-----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, Wr1en+zDZFc6qx0MlWmxFmInqjseMNdLuS06bwoE6PIgnJoVlZL/0YRs/rz3tZ0w K0OJ7Q3hLiw6yOordOLT6A== 0000950124-95-000748.txt : 19950615 0000950124-95-000748.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950124-95-000748 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950317 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NBD BANCORP INC /DE/ CENTRAL INDEX KEY: 0000070040 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 381984850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07127 FILM NUMBER: 95521582 BUSINESS ADDRESS: STREET 1: 611 WOODWARD AVE CITY: DETROIT STATE: MI ZIP: 48226 BUSINESS PHONE: 3132251000 MAIL ADDRESS: STREET 1: NBD BANCORP INC STREET 2: 611 WOODWARD AVE CITY: DETROIT STATE: MI ZIP: 48226 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL DETROIT CORP DATE OF NAME CHANGE: 19810522 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION FORM 10-K Washington, D.C. 20549 - -------------------------------------------------------------------------------- (Mark One) /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the fiscal year ended DECEMBER 31, 1994 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] Commission File Number 1-7127 - -------------------------------------------------------------------------------- NBD BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 38-1984850 611 WOODWARD AVENUE, (State or other jurisdiction (IRS Employer DETROIT, MICHIGAN 48226 of incorporation or Identification No.) (Address of principal organization) executive offices)
(313) 225-1000 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------------------------------------- ------------------------------ Common Stock, $1.00 par value New York Stock Exchange, Inc. 7 1/2% Preferred Purchase Units New York Stock Exchange, Inc. 7 1/4% Subordinated Debentures Due 2004 New York Stock Exchange, Inc. 8.10% Subordinated Notes Due 2002 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / As of February 21, 1995, 160,099,984 shares of common stock of the Registrant were outstanding (exclusive of treasury shares). The aggregate market value of the shares of common stock as of such date (based on the closing price on the New York Stock Exchange) held by non-affiliates was approximately $5,023,000,000. Documents incorporated by reference: Part III: Items 10-13 -- Part of definitive 1995 Proxy Statement of the Registrant to be filed pursuant to Regulation 14A. - -------------------------------------------------------------------------------- 2 NBD BANCORP, INC.
- ---------------------------------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ---- PART I Item 1. Business............................................................................ 1 Item 2. Properties.......................................................................... 4 Item 3. Legal Proceedings................................................................... 5 Item 4. Submission of Matters to a Vote of Security Holders................................. 5 Executive Officers of the Registrant................................................ 5 PART II Item 5. Market for the Corporation's Common Equity and Related Shareholder Matters.......... 6 Item 6. Selected Financial Data............................................................. 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... 8 Item 8. Financial Statements and Supplementary Data......................................... 38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................................................... 73 PART III Item 10. Directors and Executive Officers of the Registrant.................................. 74 Item 11. Executive Compensation.............................................................. 74 Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 74 Item 13. Certain Relationships and Related Transactions...................................... 74 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................... 75 Signatures......................................................................................... 77
3 PART I ITEM 1. BUSINESS - ---------------- INTRODUCTION - ------------ NBD Bancorp, Inc. (the Corporation) is a bank holding company incorporated under the laws of the State of Delaware on July 14, 1972. Through bank subsidiaries in Michigan, Illinois, Indiana, Ohio and Florida, the Corporation provides domestic retail banking, worldwide commercial banking, cash management, trust and investment management services. The Corporation also engages in mortgage lending and servicing, insurance, leasing, community development, discount brokerage and data processing activities through its bank-related subsidiaries to the extent permitted by the Bank Holding Company Act of 1956, as amended. The Corporation and its subsidiaries employ approximately 17,800 persons on a full-time equivalent basis. At December 31, 1994, the Corporation and its subsidiaries had total assets of $47.1 billion, total deposits of $33.2 billion and shareholders' equity of $3.3 billion. Based on rankings by total assets as of December 31, 1994, the Corporation was the 18th largest bank holding company in the United States. Detailed financial information about the Corporation is presented under Part II later in this Form 10-K and is incorporated by reference herein. SUBSIDIARIES - ------------ NBD BANK (MICHIGAN) The principal subsidiary of the Corporation is NBD Bank, headquartered in Detroit, Michigan, which remains the largest single contributor to the Corporation's earnings. NBD Bank accounted for approximately 67 percent of the consolidated assets and 71 percent of the consolidated net income of the Corporation in 1994. NBD Bank was originally organized under the National Bank Act in 1933 under the name "National Bank of Detroit," changed its name in 1990 to "NBD Bank, National Association," and as of year-end 1994 became "NBD Bank" when it converted its charter to that of a state member bank under the laws of the State of Michigan. It was the largest bank in the State of Michigan and among the 20 largest commercial banks in the United States based on total deposits as of year-end 1994. At December 31, 1994, it operated 320 banking offices located throughout the lower peninsula of Michigan. The Bank maintains correspondent relationships with banks and savings associations throughout the country, including many of the largest commercial banking organizations in the United States. International banking activities of NBD Bank include operations in the Euro-Currency markets, the extension of lines of credit, export and import financing, making credit facilities available to foreign firms and subsidiaries of United States corporations, foreign exchange transactions and issuance of letters of credit. This international business is conducted (a) through the International Division in the main office in Detroit, (b) through full-service branch offices located in London, Frankfurt, Tokyo and Hong Kong as well as Adelaide, Melbourne and Sydney, Australia, (c) through an off-shore banking facility in Nassau, Bahamas, (d) through a wholly-owned Edge Act subsidiary, the International Bank of Detroit (IBD), (e) through a wholly-owned Canadian banking subsidiary, NBD Bank, Canada, and (f) through an International Banking Facility. IBD is authorized, subject to government regulations, to make both equity investments and loans overseas. These overseas facilities are supplemented by a network of correspondent banks in more than 100 foreign countries. NBD Bank's activities in foreign exchange markets are conducted primarily to service the needs of its customers. Foreign exchange risks are controlled through detailed counterparty limits for purchases, sales and one-day risk at liquidation, preapproved position limits, and closely supervised and controlled maturity gaps. OTHER SIGNIFICANT SUBSIDIARIES In recent years, the Corporation has expanded significantly through selective acquisitions, primarily in its Midwest market, as well as through steady internal growth. On January 7, 1995, the Corporation entered into an agreement to acquire Deerbank Corporation of Deerfield, Illinois, a one-thrift holding company with assets of approximately $800 million. The Corporation anticipates the acquisition will close, and the thrift subsidiary will be merged into the Corporation's Illinois bank subsidiary, mid-year 1995. On January 9, 1995, the Corporation acquired AmeriFed Financial Corp. of Joliet, Illinois, a one-thrift holding company with assets of approximately $900 million, and merged that thrift subsidiary into the Corporation's Illinois bank subsidiary. In 1992, the Corporation acquired three bank holding companies in Indiana, and during 1993 merged the 12 Indiana bank 1 4 subsidiaries of those acquired companies into a single bank. That subsidiary had deposits of approximately $8.1 billion at December 31, 1994, making it the largest bank in Indiana. Between 1987 and 1991, the Corporation acquired four bank holding companies in Illinois, and in December 1992 merged 17 of the Illinois bank subsidiaries of those acquired companies into a single bank. That subsidiary had deposits of approximately $4.0 billion at December 31, 1994, making it the seventh largest bank in Illinois. The Corporation has also expanded through acquisitions from federal agencies. During 1990, it acquired from the Resolution Trust Corporation approximately $1.1 billion in deposits and selected assets of three thrifts located in Michigan, Ohio and Florida. The Corporation will continue to regularly explore opportunities for additional acquisitions of financial institutions and related businesses. Such acquisitions may be made by the exchange of the Corporation's stock, through cash purchases, or with other consideration. The foregoing acquisitions have enhanced the Corporation's geographic diversity outside of the State of Michigan, particularly in the States of Indiana and Illinois where operations are conducted through second-tier bank holding companies. At December 31, 1994, NBD Indiana, Inc. had consolidated total assets of $10.5 billion, while NBD Illinois, Inc. had consolidated total assets of $5.4 billion. Additional details of the operations of the Corporation's subsidiaries are set forth under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Organizational Performance" later in this Form 10-K and are incorporated by reference herein. LINES OF BUSINESS - ----------------- The three primary lines of business from which the Corporation derives most of its income are corporate banking, retail banking and trust services. A commitment to the development and use of advanced technology has been a key to growth and cost control in all three of these areas. CORPORATE BANKING Services to industry, commerce and government include the maintenance of demand and time deposit accounts and the granting of various types of loans, including loans under lines of credit and revolving credits, term loans, real estate mortgage loans and other specialized loans. In addition, the Corporation's subsidiaries provide financial advisory services and numerous other banking services to its customers. These subsidiaries serve the requirements of large and small industrial and commercial enterprises throughout the Midwest. The Corporation and its subsidiaries also have important banking relationships with many major corporations throughout the country. RETAIL BANKING The retail banking business consists of traditional consumer deposit and loan services, mortgage banking, electronic banking services and safe deposit facilities. Services to individuals include demand, savings and time accounts, charge cards and other open-end credit products, and a variety of installment and mortgage loans. The Corporation has achieved significant growth in this line of business in recent years and has expanded product offerings to include auto leasing, student loans, manufactured housing loans, marine loans, home equity loans and private label credit cards. The Corporation also makes a variety of non-deposit investments, including mutual funds and annuities, available in its branch offices either directly or through a third party marketer (when advisable under applicable state laws) under the name Charterpoint Investment Centers. TRUST SERVICES The Corporation's subsidiaries furnish a wide range of trust services to individuals, corporations, municipalities and charitable organizations. In terms of total trust assets administered, the trust operation of NBD Bank is one of the largest among commercial banks in the United States. NBD Bank and the Corporation's other bank subsidiaries act as trustee of personal, corporate, pension, profit-sharing and other employee-benefit trusts, provide investment advisory and custody services, act as executor, administrator, personal representative and trustee of estates, and act as registrar, fiscal and paying agent for corporations. NBD Bank also serves as investment advisor to The Woodward Funds, a mutual fund family of fourteen funds covering a wide variety of investment objectives. As of December 31, 1994, The Woodward Funds ranked as the tenth largest bank-managed fund family in the country, with approximately $6.0 billion in assets. 2 5 TECHNOLOGY The Corporation has made a strong commitment to the development and use of advanced technology across its various lines of business in order to produce low-cost, high-quality products and generate fees. This technological sophistication enables the Corporation and its subsidiaries to realize economies of scale, especially in its newly acquired operations, and to enhance staff productivity. Prominent technological involvements include the operation, under contract with MasterCard, of the computerized transaction routing switch for CIRRUS, a national shared network of automated teller machines (ATMs); and the operation of a similar routing switch for Magic Line, Inc., a regional shared network of ATMs in which the Corporation has an ownership interest. In addition, the Corporation and its subsidiaries are actively involved in technology-based cash management services for the wholesale and middle market, merchant and issuer credit card processing, telephone bill payment services and telephone banking centers. COMPETITION - ----------- Active competition exists in all principal areas where the Corporation, its bank subsidiaries, and its bank-related subsidiaries are presently engaged, not only with other commercial banks, but also with savings associations, securities brokers, mutual funds, credit unions, finance companies, mortgage bankers, leasing companies, insurance companies and other domestic and foreign financial institutions and various non-financial intermediaries. GOVERNMENT AND MONETARY POLICIES - -------------------------------- The operations of financial institutions may be affected by legislative changes and by the policies of various regulatory authorities. In particular, bank holding companies and their subsidiaries are affected by the credit policies of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) through its regulation of the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve Board to implement its objectives are open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements on bank deposits. REGULATION AND SUPERVISION - -------------------------- Bank holding companies, banks and financial institutions generally are highly regulated, with numerous federal and state laws and regulations governing their activities. As a bank holding company, the Corporation is subject to regulation under the Bank Holding Company Act of 1956, as amended (the Act) and is subject to examination and supervision by the Federal Reserve Board. Under the Act the Corporation is prohibited, with certain exceptions, from acquiring or retaining direct or indirect ownership or control of voting shares of any company that is not a bank or bank holding company, and from engaging in activities other than those of banking or of managing or controlling banks, other than subsidiary companies and activities that the Federal Reserve Board determines to be so closely related to the business of banking as to be a proper incident thereto. The acquisition of direct or indirect ownership or control of a bank or bank holding company by the Corporation is also subject to certain restrictions under the Act and applicable state laws. Various federal and state laws govern the operations of the Corporation's bank subsidiaries. The national bank subsidiaries of the Corporation are supervised and regulated by the Office of the Comptroller of the Currency under the National Bank Act. Since national banks are also members of the Federal Reserve System and their deposits are insured by the Federal Deposit Insurance Corporation (FDIC), they are also subject to the applicable provisions of the Federal Reserve Act and the Federal Deposit Insurance Act and, in certain respects, to state laws applicable to financial institutions. NBD Bank and the other state-chartered bank subsidiaries of the Corporation are, in general, subject to the same or similar restrictions and regulations, but with more extensive regulation and examination by state banking departments, the Federal Reserve Board for Federal Reserve member banks, and the FDIC. NBD Bank, Federal Savings Bank (Florida) is under the regulatory authority of the Office of Thrift Supervision, Department of Treasury. The Corporation is a legal entity separate and distinct from its affiliate banks and its non-banking subsidiaries. Accordingly, the right of the Corporation, and thus the right of the Corporation's creditors and shareholders, to participate in any distribution of the assets or earnings of any affiliate bank or other subsidiary is necessarily subject to the prior claims of creditors of such affiliate bank or subsidiary. The principal source of the Corporation's revenues is dividends and fees from its affiliates. There are legal limitations on the extent to which 3 6 the Corporation's subsidiary banks can lend or otherwise supply funds to the Corporation or certain of its affiliates. Federal law prevents the Corporation from borrowing from its subsidiary banks unless the loans are secured by specified obligations and, with respect to the Corporation or any single non-bank affiliate, such secured loans by any subsidiary bank are generally limited to 10 percent of the subsidiary bank's capital and surplus and, with respect to the Corporation and all of its non-bank affiliates, to an aggregate of 20 percent of the subsidiary bank's capital and surplus. In addition, payment of dividends to the Corporation by subsidiary banks is subject to various state and federal regulatory limitations. Net assets of the Corporation's subsidiary banks totaled $3,544.0 million at December 31, 1994, of which approximately $2,575.0 million was not available for dividends or loans. In 1995, the Corporation's bank subsidiaries may distribute to the Corporation (in addition to their 1995 net income) approximately $602.0 million in dividends without the prior approval of bank regulatory agencies. In addition, federal bank regulatory agencies have the authority to prohibit the banking organizations they supervise from engaging in what, in the bank regulator's opinion, constitutes an unsafe or unsound practice in conducting its business. Depending upon the financial condition of a bank, the payment of dividends could be deemed to constitute such an unsafe or unsound practice. Recent banking legislation, including particularly the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), has broadened the regulatory powers of the federal bank regulatory agencies. Among other things, FIRREA contains a "cross-guarantee" provision which could result in insured depository institutions owned by the Corporation being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other insured depository institution owned by the Corporation. In addition, under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support such subsidiary bank. As a result of such policies, the Corporation could be required to commit resources to its subsidiary banks in circumstances where it might not do so absent such policies. FDICIA revises sections of the Federal Deposit Insurance Act affecting bank regulation, deposit insurance and provisions for funding of the Bank Insurance Fund (BIF) administered by the FDIC. FDICIA also revises bank regulatory structures embodied in several other federal banking statutes, strengthens the bank regulators' authority to intervene in cases of deterioration of a bank's capital level, places limits on real estate lending and imposes detailed audit requirements. Among the significant revisions that could have an impact on each of the Corporation and its banking subsidiaries is the authority granted the FDIC to impose special assessments on insured depository institutions to repay FDIC borrowings from the United States Treasury or other sources and to establish semiannual assessment rates on BIF-member banks so as to maintain the BIF at the designated reserve ratio defined in FDICIA. FDICIA also provides for implementation of a system of risk-based premiums for deposit insurance. Under a risk-based insurance assessment system that became effective January 1, 1994, the FDIC places each insured bank in a risk category based on the bank's level of capital and other relevant information (such as supervisory evaluations). Proposals to change the laws and regulations governing banks, companies that control banks, and other financial institutions are frequently raised in Congress, in the state legislatures and before the various bank regulatory agencies. For example, legislation enacted in 1994 permits nationwide interstate bank acquisitions and branching, generally phased in over the next several years, and requires bank regulatory agencies to reduce the regulatory burden applicable to banks and their holding companies. The impact, positive or negative, such legislation or other statutory or regulatory changes might have on the Corporation's business is difficult to determine. The bank-related subsidiaries of the Corporation are also supervised and examined by the Federal Reserve Board as well as other applicable regulatory agencies. For example, the Corporation's discount brokerage subsidiaries are subject to supervision and regulation by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. and state securities regulators. Other bank-related subsidiaries are subject to other extensive laws and regulations of both the federal government and the various states in which they are authorized to do business. ITEM 2. PROPERTIES - ------------------ The executive offices of the Corporation are located in the main office of NBD Bank, a 14-story building in the central financial and business district of Detroit. This building, which has two additional floors below the street level, is owned by NBD Bank and occupied exclusively by NBD Bank, the Corporation and other direct and indirect subsidiaries of the Corporation. The Corporation also owns a 14-story, 300,000 square foot office 4 7 building in Troy, Michigan, and a 380,000 square foot Technology Center in Van Buren Township, Wayne County, Michigan, near Detroit Metropolitan Airport. During 1993, NBD Bank acquired approximately 143 acres of land in Farmington Hills, Michigan for possible future facility needs. As of December 31, 1994, the Corporation's subsidiaries operated 854 offices within the United States of which 516 are owned by such subsidiaries and 338 are leased. Foreign offices in London, Frankfurt, Tokyo, Hong Kong, Canada and Australia are located in leased premises. Historic rental expense and anticipated rental payments are set forth under "Item 8. Financial Statements and Supplementary Data -- Note 6. Premises and Equipment" and are incorporated by reference herein. All of these properties are considered by management to be suitable and adequate for the purpose intended. ITEM 3. LEGAL PROCEEDINGS - ------------------------- 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The executive officers of the Corporation as of February 1, 1995, are as follows:
EXECUTIVE OFFICER NAME POSITION SINCE AGE - ---------------------------- -------------------------------------------------------- --------- --- Verne G. Istock............. Chairman and Chief Executive Officer.................... 1982 54 Thomas H. Jeffs II.......... President and Chief Operating Officer................... 1982 56 Frederick M. Adams, Jr. .... Executive Vice President................................ 1990 50 Gordon S. Crimmins.......... Executive Vice President................................ 1992 60 Robert A. DeAlexandris...... Executive Vice President................................ 1989 54 Philip S. Jones............. Executive Vice President, Treasurer and Chief Financial Officer................................. 1989 52 James R. Lancaster.......... Executive Vice President................................ 1992 63 Thomas J. McDowell.......... Executive Vice President................................ 1995 56 Susan S. Moody.............. Executive Vice President................................ 1995 41 Donald M. Nowicki........... Executive Vice President................................ 1994 63 Andrew J. Paine, Jr. ....... Executive Vice President................................ 1992 57 Gerald K. Hanson............ Senior Vice President and Comptroller................... 1981 63
Officers of the Corporation are elected in the spring of each year at the annual organizational meeting of the Board of Directors to serve for the ensuing year and until their successors are elected and qualified. All of the executive officers of the Corporation named above have held various positions with NBD Bank or its affiliates or their predecessors for more than five years. There is no family relationship between any of the executive officers, nor is there any arrangement or understanding between any such officer and any other person pursuant to which the officer was elected. 5 8 PART II ITEM 5. MARKET FOR THE CORPORATION'S COMMON EQUITY AND RELATED - --------------------------------------------------------------- SHAREHOLDER MATTERS ------------------- The 155,908,672 shares of common stock of the Corporation outstanding at December 31, 1994, had a market value of $4.3 billion and were held by approximately 26,000 individual and institutional recordholders located throughout the United States and several foreign countries. On March 15, 1994, the Corporation called for redemption the $199,985,000 of 7 1/4% Convertible Subordinated Debentures at a redemption price of $1,050.75 per $1,000 of principal outstanding. A nominal amount of debentures was converted into the Corporation's common stock before the redemption date at the conversion price of $30.40 per share. Since April 1986, NBD Bancorp, Inc. common stock has been included in the Standard & Poor's 500 index. The index is composed of 400 industrials, 40 utilities, 40 financial firms and 20 transportation companies. The following table lists the high and low prices of the Corporation's common stock, which trades on the New York Stock Exchange (ticker symbol -- NBD), as well as the quarterly dividends declared per share, in each of the last three years.
PRICE RANGE OF COMMON STOCK DIVIDENDS --------------- DECLARED HIGH LOW PER SHARE ----- ----- ------------ 1992 First Quarter...................................... $31 5/8 $28 1/8 $ 0.25 Second Quarter..................................... 29 5/8 26 3/4 0.25 Third Quarter...................................... 30 1/2 28 1/8 0.27 Fourth Quarter..................................... 33 1/8 27 0.27 ------ $ 1.04 ====== 1993 First Quarter...................................... $36 3/8 $31 3/8 $ 0.27 Second Quarter..................................... 36 1/4 29 5/8 0.27 Third Quarter...................................... 34 3/8 31 3/8 0.27 Fourth Quarter..................................... 34 5/8 28 5/8 0.27 ------ $ 1.08 ====== 1994 First Quarter...................................... $30 3/4 $27 1/4 $ 0.30 Second Quarter..................................... 32 27 3/8 0.30 Third Quarter...................................... 33 28 3/8 0.30 Fourth Quarter..................................... 31 26 3/4 0.33 ------ $ 1.23 ======
6 9 ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- The following selected financial data should be read in conjunction with the Corporation's consolidated financial statements and the accompanying notes presented elsewhere herein.
YEAR ENDED DECEMBER 31 ------------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) SUMMARY OF OPERATING RESULTS: Interest Income........................ $ 2,915,394 $ 2,622,820 $ 2,843,797 $ 3,138,893 $ 3,320,312 Interest Expense....................... (1,290,626) (1,064,713) (1,334,026) (1,800,759) (2,077,923) ----------- ----------- ----------- ----------- ----------- Net Interest Income.................... 1,624,768 1,558,107 1,509,771 1,338,134 1,242,389 Provision for Possible Credit Losses... (52,032) (119,674) (228,480) (166,212) (151,086) Non-Interest Income.................... 545,566 585,383 529,208 473,027 412,339 Non-Interest Expenses.................. (1,304,270) (1,321,840) (1,338,119) (1,161,127) (1,055,774) ----------- ----------- ----------- ----------- ----------- Income before Income Taxes............. 814,032 701,976 472,380 483,822 447,868 Income Tax Expense..................... (266,753) (220,135) (134,361) (122,288) (99,319) ----------- ----------- ----------- ----------- ----------- Income before Extraordinary Item and Cumulative Effect of Accounting Change............................... 547,279 481,841 338,019 361,534 348,549 Extraordinary Item (Redemption of Debt)............................. (7,730) -- -- -- -- Cumulative Effect of Accounting Change............................... (7,885) 3,950 (37,885) -- -- ----------- ----------- ----------- ----------- ----------- Net Income............................. $ 531,664 $ 485,791 $ 300,134 $ 361,534 $ 348,549 =========== =========== =========== =========== =========== Net Income Per Share (on average shares outstanding): Income before Extraordinary Item and Cumulative Effect of Accounting Change............................... $ 3.45 $ 2.98 $ 2.11 $ 2.27 $ 2.19 Extraordinary Item (Redemption of Debt)............................. (0.05) -- -- -- -- Cumulative Effect of Accounting Change............................... (0.05) 0.03 (0.24) -- -- ----------- ----------- ----------- ----------- ----------- Net Income............................. $ 3.35 $ 3.01 $ 1.87 $ 2.27 $ 2.19 =========== =========== =========== =========== =========== COMMON STOCK DATA: Dividends Declared Per Share........... $ 1.23 $ 1.08 $ 1.04 $ 0.95 $ 0.91 Book Value Per Share (Period-end)...... $ 21.11 $ 20.21 $ 18.34 $ 17.26 $ 15.98 BALANCE SHEET DATA (PERIOD-END): Shareholders' Equity................... $ 3,291,543 $ 3,248,599 $ 2,940,893 $ 2,716,137 $ 2,533,339 Long-Term Debt......................... $ 2,504,348 $ 1,434,947 $ 975,381 $ 533,571 $ 325,216 Total Assets........................... $47,111,133 $40,775,905 $40,937,190 $38,760,388 $36,879,336 CAPITAL RATIOS (PERIOD-END): Tier 1 Capital Ratio (Minimum -- 4%)... 8.44% 9.13% 8.48% 8.19% 8.26% Total Capital Ratio (Minimum -- 8%).... 12.50% 13.61% 12.01% 10.68% 10.16% Tier 1 Leverage Ratio (Minimum -- 3%).................................. 6.77% 7.33% 6.46% 6.24% 6.30%
7 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ----------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The following discussion and analysis covers the significant factors affecting the Corporation's consolidated balance sheet and income statement from 1992 to 1994. It provides shareholders with more comprehensive information on the operating results and financial position than can be obtained from examination of the financial statements alone. To establish a framework for this discussion, the major components of the Corporation's operating results for 1994, 1993 and 1992 are summarized in the following table and then discussed in greater detail on subsequent pages.
