-----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, Y+9DsbttrUgl+qGBddCA9U5wHM0aTnOKSDim0i6k+Q3xenKfFkYwb/NQeYkkK+G3 bTpPTvIti3aW4IKTGcYfVg== 0000950131-95-001930.txt : 19950724 0000950131-95-001930.hdr.sgml : 19950724 ACCESSION NUMBER: 0000950131-95-001930 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950721 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950721 SROS: CSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CHICAGO CORP CENTRAL INDEX KEY: 0000036161 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 362669970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06052 FILM NUMBER: 95555362 BUSINESS ADDRESS: STREET 1: ONE FIRST NATL PLZ MAIL STE 0287 CITY: CHICAGO STATE: IL ZIP: 60670 BUSINESS PHONE: 3127324000 8-K 1 FORM 8-K FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) July 21, 1995 -------------------------------- First Chicago Corporation - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 1-6052 36-2669970 - ----------------------- ------------------- ---------------------- (NAME OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.) One First National Plaza, Chicago, IL 60670 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 312-732-4000 ------------------ ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - ------ c) Exhibits -------- Attached hereto or incorporated herein are the following Exhibits relating to the previously announced merger of First Chicago Corporation, a Delaware corporation (the "Corporation"), and NBD Bancorp, Inc., a Delaware corporation ("NBD"):
Exhibit Description of Number Exhibit - ------ -------------- 2 Agreement and Plan of Merger dated as of July 11, 1995, by and between the Corporation and NBD (Incorporated by reference to Exhibit 1 to the Corporatation's Current Report on Form 8-K dated July 19, 1995). 23 Consent of Deloitte & Touche LLP 27 The Corporation's Financial Data Schedule. (Incorporated by reference to Exhibit (27) to the Corporatation's Form 10-Q for the quarter ended March 31, 1995). 99(a) Pro forma financial information. 99(b) Certain NBD historical financial information for the three years ended December 31, 1994, and for the first quarters of 1995 and 1994.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. First Chicago Corporation ------------------------- (REGISTRANT) Date: July 21, 1995 By: /s/ WILLIAM J. ROBERTS ---------------------- --------------------------------------- Title: Senior Vice President and Controller EX-99.(A) 2 PRO FORMA FINANCIAL INFO FIRST CHICAGO NBD CORPORATION PRO FORMA FINANCIAL INFORMATION First Chicago Corporation (the "Corporation" or "First Chicago") and NBD Bancorp, Inc. ("NBD") have entered into an Agreement and Plan of Merger dated as of July 11, 1995 (the "Merger Agreement") pursuant to which the Corporation will merge with and into NBD. The name of the combined companies will be First Chicago NBD Corporation ("FCNBD"). It is anticipated that the Merger will be accounted for as a pooling-of- interests and will be expected to be consummated by early 1996, pending approvals of the stockholders of the Corporation and NBD, regulatory approvals, and other customary conditions of closing. Pursuant to the Merger Agreement, at the effective time of the Merger, common stockholders of First Chicago will receive 1.81 shares of common stock of FCNBD in exchange for each outstanding share of First Chicago common stock. Each share of common stock of NBD will remain outstanding after the Merger and represent one share of FCNBD. At the effective time of the Merger, each share of First Chicago's outstanding series of preferred stock will be exchanged for one share of FCNBD preferred stock with terms - 1 - identical to those of the existing First Chicago preferred stock. In connection with the execution of the Merger Agreement, First Chicago granted NBD an option to purchase, under certain circumstances, up to 19.9 percent of First Chicago's outstanding shares of common stock. NBD also granted First Chicago an option to purchase, under certain circumstances, up to 19.9 percent of NBD's outstanding shares of common stock. The following pro forma financial information giving effect to the Merger, accounted for as a pooling-of-interests, includes: (i) the unaudited pro forma condensed combined balance sheet as of March 31, 1995, and (ii) the unaudited pro forma condensed combined statements of income for each of the three years in the period ended December 31, 1994, and for the three-month periods ended March 31, 1995 and 1994. The proforma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto of the Corporation and NBD. Effective January 7, 1995, NBD consummated its acquisition of the $910 million asset AmeriFed Financial Corp. ("AmeriFed") of Joliet, Illinois, which was accounted for as a purchase. Accordingly, the historical financial information for NBD as - 2 - of and for the three months ended March 31, 1995, include the operations of AmeriFed. On July 1, 1995, NBD acquired the $760 million asset Deerbank Corporation ("Deerbank") of Deerfield, Illinois, which was accounted for as a purchase. With respect to the following pro forma condensed combined financial statements, the historical financial information for NBD was not restated to otherwise include amounts for AmeriFed and Deerbank as such acquisitions are not considered material. - 3 - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1995 (UNAUDITED) The following pro forma condensed combined balance sheet as of March 31, 1995, is presented to show the impact on the Corporation's historical financial condition of the merger with NBD. The Merger has been reflected under the pooling-of-interests method of accounting.
- --------------------------------------------------------------------------------------------------- FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1995 (in millions) Corporation NBD Pro forma Pro forma (as reported) (as reported) adjustments FCNBD - --------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks-noninterest bearing.............................. $ 3,328 $ 2,789 $ 6,117 Due from banks-interest bearing......... 9,120 654 9,774 Federal funds sold and securites under resale agreements.............. 13,532 122 13,654 Trading account assets.................. 6,098 125 6,223 Derivative product assets............... 8,590 65 8,655 Investment securities................... 2,499 11,592 14,091 Loans................................... 27,018 30,726 57,744 Allowance for credit losses............. (754) (458) (1,212) Other assets............................ 2,947 2,141 5,088 - --------------------------------------------------------------------------------------------------- Total assets..................... $72,378 $47,756 $ - $120,134 - --------------------------------------------------------------------------------------------------- LIABILITIES Deposits: Demand................................. $ 6,791 $ 6,637 $ 13,428 Savings................................ 7,564 12,445 20,009 Time................................... 5,794 9,566 15,360 Foreign offices........................ 12,042 2,913 14,955 - --------------------------------------------------------------------------------------------------- Total deposits................... 32,191 31,561 - 63,752 Short term borrowings................... 22,730 8,929 31,659 Long term debt.......................... 2,272 2,703 4,975 Derivative product liabilities.......... 8,198 76 8,274 Other liabilities....................... 2,319 982 146 3,447 - --------------------------------------------------------------------------------------------------- Total liabilities................ 67,710 44,251 146 112,107 STOCKHOLDERS' EQUITY Preferred stock......................... 611 - 611 Common stock............................ 466 161 (466) 324 163 Surplus................................. 1,715 534 (1,715) 2,389 1,855 Retained earnings....................... 2,041 2,990 (142) 4,885 (4) Other................................... (2) (91) (93) - --------------------------------------------------------------------------------------------------- Total............................ 4,831 3,594 (309) 8,116 Less: Treasury stock.................... 163 89 (163) 89 Stockholders' equity............. 4,668 3,505 (146) 8,027 - --------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity........ $72,378 $47,756 $ - $120,134 ===================================================================================================
See accompanying notes to pro forma financial information. - 4 - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED) The following unaudited pro forma condensed combined statements of income are presented to show the impact on the Corporation's historical results of operations of the proposed merger with NBD. Such statements assume that the companies had been combined for each period presented.
- ---------------------------------------------------------------------------------------------------------------------- FIRST CHICAGO NBD CORPORATION Pro Forma Condensed Combined Statements of Income (in millions, except per share data) For Three Months For Year Ended December 31, Ended March 31, ----------------------------- ------------------ INTEREST INCOME 1994 1993 1992 1995 1994 -------- -------- -------- -------- -------- Interest and fees on loans.............. $4,000.1 $3,611.5 $3,934.0 $1,252.1 $ 899.7 Interest on federal funds sold and securities under resale agreements.... 623.9 349.6 290.7 244.9 91.9 Interest on trading account assets...... 284.4 227.3 268.1 90.5 60.0 Interest on investment securities....... 832.5 724.2 811.3 228.7 180.2 Other interest income................... 394.4 334.3 409.3 142.9 82.0 --------------------------------- ---------------------- Total............................. 6,135.3 5,246.9 5,713.4 1,959.1 1,313.8 INTEREST EXPENSE Interest on deposits.................... 1,652.7 1,472.0 2,082.4 586.6 337.4 Interest on short-term borrowings....... 1,230.0 760.1 752.8 489.2 198.6 Interest on long-term debt.............. 296.9 230.9 185.4 89.0 65.9 --------------------------------- ---------------------- Total............................. 3,179.6 2,463.0 3,020.6 1,164.8 601.9 NET INTEREST INCOME..................... 2,955.7 2,783.9 2,692.8 794.3 711.9 Provision for credit losses............. 276.0 389.7 653.5 85.1 65.5 Provision for loans held for accelerated disposition............... - - 491.0 - - --------------------------------- ---------------------- Net Interest Income After Combined Credit Provisions..................... 2,679.7 2,394.2 1,548.3 709.2 646.4 NONINTEREST INCOME Equity securities gains................. 228.6 480.2 204.6 54.9 134.2 Investment securities gains (losses).... (1.3) 9.6 10.2 1.4 0.9 Credit card fee revenue................. 870.7 730.3 553.4 200.7 190.6 Other noninterest income................ 1,322.2 1,567.7 1,249.2 348.8 314.9 --------------------------------- ---------------------- Total............................. 2,420.2 2,787.8 2,017.4 605.8 640.6 NONINTEREST EXPENSE Salaries and employee benefits.......... 1,589.6 1,557.7 1,424.2 409.1 384.2 Occupancy and equipment expense......... 501.6 460.3 489.2 121.4 140.1 Other expense........................... 1,131.7 1,162.0 1,380.0 271.1 282.5 --------------------------------- ---------------------- Total............................. 3,222.9 3,180.0 3,293.4 801.6 806.8 INCOME BEFORE INCOME TAXES.............. 1,877.0 2,002.0 272.3 513.4 480.2 Applicable income taxes................. 640.0 715.7 48.8 177.4 163.5 --------------------------------- ---------------------- INCOME FROM CONTINUING OPERATIONS....... $1,237.0 $1,286.3 $ 223.5 $ 336.0 $ 316.7 --------------------------------- ---------------------- COMMON SHARE DATA Income from continuing operations Primary................................. $3.67 $3.90 $0.60 $1.01 $0.95 Fully diluted........................... $3.62 $3.78 $0.60 $0.99 $0.93 Weighed average shares Primary................................. 322.7 315.4 299.2 324.1 319.9 Fully diluted........................... 330.8 331.3 N/M 331.2 332.2 ======================================================================================================================
N/M = Not Meaningful See accompanying notes to pro forma financial information. - 5 - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 (IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED Corporation NBD Pro Forma (as reported) (as reported) FCNBD - ------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans.............. $1,897.2 $2,102.9 $4,000.1 Interest on federal funds sold and securities under resale agreements.... 615.2 8.7 623.9 Interest on trading account assets...... 277.7 6.7 284.4 Interest on investment securities....... 68.2 764.3 832.5 Other interest income................... 361.7 32.7 394.4 - ------------------------------------------------------------------------------------- Total............................ 3,220.0 2,915.3 6,135.3 INTEREST EXPENSE Interest on deposits.................... 779.5 873.2 1,652.7 Interest on short-term borrowings....... 939.4 290.6 1,230.0 Interest on long-term debt.............. 170.1 126.8 296.9 - ------------------------------------------------------------------------------------- Total............................ 1,889.0 1,290.6 3,179.6 NET INTEREST INCOME..................... 1,331.0 1,624.7 2,955.7 Provision for credit losses............. 224.0 52.0 276.0 - ------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses........... 1,107.0 1,572.7 2,679.7 NONINTEREST INCOME Equity securities gains................. 228.6 - 228.6 Investment securities gains (losses).... 1.2 (2.5) (1.3) Credit card fee revenue................. 832.1 38.6 870.7 Other noninterest income................ 812.7 509.5 1,322.2 - ------------------------------------------------------------------------------------- Total............................ 1,874.6 545.6 2,420.2 NONINTEREST EXPENSE Salaries and employee benefits.......... 868.9 720.7 1,589.6 Occupancy and equipment expense......... 294.7 206.9 501.6 Other expense........................... 755.0 376.7 1,131.7 - ------------------------------------------------------------------------------------- Total............................ 1,918.6 1,304.3 3,222.9 INCOME BEFORE INCOME TAXES.............. 1,063.0 814.0 1,877.0 Applicable income taxes................. 373.3 266.7 640.0 - ------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS....... $ 689.7 $ 547.3 $1,237.0 - ------------------------------------------------------------------------------------- COMMON SHARE DATA Income from continuing operations Primary................................. $7.04 $3.45 $3.67 Fully diluted........................... $6.88 $3.43 $3.62 Weighed average shares Primary................................. 90.5 158.8 322.7 Fully diluted........................... 94.2 160.1 330.8
See accompanying notes to pro forma financial information. - 5a - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 (IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED Corporation NBD Pro Forma (as reported) (as reported) FCNBD - ------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans.............. $1,687.4 $1,924.1 $3,611.5 Interest on federal funds sold and securities under resale agreements.... 344.8 4.8 349.6 Interest on trading account assets...... 221.9 5.4 227.3 Interest on investment securities....... 72.0 652.2 724.2 Other interest income................... 298.0 36.3 334.3 - ------------------------------------------------------------------------------------- Total............................ 2,624.1 2,622.8 5,246.9 INTEREST EXPENSE Interest on deposits.................... 644.1 827.9 1,472.0 Interest on short-term borrowings....... 603.9 156.2 760.1 Interest on long-term debt.............. 150.3 80.6 230.9 - ------------------------------------------------------------------------------------- Total............................ 1,398.3 1,064.7 2,463.0 NET INTEREST INCOME..................... 1,225.8 1,558.1 2,783.9 Provision for credit losses............. 270.0 119.7 389.7 - ------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses........... 955.8 1,438.4 2,394.2 NONINTEREST INCOME Equity securities gains................. 480.2 - 480.2 Investment securities gains............. 0.3 9.3 9.6 Credit card fee revenue................. 694.2 36.1 730.3 Other noninterest income................ 1,027.7 540.0 1,567.7 - ------------------------------------------------------------------------------------- Total............................ 2,202.4 585.4 2,787.8 NONINTEREST EXPENSE Salaries and employee benefits.......... 853.9 703.8 1,557.7 Occupancy and equipment expense......... 258.0 202.3 460.3 Other expense........................... 746.2 415.8 1,162.0 - ------------------------------------------------------------------------------------- Total............................ 1,858.1 1,321.9 3,180.0 INCOME BEFORE INCOME TAXES.............. 1,300.1 701.9 2,002.0 Applicable income taxes................. 495.6 220.1 715.7 - ------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS....... $ 804.5 $ 481.8 $1,286.3 - ------------------------------------------------------------------------------------- COMMON SHARE DATA Income from continuing operations Primary................................. $8.78 $2.98 $3.90 Fully diluted........................... $8.43 $2.93 $3.78 Weighed average shares Primary................................. 85.2 161.3 315.4 Fully diluted........................... 90.3 167.9 331.3
See accompanying notes to pro forma financial information. - 5b - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1992 (IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED Corporation NBD Pro Forma (as reported) (as reported) FCNBD - ------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans.............. $1,894.4 $2,039.6 $3,934.0 Interest on federal funds sold and securities under resale agreements.... 284.8 5.9 290.7 Interest on trading account assets...... 259.0 9.1 268.1 Interest on investment securities....... 73.4 737.9 811.3 Other interest income................... 358.0 51.3 409.3 - ------------------------------------------------------------------------------------- Total............................ 2,869.6 2,843.8 5,713.4 INTEREST EXPENSE Interest on deposits.................... 973.7 1,108.7 2,082.4 Interest on short-term borrowings....... 586.0 166.8 752.8 Interest on long-term debt.............. 126.9 58.5 185.4 - ------------------------------------------------------------------------------------- Total............................ 1,686.6 1,334.0 3,020.6 NET INTEREST INCOME..................... 1,183.0 1,509.8 2,692.8 Provision for credit losses............. 425.0 228.5 653.5 Provision for loans held for accelerated disposition............... 491.0 - 491.0 - ------------------------------------------------------------------------------------- Net Interest Income After Combined Credit Provisions..................... 267.0 1,281.3 1,548.3 NONINTEREST INCOME Equity securities gains................. 204.6 - 204.6 Investment securities gains............. 8.6 1.6 10.2 Credit card fee revenue................. 516.1 37.3 553.4 Other noninterest income................ 758.9 490.3 1,249.2 - ------------------------------------------------------------------------------------- Total............................ 1,488.2 529.2 2,017.4 NONINTEREST EXPENSE Salaries and employee benefits.......... 748.0 676.2 1,424.2 Occupancy and equipment expense......... 297.2 192.0 489.2 Other expense........................... 910.1 469.9 1,380.0 - ------------------------------------------------------------------------------------- Total............................ 1,955.3 1,338.1 3,293.4 INCOME (LOSS) BEFORE INCOME TAXES....... (200.1) 472.4 272.3 Applicable income taxes (benefits)...... (85.6) 134.4 48.8 - ------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS....... $ (114.5) $ 338.0 $ 223.5 - ------------------------------------------------------------------------------------- COMMON SHARE DATA Income from continuing operations Primary................................. $(2.08) $2.11 $0.60 Fully diluted........................... $(2.08) $2.06 $0.60 Weighed average shares Primary................................. 76.5 160.7 299.2 Fully diluted........................... N/M 168.9 N/M
