period until the shares are redeemable on or after April 1, 2003, at their stated value of $5,000 per share ($50 per depositary share) plus accrued and unpaid dividends. - -------------------------------------------------------------------------------- N O T E 12 -- INCOME TAXES Total applicable income taxes (benefits) reported in the consolidated income statement for the years ended December 31, 1993, 1992 and 1991, included the following components (in millions).
- ---------------------------------------------------------------- 1993 1992 1991 - ---------------------------------------------------------------- Current tax expense (benefit) Federal........................ $177.3 $ (1.9) $(15.3) Foreign........................ 29.1 20.5 26.3 State.......................... 42.6 4.9 4.7 ------ ------- ------ Total.................... 249.0 23.5 15.7 Deferred tax expense (benefit) Federal........................ 230.0 (101.3) 25.7 State.......................... 16.6 (7.8) 6.2 ------ ------- ------ Total.................... 246.6 (109.1) 31.9 ------ ------- ------ Applicable income taxes (benefit)...................... $495.6 $ (85.6) $ 47.6 ====== ======= ====== - ----------------------------------------------------------------
Not included in the preceding table are tax benefits credited directly to stockholders' equity. These taxes were $4.7 million, $0.4 million and $1.4 million in 1993, 1992 and 1991, respectively. Also excluded from the table are 1992 taxes related to the cumulative effect of changes in accounting principles of $122.6 million. Temporary differences between the amounts reported in the financial statements and the tax bases of liabilities and assets result in deferred taxes. Deferred tax liabilities and assets for the years ended December 31, 1993 and 1992, were as follows (in millions).
- ---------------------------------------------------------------- 1993 1992 - ---------------------------------------------------------------- DEFERRED TAX LIABILITIES Deferred income on lease financing..... $ 745.3 $ 719.8 Appreciation of venture capital investments.......................... 181.9 159.8 Prepaid pension asset.................. 133.1 124.0 Other.................................. 145.6 156.0 -------- -------- Gross deferred tax liabilities......... 1,205.9 1,159.6 -------- -------- DEFERRED TAX ASSETS Tax net-operating loss carryforwards... -- 230.1 Allowance for credit losses............ 292.5 303.1 Valuation of other real estate......... 22.4 107.3 Securitization of credit card receivables.......................... 65.5 58.4 Alternative minimum tax credit carryforward......................... 115.9 41.3 Other.................................. 233.5 187.8 -------- -------- Gross deferred tax assets.............. 729.8 928.0 Valuation allowance.................... -- -- -------- -------- Gross deferred tax assets, net of valuation allowance........... 729.8 928.0 -------- -------- Net deferred tax liability............. $ 476.1 $ 231.6 ======== ======== - ----------------------------------------------------------------
51 - ------------------------------------------------------------------------------- The reasons for the differences between applicable income taxes and the amounts computed at the applicable regular federal tax rates of 35 percent in 1993 and 34 percent in 1992 and 1991 were as follows (in millions).
- -------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------- Taxes at statutory federal income tax rate........................... $455.0 $(68.0) $ 55.7 Increase (decrease) in taxes resulting from Tax-exempt income (net)............ (12.0) (13.8) (17.2) State income taxes, net of federal income taxes............. 31.8 (1.9) 7.2 Goodwill........................... 7.5 3.4 3.0 Other.............................. 13.3 (5.3) (1.1) ------ ------ ------ Applicable income taxes (benefit).... $495.6 $(85.6) $ 47.6 ====== ====== ====== - --------------------------------------------------------------------
The Corporation had an alternative minimum tax credit carryforward for tax purposes of $115.9 million at December 31, 1993, and $41.3 million at both December 31, 1992 and 1991. The Corporation had foreign tax credit (FTC) carryforwards of $3.7 million and $42.9 million at December 31, 1993 and 1992, respectively. The 1993 FTC carryforward will expire in 1997 if not utilized. The Corporation also had a federal tax return net-operating loss carryforward of $644.4 million at December 31, 1992, which was fully utilized in 1993. - -------------------------------------------------------------------------------- N O T E 13 -- EMPLOYEE BENEFIT AND INCENTIVE PLANS (a) PENSION PLANS Net periodic pension credit was $18 million in 1993, $31.5 million in 1992 and $25.8 million in 1991. In determining the projected benefit obligation, the weighted-average assumed discount rate used was 7.5 percent in 1993 and 8.5 percent in 1992, while the assumed rate of increase in future salary levels was approximately 4.5 percent in 1993 and 5.0 percent in 1992. The projected benefit obligation represents the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered prior to that date measured using assumptions as to future compensation levels. This measurement assumes that the present workforce will shrink over time due to attrition. There is no assumption for replacing the workforce nor is the future service of the existing workforce taken into consideration. The reported excess of plan assets over the pension benefit obligation would be reduced if these assumptions were included in the liability computation. At December 31, 1993, the plans' assets included shares of the Corporation's common stock with a market value of $17.9 million. The following table sets forth the plans' funded status at December 31, 1993, and at December 31, 1992 (in millions).
- -------------------------------------------------------------------- 1993 1992 - -------------------------------------------------------------------- Projected benefit obligation: Vested benefits............................ $(430.6) $(355.7) Nonvested benefits......................... (60.9) (48.0) ------- ------- Accumulated benefit obligation............. (491.5) (403.7) Effect of projected future compensation levels................................... (99.3) (85.9) ------- ------- Projected benefit obligation................. (590.8) (489.6) Plans' assets at fair value.................. 968.4 905.9 ------- ------- Plans' assets in excess of projected benefit obligation......................... 377.6 416.3 Unrecognized net gain due to experience different from assumptions................. (37.4) (105.7) Unrecognized net transition asset............ (37.2) (42.2) Unrecognized prior service cost.............. 74.6 81.9 ------- ------- Prepaid pension cost......................... $ 377.6 $ 350.3 ======= ======= - --------------------------------------------------------------------
Net periodic pension credit for the years ended December 31, 1993, 1992 and 1991, included the following (in millions).
- -------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------- Service costs--benefits earned during period...................... $ 22.3 $ 20.9 $ 21.8 Interest cost on projected benefit obligation......................... 43.8 41.5 24.5 Return on plan assets................ (109.6) (80.1) (126.0) Net amortization, deferral and other.......................... 25.5 (13.8) 53.9 ------- ------ ------- Net periodic pension credit.......... $ (18.0) $(31.5) $ (25.8) ======= ====== ======= - --------------------------------------------------------------------
The expected long-term rate of return on assets used in determining net periodic pension credit was 9.5 percent in 1993 and 1992 and 10.0 percent in 1991. (b) SAVINGS INCENTIVE PLAN The Corporation and its subsidiaries maintain the Savings Incentive Plan, a qualified 401(k) program. The plan is available to all U.S.-based salaried employees of The First National Bank of Chicago and certain other subsidiaries of the Corporation. Participation is completely voluntary, and participants may contribute from 1 to 6 percent of their salary on a pretax basis, and an additional 1 to 10 percent of salary on an after-tax basis. Beginning in 1992, the Corporation's contribution to the plan was determined as 100 percent of the first $500 of pretax contributions made by participants and 50 percent of any pretax contributions in excess of $500. The plan was amended in 1993 to allow the Board of Directors to make a supplemental profit-based contribution to the plan. For 1993, that contribution is $350 for each eligible full-time employee and $175 for each eligible part-time employee. All participants are 100 percent vested in their account balances and are able to direct the investment of their savings into several investment options. Expense under this plan, included in noninterest expense as employee benefits expense, was $19.6 million in 1993, $13.0 million in 1992 and $8.6 million in 1991. 52 - ------------------------------------------------------------------------------- (c) EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN Eligible employees participating in the Employee Stock Purchase and Savings Plan authorize payroll deductions for deposit in savings accounts during a savings period of up to two years. At the end of the period, employees may receive their savings balances in cash or use them to purchase shares of the Corporation's common stock at a price fixed under the plan. During 1992, 2,082,510 shares of common stock were purchased by 4,458 employees under the October 1990 offering at a price of $14.013 per share. In addition, 41,565 shares of common stock were purchased by 244 employees under the July 1990 offering at a price of $30.412. During 1992, employees were offered an opportunity to enroll in a new offering under the plan. The offering has a stock purchase price of $34.20 per share. As of December 31, 1993, approximately 4,500 employees were participating in the plan, and the level of savings deposits and payroll deductions for the current savings periods, including projected interest thereon, represented the potential purchase of approximately 795,000 shares of common stock. The maximum number of shares authorized under the plan is limited to 6,000,000, of which 3,664,802 shares have been issued. The Corporation makes no charge to expense in connection with this plan, other than interest on savings accounts. (d) OTHER INCENTIVE PLANS The Corporation maintains various cash incentive, stock incentive and stock option plans. Cash incentive plans, including certain specialized business unit incentives, are based on attainment of certain financial goals and a combination of business unit and corporate objectives. A new Stock Incentive Plan was approved on April 12, 1991. Under the plan, the Corporation may grant stock options, restricted shares or other stock-based awards. This plan provides that, in any year, the total number of shares of the Corporation's common stock that may be granted to eligible employees as awards may not exceed 2 percent of the Corporation's outstanding shares of common stock. Any portion of the 2 percent limit not granted in previous years may be awarded prospectively. The 1983 Stock Option Plan and the Strategic Stock Incentive Plan were terminated on April 12, 1991. Shares still outstanding from awards under these plans are included in the following disclosures. Stock incentives outstanding at December 31, 1993, included grants of shares of the Corporation's common stock to key officers, restricted as to sale based upon continued employment for periods ranging from one to seven years from the date of the original grant. The market value of restricted shares as of the date of grant is amortized to salaries expense over the restriction period. As of December 31, 1993, 1,031,334 restricted shares were outstanding. The following table summarizes 1993 activity under the Stock Incentive Plan and the 1983 Stock Option Plan and their status as of December 31, 1993.