YEAR ENDED DECEMBER 31 ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (IN THOUSANDS) Net Interest Income........................................... $1,624,768 $1,558,107 $1,509,771 Add: Taxable Equivalent Adjustment............................ 63,608 72,316 81,081 ---------- ---------- ---------- Net Interest Income (taxable equivalent basis)................ 1,688,376 1,630,423 1,590,852 Less: Provision for Possible Credit Losses.................... (52,032) (119,674) (228,480) Non-Interest Income........................................... 545,566 585,383 529,208 ---------- ---------- ---------- Total Income after Provision for Possible Credit Losses... 2,181,910 2,096,132 1,891,580 ---------- ---------- ---------- Compensation.................................................. 720,733 703,744 676,240 Other Non-Interest Expenses................................... 583,537 618,096 661,879 ---------- ---------- ---------- Total Non-Interest Expenses............................... 1,304,270 1,321,840 1,338,119 ---------- ---------- ---------- Tax Equivalent Operating Income........................ 877,640 774,292 553,461 ---------- ---------- ---------- Less: Income Tax Expense.......................................... 266,753 220,135 134,361 Taxable Equivalent Adjustment............................... 63,608 72,316 81,081 ---------- ---------- ---------- Total Tax Expense (taxable equivalent basis).............. 330,361 292,451 215,442 ---------- ---------- ---------- Income before Extraordinary Item and Cumulative Effect of Accounting Change...................................... 547,279 481,841 338,019 Extraordinary Item (net of income tax effect)............. (7,730) -- -- Cumulative Effect of Accounting Change (net of income tax effect)................................................ (7,885) 3,950 (37,885) ---------- ---------- ---------- Net Income.................................................... $ 531,664 $ 485,791 $ 300,134 ========== ========== ==========
NET INTEREST INCOME In the summary of operating results shown above, the excess of interest earned on assets, including loan fees and lease financing income, over the interest paid for funds is designated "Net Interest Income." An adjustment to this figure has been made that increases fully or partially tax-exempt interest income to an amount comparable to interest subject to normal income taxes. An offsetting adjustment of the same amount is made in the income tax section of the earnings summary. Therefore, the final earnings figure remains the same before and after this taxable equivalent adjustment. Net interest income on a fully taxable equivalent (FTE) basis is the largest source of earnings for the Corporation. It accounted for 75.6 percent of total income before any provision for possible credit losses in 1994, 73.6 percent in 1993 and 75.0 percent in 1992. It is influenced primarily by changes in: (1) the volume and mix of earning assets and sources of funding; (2) market rates of interest, and (3) income tax rates. While the impact of some of these factors can be controlled by management policies and actions, external factors also can have a significant impact on changes in net interest income from one period to another. Examples of such exogenous factors are: (1) Federal Reserve Board monetary policy; (2) the strength of credit demand by customers; (3) liquidity and maturity preferences of savings and time deposit customers, and (4) fiscal and debt management policies of the federal government, including changes in tax laws. 8 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The following table presents average daily balances, interest income on an FTE basis and interest expense, as well as average rates earned and paid on the Corporation's major asset and liability items, for the years 1994, 1993 and 1992.
YEAR ENDED DECEMBER 31 -------------------------------------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------- ---------------------------------- ---------------------------------- AVERAGE AVERAGE AVERAGE INTEREST RATE INTEREST RATE INTEREST RATE AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID ------- --------- ------- ----------- ---------- ------- ----------- ---------- ------- (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) ASSETS: Interest-Bearing Deposits....... $ 651,445 $ 32,736 5.03% $ 657,010 $ 34,185 5.20% $ 759,645 $ 47,556 6.26% Federal Funds Sold and Resale Agreements..... 191,954 8,688 4.53 150,985 4,820 3.19 153,818 5,921 3.85 Trading Account Securities..... 142,231 6,856 4.82 147,113 5,492 3.73 216,880 9,268 4.27 Money Market Investments.... -- -- -- 51,728 2,138 4.13 48,365 3,709 7.67 Investment Securities: U.S. Treasury.. 1,379,274 75,549 5.48 1,593,508 87,479 5.49 1,362,015 83,918 6.16 U.S. Government Agencies..... 8,987,236 589,373 6.56 6,642,221 467,444 7.04 6,200,998 498,902 8.05 States and Political Subdivisions.. 1,481,411 132,559 8.95 1,541,269 132,491 8.60 1,739,332 157,007 9.03 Other.......... 346,655 18,215 5.25 476,901 21,717 4.55 1,051,712 60,188 5.72 ----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------ Total Investment Securities..... 12,194,576 815,696 6.69 10,253,899 709,131 6.92 10,354,057 800,015 7.73 ----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------ Loans and Leases (Net of Unearned): Domestic: Commercial... 14,407,804 1,110,969 7.71 13,696,047 960,838 7.02 13,281,779 989,671 7.45 Real Estate Construction.. 768,391 60,773 7.91 813,461 59,112 7.27 993,448 73,054 7.35 Residential Mortgage... 3,012,361 227,092 7.54 2,784,146 229,799 8.25 2,914,692 263,968 9.06 Consumer..... 7,147,999 614,950 8.60 6,492,505 594,229 9.15 6,125,993 613,827 10.02 Lease Financing... 307,974 30,456 9.89 258,266 29,312 11.39 264,846 31,950 12.10 Foreign........ 1,145,894 70,786 6.18 1,069,098 66,080 6.18 1,114,760 85,939 7.71 ----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------ Total Loans and Leases... 26,790,423 2,115,026 7.89 25,113,523 1,939,370 7.72 24,695,518 2,058,409 8.34 ----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------ Total Earning Assets/Total Interest Income... 39,970,629 $2,979,002 7.45% 36,374,258 $2,695,136 7.41% 36,228,283 $2,924,878 8.07% ---------- ------- ---------- ----- --------- ----- Cash and Due From Banks..... 2,372,237 2,359,047 2,087,194 Other Assets.... 2,025,150 1,692,889 1,716,868 Allowance for Possible Credit Losses......... (433,707) (433,851) (407,942) ----------- ----------- ----------- TOTAL ASSETS... $43,934,309 $39,992,343 $39,624,403 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-Bearing Deposits: Savings........ $ 7,794,524 $ 182,880 2.35% $ 7,251,664 $ 182,762 2.52% $ 6,278,690 $ 197,770 3.15% Money Market Accounts..... 5,277,710 163,212 3.09 5,917,755 166,002 2.81 6,029,589 206,392 3.42 Time........... 8,962,402 402,293 4.49 8,803,831 399,461 4.54 11,098,035 602,878 5.43 Foreign Office Time*........ 2,698,891 124,805 4.62 1,741,225 79,650 4.57 1,614,981 101,674 6.30 ----------- ---------- ------- ----------- ---------- ------- ----------- ---------- ------- Total Interest-Bearing Deposits........ 24,733,527 873,190 3.53 23,714,475 827,875 3.49 25,021,295 1,108,714 4.43 ----------- ---------- ------ ----------- ---------- ------ ----------- ---------- ------ Short-Term Borrowings..... 6,647,405 290,624 4.37 4,994,163 156,227 3.13 4,624,260 166,756 3.61 Long-Term Debt........... 2,060,962 126,812 6.15 1,229,564 80,611 6.56 803,950 58,556 7.28 ----------- ---------- ------ ----------- ---------- ------ ---------- --------- ----- Total Interest-Bearing Liabilities/ Total Interest Expense... 33,441,894 $1,290,626 3.86% 29,938,202 $1,064,713 3.56% 30,449,505 $1,334,026 4.38% ---------- ------ --------- ------ --------- ----- Demand Deposits....... 6,305,115 6,097,730 5,483,688 Other Liabilities.... 881,978 836,489 815,494 Shareholders' Equity......... 3,305,322 3,119,922 2,875,716 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $43,934,309 $39,992,343 $39,624,403 ========== ========== ========== Interest Spread (Average Rate Earned Minus Average Rate Paid).......... 3.59% 3.85% 3.69% ====== ===== ===== Net Interest Income (FTE)... $1,688,376 $1,630,423 $1,590,852 ========= ========= ========= Net Interest Margin (FTE) (Net Interest Income/Total Earning Assets)........ 4.22% 4.48% 4.39% ====== ===== =====
- ------------------------- * Primarily $100,000 and over. Notes: (1) Non-accrual loans are included in average balances. (2) The FTE adjustments are computed using a combined federal and state income tax rate of 36.4 percent in 1994 and 1993 and 35.4 percent in 1992. (3) The combined amounts for Investment Securities Available-for-Sale and Held-to-Maturity for 1994 are based on their respective carrying values. Based on the amortized cost of Investment Securities Available-for-Sale, the combined average balance for 1994 would be $12,316,037,000 and the average rate earned would be 6.62%. (4) Residential Mortgage includes Mortgages Held for Sale. 9 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net interest income on an FTE basis increased by $58.0 million, or 3.6 percent, in 1994 following the increase of $39.6 million, or 2.5 percent, in 1993. A better understanding of the factors accounting for the year-to-year increases in net interest income can be obtained by examining the changes in: (1) the volume of earning assets and (2) the net interest income produced after the related cost of funding these earning assets. The following table allocates total interest income between the amounts earned at the "interest spread" on assets funded with: (1) interest-bearing liabilities and (2) non-interest-bearing liabilities (primarily demand deposits and equity capital). The interest spread on earning assets funded by interest-bearing liabilities is defined as the difference between the average rate earned on total earning assets and the average rate paid on total interest- bearing liabilities. The interest spread on assets funded with non-interest-bearing sources of funds is simply the rate earned on total earning assets. The $58.0 million increase in total net interest income between 1993 and 1994 can be attributed primarily to the higher level of earning assets funded with interest-bearing liabilities, which more than offset the reduced interest spread (3.59 percent in 1994 versus 3.85 percent in 1993) earned on these earning assets. The balance of the increase in net interest income can be accounted for by the modestly higher level of earning assets that were funded with non-interest-bearing funds at a slightly higher interest spread (7.45 percent in 1994 versus 7.41 percent in 1993). Approximately three-quarters of the $39.6 million increase in total net interest income between 1992 and 1993 can be attributed to an increased interest spread (3.85 percent in 1993 versus 3.69 percent in 1992) on earning assets funded with interest-bearing liabilities, which more than offset the lower volume of earning assets funded by the interest-bearing liabilities. The balance of the increase in net interest income can be accounted for by the significantly higher level of earning assets supported by non-interest-bearing funds during 1993, notwithstanding the lower yield on earning assets (7.41 percent in 1993 versus 8.07 percent in 1992). ANALYSIS OF NET INTEREST INCOME (FTE)
1994 1993 1992 ------------------------------------ ------------------------------------ ------------------------------------ AVERAGE NET AVERAGE NET AVERAGE NET EARNING INTEREST INTEREST EARNING INTEREST INTEREST EARNING INTEREST INTEREST ASSETS SPREAD INCOME ASSETS SPREAD INCOME ASSETS SPREAD INCOME ----------- -------- ---------- ----------- -------- ---------- ----------- -------- ---------- (DOLLARS IN THOUSANDS) SOURCE OF FUNDING: Interest- Bearing Liabilities... $33,441,894 3.59% $1,201,567 $29,938,202 3.85% $1,153,519 $30,449,505 3.69% $1,124,318 Non-Interest- Bearing Liabilities and Equity Capital... 6,528,735 7.45 486,809 6,436,056 7.41 476,904 5,778,778 8.07 466,534 ----------- ---------- ----------- ---------- ----------- ---------- Total.... $39,970,629 $1,688,376 $36,374,258 $1,630,423 $36,228,283 $1,590,852 =========== ========== =========== ========== =========== ==========
A more detailed analysis of the effect of volume and rate changes on net interest income between 1992, 1993 and 1994 is set forth in the following table. For purposes of this table, changes in interest due to volume and rates were determined as follows: (1) volume variance -- change in volume multiplied by previous rate, (2) rate variance -- change in rate multiplied by previous volume, and (3) rate/volume variance -- change in volume multiplied by change in rate. The rate/volume variance was allocated entirely to volume. Net interest income has been computed on a fully taxable equivalent basis and includes loan fees. Average balances for non-accrual loans have been included in this table. 10 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31 ----------------------------------------------------------------------- 1994 OVER 1993 1993 OVER 1992 -------------------------------- ----------------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL -------- -------- -------- --------- --------- --------- (IN THOUSANDS) Increase (Decrease) in Interest Income: Interest-Bearing Deposits........ $ (331) $ (1,117) $ (1,448) $ (5,319) $ (8,052) $ (13,371) Federal Funds Sold and Resale Agreements..................... 1,845 2,023 3,868 (86) (1,015) (1,101) Trading Account Securities....... (241) 1,604 1,363 (2,605) (1,171) (3,776) Money Market Investments......... (2,138) -- (2,138) 141 (1,712) (1,571) Investment Securities: U. S. Treasury and Government Agencies.................... 137,177 (27,178) 109,999 45,464 (73,361) (27,897) States and Political Subdivisions................ (5,326) 5,394 68 (17,037) (7,479) (24,516) Other.......................... (6,840) 3,338 (3,502) (26,166) (12,305) (38,471) Loans and Leases: Domestic....................... 127,670 43,280 170,950 35,230 (134,410) (99,180) Foreign........................ 4,706 -- 4,706 (2,803) (17,056) (19,859) -------- -------- -------- --------- --------- --------- Total....................... 256,522 27,344 283,866 26,819 (256,561) (229,742) -------- -------- -------- --------- --------- --------- Increase (Decrease) in Interest Expense: Domestic Office Deposits: Savings........................ 12,446 (12,328) 118 24,548 (39,556) (15,008) Money Market Accounts.......... (19,360) 16,570 (2,790) (3,610) (36,780) (40,390) Time........................... 7,234 (4,402) 2,832 (104,644) (98,773) (203,417) Foreign Office Time Deposits*.... 44,284 871 45,155 5,915 (27,939) (22,024) Short-Term Borrowings............ 72,469 61,928 134,397 11,667 (22,196) (10,529) Long-Term Debt................... 51,242 (5,041) 46,201 27,843 (5,788) 22,055 -------- -------- -------- --------- --------- --------- Total....................... 168,315 57,598 225,913 (38,281) (231,032) (269,313) -------- -------- -------- --------- --------- --------- Increase (Decrease) in Net Interest Income........................... $ 88,207 $(30,254) $ 57,953 $ 65,100 $ (25,529) $ 39,571 ======== ======== ======== ========= ========= =========
- ------------------------- * Primarily over $100,000. PROVISION AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES The Provision for Possible Credit Losses was reduced from $228.5 million in 1992 to $119.7 million in 1993 and then to $52.0 million in 1994. The reduced provisions in 1993 and 1994 were made in view of the decline in nonperforming loans and the significantly lower level of net loan charge-offs during those years. The historically high provision in 1992 included approximately $51 million to conform acquired banks' loan evaluation policies with those of NBD Bancorp. Net charge-offs as a percentage of average loans and leases outstanding declined from 0.81 of 1 percent in 1992 to 0.46 of 1 percent in 1993 and then dropped to a 16-year low of 0.15 of 1 percent in 1994. During the past five years, gross charge-offs totaled $972 million, while recoveries amounted to $341 million for a "recovery ratio" of approximately 35 percent. The net charge-off ratio during the same five-year period was 0.52 of 1 percent. In the commercial loan and lease portfolio, the largest single net charge-off in 1994 was $3.4 million on a loan to an industrial wholesale firm. In 1993 the largest net charge-off was $10.0 million on a loan to a retail chain. During 1992 the largest net charge-off was a $19.2 million balance of a loan to an air transportation company. Net recoveries of $2.2 million were realized in the real estate construction loan portfolio in 1994. Net charge-offs of $19.4 million were experienced in 1993 and $22.9 million in 1992 and were spread over several credits in each year. 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Charge-offs in the residential mortgage loan portfolio were nominal in 1994 as in prior years. Charge-off experience in the consumer loan area during 1994 was lower than in either 1993 or 1992 and was well below the industry average in each year. The net charge-off ratio was 0.36 of 1 percent in 1994, 0.43 of 1 percent in 1993 and 0.64 of 1 percent in 1992. Modest net recoveries were realized in the foreign loan portfolio during 1994, while net charge-offs of $12.4 million and $14.1 million were taken in 1993 and 1992, respectively. The 1993 charge-off figure included the write-off of the remaining $8.7 million balance of credits to individual political entities formerly known as Yugoslavia. Results for 1992 included net charge-offs of $10.5 million in Canada where the economy was experiencing a recession. At December 31, 1994, the Allowance for Possible Credit Losses amounted to $435.1 million, or 1.49 percent of total loans and leases outstanding and approximately 242 percent of nonperforming loans. RECONCILIATION OF ALLOWANCE FOR POSSIBLE CREDIT LOSSES
1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- (IN THOUSANDS) Allowance for Possible Credit Losses: Balance, Beginning of Year............... $ 423,030 $ 417,764 $ 377,585 $ 359,254 $ 329,850 Losses Charged-Off during Year........... (121,026) (206,101) (256,860) (211,693) (176,093) Recoveries of Losses Previously Charged-Off............................ 80,560 91,576 57,112 60,918 51,284 --------- --------- --------- --------- --------- Net Loans Charged-Off.................. (40,466) (114,525) (199,748) (150,775) (124,809) Provision Charged to Operating Expense... 52,032 119,674 228,480 166,212 151,086 Other Additions.......................... 455 117 11,447 2,894 3,127 --------- --------- --------- --------- --------- Balance, End of Year....................... $ 435,051 $ 423,030 $ 417,764 $ 377,585 $ 359,254 ========= ========= ========= ========= =========
In order to comply with certain regulatory reporting requirements, management has prepared the following table which provides the components of the Allowance for Possible Credit Losses by loan category. This breakdown of the Allowance reflects management's best estimate of possible credit losses based on the loss potential associated with specific loans, subjective assessment of risk characteristics in the portfolio and historical loss experience. This breakdown should not be taken as an indication of future losses or that losses will occur in these proportions. The Corporation and its subsidiaries do not maintain specific reserves against any loan or particular group of loans as it is management's policy to charge off all losses as they become known. The Allowance should be considered in its entirety as available for credit losses across the entire portfolio. It is management's opinion that the Allowance for Possible Loan Losses at December 31, 1994, is adequate to cover future losses. ANALYSIS OF ALLOWANCE FOR POSSIBLE CREDIT LOSSES BY CATEGORY
DECEMBER 31, 1994 DECEMBER 31, 1993 ---------------------------- ---------------------------- DISTRIBUTION PERCENT DISTRIBUTION PERCENT LOAN CATEGORY OF ALLOWANCE OF TOTAL OF ALLOWANCE OF TOTAL - -------------------------------------------------- --------------- --------- --------------- --------- (IN THOUSANDS) (IN THOUSANDS) Commercial........................................ $ 110,205 25.3% $ 135,088 31.9% Real Estate Construction.......................... 12,227 2.8 27,635 6.5 Residential Mortgage.............................. 488 0.1 734 0.2 Mortgages Held for Sale........................... -- -- -- -- Consumer.......................................... 43,243 10.0 40,401 9.6 Lease Financing................................... 1,724 0.4 1,363 0.3 Foreign........................................... 4,364 1.0 8,048 1.9 Unallocated Allowance............................. 262,800 60.4 209,761 49.6 --------------- --------- --------------- --------- $ 435,051 100.0% $ 423,030 100.0% =============== ========= =============== =========
The following tables represent a summary and an analysis of the Corporation's loan and lease data, including charge-offs and recoveries, as well as related ratios for the five years ended December 31, 1994. 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ANALYSIS OF LOAN AND LEASE LOSSES
1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- (IN THOUSANDS) COMMERCIAL LOANS: Charge-Offs............................. $ 58,519 $109,713 $143,687 $ 93,966 $ 74,143 Recoveries.............................. 43,266 56,379 24,609 22,899 28,344 -------- -------- -------- -------- -------- NET CHARGE-OFFS......................... $ 15,253 $ 53,334 $119,078 $ 71,067 $ 45,799 -------- -------- -------- -------- -------- REAL ESTATE CONSTRUCTION LOANS: Charge-Offs............................. $ 2,345 $ 24,652 $ 26,201 $ 25,507 $ 29,237 Recoveries.............................. 4,529 5,298 3,346 2,810 658 -------- -------- -------- -------- -------- NET CHARGE-OFFS (RECOVERIES)............ $ (2,184) $ 19,354 $ 22,855 $ 22,697 $ 28,579 -------- -------- -------- -------- -------- RESIDENTIAL MORTGAGE LOANS: Charge-Offs............................. $ 555 $ 210 $ 642 $ 637 $ 1,131 Recoveries.............................. 59 134 126 270 539 -------- -------- -------- -------- -------- NET CHARGE-OFFS......................... $ 496 $ 76 $ 516 $ 367 $ 592 -------- -------- -------- -------- -------- CONSUMER LOANS: Charge-Offs............................. $ 52,780 $ 54,171 $ 66,116 $ 73,290 $ 65,156 Recoveries.............................. 26,897 26,217 26,944 25,052 19,792 -------- -------- -------- -------- -------- NET CHARGE-OFFS......................... $ 25,883 $ 27,954 $ 39,172 $ 48,238 $ 45,364 -------- -------- -------- -------- -------- LEASE FINANCING: Charge-Offs............................. $ 2,366 $ 3,064 $ 6,000 $ 12,988 $ 4,257 Recoveries.............................. 1,314 1,702 2,001 1,897 670 -------- -------- -------- -------- -------- NET CHARGE-OFFS......................... $ 1,052 $ 1,362 $ 3,999 $ 11,091 $ 3,587 -------- -------- -------- -------- -------- FOREIGN LOANS: Charge-Offs............................. $ 4,461 $ 14,291 $ 14,214 $ 5,305 $ 2,169 Recoveries.............................. 4,495 1,846 86 7,990 1,281 -------- -------- -------- -------- -------- NET CHARGE-OFFS (RECOVERIES)............ $ (34) $ 12,445 $ 14,128 $ (2,685) $ 888 -------- -------- -------- -------- -------- TOTAL LOANS: Charge-Offs............................. $121,026 $206,101 $256,860 $211,693 $176,093 Recoveries.............................. 80,560 91,576 57,112 60,918 51,284 -------- -------- -------- -------- -------- NET CHARGE-OFFS......................... $ 40,466 $114,525 $199,748 $150,775 $124,809 ======== ======== ======== ======== ========
DAILY AVERAGE LOANS AND LEASES OUTSTANDING
1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- (IN MILLIONS) Commercial.............................. $ 14,408 $ 13,696 $ 13,281 $ 12,439 $ 11,764 Real Estate Construction................ 768 813 993 1,113 1,134 Residential Mortgage.................... 3,012 2,784 2,915 2,684 2,605 Consumer................................ 7,148 6,493 6,126 5,601 5,207 Lease Financing......................... 308 258 265 278 298 Foreign................................. 1,146 1,069 1,115 1,175 1,131 -------- -------- -------- -------- -------- TOTAL.............................. $ 26,790 $ 25,113 $ 24,695 $ 23,290 $ 22,139 ======== ======== ======== ======== ========
ANALYSIS OF NET CHARGE-OFF RATIOS
1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- Net Charge-Offs (Recoveries) as a Percent of Average Loans and Leases Outstanding: Commercial.............................. 0.11% 0.39% 0.90% 0.57% 0.39% Real Estate Construction................ (0.28) 2.38 2.30 2.04 2.52 Residential Mortgage.................... 0.02 -- 0.02 0.01 0.02 Consumer................................ 0.36 0.43 0.64 0.86 0.87 Lease Financing......................... 0.34 0.53 1.51 3.99 1.20 Foreign................................. -- 1.16 1.27 (0.23) 0.08 -------- -------- -------- -------- -------- TOTAL.............................. 0.15% 0.46% 0.81% 0.65% 0.56% ======== ======== ======== ======== ========
13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SELECTED CREDIT RATIOS
1994 1993 1992 1991 1990 -------- ------ ------ ------ ------ Provision for Possible Credit Losses as a Percent of Average Loans and Leases Outstanding............... 0.19% 0.48% 0.93% 0.71% 0.68% Recoveries as a Percent of Charge-Offs............... 66.56 44.43 22.23 28.78 29.12 Loan Loss Coverage Ratio -- Provision for Possible Credit Losses plus Income Before Income Taxes as a Multiple of Net Charge-Offs........................................ 21.40X 7.17x 3.51x 4.31x 4.80x Allowance for Possible Credit Losses as a Percent of: Net Charge-Offs.................................... 1,075.10% 369.38% 209.15% 250.43% 287.84% Total Loans and Leases (year end).................. 1.49 1.66 1.66 1.59 1.56 Nonperforming Loans and Leases* (year end)......... 241.64 157.28 118.63 96.72 119.97
- ------------------------- * Excludes $88.9 million of renegotiated Mexican government debt at December 31, 1992, 1991 and 1990. Concurrent with the implementation of SFAS No. 115, effective December 31, 1993, this debt was reclassified from loans to "Investment Securities Available-for-Sale." NON-INTEREST INCOME Non-interest income declined by $39.8 million, or 6.8 percent, in 1994, following an increase of $56.2 million, or 10.6 percent, in 1993. The major causes of the decrease in 1994 were: (1) a $27.7 million decrease in the profit on mortgage sales during the year, which was the result of lower mortgage refinancing volumes and a decision to hold more of the mortgages that were generated in the mortgage loan portfolio; (2) a swing of $11.8 million from securities gains in 1993 to securities losses in 1994, and (3) a reduction of $7.5 million in the gain on the sale of Other Real Estate Owned (OREO). These gains essentially are generated from the sale of properties previously taken in settlement of problem loans. The lower level of gains in 1994 reflect the reduced level of such properties owned and held for sale. The two largest components of non-interest income, accounting for nearly 58 percent of the total in 1994, were deposit service charges and trust fees. Service charges on deposit account business decreased by $5.4 million in 1994 following an increase of $7.0 million in 1993. The decline in 1994 was attributable to a higher credit given for balances maintained in business accounts as the general level of interest rates rose substantially during the year following four years of decline. Trust fees rose by $7.8 million in 1994 following an increase of $9.7 million in the prior year. The increases reflected volumes of business in each year, while 1993 results were favorably affected by a rise in stock and bond prices. Other areas exhibiting particularly good growth in 1994 were data processing fees and fees earned for the issuance of commercial and standby letters of credit. The latter business continues to be supported by the "double A" credit ratings from Moody's and Standard & Poor's for NBD Bank in Detroit and NBD Bank, N.A. in Indianapolis. Revenues from retail mutual fund sales business and securities trading and underwriting activities were each adversely impacted by unfavorable market conditions during much of 1994. The large variability in securities gains over the past three years can be attributed mainly to a $7.6 million gain taken in 1993 on the sale of an equity holding in a nonbank financial services company. The "Other" classification contains income items which are generally small in amount or infrequent in occurrence. Results in 1994 benefitted from $8.0 million attributable to the return on the Corporation's investment, made early in 1994, in corporate-owned life insurance. Results in 1993 included a gain of $9.6 million on the sale of certain credit card receivables. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ANALYSIS OF NON-INTEREST INCOME