N/M = Not Meaningful. See accompanying notes to pro forma financial information. - 5c - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995 (IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED Corporation NBD Pro Forma (as reported) (as reported) FCNBD - ------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans.............. $ 604.9 $ 647.2 $1,252.1 Interest on federal funds sold and securities under resale agreements.... 240.8 4.1 244.9 Interest on trading account assets...... 88.7 1.8 90.5 Interest on investment securities....... 21.0 207.7 228.7 Other interest income................... 131.6 11.3 142.9 - ------------------------------------------------------------------------------------- Total............................ 1,087.0 872.1 1,959.1 INTEREST EXPENSE Interest on deposits..................... 294.0 292.6 586.6 Interest on short-term borrowings........ 373.5 115.7 489.2 Interest on long-term debt............... 45.9 43.1 89.0 - ------------------------------------------------------------------------------------- Total............................ 713.4 451.4 1,164.8 NET INTEREST INCOME...................... 373.6 420.7 794.3 Provision for credit losses.............. 65.0 20.1 85.1 - ------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses............ 308.6 400.6 709.2 NONINTEREST INCOME Equity securities gains.................. 54.9 - 54.9 Investment securities gains.............. - 1.4 1.4 Credit card fee revenue.................. 191.2 9.5 200.7 Other noninterest income................. 224.0 124.8 348.8 - ------------------------------------------------------------------------------------- Total............................ 470.1 135.7 605.8 NONINTEREST EXPENSE Salaries and employee benefits........... 231.8 177.3 409.1 Occupancy and equipment expense.......... 67.8 53.6 121.4 Other expense............................ 178.5 92.6 271.1 - ------------------------------------------------------------------------------------- Total............................ 478.1 323.5 801.6 INCOME BEFORE INCOME TAXES............... 300.6 212.8 513.4 Applicable income taxes.................. 105.5 71.9 177.4 - ------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS........ $ 195.1 $ 140.9 $ 336.0 - ------------------------------------------------------------------------------------- COMMON SHARE DATA Income from continuing operations Primary.................................. $2.03 $0.88 $1.01 Fully diluted............................ $1.98 $0.88 $0.99 Weighed average shares Primary.................................. 91.0 159.5 324.1 Fully diluted............................ 94.8 159.6 331.2
See accompanying notes to pro forma financial information. - 5d - FIRST CHICAGO NBD CORPORATION PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1994 (IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED Corporation NBD Pro Forma (as reported) (as reported) FCNBD - ------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans.............. $ 437.6 $ 462.1 $ 899.7 Interest on federal funds sold and securities under resale agreements.... 91.0 0.9 91.9 Interest on trading account assets...... 59.1 0.9 60.0 Interest on investment securities....... 15.9 164.3 180.2 Other interest income................... 75.0 7.0 82.0 - ------------------------------------------------------------------------------------- Total............................ 678.6 635.2 1,313.8 INTEREST EXPENSE Interest on deposits.................... 153.9 183.5 337.4 Interest on short-term borrowings....... 153.2 45.4 198.6 Interest on long-term debt.............. 40.9 25.0 65.9 - ------------------------------------------------------------------------------------- Total............................ 348.0 253.9 601.9 NET INTEREST INCOME..................... 330.6 381.3 711.9 Provision for credit losses............. 50.0 15.5 65.5 - ------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses........... 280.6 365.8 646.4 NONINTEREST INCOME Equity securities gains................. 134.2 - 134.2 Investment securities gains............. 0.5 0.4 0.9 Credit card fee revenue................. 182.3 8.3 190.6 Other noninterest income................ 184.9 130.0 314.9 - ------------------------------------------------------------------------------------- Total............................ 501.9 138.7 640.6 - ------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits.......... 207.4 176.8 384.2 Occupancy and equipment expense......... 88.1 52.0 140.1 Other expense........................... 189.0 93.5 282.5 - ------------------------------------------------------------------------------------- Total............................ 484.5 322.3 806.8 INCOME BEFORE INCOME TAXES.............. 298.0 182.2 480.2 Applicable income taxes................. 104.2 59.3 163.5 - ------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS....... $ 193.8 $ 122.9 $ 316.7 - ------------------------------------------------------------------------------------- COMMON SHARE DATA Income from continuing operations Primary................................. $2.05 $0.77 $0.95 Fully diluted........................... $2.00 $0.75 $0.93 Weighed average shares Primary................................. 87.7 161.1 319.9 Fully diluted........................... 91.6 166.4 332.2
See accompanying notes to pro forma financial information. - 5e - FIRST CHICAGO NBD CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS a) The pro forma information presented is not necessarily indicative of the results of operations or the combined financial position that would have resulted had the Merger been consummated at the beginning of the periods indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. It is anticipated that the Merger will be consummated in the first quarter of 1996. b) The Corporation is still in the process of reviewing its accounting policies in light of those employed by NBD. As a result of this review, it might be necessary to restate either the Corporation's or NBD's financial statements to conform to those accounting policies that are most appropriate. No restatements of prior periods have been included in the pro forma condensed combined financial statements. Any restatements, if appropriate, will be made upon the completion of this review process. c) Certain reclassifications have been included in the unaudited pro forma condensed combined balance sheet and statements of income to conform statement presentations. Transactions conducted in - 6 - the ordinary course of business between the two companies are immaterial, and accordingly, have not been eliminated. d) Pro forma adjustments to common shares and surplus at March 31, 1995, reflect the Merger accounted for as a pooling-of-interests, through the exchange of 162.6 million shares of FCNBD common stock (using the common exchange ratio of 1.81) for the 89.8 million outstanding shares of the Corporation. Retained earnings and dividends payable have been adjusted by approximately $4 million, reflecting the pro forma number of shares at NBD's current dividend rate. The pro forma entries are displayed below (in millions): Dr. Common stock (First Chicago)............. $ 466 Dr. Common surplus (First Chicago)........... 1,715 Cr. Treasury stock (First Chicago)...... $ 163 Cr. Common stock (FCNBD)................ 163 Cr. Common surplus (FCNBD).............. 1,855 Dr. Retained earnings........................ $ 4 Cr. Other liabilities................... $ 4
e) The pro forma financial information presented does not give effect to the Corporation's and NBD's plan to repurchase in the aggregate approximately $300 million worth of the Corporation and NBD's common stock prior to the consummation of the Merger. - 7 - f) Income per share data has been computed based on the combined historical income from continuing operations applicable to common stockholders of the Corporation and NBD using the historical weighted average number of outstanding shares of NBD's common stock and the historical weighted average number of outstanding shares of the Corporation's common stock adjusted to equivalent shares of FCNBD's common stock, as of the earliest period presented. g) The pro forma condensed combined financial statements do not include the anticipated cost savings in connection with the Merger. It is estimated, however, that approximately $200 million in pre-tax annualized cost savings ($126 million after- tax) will be realized by the combined company in 1997. Reductions resulting from elimination of the overlap in Chicago-area retail branch expense constitute the largest component. Product synergies in the large corporate and middle markets, and staff and functional areas, also provide additional expense reduction opportunities. h) The Corporation and NBD are still in the process of reviewing their combined investment securities portfolio to determine the classification of such securities as either available for sale or held to maturity in connection with the combined companies' existing interest rate risk position. As a result of this review, certain reclassifications of FCNBD's investment securities might take place. No adjustments have been made to - 8 - existing securities classifications in the pro forma condensed combined balance sheet. Any such reclassifications will be accounted for in accordance with Financial Accounting Standards Board's Statement No. 115. i) A liability of $225 million has been recorded in the unaudited pro forma condensed combined balance sheet to reflect management's current estimate of merger and restructuring related charges in connection with the Merger. This resulted in a $142 million after-tax charge to retained earnings in the unaudited pro forma condensed combined balance sheet. The pro forma entries are displayed below (in millions): Dr. Retained earnings................. $142 Dr. Other liabilities-taxes payable... 83 Cr. Other liabilities-reserve.... $225
It is anticipated that substantially all of these charges will be paid within 12 months subsequent to the Merger. This charge has been excluded from the pro forma condensed combined income statement due to its nonrecurring nature. The following table provides details of the estimated pre-tax charges (in millions).
Amount ---------- Personnel $150 Facilities and equipment 45 Other Merger expenses 30 ---- $225 ====
- 9 - EX-23 3 DELIOTTE & TOUCHE CONSNT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report on the consolidated financial statements of NBD Bancorp, Inc., dated January 17, 1995, appearing in this Current Report on Form 8-K of First Chicago Corporation, in the following Registration Statements: Registration Form Statement No. Form S-8 2-83105 Form S-8 2-68153 Form S-3 2-77079 Form S-8 33-15779 Form S-8 33-26788 Form S-8 33-22583 Form S-8 33-34292 Form S-3 33-37717 Form S-8 33-41272 Form S-8 33-50574 Form S-3 33-51408 Form S-3 33-65904 Form S-8 33-51713 Form S-8 33-52259 DELOITTE & TOUCHE LLP Detroit, Michigan July 21, 1995 EX-27 4 FINANCIAL DATA SCHEDULE
9 1,000,000 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 3,328 9,120 13,532 6,098 720 449 451 27,018 (754) 72,378 32,191 22,730 1,815 2,272 466 0 611 3,591 72,378 605 21 372 1,087 294 713 374 65 0 478 301 195 0 0 195 2.03 1.98 2.60 118 92 4 0 723 66 22 754 0 0 0 In addition to the investment securities disclosed in this Financial Data Schedule, the Corporation has investment securities in its venture capital business. These securities had a carrying value of $1.3 billion as of March 31, 1995. Treasury stock of $163 million is included as a reduction of other stockholders' equity. Investment securities gains/losses do not include the Corporation's equity securities gains which totalled $55 million. Other expenses includes: Salaries and Employee benefit expense of $232 million, Occupancy expense of $36 million, Equipment rentals, depreciation and maintenance expense of $31 million, and other expenses which totalled $179 million. Allowance-Domestic, Allowance-Foreign, and Allowance-Unallocated are only disclosed on an annual basis in the Corporation's 10-K and are therefore not included in this Financial Data Schedule.
EX-99.(B) 5 NBD HSTRICL FNANCL INFO NBD BANCORP, INC. - ----------------- CONSOLIDATED BALANCE SHEET (in thousands except share data)
ASSETS DECEMBER 31 ----------- 1994 1993 ---- ---- Cash and Due From Banks $ 2,587,007 $ 2,405,694 Interest-Bearing Deposits 630,688 722,109 Federal Funds Sold and Resale Agreements 399,725 282,481 Trading Account Securities 122,135 109,637 Investment Securities (Note 4): Available-for-Sale (At Fair Value) 4,814,252 3,784,384 Held-to-Maturity (Fair Value of $7,381,476 and $7,017,903, respectively) 7,608,713 6,607,409 ------------ ----------- 12,422,965 10,391,793 ------------ ----------- Loans and Leases (Net of Unearned Income of $171,207 and $140,412, respectively): Commercial 15,525,645 13,794,714 Real Estate Construction 817,452 789,248 Residential Mortgage 3,351,840 2,560,539 Mortgages Held For Sale 30,171 255,902 Consumer 7,667,907 6,758,171 Lease Financing 363,200 284,805 Foreign 1,473,449 1,107,413 ------------ ----------- 29,229,664 25,550,792 Allowance For Possible Credit Losses (Note 5) (435,051) (423,030) ---------- ---------- 28,794,613 25,127,762 ------------ ----------- Net Premises and Equipment (Note 6) 630,357 634,541 Customers' Liability on Acceptances 193,866 172,171 Other Assets 1,329,777 929,717 ------------ ----------- TOTAL ASSETS $47,111,133 $40,775,905 ============ ===========
The accompanying notes are an integral part of the financial statements. 1 LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31 ----------- 1994 1993 ---- ---- Deposits: Demand (Non-Interest Bearing) $6,731,050 $6,667,958 Savings 7,679,922 8,051,337 Money Market Accounts 4,959,816 5,561,573 Time 8,055,429 7,474,234 Foreign Office 5,803,224 2,066,005 ----------- ----------- 33,229,441 29,821,107 ----------- ----------- Short-Term Borrowings (Note 7) 7,119,972 5,354,839 Liability on Acceptances 193,866 172,171 Accrued Expenses and Sundry Liabilities 771,963 744,242 Long-Term Debt (Note 8) 2,504,348 1,434,947 Total Liabilities 43,819,590 37,527,306 Shareholders' Equity (Notes 8 & 9): Series A Preferred Stock -- Par Value $1, Stated Value $50 -- -- NO. OF SHARES 1994 1993 - ------------- ---- ---- Authorized 460,000 460,000 Issued -- -- Preferred Stock -- No Par Value -- -- NO. OF SHARES 1994 1993 - ------------- ---- ---- Authorized 10,000,000 10,000,000 Issued -- -- Common Stock -- Par Value $1 160,877 160,715 NO. OF SHARES 1994 1993 - ------------- ---- ---- Authorized 500,000,000 500,000,000 Issued 160,876,819 160,715,173 Capital Surplus 545,717 541,232 Retained Earnings 2,903,394 2,565,627 Fair Value Adjustment on Investment Securities Available-for-Sale (Note 4) (154,305) (7,012) Accumulated Translation Adjustment 6,942 4,384 Deferred Compensation (17,438) (16,347) Less Treasury Stock (4,968,147 shares) (153,644) -- ------------ ------------- Total Shareholders' Equity 3,291,543 3,248,599 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,111,133 $ 40,775,905 ============= =============
The accompanying notes are an integral part of the financial statements. NBD BANCORP, INC. - ----------------- CONSOLIDATED STATEMENT OF INCOME (in thousands except share data)
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- INTEREST INCOME: Loans and Leases (including fees) $ 2,102,936 $ 1,924,075 $ 2,039,575 Investment Securities: Taxable 665,068 544,933 614,341 Non-Taxable 99,206 107,291 123,550 Trading Account Securities 6,760 5,379 9,145 Federal Funds Sold and Resale Agreements 8,688 4,820 5,921 Other Money Market Investments -- 2,138 3,709 Interest-Bearing Deposits 32,736 34,184 47,556 ------------ ------------ ------------ Total Interest Income 2,915,394 2,622,820 2,843,797 ------------ ------------ ------------ INTEREST EXPENSE: Deposits 873,190 827,875 1,108,714 Short-Term Borrowings 290,624 156,227 166,756 Long-Term Debt 126,812 80,611 58,556 ------------ ------------ ------------ Total Interest Expense 1,290,626 1,064,713 1,334,026 ------------ ------------ ------------ NET INTEREST INCOME 1,624,768 1,558,107 1,509,771 Provision For Possible Credit Losses (Note 5) 52,032 119,674 228,480 ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE CREDIT LOSSES 1,572,736 1,438,433 1,281,291 ------------ ------------ ------------ NON-INTEREST INCOME: Trust Fees 157,355 149,552 139,856 Service Charges on Deposit Accounts 159,996 165,416 158,380 Credit Card Fees 38,566 36,050 37,308 Securities Gains(Losses) (Note 4) (2,469) 9,328 1,614 Other 192,118 225,037 192,050 ------------ ------------ ------------ Total Non-Interest Income 545,566 585,383 529,208 ------------ ------------ ------------ NON-INTEREST EXPENSES: Compensation: Salaries 542,565 535,472 517,763 Benefits (Note 9) 178,168 168,272 158,477 ------------ ------------ ------------ Total Compensation 720,733 703,744 676,240 Net Occupancy (Note 6) 117,253 118,063 111,947 Equipment Rentals, Depreciation and Maintenance (Note 6) 89,590 84,280 80,063 FDIC and Other Regulatory Assessments 66,663 68,766 70,145 Amortization of Intangibles 25,806 35,742 31,568 Merger-Related Expenses -- -- 76,071 Other 284,225 311,245 292,085 ------------ ------------ ------------ Total Non-Interest Expenses 1,304,270 1,321,840 1,338,119 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 814,032 701,976 472,380 Income Tax Expense (Including tax expense (benefit) of $(924), $3,536, and $761, respectively, on securities sales) (Note 10) 266,753 220,135 134,361 ------------ ------------ ------------ Income before Extraordinary Item and Cumulative Effect of Accounting Change 547,279 481,841 338,019 Extraordinary Item (net of income tax effect) (Note 8) (7,730) -- -- Cumulative Effect of Accounting Change (net of income tax effect) (Note 9) (7,885) 3,950 (37,885) ------------ ------------ ------------ NET INCOME $ 531,664 $ 485,791 $ 300,134 ============ ============ ============ NET INCOME PER SHARE (ON AVERAGE SHARES OUTSTANDING): Income before Extraordinary Item and Cumulative Effect of Accounting Change $ 3.45 $ 2.98 $ 2.11 Extraordinary Item (net of income tax effect) (0.05) -- -- Cumulative Effect of Accounting Change (net of income tax effect) (0.05) 0.03 (0.24) ----------- ----------- ----------- NET INCOME PER SHARE $ 3.35 $ 3.01 $ 1.87 =========== =========== =========== Average Shares Outstanding 158,807,677 161,253,486 160,716,309
The accompanying notes are an integral part of the financial statements. 3 NBD BANCORP, INC. - ----------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands except share data)
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- PREFERRED STOCK: Balance, Beginning and End of Period $ -- $ -- $ -- ----------- ----------- ---------- COMMON STOCK: Balance, Beginning of Period 160,715 160,386 159,775 Conversion of Subordinated Debentures and Other (161,646 shares in 1994) 162 329 611 Acquisition of Subsidiary Bank -- -- 3,037 Cancellation of Shares Held in Treasury -- -- (3,037) ----------- ----------- ---------- Balance, End of Period 160,877 160,715 160,386 ----------- ----------- ---------- CAPITAL SURPLUS: Balance, Beginning of Period 541,232 536,900 540,906 Conversion of Subordinated Debentures and Other 4,485 4,332 (8,197) Acquisition of Subsidiary Bank -- -- 90,918 Cancellation of Shares Held in Treasury -- -- (86,727) ----------- ----------- ---------- Balance, End of Period 545,717 541,232 536,900 ----------- ----------- ---------- RETAINED EARNINGS: Balance, Beginning of Period 2,565,627 2,253,332 2,119,512 Net Income 531,664 485,791 300,134 Cash Dividends Declared on Common Stock: Corporation ($1.23, $1.08 and $1.04 per share, respectively) (193,897) (173,496) (148,329) Pooled Affiliates -- -- (18,353) Other -- -- 368 ----------- ----------- ---------- Balance, End of Period 2,903,394 2,565,627 2,253,332 ----------- ----------- ---------- FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES AVAILABLE-FOR-SALE: Balance, Beginning of Period (7,012) -- -- Change in Fair Value (net of tax benefit of $84,291 and $3,470, respectively) (147,293) (7,012) -- ---------- ---------- ---------- Balance, End of Period (154,305) (7,012) -- ---------- ---------- ---------- ACCUMULATED TRANSLATION ADJUSTMENT: Balance, Beginning of Period 4,384 5,610 9,576 Translation Gain(Loss) (net of tax benefit of $302, $660 and $2,043, respectively) 2,558 (1,226) (3,966) ----------- ---------- ---------- Balance, End of Period 6,942 4,384 5,610 ----------- ----------- ---------- DEFERRED COMPENSATION: Balance, Beginning of Period (16,347) (15,335) (47,207) Awards Granted (14,445) (11,639) (10,640) Amortization of Deferred Compensation 11,155 9,281 15,369 Termination -- ESOP -- -- 27,809 Other 2,199 1,346 (666) ----------- ----------- ---------- Balance, End of Period (17,438) (16,347) (15,335) ---------- ---------- ---------- TREASURY STOCK: Balance, Beginning of Period -- -- (66,425) Purchase of Common Stock (5,410,345 shares in 1994) (166,606) (13,369) (134,222) Conversion of Subordinated Debentures and Other (442,198 shares in 1994) 12,962 13,369 36,652 Acquisition of Subsidiary Bank -- -- 74,231 Cancellation of Shares Held in Treasury -- -- 89,764 ----------- ----------- ---------- Balance, End of Period (153,644) -- -- ----------- ----------- ---------- TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD $3,291,543 $3,248,599 $2,940,893 =========== =========== ==========