- ------------------------------------------------------------------------------------------------------ Outstanding Options Exercisable Options ------------------------------ ---------------------------- Option Option (Shares in thousands) Shares Price Shares Price - ------------------------------------------------------------------------------------------------------ Balance, December 31, 1992......... 4,997 $15 - $44-1/4 3,327 $15 - $44-1/4 Granted............................ 809 $36-13/16 - $49-1/8 -- -- Became exercisable................. -- -- 880 $24 - $44-1/4 Exercised.......................... 968 $15 - $38-3/4 968 $15 - $38-3/4 Expired or canceled................ 99 $23-1/8 - $44-1/4 11 $23-1/8 - $44-1/4 - ------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1993....... 4,739 $18-1/2 - $49-1/8 3,228 $18-1/2 - $43-5/8 - ------------------------------------------------------------------------------------------------------
53
- --------------------------------------------------------------------------------------------------------------------------- N O T E 14 -- FIRST CHICAGO CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS CONDENSED BALANCE SHEET - --------------------------------------------------------------------------------------------------------------------------- December 31 (In millions) 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks Bank subsidiaries--noninterest-bearing............................................ $ 21 $ 12 Bank subsidiaries--interest-bearing............................................... 156 32 Other interest-bearing............................................................ 348 249 Investment securities............................................................... 14 11 Loans............................................................................... 1 1 Investment in and advances to subsidiaries Bank subsidiaries................................................................. 5,278 4,591 Nonbank subsidiaries.............................................................. 1,728 1,840 Other assets........................................................................ 124 134 ------ ------ Total assets................................................................ $7,670 $6,870 ====== ====== - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Commercial paper and other notes payable Nonbank subsidiaries.............................................................. $ 29 $ 188 Other............................................................................. 1,378 1,567 Long-term debt...................................................................... 1,796 1,579 Other liabilities................................................................... 203 135 ------ ------ Total liabilities........................................................... 3,406 3,469 ====== ====== - --------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY................................................................ 4,264 3,401 ------ ------ Total liabilities and stockholders' equity.................................. $7,670 $6,870 ====== ====== - --------------------------------------------------------------------------------------------------------------------------- CONDENSED INCOME STATEMENT - --------------------------------------------------------------------------------------------------------------------------- For the Year (In millions) 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME Dividends Bank subsidiaries................................................................. $129.0 $ 89.7 $ 87.6 Nonbank subsidiaries.............................................................. 68.9 197.2 68.2 Interest income Bank subsidiaries................................................................. 110.8 104.2 97.6 Nonbank subsidiaries.............................................................. 76.7 96.4 110.9 Other............................................................................. 13.9 15.8 26.8 Other income (loss)................................................................. (2.4) 1.9 13.2 ------ ------- ------ Total....................................................................... 396.9 505.2 404.3 - --------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE Interest expense Nonbank subsidiaries.............................................................. 3.8 5.6 7.2 Other............................................................................. 233.7 250.0 272.8 Other expense....................................................................... 6.4 23.7 5.6 ------ ------- ------ Total....................................................................... 243.9 279.3 285.6 - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES.......................................................... 153.0 225.9 118.7 Applicable income tax benefit..................................................... (18.6) (22.8) (13.5) - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES.......................................................... 171.6 248.7 132.2 Equity in undistributed net income (loss) of subsidiaries before cumulative effect of changes in accounting principles Bank subsidiaries............................................................... 471.7 (230.0) 42.1 Nonbank subsidiaries............................................................ 161.2 (133.2) (58.0) ------ ------- ------ Income (loss) before cumulative effect of changes in accounting principles.......... 804.5 (114.5) 116.3 Equity in cumulative effect of changes in accounting principles..................... -- 208.0 -- ------ ------- ------ NET INCOME.......................................................................... $804.5 $ 93.5 $116.3 ====== ======= ====== - ---------------------------------------------------------------------------------------------------------------------------
The Parent Company Only Statement of Changes in Stockholders' Equity is the same as the Consolidated Statement of Changes in Stockholders' Equity (see page 40). 54
- ------------------------------------------------------------------------------------------------------------------- CONDENSED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------- For the Year (In millions) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income..................................................................... $ 804 $ 94 $ 116 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income (loss) of subsidiaries before cumulative effect of changes in accounting principles................................. (831) 76 (140) Equity in cumulative effect of changes in accounting principles.............. -- (208) -- (Increase) decrease in accrued income receivable............................. 7 (1) (1) Increase (decrease) in accrued interest payable.............................. (3) (4) 4 Dividends received from subsidiaries......................................... 195 288 127 Net decrease in other assets................................................. 28 15 20 Other noncash adjustments.................................................... (26) (5) (26) ------- ------- ------- Total adjustments............................................................ (630) 161 (16) ------- ------- ------- Net cash provided by operating activities...................................... 174 255 100 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Principal collected on loans to subsidiaries................................... 2,410 4,179 4,689 Loans made to subsidiaries..................................................... (2,172) (4,443) (4,919) Capital investments in subsidiaries............................................ (161) (571) (83) ------- ------- ------- Net cash provided by (used in) investing activities............................ 77 (835) (313) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in commercial paper.................................... 5 (67) 9 Proceeds from other funds borrowed............................................. 53 533 496 Repayment of other funds borrowed.............................................. (407) (560) (475) Proceeds from issuance of long-term debt....................................... 557 234 334 Repayment of long-term debt.................................................... (344) (248) (35) Net increase (decrease) in other liabilities................................... 48 (23) 20 Dividends paid................................................................. (158) (145) (172) Proceeds from issuance of common stock......................................... 41 375 52 Proceeds from reissuance of treasury stock..................................... 4 6 2 Purchase of treasury stock..................................................... (13) (1) -- Proceeds from issuance of preferred stock...................................... 196 96 145 Payment for redemption of preferred stock...................................... (1) -- -- ------- ------- ------- Net cash provided by (used in) financing activities............................ (19) 200 376 - ------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 232 (380) 163 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................. 293 673 510 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR....................................... $ 525 $ 293 $ 673 ======= ======= ======= - -------------------------------------------------------------------------------------------------------------------