PERCENT CHANGE --------------------- 1994 1993 1992 1993-94 1992-93 -------- -------- -------- -------- -------- (IN THOUSANDS) Deposit Service Charges....................... $159,996 $165,416 $158,380 (3.3)% 4.4% Trust Income.................................. 157,355 149,552 139,856 5.2 6.9 Credit Card Fees.............................. 38,566 36,050 37,308 7.0 (3.4) Data Processing Fees.......................... 31,674 28,863 25,339 9.7 13.9 Letter of Credit Fees......................... 22,893 20,558 18,333 11.4 12.1 Other Domestic and International Fees......... 20,129 22,034 24,945 (8.6) (11.7) Mortgage Loan Servicing....................... 17,848 19,397 19,373 (8.0) 0.1 Insurance Premiums and Commissions............ 15,034 16,926 16,254 (11.2) 4.1 Foreign Exchange and Translation.............. 13,496 12,568 11,741 7.4 7.0 Retail Banking Fees........................... 13,434 13,389 15,621 0.3 (14.3) Rental Income................................. 10,435 10,177 8,715 2.5 16.8 Mutual Fund and Annuity Product Fees.......... 7,028 8,868 2,946 (20.7) 201.0 OREO Gains.................................... 6,384 13,852 293 (53.9) n/m Securities Trading and Underwriting........... 5,631 7,671 7,827 (26.6) (2.0) Profit on Mortgage Sales...................... 3,146 30,843 19,082 (89.8) 61.6 Securities Gains(Losses)...................... (2,469) 9,328 1,614 n/m 478.0 Other......................................... 24,986 19,891 21,581 25.6 (7.8) -------- -------- -------- -------- -------- Total Non-Interest Income................. $545,566 $585,383 $529,208 (6.8)% 10.6% ======== ======== ======== ======= =======
- ------------------------- n/m -- not meaningful COMPENSATION EXPENSE Total compensation expense increased by $17.0 million, or 2.4 percent, in 1994, following a $27.5 million, or 4.1 percent, increase between 1992 and 1993. Average compensation per employee, including all benefit costs, rose by 4.9 percent in 1994, while average employment on a full-time equivalent basis declined by 446 people, or 2.4 percent, between 1993 and 1994. Average employment during the fourth quarter of 1994 alone was 17,792 compared with 18,231 for the full year. The rate of increase for employee benefit costs has been reduced from 15.1 percent in 1991 and 11.9 percent in 1992 to 6.2 percent and 5.9 percent in 1993 and 1994, respectively. While health care costs remain by far the largest individual category of benefits expense, the implementation on an annual basis in recent years of increased employee deductibles and certain other cost-sharing arrangements, as well as increased employee usage of health maintenance organizations, has appreciably slowed the annual rate of increase in such costs. We continuously monitor our various health care plans to gain better control of these costs while still providing a comprehensive health care plan for employees. 15 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ANALYSIS OF COMPENSATION EXPENSE
PERCENT INCREASE (DECREASE) -------------------- 1994 1993 1992 1993-94 1992-93 -------- -------- -------- -------- -------- (IN THOUSANDS) Salaries........................................... $542,565 $535,472 $517,763 1.3 % 3.4% Benefits........................................... 178,168 168,272 158,477 5.9 6.2 -------- -------- -------- ------ ----- Total Compensation Expense......................... $720,733 $703,744 $676,240 2.4 % 4.1% ======== ======== ======== ====== ===== Average Full-Time Equivalent Staff................. 18,231 18,677 18,612 (2.4)% 0.3% ======== ======== ======== ====== ===== Per Employee: Average Salary Expense........................... $ 29,760 $ 28,670 $ 27,819 3.8 % 3.1% Average Benefits Expense......................... 9,773 9,010 8,515 8.5 5.8 -------- -------- -------- ------ ----- Average Total Compensation....................... $ 39,533 $ 37,680 $ 36,334 4.9 % 3.7% ======== ======== ======== ====== =====
As of January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." It requires the accrual of benefits provided to former or inactive employees after employment but prior to retirement. These benefits primarily are related to long-term disabilities. The cumulative effect of adopting SFAS No. 112 was a charge of $12.3 million -- $7.9 million net of income taxes, or $0.05 per share, in 1994. During 1992, the Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This Statement requires accrual of employee postretirement benefits during the years earned while employed. The initial obligation for prior service amounted to $58.9 million ($37.9 million -- or $0.24 per share -- after tax effect). This future obligation was recognized as a one-time charge at the beginning of 1992. The Corporation's pension plans remain well funded. At December 31, 1994, the total projected benefit obligation was $525 million, while the market value of pension fund assets amounted to approximately $568 million. The decline in long-term interest rates from 1990 to late 1993, and subsequent sharp increase since then, along with relative stability of the inflation rate at a lower level in recent years, has affected the assumptions used in determining the actuarial present value of the projected benefit obligations. For a more detailed description of the pension and other employee benefit plans, see Note 9 to the Financial Statements. OTHER NON-INTEREST EXPENSES All other non-interest expenses declined by $34.6 million, or 5.6 percent, in 1994, following a $32.3 million, or 5.5 percent, increase between 1992 and 1993 (excluding $76.1 million of merger-related expenses in the 1992 figure). The largest factor accounting for the decline of $9.9 million of intangibles amortization in 1994 was related to the reduction in amortization of purchased mortgage servicing rights. The amount of unamortized mortgage servicing rights at year-end 1994 was $1.9 million. Expenses associated with Other Real Estate Owned declined by $7.4 million in 1994 due to lower write-downs on properties which had previously been taken in settlement of loans. A $6.3 million net reduction in stationery and supplies expense between 1994 and 1993 primarily reflected greater buying power and increased efficiencies related to volume purchases. The largest individual items accounting for the increase between 1992 and 1993 were: (1) a $6.1 million increase in occupancy expense; (2) a $4.2 million increase in amortization of intangibles due to the write-off of purchased mortgage servicing rights during a year (1993) of substantially increased refinancing activities, and (3) a $4.2 million rise in travel and entertainment expenses, a large part of which was due to the additional travel-related expenses resulting from the large-scale conversion of the Indiana banks' operating systems to those of NBD Bancorp. 16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ANALYSIS OF NON-INTEREST EXPENSES
PERCENT CHANGE -------------------- 1994 1993 1992 1993-94 1992-93 -------- -------- -------- -------- -------- (IN THOUSANDS) Net Occupancy...................................... $117,253 $118,063 $111,947 (0.7)% 5.5% Equipment Rentals, Depreciation and Maintenance.... 89,590 84,280 80,063 6.3 5.3 FDIC and Other Regulatory Assessments.............. 66,663 68,766 70,145 (3.1) (2.0) Telephone.......................................... 31,132 29,174 25,982 6.7 12.3 Purchased Services................................. 28,488 27,628 33,722 3.1 (18.1) Professional Services.............................. 27,482 29,852 28,099 (7.9) 6.2 Amortization of Intangibles........................ 25,806 35,742 31,568 (27.8) 13.2 Operating and Other Taxes.......................... 24,637 23,629 21,747 4.3 8.7 Marketing.......................................... 21,887 22,025 20,852 (0.6) 5.6 Postage............................................ 19,841 20,658 20,074 (4.0) 2.9 Stationery and Supplies............................ 16,632 22,958 23,081 (27.6) (0.5) Travel and Entertainment........................... 16,192 18,300 14,134 (11.5) 29.5 Public Relations................................... 12,623 11,134 8,314 13.4 33.9 Loan and Credit Charges............................ 9,081 8,782 10,298 3.4 (14.7) Armored Carrier and Cartage........................ 8,019 8,088 6,779 (0.9) 19.3 Federal Reserve Service Charges.................... 7,527 8,411 8,145 (10.5) 3.3 Other Real Estate Owned Expense.................... 4,182 11,582 8,474 (63.9) 36.7 Other Insurance.................................... 3,616 4,196 4,443 (13.8) (5.6) Other.............................................. 52,886 64,828 57,941 (18.4) 11.9 -------- -------- -------- -------- -------- Sub-Total........................................ $583,537 $618,096 $585,808 (5.6)% 5.5% Merger-Related Expenses............................ -- -- 76,071 -- -- -------- -------- -------- -------- -------- Total Other Non-Interest Expenses................ $583,537 $618,096 $661,879 (5.6)% (6.6)% ======== ======== ======== ======= =======
INCOME TAXES The Corporation's income tax expense was $266.8 million in 1994, up from $220.1 million in 1993 and $134.4 million in 1992. The increase of $46.7 million in income tax expense in 1994 primarily can be accounted for by a $112.1 million rise in pre-tax income between 1993 and 1994, as well as an increase in the proportion of pre-tax income that was subject to income taxes. The increase of $85.7 million in income tax expense in 1993 can be attributed principally to a $229.6 million increase in pre-tax income over 1992 (which was impacted by $76.1 million of merger-related expenses) and an increase in the statutory tax rate, as well as by the increased proportion of pre-tax income that was subject to income taxes. The statutory tax rate on the Corporation's taxable earnings was increased from 34 percent in 1992 to 35 percent in 1993 and 1994. The higher tax rate increased the income tax expense by $7.0 million in 1993, which was partially offset by a $4.8 million tax benefit relating to a revaluation of the net deferred tax receivable to the new tax rate. The adoption early in 1993 of SFAS No. 109, "Accounting for Income Taxes," increased reported Net Income in that year by nearly $4.0 million, or $0.03 per share. For a more detailed discussion and analysis of income taxes, including the adoption of SFAS No. 109, see Note 10 to the Financial Statements. The tax reform act of 1986 raised from 20 percent to 100 percent the disallowance of the interest cost on funds employed to carry most tax-exempt loans and securities acquired after August 7, 1986. As a result of continued maturities in the tax-exempt portfolio, a greater proportion of pre-tax earnings has been subject to federal income taxes in each of the past three years. The effective rate increased from 28.4 percent in 1992 to 31.4 percent in 1993 and then to 32.8 percent in 1994. The Corporation's banks are required to maintain sizeable cash reserves at the Federal Reserve Bank. These non-earning reserves are not required of nonbank companies (e.g., money market mutual funds) that offer competitive deposit-type instruments and services. When the average yield on our earning assets (7.45 percent) is applied to the average reserve maintained ($330 million) during 1994, the result is a reduction in after-tax income of $16 million, or $0.10 per share. Inasmuch as nearly all of the earnings of the Federal Reserve System 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) are remitted to the United States Treasury, this foregone income essentially represents an additional tax on shareholders. CAPITAL ACCOUNTS Shareholders' equity increased by $42.9 million in 1994, to $3.3 billion at year-end. This increase was despite: (1) the purchase for approximately $167 million of 5.4 million shares of the Corporation's common stock, most of which were reissued on January 9, 1995, in connection with the purchase of AmeriFed Financial Corp. and (2) recording a fair value adjustment on Available-for-Sale (AFS) Investment Securities of $147.3 million between year-end 1993 and 1994. This latter recognition is required by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which is discussed in the Note 1(c) to the Financial Statements. The fair value adjustment is attributable to the sharp increase in interest rates during 1994, rather than any deterioration in the quality of the AFS portfolio. ANALYSIS OF SHAREHOLDERS' EQUITY
1994 1993 1992 -------- -------- -------- (IN MILLIONS) Balance, Beginning of Year........................................... $3,248.6 $2,940.9 $2,716.1 Net Income for the Year............................................ 531.7 485.8 300.1 Cash Dividends Declared............................................ (193.9) (173.5) (166.7) Purchase of Common Stock........................................... (166.6) (13.4) (134.2) Fair Value Adjustment on Available-for-Sale Securities............. (147.3) (7.0) -- Foreign Currency Translation Adjustment............................ 2.6 (1.2) (4.0) Deferred Compensation Changes...................................... (1.1) (1.0) 31.9 Acquisitions....................................................... -- -- 168.2 Shares Issued for Conversion of Subordinated Debentures............ -- -- 13.1 Other Transactions................................................. 17.5 18.0 16.4 -------- -------- -------- Balance, End of Year................................................. $3,291.5 $3,248.6 $2,940.9 ======= ======= ======= Book Value Per Common Share, End of Year............................. $ 21.11 $ 20.21 $ 18.34 Market Value Per Share, End of Year.................................. $ 27.38 $ 29.75 $ 32.75 Market Value as Percent of Book Value................................ 129.7% 147.2% 178.6% Common Dividends Declared as a Percent of Net Income, Per Share...... 36.7% 35.9% 55.6% Long-Term Debt as a Percent of Equity Capital Plus Allowance for Credit Losses and Long-Term Debt, End of Year...................... 40.2% 28.1% 22.5% Common Shareholders' Equity as a Percent of:(1) Total Assets....................................................... 7.5% 7.8% 7.3% Earning Assets..................................................... 8.3% 8.6% 7.9% Loans and Leases, Net of Allowance for Possible Credit Losses, and Unearned Income.................................................. 12.5% 12.6% 11.8% Common Shareholders' Equity Plus Allowance for Possible Credit Losses, as a Percent of Loans and Leases(1)........................ 14.0% 14.2% 13.3% Assets to Common Shareholders' Equity(1)............................. 13.29X 12.82x 13.78x times Return on Assets(1).................................................. 1.21% 1.21% 0.76% equals Return on Common Shareholders' Equity(1)............................. 16.09% 15.57% 10.44% times Earnings Retained(2)................................................. 63.53% 64.29% 44.46% equals Internal Equity Capital Growth Rate.................................. 10.22% 10.01% 4.64%
- ------------------------- (1) Based on daily average balances. (2) Excludes impact of conversions of capital notes, purchases and issuance of common stock and other adjustments to capital accounts. Regulatory risk-adjusted capital adequacy standards became fully effective on January 1, 1993. The principal features of the standards are as follows: (1) required capital levels are based on the specified regulatory risk in the various asset categories; (2) certain "off-balance sheet" items, such as standby letters of credit and interest rate 18 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) swaps, require capital allocations, and (3) the definition of what constitutes capital has been refined. Equity capital, net of certain adjustments for intangible assets, investments in nonconsolidated subsidiaries and the fair value adjustment for AFS securities, and certain classes of preferred stock are considered Tier 1 capital. Total capital consists basically of Tier 1 capital plus subordinated debt, some types of preferred stock and a limited amount of the Allowance for Possible Credit Losses. Regulatory authorities have also established a minimum level of Tier 1 capital to total assets, a so-called "leverage" ratio, which is determined by dividing Tier 1 Capital by total assets net of intangible assets. The standards call for minimum Tier 1 and Total capital ratios of 4 percent and 8 percent, respectively, and a minimum Tier 1 leverage ratio of 3 percent. As can be noted in the following table, the Corporation's ratios have comfortably exceeded these regulatory standards. ANALYSIS OF REGULATORY CAPITAL
DECEMBER 31 -------------------------- 1994 1993 1992 ------ ------ ------ (DOLLARS IN MILLIONS) TIER 1 CAPITAL: Common Shareholders' Equity............................................... $3,292 $3,249 $2,941 Intangible Assets and Other Adjustments................................... (112) (282) (316) ------ ------ ------ Total Tier 1 Capital.................................................... $3,180 $2,967 $2,625 ====== ====== ====== TOTAL CAPITAL: Common Shareholders' Equity............................................... $3,292 $3,249 $2,941 Qualifying Allowance for Possible Credit Losses........................... 435 406 387 Qualifying Long-Term Debt................................................. 1,102 1,054 706 Intangible Assets and Other Adjustments................................... (117) (285) (316) ------ ------ ------ Total Capital........................................................... $4,712 $4,424 $3,718 ====== ====== ====== RISK-BASED CAPITAL RATIOS: Tier 1 Capital Ratio...................................................... 8.44% 9.13% 8.48% Total Capital Ratio....................................................... 12.50% 13.61% 12.01% TIER 1 LEVERAGE RATIO....................................................... 6.77% 7.33% 6.46%
During the 1992-94 period, the Corporation strengthened its capital position through the net increase of $350 million in subordinated debt of the parent company, NBD Bancorp, Inc., which was the result of issuing $550 million of such securities less the early redemption of $200 million convertible debentures outstanding. In addition, NBD Bank (Michigan) issued $450 million of subordinated debt to bolster its capital position. The debt that is included in regulatory total capital at December 31, 1994, has no scheduled maturities until the year 2002. SOURCE OF FUNDS Total sources of funds utilized to support the Corporation's earning assets increased by $3,597 million, or nearly 10 percent, on a daily average basis between 1993 and 1994. However, the mix of funds changed noticeably, with net core deposits declining by $646 million, or 2.6 percent, and other major categories of funding rising in aggregate by $4,243 million, or 37.0 percent. Within the core deposit base, demand deposits, net of items in process of collection ("float") and due from other banks, were up $139 million, or 3.1 percent, notwithstanding the more restrictive Federal Reserve monetary policy that commenced in February of 1994. On a daily average basis, savings account balances rose by $543 million, or 7.5 percent, to $7,795 million, although they ended the year at a modestly lower level -- $7,680 million. The sharp increase in competitive market rates of interest during 1994 resulted in an outflow of money market account balances as well as other core time deposit money. In aggregate, such balances declined by $1,328 million, or by 10.1 percent. The Corporation's banks instituted a more competitive rate structure on time deposit accounts early in 1994, and balances first stabilized and then increased, particularly during the final two months of the year. 19 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ANALYSIS OF SOURCES OF FUNDS FOR EARNING ASSETS
FULL YEAR ------------------------------- 1994 1993 1992 ------- ------- ------- (DAILY AVERAGES IN MILLIONS) Total Earning Assets................................................... $39,971 $36,374 $36,228 ======= ======= ======= Source of Funds: Net Core Deposits: Demand Deposits (net of items in process of collection and due from other banks)..................................................... $ 4,638 $ 4,499 $ 4,032 Savings Deposits................................................... 7,795 7,252 6,279 Money Market Accounts.............................................. 5,278 5,918 6,030 Other Time Deposits................................................ 6,538 7,226 9,055 ------- ------- ------- Total -- Net Core Deposits...................................... 24,249 24,895 25,396 ------- ------- ------- Large Certificates of Deposit.......................................... 2,424 1,577 2,043 Foreign Office Time Deposits........................................... 2,699 1,741 1,615 Short-Term Borrowings.................................................. 6,648 4,994 4,624 ------- ------- ------- Total -- Short-Term Interest-Bearing Funds...................... 11,771 8,312 8,282 ------- ------- ------- Long-Term Debt......................................................... 2,061 1,230 804 All Other.............................................................. 1,890 1,937 1,746 ------- ------- ------- Total Sources of Funds.......................................... $39,971 $36,374 $36,228 ======= ======= ======= Net Interest Margin (FTE) on Earning Assets............................ 4.22% 4.48% 4.39% ======= ======= =======
Reliance on short-term borrowings and large (i.e., $100,000 and over) certificates of deposit (CDs) increased to support loan demand that gathered strength as the year progressed. Large CDs increased by $847 million, or more than 53 percent, while short-term (i.e., less than one year in original maturity) borrowings rose $1,654 million, or by approximately one-third. An analysis of domestic time deposits of $100,000 or more, as of December 31, 1994, is shown in the following table, while a more detailed listing and discussion of short-term borrowings is included in Note 7 to the Financial Statements. ANALYSIS OF MATURITY DISTRIBUTION OF DOMESTIC TIME DEPOSITS OF $100,000 OR MORE
AS OF DECEMBER 31, 1994 ------------------------ (IN MILLIONS) Amount Maturing in: 3 Months or Less.............................................. $ 890 Over 3 to 6 Months............................................ 354 Over 6 Months to One Year..................................... 336 Over One Year................................................. 303 -------- $1,883 ========
The increase in foreign office time deposits primarily reflected the increased use of Eurodollar deposits to fund domestic loan growth. The increase in "Long-Term Debt" during the 1992-94 period is related primarily to management's strategy of match-funding certain purchases of investment securities, as well as to maintain the strength of the Corporation's and subsidiary banks' risk-based capital ratios. It has also served to provide flexibility in managing the Corporation's liquidity position. INVESTMENT SECURITIES Total holdings of investment securities increased by $2,031 million, or 19.5 percent, between year-ends 1993 and 1994, and ended the year at $12,423 million. On a daily average basis, they increased by $1,941 million, or 18.9 percent, to $12,195 million in 1994. Changes in the portfolio between year-end 1993 and 1994 were: (1) an increase of $2,647 million in securities of U. S. Government Agencies; (2) a $476 million decrease 20 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) in holdings of U. S. Treasury securities; (3) a $129 million reduction in private issue collateralized mortgage obligations (CMOs), and (4) a $15 million decline in holdings of tax-exempt securities. The large increase in U. S. Government Agency holdings resulted primarily from two programs to acquire a total of $2,860 million of mortgage pass-through securities issued or guaranteed by the Government National Mortgage Association (GNMA) and the Federal National Mortgage Association (FNMA). Approximately $1,075 million of adjustable rate GNMAs, which contain a one-year rate adjustment feature, are being funded with short-term borrowings, and $1,500 million of fixed-rate GNMA and FNMA securities are essentially match-funded with interest-bearing liabilities of comparable maturity. An additional $285 million of these fixed-rate securities were being funded with short-term borrowings as of December 31, 1994. HOLDINGS OF INVESTMENT SECURITIES
INVESTMENT SECURITIES AVAILABLE-FOR-SALE ---------------------------------------------- DECEMBER 31 DECEMBER 31 DECEMBER 31 1994 1993 1992 ------------ ------------ ------------ (IN MILLIONS) U. S. Treasury.............................................. $ 505 $ 975 $ -- U. S. Government Agencies: Mortgage-backed Securities................................ 2,495 730 -- Collateralized Mortgage Obligations....................... 1,420 1,658 -- Other..................................................... 24 3 -- States and Political Subdivisions........................... 76 1 -- Collateralized Mortgage Obligations......................... 111 240 -- Other....................................................... 183 177 -- ------------ ------------ ------------ Total................................................ $4,814 $3,784 $ -- ============ ============ ============
INVESTMENT SECURITIES HELD-TO-MATURITY ---------------------------------------------- DECEMBER 31 DECEMBER 31 DECEMBER 31 1994 1993 1992 ------------ ------------ ------------ (IN MILLIONS) U. S. Treasury.............................................. $ 520 $ 526 $ 1,719 U. S. Government Agencies: Mortgage-backed Securities................................ 5,665 4,564 5,569 Collateralized Mortgage Obligations....................... -- -- 1,302 Other..................................................... 8 10 35 States and Political Subdivisions........................... 1,415 1,505 1,604 Collateralized Mortgage Obligations......................... -- -- 581 Other....................................................... 1 2 92 ------------ ------------ ------------ Total................................................ $7,609 $6,607 $ 10,902 ============ ============ ============