The accompanying notes are an integral part of the financial statements. NBD BANCORP, INC. - ----------------- CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 531,664 $ 485,791 $ 300,134 Adjustments to Reconcile Net Income to Net Cash Provided by Operations: Depreciation and Amortization 102,558 106,999 109,531 Provision for Possible Credit Losses 52,032 119,674 228,480 Securities Losses(Gains) 2,469 (9,328) (1,614) Extraordinary Item -- Redemption of Debt 7,730 -- -- (Increase)Decrease in Interest Receivable (65,697) 13,607 15,385 Increase(Decrease) in Current Income Taxes Payable 42,189 12,249 (46,592) Increase(Decrease) in Accrued Expenses 41,876 (57,701) (410) (Increase)Decrease in Trading Account Investments (11,094) 59,677 11,539 Decrease(Increase) in Mortgages Held for Sale 225,731 33,784 (18,511) Other, net (49,061) (35,960) 531 ----------- ----------- ----------- Net Cash Provided by Operating Activities 880,397 728,792 598,473 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease(Increase) in Interest-Bearing Deposits 98,524 (43,159) 397,445 (Increase) Decrease in Federal Funds Sold and Resale Agreements (117,244) (159,025) 265,124 Decrease in Money Market Investments -- 14,910 22,534 Purchase of Investment Securities Available-for-Sale (5,104,309) -- -- Proceeds from Maturity or Call of Investment Securities Available-for-Sale 1,829,094 -- -- Proceeds from Sale of Investment Securities Available-for-Sale 1,918,714 -- -- Purchase of Investment Securities Held-to-Maturity (2,792,428) (4,654,663) (5,484,298) Proceeds from Maturity or Call of Investment Securities Held-to-Maturity 1,752,504 5,219,133 4,131,454 Proceeds from Sale of Investment Securities Held-to-Maturity -- 66,037 703,193 Increase in Loans and Leases (3,926,926) (579,340) (603,206) Purchase of Loan Portfolios -- (19,617) (101,874) Proceeds from Sale of Loan Portfolios 123,341 70,107 -- Purchase of Premises and Equipment and Other Assets (400,167) (155,702) (85,626) Proceeds from Sale of Premises and Equipment and Other Assets 68,938 65,585 38,406 Net Cash (Paid) Acquired in Purchase or Sale of Subsidiaries (5,720) -- 100,527 ----------- ----------- ----------- Net Cash Used by Investing Activities (6,555,679) (175,734) (616,321) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase(Decrease) in Deposits 3,381,134 (1,207,518) 346,784 Increase(Decrease) in Short-Term Borrowings 1,762,360 233,709 (133,944) Proceeds from the Issuance of Long-Term Debt 1,525,000 500,000 551,671 Principal Payments on Long-Term Debt (252,511) (38,556) (100,439) Redemption of Long-Term Debt (208,734) -- -- Proceeds from Stock Option Exercises 1,401 2,527 1,415 Payments to Acquire Treasury Stock (166,606) (13,369) (134,222) Dividends Paid (185,840) (173,413) (152,353) ----------- ----------- ----------- Net Cash Provided(Used) by Financing Activities 5,856,204 (696,620) 378,912 ----------- ----------- ----------- Effect of Exchange Rate Changes on Cash and Due From Banks 391 (15) (2,138) ----------- ----------- ----------- Net Increase(Decrease) in Cash and Due From Banks 181,313 (143,577) 358,926 Cash and Due From Banks -- Beginning of Period 2,405,694 2,549,271 2,190,345 ----------- ----------- ----------- CASH AND DUE FROM BANKS -- END OF PERIOD $ 2,587,007 $ 2,405,694 $ 2,549,271 =========== =========== =========== Other Cash Flow Disclosures: Interest Paid $ 1,349,668 $ 1,088,656 $ 1,181,123 State and Federal Taxes Paid 220,126 203,937 136,913
The accompanying notes are an integral part of the financial statements. NBD BANCORP, INC. - ----------------- Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of NBD Bancorp, Inc. and its subsidiaries (the Corporation) conform to generally accepted accounting principles. (A) CONSOLIDATION: The consolidated financial statements of the Corporation include the accounts of NBD Bancorp, Inc. (the Parent) and its majority-owned subsidiary companies. All material intercompany accounts and transactions have been eliminated. (B) STATEMENT OF CASH FLOWS: Cash and Due From Banks is considered Cash and Cash Equivalents in the Consolidated Statement of Cash Flows. (C) SECURITIES: The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective December 31, 1993. In accordance with SFAS No. 115, Investment Securities are accounted for as follows: (a) Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as Held-to-Maturity and reported at amortized cost; (b) Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as Trading Account Securities and reported at fair value, with realized and unrealized gains and losses included in Other Non-Interest Income; and (c) Debt and equity securities not classified as Held-to-Maturity or Trading Account Securities are classified as Available-for-Sale and reported at fair value. Fair value adjustments are excluded from earnings and reported in a separate component of shareholders' equity, net of tax. Prior to December 31, 1993, the Corporation classified securities purchased with the intent and the ability to hold to maturity as Investment Securities and reported them at amortized cost. If it was subsequently determined that certain investment securities were to be sold, their reported value was adjusted as necessary to the lower of cost or fair value with the adjustments included in Securities Gains(Losses). Securities purchased that the Corporation intended to sell prior to maturity were classified as Other Money Market Investments and recorded at the lower of amortized cost or fair value. Fair value adjustments were included in Securities Gains(Losses). The Corporation's accounting for Trading Account Securities was not changed by the adoption of SFAS No. 115; these securities are carried at fair value with unrealized gains and losses included in Other Non-Interest Income. Gains and losses realized on the sale of Investment Securities are determined by the specific identification method and included in Securities Gains(Losses). (D) LOANS: Loans are generally reported at the principal amount outstanding, net of unearned income. Non-refundable loan origination and commitment fees and certain costs of origination are deferred and either included in interest income over the term of the related loan or commitment or, if the loan is held for sale, included in Other Non-Interest Income when the loan is sold. Mortgages Held For Sale are valued at the lower of aggregate cost or fair value. Unrealized losses, as well as realized gains or losses, are included in Other Non-Interest Income. Interest income on loans is accrued as earned. Except for consumer loans, loans are placed on non-accrual status and previously accrued but unpaid interest is reversed against current period interest income when collectibility of principal or interest is considered doubtful, payment of principal or interest is 90 days or more past due, or the loan is completely or partially charged off. Interest income on loans considered doubtful or 90 days or more past due is recorded as collected. Collections of principal and interest on charged-off loans are applied in the following sequence: (1) as a reduction of remaining principal balance; (2) as recovery of principal charged off; and (3) as interest income. Consumer loans are not placed on a non-accrual status because they are generally charged off when 120 days to 150 days past due. Accrued but unpaid interest is reversed against current period interest income when the loan is charged off. (E) ALLOWANCE FOR POSSIBLE CREDIT LOSSES: 6 The Allowance is maintained at a level considered by management to be adequate to provide for probable loan and lease losses inherent in the portfolio. Management's evaluation is based on a continuing review of the loan and lease portfolio and includes consideration of the actual loan and lease loss experience, the present and prospective financial condition of borrowers, the balance of the loan and lease portfolio, industry and country concentrations within the portfolio and general economic conditions. (F) BANK PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to operations over the estimated useful lives of the assets and is computed on either a straight-line or an accelerated depreciation method. The estimated useful lives are generally 10 to 35 years for buildings and building improvements, and three to 10 years for furniture and equipment. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Maintenance, repairs and minor alterations are expensed as incurred. (G) INTANGIBLE ASSETS: The unamortized amount of intangible assets is included in Other Assets. Goodwill, representing the excess of the cost of investments in consolidated subsidiaries over the fair value of net assets acquired, is amortized on a straight-line basis over periods ranging from 15 to 25 years. Other intangible assets such as purchased mortgage servicing rights, core deposits, and credit card relationships are amortized using various methods over the periods benefited. (H) INCOME TAXES: The Corporation adopted SFAS No. 109, "Accounting For Income Taxes," effective January 1, 1993. SFAS No. 109 requires an asset and liability approach to accounting and reporting for income taxes. Under this approach, current and deferred income taxes payable and refundable are remeasured annually using provisions of then enacted tax laws and rates. SFAS No. 109 also changed the criteria for recognition and measurement of deferred income tax benefits. Prior to January 1, 1993, the Corporation accounted and reported for income taxes in accordance with Accounting Principles Board Opinion (APB) No. 11, "Accounting For Income Taxes." Under APB No. 11, income tax expense was based on income as reported in the financial statements. Deferred income tax liabilities and benefits were measured using tax rates in effect when the deferred item was first created, and were not adjusted for subsequent changes in the statutory tax rate. (I) PENSION AND OTHER EMPLOYEE BENEFITS: The Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. This statement requires that the expected cost of providing postretirement benefits be recognized in the financial statements during an employee's active service period. The Corporation adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1994. This statement requires the accrual of benefits provided to former or inactive employees after employment but before retirement. The Corporation's prior practice was to expense these benefits when paid. 7 (J) INTEREST RATE CONTRACTS: The Corporation enters into interest rate contracts as part of its asset/liability management activities (risk management contracts), as a source of fee income (customer contracts) and, on a limited scale, to generate profits (trading contracts). Income or expense on a risk management contract is accrued over its life and is included in Net Interest Income. Any gain or loss from early termination of a risk management contract is deferred and amortized to the earlier of the maturity date of the specified asset or liability, or the original expiration date of the contract. If the specified asset or liability is disposed of, any unrealized or deferred gain or loss on the related risk management contract is included in determining the gain or loss on the disposition. Any fee, including the initial bid/offer spread, on a customer contract is recognized as Other Non-Interest Income over the life of the contract. Customer contracts and trading contracts are recorded at fair value, with changes in their value recorded as Other Non-Interest Income. (K) FOREIGN CURRENCY EXCHANGE AND TRANSLATION: The Corporation distinguishes between (1) adjustments arising principally from translation of foreign entity financial statements into U.S. dollar equivalents, which are recorded in a separate component of shareholders' equity, and (2) translation gains or losses arising from transactions conducted in foreign currencies, which are recorded in Other Non-Interest Income. Foreign exchange positions on forward contracts are valued monthly at market rates and the unrealized gain or loss is included in Other Non-Interest Income. (L) LETTERS OF CREDIT AND GUARANTEES: In the normal course of business, the Corporation issues and participates in letters of credit and financial guarantees. Fees are accrued over the life of the agreements and included in Other Non-Interest Income. (M) INCOME PER SHARE: Per share amounts are based on the weighted average number of shares outstanding throughout the year adjusted for the assumed exercise of stock options. (N) RECLASSIFICATION: Prior years' financial statements have been reclassified to conform with the current financial statement presentations. 2. ACQUISITIONS On January 23, 1992, the Corporation acquired all of the common stock of Gainer Corporation, a bank holding company located in Merrillville, Indiana. The acquisition was accounted for as a purchase and, accordingly, operations of Gainer Corporation are included in the consolidated statements since the date of acquisition. Essentially all of the purchase price of $168,379,000 was provided by issuing 5,729,000 shares of the Corporation's common stock. The fair value of assets acquired amounted to $1,519,368,000 and liabilities assumed totaled $1,350,989,000. The transaction generated $41,260,000 of goodwill, which is being amortized over 15 years using the straight-line method. On July 1, 1992, the Corporation issued approximately 11,911,000 shares of its common stock in exchange for all the common stock of Summcorp, a bank holding company located in Fort Wayne, Indiana. The combination was accounted for as a pooling of interests. In June 1992, Summcorp recorded $6.0 million ($4.4 million after tax) of merger-related expenses. These expenses were composed of charges taken for the elimination of duplicate facilities and equipment, and intangibles revaluation. Summcorp also recorded a $9.8 million ($5.9 million after tax) provision for possible credit losses to conform its credit evaluation policies to those of the Corporation. 8 On October 15, 1992, the Corporation issued approximately 29,892,000 shares of its common stock for all of the common stock of INB Financial Corporation, Inc. (INB), of Indianapolis, Indiana. This merger was also accounted for as a pooling of interests. In the third quarter of 1992, the Corporation recorded $70.1 million ($48.0 million after tax) of merger-related expenses for severance and early retirement, elimination of duplicate facilities and equipment, and intangibles revaluation. In addition, INB recorded a $41.6 million ($25.1 million after tax) provision for credit losses to conform its credit evaluation policies to those of the Corporation. During 1994, the Corporation entered into a merger agreement with AmeriFed Financial Corp., a thrift holding company located in Joliet, Illinois, with total assets of $910 million. The merger was consummated on January 9, 1995, and accounted for as a purchase. Essentially all of the purchase price was provided by the issuance of 5,234,000 shares of the Corporation's common stock valued at approximately $148 million. The Corporation had repurchased 4,964,000 of the shares issued before the closing of the merger, and repurchased an amount equivalent to the remaining shares issued soon after the closing. In January 1995, the Corporation entered into a definitive agreement under which Deerbank Corporation, a $766 million thrift holding company located in Deerfield, Illinois, would become affiliated with the Corporation. Under the terms of the agreement, valued at approximately $120 million, each share of Deerbank Corporation common stock will be exchanged for $45.00 of the Corporation's common stock, based on the average market price of the Corporation's common stock for a certain period preceding the closing of the merger. The Corporation will have repurchased an equivalent number of its common shares at or soon after the closing of the merger. The merger, which will be accounted for as a purchase, is subject to the approval of Deerbank Corporation shareholders and regulatory authorities. 3. CASH AND DUE FROM BANKS The subsidiary banks of the Corporation are required to maintain non- interest bearing reserve balances with the Federal Reserve Bank based on a percentage of the subsidiary banks' deposits. During 1994 and 1993, the average reserve balances were approximately $330,387,000 and $308,100,000, respectively. 4. INVESTMENT SECURITIES Following are the amortized cost and fair value of Investment Securities Available-for-Sale and Held-to-Maturity at December 31, 1994:
INVESTMENT SECURITIES AVAILABLE-FOR-SALE ---------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) U.S. Treasury $ 505,540 $ 96 $ 592 $ 505,044 U.S. Government Agencies: Mortgage-backed Securities 2,655,673 4 160,195 2,495,482 Collateralized Mortgage Obligations 1,461,321 4,940 45,974 1,420,287 Other 22,916 1,267 3 24,180 States and Political Subdivisions 76,586 33 363 76,256 Collateralized Mortgage Obligations(a) 111,351 76 936 110,491 Other 222,931 459 40,878 182,512 ----------- ------- --------- ---------- Total $5,056,318 $6,875 $248,941 $4,814,252 =========== ======= ========= ========== INVESTMENT SECURITIES HELD-TO-MATURITY -------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) U.S. Treasury $ 519,656 $ 225 $ 13,145 $ 506,736 U.S. Government Agencies: Mortgage-backed Securities 5,664,739 45,612 282,356 5,427,995 Other 8,420 6 145 8,281 States and Political Subdivisions 1,415,398 46,182 23,626 1,437,954 Other 500 10 -- 510 ----------- -------- --------- ---------- Total $7,608,713 $92,035 $319,272 $7,381,476 =========== ======== ========= ==========
(a) All Collateralized Mortgage Obligations of private issuers have underlying collateral consisting of obligations of U.S. Government Agencies. Following are the amortized cost and fair value of Investment Securities Available-for-Sale and Held-to-Maturity at December 31, 1993:
INVESTMENT SECURITIES AVAILABLE-FOR-SALE ---------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) U.S. Treasury $ 965,190 $ 9,405 $ 1 $ 974,594 U.S. Government Agencies: Mortgage-backed Securities 729,612 2,639 2,509 729,742 Collateralized Mortgage Obligations 1,663,910 3,055 9,026 1,657,939 Other 3,405 88 -- 3,493 States and Political Subdivisions 1,261 112 -- 1,373 Collateralized Mortgage Obligations(a) 240,213 803 650 240,366 Other 191,275 279 14,677 176,877 ----------- --------- -------- ---------- Total $3,794,866 $ 16,381 $26,863 $3,784,384 =========== ========= ======== ========== INVESTMENT SECURITIES HELD-TO-MATURITY -------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) U.S. Treasury $ 525,698 $ 22,020 $ 36 $ 547,682 U.S. Government Agencies: Mortgage-backed Securities 4,563,883 252,693 2,354 4,814,222 Other 9,978 153 2 10,129 States and Political Subdivisions 1,505,270 139,527 1,585 1,643,212 Other 2,580 78 -- 2,658 ----------- --------- -------- ---------- Total $6,607,409 $414,471 $ 3,977 $7,017,903 =========== ========= ======== ==========
(a) All Collateralized Mortgage Obligations of private issuers have underlying collateral consisting of obligations of U.S. Government Agencies. The maturity distribution of investment securities at December 31, 1994, is shown below. The distribution of mortgage-backed securities and collateralized mortgage obligations is based on average expected maturities. Actual maturities may differ because issuers may have the right to call or prepay obligations.