Dividends that may be paid by national bank subsidiaries are subject to two statutory limitations. Under the first, dividends cannot exceed the level of ``undivided profits then on hand'' less the amount of bad debts, as defined, in excess of the allowance for credit losses. In addition, a national bank cannot declare a dividend, without regulatory approval, in an amount in excess of its net profits, as defined, for the current year combined with the retained net profits for the preceding two years. Based on these statutory requirements, the Corporation's bank subsidiaries could, in the aggregate, have declared additional dividends of up to approximately $445 million without regulatory approval at December 31, 1993. The payment of dividends by any bank may also be affected by other factors, such as the maintenance of adequate capital. As of December 31, 1993, all of the Corporation's banking subsidiaries significantly exceeded the regulatory guidelines for ``well-capitalized'' status. Federal banking law also restricts each bank subsidiary from extending credit to First Chicago Corporation as the parent bank holding company (the Parent Company) in excess of 10 percent of the subsidiary's capital stock and surplus, as defined. Any such extensions of credit are subject to strict collateral requirements. In connection with issuances of commercial paper, the Corporation has agreements providing future credit availability (back-up lines of credit) with various banks. The agreements with nonaffiliated banks aggregated $100 million at December 31, 1993, and $200 million at December 31, 1992. The Corporation also had agreements for back-up lines of credit with The First National Bank of 55 - ------------------------------------------------------------------------------- Chicago aggregating $150 million at December 31, 1993 and 1992. In 1993, the Corporation had agreements to pay a 0.125 percent annual commitment fee on any unused lines. The back-up lines of credit, together with overnight money market loans, short-term investments and other sources of liquid assets, exceeded the amount of commercial paper issued at December 31, 1993. The Parent Company paid interest of $262 million in 1993, $272 million in 1992 and $276 million in 1991. The Parent Company received income tax payments from its subsidiaries that exceeded its total income tax payments by $82 million in 1993 and $21 million in 1991. The Parent Company made income tax payments to its subsidiaries that exceeded its total income tax payments by $20 million in 1992. - -------------------------------------------------------------------------------- N O T E 15 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, the Corporation is a party to financial instruments containing credit and market risks that are not required to be reflected in a balance sheet. These financial instruments include commitments to extend credit, letters of credit and derivative financial instruments. The Corporation maintains risk management policies that monitor and limit exposure to credit, liquidity and market risks. For a further discussion of these risks, which is not included as part of these audited financial statements, see the Risk Management section beginning on page 24. (a) CREDIT RISK The following disclosures represent the Corporation's credit exposure should every counterparty to financial instruments with off-balance-sheet credit risk fail to perform completely according to the terms of the contracts and should the collateral and other security, if any, prove to be of no value to the Corporation. (b) MARKET RISK This note does not address the amounts of market losses the Corporation would incur if future changes in market prices make financial instruments with off-balance-sheet market risk less valuable or more onerous. The measurement of market risk 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. (c) COLLATERAL AND OTHER SECURITY ARRANGEMENTS The credit risk of both on-and off-balance-sheet financial instruments varies based on many factors, including the value of collateral held and other security arrangements. To mitigate credit risk, the Corporation generally determines the need for specific covenant, guarantee and collateral requirements on a case-by-case basis, depending on the nature of the financial instrument and the customer's creditworthiness. The Corporation may also receive comfort letters and oral assurances. The amount and type of collateral held to reduce credit risk varies but may include real estate, machinery, equipment, inventory and accounts receivable, as well as cash on deposit, stocks, bonds and other marketable securities that are generally held in the Corporation's possession or at another appropriate custodian or depository. This collateral is valued and inspected on a regular basis to ensure both its existence and adequacy. The Corporation requests additional collateral when appropriate. (d) COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT Commercial loan commitments are agreements to make or acquire a loan or lease as long as the agreed-upon terms (e.g., expiry, covenants or notice) are met. The Corporation's commitments to purchase or extend loans help its customers meet their liquidity needs. Credit card lines allow customers to use a credit card to buy goods or services and to obtain cash advances. However, the Corporation has the right to change or terminate any terms or conditions of the credit card account. Extensions of credit under home equity lines are secured by residential real estate. Commercial letters of credit are issued or confirmed by the the Corporation to ensure payment of its customers' payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate the Corporation's risk associated with these contracts. The table on page 26 summarizes the Corporation's credit-related financial instruments, including both commitments to extend credit and letters of credit. Standby letters of credit and foreign office guarantees are issued in connection with agreements made by the Corporation's customers to counterparties. If the customer fails to comply with the agreement, the counterparty may enforce the standby letter of credit or foreign office guarantee as a remedy. Credit risk arises from the possibility that the customer may not be able to repay the Corporation for standby letters of credit or foreign office guarantees drawn upon. At December 31, 1993 and 1992, the Corporation had issued standby letters of credit and guarantees for the following purposes (in millions).
- ----------------------------------------------------------------- December 31 1993 1992 - ----------------------------------------------------------------- Commercial paper........................... $ 815 $1,588 Tax-exempt securities...................... 1,130 1,102 Bid or performance guarantees.............. 534 476 Commodity/margin support................... 570 628 Insurance-related.......................... 765 1,001 Other...................................... 857 1,359 ------ ------ Total...................................... 4,671 6,154 Less: Cash collateral deposits............. 109 160 Participations to other financial institutions............... 359 501 ------ ------ Total, net................................. $4,203 $5,493 ====== ====== - -----------------------------------------------------------------
At December 31, 1993, standby letters of credit and guarantees issued to back commercial paper and tax-exempt securities had a weighted-average original maturity of approximately five years and a weighted-average remaining maturity of approximately two years. All other standby letters of credit generally expire within three years. 56 - ------------------------------------------------------------------------------- (e) DERIVATIVE FINANCIAL INSTRUMENTS The Corporation enters into a variety of derivative financial instruments in its trading activities, and in the management of its interest rate and foreign currency exposure. These financial instruments offer customers protection from rising or falling interest or exchange rates. They can either reduce or increase the Corporation's exposure to changing interest and/or exchange rates. The Corporation's balance sheet exposure for interest rate and foreign exchange contracts includes the amount of recognized gains in the market valuation of those contracts. Those amounts fluctuate as a function of maturity, interest rates and foreign exchange rates. The amounts are overstated because the information necessary to reflect the offsetting of losses with the same counterparties based on legally enforceable termination and netting rights is not readily available. Gross balance sheet exposures are presented below (in billions).
- ---------------------------------------------------------------- December 31 1993 1992 - ---------------------------------------------------------------- Interest rate forwards, swaps and forward rate agreements (1)................. $3.6 $2.4 Spot and forward foreign exchange contracts................................... 2.0 4.7 Options, caps and floors purchased............ 0.6 0.7 - ----------------------------------------------------------------
(1) These amounts include accrued net swap settlement receivables (included in other assets) of $664 million and $527 million at December 31, 1993 and 1992, respectively. Not all derivative financial instruments have off-balance-sheet credit and/or market risk. The credit and market risk associated with options purchased and caps and floors purchased is recorded on the balance sheet. The credit risk associated with exchange-traded futures contracts is limited to the relevant clearing house and is also recorded on the balance sheet. Options written do not expose the Corporation to credit risk, except to the extent of the underlying risk in a financial instrument that the Corporation may be obligated to acquire under certain written put options. Caps and floors written do not expose the Corporation to credit risk. On some derivative financial instruments the Corporation may have additional risk. This is due to the underlying risk in the financial instruments that the Corporation is or may be obligated to acquire and/or is due to settlement exposure, i.e. the risk that the Corporation will deliver under a contract but the customer will fail to deliver the countervailing amount. The Corporation believes its credit and settlement procedures minimize these risks. For derivative financial instruments with off-balance-sheet credit and/or market risk, the amounts reported in the following table represent the gross notional principal or contractual amounts. These amounts do not represent the market or credit risk associated with those contracts, but rather give an indication of the volume of the transactions. The amounts exceed the credit risk associated with these contracts and do not reflect the netting of offsetting transactions (in billions).