- ------------------------- Note: Investment Securities were not categorized as "Available-for-Sale" and "Held-to-Maturity" until December 31, 1993. All holdings were classified as "Held-to-Maturity" at December 31, 1992. Effective December 31, 1993, the Corporation implemented SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This requires the following: (1) debt securities that the Corporation has the positive intent and ability to hold to maturity are to be classified as "Investment Securities Held-to-Maturity" (HTM) and reported at amortized cost; (2) debt and equity securities that are bought and held principally for the purpose of selling in the near term are to be classified as "Trading Account Securities" and reported at fair value, with unrealized gains and losses included in earnings, and (3) debt and equity securities not classified as "Held-to-Maturity" or "Trading Account" are to be classified as "Investment Securities Available-for-Sale" (AFS) and reported at fair value. Fair value adjustments are excluded from earnings and reported in a separate component of shareholders' equity, net of tax. At December 31, 1993, the existing portfolio of Investment Securities held by the Corporation's banks was classified as follows: (1) Held-to-Maturity -- U. S. Government Securities with remaining maturities of more than two years, essentially all tax-exempt securities and fixed-rate mortgage pass-through securities and (2) Available-for-Sale -- all other investment securities. Securities acquired after December 31, 1993, have been classified as HTM or AFS on an individual basis at the time of acquisition. 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) As of December 31, 1994, the aggregate fair value of the Investment Securities Held-to-Maturity was $227 million (before tax effect), or 3.0 percent, below the carrying value shown on the Consolidated Balance Sheet. The "Fair Value Adjustment on Available-for-Sale Securities" component of shareholders' equity shows a negative balance of approximately $154 million as of December 31, 1994, compared to $7 million at year-end 1993. The $147 million increase was the result of the sharp increase in interest rates during 1994, which reduced the market value of previously acquired fixed-rate securities. It should be noted, however, that a sizeable portion of the mortgage-backed securities portfolio has been funded by fixed-rate liabilities of comparable maturity. The current value of this relatively low-cost financing is not reflected in the financial statements. The maturity distribution and yields, on a fully taxable equivalent basis, of the major components of the investment securities portfolio at December 31, 1994, are shown below. The maturity distribution of mortgage-backed securities and collateralized mortgage obligations is based on average expected maturities, which differ from contractual maturities, because borrowers have the right to prepay the underlying mortgages. Actual yields and maturities may differ from expected yields and maturities because the rate of prepayment, which is influenced by changes in the level of interest rates, as well as other economic conditions, cannot be forecasted with certainty. INVESTMENT SECURITIES -- YIELDS AND MATURITIES AS OF DECEMBER 31, 1994:
MATURITY ---------------------------------------------------------------------------------------------------- WITHIN 1 YEAR 1-2 YEARS 2-5 YEARS 5-10 YEARS AFTER 10 YEARS ---------------- ---------------- ---------------- ---------------- ---------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (DOLLARS IN MILLIONS) AVAILABLE-FOR-SALE: U. S. Treasury............ $500 6.97% $ 5 5.51% $ -- --% $ -- --% $ -- --% U. S. Government Agencies: Mortgage-backed Securities............. -- -- -- -- 58 5.61 229 6.03 2,208 5.68 Collateralized Mortgage Obligations............ 229 3.56 347 4.65 328 6.03 423 6.73 93 6.95 Other.................... 23 6.90 -- -- 1 8.13 -- -- -- -- States and Political Subdivisions*............ 76 6.37 -- -- -- -- -- -- -- -- Collateralized Mortgage Obligations.............. 7 6.22 4 6.96 83 6.53 17 6.85 -- -- Other**................... 47 6.04 7 8.88 11 7.64 1 7.17 117 5.52 ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- Total.................... $882 5.98% $363 4.77% $ 481 6.11% $ 670 6.49% $2,418 5.72% ===== ===== ===== ====== ===== ===== ===== ===== ======= ===== HELD-TO-MATURITY: U. S. Treasury............ $ -- --% $388 6.20% $ 132 6.04% $ -- --% $ -- --% U. S. Government Agencies: Mortgage-backed Securities............. 1 11.30 36 7.45 1,440 7.71 4,176 7.51 12 10.27 Other.................... -- -- -- -- -- -- 8 6.25 -- -- States and Political Subdivisions*............ 161 10.79 129 10.46 434 10.87 362 9.98 329 9.42 Other..................... 1 8.72 -- -- -- -- -- -- -- -- ----- ----- ----- ----- ------ ----- ------ ---- ------ ----- Total.................... $163 10.78% $553 7.28% $2,006 8.28% $4,546 7.70% $ 341 9.45% ===== ===== ===== ===== ====== ===== ====== ==== ====== ===== WEIGHTED AVERAGE TOTAL MATURITY ----------------- ------------ AMOUNT YIELD (YRS/MOS.) ------ ----- ------------ AVAILABLE-FOR-SALE: U. S. Treasury............ $ 505 6.96% 0/11 U. S. Government Agencies: Mortgage-backed Securities............. 2,495 5.71 12/11 Collateralized Mortgage Obligations............ 1,420 5.56 4/6 Other.................... 24 6.95 1/0 States and Political Subdivisions*............ 76 6.37 0/8 Collateralized Mortgage Obligations.............. 111 6.57 4/3 Other**................... 183 5.92 13/4 ------ ----- Total................... $4,814 5.84% ======= ===== HELD-TO-MATURITY: U. S. Treasury............ $ 520 6.16% 1/11 U. S. Government Agencies: Mortgage-backed Securities............. 5,665 7.57 5/11 Other.................... 8 6.25 9/0 States and Political Subdivisions*............ 1,415 10.26 6/9 Other..................... 1 8.72 0/8 ------ ------ Total.................... $7,609 7.97% ====== ======
- ------------------------- * Fully taxable equivalent yield is based on a combined federal and state income tax rate of 36.4%. ** Equity securities of $69 million with a yield of 5.01% are included in the After 10 Years category. Note: Yields are based on amortized cost of securities. Included in the $1,491 million of tax-exempt securities at December 31, 1994, were $453 million of obligations of the State of Michigan and its political subdivisions. Except for the securities issued or guaranteed by the State of Michigan and its political subdivisions, no investment in securities of a single issue of non-U. S. Government-guaranteed securities exceeded 10 percent of shareholders' equity at December 31, 1994 or 1993. LOANS AND LEASE FINANCING Total loans and leases outstanding rose by $3,679 million, or 14.4 percent, between year-ends 1993 and 1994, and ended the year at $29,230 million. On a daily average basis, they increased by $1,677 million, or 6.7 percent, to $26,790 million in 1994. The largest category of loans within the total portfolio is comprised of 22 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) commercial and lease financing, which on a combined basis increased by $1,809 million, or 12.8 percent, from $14,080 million at the end of 1993 to $15,889 million at December 31, 1994. On a daily average basis, they rose by $761 million, or 5.2 percent, between 1993 and 1994. Loan growth in 1994 was fostered by the overall strength of the U. S. economy in general and by the particularly good business conditions in our primary Midwestern markets. The following two tables summarize year-end totals for the major sectors of the Corporation's total loan portfolio over the last five years. The only noticeable change in the composition of the portfolio during the 1990-94 period has been a decline in the real estate construction category and a concomitant increase in consumer loans. ANALYSIS OF LOAN AND LEASE PORTFOLIO OUTSTANDINGS:
DECEMBER 31 ------------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (IN MILLIONS) Domestic: Commercial..................................... $15,526 $13,795 $13,588 $12,638 $11,901 Real Estate Construction....................... 818 789 891 1,143 1,132 Residential Mortgage........................... 3,352 2,561 2,648 2,421 2,841 Mortgages Held for Sale........................ 30 256 290 271 73 Consumer....................................... 7,668 6,758 6,402 5,751 5,531 Lease Financing................................ 363 285 258 276 310 ------- ------- ------- ------- ------- Sub-Total................................. 27,757 24,444 24,077 22,500 21,788 Foreign.......................................... 1,473 1,107 1,067 1,274 1,179 ------- ------- ------- ------- ------- Total..................................... $29,230 $25,551 $25,144 $23,774 $22,967 ======= ======= ======= ======= =======
PERCENT DISTRIBUTION:
DECEMBER 31 ------------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- Domestic: Commercial..................................... 53.1% 54.0% 54.1% 53.1% 51.8% Real Estate Construction....................... 2.8 3.1 3.5 4.8 4.9 Residential Mortgage........................... 11.5 10.0 10.5 10.2 12.4 Mortgages Held for Sale........................ 0.1 1.0 1.2 1.1 0.3 Consumer....................................... 26.2 26.5 25.5 24.2 24.1 Lease Financing................................ 1.3 1.1 1.0 1.2 1.4 ------- ------- ------- ------- ------- Sub-Total................................. 95.0 95.7 95.8 94.6 94.9 Foreign.......................................... 5.0 4.3 4.2 5.4 5.1 ------- ------- ------- ------- ------- Total..................................... 100.0% 100.0% 100.0% 100.0% 100.0% ======= ======= ======= ======= =======
Manufacturing industries represent the largest single concentration within the business loan totals -- just over 30 percent at December 31, 1994. It is estimated that approximately 10 percent of total commercial loans, and 29 percent of loans to manufacturing firms are "automotive related." The largest commercial loan outstanding at year-end 1994 was $57.5 million to a major residential home builder, and the largest loan to a manufacturing firm was $47.0 million. 23 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) As can be seen in the following tables, the Corporation's domestic business loans at December 31, 1994, were well diversified geographically, as well as by type of borrower.
By $ Geographic Distribution Loans - ------------------------------------------ ---------- Southeastern Michigan..................... 26.5% Indiana................................... 18.9 Outstate Michigan......................... 15.6 Illinois.................................. 13.2 Ohio...................................... 5.9 New York.................................. 2.0 California................................ 1.8 Texas..................................... 1.5 Pennsylvania.............................. 1.4 Wisconsin................................. 1.3 All Other................................. 11.9 ----- 100.0% ===== By $ Industry Concentration Loans - ------------------------------------------ ---------- All Manufacturing......................... 30.4% Real Estate -- Holding Cos./Trust......... 13.4 Wholesale Trade........................... 9.5 Personal.................................. 6.7 Entertainment/Food/Beverage/Communication. 5.9 Services/Professional/Business/Leasing.... 4.5 Transportation Services................... 4.4 Retail Consumer Goods..................... 3.7 Real Estate............................... 3.5 Bank/Financial Institutions/Brokers....... 2.9 Agriculture/Forest/Mining................. 2.9 Government/Education...................... 2.6 Holding Companies......................... 2.5 Medical/Health Services................... 1.9 Primary Metals............................ 1.8 All Other................................. 3.4 ----- 100.0%
===== At December 31, 1994, total commercial real estate loans amounted to $4,480 million. The components of the total portfolio consisted of: (1) construction loans -- $817 million; (2) investment property loans -- $1,591 million, and (3) owner occupied loans -- $2,072 million. Nearly 89 percent of the construction loans were located in the Midwest, with 48 percent in Michigan and approximately 24 percent and 11 percent located in Indiana and Illinois, respectively. The largest construction loan outstanding was $20.3 million. A total of $15.7 million, or 2 percent of the total portfolio, was classified as nonperforming, the largest of which was $5.0 million. One year earlier, the comparable figures were $45.7 million (5.8 percent of the total) and $6.4 million, respectively. Net recoveries of $2.2 million were realized in the construction loan portfolio in 1994, in contrast to net charge-offs of $19.4 million in 1993. Almost 96 percent of the investment property loans were sited in the Midwest, with about 40 percent in Michigan, 31 percent in Indiana and 20 percent in Illinois. The largest loan outstanding at year-end 1994 was for $16.1 million. At December 31, 1994, $45.4 million, or 2.9 percent of the total, was classified as nonperforming, the largest of which amounted to $8.0 million. One year earlier, $49.6 million was classified as nonperforming, or 3.2 percent of the portfolio. Net charge-offs of investment property loans amounted to $15.6 million in 1994, down from $18.8 million in 1993. Approximately 97 percent of the loans on owner occupied commercial real estate were located in the Midwest, with more than 47 percent in Michigan, nearly 25 percent in Indiana, and 20 percent in Illinois. 24 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) A more detailed analysis of the outstanding commercial real estate loans at year-end 1994 is shown in the following table. The geographic distribution of total commitments to lend and loans outstanding is comparable.
INVESTMENT OWNER CONSTRUCTION PROPERTY OCCUPIED LOANS LOANS LOANS TOTAL --------------------------- --------------------- --------------------------- ---------------------------- PERCENT PERCENT PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL ------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) GEOGRAPHIC DISTRIBUTION: Michigan......... $392 48.0% $ 640 40.2% $ 980 47.3% $2,012 44.9% Indiana.......... 193 23.6 498 31.3 511 24.7 1,202 26.8 Illinois......... 91 11.1 319 20.1 416 20.1 826 18.5 Other Midwest.... 51 6.3 69 4.3 99 4.8 219 4.9 All Other........ 90 11.0 65 4.1 66 3.1 221 4.9 ---- ------ ------ ----- ------ ----- ------ ----- $817 100.0% $1,591 100.0% $2,072 100.0% $4,480 100.0% ==== ====== ====== ===== ====== ===== ====== ===== EXPOSURE BY PROPERTY TYPE: Industrial....... $ 71 8.7% $ 239 15.0% $ 884 42.7% $1,194 26.6% Office........... 45 5.5 308 19.4 272 13.1 625 13.9 Retail Center.... 90 11.0 350 22.0 181 8.7 621 13.9 Single Family and Condominiums 262 32.1 48 3.0 94 4.5 404 9.0 Apartments....... 42 5.1 269 16.9 21 1.0 332 7.4 Land Development. 142 17.4 39 2.5 29 1.4 210 4.7 Hotel............ 27 3.3 100 6.3 56 2.7 183 4.1 All Other........ 138 16.9 238 14.9 535 25.9 911 20.4 ---- ----- ------ ----- ------ ----- ------ ----- $817 100.0% $1,591 100.0% $2,072 100.0% $4,480 100.0% ==== ===== ====== ===== ====== ===== ====== =====
Residential mortgage loans outstanding, including those held for sale, increased by $565 million, or 20.0 percent, from $2,817 million at the end of 1993 to $3,382 million at year-end 1994. On a daily average basis, the portfolio rose from $2,784 million in 1993 to $3,012 million in 1994, an increase of $228 million, or 8.2 percent. While the volume of loan originations declined in 1994, a larger proportion of loans closed was retained in the portfolios of the Corporation's banks. The consumer loan portfolio increased by $910 million, or 13.5 percent, from $6,758 million at year-end 1993 to $7,668 million at December 31, 1994. On a daily average basis, consumers loans increased by $655 million, or 10.1 percent, from $6,493 million in 1993 to $7,148 million in 1994. The expansion of the consumer loan portfolio in recent years has been considerably greater than the growth of the Corporation's total loan portfolio and total earning assets. This has been the result of a deliberate effort to build this portfolio, in part by a broadening of the types of loans sought, both directly through our extensive branch network of more than 600 offices, as well as through the generation of indirect loans from automobile, boat, manufactured housing and other dealers. In addition, the 1992 acquisitions of INB Financial, Summcorp and Gainer Corporation in Indiana significantly expanded the size and diversified the composition of the consumer loan portfolio. Consumer loan loss experience declined again in 1994 and continued to compare favorably with industry averages. The Corporation's net charge-off ratio has been favorably influenced by: (1) the relatively large proportion of home-equity and government-guaranteed student loans; (2) the relatively low proportion of credit card loans, and (3) our high underwriting standards and close monitoring of delinquency trends within the portfolio. Net charge-offs, as a percentage of average outstandings, amounted to 0.36 of 1 percent in 1994, down from 0.43 of 1 percent in 1993 and 0.64 of 1 percent in 1992. During the 1990-91 recessionary period, the consumer loan net charge-off ratio was approximately 0.87 of 1 percent. 25 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSUMER LOANS:
DECEMBER 31 -------------------------------------------------------------------------------------------- 1994 1993 1992 ---------------------------- ---------------------------- ---------------------------- PERCENT PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL --------------- --------- --------------- --------- --------------- --------- (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) Automotive........................ $ 3,470 45.3% $ 3,043 45.0% $ 2,762 43.2% Home Equity....................... 1,230 16.0 1,023 15.1 1,079 16.8 Student Loans..................... 815 10.6 786 11.6 689 10.8 Credit Card....................... 646 8.4 614 9.1 729 11.4 Recreational Vehicles............. 417 5.4 324 4.8 248 3.9 Manufactured Housing.............. 345 4.5 316 4.7 286 4.4 Personal Loans.................... 290 3.8 261 3.9 284 4.4 Marine............................ 250 3.3 192 2.8 179 2.8 All Other......................... 205 2.7 199 3.0 146 2.3 ------- ------- ------- ------- ------- ------ $ 7,668 100.0% $ 6,758 100.0% $ 6,402 100.0% ======= ======= ======= ======= ======= ======
Foreign loans increased by $366 million, or 33.1 percent, from $1,107 million at year-end 1993 to $1,473 million at December 31, 1994. The bulk of the increase in foreign loans occurred at our Canadian, Australian and London branches. On a daily average basis, the increase was a more modest $77 million, or 7.2 percent, from $1,069 million in 1993 to $1,146 million in 1994. NONPERFORMING LOANS Nonperforming loans are defined to include loans on which interest is not being accrued and restructured loans where interest rates have been renegotiated at below market rates. The trend of such loans over the past five year-ends is shown below. Also shown are: (1) loans 90 days or more past due but still accruing interest -- largely consumer loans, which are either charged off when they become 120 days to 150 days past due or are government guaranteed, and (2) Other Real Estate Owned, which primarily represents the value of collateral taken in settlement of loans. ANALYSIS OF NONPERFORMING LOANS
DECEMBER 31 -------------------------------------------- 1994 1993 1992 1991 1990 ----- ----- ------ ------ ------ (DOLLARS IN MILLIONS) Nonaccrual -- Domestic........................................ $ 154 $ 265 $ 327 $ 367 $ 283 -- Foreign........................................ 3 1 24 13 4 Restructured.................................................. 23 3 1* 10* 12* ----- ----- ------ ------ ------ Total Nonperforming Loans................................. $ 180 $ 269 $ 352 $ 390 $ 299 ===== ===== ====== ====== ====== Nonperforming Loans as a Percent of: Total Loans and Leases...................................... 0.62% 1.05% 1.40% 1.64% 1.30% Total Assets................................................ 0.38 0.66 0.86 1.01 0.81 Equity Capital plus Allowance for Possible Credit Losses.... 4.83 7.33 10.49 12.62 10.35 Loans 90 Days or More Past Due................................ $ 45 $ 41 $ 37 $ 44 $ 35 Other Real Estate Owned....................................... $ 29 $ 44 $ 58 $ 60 $ 33
- ------------------------- * Excludes $88.9 million of United Mexican States (UMS) obligations (secured by zero-coupon U. S. Treasury securities of comparable maturity) which were renegotiated early in 1990 at a then below market rate. These obligations were reclassified to "Investment Securities Available-for-Sale" at year-end 1993, concurrent with the implementation of SFAS No. 115. Total nonperforming loans declined by $89 million, or 33.1 percent, in 1994, following decreases of $83 million (23.6 percent) in 1993 and $38 million (9.7 percent) in 1992. The principal factors accounting for the reduction in 1994 were: (1) a $13.2 million payment received on a loan to a retailing concern; (2) a $5.2 million payment on a manufacturing firm credit, and (3) recoveries and a return to performing status of a number of commercial real estate loans. The three largest nonperforming credits at year-end 1994 were: (1) a $19.0 million balance of a restructured loan to a newsprint producer, where payments currently are being made at an interest 26 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) rate of LIBOR plus 1 1/2 percent; (2) $14.8 million to a real estate concern, and (3) the $8.4 million balance of a loan to a retailing firm. Approximately 62 percent of the net reduction in nonperforming loans during 1993 can be attributed to a combination of repayments, charge-offs and a return to performing status on three credits -- two retailing firms and a manufacturing concern -- and an $8.7 million charge-off of the remaining balances of loans to political entities formerly known as Yugoslavia. Following is an analysis of the gross interest income that would have been recorded if the nonperforming loans at each year end had been current in accordance with their original terms, and the amount of interest income that was recorded on those loans:
GROSS INTEREST INTEREST INTEREST COLLECTED FOREGONE -------- -------------- -------- (IN THOUSANDS) 1994: Domestic Loans..................................................... $ 14,415 $4,136 $10,279 Foreign Loans...................................................... 374 92 282 -------- ------ ------- $ 14,789 $4,228 $10,561 ======== ====== ======= Per Share (after tax effect)....................................... $ 0.04 ======= 1993: Domestic Loans..................................................... $ 18,208 $6,141 $12,067 Foreign Loans...................................................... 76 -- 76 -------- ------ ------- $ 18,284 $6,141 $12,143 ======== ====== ======= Per Share (after tax effect)....................................... $ 0.05 =======
In addition to the loans classified as nonperforming, there were other loans totaling $30.1 million at December 31, 1994 (and $56.2 million and $73.1 million at December 31, 1993 and 1992, respectively), where management was closely monitoring the borrowers' ability to comply with payment terms, but where existing conditions did not warrant either a partial charge-off or classification as nonaccrual. The largest of such loans was $21.5 million at year-end 1994. MATURITY AND RATE SENSITIVITY OF LOANS The following tables summarize the maturity distribution of the loan portfolio, exclusive of residential mortgages and consumer loans, as of December 31, 1994. As compared to one year earlier, there was a noticeable increase in the proportion of loans scheduled to mature within one year. This increase, which was concentrated in commercial loans, can be attributed to the strength of the U. S. economy in 1994 and attendant demand for short-term, working capital financing by business. MATURITY DISTRIBUTION OF COMMERCIAL, REAL ESTATE CONSTRUCTION AND FOREIGN LOANS
DECEMBER 31, 1994 DECEMBER 31, 1993 ---------------------------------------------- ---------------------------------------------- DUE IN DUE IN ---------------------------------------------- ---------------------------------------------- 1 YEAR OVER 1 TO 5 OVER 5 1 YEAR OVER 1 TO 5 OVER 5 OR LESS YEARS YEARS TOTAL OR LESS YEARS YEARS TOTAL -------- ------------ ------- ------- -------- ------------ ------- ------- (DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS) Commercial.................... $ 11,731 $3,275 $ 520 $15,526 $ 9,571 $3,605 $ 619 $13,795 Real Estate Construction...... 523 263 31 817 518 240 31 789 Foreign....................... 1,316 122 35 1,473 989 99 19 1,107 -------- --------- ------ ------- -------- --------- ------ ------- Total....................... $ 13,570 $3,660 $ 586 $17,816 $ 11,078 $3,944 $ 669 $15,691 ======== ========= ====== ======= ======= ========= ====== ======= Percent of Total.............. 76.2% 20.5% 3.3% 100.0% 70.6% 25.1% 4.3% 100.0% ======== ========= ====== ======= ======= ========= ====== =======
The total amount of loans with maturities beyond one year declined by $367 million, or 8.0 percent, between December 31, 1993, and the end of 1994. The proportion of these loans that carried a fixed rate of interest also declined, from 53.6 percent at year-end 1993 to 51.5 percent at December 31, 1994. 27 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) COMMERCIAL, REAL ESTATE CONSTRUCTION AND FOREIGN LOANS WITH MATURITIES BEYOND ONE YEAR
DECEMBER 31, 1994 DECEMBER 31, 1993 ------------------------------ ------------------------------ FIXED VARIABLE FIXED VARIABLE RATE RATE TOTAL RATE RATE TOTAL ------ -------- ------ ------ -------- ------ (DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS) Commercial............................... $1,987 $1,808 $3,795 $2,311 $1,913 $4,224 Real Estate Construction................. 90 204 294 77 194 271 Foreign.................................. 109 48 157 85 33 118 ------ -------- ------ ------ -------- ------ Total................................ $2,186 $2,060 $4,246 $2,473 $2,140 $4,613 ====== ====== ====== ====== ====== ====== Percent of Total......................... 51.5% 48.5% 100.0% 53.6% 46.4% 100.0% ====== ====== ====== ====== ====== ======
The following table details the residential mortgage and consumer loan portfolios, as of December 31, 1994 and 1993, according to management's estimate of their sensitivity to interest rate changes. For purposes of this analysis, Mortgages Held for Sale have been included in the Residential Mortgage totals. The portion of the residential mortgage portfolio that reprices within one year, which includes estimated portfolio amortization, declined from 46.8 percent ($1,317 million out of $2,817 million) at the end of 1993 to 35.7 percent ($1,208 million out of $3,382 million) at year-end 1994. This decrease reflects, in part, the Corporation's decision to retain in the portfolio 1994 mortgage originations having somewhat longer maturities and repricing periods. The percent of total consumer loans considered to be sensitive to interest rate changes within a one-year time horizon declined from approximately 58 percent at year-end 1993 to 55 percent at December 31, 1994. RATE SENSITIVITY OF RESIDENTIAL MORTGAGE AND CONSUMER LOANS AS OF DECEMBER 31, 1994:
AFTER 1995 1996 1997 1998 1999 1999 TOTAL ------ ------ ------ ---- ---- ------ ------- (DOLLARS IN MILLIONS) Residential Mortgage......................... $1,208 $ 361 $ 330 $328 $290 $ 865 $ 3,382 Consumer..................................... 4,218 1,417 906 509 258 360 7,668 ------ ------ ------ ---- ---- ------ ------- $5,426 $1,778 $1,236 $837 $548 $1,225 $11,050 ====== ====== ====== ==== ==== ====== ======= Percent of Total............................. 49.1% 16.1% 11.2% 7.6% 4.9% 11.1% 100.0% ====== ====== ====== ==== ==== ====== =======
AS OF DECEMBER 31, 1993:
AFTER 1994 1995 1996 1997 1998 1998 TOTAL ------ ------ ------ ---- ---- ------ ------- (DOLLARS IN MILLIONS) Residential Mortgage......................... $1,317 $ 272 $ 211 $205 $236 $ 576 $ 2,817 Consumer..................................... 3,900 1,291 764 396 158 249 6,758 ------ ------ ------ ---- ---- ------ ------- $5,217 $1,563 $ 975 $601 $394 $ 825 $ 9,575 ====== ====== ====== ==== ==== ====== ======= Percent of Total............................. 54.5% 16.3% 10.2% 6.3% 4.1% 8.6% 100.0% ====== ====== ====== ==== ==== ====== =======