AVAILABLE-FOR-SALE HELD-TO-MATURITY ------------------ ---------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ---- ----- ---- ----- (IN THOUSANDS) (IN THOUSANDS) Due in one year or less $ 888,418 $ 882,290 $ 162,849 $ 164,791 Due after one year through five years 867,625 843,603 2,558,425 2,507,006 Due after five years through ten years 696,840 669,745 4,545,950 4,382,584 Due after ten years 2,535,049 2,349,786 341,489 327,095 Equity securities 68,386 68,828 -- -- ----------- ----------- ----------- ---------- $5,056,318 $4,814,252 $7,608,713 $7,381,476 =========== =========== =========== ==========
Proceeds from the sale of Investment Securities Available-for-Sale during 1994 were $1,918,714,000 resulting in gross realized gains of $7,723,000 and gross realized losses of $10,192,000. Proceeds from the sale of Investment Securities during 1993 were $66,037,000 resulting in gross realized gains of $9,047,000 and gross realized losses of $129,000. Securities Gains in 1993 also included $410,000 of gains realized on the sale of Other Money Market Investments. Proceeds from the sale of Investment Securities during 1992 were $703,193,000 resulting in gross realized gains of $9,516,000 and gross realized losses of $7,902,000. Assets, principally Investment Securities, carried at approximately $6,996,973,000 were pledged at December 31, 1994, to secure public deposits (including deposits of $8,845,000 of the Treasurer, State of Michigan), repurchase agreements and for other purposes required by law. Excluded from the Consolidated Statement of Cash Flows in 1993 is the reclassification to Investment Securities Available-for-Sale of $88.9 million of United Mexican States obligations previously classified as Loans, and $30.9 million of obligations previously classified as Other Money Market Investments. These reclassifications were made concurrent with the implementation of SFAS No. 115 as of December 31, 1993. 5. ALLOWANCE FOR POSSIBLE CREDIT LOSSES The changes in the Allowance for Possible Credit Losses are summarized below:
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- (IN THOUSANDS) Balance, beginning of year $ 423,030 $ 417,764 $ 377,585 Provision 52,032 119,674 228,480 Charge-offs (121,026) (206,101) (256,860) Recoveries 80,560 91,576 57,112 --------- --------- --------- Net Charge-offs (40,466) (114,525) (199,748) Translation Adjustments 455 117 (808) Acquisitions -- -- 12,255 --------- --------- --------- Balance, end of year $ 435,051 $ 423,030 $ 417,764 ========= ========= =========
In 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," requiring that an impaired loan be measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. In 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," which amends SFAS No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. The standards are effective for fiscal years beginning after December 15, 1994. The Corporation does not expect adoption of the standards to have a material impact on the financial statements. 6. PREMISES AND EQUIPMENT The components of premises and equipment are as follows:
DECEMBER 31 ----------- 1994 1993 ---- ---- (IN THOUSANDS) Land $ 93,820 $ 93,842 Premises 511,642 507,272 Leasehold Improvements 97,225 98,954 Furniture and Equipment 529,537 501,580 ---------- ---------- Total 1,232,224 1,201,648 Less Accumulated Depreciation and Amortization (601,867) (567,107) ---------- ---------- Net Premises and Equipment $ 630,357 $ 634,541 ========== ==========
Depreciation and amortization expense was $73,479,000 in 1994, $65,914,000 in 1993 and $59,976,000 in 1992. Rental expense for leased properties and equipment totaled $43,490,000 in 1994, $42,453,000 in 1993 and $41,814,000 in 1992. Aggregate future minimum rental payments on operating leases having non-cancelable lease terms in excess of one year amounted to $209,670,000 as of December 31, 1994; minimum annual rental payments for such leases are $30,326,000 in 1995 and do not exceed $28,897,000 for any year thereafter. 7. SHORT-TERM BORROWINGS The Corporation classifies borrowings with original maturities of less than one year as short-term borrowings. The following is a summary of short-term borrowings for each of the three years ended December 31, 1994:
END OF PERIOD DAILY AVERAGE MAXIMUM ------------- ------------- WEIGHTED OUTSTANDING AVERAGE AT ANY BALANCE RATE BALANCE RATE MONTH END ------- ---- ------- ---- --------- (DOLLARS IN THOUSANDS) 1994: Securities Sold Under Agreements to Repurchase $2,861,513 5.81% $2,486,717 4.35% $3,365,134 Bank Notes 2,484,000 5.75 1,784,190 4.58 2,484,000 Federal Funds Purchased 1,031,055 5.99 1,588,259 4.40 1,953,810 Treasury Tax and Loan Notes 634,190 4.69 547,419 3.76 1,327,645 Commercial Paper 59,236 5.42 126,499 3.92 195,859 Other 49,978 4.01 114,321 4.76 192,129 ----------- ---- ----------- ---- Total $7,119,972 5.70% $6,647,405 4.37% =========== ==== =========== ==== 1993: Securities Sold Under Agreements to Repurchase $1,586,105 3.19% $1,403,960 3.08% $1,586,105 Bank Notes 1,103,400 3.36 922,780 3.30 1,245,000 Federal Funds Purchased 1,196,355 2.81 1,729,008 3.04 2,308,711 Treasury Tax and Loan Notes 1,225,016 2.64 683,927 2.81 1,347,352 Commercial Paper 158,886 3.25 143,126 3.18 196,367 Other 85,077 5.93 111,362 5.60 147,269 ----------- ---- ----------- ---- Total $5,354,839 3.06% $4,994,163 3.13% =========== ==== =========== ==== 1992: Securities Sold Under Agreements to Repurchase $1,215,513 3.33% $991,644 3.50% $1,228,401 Bank Notes 450,000 3.40 231,585 3.41 550,000 Federal Funds Purchased 2,413,420 3.04 2,522,819 3.54 2,922,960 Treasury Tax and Loan Notes 730,440 2.45 551,081 3.39 1,298,441 Commercial Paper 184,437 3.42 191,761 3.69 386,639 Other 125,683 6.91 135,370 6.71 176,686 ----------- ---- ----------- ---- Total $5,119,493 3.17% $4,624,260 3.61% =========== ==== =========== ====
In 1994, the Corporation entered into a series of interest rate swap contracts with varying maturities that have the effect of fixing the interest rate on up to $875,000,000 of Federal Funds Purchased. At December 31, 1994, the weighted average life of the swap contracts was 2.0 years and the weighted average pay rate was 6.55%. The effect of the accruals on these contracts are included in the daily average rates shown above, and excluded from the end of period weighted average rates. At December 31, 1994, the Parent had an unused revolving credit of $200 million, convertible to a term loan at the option of the Corporation, to support general corporate financing needs. An annual commitment fee of 17 1/2 basis points is paid on the credit facility. 8. Long-Term Debt The following is a summary of long-term debt:
December 31 ----------- 1994 1993 ---- ---- Parent: 7 1/4% Fixed Rate Subordinated Debentures Due 2004 $ 200,000 $ 200,000 8.10% Fixed Rate Subordinated Notes Due 2002 200,000 200,000 7 1/2% Preferred Purchase Units, Due 2023 150,000 150,000 Floating Rate Subordinated Notes Due 2005 (6.50% and 5.25% at December 31, 1994 and 1993, respectively) 96,000 96,000 7 1/4% Convertible Subordinated Debentures Due 2006 -- 199,985 ---------- ---------- 646,000 845,985 ---------- ---------- Subsidiaries: Bank Notes, various rates and maturities 1,375,000 350,000 8 1/4% Fixed Rate Subordinated Note Due 2024 250,000 -- 6 1/4% Fixed Rate Subordinated Notes Due 2003 200,000 200,000 8.75% Fixed Rate Senior Notes Due 1997 -- 1999 10,000 10,000 Capital Lease Obligations, various rate and maturities 17,185 19,866 Other 6,163 9,096 ---------- ---------- 1,858,348 588,962 ---------- ---------- $2,504,348 $1,434,947 ========== ==========
The 7 1/4% Fixed Rate Subordinated Debentures Due 2004 will mature on August 15, 2004. The Debentures are unsecured, subordinated to all present and future Senior Indebtedness of the Parent, and are not redeemable prior to maturity. Interest is payable semiannually on February 15 and August 15. The 8.10% Fixed Rate Subordinated Notes Due 2002 will mature on March 1, 2002. The Notes are unsecured, subordinated to all present and future Senior Indebtedness of the Parent, and are not redeemable prior to maturity. Interest is payable semiannually on March 1 and September 1. Subsequent to the issuance of these Notes, the Corporation entered into $120,000,000 notional amount of interest rate swap contracts that converted the fixed rate on $120,000,000 of these Notes to the six-month LIBOR plus 0.25 percent. Each 7 1/2% Preferred Purchase Unit consists of a 7.40% subordinated debenture due May 10, 2023, in a principal amount of $25 and a related purchase contract paying fees of 0.10% of the principal amount of the debenture per year. The contract requires the purchase on May 10, 2023, of one depositary share representing a one-fourth interest in a share of 7 1/2% cumulative preferred stock of NBD Bancorp at a purchase price of $25 per depositary share. During 1994, the Corporation entered into $150,000,000 notional value of interest rate swap contracts that converted the effective cost of the Units to the three-month LIBOR through August 10, 2004. The Floating Rate Subordinated Notes Due 2005 will mature on the interest payment date in December 2005 at par. The Notes are unsecured, subordinated to all present and future Senior Indebtedness of the Corporation, and may be redeemed by the Corporation, in whole or in part, on any interest payment date at par. Interest on the Notes is payable quarterly in arrears at a rate of 1/4 of 1 percent per annum above the arithmetic mean of London interbank bid quotations for three-month Eurodollar deposits. In no event will the rate be less than 5.25 percent per annum. The 7 1/4% Convertible Subordinated Debentures Due 2006 were called by the Parent for redemption on March 15, 1994, at a redemption price of $1,050.75 per $1,000 of the principal amount. The Corporation incurred an extraordinary item charge of $11,892,000 ($7,730,000 net of income taxes) on the redemption. Prior to redemption, holders elected to convert $1,333,000 of the Debentures into shares of common stock of the Parent at a conversion price of $30.40 per share. During 1993, $15,000 of the Debentures were converted. The Bank Notes are unsecured and unsubordinated debt obligations, issued in denominations of $250,000 or any amount in excess thereof that is a multiple of $1,000. Each Note bears interest at a fixed rate that is established by the issuing bank at the time of issuance. The interest payment dates on the Bank Notes are January 15 and July 15 of each year. At December 31, 1994, the weighted average rate of the outstanding Notes was 5.84% and the remaining weighted average maturity was 23 months. 13 The 8 1/4% Fixed Rate Subordinated Notes Due 2024 will mature on November 1, 2024. The Notes are unsecured, subordinated to the claims of depositors and other creditors of NBD Bank, N.A. (Michigan), and are not redeemable by the bank prior to maturity. Registered holders have a one-time right to redeem the Notes at par, in whole or in part, on November 1, 2004. Interest is payable semiannually on May 1 and November 1. Concurrent with the issuance of these Notes, the bank entered into a $50,000,000 notional amount interest rate swap contract that converts the effective cost for $50,000,000 of the Notes to 7.62% through November 2, 1997, and to the six-month LIBOR from November 3, 1997, through November 1, 2004. The 6 1/4% Fixed Rate Subordinated Notes Due 2003 will mature on August 15, 2003. The Notes are unsecured, subordinated to the claims of depositors and other creditors of NBD Bank, N.A. (Michigan), and are not redeemable prior to maturity. Interest is payable semiannually on February 15 and August 15. Aggregate long term debt of $118,941,000, $553,364,000, $566,411,000, $106,674,000 and $56,771,000 will mature in 1995, 1996, 1997, 1998 and 1999, respectively. 9. Pension And Other Employee Benefits The Corporation maintains pension plans (the Pension Plans) covering substantially all full time salaried employees. The Pension Plans are non- contributory, defined benefit plans that provide benefits based on years of service and compensation level. The Corporation's policy is to fund the Pension Plans according to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets are stated at market value and are composed primarily of equity securities and debt securities issued by the U.S. Government and its agencies and corporations. In addition, the Corporation maintains separate unfunded nonqualified pension restoration plans (the Restoration Plans) for certain officers when the defined benefits provided under the terms of the pension plans exceed limits imposed by Federal tax law on benefits payable from qualified plans. The pension expense is comprised of:
The Pension Plans ----------------- 1994 1993 1992 ---- ---- ---- (In Thousands) Service cost (benefits earned during year) $ 23,211 $ 18,672 $ 21,284 Interest cost on projected benefit obligation 40,837 38,596 35,035 Actual loss(return) on assets 13,213 (73,666) (50,129) Net amortization and deferral (70,367) 23,003 2,307 -------- -------- -------- Net pension expense $ 6,894 $ 6,605 $ 8,497 ======== ======== ======== The Restoration Plans --------------------- 1994 1993 1992 ---- ---- ---- (In Thousands) Service cost (benefits earned during year) $1,010 $ 573 $ 810 Interest cost on projected benefit obligation 2,950 1,918 1,719 Net amortization and deferral 1,827 591 554 ------ ------ ------ Net pension expense $5,787 $3,082 $3,083 ====== ====== ======
The expected long-term rate of return on plan assets was 9.5% for each year presented above. Service cost in 1992 includes $4,014,000 and $245,000 for the Pension Plans and the Restoration Plans, respectively, of additional expense for individuals who elected to accept an early retirement option offered to employees of INB. 14 The following table sets forth the Plans' funded status and amounts recognized in the consolidated balance sheet at December 31:
The Pension Plans The Restoration Plans ----------------- --------------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In Thousands) Actuarial present value of the projected benefit obligation, based on employment services to date, and current salary levels: Vested employees $371,772 $404,672 $ 25,094 $ 23,514 Non-vested employees 24,351 25,169 1,407 2,476 -------- -------- -------- -------- Accumulated benefit obligation 396,123 429,841 26,501 25,990 Additional amounts related to projected salary increases 129,347 154,755 9,941 16,831 -------- -------- -------- -------- Total projected benefit obligation 525,470 584,596 36,442 42,821 Plan assets (at market value) 568,393 583,076 -- -- -------- -------- -------- -------- Funded assets in excess of (less than) projected benefit obligation 42,923 (1,520) (36,442) (42,821) Unrecognized net (gain) loss (24,953) 6,153 1,909 11,183 Unrecognized transition (asset) liability being amortized over 15 years beginning January 1, 1986 (33,331) (38,262) 1,169 1,455 Unrecognized prior service cost 9,781 11,198 10,571 11,542 Adjustment to recognize minimum liability -- -- (3,708) (7,349) -------- -------- -------- -------- Accrued pension liability included in the consolidated balance sheet $ (5,580) $(22,431) $(26,501) $(25,990) ======== ======== ======== ========
The funded status of the Pension Plans as of December 31, 1993, included plan assets of $75,800,000, accumulated benefit obligation of $85,607,000, and projected benefit obligation of $112,809,000 relating to a pension plan maintained by NBD Indiana, Inc. (formerly INB), a wholly-owned subsidiary of NBD Bancorp, Inc. The INB plan was merged with the NBD Bancorp, Inc. plan on January 1, 1994. The assumptions used in determining the actuarial present value of the projected benefit obligations are set forth below:
1994 1993 ---- ---- Discount Rate 8.0% 7.0% Rate of increase in compensation levels 5.5 5.5
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. The Statement requires that the expected cost of providing postretirement benefits be recognized in the financial statements during employees' active service periods. The Corporation provides medical and life insurance for employees who retire after age 55 with a minimum of 15 years of service. The postretirement health care benefit, which can also cover eligible dependents, is contributory with retiree contributions adjusted annually to reflect increases in the Corporation's health care costs. The postretirement life insurance benefit is noncontributory. The Corporation elected to immediately recognize the January 1, 1992, accumulated benefit obligation which resulted in a charge of $58,924,000 ($37,885,000 after tax) to 1992 earnings. Net periodic postretirement benefit cost included the following components for the years ended December 31:
1994 1993 1992 ---- ---- ---- (In Thousands) Service cost $ 940 $1,539 $1,362 Interest cost 3,600 5,003 4,769 Amortization of unrecognized net gains (440) -- -- ------ ------ ------ Net periodic postretirement benefit cost $4,100 $6,542 $6,131 ====== ====== ======