- ---------------------------------------------------------------- December 31 1993 1992 - ---------------------------------------------------------------- Interest Rate Contracts Forwards and futures................... $ 17.3 $ 16.4 Swaps.................................. 114.9 84.5 Options written........................ 7.7 6.8 Caps and floors written................ 9.6 11.2 Forward rate agreements................ 44.2 63.4 Foreign Exchange Contracts Spot, forwards and futures............. 173.5 181.6 Options written........................ 24.1 27.5 - ----------------------------------------------------------------
Interest rate forward and futures contracts represent commitments either to purchase or sell at a specified future date a financial instrument for a specified price, and may be settled in cash or through delivery. An interest rate swap is an agreement in which two parties agree to exchange, at specified intervals, interest payment streams calculated on an agreed-upon notional principal amount with at least one stream based on a specified float- ing rate index. Certain agreements are combined interest rate and foreign currency swap transactions. Interest rate options are contracts that grant the purchaser, for a premium payment, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from the writer of the option. Most of the Corporation's written option contracts are listed on major exchanges. The above amounts include the underlying notional principal amounts of options to enter into interest rate swap agreements. Interest rate caps and floors are contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market interest rate exceeds the fixed cap rate or falls below the fixed floor rate on specified future dates. Forward rate agreements are contracts with notional principal amounts that settle in cash at a specified future date based on the differential between a specified market interest rate and a fixed interest rate. Foreign exchange contracts represent spot, forward, futures and option contracts to exchange currencies, with most maturing within three months. 57 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- N O T E 16 -- CONCENTRATIONS OF CREDIT RISK The Corporation's credit policies and processes emphasize diversification of risk among industries, geographic areas and borrowers. The following information presents the credit risk associated with products described elsewhere in the financial statements and footnotes broken out by concentrations across all financial instruments. The amounts represent gross credit exposure in that they do not consider collateral or other security or the netting of offsetting exposures. Concentrations of credit risk are presented below (in billions).
- -------------------------------------------------------------- December 31 1993 1992 - -------------------------------------------------------------- Consumer................................ $56.8 $43.7 U.S. government......................... 9.6 8.0 Japanese banks.......................... 5.8 4.6 U.S. commercial banks................... 3.5 4.1 Commercial real estate.................. 2.8 4.1 - --------------------------------------------------------------
Consumer risk results principally from credit cards. Other major components include home mortgage, home equity and other installment credit. U.S. government risk consists primarily of U.S. government securities and balances due from the Federal Reserve. Credit exposure to Japanese banks is primarily short-term deposit placements. Credit exposure to U.S. commercial banks consists principally of federal funds sold, balances due from banks, derivative financial instruments and credit exposure participated out to banks. Commercial real estate credit exposure includes loans, unused loan commitments and the credit exposure of the accelerated asset disposition portfolio. Geographic concentrations of credit risk are presented below.
- -------------------------------------------------------------- December 31 (Dollars in billions) 1993 1992 - -------------------------------------------------------------- U.S. ......................... $118 87% $105 86% Foreign....................... 17 13 17 14 - --------------------------------------------------------------
- ------------------------------------------------------------------------------- N O T E 17 -- ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The following estimated fair value disclosures do not attempt to estimate the fair value of the Corporation as a whole. Rather, the disclosures are limited to the reasonable estimates of the fair value of only the Corporation's financial instruments. This includes financial instruments recognized as assets and liabilities on the balance sheet as well as those not required to be recognized in a traditional balance sheet. The disclosures do not address the value of the Corporation's recognized and unrecognized nonfinancial assets and liabilities or the value of anticipated future business. The Corporation does not plan to sell most of its assets or settle most of its liabilities at these estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The estimated fair value amounts were determined using available market information, current Corporation pricing information and various valuation methods. If quoted market prices were not readily available for a financial instrument, management determined an estimated fair value. Accordingly, the estimates may not be indicative of the amounts the financial instruments could be exchanged for in a current or future market transaction. Due to the uncertainty of expected cash flows resulting from financial instruments, the use of different assumptions and valuation methods may have a significant effect on the derived estimated fair value amounts. Except for loans held for accelerated disposition, the estimated amounts disclosed do not include any premium or discount that could result from offering to sell or settle the Corporation's entire holdings of a particular type of financial instrument at one time. The estimated amounts disclosed also do not include potential taxes and other expenses that would be incurred in an actual sale or settlement transaction. 58 - ------------------------------------------------------------------------------- The following table summarizes the carrying amounts and estimated fair values of financial instruments as of December 31, 1993 and 1992 (in millions). - -------------------------------------------------------------------------------
1993 1992 --------------------- ---------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks--noninterest-bearing............................... $3,916 $3,916 $ 3,222 $ 3,222 Due from banks--interest-bearing........................................... 6,037 6,034 6,116 6,114 Federal funds sold and securities under resale agreements.................. 8,783 8,783 6,892 6,892 Trading account assets..................................................... 4,536 4,536 3,312 3,312 Investment securities...................................................... 2,256 2,264 2,400 2,408 Total loans, net........................................................... 22,420 22,673 22,068 22,134 Assets held for accelerated disposition (1)................................ 36 36 619 619 Accrued income receivable.................................................. 407 407 356 356 Customers' acceptance liability............................................ 517 517 560 560 Currency options purchased................................................. 536 536 622 622 Off-balance-sheet items Other derivative financial instruments, net.............................. 380 586 76 249 LIABILITIES Deposits Demand................................................................... 8,184 8,184 7,575 7,575 Savings.................................................................. 7,541 7,541 7,618 7,618 Time..................................................................... 4,925 4,984 6,262 6,325 Foreign offices.......................................................... 7,536 7,538 8,285 8,285 ------- ------- ------- ------- Total deposits..................................................... 28,186 28,247 29,740 29,803 Federal funds purchased and securities under repurchase agreements......... 8,255 8,255 6,962 6,962 Commercial paper........................................................... 164 164 172 172 Other funds borrowed....................................................... 5,843 5,886 3,997 4,046 Long-term debt............................................................. 2,065 2,296 1,705 1,826 Acceptances outstanding.................................................... 517 517 560 560 Currency options written................................................... 501 501 612 612 Off-balance-sheet exposure--nonfinancial instruments Credit card securitizations, net......................................... 242 191 182 158 - ----------------------------------------------------------------------------------------------------------------------------
(1) Excludes other real estate held for accelerated disposition. The following methods and assumptions were used to estimate the fair value of financial instruments: (a) CERTAIN SHORT-TERM FINANCIAL INSTRUMENTS For the following financial instruments, which have relatively short-term maturities or no defined maturities but are payable on demand, the carrying amounts recognized in the balance sheet were determined to be a reasonable estimate of their fair values: . Cash and due from banks--noninterest-bearing . Federal funds sold and securities under resale agreements . Accrued income receivable . Customers' acceptance liability . Federal funds purchased and securities under repurchase agreements . Commercial paper . Acceptances outstanding . Other types of short-term financial instruments recognized in other asset and liability balance sheet line classifications (b) CERTAIN FLOATING RATE FINANCIAL INSTRUMENTS For floating rate financial instruments with no significant change in credit risk and no significant values of embedded interest rate caps or floors, the carrying amounts recognized in the balance sheet were determined to be a rea- sonable estimate of their fair values. (c) DUE FROM BANKS--INTEREST-BEARING For medium-term fixed-rate time deposit placements, the estimated fair values were calculated using the discounted cash flow method. The current interest rates that would be charged for similar deposit placements with the same remaining maturities were used as the discount rates, taking into account the creditworthiness of the banks. 