INTERNATIONAL BANKING The Corporation's foreign cross-border outstandings consist primarily of loans, interest-bearing deposits, bankers' acceptances and federal funds sold. An item is classified as either foreign or domestic based on the domicile of the party ultimately responsible for payment. The balances are reported net of any legally enforceable written guarantees by domestic or other non-local partners. Assets of our foreign offices denominated in the local currency are included to the extent that they are not hedged or are not funded by local currency borrowings. For the past three year-ends, total foreign cross-border outstandings have amounted to approximately $900 million. During the first quarter of 1990, $88.9 million of Mexican debt was exchanged for new United Mexican States 30-year bonds. The debt that was exchanged had interest rates at 13/16 of 1 percent above the London interbank rate for three- or six-month Eurodollar deposits and had maturities not extending beyond 28 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) December 31, 2006. The bonds bear interest at 6.25 percent and had a market value of approximately $49 million at December 31, 1994, compared to $74 million at December 31, 1993, and $58 million at year-end 1992. These bonds are collateralized by zero-coupon U. S. Treasury bonds, which have an identical final maturity. The collateral is held at the Federal Reserve Bank of New York. Payment of semi-annual interest on the bonds is collateralized by cash or permitted short-term investments in an amount equal to but not less than 18 months' interest on a rolling basis. Interest collateral also is held at the collateral agent for the benefit of the bondholders. These bonds are fully performing in compliance with terms of the exchange agreements. Included in foreign outstandings at year-end 1994 were $26.4 million in aggregate (all of which was performing) for countries (Mexico) that management considered to be experiencing severe economic and liquidity problems. Excluded from this figure is $98.9 million of Mexican debt collateralized by zero-coupon U.S. Treasury securities. STANDBY LETTERS OF CREDIT At December 31, 1994, aggregate standby letters of credit (SLC) issued by various subsidiaries and outstanding amounted to $2,100 million. The comparable amounts at year-ends 1993 and 1992 were $1,720 million and $1,558 million, respectively. While these dollar amounts represent contingent liabilities of the Corporation, they are not reflected on the Consolidated Balance Sheet since funds had not been advanced against the commitments. The credit risk associated with SLC commitments is evaluated and monitored using the same policies and practices applicable to commercial loans. For a further discussion of other commitments and contingencies, see Note 12 to the Financial Statements. Fees for the "standby" backing are generally recognized over the life of the commitment. Fees recognized in 1994 and 1993 were $11.2 million and $9.6 million, respectively. At year-end 1994, total SLC fees received but not yet recognized as income amounted to $5.4 million. The comparable figure one year earlier was $4.6 million. The following table summarizes the Corporation's SLC position as of year-ends 1994 and 1993 according to maturity and type of obligation guaranteed. STANDBY LETTERS OF CREDIT AS OF DECEMBER 31, 1994:
EXPIRING IN: ------------------------------------------------------------ 1 YEAR OVER 1 TO 3 OVER 3 TO 5 OVER 5 OR LESS YEARS YEARS YEARS TOTAL ------- ------------ ------------ ------- ------ (IN MILLIONS) To Guarantee Performance of: Industrial Revenue Bonds.......................... $ 284 $249 $250 $ 100 $ 883 Other Corporate Obligations....................... 775 192 64 5 1,036 Insurance Companies and Depository Institutions... 116 22 2 -- 140 Municipal Obligations............................. -- 41 -- -- 41 ------- ------ ------ ------- ------ $ 1,175 $504 $316 $ 105 $2,100 ======= ====== ====== ======= ======
AS OF DECEMBER 31, 1993:
EXPIRING IN: ------------------------------------------------------------- 1 YEAR OVER 1 TO 3 OVER 3 TO 5 OVER 5 OR LESS YEARS YEARS YEARS TOTAL -------- ------------ ------------ ------- ------ (IN MILLIONS) To Guarantee Performance of: Industrial Revenue Bonds.......................... $196 $261 $131 $ 72 $ 660 Other Corporate Obligations....................... 671 159 56 26 912 Insurance Companies and Depository Institutions... 89 12 3 -- 104 Municipal Obligations............................. 14 30 -- -- 44 ------ ------ ------ ------ ------ $970 $462 $190 $ 98 $1,720 ====== ====== ====== ====== ======
29 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RATE SENSITIVITY ANALYSIS The following table summarizes the Rate Sensitivity of Earning Assets and Funding Sources as of December 31, 1994. Balances are distributed to future calendar periods based primarily on contractual interest rate repricing dates and on contractual maturity (including principal amortization) dates. Maturity distributions, however, are modified based on historical differences between contractual versus actual payment flows and to reflect management's assumptions as to the effect current interest rate levels may have on historical principal prepayment trends. Additionally, distributions reflect management's current assumptions as to repricing frequency of indeterminate maturity liabilities and changes in deposit balances in reaction to interest rate levels. The net difference between the amount of earning assets and funding sources distributed to a calendar period is typically referred to as either the "asset/liability funding gap" or the "rate sensitivity position." The magnitude of the funding gap in the various calendar periods provides a general indication of the extent to which future earnings, primarily net interest income, may be effected by interest rate changes. To mitigate the risk to earnings of changes in interest rates, it is the Corporation's policy that the cumulative funding gap out to one year may not exceed 10 percent of total earning assets. A funding gap in excess of 5 percent requires Board of Directors approval. In addition, the Corporation has an "interest rate shock" policy which specifies that in the event of an immediate change in interest rates of 3 percentage points, the existing funding gap would not cause the average interest rate margin over the ensuing year to decline by more than 15 percent. RATE SENSITIVITY OF EARNING ASSETS AND FUNDING SOURCES
AS OF DECEMBER 31, 1994 ------------------------------------------------------------------------- 1-30 31-90 91-180 181-365 1-5 OVER 5 DAYS DAYS DAYS DAYS YEARS YEARS TOTAL ------- ------- ------- -------- ------- ------ ------- (IN MILLIONS) Interest-Bearing Deposits............. $ 631 $ -- $ -- $ -- $ -- $ -- $ 631 Federal Funds Sold and Resale Agreements.......................... 400 -- -- -- -- -- 400 Trading Account Securities............ 122 -- -- -- -- -- 122 Investment Securities................. 1,067 318 1,188 2,727 3,642 3,481 12,423 Loans -- Domestic..................... 12,863 2,314 1,705 2,062 6,584 1,865 27,393 -- Foreign...................... 1,410 34 16 13 -- -- 1,473 Lease Financing....................... 15 22 30 56 225 15 363 ------- ------- ------- -------- ------- ------ ------- Total Earning Assets........... $16,508 $ 2,688 $ 2,939 $4,858 $10,451 $5,361 $42,805 ------- ------- ------- -------- ------- ------ ------- Savings and Time Deposits............. $ 5,308 $ 1,302 $ 1,476 $1,761 $ 5,815 $ 74 $15,736 Money Market Accounts................. 4,317 -- -- -- 643 -- 4,960 Foreign Office Deposits............... 5,715 13 75 -- -- -- 5,803 Short-Term Borrowings................. 4,906 940 1,111 43 120 -- 7,120 Long-Term Debt........................ -- 147 66 3 1,288 1,000 2,504 Non-Interest-Bearing Liabilities and Equity Capital...................... 928 -- -- -- 3,292 2,462 6,682 ------- ------- ------- -------- ------- ------ ------- Total Sources of Funding....... $21,174 $ 2,402 $ 2,728 $1,807 $11,158 $3,536 $42,805 ------- ------- ------- -------- ------- ------ ------- Asset (Liability) Funding Gap......... $(4,666) $ 286 $ 211 $3,051 $ (707) $1,825 $ -- ------- ------- ------- -------- ------- ------ ------- Net Interest Rate Swap Position....... $ 281 $ 608 $ 43 $ (133) $(1,088) $ 289 $ -- ------- ------- ------- -------- ------- ------ ------- Net Asset (Liability) Funding Gap..... $(4,385) $ 894 $ 254 $2,918 $(1,795) $2,114 $ -- ------- ------- ------- -------- ------- ------ ------- Cumulative Net Asset (Liability) Funding Gap......................... $(4,385) $(3,491) $(3,237) $ (319) $(2,114) $ -- $ -- ======= ======= ======= ====== ======= ====== =======
The period funding gaps at December 31, 1994, would suggest that in the near term a change in interest rates would effect earnings, but that over the longer period of one year the effect on earnings would more likely be minimal. It can also be seen from the table that management's assumptions regarding the repricing of indeterminate maturity liabilities (e.g., savings deposits) and the reaction of non-interest bearing liabilities (primarily net demand deposits) to rate changes has a significant bearing on the stated funding gap in a given period. To more closely monitor the earnings risk of interest rate changes, the Corporation regularly performs simulation analyses of the effect that specific interest rate changes would have on net interest income and net 30 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) interest margin. Utilizing December 31, 1994, data shown in the preceding table, a simulation based on interest rates rising by 1 percentage point, in increments of 25 basis points, over a four-month period would indicate that average interest margin for 1995 would be only 4 basis points lower than if rates were unchanged. A simulation based on the December 31, 1994, forward yield curve would lower margin by 8 basis points. A "shock" analysis, calculated on the basis of an immediate 3 percentage point increase in rates, would cause the average interest margin for 1995 to decline by an amount significantly less than the policy limit of 15 percent. The Corporation utilizes interest rate swap contracts to alter the funding gap, or interest rate sensitivity, on the balance sheet. At December 31, 1994, there were $1.9 billion notional amount of interest rate swap contracts outstanding for rate management purposes. Rate management swaps reduced net interest income by $35.1 million, or 9 basis points, in 1994 and by $59.4 million, or 16 basis points in 1993. Net cash outflow, in contrast to the accrual amounts indicated above, on these rate swaps was $43.6 million in 1994. Note 11 of the Financial Statements provides additional information on the specific purpose and duration of rate management contracts. An additional $1.7 billion of customer accommodation contracts, unrelated to the funding of specific earning assets of the Corporation and therefore not shown in the preceding table, were outstanding at December 31, 1994. LIQUIDITY CONSIDERATIONS The parent holding company has four primary sources to meet its liquidity requirements -- the commercial paper market, established credit facilities from unaffiliated banks, capital markets and dividends from its subsidiaries. Funds raised in the commercial paper market are primarily employed to support the activities of the mortgage banking subsidiaries. The Corporation's ability to attract funds from this market on a regular basis and at a competitive cost is fostered by the highest credit ratings given by the major credit rating agencies for commercial paper -- P1 from Moody's and A1+ from Standard & Poor's. Commercial paper borrowings averaged $126 million in 1994, $143 million in 1993 and $191 million in 1992. The decline in commercial paper usage can be attributed in part to alternative borrowing by the mortgage company directly from NBD Bank (Michigan). In addition, during 1994 there was a reduced need for short-term mortgage company borrowings due to a lower level of mortgages held for resale. During 1990, NBD Bancorp established a $200 million revolving credit with a group of unaffiliated banks. This credit facility was renewed in 1991 for a two-year period with the right to convert to a three-year term loan. No drawings were made under this facility, and its conversion feature was extended to August of 1996 during 1994. This facility has been replaced early in 1995 by a five-year revolving credit totaling $400 million. The parent company has gone to the capital markets on three occasions in the past three years to issue a total of $550 million of long-term subordinated debt and preferred purchase units, of which $400 million was raised in 1992 and $150 million in 1993. (As noted earlier, on March 15, 1994, the Corporation called for redemption the balance of a $200 million convertible debenture issue.) An additional $200 million of subordinated debt was issued by NBD Bank (Michigan) in 1993, and the bank issued another $250 million of subordinated debt in 1994. At December 31, 1994, a total of $646 million of parent company debt was outstanding, with the earliest scheduled maturity falling in the year 2002. The parent company's subordinated debt ratings were reaffirmed in 1994 at A1 (Moody's) and A+ (Standard & Poor's). The cash requirements of the parent company can also be met to a limited extent by dividends from its subsidiaries, which are the primary source of funds for dividend payments to shareholders. During the past three years, NBD Bank (Michigan) declared cash dividends totaling $413.4 million, while upstream dividends from other subsidiaries amounted to $328.1 million. NBD Bancorp itself declared dividends to shareholders amounting to $534.1 million over this same three-year period, a 40.5 percent payout of Net Income. * * * 31 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NBD Bank (Michigan) supports the funding requirements of its wholly-owned subsidiary bank in Canada by guaranteeing its deposit and other liabilities. Similar support for the funding requirements of Michell NBD Limited in Australia was obviated when Michell NBD's offices became branches of NBD Bank (Michigan) in 1994. Management considers the liquidity of NBD Bank (Michigan) to be excellent. In addition to a high degree of liquidity embodied in the loan and securities portfolios, the Bank has demonstrated an ability to raise substantial amounts of funds on a consistent basis during all phases of the credit cycle by: (1) borrowing federal funds (i.e., the excess reserves of other financial institutions) through a long-established and extensive network of correspondent banks; (2) issuing large CDs, deposit notes and bank notes to regular customers, as well as in the national money markets; (3) entering into repurchase agreements whereby U.S. Government and U.S. Government Agency securities are pledged as collateral for short-term borrowings, and (4) pledging acceptable assets as collateral for certain tax collection monies held temporarily in the U.S. Treasury Tax and Loan accounts in the commercial banking system. Borrowings from the Federal Reserve Bank can be relied upon for short periods of time to meet unexpected liquidity needs of a temporary nature; however, no such borrowings occurred during the past three years at NBD Bank (Michigan). The ability to attract funds from the money and capital markets on a regular basis is enhanced by the strong credit ratings of NBD Bank (Michigan). Among these ratings, as of December 31, 1994, were: (1) Aa2 and P1 from Moody's on the Bank's long- and short-term deposits, respectively; (2) AA from Standard & Poor's on the Bank's long-term deposits and letter of credit-backed issues, and (3) Aa3 and AA- from Moody's and Standard & Poor's, respectively, on the Bank's subordinated debt. These ratings were reaffirmed in 1994 by the rating agencies. The Corporation's other subsidiary banks typically meet their need for funds from core deposit growth and through asset management policies designed to maintain adequate liquidity. Individual banks also raise money from time to time in the federal funds market, through repurchase agreements, Treasury Tax and Loan account borrowings, bank notes and borrowings from the Federal Reserve Bank. They can also draw upon the resources of NBD Bank (Michigan) and the parent holding company for temporary liquidity needs, as well as to meet longer term capital needs and requirements. 32 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ORGANIZATIONAL PERFORMANCE Performance data and other information listed by the three major geographical banking markets serviced by the Corporation are presented in the following table. The transfer of certain business activities and organizational changes have minimized the usefulness of comparative data for prior periods. ANALYSIS OF ORGANIZATIONAL PERFORMANCE
MICHIGAN INDIANA ILLINOIS ALL OTHER** TOTAL -------- -------- -------- ------------- -------- (DOLLARS IN THOUSANDS) Income before Accounting Change................ $383,863 $100,490 $ 67,930 $ (5,004) $547,279 Net Income..................................... 378,421 99,651 67,426 (13,834) 531,664 Average Earning Assets ($ millions)............ 26,434 9,117 4,619 (199) 39,971 Return on Average Assets*...................... 1.33% 0.99% 1.36% -- 1.25% Banking Offices (year end)..................... 330 227 42 30 629 Employees -- Full-Time Equivalent (monthly averages)........................... 8,530 5,176 1,939 2,586 18,231
- ------------------------- * Based on income before accounting change and extraordinary charge for early retirement of debt. ** Includes parent company, other bank and non-bank subsidiaries and eliminations emanating from the consolidation process. The amount shown in the "All Other" column for Net Income in the preceding table includes the $7,730,000 premium (after tax effect) paid by the Corporation in connection with the early redemption of an outstanding convertible debenture issue and recognizes the fact that $646 million of the Corporation's consolidated long-term debt is an obligation of the parent company. In the first quarter of 1994, an agreement was reached to acquire AmeriFed Financial Corp. (AFFC), a holding company with $910 million in assets headquartered in Joliet, Illinois. This transaction was completed on January 9, 1995, when approximately 5.2 million shares of NBD common stock, previously acquired in the market, were exchanged for all of the outstanding shares of AFFC. The acquisition was accounted for as a purchase. On January 7, 1995, an agreement was reached to acquire Deerbank Corporation, a holding company with $766 million in assets headquartered in Deerfield, Illinois. The Corporation proposes to issue NBD common stock with an aggregate market value of approximately $120 million for all of the outstanding shares of Deerbank. The acquisition, which is subject to the approval of Deerbank shareholders and regulatory authorities, will be accounted for as a purchase and is expected to be consummated by mid-year 1995. It is anticipated that the NBD shares to be exchanged will have been acquired in the market prior to that time. 33 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED SIX-YEAR SUMMARY AVERAGE BALANCES AND AVERAGE RATES
1994 1993 1992 ------------------ ------------------ ------------------ AVERAGE AVERAGE AVERAGE RATE RATE RATE AVERAGE EARNED/ AVERAGE EARNED/ AVERAGE EARNED/ BALANCE PAID BALANCE PAID BALANCE PAID ------- ------- ------- ------- ------- ------- (DOLLARS IN MILLIONS) ASSETS: Interest-Bearing Deposits...................... $ 652 5.03% $ 657 5.20% $ 760 6.26% Federal Funds Sold and Resale Agreements....... 192 4.53 151 3.19 154 3.85 Trading Account Securities..................... 142 4.82 147 3.73 217 4.27 Money Market Investments....................... -- -- 52 4.13 48 7.67 Investment Securities: U.S. Treasury................................ 1,379 5.48 1,594 5.49 1,362 6.16 U.S. Government Agencies..................... 8,987 6.56 6,642 7.04 6,201 8.05 States and Political Subdivisions............ 1,482 8.95 1,541 8.60 1,739 9.03 Other........................................ 347 5.25 477 4.55 1,052 5.72 ------- ------- ------- ------- ------- ------- Total Investment Securities............. 12,195 6.69 10,254 6.92 10,354 7.73 ------- ------- ------- ------- ------- ------- Loans and Leases: Commercial................................... 14,408 7.71 13,696 7.02 13,281 7.45 Real Estate Construction..................... 768 7.91 813 7.27 993 7.35 Residential Mortgage......................... 3,012 7.54 2,784 8.25 2,915 9.06 Consumer..................................... 7,148 8.60 6,493 9.15 6,126 10.02 Lease Financing.............................. 308 9.89 258 11.39 265 12.10 Foreign...................................... 1,146 6.18 1,069 6.18 1,115 7.71 ------- ------- ------- ------- ------- ------- Total Loans and Leases.................. 26,790 7.89 25,113 7.72 24,695 8.34 ------- ------- ------- ------- ------- ------- Total Earning Assets.................... 39,971 7.45% 36,374 7.41% 36,228 8.07% ====== ====== ====== Cash and Due From Banks........................ 2,372 2,359 2,087 Other Assets................................... 2,025 1,693 1,717 Less Allowance for Possible Credit Losses...... (434) (434) (408) ------- ------- ------- TOTAL ASSETS............................... $43,934 $39,992 $39,624 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY: Domestic Interest-Bearing Deposits: Savings...................................... $ 7,795 2.35% $ 7,252 2.52% $ 6,279 3.15% Money Market Accounts........................ 5,278 3.09 5,918 2.81 6,030 3.42 Time......................................... 8,962 4.49 8,803 4.54 11,098 5.43 ------- ------- ------- ------- ------- ------- Total Domestic Interest-Bearing Deposits.............................. 22,035 3.40 21,973 3.41 23,407 4.30 Foreign Office Deposits........................ 2,699 4.62 1,741 4.57 1,615 6.30 ------- ------- ------- ------- ------- ------- Total Interest-Bearing Deposits............ 24,734 3.53 23,714 3.49 25,022 4.43 ------- ------- ------- ------- ------- ------- Short-Term Borrowings.......................... 6,647 4.37 4,994 3.13 4,624 3.61 Long-Term Debt................................. 2,061 6.15 1,230 6.56 804 7.28 ------- ------- ------- ------- ------- ------- Total Borrowings........................... 8,708 4.79 6,224 3.81 5,428 4.15 ------- ------- ------- ------- ------- ------- Total Interest-Bearing Liabilities...... 33,442 3.86% 29,938 3.56% 30,450 4.38% ====== ====== ====== ------- ------- ------- Demand Deposits................................ 6,305 6,098 5,484 Other Liabilities.............................. 882 836 814 Shareholders' Equity........................... 3,305 3,120 2,876 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $43,934 $39,992 $39,624 ======= ======= ======= INTEREST RATE SPREAD........................... 3.59% 3.85% 3.69% ====== ====== ====== NET INTEREST MARGIN............................ 4.22% 4.48% 4.39% ====== ====== ======
- ------------------------- Notes: 1) Average rates are on a fully taxable equivalent basis. 2) Federal Funds Sold and Resale Agreements are classified with Money Market Investments for years prior to 1992. 3) The combined amounts for Investment Securities Available-for-Sale and Held-to-Maturity for 1994 are based on their respective carrying values. Based on the amortized cost of Investment Securities Available-for-Sale, the combined average balance for 1994 would be $12,316 million and the average rate would be 6.62%. 34 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED) AVERAGE BALANCES AND AVERAGE RATES
1991 1990 1989 ------------------ ------------------ ------------------ AVERAGE AVERAGE AVERAGE RATE RATE RATE AVERAGE EARNED/ AVERAGE EARNED/ AVERAGE EARNED/ BALANCE PAID BALANCE PAID BALANCE PAID ------- ------- ------- ------- ------- ------- (DOLLARS IN MILLIONS) ASSETS: Interest-Bearing Deposits...................... $ 972 8.21% $ 919 10.28% $ 932 9.73% Federal Funds Sold and Resale Agreements....... -- -- -- -- -- -- Trading Account Securities..................... 158 5.96 63 8.48 35 9.29 Money Market Investments....................... 262 9.18 561 8.40 506 9.34 Investment Securities: U.S. Treasury................................ 856 7.91 1,084 8.66 1,318 8.58 U.S. Government Agencies..................... 4,828 9.26 4,722 9.54 3,120 9.49 States and Political Subdivisions............ 1,874 10.12 1,950 10.47 1,915 10.68 Other........................................ 1,650 7.19 1,016 8.66 1,292 8.96 ------- ------- ------- ------- ------- ------- Total Investment Securities............. 9,208 8.94 8,772 9.54 7,645 9.54 ------- ------- ------- ------- ------- ------- Loans and Leases: Commercial................................... 12,439 9.27 11,764 10.48 11,316 11.21 Real Estate Construction..................... 1,113 8.97 1,134 10.12 954 11.07 Residential Mortgage......................... 2,684 10.14 2,605 11.33 2,599 11.16 Consumer..................................... 5,601 11.13 5,207 12.17 4,894 12.39 Lease Financing.............................. 278 12.52 298 12.80 301 12.47 Foreign...................................... 1,175 9.48 1,131 10.84 1,110 10.02 ------- ------- ------- ------- ------- ------- Total Loans and Leases.................. 23,290 9.85 22,139 10.99 21,174 11.39 ------- ------- ------- ------- ------- ------- Total Earning Assets.................... 33,890 9.53% 32,454 10.53% 30,292 10.84% ====== ====== ====== Cash and Due From Banks........................ 2,006 2,057 2,167 Other Assets................................... 1,605 1,429 1,406 Less Allowance for Possible Credit Losses...... (376) (348) (327) ------- ------- ------- TOTAL ASSETS............................... $37,125 $35,592 $33,538 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY: Domestic Interest-Bearing Deposits: Savings...................................... $ 5,073 4.60% $ 5,455 5.32% $ 5,222 5.33% Money Market Accounts........................ 5,256 5.35 5,336 6.93 4,824 7.33 Time......................................... 12,890 7.01 11,026 8.19 10,471 8.57 ------- ------- ------- ------- ------- ------- Total Domestic Interest-Bearing Deposits.............................. 23,219 6.11 21,817 7.17 20,517 7.45 Foreign Office Deposits........................ 1,549 8.63 1,549 10.65 1,524 9.63 ------- ------- ------- ------- ------- ------- Total Interest-Bearing Deposits............ 24,768 6.26 23,366 7.40 22,041 7.60 ------- ------- ------- ------- ------- ------- Short-Term Borrowings.......................... 3,580 5.79 3,913 8.10 3,241 8.93 Long-Term Debt................................. 490 8.62 327 10.01 447 10.25 ------- ------- ------- ------- ------- ------- Total Borrowings........................... 4,070 6.13 4,240 8.24 3,688 9.09 ------- ------- ------- ------- ------- ------- Total Interest-Bearing Liabilities...... 28,838 6.24% 27,606 7.53% 25,729 7.82% ====== ====== ====== ------- ------- ------- Demand Deposits................................ 4,822 4,788 4,852 Other Liabilities.............................. 805 740 718 Shareholders' Equity........................... 2,660 2,458 2,239 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $37,125 $35,592 $33,538 ======= ======= ======= INTEREST RATE SPREAD........................... 3.29% 3.00% 3.02% ====== ====== ====== NET INTEREST MARGIN............................ 4.22% 4.13% 4.20% ====== ====== ======
- ------------------------- Notes: 1) Average rates are on a fully taxable equivalent basis. 2) Federal Funds Sold and Resale Agreements are classified with Money Market Investments for years prior to 1992. 35 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED) SUPPLEMENTARY FINANCIAL DATA