15 The Corporation funds postretirement benefit cost as claims are incurred. The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheet at December 31:
1994 1993 ---- ---- (In Thousands) Accumulated postretirement benefit obligation: Retirees $ 36,600 $ 44,014 Fully eligible active plan participants 3,800 7,413 Other active plan participants 8,500 21,083 -------- -------- Total accumulated postretirement benefit obligation 48,900 72,510 Plan assets (at market value) -- -- -------- -------- Accumulated postretirement benefit obligation in excess of plan assets (48,900) (72,510) Unrecognized net (gain) loss (17,494) 6,766 -------- -------- Accrued postretirement benefit liability recognized in the consolidated balance sheet $(66,394) $(65,744) ======== ========
For measurement purposes, a 10 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1995; the rate was assumed to trend downward to 5.5 percent by the year 2000 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would have increased the accumulated postretirement benefit obligation as of December 31, 1994, by $3,800,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by approximately $390,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0 percent at December 31, 1994, and 7.0 percent at year-end 1993. The Corporation adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1994. The cumulative effect of adoption was a charge of $12,323,000 ($7,885,000 net of income taxes). The impact of the new accounting method in 1994 on income before accounting changes was insignificant. Employee Savings Plans The Corporation contributes to various 401(k) savings plans and profit sharing plans for the benefit of employees meeting certain eligibility requirements. The Corporation's participation in the 401(k) savings plans is in the form of "matching funds" wherein it contributes an amount equal to the participants' contributions up to 2 percent of the participants' compensation, plus an amount equal to one-half of the participant's contribution between 2 percent and 6 percent of the participant's compensation subject to certain limitations imposed by the IRS. In addition, INB sponsored a leveraged Employee Stock Ownership Plan (ESOP), wherein the ESOP used the proceeds of a $33.0 million loan from INB to acquire 1,236,500 shares of its common stock. Subsequently, shares of common stock held by the ESOP were allocated to participating employees. The ESOP was terminated in the fourth quarter of 1992. Total expense for all employee savings plans was $14,651,000 in 1994, $15,467,000 in 1993, and $12,659,000 in 1992. Stock Award And Stock Option Plans The executive officers of the Corporation and certain other employees are eligible for awards pursuant to the Performance Incentive Plan (the PIP Plan) administered by the Compensation Committee of the Board of Directors. The Committee is empowered to make two types of awards and to establish two groups of awardees. The first group is selected from among the more senior officers. The Committee is authorized to award to this group Performance Shares. A Performance Share is one share of the Corporation's common stock. Distribution of the awards is tied to the achievement of certain financial performance goals for the Corporation as set by the Committee, over performance periods of at least one year and up to five years in duration. The second group of employees (which excludes the more senior officers, except by special Committee action) may be awarded shares of the Corporation's common stock, the ultimate distribution of which is not tied to corporate performance goals. The award periods for this group has ranged from one to five years in duration. 16 The cost of stock awards to the more senior officers is the market value of the stock on the date the award is finally distributed. For the second group of employees, the cost of stock awards is the market value of the stock on the date of grant. The cost, either estimated or actual, of stock awards for both groups is amortized on a straight-line basis over the award duration periods. The unamortized cost of these awards is included in Shareholders' Equity. The PIP Plan also permits the granting of stock options. The term of each option is determined by the Committee, except that the term of an incentive option may not exceed ten years from the date of grant. No option can be exercised prior to the expiration of the first year of its term. The option price may not be less than the fair market value of the common stock on the date the option is granted. The Committee may grant stock options that include the right to receive "restoration options." A restoration option allows a participant who exercises the original option prior to retirement, and who pays all or part of the purchase price of the option with shares of the Corporation's common stock, the right to receive an option to purchase the number of shares of the common stock of the Corporation equal to the number of shares used by the participant in payment of the original option price. The exercise price of the restoration option is equal to the fair market value of the common stock on the date the restoration option is granted. The following table summarizes activity under the option and award plans for 1992, 1993 and 1994:
OPTIONS --------------------------- STOCK PRICE AWARDS OUTSTANDING PER SHARE ------ ----------- --------- (NO. OF SHARES IN THOUSANDS) January 1, 1992 1,538 2,636 $ 4.72 - $29.21 Granted 362 1,015 27.44 - 31.94 Exercised (466) (1,048) 6.62 - 29.21 Forfeited (177) (7) 11.17 - 18.36 -------- -------- December 31, 1992 1,257 2,596 4.72 - 31.94 Granted 369 316 29.81 - 36.06 Exercised (303) (769) 4.72 - 30.88 Forfeited (28) (97) 14.91 - 33.94 -------- -------- December 31, 1993 1,295 2,046 6.62 - 36.06 Granted 470 970 28.44 - 31.56 Exercised (309) (230) 6.62 - 29.94 Forfeited (34) (14) 21.13 - 35.69 -------- -------- December 31, 1994 1,422 2,772 $9.38 - $36.06 ======== ========
As of December 31, 1994, 1,192,000 options were exercisable. 10. Income Taxes The consolidated income tax expense (benefit) is comprised of the following elements:
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 (In Thousands) Income Tax Expense(Benefit): Domestic: Currently Payable: Federal $203,358 $194,733 $156,819 State 18,237 20,109 19,287 -------- -------- -------- 221,595 214,842 176,106 -------- -------- -------- Deferred: Federal 33,551 1,652 (37,974) State 5,495 1,295 (5,649) -------- -------- -------- 39,046 2,947 (43,623) -------- -------- -------- Total Domestic 260,641 217,789 132,483 Foreign -- Currently Payable 6,112 2,346 1,878 -------- -------- -------- Total Income Tax Expense $266,753 $220,135 $134,361 ======== ======== ========
17 The tax effects of fair value adjustments on investment securities available-for-sale, foreign currency translation adjustments and certain tax benefits related to stock options are recorded directly in Shareholders' Equity. Net tax credits recorded directly in Shareholders' Equity amounted to $85,490,000, $9,450,000 and $5,330,000 for 1994, 1993 and 1992, respectively. Also in 1994, a tax benefit of $4,162,000 was recorded as part of an extraordinary item relating to the early retirement of debt and a deferred tax benefit of $4,438,000 was recorded as part of the cumulative effect of adopting SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Deferred tax benefits of $3,950,000 and $21,039,000, respectively, were recorded as part of the cumulative effects of adopting SFAS No. 109, "Accounting for Income Taxes," in 1993 and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1992. The Corporation has substantial investments in tax-exempt debt securities and loans on which borrowers pay a lower rate of interest than would be required if the income were subject to federal income taxes. Because of these and other differences, Income Tax Expense is less than that computed by applying the federal statutory income tax rate of 35 percent in 1994 and 1993 and 34 percent in 1992. A summary reconciliation of reported income tax expense to income tax based on the statutory rate is as follows:
1994 1993 1992 ---- ---- ---- (In Thousands) Reported Income Tax Expense $266,753 $220,135 $134,361 Effect of: Tax-exempt securities and loan income 39,765 44,965 50,411 Goodwill amortization (7,572) (8,029) (9,692) State income taxes (net of federal tax benefit) (15,426) (13,913) (9,001) Federal tax rate increase on deferred tax assets and liabilities -- 4,805 -- Other 1,391 (2,271) (5,470) -------- -------- -------- Income Tax based on statutory rate $284,911 $245,692 $160,609 ======== ======== ========
The significant components of the Corporation's deferred tax assets and liabilities are as follows:
DECEMBER 31 ----------- 1994 1993 ---- ---- (In Thousands) Deferred Tax Assets: Provision for Loan Losses $164,109 $158,247 Fair Value Adjustment on Investment Securities Available-for-Sale 87,761 3,470 Pension, Retirement and Postemployment Benefits 37,255 38,574 Employee Compensation 17,078 12,318 Deferred Loan Fees 11,876 14,697 Other 28,746 48,943 --------- --------- Total Deferred Tax Assets 346,825 276,249 --------- --------- Deferred Tax Liabilities: Lease Accounting 21,770 12,070 Depreciation 19,146 18,891 Purchase Accounting Adjustments 17,759 16,040 Accrued Discount 12,198 11,615 Prepaid Expenses 11,965 874 Other 30,905 34,559 --------- --------- Total Deferred Tax Liabilities 113,743 94,049 --------- --------- Net Deferred Tax Assets $233,082 $182,200 ========= =========
18 During 1992, as required by APB No. 11, deferred income taxes were recorded to reflect any differences between the years that revenue and expenses were recorded in the financial statements and when they were recognized for payment of income taxes. The sources of the differences and their income tax effect are as follows:
1992 ---- (IN THOUSANDS) Lease Income $ 1,400 Loan Loss Deduction 12,900 Merger -- Related Expenses 21,560 Other, net 7,763 ------- $43,623 =======
The cumulative deferred tax benefit amounted to $188,534,000 (which included $21,039,000 attributable to the cumulative effect of adopting SFAS No. 106) at December 31, 1992. 11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS The Corporation, in the normal course of business, utilizes various types of contracts for managing the market risk in its balance sheet instruments, for accommodating customer needs and for other purposes, including mitigating the risk in customer accommodation contracts and, on a limited scale, generating trading profits. These contracts include interest rate swaps, futures, options and foreign exchange contracts. These contracts may contain elements of both market and credit risk. Market risk is the possibility of changes in interest or currency rates that would cause a financial instrument to decrease in value or to be more costly to settle. Credit risk is the possibility of loss arising from failure by a party to the transaction to perform according to terms of the contract. Credit risk is controlled through credit policies, approval processes, collateral requirements, counterparty exposure limits and monitoring procedures similar to the Corporation's practices employed to monitor and control the credit risk of loans and loan commitments. Interest rate swaps are contracts where the parties agree to exchange fixed rate for floating rate interest payments, or to exchange floating rate interest payments based on two different rate indexes (basis swap), for a specified time period on a specified (notional) amount. The notional amount is used only to calculate the amount of the interest payments to be exchanged, and does not represent the amount at risk. Futures contracts require the seller of a contract to deliver a specified instrument to the purchaser at a specified price or yield, on a specified date. Commitments to purchase securities are contracts made for the future delivery of investment securities at a specified price or yield. Typically, no fees are charged for these types of contracts. Options are contracts that allow the holder to purchase or sell a financial instrument, at a specified price, prior to the expiration date of the contract. Caps and floors are contracts which limit the holder's exposure to interest rate changes by providing for receipt of the interest rate differential when a specified benchmark rate exceeds the cap rate, or falls below the floor rate. The writer of these types of contracts charges a fee at the outset in exchange for assuming the risk of an unfavorable change in the price of the financial instrument or interest rate underlying the contract. Foreign exchange contracts are agreements to exchange at a specified date different currencies at a specified exchange rate. Foreign exchange options allow the holder to purchase or sell a foreign currency at a specified date and price. The Corporation manages its exposure to changes in exchange rates by establishing limits for the amount of individual currencies and exchange contracts held. 19 The following tables show the contract or notional amount of risk management contracts and of various commitments, and the related unrealized gains and losses, as of the periods indicated. RISK MANAGEMENT CONTRACTS AND COMMITMENTS:
DECEMBER 31, 1994 ----------------- NET CONTRACT OR UNREALIZED UNREALIZED UNREALIZED NOTIONAL AMOUNT GAIN LOSSES GAINS(LOSSES) --------------- ---------- ----------- ------------- (IN THOUSANDS) Interest Rate Swaps: Modifying the Interest Rate Characteristics of: Commercial Loans $ 235,995 $ 1,072 $ (1,907) $ (835) Investment Securities: Mortgage-backed 225,000 -- (745) (745) States and Political Subdivisions 225,100 -- (5,579) (5,579) Interest-Bearing Deposits 14,028 73 (74) (1) Short-Term Borrowings 875,000 20,015 -- 20,015 Long-Term Debt 320,000 109 (8,294) (8,185) ----------- ------- -------- -------- $ 1,895,123 21,269 (16,599) 4,670 =========== Futures and Options Contracts Purchased: Modifying the Interest Rate Characteristics of: Commercial loans $ 11,103 299 -- 299 =========== ------- -------- -------- $21,568 $(16,599) $ 4,969 ======= ======== ======== Commitments: To Purchase Securities $ 4,050 $ 3 $ -- $ 3 To Extend Credit (Note 12) 21,240,034 94 (391) (297) To Sell Loans (Note 12) 64,954 89 (196) (107) ----------- ------- -------- -------- $21,309,038 $ 186 $ (587) $ (401) =========== ======= ======== ========
DECEMBER 31, 1993 ----------------- NET CONTRACT OR UNREALIZED UNREALIZED UNREALIZED NOTIONAL AMOUNT GAIN LOSSES GAINS(LOSSES) --------------- ---------- ---------- ------------ (IN THOUSANDS) Interest Rate Swaps: Modifying the Interest Rate Characteristics of: Loans: Commercial $ 260,258 $ 12 $(13,187) $(13,175) Consumer 200,000 -- (201) (201) Investment Securities: Mortgage-backed 375,000 -- (11,858) (11,858) States and Political Subdivisions 415,230 -- (32,390) (32,390) Interest-Bearing Deposits 10,716 365 -- 365 Long-Term Debt 120,000 15,310 -- 15,310 ----------- ------- -------- -------- $ 1,381,204 15,687 (57,636) (41,949) =========== Futures and Options Contracts Purchased: Modifying the Interest Rate Characteristics of: Commercial loans $ 15,788 25 -- 25 =========== ------- -------- -------- $15,712 $(57,636) $(41,924) ======= ======== ======== Commitments: To Purchase Securities $ 662,372 $ 147 $ -- $ 147 To Extend Credit (Note 12) 16,834,688 1,736 (28) 1,708 To Sell Loans (Note 12) 463,000 654 (1,648) (994) ----------- ------- -------- -------- $17,960,060 $ 2,537 $ (1,676) $ 861 =========== ======= ======== ========
Unrealized gains and losses in the preceding tables are calculated based on differences between current market interest rates, as of the date indicated, and the interest rates specified in the contracts. 20 Unrealized gains are also a measure of the credit risk applicable to the contracts. Credit risk occurs when one party to a contract fails to perform in accordance with contract terms. Thus, in the case of counterparty failure on a contract with an unrealized gain, the Corporation, given current market interest rates, would be required to pay a premium, or in effect incur a loss, to replace the contract with one having identical terms. The amount of unrealized credit risk was $21,754,000 at December 31, 1994, and $18,249,000 at December 31, 1993. Credit risk is recorded in the financial statements only when counterparty failure has occurred or is probable. Gains and losses can also occur if the Corporation should elect to terminate a contract prior to maturity. Such realized gains or losses are deferred to future periods. As of year-end 1993 and 1994, there were no such deferred gains or losses. The average notional amount and weighted average fixed rates of risk management swap contracts outstanding at December 31, 1994, are shown below in accordance with their contractual dates. The predominant variable repricing index associated with these contracts is three-month LIBOR, which was 6.50% at December 31, 1994.