59 - ------------------------------------------------------------------------------- (d) TRADING ACCOUNT ASSETS AND INVESTMENT SECURITIES For trading account securities, the estimated fair values, which are also the carrying amounts recognized on the balance sheet, were generally based on quoted market prices or dealer quotes. The estimated fair values of debt investment securities were also generally based on quoted market prices or dealer quotes. See Notes 1 and 5 for information regarding methods for estimating the fair value of equity investment securities, including those held by venture capital subsidiaries. (e) LOANS Various methods were used to value different groupings of loans, including loans held for accelerated disposition. For commercial real estate loans held for accelerated disposition, the estimated fair values are based on the estimated liquidation values. Other commercial loans that have significantly deteriorated in credit quality, including loans to troubled-country debtors, were separately valued. Estimated fair values were based on a combination of quoted market prices for distressed loans and troubled-country debtor loans, a discounted cash flow method based on anticipated cash flows and risk-adjusted interest rates, and estimated fair values of loans with similar credit quality characteristics. Credit card receivables are available for sale through the Corporation's credit card securitization program. Since these receivables are sold at face value, that amount was used as the estimated fair value of these loans. The amount does not consider the estimated fair value of the Corporation's credit card relationships, most of which is a significant unrecognized asset of the Corporation. For consumer mortgage loans including those held for sale, the estimated fair values were based on committed sales prices and a valuation model using current market information. For other types of medium- and long-term fixed-rate commercial and consumer loans, the estimated fair values were calculated using the discounted cash flow method. The current interest rates offered, or estimated market interest rates that reflect the credit and interest rate risk inherent in the loans, were used as the discount rates. Consumer interest rates were used for consumer loans, and commercial interest rates were used for commercial loans. The estimated fair values of leases are not required to be disclosed. Therefore, the estimated fair value amount for loans includes the carrying amount of leases rather than an estimated fair value amount. (f) DEPOSIT LIABILITIES The estimated fair values of demand and savings deposits are defined as the amounts payable on demand at the reporting date, i.e. the amounts recognized in the balance sheet. Those amounts do not consider the estimated fair value of the Corporation's core deposit intangible, most of which is a significant unrecognized asset of the Corporation. For medium- and long-term fixed-rate time deposit liabilities, the estimated fair values were calculated using the discounted cash flow method. The current interest rates offered for similar deposits with the same remaining maturities were used as the discount rates. Retail interest rates were used for retail deposits. Wholesale interest rates were used for wholesale deposits. (g) OTHER FUNDS BORROWED AND LONG-TERM DEBT For securities sold but not yet purchased in trading activities, the estimated fair values, which are also the carrying amounts recognized on the balance sheet, are based on quoted market prices or dealer quotes. For fixed-rate medium-term other funds borrowed and long-term debt, the estimated fair values were calculated using the discounted cash flow method. The current interest rates that would be offered for similar types of debt instruments with the same remaining maturities were used as the discount rates. Bank interest rates were used for subsidiary bank issuances, and the Corporation's senior interest rates or subordinated interest rates were used for the Corporation's issuances. For floating-rate long-term debt issuances, the discounted cash flow method was used to calculate the value of the difference between current market and contractual fixed spreads to be added to the floating base rate upon each rate setting. The current interest rates that would be offered on the Corporation's subordinated fixed-rate debt were used as the discount rates. Also, an option pricing model, using current market information, was used to calculate the value of any embedded interest rate floors. (h) DERIVATIVE FINANCIAL INSTRUMENTS The estimated fair values of derivative financial instruments were based on quoted market prices as well as pricing and valuation models on a present value basis using current market information. The differences between the net carrying amounts and the net estimated fair values of derivative financial instruments are generally due to interest rate swap agreements used by the Corporation to manage interest rate exposure. For derivative financial instruments used in trading activities, the estimated fair values are also the carrying amounts recognized on the balance sheet. 60 - ------------------------------------------------------------------------------- (i) COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT For commitments to extend credit and letters of credit, the carrying amounts for related accruals and deferred income recognized on the balance sheet were determined to be a reasonable estimate of their fair values. (j) CREDIT CARD SECURITIZATIONS (OFF-BALANCE-SHEET EXPOSURE) The Corporation has sold floating- and fixed-rate credit card receivables as securities to investors. Neither the credit card receivables sold nor the securities outstanding are defined as financial instruments of the Corporation. These securitizations subject the Corporation to interest rate risk as the amount of anticipated excess servicing fee income varies with changes in interest rates. The Corporation uses derivative financial instruments ((h) above) to reduce this risk. Therefore, the Corporation has included the difference between the par value and the quoted market value of the related securities outstanding along with its financial instruments. The carrying amount for this item represents the reserve for credit losses related to securitized credit card receivables and net deferred income. - -------------------------------------------------------------------------------- N O T E 18 -- CONTINGENCIES The Corporation and certain of its subsidiaries are defendants in various lawsuits, including certain class actions, arising out of normal corporate activities, 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 dis- agreements with regulators, primarily related 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 Corporation's consolidated financial statements. 61 - ------------------------------------------------------------------------------- R E P O R T O F M A N A G E M E N T O N R E S P O N S I B I L I T Y F O R F I N A N C I A L R E P O R T I N G First Chicago Corporation and Subsidiaries - ------------------------------------------------------------------------------- To the Stockholders of First Chicago Corporation: FINANCIAL STATEMENTS The Management of First Chicago Corporation and its subsidiaries is responsible for the preparation, integrity and objectivity of the financial statements and footnotes contained in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles and are free from material fraud or error. The other financial information in the Annual Report is consistent with the financial statements. Where financial information must of necessity be based upon estimates and judgments, they represent the best estimates and judgments of Management. The Corporation's financial statements have been audited by Arthur Andersen & Co., independent public accountants, whose appointment is ratified by the stockholders. The independent public accountants' responsibility is to express an opinion on the Corporation's financial statements. As described further in the report that follows, their opinion is based on their audit, which was conducted in accordance with generally accepted auditing standards and is believed by them to provide a reasonable basis for their opinion. Management has made available to Arthur Andersen & Co. all of the Corporation's financial records and related data. Furthermore, Management believes that all representations made to Arthur Andersen & Co. during their audit were valid and appropriate. INTERNAL CONTROL STRUCTURE OVER FINANCIAL REPORTING Management is also responsible for establishing and maintaining the Corporation's internal control structure that provides reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements. Management continually monitors the internal control structure for compliance with established policies and procedures. The Corporation maintains a strong internal auditing program that independently assesses the effectiveness of the internal control structure. The Audit Committee of the Board of Directors, composed entirely of outside Directors, oversees the Corporation's financial reporting process on behalf of the Board of Directors and has responsibility for recommending the independent public accountants for the Corporation who are appointed by the Board of Directors. The Audit Committee reviews with the independent public accountants the scope of their audit and audit reports and meets with them on a scheduled basis to review their findings and any action to be taken thereon. In addition, the Committee meets with the internal auditors and with Management to review the scope and findings of the internal audit program and any actions to be taken by Management. The independent public accountants and the internal auditors meet periodically with the Committee without Management being present. Management also recognizes its responsibility for fostering a strong ethical climate so that its affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Corporation's integrity policy, which is publicized throughout the Corporation. The policy addresses, among other things, the necessity of ensuring open communication within the Corporation; potential conflicts of interest; compliance with all domestic and foreign laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The Corporation maintains a systematic program to assess compliance with these policies. There are inherent limitations in the effectiveness of any internal control structure, including the possibility of human error or the circumvention or overriding of controls. Accordingly, even an effective internal control struc- ture can provide only reasonable assurance with respect to reliability of financial statements, and safeguarding of assets. Furthermore, because of changes in conditions, internal control structure effectiveness may vary over time. The Corporation assessed its internal control structure over financial reporting as of December 31, 1993, in relation to the criteria described in the ``Internal Control--Integrated Framework'' issued by the Committee of Sponsoring Orga- nizations of the Treadway Commission. Based on this assessment, the Corporation believes that as of December 31, 1993, in all material respects, the Corporation maintained an effective internal control structure over financial reporting. /s/ Richard L. Thomas Richard L. Thomas Chairman and Chief Executive Officer /s/ Robert A. Rosholt Robert A. Rosholt Executive Vice President and Chief Financial Officer 62 - ------------------------------------------------------------------------------- R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N T A N T S - ------------------------------------------------------------------------------- To the Stockholders and the Board of Directors of First Chicago Corporation: We have audited the accompanying consolidated balance sheet of First Chicago Corporation (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Chicago Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Note 1(c) and 1(q) to the consolidated financial statements, effective January 1, 1992, the Corporation changed its methods of accounting for the valuation of venture capital investment securities and recognition of certain credit card solicitation costs. /s/ Arthur Andersen & Co. Chicago, Illinois January 13, 1994 63 - ------------------------------------------------------------------------------- S E L E C T E D S T A T I S T I C A L I N F O R M A T I O N First Chicago Corporation and Subsidiaries - ------------------------------------------------------------------------------- SECURITIZATION OF CREDIT CARD RECEIVABLES Since 1987, the Corporation has actively packaged and sold credit card assets as securities to investors. The securitization of credit card receivables is an effective balance sheet management tool since capital is freed for other uses. In addition, while such securitizations affect net interest income, the provision for credit losses and noninterest income,the Corporation's net income is essentially unaffected. The Corporation's First Card unit continues to service the related credit card accounts even after receivables are securitized. The Corporation no longer recognizes net interest income and certain fee revenue on the securitized portfolio; however, this is offset by servicing fees, as well as by lower provisions for credit losses. At year-end 1993, $5.0 billion in credit card receivables was securitized, compared with $4.5 billion at year-end 1992. For analytical purposes only, the following table shows income statement line items for the Corporation adjusted for the net impact of securitization of credit card receivables.