1994 1993 1992 ------------ ------------ ------------ (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) INCOME AND DIVIDENDS: Total Interest Income..................................... $ 2,915,394 $ 2,622,820 $ 2,843,797 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...................... 52,032 119,674 228,480 Net Interest Income after Loan Loss Provision........... 1,572,736 1,438,433 1,281,291 Non-Interest Income....................................... 545,566 585,383 529,208 Non-Interest Expenses: Compensation............................................ 720,733 703,744 676,240 Other................................................... 583,537 618,096 661,879 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........................................ 266,753 220,135 134,361 Income before Extraordinary Item and Cumulative Effect of Accounting Change....................................... 547,279 481,841 338,019 Extraordinary Item...................................... (7,730) -- -- Cumulative Effect of Accounting Change (SFAS No. 112 in 1994, No. 109 in 1993 and No. 106 in 1992)............ (7,885) 3,950 (37,885) Net Income................................................ $ 531,664 $ 485,791 $ 300,134 Cash Dividends Declared................................... (193,897) (173,496) (166,682) Purchase of Common Stock for Treasury at Cost............. (166,606) (13,369) (134,222) Fair Value Adjustment on Available-for-Sale Securities.... (147,293) (7,012) -- Acquisition of Subsidiary Banks........................... -- -- 168,186 Other..................................................... 19,076 15,792 57,340 Net Addition to Shareholders' Equity...................... $ 42,944 $ 307,706 $ 224,756 Memo: Income before Securities Transactions............... $ 534,133 $ 476,463 $ 299,281 RATES OF RETURN: Return on Average Total Assets Based on: Net Income.............................................. 1.21% 1.21% 0.76% Income before Securities Transactions................... 1.22 1.19 0.76 Equity Leverage (Average Assets / Average Common Shareholders' Equity)................................... 13.29X 12.82x 13.78x Return on Average Common Shareholders' Equity Based on: Net Income.............................................. 16.09% 15.57% 10.44% Income before Securities Transactions................... 16.16 15.27 10.41 LOAN AND LEASE RATIOS: Ratio of Allowance Balance to Period End Loans and Leases.................................................. 1.49% 1.66% 1.66% Ratio of Net Charge-Offs to Average Loans and Leases Outstanding............................................. 0.15 0.46 0.81 Ratio of Recoveries to Charge-Offs........................ 66.56 44.43 22.23 OTHER SELECTED DATA: Per Common Share: Shareholders' Equity -- Year-End........................ $ 21.11 $ 20.21 $ 18.34 -- Average (Daily)................ 20.81 19.35 17.89 Net Income -- on Average Shares Outstanding............... 3.35 3.01 1.87 Income before Securities Transactions..................... 3.36 2.95 1.86 Cash Dividends Paid....................................... 1.17 1.08 1.02 Market Price -- High...................................... 33 36 3/8 33 1/8 -- Low...................................... 26 3/4 28 5/8 26 3/4 -- Year-End................................. 27 3/8 29 3/4 32 3/4 Common Shares Outstanding -- Year-End..................... 155,908,672 160,715,173 160,385,761 -- Average (Daily)......... 158,807,677 161,253,486 160,716,309 Employees (Full-Time Equivalent) -- Year-End.............. 17,836 18,716 18,543 -- Monthly Averages................. 18,231 18,677 18,612 Banking Offices, Year-End -- Domestic..................... 620 632 646 -- Foreign.................... 9 10 10
- ------------------------- Note: Rates of return and per share data are after an Extraordinary Item in 1994 and Cumulative Effect of Accounting Changes in 1994, 1993 and 1992. 36 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED) SUPPLEMENTARY FINANCIAL DATA
1991 1990 1989 ------------ ------------ ------------ (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) INCOME AND DIVIDENDS: Total Interest Income..................................... $ 3,138,893 $ 3,320,312 $ 3,188,254 Total Interest Expense.................................... 1,800,759 2,077,923 2,011,362 Net Interest Income..................................... 1,338,134 1,242,389 1,176,892 Provision for Possible Credit Losses...................... 166,212 151,086 113,351 Net Interest Income after Loan Loss Provision........... 1,171,922 1,091,303 1,063,541 Non-Interest Income....................................... 473,027 412,339 391,444 Non-Interest Expenses: Compensation............................................ 623,195 582,184 545,020 Other................................................... 537,932 473,590 461,611 Total Non-Interest Expenses........................... 1,161,127 1,055,774 1,006,631 Income before Income Taxes................................ 483,822 447,868 448,354 Income Tax Expense........................................ 122,288 99,319 97,822 Income before Extraordinary Item and Cumulative Effect of Accounting Change....................................... 361,534 348,549 350,532 Extraordinary Item...................................... -- -- -- Cumulative Effect of Accounting Change (SFAS No. 112 in 1994, No. 109 in 1993 and No. 106 in 1992)............ -- -- -- Net Income................................................ $ 361,534 $ 348,549 $ 350,532 Cash Dividends Declared................................... (139,719) (136,177) (114,573) Purchase of Common Stock for Treasury at Cost............. (70,799) (30,494) (45,366) Fair Value Adjustment on Available-for-Sale Securities.... -- -- -- Acquisition of Subsidiary Banks........................... -- -- -- Other..................................................... 31,782 (4,054) 45,605 Net Addition to Shareholders' Equity...................... $ 182,798 $ 177,824 $ 236,198 Memo: Income before Securities Transactions............... $ 355,762 $ 352,316 $ 348,495 RATES OF RETURN: Return on Average Total Assets Based on: Net Income.............................................. 0.97% 0.98% 1.05% Income before Securities Transactions................... 0.96 0.99 1.04 Equity Leverage (Average Assets / Average Common Shareholders' Equity)................................... 13.96x 14.48x 14.98x Return on Average Common Shareholders' Equity Based on: Net Income.............................................. 13.59% 14.18% 15.65% Income before Securities Transactions................... 13.37 14.33 15.56 LOAN AND LEASE RATIOS: Ratio of Allowance Balance to Period End Loans and Leases.................................................. 1.59% 1.56% 1.51% Ratio of Net Charge-Offs to Average Loans and Leases Outstanding............................................. 0.65 0.56 0.53 Ratio of Recoveries to Charge-Offs........................ 28.78 29.12 23.61 OTHER SELECTED DATA: Per Common Share: Shareholders' Equity -- Year-End........................ $ 17.26 $ 15.98 $ 14.94 -- Average (Daily)................ 16.70 15.46 14.23 Net Income -- on Average Shares Outstanding............... 2.27 2.19 2.23 Income before Securities Transactions..................... 2.23 2.22 2.21 Cash Dividends Paid....................................... 0.93 0.89 0.75 Market Price -- High...................................... 30 1/8 23 7/8 23 5/8 -- Low...................................... 20 3/4 16 1/8 16 1/8 -- Year-End................................. 29 3/4 22 21 3/8 Common Shares Outstanding -- Year-End..................... 157,348,618 157,968,282 157,039,841 -- Average (Daily)......... 159,265,471 159,015,859 157,349,785 Employees (Full-Time Equivalent) -- Year-End.............. 17,866 17,622 17,268 -- Monthly Averages................. 17,827 17,549 17,234 Banking Offices, Year-End -- Domestic..................... 595 579 530 -- Foreign.................... 10 6 6
- ------------------------- Note: Rates of return and per share data are after an Extraordinary Item in 1994 and Cumulative Effect of Accounting Changes in 1994, 1993 and 1992. 37 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------- (a) The following audited consolidated financial statements and independent auditors' report are set forth in this Form 10-K on the following pages: Consolidated Balance Sheet.............................................................. 40 Consolidated Statement of Income........................................................ 42 Consolidated Statement of Shareholders' Equity.......................................... 43 Consolidated Statement of Cash Flows.................................................... 44 Notes to Financial Statements........................................................... 45 Independent Auditors' Report............................................................ 71
(b) The following additional data is set forth in this Form 10-K on the following pages: Management's Letter of Financial Responsibility......................................... 39 Earnings Per Share Computation.......................................................... 72
38 41 MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY - ------------------------------------------------------------------------------ TO THE SHAREHOLDERS: Management of NBD Bancorp, Inc. has prepared and is responsible for the financial statements and for the integrity and consistency of other related information contained in the Annual Report and Form 10-K. In the opinion of management, the financial statements, which necessarily include amounts based on management estimates and judgments, have been prepared in conformity with generally accepted accounting principles appropriate to the circumstances. The Corporation maintains a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with the Corporation's authorizations and policies, and that transactions are properly recorded so as to permit preparation of financial statements that fairly present financial position and results of operations in conformity with generally accepted accounting principles. Internal accounting controls are augmented by written policies covering standards of personal and business conduct and an organizational structure providing for division of responsibility and authority. The effectiveness of and compliance with established control systems is monitored through a continuous program of internal audit and credit examinations. In recognition of cost-benefit relationships and inherent control limitations, some features of the control systems are designed to detect rather than prevent errors, irregularities and departures from approved policies and practices. Management believes the system of controls has prevented or detected on a timely basis any occurrences that could be material to the financial statements and that timely corrective actions have been initiated when appropriate. With the ratification of the shareholders, the Corporation engaged the firm of Deloitte & Touche LLP, independent auditors, to render an opinion on the financial statements. The independent auditors have advised management that they were provided with access to all information and records necessary to render their opinion. The Board of Directors exercises its responsibility for the financial statements and related information through the Audit Committee, which is composed entirely of outside directors. The Audit Committee meets regularly with management, the General Auditor of the Corporation and the independent auditors to assess the scope of the annual audit plan, to review status and results of audits, to review the Annual Report and Form 10-K including major changes in accounting policies and reporting practices and to approve non-audit services rendered by the independent auditors. The independent auditors also meet with the Audit Committee, without management being present, to afford them the opportunity to express their opinion on the adequacy of compliance with established corporate policies and procedures and the quality of financial reporting. [Sig.] [Sig.] Verne G. Istock Philip S. Jones Chairman and Executive Vice President, Chief Executive Officer Treasurer and Chief Financial Officer February 1, 1995 39 42 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. 40 43 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. 41 44 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. 42 45 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. 43 46 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. 44 47 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. 45 48 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (D) LOANS: (CONTINUED) 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: 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. 46 49 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. 47 50 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 2. ACQUISITIONS (CONTINUED) 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. 48 51 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 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. 49 52 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 4. INVESTMENT SECURITIES (CONTINUED) 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. 50 53 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 4. INVESTMENT SECURITIES (CONTINUED) 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 51 54 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 6. PREMISES AND EQUIPMENT (CONTINUED) 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 ---------------------- MAXIMUM WEIGHTED DAILY AVERAGE 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. 52 55 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 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 53 56 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 8. LONG-TERM DEBT (CONTINUED) 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. 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. 54 57 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 9. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED) The following table sets forth the Plans' funded status and amounts recognized in the consolidated balance sheet at December 31:
THE RESTORATION THE PENSION PLANS 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. 55 58 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 9. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED) 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 ====== ====== ======
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. 56 59 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 9. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED) 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. 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. 57 60 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 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 ======== ======== ========
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 ======== ======== ========
58 61 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 10. INCOME TAXES (CONTINUED) 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 ======== ========
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 59 62 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED) 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. 60 63 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED) 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 GAINS 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 GAINS 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 =============== ========== ========== =============
61 64 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED) 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. 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%
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. 62 65 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED) CUSTOMER ACCOMMODATION AND OTHER CONTRACTS:
FOR THE YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1994 -------------------- --------------------------------------- FAIR VALUE AVERAGE FAIR VALUE CONTRACT OR -------------------- -------------------- 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 --------------------------------------- FAIR VALUE CONTRACT OR -------------------- 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 ======= ======= =======
63 66 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED) 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. 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 64 67 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. 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. 65 68 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 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. 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. 66 69 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 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. 67 70 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 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 ========== ==========
68 71 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED) 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 ======== ======== ========
69 72 NBD BANCORP, INC. - ------------------------------ Notes to Financial Statements 18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED) 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
70 73 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 71 74 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
72 75 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - -------------------------------------------------------------------------------- AND FINANCIAL DISCLOSURE - ---------------------------------------- Not applicable. 73 76 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- The information set forth under the captions "Election of Directors" and "Security Ownership Reporting" in the definitive 1995 Proxy Statement of the Corporation to be filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein. Reference is made to PART I of this Form 10-K for information as to the executive officers of the Corporation. ITEM 11. EXECUTIVE COMPENSATION - ------------------------------- The information set forth under the captions "Director Compensation" and "Executive Officer Compensation" in the definitive 1995 Proxy Statement of the Corporation to be filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - -------------------------------------------------------- AND MANAGEMENT -------------- The information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the 1995 definitive Proxy Statement of the Corporation to be filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- The information set forth under the caption "Compensation Committee Interlocks and Insider Participation" in the 1995 definitive Proxy Statement of the Corporation to be filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein. 74 77 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) The following documents are filed as a part of this Report: 1. FINANCIAL STATEMENTS: - ------------------------
PAGE* ----- Consolidated Balance Sheet -- December 31, 1994 and 1993....................................... 40 Consolidated Statement of Income -- Three Years Ended December 31, 1994........................ 42 Consolidated Statement of Shareholders' Equity -- Three Years Ended December 31, 1994.......... 43 Consolidated Statement of Cash Flows -- Three Years Ended December 31, 1994.................... 44 Notes to Financial Statements.................................................................. 45 Independent Auditors' Report................................................................... 71
- ------------------------- * Refers to page number of this Form 10-K. 2. SCHEDULES: - ------------- All schedules are omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto. 3. EXHIBITS: - ------------ The Exhibits marked with one asterisk below were filed as Exhibits to the Corporation's Form 10-K for the fiscal year ended December 31, 1993 [file number 1-7127]; the Exhibit marked with two asterisks below was filed as an Exhibit to the Corporation's Form 10-K for the fiscal year ended December 31, 1990; the Exhibit marked with three asterisks below was filed as an Exhibit to the Corporation's Form S-3 Registration Statement filed on February 14, 1992; the Exhibit marked with four asterisks below was filed as an Exhibit to the Corporation's Form S-3 Registration Statement filed on July 15, 1992; the Exhibit marked with five asterisks below was filed as Exhibits to the Corporation's Form 8-K Report filed on May 11, 1993; the Exhibit marked with six asterisks below was filed as an Exhibit to the Corporation's Form 10-K for the fiscal year ended December 31, 1991; the Exhibits marked with seven asterisks below were filed as Exhibits to the Corporation's Form 10-K for the fiscal year ended December 31, 1992; the Exhibit marked with eight asterisks below was filed as an Exhibit to the Corporation's Form S-3 Registration Statement filed on April 9, 1993; and all such Exhibits are incorporated herein by reference, the Exhibit numbers in brackets being those in such Forms S-3, 10-K and 8-K. (3)* Restated Certificate of Incorporation of the Corporation, and By-Laws of the Corporation, as amended (4)(a)** Fiscal Agency Agreement dated as of December 18, 1985, between the Corporation and Morgan Guaranty Trust Company of New York, as Fiscal Agent and Paying Agent, relating to Floating Rate Subordinated Notes Due 2005 [(4)(b)] (4)(b)*** Indenture dated as of February 1, 1992, between the Corporation and Bankers Trust Company, as Trustee, relating to 8.10% Subordinated Notes Due 2002 [4(a)] (4)(c)**** Indenture dated as of July 15, 1992, between the Corporation and The Chase Manhattan Bank, N.A., as Trustee, relating to 7 1/4% Subordinated Debentures due 2004 [4(a)] (4)(d)***** Indenture and Unit Agreement dated as of April 30, 1993, between the Corporation and Chemical Bank, as Trustee and Unit Agent, relating to the 7 1/2% Preferred Purchase Units [(99)(a)/(b)/(c)] (4)(e)******** Form of Certificate of Designations of 7 1/2% Cumulative Preferred Stock of the Corporation issuable under the 7 1/2% Preferred Purchase Units [(4)(c)] (4)(f) The Corporation hereby agrees to furnish to the Commission upon request copies of instruments defining the rights of holders of nonregistered long-term debt of the Corporation's subsidiaries; the total amount of each issue of such debt does not exceed 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. (10)(a)****** Performance Incentive Plan of the Corporation, as amended [(10)(a)] 75 78 (10)(b) Executive Incentive Plan of the Corporation (10)(c) Pension Restoration/Supplemental Plan of the Corporation (10)(d) Retirement Plan for Non-Employee Directors of the Corporation (10)(e) Severance Pay Plan of the Corporation (10)(f) Form of Separation Agreement between the Corporation and listed executive officers (10)(g) Executive Estate Plan of the Corporation (10)(h)******* Non-Employee Director Stock Award Plan of the Corporation (10)(i)******* Supplemental Disability and Split-Dollar Life Insurance Policies of NBD Indiana, Inc. covering the named executive officers (10)(j)******* Employment Agreements dated January 15, 1992, between NBD Indiana, Inc. and the listed executive officers (10)(k)* Long-Term Disability Restoration Plan of the Corporation (11) Earnings Per Share Computation (included in Item 8 of this Form 10-K) (21) Subsidiaries of the Corporation (23) Consent of Deloitte & Touche LLP (27) Financial Data Schedule - ------------------------- Exhibits 10(a) through 10(k) constitute the management contracts and executive compensatory plans or arrangements of the Corporation and its subsidiaries. (b) Reports on Form 8-K The Corporation has not filed any reports on Form 8-K during the last quarter of the year covered by this Form 10-K. 76 79 SIGNATURES - ----------------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Detroit, State of Michigan on March 1, 1995. NBD BANCORP, INC. /s/ VERNE G. ISTOCK ----------------------------------------- Verne G. Istock, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March 1, 1995.
SIGNATURE SIGNATURE - ------------------------------------------------- ------------------------------------------------- /s/ VERNE G. ISTOCK /s/ ALFRED R. GLANCY III - ------------------------------------------------- ------------------------------------------------- Verne G. Istock, Chairman, Chief Executive Alfred R. Glancy III, Director Officer and Director (Principal Executive Officer) /s/ DENNIS J. GORMLEY ------------------------------------------------- /s/ PHILIP S. JONES Dennis J. Gormley, Director - ------------------------------------------------- Philip S. Jones, Executive Vice President, /s/ JOSEPH L. HUDSON, JR. Treasurer and Chief Financial Officer ------------------------------------------------- (Principal Financial Officer) Joseph L. Hudson, Jr., Director /s/ GERALD K. HANSON /s/ THOMAS H. JEFFS II - ------------------------------------------------- ------------------------------------------------- Gerald K. Hanson, Senior Vice President and Thomas H. Jeffs II, Director Comptroller (Principal Accounting Officer) /s/ JOHN E. LOBBIA /s/ TERENCE E. ADDERLEY ------------------------------------------------- - ------------------------------------------------- John E. Lobbia, Director Terence E. Adderley, Director /s/ RICHARD A. MANOOGIAN ------------------------------------------------- - ------------------------------------------------- Richard A. Manoogian, Director James K. Baker, Director /s/ WILLIAM T. MCCORMICK, JR. /s/ DON H. BARDEN ------------------------------------------------- - ------------------------------------------------- William T. McCormick, Jr., Director Don H. Barden, Director /s/ SIEGFRIED BUSCHMANN /s/ THOMAS E. REILLY, JR. - ------------------------------------------------- ------------------------------------------------- Siegfried Buschmann, Director Thomas E. Reilly, Jr., Director /s/ BERNARD B. BUTCHER /s/ IRVING ROSE - ------------------------------------------------- ------------------------------------------------- Bernard B. Butcher, Director Irving Rose, Director /s/ JOHN W. DAY /s/ ROBERT C. STEMPEL - ------------------------------------------------- ------------------------------------------------- John W. Day, Director Robert C. Stempel, Director /s/ MAUREEN A. FAY, O.P. /s/ PETER W. STROH - ------------------------------------------------- ------------------------------------------------- Maureen A. Fay, O.P., Director Peter W. Stroh, Director /s/ CHARLES T. FISHER III /s/ ORMAND J. WADE - ------------------------------------------------- ------------------------------------------------- Charles T. Fisher III, Director Ormand J. Wade, Director
77 80 [LOGO] [RECYCLED PAPER LOGO] 81 EXHIBIT INDEX The Exhibits marked with one asterisk below were filed as Exhibits to the Corporation's Form 10-K for the fiscal year ended December 31, 1993 [file number 1-7127]; the Exhibit marked with two asterisks below was filed as an Exhibit to the Corporation's Form 10-K for the fiscal year ended December 31, 1990; the Exhibit marked with three asterisks below was filed as an Exhibit to the Corporation's Form S-3 Registration Statement filed on February 14, 1992; the Exhibit marked with four asterisks below was filed as an Exhibit to the Corporation's Form S-3 Registration Statement filed on July 15, 1992; the Exhibit marked with five asterisks below was filed as Exhibits to the Corporation's Form 8-K Report filed on May 11, 1993; the Exhibit marked with six asterisks below was filed as an Exhibit to the Corporation's Form 10-K for the fiscal year ended December 31, 1991; the Exhibits marked with seven asterisks below were filed as Exhibits to the Corporation's Form 10-K for the fiscal year ended December 31, 1992; the Exhibit marked with eight asterisks below was filed as an Exhibit to the Corporation's Form S-3 Registration Statement filed on April 9, 1993; and all such Exhibits are incorporated herein by reference, the Exhibit numbers in brackets being those in such Forms S-3, 10-K and 8-K.