AVERAGE OUTSTANDING EXPIRING ------------------- 1995 1996 1997 1998 1999 THEREAFTER ---- ---- ---- ---- ---- ---------- (IN THOUSANDS) Receive Fixed Swaps: Notional Amount $ 277,014 $ 273,012 $281,094 $323,012 $321,506 $320,000 Weighted Average Receive Rate 7.59% 7.62% 7.63% 7.71% 7.73% 7.73% Pay Fixed Swaps: Notional Amount $ 1,288,972 $ 759,565 $315,513 $130,111 $ 94,383 $ 31,250 Weighted Average Pay Rate 6.93% 6.84% 7.29% 7.77% 7.89% 9.05% Net Receive(Pay) Fixed Position: Notional Amount $(1,011,958) $(486,553) $(34,419) $192,901 $227,123 Fixed Rate 6.75% 6.40% 4.51% 7.67% 7.66%
22 Substantially all of the $15,153,000 of futures contracts, option contracts and commitments to purchase securities have remaining terms of less than one year. The following tables show the contract or notional amount and the fair value of customer accommodation and other contracts at December 31, 1994 and 1993, and the related average fair value for the year ended December 31, 1994. Fair values are the amounts that would be received (asset amount) and the amounts that would be paid (liability amount) to replace existing contracts with new contracts given current market interest rates. Customer Accommodation and Other Contracts:
For the Year Ended December 31, 1994 December 31, 1994 ----------------- ----------------- Contract or Fair Value Average Fair Value ------------------ Notional Amount Asset Liability Asset Liability --------------- ----- --------- ----- --------- (in thousands) Interest Rate Swaps: Received Fixed $ 666,419 $ 6,008 $17,262 $ 9,169 $ 7,818 Pay Fixed 584,388 15,963 5,683 7,576 8,957 Basis 430,000 75 64 44 11 ---------- ---------- ------- ------- ------- $1,680,807 22,046 23,009 16,789 16,786 ========== Futures Contracts: Purchased $ 69,100 -- -- -- -- Sold 614,100 -- -- -- -- Interest Rate Options: Purchased 224,904 4,415 -- 2,270 -- Written 224,892 -- 4,435 -- 2,298 Foreign Exchange Contracts: Commitments to Buy 1,778,752 11,539 21,929 7,570 17,938 Commitments to Sell 1,638,299 21,836 10,300 17,144 6,594 ----------- -------- -------- ------- $ 59,836 $59,673 $43,773 $43,616 =========== ======== ======== =======
December 31, 1993 ----------------- Contract or Fair Value ---------- Notional Amount Asset Liability --------------- ----- --------- (in thousands) Interest Rate Swaps: Received Fixed $ 706,790 $19,987 $ 1,811 Pay Fixed 663,760 2,234 19,075 ----------- -------- ------- $1,370,550 22,221 20,886 ========== Futures Contracts: Purchased $ 51,000 -- -- Sold 284,292 -- -- Interest Rate Options: Purchased 208,536 1,749 -- Written 207,533 -- 1,759 Foreign Exchange Contracts: Commitments to Buy 1,219,819 3,600 13,947 Commitments to Sell 1,183,146 12,451 2,888 -------- ------- $40,021 $39,480 ======== =======
In contrast to risk management contracts, where only realized gains and losses in value are recorded, unrealized valuation changes for customer accommodation and other contracts are recognized and recorded currently as gains or losses in the financial statements. The net amount of such gains and losses recognized and included in Other Non-Interest Income in each of the following years was:
Net Gains --------- 1994 1993 1992 ---- ---- ---- (in thousands) Interest Rate Swaps $ 812 $ 3,483 $ 3,782 Futures Contracts 1,626 66 27 Interest Rate Options 166 -- -- Foreign Exchange Contracts 13,485 12,567 11,619 ------- ------- ------- $16,089 $16,116 $15,428 ======= ======= =======
23 The average notional amount of customer accommodation and other interest rate swaps and futures contracts outstanding at December 31, 1994, are indicated in the following table in accordance with their contractual dates. The difference between the fixed rates, either paid or received, and the variable rates received or paid, provide an indication of future cash flows. The variable rates are in most instances based on three-month LIBOR, which was 6.50% at December 31, 1994. Since the valuation adjustment of these contracts as of year- end 1994 was based on current interest rates, future gains or losses will occur only to the extent of interest rate changes.
AVERAGE OUTSTANDING EXPIRING -------------------- 1995 1996 1997 1998 1999 THEREAFTER ---- ---- ---- ---- ---- ----------- (IN THOUSANDS) Receive Fixed Swaps: Notional Amount $565,621 $370,894 $259,620 $154,054 $96,092 $63,367 Weighted Average Receive Rate 6.71% 6.79% 6.89% 7.00% 7.16% 7.97% Weighted Average Variable Pay Rate 6.50 6.50 6.50 6.50 6.50 6.50 Pay Fixed Swaps: Notional Amount $508,683 $316,188 $213,387 $123,065 $75,379 $48,804 Weighted Average Variable Receive Rate 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% Weighted Average Pay Rate 6.42 6.42 6.52 6.70 7.03 7.39 Basis Swaps: Notional Amount $370,301 $ 33,880 $ -- $ -- $ -- $ -- Weighted Average Variable Receive Rate 6.50% 6.50% --% --% --% --% Weighted Average Variable Pay Rate 6.50 6.50 -- -- -- -- Net Futures Position (Pay Fixed): Contract Amount $ 10,055 $ 38,055 $ 35,589 $ 25,027 $17,877 $40,000
The remaining customer accommodation and other contracts (interest rate options and foreign exchange contracts) are essentially offsetting in amount, by maturity. 24 12. COMMITMENTS AND CONTINGENCIES A commitment to extend credit obligates the Corporation to advance funds in accordance with commitment provisions. Commitments generally have fixed expiration dates or other termination clauses, permit the customer to borrow at an agreed upon rate of interest and require payment of a fee. There are typically three broad types of commitments: loan commitments; standby letters of credit; and commercial letters of credit. Unused commitments totaled $18,930,114,000 and $14,917,545,000 at December 31, 1994 and 1993, respectively. Since many commitments typically expire without being utilized, the total does not necessarily represent future cash requirements. At December 31, 1994, $15,692,249,000 of the unused commitments had variable rate terms, and $3,237,865,000 had fixed rate terms. A standby letter of credit is a conditional commitment issued to guarantee contractual performance by a customer to a third party. Typical uses are to back commercial paper, bond financing or similar transactions of public and private borrowers. Total standby letters of credit outstanding at December 31, 1994 and 1993, were $2,099,697,000 and $1,720,489,000, respectively. The Corporation does not expect to be required to fund these commitments in the normal course of business. A commercial letter of credit is a commitment issued to facilitate the shipment of goods from seller to buyer by guaranteeing payment to the seller. Absent inability of the buyer to perform, fund disbursement to the seller occurs simultaneously with receipt of funds from the buyer. Commercial letters of credit outstanding were $210,223,000 and $196,654,000 at December 31, 1994 and 1993, respectively. Collateral requirements for the above commitments are based on credit evaluation of the customer. Commitments to sell loans are entered into to protect against a decline in the value of mortgage loans held for sale and of commitments to make mortgage loans at specified fixed rates. Commitments to sell loans totaled $64,954,000 at December 31, 1994, and $463,000,000 at December 31, 1993. The lower level of commitments at year-end 1994 reflects both a lower level of mortgage origination activity and a decision by the Corporation to hold a greater portion of originations in its own portfolio. The Corporation is a defendant in various legal proceedings arising in the normal course of business. In the opinion of management, based on the advice of legal counsel, the ultimate resolution of these proceedings will not have a material effect on the Corporation's financial statements. 13. CONCENTRATIONS OF CREDIT RISK In the normal course of business, the Corporation enters into transactions exposing it to credit risk. At December 31, 1994, the maximum credit exposure for funded transactions was $45.7 billion and for unfunded commitments was $21.2 billion. Such exposure was well diversified geographically and by industry, as shown in the following tables.
Geographic Distribution Industry Distribution - ----------------------- --------------------- Metropolitan Detroit 18% Automotive Related Manufacturing 6% Indiana 16 Other Manufacturing 11 Outstate Michigan 12 Financial Institutions 9 Illinois 10 Commercial Construction and Real Estate 6 Ohio 4 Wholesale Trade 4 Foreign 5 Transportation Services 3 All Other 35* Professional Services 3 --- 100% Other Commercial 10 === Residential Mortgages 5 Other Consumer 23 U.S. Government 18 Other Government 2 --- 100% ===
* Includes securities of U.S. Government Agencies aggregating 18 percent. 25 Over 90 percent of the Corporation's assets, revenue, and net income are in the banking industry; no individual customer provides 10 percent or more of the Corporation's revenue, and total foreign assets, revenue, income before income taxes and net income comprise less than 10 percent of the Corporation's consolidated amounts. 14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," the Corporation is required to estimate the fair value of its financial instruments, as defined in the standard. For purposes of this disclosure, the estimated fair value of financial instruments with immediate and shorter-term maturities (generally 90 days or less) is assumed to be the same as the recorded book value. These instruments include the balance sheet lines captioned Cash and Due From Banks, Interest- Bearing Deposits, Federal Funds Sold and Resale Agreements, Customers' Liability on Acceptances, Short-Term Borrowings and Liability on Acceptances. Trading Account Securities are recorded on the balance sheet at fair value, which is based on quoted market prices. The recorded book and estimated fair values of other financial instruments were as follows:
DECEMBER 31, 1994 DECEMBER 31, 1993 ----------------- ------------------ RECORDED ESTIMATED RECORDED ESTIMATED BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE ---------- ---------- ---------- ---------- (IN THOUSANDS) Financial assets: Investment Securities $ 12,422,965 $ 12,195,728 $ 10,391,793 $ 10,802,287 Loans and Leases, net of allowance 28,794,613 28,596,466 25,127,762 25,471,167 Interest Rate and Foreign Exchange Contracts: Risk Management 1,636 23,204 2,731 18,443 Customer Accommodation and Other 59,836 59,836 40,021 40,021 Commitments -- 186 -- 2,537 Financial liabilities: Deposits $(33,229,441) $(33,166,682) $(29,821,107) $(29,925,028) Long-Term Debt (2,504,348) (2,394,904) (1,434,947) (1,487,526) Interest Rate and Foreign Exchange Contracts: Risk Management (17,833) (34,432) (27,793) (85,429) Customer Accommodation and Other (59,673) (59,673) (39,480) (39,480) Commitments (13,968) (14,555) (16,582) (18,258)
Based on the valuation techniques discussed below, the excess of recorded book values over estimated fair values was $249 million at December 31, 1994. Estimated fair values do not recognize the potential earning power of the corporate franchise, including customer relationships, which are inseparable from related financial instruments. Franchise and relationship values are reflected, at least in part, in the market value of the Corporation's common stock, which at December 31, 1994, was $4.3 billion, or $976 million in excess of book value. Estimated fair values were determined as follows: INVESTMENT SECURITIES Fair values are based on quoted market prices or dealer quotes. LOANS AND LEASES The estimated fair value is determined by discounting contractual cash flows from the loans and leases using current lending rates for new loans with similar remaining maturities. The resulting value is reduced by an estimate of losses inherent in the portfolio. 26 Interest Rate And Foreign Exchange Contracts Risk management contracts are not recorded on the balance sheet. All other contracts are recorded on the balance sheet at their fair value. Estimated fair values are based on quoted market prices and rates, when available, or the amount the Corporation would receive or pay at current rates to terminate the contracts. Deposit Liabilities The fair value of Demand, Savings, and Money Market Deposits with no defined maturity is, by definition, the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows to be paid, using the current rates at which similar deposits with similar remaining maturities would be issued. Long-Term Debt The fair value of the Corporation's long-term debt is based on quoted market prices, where available. If quoted market prices are not available, the fair value is estimated by discounting the future cash flows using the current rates at which similar debt could be issued. Commitments The majority of commitments to extend credit and letters of credit would result in loans with a market rate of interest if funded. The fair value of these commitments are the fees that would be charged customers to enter into similar agreements with comparable pricing and maturity. The recorded book value of deferred fee income approximates the fair value. For fixed rate commitments and commitments to sell loans, the estimated fair value also considers the difference between current levels of interest rates and the committed rates. 15. Restrictions on Cash Flows to The Parent Company National and state banking laws and regulations place certain restrictions on loans or advances made by the banking subsidiaries to members of an affiliated group, including the Parent, and also place restrictions on dividends paid by the subsidiary banks. In addition, the subsidiary banks may be restricted by the risk-based capital standards of the banking regulatory agencies. At December 31, 1994, net assets of the subsidiary banks totaled $3,543,958,000, of which approximately $2,574,558,000 was not available for dividends or loans. In 1995, bank subsidiaries may distribute to the Parent (in addition to their 1995 net income) approximately $601,967,000 in dividends without prior approval from bank regulatory agencies. 16. Related Party Transactions Certain directors and officers of the Corporation, their families, and certain entities in which they have an ownership interest were customers of the Corporation in 1994 and 1993. Management believes all transactions with such parties, including loans and commitments, were in the ordinary course of business and at normal terms prevailing at the time, including interest rates and collateralization and did not represent more than normal risks. The amount of such loans attributable to persons who were related parties at December 31, 1994, was $77,556,000 at the beginning and $117,137,000 at the end of 1994. During 1994, new loans to related parties totaled $701,348,000 and repayments aggregated $661,767,000. 17. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION The following quarterly financial information, in the opinion of management, fairly presents the results of operations for such periods.