- ---------------------------------------------------------------------------------------------------------------------- 1993 1992 CREDIT CARD Credit Card (In millions) REPORTED SECURITIZATIONS ADJUSTED Reported Securitizations Adjusted - ---------------------------------------------------------------------------------------------------------------------- Net interest income-- tax-equivalent basis.......... $ 1,264 $ 471 $ 1,735 $ 1,217 $ 359 $ 1,576 Provision for credit losses..... 270 234 504 425 205 630 Provision for assets held for accelerated disposition....... -- -- -- 625 -- 625 Noninterest income.............. 2,202 (237) 1,965 1,488 (154) 1,334 Noninterest expense............. 1,858 -- 1,858 1,821 -- 1,821 Net income...................... 804 -- 804 94 -- 94 Assets--year-end................ $52,560 $4,958 $57,518 $49,281 $4,500 $53,781 --average................. 56,854 4,839 61,693 54,768 3,918 58,686 - ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCK AND STOCKHOLDER DATA Market price High for the year................................ $50-5/8 $37-3/4 $28-3/4 $38-1/4 $49-5/8 Low for the year................................. 35-1/2 22-7/8 15-5/8 13-1/8 29-1/4 At year-end...................................... 43-1/4 36-3/4 24-5/8 16-1/2 37-1/8 Dividend payout ratio.............................. 15% 188% 174% 60% 35% Price/earnings multiple (year-end market).......... 4.9 57.4 21.4 4.9 7.3 Book value (at year-end)........................... $40.55 $33.19 $34.90 $36.27 $34.82 Market price/book value (at year-end).............. 107% 111% 71% 45% 107% Number of common stockholders of record............ 15,034 15,995 13,089 12,445 12,855 - ----------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------- Record Cents Common Dividends Declared Date Payable Per Share - --------------------------------------------------------------- 2/11/94 3/4/94 4/1/94 40 11/12/93 12/3/93 1/1/94 40 7/9/93 9/3/93 10/1/93 30 5/14/93 6/4/93 7/1/93 30 2/12/93 3/5/93 4/1/93 30 - --------------------------------------------------------------- - --------------------------------------------------------------- Record Cents Common Dividends Declared Date Payable Per Share - --------------------------------------------------------------- 11/13/92 12/11/92 1/1/93 30 7/10/92 9/11/92 10/1/92 30 5/8/92 6/5/92 7/1/92 30 1/10/92 3/6/92 4/1/92 30 11/8/91 12/6/91 1/1/92 50 - ---------------------------------------------------------------
64
- -------------------------------------------------------------------------------------------------------------------------- QUARTERLY DATA Quarterly Earnings and Market Price Summary - -------------------------------------------------------------------------------------------------------------------------- Stock Market Price/Earnings Net Income (Loss) Price Range (1) Multiple Range (2) - -------------------------------------------------------------------------------------------------------------------------- Amount Per (In millions) Share Low High Low High - -------------------------------------------------------------------------------------------------------------------------- 1993 FIRST QUARTER...................... $ 179.1 $ 1.97 $36 $44-3/4 N/M N/M SECOND QUARTER..................... 168.5 1.81 35-1/2 45-3/8 62.3 79.6 THIRD QUARTER...................... 284.1 3.14 40-7/8 49-1/4 4.8 5.8 FOURTH QUARTER..................... 172.8 1.81 40-7/8 50-5/8 4.7 5.8 YEAR....................... 804.5 8.78 35-1/2 50-5/8 4.0 5.8 - -------------------------------------------------------------------------------------------------------------------------- 1992 First quarter...................... $ 294.8 $ 4.06 $22-7/8 $32-5/8 5.0 7.1 Second quarter..................... 34.5 0.32 27-1/8 36-1/4 6.5 8.7 Third quarter...................... (372.4) (4.74) 29-1/2 37-3/8 N/M N/M Fourth quarter..................... 136.6 1.53 29-1/8 37-3/4 24.9 32.3 Year....................... 93.5 0.64 22-7/8 37-3/4 35.7 59.0 - --------------------------------------------------------------------------------------------------------------------------
(1) The principal market for First Chicago Corporation common stock is the New York Stock Exchange. (2) Computation made by dividing market prices by the per share earnings of the latest 12-month period ending with the current quarter. N/M--Not meaningful.
CONSOLIDATED SUMMARY OF QUARTERLY FINANCIAL INFORMATION - -------------------------------------------------------------------------------------------------------------------------- 1993 (In millions, except per share data) December 31 September 30 June 30 March 31 - -------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME.................................................... $647.7 $668.7 $648.5 $659.2 NET INTEREST INCOME................................................ 300.7 323.1 303.2 298.8 PROVISION FOR CREDIT LOSSES........................................ 70.0 65.0 70.0 65.0 NONINTEREST INCOME (1)............................................. 522.1 686.2 503.3 490.5 INVESTMENT SECURITIES GAINS (LOSSES)............................... 0.9 (0.8) 0.2 -- NONINTEREST EXPENSE (2)............................................ 480.7 474.0 465.6 433.6 PROVISION FOR OTHER REAL ESTATE.................................... 1.2 1.5 1.0 0.5 NET INCOME......................................................... 172.8 284.1 168.5 179.1 EARNINGS PER SHARE PRIMARY............................................................ $1.81 $3.14 $1.81 $1.97 FULLY DILUTED...................................................... 1.77 2.97 1.72 1.91 - -------------------------------------------------------------------------------------------------------------------------- 1992 (In millions, except per share data) December 31 September 30 June 30 March 31 - -------------------------------------------------------------------------------------------------------------------------- Interest income.................................................... $687.2 $ 689.7 $737.7 $755.0 Net interest income................................................ 320.6 287.0 290.1 285.3 Provision for loans held for accelerated disposition............... -- 491.0 -- -- Provision for credit losses........................................ 80.0 145.0 105.0 95.0 Noninterest income (1)............................................. 436.0 384.7 285.6 373.3 Investment securities gains........................................ -- 0.1 2.2 6.3 Noninterest expense (2)............................................ 461.2 485.4 403.1 414.7 Provision for other real estate held for accelerated disposition... -- 134.0 -- -- Provision for other real estate.................................... 1.5 10.4 22.0 23.0 Income (loss) before cumulative effect of changes in accounting principles............................................ 136.6 (372.4) 34.5 86.8 Cumulative effect of changes in accounting principles.............. -- -- -- 208.0 Net income (loss).................................................. 136.6 (372.4) 34.5 294.8 Earnings per share Primary Income (loss) before cumulative effect of changes in accounting principles.......................................... $1.53 $(4.74) $0.32 $1.08 Cumulative effect of changes in accounting principles............ -- -- -- 2.98 Net income (loss)................................................ 1.53 (4.74) 0.32 4.06 Fully diluted Income (loss) before cumulative effect of changes in accounting principles.......................................... 1.49 (4.74) 0.32 1.06 Cumulative effect of changes in accounting principles............ -- -- -- 2.85 Net income (loss)................................................ 1.49 (4.74) 0.32 3.91 - --------------------------------------------------------------------------------------------------------------------------
(1) Excludes investment securities gains (losses). (2) Excludes provisions for other real estate. 65 - ------------------------------------------------------------------------------- AVERAGE BALANCES/NET INTEREST MARGIN/RATES - -------------------------------------------------------------------------------