Exhibit Number Description - ------- ----------- (3)* Restated Certificate of Incorporation of the Corporation, and By-Laws of the Corporation, as amended (4)(a)** Fiscal Agency Agreement dated as of December 18, 1985, between the Corporation and Morgan Guaranty Trust Company of New York, as Fiscal Agent and Paying Agent, relating to Floating Rate Subordinated Notes Due 2005 [(4)(b)] (4)(b)*** Indenture dated as of February 1, 1992, between the Corporation and Bankers Trust Company, as Trustee, relating to 8.10% Subordinated Notes Due 2002 [4(a)] (4)(c)**** Indenture dated as of July 15, 1992, between the Corporation and The Chase Manhattan Bank, N.A., as Trustee, relating to 7 1/4% Subordinated Debentures due 2004 [4(a)] (4)(d)***** Indenture and Unit Agreement dated as of April 30, 1993, between the Corporation and Chemical Bank, as Trustee and Unit Agent, relating to the 7 1/2% Preferred Purchase Units [(99)(a)/(b)/(c)] (4)(e)******** Form of Certificate of Designations of 7 1/2% Cumulative Preferred Stock of the Corporation issuable under the 7 1/2% Preferred Purchase Units [(4)(c)] (4)(f) The Corporation hereby agrees to furnish to the Commission upon request copies of instruments defining the rights of holders of nonregistered long-term debt of the Corporation's subsidiaries; the total amount of each issue of such debt does not exceed 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. (10)(a)****** Performance Incentive Plan of the Corporation, as amended [(10)(a)]
82 (10)(b) Executive Incentive Plan of the Corporation (10)(c) Pension Restoration/Supplemental Plan of the Corporation (10)(d) Retirement Plan for Non-Employee Directors of the Corporation (10)(e) Severance Pay Plan of the Corporation (10)(f) Form of Separation Agreement between the Corporation and listed executive officers (10)(g) Executive Estate Plan of the Corporation (10)(h)******* Non-Employee Director Stock Award Plan of the Corporation (10)(i)******* Supplemental Disability and Split-Dollar Life Insurance Policies of NBD Indiana, Inc. covering the named executive officers (10)(j)******* Employment Agreements dated January 15, 1992, between NBD Indiana, Inc. and the listed executive officers (10)(k)* Long-Term Disability Restoration Plan of the Corporation (11) Earnings Per Share Computation (included in Item 8 of this Form 10-K) (21) Subsidiaries of the Corporation (23) Consent of Deloitte & Touche LLP (27) Financial Data Schedule
EX-10.B 2 EXHIBIT 10(B) 1 EXHIBIT 10(b) NBD BANCORP, INC. EXECUTIVE INCENTIVE PLAN (As Amended March 21, 1994) SECTION 1 - PURPOSE The NBD BANCORP, INC. EXECUTIVE INCENTIVE PLAN (hereinafter called the "Plan") is a plan to provide incentive compensation to senior officers and other key employees (hereinafter together called "officers" or "senior officers") of NBD Bancorp, Inc. (hereinafter called the "Corporation") and of its affiliated corporations (hereinafter, including the Corporation, called "participating affiliates"), based upon such officers' individual contributions to the overall growth and profitability of the Corporation from year to year, for the purpose of assisting the Corporation in attracting and retaining as officers individuals of superior ability and in motivating their activities on behalf of the Corporation. For purposes of the Plan, affiliated corporations shall include only those corporations a majority of the outstanding voting capital stock of which is directly or indirectly owned or controlled by the Corporation. SECTION 2 - EFFECTIVE DATE The Plan shall be effective as of January 1, 1983. SECTION 3 - ADMINISTRATION The Compensation Committee of the Board of Directors of the Corporation (the "Committee"), the members of which shall be "disinterested persons" under Rule 16b-3 of the Securities and Exchange Commission (or any successor regulation issued under federal securities laws) and ineligible to participate in the Plan, shall be responsible for the general operation and administration of the Plan and shall have the authority to interpret the Plan and to adopt administrative rules and regulations governing its operation. The Committee may delegate the performance of administrative functions to the Secretary of the Committee. SECTION 4 - PARTICIPATION Participation in the Plan shall be limited to those officers of the participating affiliates designated by the Committee from among the more senior officers of the Corporation and its participating affiliates to participate in the Plan for each fiscal year. For officers who are "covered employees" under Section 162(m) of the Internal Revenue Code of 1986, as amended, and related regulations, the Committee shall administer this Plan in accordance with the provisions of Appendix A. SECTION 5 - INCENTIVE COMPENSATION AWARDS (a) The Committee shall determine the amount of each incentive compensation award to be granted under the terms of the Plan for each fiscal year and, upon the approval by the Board of Directors of the Corporation of the individual awards, if any, for such fiscal year made to the executive officers and of the total of all awards for such fiscal year made to all other officers, the determination of the Committee as to each such award shall become final. 2 (b) Each incentive compensation award shall be paid to a participant in the Plan entitled thereto in cash. A participant may elect to defer the payment of any part or all of the participant's incentive compensation award until a future date specified by the participant. A participant's election to defer payment of the participant's incentive compensation award shall be made in writing and delivered to the Committee in such form and manner as is approved for that purpose by the Committee. The Committee shall provide for the payment of interest on the deferred portion of a participant's incentive compensation award at such rates and at such times as it shall determine. If a participant dies while in the employ of a participating affiliate but prior to receipt of the participant's award, the award, if any, and the interest due thereon, if any, shall be paid in cash to the participant's designated beneficiary, or, in the absence of a beneficiary designation, to the participant's estate. Payment of all awards shall be made, unless otherwise elected by the participant, as soon as practicable following the close of the fiscal year for which they are granted. (c) No incentive compensation award shall be granted for a fiscal year to any participant in the Plan who terminates employment with a participating affiliate during such fiscal year for any reason other than death, total and permanent disability, or retirement at normal retirement age or, with the consent of the participating affiliate with which he or she is employed, at early retirement age under a retirement plan maintained by the participating affiliate. For this purpose, a participant who transfers employment between participating affiliates shall not be considered to have terminated the participant's employment. SECTION 6 - LIMITATIONS ON INCENTIVE COMPENSATION AWARDS (a) In no event shall any incentive compensation award be granted hereunder with respect to any fiscal year during which the per share cash dividend paid to its shareholders by the Corporation on its common capital stock is less than the per share cash dividend so paid for the immediately preceding fiscal year. (b) The aggregate of all incentive compensation awards under the Plan granted to participants in the Plan with respect to any fiscal year shall not exceed an amount equal to three percent (3%) of the consolidated net income of the Corporation for such year. "Consolidated Net Income" for purposes of this subparagraph (b) for a fiscal year shall mean the consolidated net income of the Corporation (excluding for purposes of this Plan items of extraordinary gain or loss as determined by the Committee and the income tax effects thereof). (c) The aggregate of all incentive compensation awards under the Plan and under the Key Officer Incentive Plan with respect to any fiscal year shall not exceed an amount that would reduce the consolidated net income of the Corporation for such year to less than eight percent (8%) of the shareholders' equity of the Corporation as of the beginning of that fiscal year as reported to its shareholders in its consolidated financial statements. SECTION 7 - GENERAL (a) Neither the establishment of the Plan nor any provisions of the Plan or modifications thereof shall be held or construed as giving any participant in the Plan the right to an award under the Plan or the right to be retained in the service of any participating affiliate and each participating affiliate expressly reserves its right to discharge any such participant whenever the interests of such participating affiliate may so require. (b) Notwithstanding any other provisions in the Plan, in the event of a Change in Control (as hereinafter defined) all awards for the fiscal year in which such Change in Control occurs shall become immediately distributable to the participants entitled thereto. Distribution of all such awards shall be made immediately prior to the date of the Change in Control. In addition, the Corporation shall reimburse a participant for legal fees and expenses incurred by such participant in successfully seeking to obtain or enforce any right to the distribution of an award provided under this Section 7(b) and in the event that it shall be determined that such participant is entitled to a distribution hereunder, such participant shall also be entitled to interest thereon payable to such participant in - 2 - 3 an amount equivalent to the prime rate of interest of NBD Bank, N.A. from time to time during the period from the date such award should have been distributed to the date of payment. For purposes of this Plan, a Change in Control shall occur if (i) any "person" or "group" within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than thirty percent (30%) of the then outstanding voting securities of the Corporation otherwise than through a transaction or transactions arranged by or consummated with the prior approval of the Corporation's Board of Directors; or (ii) during any period of twenty-four (24) consecutive months (not including any period prior to the adoption of this Section 7(b)) Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For purposes of subsection (ii) of the preceding sentence, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four (24) month period were members of the Corporation's Board and "New Directors" shall mean any director of the Corporation whose election by the Corporation's Board or whose nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds of the Corporation's Directors then still in office who were Present Directors or New Directors. Notwithstanding any other provisions of the Plan, the provisions of this Section 7(b) may not be amended after the date a Change in Control occurs without the written consent of a majority in number of participants. SECTION 8 - AMENDMENT, SUSPENSION AND TERMINATION The Board of Directors of the Corporation reserves the right at any time to amend, suspend, or terminate the Plan. - 3 - 4 NBD BANCORP, INC. EXECUTIVE INCENTIVE PLAN APPENDIX A The following provisions have been disclosed to and approved by the shareholders of the Corporation at the annual meeting held on May 16, 1994: The performance-based annual incentive criteria for the chief executive officer and the next four highest paid executive officers (the "class of employees" covered) are based upon the Corporation's return on equity ("ROE") for the year in relation to an ROE goal set by the Committee at the start of each year and a comparison of NBD's ROE to average ROE at peer banking institutions (the "performance measure"). Each participating officer is assigned a target award at the start of each year, as a percent of base salary, which will be payable if the ROE goal is achieved. The highest level of target award allowable under the criteria is 65% of salary. Actual awards are a function of NBD's ROE for the year in relation to its goal, adjusted by a factor for NBD's ROE in comparison to peer financial institutions. If actual ROE is below the goal, individual awards will be less than the target, down to an ROE threshold below which no awards are earned. If actual ROE is above the goal, individual awards will be more than the target, up to a maximum award of 100% of the salary stated in the Corporation's proxy statement for that year (the "maximum award"). The Committee retains the right in its discretion to reduce an officer's award if it believes that individual performance does not warrant the original award calculated in relation to ROE performance. DEFINITIONS. For purposes of determining awards, "Return on Equity" is calculated by dividing "Net Income" by "Stockholders' Equity" for the year. "Net Income" is defined as consolidated net income as reported in the Corporation's audited financial statements for the year, before securities transactions and before any extraordinary, unusual or non-recurring items of gain or loss that are identified and quantified separately in the audited financial statements, net of tax effect, and after any preferred dividends. The Compensation Committee retains the right in its discretion to reduce Net Income for purposes of applying the performance-based annual incentive criteria if it believes that such Net Income produces a level of payout above the level warranted by management performance. It may not, however, increase Net Income or individual awards above the level produced by the calculations. "Stockholders' Equity" is the Corporation's common stockholders' equity on its consolidated balance sheet at the end of the preceding year. TERM OF CRITERIA. The term of the performance-based annual incentive criteria is five years, 1994 through 1998, unless sooner terminated or amended by the Board. Any amendment that would materially change the "class of employees" covered, the "performance measure," or the "maximum award" payable is subject to stockholder approval. - 4 - EX-10.C 3 EXHIBIT 10(C) 1 EXHIBIT 10(c) PENSION RESTORATION/SUPPLEMENTAL PLAN FOR CERTAIN OFFICERS OF NBD BANCORP, INC. (As Amended January 1, 1994) Section 1 - Effective Date This Plan is effective as of September 20, 1982. Section 2 - Purpose The principal purpose of this Plan is to provide for the payment of certain pension and pension-related benefits to certain officers of NBD Bancorp, Inc., and its affiliated corporations (hereinafter "NBD") in excess of the limitations on benefits imposed by the Employee Retirement Income Security Act of 1974, as amended, and specifically Sections 401(a)(4), 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended by subsequent statutes (hereinafter the "Code"). This Plan is established to insure that the total pension and pension-related benefits of all retired officers of NBD entitled to receive benefits under the Employees' Retirement Plan of NBD Bancorp, Inc. (hereinafter the "Retirement Plan") can be determined on the same basis. Section 3 - Administration (a) This Plan shall be administered by the Compensation Committee of the Board of Directors of NBD as an unfunded plan that is not intended to meet the qualification requirements of Section 401 of the Code. The Compensation Committee's decisions in all matters involving the interpretation and application of this Plan shall be conclusive. (b) The Plan shall at all times be maintained by NBD and administered by the Compensation Committee as a plan wholly separate from the Retirement Plan. Section 4 - Eligibility Officers whose pension or pension-related benefits under the Retirement Plan are limited by the provisions set forth therein to conform to Sections 401(a)(17) and 415 of the Code shall be eligible for benefits provided by this Plan. In addition, such officers as determined by the Compensation Committee who are credited with additional service for the purpose of computing pension or pension-related benefits as the result of a management-approved pre-retirement administrative leave of absence arrangement shall be eligible for benefits provided by this Plan. In no event shall an officer who is not entitled to benefits under the Retirement Plan be eligible for any benefits under this Plan. Section 5 - Amount of Benefits The benefits payable to an eligible officer or his or her beneficiary or beneficiaries hereunder shall equal the excess, if any, of: 2 (a) the benefits that would have been paid to such officer or his or her beneficiary or beneficiaries under the Retirement Plan if the provisions of such Plan were administered and benefits paid according to the formula contained in such Plan and without regard to the benefit limitations contained in such Plan to conform it to Sections 401(a)(4), 401(a)(17) and 415 of the Code over (b) the benefits that are payable to such officer or his or her beneficiary or beneficiaries under the Retirement Plan. Section 6 - Early Retirement Supplement for Certain INB Management Participants Certain Management Participants under the former INB Financial Corporation Supplemental Executive Retirement Plan are entitled, in the event of their early retirement on or after attaining age 62, to a supplemental early retirement benefit. The names of the eligible Management Participants and the amount of the supplemental early retirement benefit to which each of them is entitled are listed on the attached Appendix A. Section 7 - Payment of Benefits (a) Payment of benefits under this Plan shall be made coincident with the payment of benefits under the Retirement Plan or as soon as practicable thereafter. (b) Benefits under the Plan shall be payable solely from the general assets of NBD. The Plan shall remain unfunded during the entire period of its existence. Section 8 - Rights of Employees Except to the extent provided in Section 9 hereinbelow, no officer or his or her beneficiary or beneficiaries shall at any time have any vested right to receive the benefits provided by this Plan. Section 9 - Amendment and Discontinuance NBD expects to continue this Plan indefinitely, but reserves the right to amend or discontinue it if, in its sole judgment, such amendment of or discontinuance is deemed necessary or desirable. However, if NBD should amend or discontinue this Plan, NBD shall be liable for any benefits that have accrued under this Plan as of the date of such action (determined on the basis of each officer's presumed termination of employment as of the date of such amendment or discontinuance). -2- 3 PENSION RESTORATION/SUPPLEMENTAL PLAN FOR CERTAIN OFFICERS OF NBD BANCORP, INC. Appendix A Early Retirement Supplement for Certain INB Management Participants Amount of Early Retirement Supplement Eligible Participants Accrued to December 31, 1993 -3- EX-10.D 4 EXHIBIT 10(D) 1 EXHIBIT 10(d) NAME NBD BANCORP, INC. RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS (THE "PLAN"). EFFECTIVE DATE May 1, 1988 PURPOSE The purpose of this Plan is to recognize the value of a Director's past service to the Corporation, to compensate the Director for the availability of the Director's advice and counsel to the Corporation after retirement and to assist the Corporation in the recruitment of new Directors. ELIGIBILITY Each Director of the Corporation and each Advisory Member of the Board of Directors of the Corporation, as of the Effective Date, who has not earned an accrued benefit under any qualified retirement plan sponsored by the Corporation or any of its subsidiaries or affiliates and who, upon retirement from the Board of Directors, (i) has served at least five years on the Board of Directors and (ii) is at least sixty-five years old on the date of retirement from the Board of Directors, shall be entitled to an annual retirement benefit for life or for a period of ten years, whichever is less. For purposes of this Plan, more than six months of service during a twelve month period after a director's first election to the Board of Directors will be considered as a full year of service. Each Director shall be fully vested in the benefits payable under this Plan regardless of number of years of service if the Corporation engages in a Business Combination, as that term is defined in Article Thirteenth of the Corporation's Restated Certificate of Incorporation, which does not meet the conditions set forth in paragraph (b) of said Article Thirteenth. BENEFITS A Director who is eligible to receive benefits under the Plan shall be entitled to receive an annual retirement benefit, payable quarterly in advance, equal to the amount of the annual retainer fee in effect for service on the Board at the time of the Director's Retirement. For purposes of this Plan, "annual retainer" shall not include retainers, if any, paid to Board members for service as chairpersons of committees of the Board, nor shall it include meeting fees. 2 BENEFITS Quarterly payments shall be made on March 31, (continued) June 30, September 30 and December 31 of each calendar year. Notwithstanding the above, there shall be subtracted from the amount payable on the first payment date following an eligible Director's retirement the pro rata portion, if any, of the annual retainer fee, paid to the Director on account of the Director's service as such during such calendar quarter. An eligible Director who retires from the Board prior to age sixty-five for any reason, other than a sickness or disability that terminates the Director's principal occupation, will be entitled to receive Plan benefits commencing in the first calendar quarter subsequent to the Director's attaining age sixty-five. An eligible Director who retires from the Board prior to age sixty-five due to such sickness or disability will be entitled to receive plan benefits in the first calendar quarter after such retirement or after attaining age sixty, whichever occurs later. DUTIES As a condition to the right to receive (or the continuation of) Plan benefits, each Director shall, from time to time, render advice to the Board of Directors or undertake duties for the Board of Directors as reasonably requested by the Chairman of the Board of Directors. Direct expenses incurred in connection with rendering such advice or performing such duties shall be reimbursed to the Director. No Director shall be eligible for Plan benefits (or the continuation thereof) if, at any time subsequent to election as a Director of the Corporation, the Director engages in any business or activity which is directly competitive with or contrary to the interests of the Corporation. NON- The interests herein and the right to receive ASSIGNABILITY benefits hereunder may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered or subjected to any charge or legal process, and if any attempt is made to do so, or if an eligible Director becomes bankrupt, the interests under the plan of such Director may be terminated by the Nominating Committee, which, in its sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such person or make any other disposition of such interests as the Committee may deem appropriate. ADMINISTRATION The Plan shall be administered by the Nominating Committee. The Nominating Committee shall have the authority to interpret the Plan and any such interpretation shall be final and binding on all parties. The Nominating Committee shall have the authority to delegate the Secretary of the Corporation or others, the duties and responsibilities of maintaining records, issuing regulations and making distributions hereunder. 3 AMENDMENT The Board of Directors may modify, amend or revoke this Plan at any time, provided that the Plan may not be amended with respect to the amount or treatment of benefits already vested under the Plan after a Business Combination without the written consent of the eligible Directors determined as of the day preceding such Business Combination. FUNDING The Corporation shall pay for all distributions made pursuant to the Plan and for all costs, charges and expenses related to the administration of the Plan. Plan benefits will not be funded in advance by the Corporation. APPLICABLE All questions pertaining to the construction, LAW validity and effect of this Plan shall be determined in full accordance with the laws of the State of Delaware. EX-10.E 5 EXHIBIT 10(E) 1 EXHIBIT 10(e) NBD BANCORP, INC. SEVERANCE PAY PLAN SUMMARY PLAN DESCRIPTION The Severance Pay Plan provides you with severance benefits in case your employment is terminated following a change in control of NBD Bancorp, Inc. ("NBD"). This plan is established to promote and advance the performance of NBD by encouraging employee morale, continued corporate growth and continuity of corporate performance during a change in control of NBD and to alleviate financial hardship in the event of termination of employment following a change in control. The NBD Bancorp, Inc. Severance Pay Plan: - Is sponsored by NBD Bancorp, Inc., 611 Woodward Avenue, Detroit, Michigan 48226. The employer identification number assigned by the Internal Revenue Service to NBD is 38-1984850. - Is filed with the United States Department of Labor as Plan Number 515. - Is a welfare benefit plan. - Is unfunded, with benefits to be paid from the general assets of NBD Bancorp, Inc. - Was established on December 18, 1989. The plan year ends on December 31. The Plan Administrator is Fred J. Johns, Senior Vice President and Director of Human Resources, NBD Bank, N.A., 611 Woodward Avenue, Detroit, Michigan 48226 (phone 313-225-1000). The agent for Service of Legal Process is the Plan Administrator. ELIGIBILITY You are eligible to participate in the plan if you are a full-time employee or officer of NBD or an affiliated company and (i) have completed at least 12 months of employment with NBD and/or one or more of its affiliated companies and (ii) work an average of at least 40 hours per week at the time of termination of employment. Eligibility for participation is based on your full years of service since your hire date or adjusted hire date as used to determine your vacation eligibility. Designated executive officers are not eligible for benefits under the plan. YOUR CONTRIBUTION OR COST NBD pays the entire cost of your coverage. WHEN BENEFITS ARE PAID Change in Control Benefits under the plan are payable only following a change 2 in control of NBD and supersede any other severance benefits. For purposes of the plan, a change in control of NBD means a change in ownership of NBD common stock resulting in beneficial ownership of more than 30% of the stock by any "person" or "group" as defined in the Securities Exchange Act of 1934 or a change in Board membership within 24 months such that present directors (and their successors, provided that the successors are nominated and elected following approval by at least two-thirds of the directors then in office) cease to be a majority of the Board. Termination of Employment Benefits under the plan are payable only if an involuntary termination of employment (other than for cause) occurs within two (2) years following a change in control. For purposes of the plan, termination "for cause" means discharge because of embezzlement of funds of NBD or an affiliated company, engagement in dishonest or fraudulent acts in connection with employment, conviction of a felony, creation or permitting the creation of falsified corporate records, possession or use of illegal drugs or corporate premises, or willful gross misconduct demonstrably injurious to NBD or an affiliated company. An involuntary termination of employment does not occur under the plan if your employment is discontinued due to voluntary resignation (unless such voluntary resignation is for good reason as described below), voluntary retirement, death, a physical or mental condition resulting in the inability to perform substantially your employment duties, your refusal to accept substantially similar employment (for substantially similar compensation) at your then current place of employment or at another facility of NBD or an affiliated company that is 50 miles or less from your then current place of employment, or divestiture of a facility of NBD or an affiliated company where you work if you are offered employment by the successor company (provided you continue in the employ of the purchaser and the purchaser agrees to assume NBD's responsibilities under the plan with respect to the participant). An involuntary termination does occur under the plan if your employment is discontinued due to voluntary resignation for good reason. For purposes of the plan, "good reason" means a significant adverse change in your title, authority, duties, responsibilities or status from those that existed immediately prior to the change in control, a change of more than 50 miles in your assigned place of employment requiring physical relocation, failure by NBD or the affiliated company employing you to pay you a monthly base salary at least as great as that paid before the change in control, a change (other than as a result of a change in governing law) in your eligibility for any bonus, restricted stock, performance award and other incentive compensation or benefit program or for NBD's retirement plan on terms less favorable than those in effect prior to the change in control, or failure by NBD to provide you with the number of paid vacation days to which you were entitled immediately prior to the change in control. 2 3 BENEFITS If you experience an involuntary termination of employment under the plan within two (2) years following a change in control of NBD, you are entitled to severance benefits under the plan. Participants whose employment positions are categorized by NBD prior to their involuntary termination as in Grades 1 through 15 are entitled only to guaranteed severance benefits described in the following schedule. Participants whose employment positions are categorized by NBD prior to their involuntary termination as in Grades 16 and above are entitled to both guaranteed severance benefits and to conditional severance benefits.