1994 QUARTER 1993 QUARTER ------------ ------------ 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST --- --- --- --- --- --- --- --- (IN MILLIONS EXCEPT PER SHARE DATA) Net Interest Income $422.3 $414.8 $406.4 $381.3 $382.7 $395.2 $391.8 $388.5 Provision for Possible Credit Losses 20.1 7.9 8.6 15.5 19.8 24.9 35.1 39.9 Non-Interest Income 136.3 136.6 133.9 138.7 156.1 141.1 143.2 145.0 Non-Interest Expenses 327.1 322.5 332.3 322.3 345.0 329.6 321.6 325.6 ------ ------ ------ ------ ------ ------ ------ ------ Income Before Income Taxes 211.4 221.0 199.4 182.2 174.0 181.8 178.3 168.0 Income Tax Expense 69.9 73.3 64.2 59.3 55.0 56.6 55.7 52.9 ------ ------ ------ ------ ------ ------ ------ ------ Income Before Extraordinary Item and Accounting Change $141.5 $147.7 $135.2 $122.9 $119.0 $125.2 $122.6 $115.1 ====== ====== ====== ====== ====== ====== ====== ====== Net Income $141.5 $147.7 $135.2 $107.3 $119.0 $125.2 $122.6 $119.0 ====== ====== ====== ====== ====== ====== ====== ====== Net Income Per Share (on Average Shares Outstanding) $ 0.91 $ 0.93 $ 0.84 $0.67* $ 0.74 $ 0.77 $ 0.76 $0.74* ====== ====== ====== ====== ====== ====== ====== ======
* Net income per share before an extraordinary item and a change in accounting principle was $0.77 per share in the first quarter of 1994, and $0.71 per share in the first quarter of 1993. 28 18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS Following are condensed financial statements for NBD Bancorp, Inc. (Parent Only). NBD BANCORP, Inc. (PARENT ONLY) CONDENSED BALANCE SHEET (in thousands)
DECEMBER 31 ----------- 1994 1993 ---- ---- ASSETS: Cash and Due From Banks $ 555 $ 750 Interest Bearing Deposits Placed With Subsidiary -- 13,930 Resale Agreement with Subsidiary 41,685 221,115 Investment Securities Available-for-Sale 17,875 13,731 Notes Receivable from Subsidiaries 356,090 515,888 Investments in Subsidiaries (principally banks) 3,543,598 3,443,516 Dividends Receivable from Subsidiary 35,794 31,320 Net Premises and Equipment 52,458 55,629 Other Assets 43,389 48,454 ---------- ---------- Total Assets $4,091,444 $4,344,333 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Short-Term Borrowings $ 59,236 $ 158,886 Other Liabilities 94,665 90,863 Long-Term Debt 646,000 845,985 ---------- ---------- Total Liabilities 799,901 1,095,734 ---------- ---------- Shareholders' Equity: Preferred Stock -- -- Common Stock 160,877 160,715 Capital Surplus 638,652 634,167 Retained Earnings 2,810,459 2,472,692 Fair Value Adjustment on Investment Securities Available-for-Sale (154,305) (7,012) Accumulated Translation Adjustment 6,942 4,384 Deferred Compensation (17,438) (16,347) Less Treasury Stock (153,644) -- ---------- ---------- Total Shareholders' Equity 3,291,543 3,248,599 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,091,444 $4,344,333 ========== ==========
29 NBD BANCORP, Inc. (PARENT ONLY) CONDENSED STATEMENT OF INCOME (in thousands)
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- OPERATING INCOME: Income from Subsidiaries: Dividends from Subsidiaries (principally banks) $319,598 $250,935 $195,342 Interest and Other 39,006 42,845 29,947 Securities Gains -- 3,034 -- Other Interest and Other Income 1,226 1,054 1,333 -------- -------- -------- Total Operating Income 359,830 297,868 226,622 -------- -------- -------- OPERATING EXPENSES: Interest on Short-Term Borrowings 5,284 4,864 6,198 Interest on Long-Term Debt 45,655 54,504 40,224 Other 22,625 24,042 23,922 -------- -------- -------- Total Operating Expenses 73,564 83,410 70,344 -------- -------- -------- INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 286,266 214,458 156,278 Income Tax Benefit 10,097 11,009 11,519 -------- -------- -------- INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 296,363 225,467 167,797 Equity in Undistributed Earnings of Subsidiaries Before Extraordinary Item and Cumulative Effect of Accounting Change 250,916 256,374 170,222 -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 547,279 481,841 338,019 Extraordinary Item (net of $4,162 income tax effect) (7,730) -- -- Cumulative Effect of Accounting Change (net of $4,438 and $21,039 income tax effect for 1994 and 1992, respectively) (7,885) 3,950 (37,885) -------- -------- -------- NET INCOME $531,664 $485,791 $300,134 ======== ======== ========
30 NBD BANCORP, Inc. (PARENT ONLY) CONDENSED STATEMENT OF CASH FLOWS (in thousands)
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 531,664 $ 485,791 $ 300,134 Adjustments to Reconcile Net Income to Net Cash Provided by Operations: Depreciation and Amortization 8,922 8,632 8,118 Securities Gains -- (3,034) -- Extraordinary Item -- Redemption of Debt 7,730 -- -- Equity in Earnings of Subsidiaries (563,607) (509,571) (327,679) Cash Dividends Received from Subsidiaries 311,071 226,896 190,573 Decrease(Increase) in Interest Receivable 575 (1,739) (6,992) (Decrease)Increase in Accrued Operating Expenses (3,387) (2,329) 11,979 Other, net 13,744 2,402 3,388 --------- --------- --------- Net Cash Provided by Operating Activities 306,712 207,048 179,521 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease(Increase) in Resale Agreements with Subsidiaries 179,430 (134,149) 38,446 Purchase of Investment Securities Available-for-Sale (10,247) -- -- Proceeds from Maturity of Investment Securities Available-for-Sale 10,084 -- -- Purchase of Investment Securities Held-to-Maturity -- (3,506) (10,728) Proceeds from Sale of Investment Securities Held-to-Maturity -- 3,879 -- Decrease(Increase) in Notes Receivable and Time Deposits Placed with Subsidiaries 173,728 (10,272) (370,943) Decrease in Loans and Leases -- 1,425 1,017 Purchase of Premises and Equipment and Other Assets (683) (4,154) (4,370) Proceeds from Sale of Premises and Equipment and Other Assets 210 3,936 403 Purchases and Net Capital Contributions in Subsidiaries -- 26,006 (42,051) --------- --------- --------- Net Cash Provided(Used) by Investing Activities 352,522 (116,835) (388,226) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: (Decrease)Increase in Short-Term Borrowings (99,650) (25,552) 93,891 Proceeds from the Issuance of Debt -- 150,000 400,000 Principal Payments on Long-Term Debt -- (30,000) (15) Redemption of Long-Term Debt (208,734) -- -- Proceeds from Stock Option Exercises 1,401 2,527 1,415 Payments to Acquire Treasury Stock (166,606) (13,369) (134,222) Dividends Paid (185,840) (173,413) (152,353) --------- --------- --------- Net Cash (Used)Provided by Financing Activities (659,429) (89,807) 208,716 --------- --------- --------- Net (Decrease)Increase in Cash and Due From Banks (195) 406 11 Cash and Due From Banks -- Beginning of Period 750 344 333 --------- --------- --------- CASH AND DUE FROM BANKS -- END OF PERIOD $ 555 $ 750 $ 344 ========= ========= ========= Other Cash Flow Disclosures: Interest Paid $ 55,163 $ 59,555 $ 35,966 Income Tax Credit Realized 13,176 13,880 14,986
31 INDEPENDENT AUDITORS' REPORT - ---------------------------- Shareholders and Board of Directors NBD Bancorp, Inc. Detroit, Michigan We have audited the accompanying consolidated balance sheet of NBD Bancorp, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NBD Bancorp, Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Corporation adopted recently issued Statements of Financial Accounting Standards and, accordingly, changed its method of accounting for postemployment benefits in 1994, its method of accounting for investment securities and income taxes in 1993, and its method of accounting for postretirement benefits other than pensions in 1992. [Sig] DELOITTE & TOUCHE LLP January 17, 1995 Detroit, Michigan 32 NBD BANCORP, INC. SUPPLEMENTARY DATA EARNINGS PER SHARE COMPUTATION (in thousands except per share amounts)
FOR YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ---- ---- ---- PRIMARY: Net Income $531,664 $485,791 $300,134 ======== ======== ======== Average Shares Outstanding 158,480 160,568 160,304 Adjustment: Shares Applicable to Common Stock Options 328 685 412 -------- -------- -------- Shares Applicable to Primary Earnings 158,808 161,253 160,716 ======== ======== ======== FULLY DILUTED: Net Income $531,664 $485,791 $300,134 Adjustment: Interest on 7.25% Convertible Debentures 3,052 14,651 14,651 Interest on 8.25% Convertible Debentures -- -- 1,105 Tax Effect on Above (1,068) (5,128) (5,356) -------- -------- -------- Net Adjustment 1,984 9,523 10,400 -------- -------- -------- Adjusted Net Income $533,648 $495,314 $310,534 ======== ======== ======== Average Shares Outstanding 158,480 160,568 160,304 Adjustment: Shares Applicable to Convertible Notes 1,315 6,579 7,478 Shares Applicable to Common Stock Options 349 704 1,090 -------- -------- -------- Shares Applicable to Fully Diluted Earnings 160,144 167,851 168,872 ======== ======== ======== NET INCOME PER SHARE: Primary -- Net Income Per Share $3.35 $3.01 $1.87 ======== ======== ======== Fully Diluted -- Net Income Per Share $3.33 $2.95 $1.84 ======== ======== ========
Page 1 NBD Bancorp, Inc. Consolidated Balance Sheet (in thousands except share data)
Assets March 31 December 31 March 31 1995 1994 1994 ------------ ------------ ------------ Cash and Due From Banks................................ $ 2,788,541 $ 2,587,007 $ 2,421,942 Interest-Bearing Deposits.............................. 653,945 630,688 612,284 Federal Funds Sold and Resale Agreements............... 121,625 399,725 316,544 Trading Account Securities............................. 125,362 122,135 93,555 Investment Securities (Note B): Available-for-Sale (At Fair Value).................... 4,250,057 4,814,252 4,285,088 Held-to-Maturity (Fair Value of $7,343,626, $7,381,476 and $7,848,646, respectively)............. 7,342,256 7,608,713 7,667,607 ------------ ----------- ----------- 11,592,313 12,422,965 11,952,695 ------------ ----------- ----------- Loans and Leases (Net of Unearned Income of $181,620, $171,207 and $136,526, respectively): Commercial............................................ 16,232,268 15,525,645 14,088,500 Real Estate Construction.............................. 856,762 817,452 765,715 Residential Mortgage.................................. 3,961,567 3,351,840 2,773,533 Mortgages Held For Sale............................... 21,383 30,171 62,663 Consumer.............................................. 7,750,807 7,667,907 6,823,794 Lease Financing....................................... 379,201 363,200 283,451 Foreign............................................... 1,523,879 1,473,449 1,080,032 ----------- ----------- ----------- 30,725,867 29,229,664 25,877,688 Allowance For Possible Credit Losses (Note C)......... (458,157) (435,051) (423,410) ----------- ----------- ---------- 30,267,710 28,794,613 25,454,278 Net Premises and Equipment............................. 647,192 630,357 635,993 Customers' Liability on Acceptances.................... 197,339 193,866 187,516 Other Assets........................................... 1,361,817 1,329,777 1,257,862 ----------- ----------- ----------- Total Assets........................................ $47,755,844 $47,111,133 $42,932,669 =========== =========== ===========
Page 2
Liabilities and Shareholders' Equity March 31 December 31 March 31 1995 1994 1994 ------------ ------------ ------------ Deposits: Demand (Non-Interest Bearing)........................................ $ 6,636,995 $ 6,731,050 $ 6,602,773 Savings.............................................................. 7,504,825 7,679,922 8,029,415 Money Market Accounts................................................ 4,940,018 4,959,816 5,431,509 Time................................................................. 9,566,186 8,055,429 7,332,600 Foreign Office....................................................... 2,912,675 5,803,224 2,779,319 ------------- ------------- ------------- 31,560,699 33,229,441 30,175,616 Short-Term Borrowings................................................. 8,928,829 7,119,972 6,917,420 Liability on Acceptances.............................................. 197,339 193,866 187,516 Accrued Expenses and Sundry Liabilities............................... 860,646 771,963 803,810 Long-Term Debt........................................................ 2,703,335 2,504,348 1,583,608 ------------- ------------- ------------- Total Liabilities............................................... 44,250,848 43,819,590 39,667,970 ------------- ------------- ------------- Shareholders' Equity: Series A Preferred Stock - Par Value $1, Stated Value $50........... - - - March 31 December 31 March 31 No. of Shares 1995 1994 1994 --------------- ----------- ------------ ----------- Authorized..... 460,000 460,000 460,000 Issued......... - - - Preferred Stock - No Par Value....................................... - - - March 31 December 31 March 31 No. of Shares 1995 1994 1994 --------------- ----------- ------------ ------------ Authorized..... 10,000,000 10,000,000 10,000,000 Issued......... - - - Common Stock - Par Value $1.......................................... 160,883 160,877 160,872 March 31 December 31 March 31 No. of Shares 1995 1994 1994 --------------- ------------ ------------ ------------ Authorized..... 500,000,000 500,000,000 500,000,000 Issued......... 160,883,008 160,876,819 160,872,446 Capital Surplus...................................................... 533,576 545,717 546,969 Retained Earnings.................................................... 2,990,430 2,903,394 2,624,608 Fair Value Adjustment on Investment Securities Available-for-Sale (Note B)....................................... (78,559) (154,305) (53,753) Accumulated Translation Adjustment................................... 9,618 6,942 5,122 Deferred Compensation................................................ (22,131) (17,438) (19,119) Treasury Stock (2,854,769 and 4,968,147 shares, respectively)........ (88,821) (153,644) - ------------- ------------- ------------ Total Shareholders' Equity........................................ 3,504,996 3,291,543 3,264,699 ------------- ------------- ------------ Total Liabilities and Shareholders' Equity.................. $ 47,755,844 $ 47,111,133 $ 42,932,669 ============= ============= ============
Page 3 NBD Bancorp, Inc. Consolidated Statement of Income (in thousands except per share data)
Quarter Ended March 31 --------------------- 1995 1994 --------- --------- Interest Income: Loans and Leases (including fees)........................... $647,220 $462,061 Investment Securities: Taxable.................................................... 183,726 138,946 Non-Taxable................................................ 23,969 25,339 Trading Account Securities.................................. 1,788 884 Federal Funds Sold and Resale Agreements.................... 4,111 949 Interest-Bearing Deposits................................... 11,274 7,000 --------- --------- Total Interest Income...................................... 872,088 635,179 --------- --------- Interest Expense: Deposits.................................................... 292,575 183,539 Short-Term Borrowings....................................... 115,721 45,373 Long-Term Debt.............................................. 43,100 25,007 --------- --------- Total Interest Expense..................................... 451,396 253,919 --------- --------- Net Interest Income.......................................... 420,692 381,260 Provision For Possible Credit Losses........................ 20,096 15,460 --------- --------- Net Interest Income After Provision For Possible Credit Losses.................................. 400,596 365,800 --------- --------- Non-Interest Income: Trust Fees.................................................. 38,511 38,110 Service Charges on Deposit Accounts......................... 40,107 40,979 Credit Card Fees............................................ 9,516 8,377 Securities Gains............................................ 1,376 390 Other....................................................... 46,220 50,894 --------- --------- Total Non-Interest Income.................................. 135,730 138,750 --------- --------- Non-Interest Expenses: Compensation: Salaries................................................... 135,090 133,459 Benefits................................................... 42,207 43,289 --------- --------- Total Compensation....................................... 177,297 176,748 Net Occupancy............................................... 30,407 30,081 Equipment Rentals, Depreciation and Maintenance............. 23,214 21,954 FDIC and Other Regulatory Assessments....................... 16,607 16,675 Amortization of Intangibles................................. 7,504 6,524 Other....................................................... 68,442 70,337 --------- --------- Total Non-Interest Expenses.............................. 323,471 322,319 --------- --------- Income before Income Taxes................................... 212,855 182,231 Income Tax Expense (Including tax effect of $472 and $149, respectively, on securities sales)......................... 71,964 59,355 --------- --------- Income before Extraordinary Item and Cumulative Effect of Accounting Change................................. 140,891 122,876 Extraordinary Item (net of income tax effect) (Note E)...... - (7,730) Cumulative Effect of Accounting Change (net of income tax effect) (Note A)................................ - (7,885) --------- --------- Net Income................................................... $140,891 $107,261 ========= ========= Net Income Per Share (on average shares outstanding): Income before Extraordinary Item and Cumulative Effect of Accounting Change................................ $0.88 $0.77 Extraordinary Item (net of income tax effect)............... - (0.05) Cumulative Effect of Accounting Change (net of income tax effect)......................................... - (0.05) --------- --------- Net Income Per Share......................................... $0.88 $0.67 ========= =========
Page 4 NBD Bancorp, Inc. Consolidated Statement of Shareholders' Equity (in thousands except share data)