Year Ended December 31 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ (Income and rates on tax-equivalent basis) AVERAGE AVERAGE Average Average (Dollars in millions) BALANCE INTEREST RATE Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Due from banks--interest-bearing (1).............. $ 7,441 $ 298.0 4.00% $ 7,376 $ 358.0 4.85% Federal funds sold and securities under resale agreements............................... 11,589 344.8 2.98 8,202 284.8 3.47 Trading account assets............................ 4,729 223.7 4.73 4,339 260.2 6.00 Investment securities U.S. government and federal agency.............. 725 29.7 4.10 521 30.4 5.83 States and political subdivisions............... 216 19.7 9.12 270 25.0 9.26 Other........................................... 1,537 33.8 2.20 1,452 31.1 2.14 ------- -------- ----- ------- -------- ----- Total investment securities................... 2,478 83.2 3.36 2,243 86.5 3.86 Loans (2)(3) Domestic offices................................ 19,935 1,539.5 7.95 21,735 1,689.4 7.95 Foreign offices................................. 2,062 145.3 7.05 2,612 207.2 7.93 ------- -------- ----- ------- -------- ----- Total loans............................... 21,997 1,684.8 7.86 24,347 1,896.6 7.95 Assets held for accelerated disposition (4)....... 283 27.8 9.82 199 17.5 8.79 ------- -------- ----- ------- -------- ----- Total earning assets (5).......................... 48,517 2,662.3 5.49 46,706 2,903.6 6.22 Cash and due from banks--noninterest-bearing...... 3,812 3,338 Allowance for credit losses....................... (628) (709) Other assets...................................... 5,153 5,433 ------- ------- Total assets.............................. $56,854 $54,768 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits--interest-bearing Savings......................................... $ 8,093 $ 162.8 2.01% $ 7,634 $ 202.2 2.65% Time............................................ 5,401 143.9 2.66 7,567 307.0 4.06 Foreign offices (6)............................. 9,203 337.4 3.67 10,357 464.5 4.48 ------- -------- ----- ------- -------- ----- Total deposits--interest-bearing.......... 22,697 644.1 2.84 25,558 973.7 3.81 Federal funds purchased and securities under repurchase agreements..................... 10,112 308.1 3.05 9,905 345.3 3.49 Commercial paper.................................. 194 6.1 3.14 231 8.8 3.81 Other funds borrowed.............................. 6,849 289.7 4.23 4,041 231.9 5.74 Long-term debt.................................... 2,057 150.3 7.31 1,735 126.9 7.31 ------- -------- ----- ------- -------- ----- Total interest-bearing liabilities........ 41,909 1,398.3 3.34 41,470 1,686.6 4.07 Demand deposits................................... 6,980 6,136 Other liabilities................................. 4,079 3,848 Preferred stock................................... 794 581 Common stockholders' equity....................... 3,092 2,733 ------- ------- Total liabilities and stockholders' equity.................... $56,854 $54,768 ======= ======= Interest income/earning assets (5)................ $2,662.3 5.49 $2,903.6 6.22 Interest expense/earning assets................... 1,398.3 2.88 1,686.6 3.61 -------- ----- -------- ----- Net interest margin............................... $1,264.0 2.61% $1,217.0 2.61% ======== ===== ======== ===== - ------------------------------------------------------------------------------------------------------------------------------
(1) Principally balances in overseas offices. (2) Rates are calculated on average lease-financing receivable balances reduced by deferred liability for taxes. (3) Nonperforming loans are included in average balances used to determine rates. 66
- ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------------------- $ 6,543 $ 476.2 7.28% $ 5,988 $ 524.4 8.76% $ 6,248 $ 583.0 9.33% 5,683 329.3 5.79 4,531 368.6 8.14 3,280 295.4 9.01 3,159 230.9 7.31 2,261 188.3 8.33 1,335 117.0 8.76 447 34.1 7.63 552 44.3 8.03 646 53.7 8.31 324 30.2 9.32 529 50.0 9.45 583 55.4 9.50 1,075 44.3 4.12 1,032 37.5 3.63 959 53.5 5.58 - ------- -------- ----- ------- -------- ----- ------- -------- ----- 1,846 108.6 5.88 2,113 131.8 6.24 2,188 162.6 7.43 24,027 2,202.1 9.38 26,522 2,868.2 11.04 24,723 2,904.0 11.97 3,254 295.4 9.08 4,087 435.9 10.67 4,516 446.2 9.88 - ------- -------- ----- ------- -------- ----- ------- -------- ----- 27,281 2,497.5 9.35 30,609 3,304.1 10.99 29,239 3,350.2 11.64 -- -- -- -- -- -- -- -- -- - ------- -------- ----- ------- -------- ----- ------- -------- ----- 44,512 3,642.5 8.18 45,502 4,517.2 9.93 42,290 4,508.2 10.66 2,961 2,787 2,628 (836) (962) (1,284) 6,018 5,770 4,900 - ------- ------- ------- $52,655 $53,097 $48,534 ======= ======= ======= $ 6,005 $ 265.3 4.42% $ 4,902 $ 277.1 5.65% $ 4,279 $ 249.2 5.82% 10,164 678.6 6.68 9,563 763.5 7.98 10,089 888.4 8.81 11,415 770.0 6.75 14,567 1,251.4 8.59 13,028 1,205.5 9.25 - ------- -------- ----- ------- -------- ----- ------- -------- ----- 27,584 1,713.9 6.21 29,032 2,292.0 7.89 27,396 2,343.1 8.55 7,438 428.2 5.76 7,240 593.2 8.19 4,860 439.2 9.04 210 13.8 6.57 719 59.7 8.30 1,360 122.9 9.04 3,310 240.4 7.26 2,565 207.3 8.08 2,379 200.1 8.41 1,589 128.3 8.07 1,380 123.2 8.93 1,260 119.8 9.51 - ------- -------- ----- ------- -------- ----- ------- -------- ----- 40,131 2,524.6 6.29 40,936 3,275.4 8.00 37,255 3,225.1 8.66 5,235 5,181 5,024 4,351 4,218 3,717 507 419 419 2,431 2,343 2,119 - ------- ------- ------- $52,655 $53,097 $48,534 ======= ======= ======= $3,642.5 8.18 $4,517.2 9.93 $4,508.2 10.66 2,524.6 5.67 3,275.4 7.20 3,225.1 7.63 -------- ----- -------- ----- -------- ----- $1,117.9 2.51% $1,241.8 2.73% $1,283.1 3.03% ======== ===== ======== ===== ======== ===== - ----------------------------------------------------------------------------------------------------------------------------
(4) Excludes other real estate held for accelerated disposition. (5) Includes tax-equivalent adjustments based on 35 percent federal income tax rate of $38.2 million for 1993, and tax-equivalent adjustments based on 34 percent federal income tax rate of $34.0 million for 1992, $37.9 million 1991, $44.2 million for 1990, and $48.1 million for 1989. (6) Includes International Banking Facilities' deposit balances in domestic offices and balances of Edge Act and overseas offices. 67 E X E C U T I V E O F F I C E R S O F T H E C O R P O R A T I O N ------------------------------------------------------------------------- Richard L. Thomas Sherman I. Goldberg Chairman of the Board and Chief Executive Vice President, General Executive Officer Counsel and Secretary Leo F. Mullin Donald R. Hollis President and Chief Operating Executive Vice President, Corporate Officer and Institutional Banking David J. Vitale W.G. Jurgensen Vice Chairman of the Board and Head, Executive Vice President and Head, Corporate and Institutional Banking Community Banking Marvin James Alef, Jr. Scott P. Marks, Jr. Executive Vice President and Head, Executive Vice President and Head, Human Resources First Card John W. Ballantine Robert A. Rosholt Executive Vice President and Chief Executive Vice President and Credit and Market Risk Officer Chief Financial Officer Jerry C. Bradshaw J. Mikesell Thomas Executive Vice President, Executive Vice President, Corporate Community Banking and Institutional Banking 68 U. S. O F F I C E S A N D I N T E R N A T I O N A L F A C I L I T I E S - ------------------------------------------------------------------------------- COMMUNITY BANKING GROUP The First National Bank of Chicago Locations Antioch Evanston Orland Park Arlington Heights Glendale Heights Palatine Aurora Glenview Park Ridge Batavia Highland Park River Forest Berwyn Hoffman Estates Romeoville Bloomingdale Lake Forest Schiller Park Bolingbrook Lake Zurich St. Charles Carol Stream Lansing Warrenville Chicago Mount Prospect Wheaton Deerfield Naperville Willowbrook Downers Grove Niles Wilmette Elgin Northbrook Winnetka Elk Grove Village Oak Brook Worth Elmhurst Oak Lawn Elmwood Park Oak Park MORTGAGE SERVICING Oakbrook Terrace, Ill. ............................................................ AMERICAN NATIONAL CORPORATION BANKING SUBSIDIARIES American National Bank and Trust Company of Chicago American National Bank of Libertyville American National Bank and Trust Company of Wisconsin Locations Arlington Heights Libertyville Genoa City, Wis. Bensenville Lisle Milwaukee, Wis. Chicago Matteson Pell Lake, Wis. Deerfield Melrose Park Grand Cayman Des Plaines Skokie Elgin Willowbrook FIRST CARD FCC NATIONAL BANK Operations Centers Elgin, Ill. Uniondale, N.Y. Wilmington, Del. ............................................................ CORPORATE TRUST OFFICES Chicago London New York DEBT TRADING OFFICES London New York EDGE ACT OFFICES Chicago Los Angeles New York INTERNATIONAL BANKING LOCATIONS Beijing London Sydney Cayman Islands New York Tokyo Chicago Seoul Hong Kong Singapore LEASING OFFICE Chicago NATIONAL PROCESSING CENTERS Charlotte, N.C. Dallas Secaucus, N.J. Chicago Pasadena REGIONAL OFFICES Atlanta Houston Washington, D.C. Boston Los Angeles Cleveland New York 69 C O R P O R A T E I N F O R M A T I O N - -------------------------------------------------------------------------------- FIRST CHICAGO CORPORATION, a multibank holding company incorporated in Delaware in 1969, provides a broad range of banking, fiduciary, financial and other services domestically and overseas. It holds leading positions in its key banking activities: . Its principal subsidiary, The First National Bank of Chicago, chartered in 1863, is the foremost consumer bank in the Chicago metropolitan area. . Its American National Corporation subsidiary has the largest share of the Chicago-area middle market. . Its First Card unit is one of the top four U.S. issuers of bank credit cards. . In corporate banking relationships, First Chicago ranks first in Chicago and the Midwest and among the leading banks nationwide. . The Corporation is an innovator in cash management and risk management products and is the country's largest provider of shareholder services. First Chicago's nonbank activities include a premier venture capital operation and a leasing business. HEADQUARTERS One First National Plaza, Chicago, IL 60670. (312) 732-4000. ANNUAL MEETING The Annual Meeting of Stockholders of First Chicago Corporation will be held on Friday, April 8, 1994, at 9:30 a.m. (Chicago time) in the First Chicago Center, One First National Plaza. The Center offers special access for people in wheelchairs and headsets for the hearing-impaired. Stockholders who wish to arrange for either of these services are invited to call (312) 732-3150 by Wednesday, April 6. STOCK LISTING First Chicago Corporation common stock is listed on the Chicago (formerly Midwest), New York, Pacific and London stock exchanges. Symbol: FNB. STOCK TRANSFER AGENT AND REGISTRAR First Chicago Trust Company of New York, P.O. Box 2500, Jersey City, NJ 07303-2500. 1-800-446-2617. STOCKHOLDER INQUIRIES Stockholders who have questions about stock transfers, changes of address, dividend payments or lost certificates should contact First Chicago Trust Company of New York. DIVIDEND DIRECT DEPOSIT First Chicago offers common stockholders the convenience of having dividends electronically deposited without charge into their checking, savings or money market account at most U.S. financial institutions. To obtain an enrollment card, contact First Chicago Trust Company of New York. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Stockholders can increase their ownership in the Corporation without brokerage commissions or service fees through the Dividend Reinvestment and Stock Purchase Plan. For a prospectus and an enrollment card, contact First Chicago Trust Company of New York. FORM 10-K AND OTHER FINANCIAL REPORTS Additional copies of this Annual Report, the Corporation's Annual Report on Form 10-K as filed with the Securities and Exchange Commission, and Quarterly Reports may be obtained from Corporate Communications, First Chicago Corporation, Mail Suite 0358, Chicago, IL 60670-0358. (312) 732-6204. INVESTOR RELATIONS Analysts and investors seeking additional financial information should contact Investor Relations, First Chicago Corporation, Mail Suite 0460, Chicago, IL 60670-0460. (312) 732-4812 or (312) 732-8013. INDEPENDENT ACCOUNTANTS Arthur Andersen & Co., 33 W. Monroe St., Chicago, IL 60603-5385. (c) 1994 First Chicago Corporation Printed in the U.S.A. on recycled paper (recycle symbol here) 70 (LOGO) FIRST CHICAGO CORPORATION ONE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60670 Appendix to First Chicago Corporation 1993 Annual Report to Stockholders (Electronic Format) Descriptions of Photographs Page 3 Photograph of top management. From left: Leo F. Mullin, president; Richard L. Thomas, chairman; David J. Vitale, vice chairman. Page 4 Photograph of hand holding First Card Visa Gold card. Page 5 Photo-collage, including retail investment brochures, appointments calendar, calculator, pen. Page 6 Photograph of personal computer displaying FirstWindow 2000 log-on screen. Page 8 Top: Photograph of main banking floor at American National Bank. Center left: Photograph of hand holding First Chicago Banking Card; groceries in background. Bottom: Photgraph of two men in front of large globe. Right: Photograph of woman withdrawing money from Cash Station automatic teller machine. Page 11 Top left: Photograph of baker making bread in commercial bakery. Top right: Photograph of Mileage Plus First Card, United Airlines ticket and timetable. Center right: Photograph of two men in discussion across desk. Bottom: Photograph of automobile assembly plant. Page 12 Top: Photograph of main trading floor at First Chicago. Center left: Photograph of First Chicago supermarket branch. Center right: Photograph of doctor examining boy. Bottom: Photograph of printing plant. Page 15 Top left: Photograph of miscellaneous office supplies. Top right: Photograph of family with dog on front steps of new home. Bottom left: Photograph of four people in meeting around conference table. Bottom right: Photograph of a handshake. EX-21 5 LIST OF SUBSIDIARIES EXHIBIT 21. SUBSIDIARIES As of December 31, 1993, the Corporation had the subsidiaries listed below, all of which were wholly owned except for directors' qualifying shares or as otherwise indicated below. The consolidated financial statements of the Corporation include the accounts of all such subsidiaries.
JURISDICTION OF NAMES OF CORPORATION AND SUBSIDIARIES INCORPORATION - ------------------------------------- --------------- First Chicago Corporation Delaware Subsidiaries: FCC National Bank United States First Capital Corporation of Chicago Illinois First Chicago Financial Corporation Delaware Subsidiaries: First Chicago Capital Markets, Inc. Delaware First Chicago Investment Corporation Delaware First Chicago Leasing Corporation Delaware First Chicago Trust Company of New York New York The First National Bank of Chicago United States Subsidiaries: First Chicago Building Corporation Illinois First Chicago Futures, Inc. Delaware First Chicago Investment Services, Inc. Delaware First Chicago National Processing Corporation Delaware First Chicago International United States First Chicago International Finance Corporation United States American National Corporation Delaware Subsidiaries: American National Bank and Trust Company United States of Chicago American National Bank of Libertyville United States American National Bank and Trust Company of Wisconsin United States ANB Investment Management & Trust Company Illinois
The names of certain other subsidiaries of the Corporation have been omitted because such subsidiaries, considered in the aggregate, would not constitute a significant subsidiary. EX-23 6 CONSENT OF ART ANDERSEN EXHIBIT 23. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To First Chicago Corporation: As independent public accountants, we hereby consent to the incorporation of our report dated January 13, 1994, incorporated by reference in the Form 10-K, into the Corporation's previously filed Form S-8 Registration Statement No. 2- 83105, Form S-8 Registration Statement No. 2-68153, Form S-3 Registration Statement No. 2-76715, Form S-3 Registration Statement No. 2-77079, Form S-3 Registration Statement No. 2-92143, Form S-3 Registration Statement No. 33- 4681, Form S-8 Registration Statement No. 33-15779, Form S-3 Registration Statement No. 33-16843, Form S-8 Registration Statement No. 33-26788, Form S-8 Registration Statement No. 33-22583, Form S-3 Registration Statement No. 33- 27403, Form S-8 Registration Statement No. 33-34292, Form S-3 Registration Statement No. 33-34988, Form S-3 Registration Statement No. 33-37717, Form S-8 Registration Statement No. 33-41272, Form S-3 Registration Statement No. 33- 42031, Form S-8 Registration Statement No. 33-50574, Form S-3 Registration Statement No. 33-51408, Form S-3 Registration Statement No. 33-65904 and Form S-8 Registration Statement No. 33-51713. /s/ Arthur Andersen & Co. Chicago, Illinois, March 3, 1994 -----END PRIVACY-ENHANCED MESSAGE-----