Quarter Ended March 31 --------------------------- 1995 1994 ------------ ------------ Preferred Stock: Balance, Beginning and End of Period.......................... $ - $ - ------------ ------------ Common Stock: Balance, Beginning of Period.................................. 160,877 160,715 Acquisition of Subsidiary Bank............................... 270 - Cancellation of Shares Held in Treasury...................... (270) - Other........................................................ 6 157 ------------ ------------ Balance, End of Period........................................ 160,883 160,872 ------------ ------------ Capital Surplus: Balance, Beginning of Period.................................. 545,717 541,232 Acquisition of Subsidiary Bank............................... (6,323) - Cancellation of Shares Held in Treasury...................... (8,130) - Other........................................................ 2,312 5,737 ------------ ------------ Balance, End of Period........................................ 533,576 546,969 ------------ ------------ Retained Earnings: Balance, Beginning of Period.................................. 2,903,394 2,565,627 Net Income................................................... 140,891 107,261 Cash Dividends Declared on Common Stock ($.33 and $.30 per share, respectively)..................... (53,855) (48,280) ------------ ------------ Balance, End of Period ....................................... 2,990,430 2,624,608 ------------ ------------ Fair Value Adjustment on Investment Securities Available-for-Sale: Balance, Beginning of Period.................................. (154,305) (7,012) Change in Fair Value (net of tax)............................ 75,746 (46,741) ------------ ------------ Balance, End of Period........................................ (78,559) (53,753) ------------ ------------ Accumulated Translation Adjustment: Balance, Beginning of Period.................................. 6,942 4,384 Translation Gain (net of tax)................................ 2,676 738 ------------ ------------ Balance, End of Period........................................ 9,618 5,122 ------------ ------------ Deferred Compensation: Balance, Beginning of Period.................................. (17,438) (16,347) Awards Granted............................................... (4,813) (6,378) Amortization of Deferred Compensation........................ 2,337 3,301 Other........................................................ (2,217) 305 ------------ ------------ Balance, End of Period........................................ (22,131) (19,119) ------------ ------------ Treasury Stock: Balance, Beginning of Period.................................. (153,644) - Purchase of Common Stock (3,294,502 shares in 1995).......... (102,493) (3,822) Acquisition ofSubsidiary Bank (4,963,433 shares)............. 153,501 - Cancellation of Shares Held in Treasury...................... 8,400 - Other........................................................ 5,415 3,822 ------------ ------------ Balance, End of Period........................................ (88,821) - ------------ ------------ Total Shareholders' Equity, End of Period...................... $3,504,996 $3,264,699 ============ ============
Page 5 NBD Bancorp, Inc. Consolidated Statement of Cash Flows (in thousands)
Three Months Ended March 31 --------------------------- 1995 1994 ------------ ------------ Cash Flows from Operating Activities: Net Income..................................................................... $ 140,891 $ 107,261 Adjustments to Reconcile Net Income to Net Cash Provided by Operations: Depreciation and Amortization................................................. 27,084 25,512 Provision for Possible Credit Losses.......................................... 20,096 15,460 Securities Gains.............................................................. (1,376) (390) Extraordinary Item - Redemption of Debt....................................... - 7,730 Increase in Interest Receivable............................................... (43,696) (21,869) Increase in Current Income Taxes Payable...................................... 64,552 31,868 (Increase)Decrease in Accrued Expenses........................................ 11,088 (64,651) (Increase)Decrease in Trading Account Investments............................. (3,032) 16,172 Decrease in Mortgages Held for Sale........................................... 8,788 193,239 Other, net.................................................................... (11,129) 5,236 ------------ ------------ Net Cash Provided by Operating Activities................................... 213,266 315,568 ------------ ------------ Cash Flows from Investing Activities: (Increase)Decrease in Interest-Bearing Deposits................................ (7,467) 112,098 Decrease(Increase) in Federal Funds Sold and Resale Agreements................. 278,100 (34,063) Purchase of Investment Securities Available-for-Sale........................... (590,089) (1,201,731) Proceeds from Maturity or Call of Investment Securities Available-for-Sale..... 377,216 579,866 Proceeds from Sale of Investment Securities Available-for-Sale................. 1,251,206 44,889 Purchase of Investment Securities Held-to-Maturity............................. (11,936) (1,664,381) Proceeds from Maturity or Call of Investment Securities Held-to-Maturity....... 274,944 601,114 Increase in Loans and Leases................................................... (935,112) (523,066) Proceeds from Sale of Loan Portfolios.......................................... 6,003 - Purchase of Premises and Equipment and Other Assets............................ (22,501) (222,627) Proceeds from Sale of Premises and Equipment and Other Assets.................. 10,644 19,294 Net Cash Acquired in Purchase of Subsidiaries.................................. 17,290 - ------------ ------------ Net Cash Provided(Used) by Investing Activities.............................. 648,298 (2,288,607) ------------ ------------ Cash Flows from Financing Activities: (Decrease)Increase in Deposits................................................. (2,500,350) 334,733 Increase in Short-Term Borrowings.............................................. 1,796,666 1,560,986 Proceeds from the Issuance of Long-Term Debt................................... 250,000 350,000 Principal Payments on Long-Term Debt........................................... (50,340) (573) Redemption of Long-Term Debt................................................... - (208,734) Proceeds from Stock Option Exercises........................................... 460 132 Payments to Acquire Treasury Stock............................................. (102,493) (3,822) Dividends Paid................................................................. (53,147) (43,411) ------------ ------------ Net Cash (Used)Provided by Financing Activities.............................. (659,204) 1,989,311 ------------ ------------ Effect of Exchange Rate Changes on Cash and Due From Banks...................... (826) (24) ------------ ------------ Net Increase in Cash and Due From Banks......................................... 201,534 16,248 Cash and Due From Banks - Beginning of Period................................... 2,587,007 2,405,694 ------------ ------------ Cash and Due From Banks - End of Period......................................... $ 2,788,541 $ 2,421,942 ============ ============ Other Cash Flow Disclosures: Interest Paid.................................................................. $ 452,466 $ 328,523 State and Federal Taxes Paid................................................... 7,412 23,048
Page 6 Notes to Consolidated Financial Statements ------------------------------------------ Note A - Accounting Policies - ---------------------------- Accounting policies of NBD Bancorp, Inc. and its subsidiaries (the Corporation) are described below. Basis of Presentation: The unaudited consolidated financial statements as of and for the three months ended March 31, 1995 and 1994, are prepared in conformity with generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. These financial statements should be read in conjunction with the consolidated financial statements included in the Corporation's Form 10-K Annual Report for the year ended December 31, 1994. The Corporation has adopted Statement of Financial Accounting Standard (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures," effective January 1, 1995. These statements require that an impaired loan be measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. The adoption of these statements did not have an impact on the Corporation's financial statements. The Corporation has adopted SFAS No. 112, "Employers' Accounting For Postemployment Benefits," effective January 1, 1994. This statement requires the accrual of benefits provided to former or inactive employees after employment but before retirement. The cumulative effect of adopting SFAS No. 112 was a charge of $12,323,000 ($7,885,000 net of income taxes). Consolidation: The consolidated financial statements of the Corporation include the accounts of its subsidiaries, principally NBD Bank (Michigan). All material inter-company accounts and transactions have been eliminated. Investments in unconsolidated affiliates in which ownership is at least 20 percent are accounted for by the equity method and are reported in "Other Assets." Securities: In accordance with SFAS No. 115, Investment Securities are accounted for as follows: (a) Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as Held-to- Maturity and reported at amortized cost; (b) Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as Trading and reported at fair value, with realized and unrealized gains and losses included in Other Non-Interest Income; and (c) Debt and equity securities not classified as Held-to- Maturity or Trading are classified as Available-for-Sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity, net of tax. Page 7 Notes to Consolidated Financial Statements (cont'd.) Gains and losses realized on the sale of Investment Securities are determined on the specific identification method and included in Securities Gains(Losses). Loans: Loans are generally reported at the principal amount outstanding, net of unearned income. Non-refundable loan origination and commitment fees, and certain costs of origination, are deferred and either included in interest income over the term of the related loan or commitment or, if the loan is held for sale, included in Other Non-Interest Income when the loan is sold. Mortgages Held For Sale are valued at the lower of aggregate cost or fair value. Unrealized losses, as well as realized gains or losses, are included in Other Non-Interest Income. Interest income on loans is accrued as earned. Except for consumer loans, loans are placed on non-accrual status and previously accrued but unpaid interest is reversed against current period interest income when collectibility of principal or interest is considered doubtful, payment of principal or interest is 90 days or more past due, or the loan is completely or partially charged off. Interest income on loans considered doubtful or 90 days or more past due is recorded as collected. Collections of principal and interest on charged-off loans are applied in the following sequence: (1) as a reduction of remaining principal balance; (2) as recovery of principal charged off; and (3) as interest income. Consumer loans are not placed on a non-accrual status because they are generally charged off when 120 days to 150 days past due. Accrued but unpaid interest is reversed against current period interest income when the loan is charged off. Allowance for Possible Credit Losses: The Allowance is maintained at a level considered by management to be adequate to provide for probable loan and lease losses inherent in the portfolio. Management's evaluation is based on a continuing review of the loan and lease portfolio and includes consideration of the actual loan and lease loss experience, the present and prospective financial condition of borrowers, the balance of the loan and lease portfolio, industry and country concentrations within the portfolio and general economic conditions. Income Taxes: The Corporation accounts for income taxes in accordance with SFAS No. 109, which requires an asset and liability approach to accounting and reporting for income taxes. Under this approach, current and deferred income taxes payable and refundable are remeasured annually using provisions of then enacted tax laws and rates. SFAS No. 109 also specifies the criteria for recognition and measurement of deferred income tax benefits. Page 8 Notes to Consolidated Financial Statements (cont'd.) Income Per Share: Per share amounts are based on the weighted average number of shares outstanding throughout the period adjusted for the assumed exercise of stock options.
Quarter Ended March 31 ------------------------- 1995 1994 ----------- ----------- Average Shares Outstanding....... 159,463,677 161,099,451
Note B - Investment Securities - ------------------------------ The following is a summary of the amortized cost and fair value of Investment Securities Available-for-Sale and Held-to-Maturity at March 31, 1995:
Investment Securities Available-for-Sale -------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ----------- ----------- (in thousands) U.S. Treasury................................... $ 525,394 $ 2,707 $ 143 $ 527,958 U.S. Government Agencies: Mortgage-backed Securities..................... 1,801,590 656 55,110 1,747,136 Collateralized Mortgage Obligations............ 1,394,722 5,080 28,201 1,371,601 Other.......................................... 206,790 144 358 206,576 States and Political Subdivisions............... 90,453 112 137 90,428 Collateralized Mortgage Obligations(a).......... 103,540 359 140 103,759 Other........................................... 250,236 516 48,153 202,599 ------------ ------------ ----------- ------------ Total......................................... $ 4,372,725 $ 9,574 $ 132,242 $ 4,250,057 ============ ============ =========== ============ Investment Securities Held-to-Maturity -------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ---------- (in thousands) U.S. Treasury................................... $ 517,869 $ 782 $ 5,152 $ 513,499 U.S. Government Agencies: Mortgage-backed Securities..................... 5,449,913 77,274 134,186 5,393,001 Other.......................................... 8,305 6 145 8,166 States and Political Subdivisions............... 1,365,669 69,887 7,098 1,428,458 Other........................................... 500 2 - 502 ------------ ----------- ----------- ------------ Total......................................... $ 7,342,256 $ 147,951 $ 146,581 $ 7,343,626 =========== =========== =========== ============
(a) All of the Collateralized Mortgage Obligations of private issuers have underlying collateral consisting of obligations of U.S. Government Agencies. Page 9 Notes to Consolidated Financial Statements (cont'd.) The following is a summary of the amortized cost and fair value of Investment Securities Available-for-Sale and Held-to-Maturity at December 31, 1994:
Investment Securities Available-for-Sale ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ----------- (in thousands) U.S. Treasury................................. $ 505,540 $ 96 $ 592 $ 505,044 U.S. Government Agencies: Mortgage-backed Securities................... 2,655,673 4 160,195 2,495,482 Collateralized Mortgage Obligations.......... 1,461,321 4,940 45,974 1,420,287 Other........................................ 22,916 1,267 3 24,180 States and Political Subdivisions............. 76,586 33 363 76,256 Collateralized Mortgage Obligations(a)........ 111,351 76 936 110,491 Other......................................... 222,931 459 40,878 182,512 ------------ ----------- ------------ ------------ Total....................................... $ 5,056,318 $ 6,875 $ 248,941 $ 4,814,252 ============ =========== ============ ============
Investment Securities Held-to-Maturity ------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ----------- (in thousands) U.S. Treasury................................. $ 519,656 $ 225 $ 13,145 $ 506,736 U.S. Government Agencies: Mortgage-backed Securities................... 5,664,739 45,612 282,356 5,427,995 Other........................................ 8,420 6 145 8,281 States and Political Subdivisions............. 1,415,398 46,182 23,626 1,437,954 Other......................................... 500 10 - 510 ------------ ------------ ------------ ------------ Total....................................... $ 7,608,713 $ 92,035 $ 319,272 $ 7,381,476 ============ ============ ============ ============
(a) All of the Collateralized Mortgage Obligations of private issuers have underlying collateral consisting of obligations of U.S. Government Agencies. Note C - Allowance For Possible Credit Losses - --------------------------------------------- The Corporation has adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," effective January 1, 1995. Under these statements, a loan is considered impaired when it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. The statements require that an impaired loan be measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. Nonperforming Loans are defined by the Corporation to include loans on which interest is not being accrued, and restructured loans where interest rates have been renegotiated at below market rates. Nonperforming loans totaled $166,746,000 at March 31, 1995, and $180,041,000 at January 1, 1995. Page 10 Notes to Consolidated Financial Statements (cont'd.) For purposes of calculating an impairment reserve in accordance with SFAS No. 114, the Corporation considers all nonperforming loans as meeting the statements' definition of impaired. Large balance nonperforming loans (generally those with balances of $1 million or more) accounted for $118,743,000, or 71 percent, of total nonperforming loans at March 31, 1995, and $148,942,000, or 83 percent, at January 1, 1995, and were individually evaluated to determine a reserve for impairment. The impairment reserve included in the Allowance for Possible Credit Losses balances disclosed below amounted to $1,721,000 at March 31, 1995, and $535,000 at January 1, 1995. Other nonperforming loans were collectively evaluated for impairment, along with the performing loan and lease portfolio. The average balance of nonperforming loans was $169,383,000 for the three months ended March 31, 1995. Interest income recognized during the time the loans were impaired was $2,564,000 (of which $2,464,000 was recorded on a cash basis). The changes in the Allowance for Possible Credit Losses are summarized below:
Quarter Ended March 31 ---------------------- 1995 1994 ---------- ---------- (in thousands) Balance, Beginning of Period........ $ 435,051 $423,030 Provision.......................... 20,096 15,460 Charge-offs........................ (19,239) (31,044) Recoveries......................... 19,743 15,674 ---------- ---------- Net (Charge-offs)Recoveries....... 504 (15,370) Acquisition and Other.............. 2,506 290 ---------- ---------- Balance, End of Period............ $458,157 $423,410 ========== ==========
Note D - Assets Pledged - ----------------------- Assets, principally Investment Securities, carried at approximately $6,587,596,000 were pledged at March 31, 1995, to secure public deposits (including deposits of $44,206,000 of the Treasurer, State of Michigan), repurchase agreements and for other purposes required by law. Note E - Extraordinary Item - ---------------------------- On March 15, 1994, an extraordinary item charge of $7,730,000 (net of income taxes) was incurred, representing the premium paid and unamortized issuance costs related to the Corporation's call and redemption of the $199,985,000 7.25% Convertible Subordinated Debentures Due 2006. Note F - Other Commitments and Contingent Liabilities - ------------------------------------------------------ In the normal course of business the Corporation and its subsidiaries have various outstanding commitments and contingent liabilities, including guarantees, commitments to extend credit, foreign exchange futures contracts, etc., which are not reflected in the financial statements. Management does not anticipate any material loss as a result of these transactions. The Corporation is a defendant in various legal proceedings arising in the normal course of business. In the opinion of management, based on the advice of legal counsel, the ultimate resolution of these proceedings will not have a material effect on the Corporation's financial position. Outstanding standby letters of credit at March 31, 1995, totaled approximately $2,126,000,000. -----END PRIVACY-ENHANCED MESSAGE-----