Group Severance Benefit Method of Payment ----- ----------------- ----------------- Above 12 months salary guaranteed Salary Continuation Grade 25 12 months salary conditional Grades 12 months salary guaranteed Salary Continuation 24-25 6 months salary conditional Grades 6 months salary guaranteed Salary Continuation 21-23 6 months salary conditional Grades 6 months salary guaranteed Salary Continuation 16-20 3 months salary conditional Grades 1 week of compensation for each full year of Single Sum 1-15 and Full- service with a minimum of 4 weeks and a maximum time Hourly of 26 weeks
Severance benefits are based on the greater of your base annual salary on your employment severance date or immediately prior to the change in control. Benefits are payable from the general assets of NBD. NBD will withhold all applicable federal, state or local taxes from each severance benefit payment. Conditional severance benefits are payable only after final payment of your guaranteed severance benefit has been made. CONTINUATION OF FRINGE BENEFIT COVERAGES If your employment position on the date of change in control is categorized by NBD as in Grades 16 or above, NBD will continue to provide, for as long as severance benefits under the plan are payable, substantially the same medical, dental, life insurance and accidental death and dismemberment insurance benefits to the extent and at the level that you are receiving at termination. NBD will withhold any applicable pre-tax or after-tax employee contributions for such benefits from your severance benefit. DUTY TO SEEK EMPLOYMENT Participants receiving guaranteed severance benefits under the plan are not required to mitigate damages by seeking other employment or otherwise. In the event you begin employment with a new employer before the final payment of your guaranteed severance benefits, the balance shall be paid to you in a single sum as soon thereafter as is practicable. 3 4 Participants receiving conditional severance benefits under the plan are required to mitigate damages by seeking other employment for which they are suited by education and training. In the event you begin employment with a new employer before the final payment of your conditional severance benefits, you are to notify NBD within 10 days of beginning the new employment. Payments of conditional severance benefits to, and continuation of fringe benefit coverages for, newly employed participants shall cease as of the first day of the new employment. ADMINISTRATION Fred J. Johns, Senior Vice President and Director of Human Resources, NBD Bank, is the Plan Administrator, and is responsible for the general operation and administration of the plan and has the authority to interpret the plan and to determine eligibility. BENEFICIARY DESIGNATION AND PAYMENT You may designate a beneficiary or beneficiaries to receive amounts payable under the plan upon your death. You may designate one or more individuals, trusts or organizations as beneficiary or beneficiaries on the appropriate designation form. A beneficiary designation may be changed at any time without the consent of any previously designated beneficiary by completing a new designation form and delivering it to NBD's Human Resources Division. The new beneficiary designation becomes effective when the completed form is received by the Human Resources Division. If you fail to designate a beneficiary, guaranteed severance payments shall be paid to your estate in the case of your death. Any amounts payable under the plan following your death shall begin to be paid within 60 days of receipt by the Human Resources Division of a certified copy of your death certificate. NBD will withhold from the payment any applicable federal, state or local taxes. DURATION, AMENDMENT OR TERMINATION Prior to a change in control, the Board of Directors of NBD reserves the right at any time to amend, suspend or terminate this plan without the consent of or prior notification to any person. After a change in control, the plan shall continue in effect for two (2) years and during that period shall not be subject to amendment or termination in any manner adverse to the participants. GENERAL The establishment of this plan and its provisions are not to be construed as giving any participant the right to be retained in the service of NBD or its affiliated companies. NBD and its affiliated companies expressly reserve the right to discharge any participant before or after a change in control whenever the interests of NBD and its affiliated companies may require, subject to providing the benefits specified under the plan if termination of employment occurs after a change in control. 4 5 To the extent permitted by law, a participant's or beneficiary's interest and rights under the plan are not assignable in law or in equity or subject in any way to alienation, sale, transfer, claims of creditors, pledge, attachment, garnishment, levy, execution, or encumbrances of any kind. The plan and all determinations made and action taken under it are governed by and construed under Michigan law unless preempted by federal law which shall otherwise control. The full text of this plan is on file in NBD's Human Resources Division and is available upon request. HOW TO FILE A CLAIM You or your beneficiary should contact NBD's Human Resources Division. Beneficiaries will be required to provide proof of the death of the plan participant. IF YOUR CLAIM IS DENIED If any claim for benefits is denied, you or your beneficiary will receive a written explanation from the Plan Administrator indicating the reason for the denial. If you or your beneficiary do not agree, you or your beneficiary may request a review. Send your written request for review to the Plan Administrator. The request for review should be made within 60 days of receiving the denial explanation. Notification of the decision on the appeal should normally be made within 60 days (but not later than 120 days) after receipt of the request for review. HOW YOU COULD LOSE COVERAGE Your coverage under this plan will end: - When your employment terminates or you transfer to a classification of employees that is not covered by the plan. - If the plan is terminated, modified, amended or changed to end such coverage. YOUR RIGHTS UNDER ERISA As a participant in the plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA), as amended. ERISA provides that all plan participants shall be entitled to: 1. Examine without charge, at the plan administrator's office, all plan documents and copies of all documents filed by the plan with the U.S. Department of Labor (such as detailed annual reports and plan descriptions). 5 6 2. Obtain copies of all plan documents and other plan information upon written request to the plan administrator. The administrator may make a reasonable charge for the copies. 3. Receive a summary of the plan's annual financial report. The plan administrator is required by law to furnish each participant with a copy of this summary annual report. In addition to creating rights for plan participants, ERISA imposes duties upon the persons who are responsible for the operation of the employee benefit plans. The people who operate your plans, called "fiduciaries" of the plans, have a duty to do so prudently and in the interests of you and other plan participants and beneficiaries. No one, including your employer, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a pension or welfare benefit or exercising your rights under ERISA. If your claim for a pension or welfare benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the plan administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that plan fiduciaries misuse the plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about your plan, you should contact the plan administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor. This summary plan description describes the main features of the plan. It is not an employment or a benefits contract. Benefits from any plan covered by this summary plan description will be determined in accordance with the provisions of the plan document at the time of payment. 6 EX-10.F 6 EXHIBIT 10(F) 1 EXHIBIT 10(f) NBD BANCORP, INC. Separation Agreement With ______________________ THIS AGREEMENT dated as of ______________, 19__ by and between NBD BANCORP, INC., a Delaware corporation of Detroit, Michigan (the "Corporation"), and _________________ (the "Officer"). WITNESSETH: WHEREAS, the Corporation's Board of Directors considers continuity of competent management essential to protecting and enhancing the best interests of the Corporation, its affiliates and its shareholders; and WHEREAS, the Corporation's Board of Directors recognizes that in the current environment the possibility of a change in control may exist with respect to the Corporation as with many other publicly-held corporations, and that the uncertainty posed by such a possibility may prove distracting to the Officer to the detriment of the Corporation, its affiliates and its shareholders; and WHEREAS, the Corporation's Board of Directors has determined that it is appropriate to reinforce and encourage the continued attention and dedication of the Officer to his assigned duties without distraction in the potentially disturbing circumstances arising from the possibility of a change in control of the Corporation; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the Corporation and the Officer have agreed to certain additional separation compensation to be paid by the Corporation to the Officer following a Change in Control of the Corporation as defined in Section 2 of this Agreement, upon and subject to all the terms and conditions hereinafter set forth in this Agreement. 1. Term. The term of this Agreement shall be for three (3) years commencing on the date hereof. This agreement shall be automatically renewed for successive one (1)-year terms unless at least six (6) months prior to the end of the original three (3)-year term or any subsequent one (1)-year term the Corporation gives written notice to the Officer that this Agreement shall terminate at the end of its then current term and shall not be renewed. This Agreement will terminate prior to the expiration of such three (3)-year term or any renewals thereof if, prior to a Change in Control, the Officer shall die, become disabled or retire, or the Officer's employment shall otherwise terminate. In the event that a Change in Control of the Corporation as defined in Section 2 hereof occurs during the term of this Agreement, this 2 Agreement shall continue in effect until the obligations of the parties under this Agreement have been fully discharged. 2. Change in Control. For the purpose of this Agreement, a "Change in Control" of the Corporation shall occur if (a) any "person" or "group" within the meaning of Sections 13(d) and 14(d) (2) of the Exchange Act becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than thirty percent (30%) of the then outstanding voting securities of the Corporation, or (b) during any period of twenty-four (24) consecutive months (not including any period prior to the execution of this Agreement) Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For purposes of subsection (b) of the preceding sentence, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four (24) month period were members of the Corporation's Board and "New Directors" shall mean any director of the Corporation whose election by the Corporation's Board or whose nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds of the Corporation's Directors then still in office who were Present Directors or New Directors. Notwithstanding the foregoing, for the purpose of this Agreement neither of the foregoing events shall be deemed to constitute a "Change in Control" of the Corporation if in connection therewith it shall be necessary to file a Schedule 13E-3 pursuant to the Rule 13e-3 under the Securities Exchange Act of 1934, unless immediately prior to such event the Board of Directors of the Corporation shall determine such event to constitute a Change in Control. 3. Compensation for Separation Following a Change in Control. (a) Entitlement. If a Change in Control occurs while this Agreement is in effect and if within two (2) years following the Change in Control the Officer's employment is terminated otherwise than (i) by the death, Disability or retirement of the Officer, or (ii) by the Corporation or an affiliate for Cause, or (iii) by the Officer other than for Good Reason, then there shall be paid to the Officer as a separation payment the aggregate amount of compensation ("Change in Control Compensation") payable as determined pursuant to Section 3(b). Such separation payments shall be made in a single sum in cash or its equivalent within ten (10) business days following such termination. In addition, in the event of such a termination, the Officer shall be entitled to such additional credited service in calculating his retirement benefit as is provided in Section 3(c) and to such other obligations of the Corporation accrued or earned and vested (if applicable) by the Officer as of the date of his termination, including for this purpose the Officer's full base salary through such date at the rate in effect on such date, the distribution of awards under the Corporation's incentive plans, and any accrued vacation pay not yet paid by the Corporation (all such amounts are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Officer, his estate or his beneficiary, as applicable, in a single sum in cash or its equivalent within (10) business days of the date of the Officer's termination. - 2 - 3 (b) Determination of Amount. The aggregate amount of Change in Control Compensation payable pursuant to this Section 3 shall be an amount equal to the product of (i) two (2) and (ii) the sum of the Officer's then current annual base salary and his incentive payments for the immediately prior year for which incentive payments were made (other than incentive payments received by reason of deferral from a year more than (1) year prior to the Change in Control). In the event that, following a Change in Control, the Officer's employment is terminated in a manner entitling the Officer to Change in Control Compensation and such termination occurs within twenty-four (24) months of the Officer's attainment of age sixty-five (65), the amount of Change in Control Compensation payable shall be a reduced amount calculated by multiplying the amount determined as provided in the preceding sentence by a fraction, the numerator of which is the number of months between the date of the Officer's termination and his attainment of age sixty-five (65) and the denominator of which is twenty-four (24), provided, however, that the amount of Change in Control Compensation shall not be reduced below an amount equal to the sum of the Officer's then current annual base salary and his incentive payments for the immediately prior year for which incentive payments were made. (c) Additional Credited Service for Retirement Benefit. The additional credited service, if any, to which the Officer may be entitled pursuant to Section 3(a) for purposes of calculating his retirement benefit under the Employee' Retirement Plan of NBD Bancorp, Inc. (the "Retirement Plan") and the Pension Restoration/Supplemental Plan for Certain Employees of NBD Bancorp, Inc. (the "Restoration Plan") shall be equal to the lesser of two (2) years or the number of years between the Officer's then current age and his attainment of age sixty-five (65). (d) Payment Upon Death. If a Change in Control occurs while this Agreement is in effect and within two (2) years following the Change in Control the Officer's employment is terminated by reason of the Officer's death, this Agreement shall terminate without further obligations to the Officer's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Officer as of the date of his death, including for this purpose all Accrued Obligations. All such Accrued Obligations shall be paid to the Officer's estate or beneficiary, as applicable, in a single sum in cash or its equivalent within ten (10) business days of the date of the Officer's death. Anything in this Agreement to the contrary notwithstanding, the Officer's surviving spouse and dependents, if any, shall be entitled to receive for a period of one (1) year following the Officer's death such health care benefits (including hospital, medical, and dental) as the Officer, his spouse and such dependents, if any, were receiving or entitled to receive at the date of the Officer's death. Such continued health care benefits shall be paid for by the Corporation. (e) Payment Upon Disability. If a Change in Control Occurs while this Agreement is in effect and within two (2) years following the Change in Control the Officer's employment is terminated by reason of the Officer's Disability, this Agreement - 3 - 4 shall terminate without further obligations to the Officer, other than those obligations accrued or earned and vested (if applicable) by the Officer as of the date of termination, including for this purpose all Accrued Obligations. All such Accrued Obligations shall be paid to the Officer in a single sum in cash or its equivalent within ten (10) business days of the date of termination. In addition, the Officer shall be entitled to receive for a period of two (2) years following the date of his termination of employment awards under the Corporation's incentive plans at least equal to the highest paid to him during the thirty-six (36)-month period prior to the Change in Control. Anything in this Agreement to the contrary notwithstanding, the Officer shall be entitled after the effective date of his Disability to receive disability benefits at least equal to the greater of sixty percent (60%) of his base salary or the most favorable disability benefits provided by the Corporation and its affiliates for disabled senior officers and to receive such other benefits at levels at least equal to the most favorable of those provided by the Corporation and its affiliates for disabled senior officers, their spouses, and/or their dependents in accordance with such plans, programs, practices, and policies relating to disability as are in effect at any time during the thirty (30)-day period immediately preceding the effective date of the Officer's Disability or, if more favorable to the Officer and/or the Officer's family, as in effect at any time thereafter with respect to other senior officers of the Corporation and their families. (f) Payment Upon Retirement. If a Change in Control occurs while this Agreement is in effect and within two (2) years following the Change in Control the Officer's employment is terminated by reason of the Officer's retirement, this Agreement shall terminate without further obligations to the Officer, other than those obligations accrued or earned and vested (if applicable) by the Officer as of the date of termination, including for this purpose all Accrued Obligations. All such Accrued Obligations shall be paid to the Officer in a single sum in cash or its equivalent within ten (10) business days of the date of termination. Anything in this Agreement to the contrary notwithstanding, the Officer shall be entitled after the effective date of his retirement to receive his accrued retirement benefits under the Retirement Plan and the Restoration Plan and health care and death benefits (such as hospital, medical, dental, death benefits and life insurance) equal to the most favorable of those provided by the Corporation and its affiliates for retired senior officers, their spouses and/or their dependents under the plans, programs, practices and policies of the Corporation in effect at any time during the thirty (30)-day period immediately preceding the Officer's retirement. 4. Definitions Applicable to Terminations. As used in this Agreement, the terms "Disability", "Cause", and "Good Reason" shall be defined as follows: (a) Disability. Termination based on Disability shall mean termination of the Officer by the Corporation or the affiliate with which he is employed because of the Officer's incapacity due to physical or mental illness as a result of which the Officer shall have been absent from his duties with the Corporation or the - 4 - 5 affiliate with which he is employed on a full time basis for six (6) consecutive months. (b) Cause. Termination of the Officer's employment by the Corporation or the affiliate with which he is employed for "Cause" shall mean termination for willful gross misconduct by the Officer demonstrably injurious to the Corporation or the affiliate with which he is employed, or an act of material dishonesty or fraud by the Officer. Termination by the Corporation or such affiliate for Cause shall require written notice by the Corporation or such affiliate to the Officer describing with reasonable particularity the acts or omissions relied on as Cause. (c) Good Reason. Termination of employment by the Officer for "Good Reason" shall mean termination at the initiative of the Officer based upon (i) a significant adverse change in the Officer's title, authority, duties, responsibilities or status within the Corporation or the affiliate with which he is employed from those that existed immediately prior to the Change in Control; (ii) a change of fifty (50) miles or more in the Officer's assigned place of employment requiring physical relocation, or a material increase in the Officer's business travel obligations; (iii) failure by the Corporation or the affiliate with which he is employed to pay to the Officer a monthly base salary equal to or greater than the highest monthly base salary paid to the Officer before the Change in Control and to provide at least an annual review of salary and increases consistent with those provided to other senior officers of the Corporation and its affiliates; (iv) failure by the Corporation to pay to the Officer an incentive award for any year at least equal to the highest paid to him during the thirty-six (36)-month period prior to the Change in Control; (v) a change, other than as a result of a change in governing law, in the Officer's eligibility to participate in the NBD Bancorp, Inc. Employees' Savings and Investment Plan, the Retirement Plan, the Corporation's incentive plans and the Corporation's benefit programs on terms at least equal to the most favorable available during the thirty (30)-day period prior to the Change in Control; or (vi) failure by the Corporation to obtain the agreement under Section 7 of any successor to the Corporation to assume and agree to perform this Agreement. Termination of employment by the Officer for "Good Reason" shall occur no later than sixty (60) days following the change in policies, practices or procedures that is the basis for the Officer's termination. 5. Status Following Separation. (a) Certain Benefits. If, following a Change in Control, the Officer's employment is terminated in a manner entitling the Officer to Change in Control Compensation, then during a period of thirty-six (36) months following such termination the Corporation shall continue to provide the Officer substantially the same health care and death benefits (such as hospital, medical, dental, disability, death benefits and life insurance) that existed immediately prior to the Change in Control; provided, however, that such benefits shall cease to the extent the Officer becomes eligible to receive such benefits from a new employer. In the event the Officer becomes eligible to receive such benefits from - 5 - 6 a new employer, the Officer shall notify the Corporation within ten (10) days of such eligibility. (b) No Obligation to Seek Other Employment. The Officer shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. (c) Other Existing Rights Not Diminished. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable or in any way diminish the Officer's existing rights under any benefit or welfare plan or arrangement, provided, however, that Change in Control Compensation payments made pursuant to this Agreement shall be in lieu of any severance payment pursuant to any plan, program, practice or policy of the Corporation or of any of its affiliates. 6. No Guaranty by Corporation of Employment. The Officer expressly acknowledges that this Agreement does not constitute a guaranty by the Corporation or by any affiliate to continue to employ the Officer, and that the Corporation or any of its affiliates may terminate the Officer's employment at any time before or after a Change in Control, subject to providing the benefits specified hereunder in accordance with the terms hereof if such termination occurs after a Change in Control. 7. Successors; Binding Agreement. (a) Successors to the Corporation. The Corporation will require any successor (whether direct or indirect) by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance satisfactory to the Officer, expressly to assume and agree to perform this Agreement to the same extent that the Corporation would have been required if no such succession had occurred. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach hereof and shall entitle the Officer to terminate his employment for Good Reason under Section 4(c). For purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of termination. "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets that assumes and agrees to perform this Agreement as provided for in this Section 7 or that otherwise becomes bound by the terms and provisions of this Agreement by operation of law. (b) Successors to the Officer. Subject to the provisions of Section 12 hereof, this agreement shall inure to the benefit of and be enforceable by the Officer's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Officer would die while any amounts would still be payable to the Officer hereunder if the Officer had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the person designated in writing by the Officer, or if there be no such designee, to the Officer's estate. - 6 - 7 8. Notices. Notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: Fred J. Johns Secretary of the Compensation Committee NBD Bancorp, Inc. 611 Woodward Avenue Detroit, Michigan 48226 or such different address as the Corporation shall specify by written notice to the Officer. If to the Officer, to his last known residence address according to the records of the Corporation. 9. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Officer and the Chairman of the Compensation Committee or such other member of the Compensation Committee or officer of the Corporation as may be specifically designated by the Compensation Committee. No waiver by either party at any time of any breach by the other party of, or compliance with, any provision of this Agreement shall be deemed a waiver of similar or dissimilar provision at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Arbitration and Reimbursement. Any dispute or controversy arising under or in connection with this Agreement shall be resolved exclusively by binding non-appealable arbitration, in accordance with the rules of the American Arbitration Association then in effect. The Corporation shall reimburse the Officer for all legal fees and expenses incurred by the Officer in seeking to obtain or enforce any right or benefit provided by this Agreement and in the event it shall be determined that the Officer is entitled to Change in control Compensation hereunder, the Officer shall also be entitled to interest thereon payable to the Officer in amounts equivalent to the prime rate of interest of NBD Bank from time to time during the period from the date such amounts should have been paid to the date of payment. 12. Nonassignability. The rights of the Officer under this Agreement shall not be assigned, transferred, pledged, hypothecated or encumbered. 13. Validity and Construction. The validity, interpretation - 7 - 8 and performance of this Agreement shall be governed by the laws of the State of Michigan. NBD Bancorp, Inc. Compensation Committee of the Board of Directors By: ________________________ Its: Chairman And ________________________ Committee Member (Corporate Seal) At March 1, 1995, NBD Bancorp, Inc. was a party to separation agreements in substantially the foregoing form with the following executive officers: Verne G. Istock Thomas H. Jeffs II - 8 - EX-10.G 7 EXHIBIT 10(G) 1 EXHIBIT 10(g) NBD BANCORP, INC. EXECUTIVE ESTATE PLAN Section 1 - Purpose The NBD BANCORP, INC. EXECUTIVE ESTATE PLAN (hereinafter called the "Plan") is established and maintained to promote and advance the performance of NBD Bancorp, Inc. (hereinafter called the "Corporation") by providing designated senior officers of the Corporation and of its affiliated companies who have significant responsibility for such performance with competitive death benefit coverage and to assist the Corporation in attracting and retaining as senior officers individuals of superior ability by enhancing the value of the death benefit coverage available. Section 2 - Definitions (a) The term "affiliated companies" shall mean those corporations a majority of the outstanding voting capital stock of which is directly or indirectly owned or controlled by the Corporation. (b) The term "after-tax equivalent" shall mean such amount that would provide the recipient of a taxable death benefit under the Plan with an amount, after the payment of federal income tax, approximately equal to the death benefit the recipient would have received if the taxable death benefit were not subject to federal income taxation when made. (c) The term "Committee" shall mean the Compensation Committee of the Board of Directors of the Corporation, the members of which shall be "disinterested persons" under Rule 16b-3 of the Securities and Exchange Commission or any successor regulation issued under the federal securities laws and shall be ineligible to participate in the Plan. (d) The term "disability" shall mean the incapability of a participant to perform the principal duties of his or her customary employment or position as the result of a physical or mental condition that is expected to be permanent and continuous during the remainder of the participant's life, as determined in the sole discretion of the Committee on the basis of evidence satisfactory to it. (e) The term "disabled participant" shall mean a participant who incurs a disability hereunder while a participant under the Plan from which he or she has not recovered. (f) The term "participant" shall mean a senior officer of the Corporation or of one of its affiliated companies who becomes and remains a participant in the Plan as provided in Section 6 of the Plan. (g) The term "retired participant" shall mean a participant whose employment with the Corporation and all its affiliated companies terminates as the result of retirement hereunder and who does not subsequently resume such employment. 2 (h) The term "retirement" shall mean the cessation of employment with the Corporation and all its affiliated companies on or after the date a participant (i) attains age sixty-five (65), or (ii) completes five (5) years of service, attains age fifty-five (55), and receives the consent of the Committee. Section 3 - Effective Date and Duration The Plan shall be effective as of March 1, 1989. The Plan shall continue until it is terminated by the Board of Directors of the Corporation as provided in Section 11. Section 4 - Administration The Committee shall be responsible for the general operation and administration of the Plan and shall have the authority to interpret the Plan and to adopt administrative rules and regulations governing its operation. The Committee may delegate the performance of administrative functions to the Secretary of the Committee. Section 5 - Funding The death benefits payable under the Plan shall be paid out of the general assets of the Corporation. Section 6 - Participation (a) Eligibility for participation in the Plan shall be limited to such senior officers of the Corporation as are designated from time to time by the Committee. (b) Participation in the Plan by an eligible officer shall be solely within the discretion of the Committee. The Committee shall individually select and designate each eligible officer for participation, who shall become a participant as of the date specified by the Committee. (c) A participant shall remain a participant only for so long as he continues in the employ of the Corporation or one of its affiliated companies or is a retired participant or a disabled participant. The Committee in its sole discretion may terminate a participant's participation in the Plan only as provided in Section 10. Section 7 - Amount of Pre-retirement Death Benefit (a) Upon the death of a participant prior to his or her retirement from the Corporation and its affiliated companies, the Corporation shall pay to his or her designated beneficiary an after-tax equivalent death benefit equal to four hundred percent (400%) of the participant's base salary at the time of death. (b) If a disabled participant dies before attaining age sixty-five (65), the Corporation shall pay to his or her designated beneficiary an after-tax equivalent death benefit equal to four hundred percent (400%) of the participant's annual 2 3 base salary determined as of the date of his or her disability. If a disabled participant attains age sixty-five (65), such participant shall thereupon be deemed to be a retired participant and entitled to benefit coverage only in accordance with Section 8, based on the participant's annual base salary determined as of the date of his or her disability. If a disabled participant recovers from disability before attaining age sixty-five (65), the participant shall be deemed to be a retired participant as of the date he or she recovers from the disability if such participant is at least age fifty-five (55) on that date and does not return to employment with the Corporation or any affiliated company. In all other cases, a disabled participant who recovers from disability shall have no further interest or rights under the Plan, except as may be provided by such person's subsequent participation in the Plan. Section 8 - Amount of Post-Retirement Death Benefit Upon the death of a retired participant (i) during the first twelve (12) months following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to two hundred percent (200%) of the participant's annual base salary at the time of the participant's retirement; (ii) during the second twelve (12) month period following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to one hundred seventy-five percent (175%) of the participant's annual base salary at the time of the participant's retirement; (iii) during the third twelve (12) month period following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to one hundred fifty percent (150%) of the participant's annual base salary at the time of the participant's retirement; or (iv) during or subsequent to the thirty-seventh month following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to one hundred percent (100%) of the participant's annual base salary at the time of the participant's retirement plus the lesser of Twenty-Five Thousand Dollars ($25,000) or twenty-five percent (25%) of the participant's annual base salary at the time of the participant's retirement. Section 9 - Beneficiary Designation and Payment (a) Each participant shall complete a beneficiary designation form as prescribed by the Committee designating the beneficiary or beneficiaries to receive the amounts hereunder upon the participant's death. Each participant may designate one or more individuals, trusts or organizations as the primary beneficiary(ies). If more than one primary beneficiary is designated, the participant shall specify the percentage to be paid to each primary beneficiary. Each participant shall also designate a contingent beneficiary(ies), who shall receive payment hereunder only if the designated primary beneficiary(ies) does not survive the participant. (b) Unless a participant has previously made an irrevocable beneficiary designation, a participant may change his or her 3 4 beneficiary designation at any time without the consent of any previously designated beneficiary by completing a new beneficiary designation form and delivering such form to the Secretary of the Committee. Such new beneficiary designation shall be effective when the completed form is received by the Secretary of the Committee. (c) In the event a participant failed to make a beneficiary designation, the amount payable under Section 7 or Section 8 shall be paid to the participant's estate. The amount payable under Section 7 or Section 8 shall be paid within sixty (60) days of the receipt by the Secretary of the Committee of a certified copy of the death certificate of the deceased participant. Any amount not paid within sixty (60) days of such receipt shall bear interest at the rate of interest announced from time to time as its prime rate by NBD Bank or its successor by merger during the period from the date the payment should have been made to the date it is made. The Corporation shall withhold from such payment any applicable federal, state or local taxes thereon. Section 10 - General (a) Neither the establishment of the Plan nor any provisions of the Plan or modification thereof shall be held or construed as giving any participant in the Plan the right to be retained in the service of the Corporation or its affiliated companies, and the Corporation and its affiliated companies expressly reserve the right to discharge any such participant whenever the interests of the Corporation and its affiliated companies may so require. (b) Notwithstanding any other provision in the Plan to the contrary, but subject to Paragraph (c) of this Section 10, and as determined solely by the Committee, (i) no benefit or coverage shall be provided under the Plan to any participant, including a retired participant or disabled participant, who engages in any activity that, in the opinion of the Committee, is competitive with any activity of the Corporation or any affiliated company (except that employment at the request of the Corporation with an entity in which the Corporation has, directly or indirectly, a substantial ownership interest, or other employment specifically approved by the Committee, shall not be considered to be an activity that is competitive with any activity of the Corporation or any affiliated company) or otherwise acts, either prior to or after termination of employment, in any manner inimical or in any way contrary to the best interests of the Corporation; and (ii) no benefit or coverage under the Plan shall be provided to any participant, including a disabled participant or retired participant, if the participant's employment with the Corporation or an affiliated company terminates because of dishonesty, fraud, misappropriation of funds, the commission of a felony, or willful or gross misconduct or willful or gross negligence in the performance of such person's duties, or if during the course of such employment, the participant engages in, or had engaged in, such conduct. (c) Any right of a participant and his beneficiary hereunder shall be that of an unsecured general creditor of the 4 5 Corporation, and no participant or beneficiary shall have any preferred claims on, or any beneficial ownership in, the assets of the Corporation, including any assets in which the Corporation may invest to aid in meeting its obligations under the Plan. (d) To the maximum extend permitted by law, a participant's or beneficiary's interest and rights shall not be assignable in law or in equity or subject to any manner of alienation, sale, transfer, claims of creditors, pledge, attachment, garnishment, levy, execution, or encumbrances of any kind, except that a participant shall have the right under Section 9 to designate irrevocably a beneficiary to receive the amounts hereunder upon the participant's death. (e) If the Committee determines that a beneficiary is legally incompetent to receive a distribution hereunder, the Committee may cause any distribution due to such beneficiary to be made to the guardian or other legal representative of such beneficiary, or in the absence of such guardian or other legal representative, to such other person or institution who is otherwise maintaining and has custody of such beneficiary. Such distribution, to the extent made, shall be a valid and complete discharge of liability therefor under the Plan. Section 11 - Amendment, Suspension and Termination The Board of Directors of the Corporation reserves the right any time to amend, suspend or terminate the Plan; provided, however, no such amendment, suspension or termination shall adversely affect the rights hereunder of any participant in the Plan unless the prior written approval of the participant so affected is obtained. Section 12 - Governing Law The Plan and all determinations made and action taken pursuant thereto shall be governed by the laws of the State of Michigan and construed in accordance therewith. 5 EX-21 8 EXHIBIT 21 1 EXHIBIT (21) NBD BANCORP, INC. SUBSIDIARIES (Direct and Indirect)
Bank Holding Company Subsidiaries Jurisdiction of Organization - --------------------------------- ---------------------------- NBD Illinois, Inc. Delaware NBD Indiana, Inc. Delaware Bank Subsidiaries Jurisdiction of Organization - ----------------- ---------------------------- NBD Bank, (Detroit, MI) Michigan NBD Bank, N.A. (Indianapolis, IN) U.S.A. NBD Bank (Columbus, OH) Ohio NBD Bank (Elkhart, IN) Indiana NBD Bank (Wheaton, IL) Illinois NBD Bank, FSB (Venice, FL) U.S.A. NBD Bank, Canada Canada NBD Skokie Bank, N.A. U.S.A. National Bank of Detroit-Dearborn U.S.A. Bank-Related Subsidiaries Jurisdiction of Organization - ------------------------- ---------------------------- Charter Agency, Inc. Illinois Charter Oak Insurance Agency of Michigan, Inc. Michigan Corporate Funding, Inc. Michigan International Bank of Detroit U.S.A. Midwest Commerce Investments Corp. Indiana NBD Brokerage Services, Inc. Indiana NBD Community Development Corporation Michigan NBD Equipment Finance, Inc. Delaware NBD Equity Corp. Michigan NBD Financial Services of Michigan, Inc. Michigan NBD Indiana Properties, Inc. Indiana NBD Insurance Agency, Inc. Michigan NBD Insurance Company Arizona NBD Leasing, Inc. Indiana NBD Mortgage Company Delaware NBD Neighborhood Revitalization Corporation Indiana NBD Real Estate Services, Inc. Indiana NBD Securities, Inc. Michigan NBD Service Corp. Delaware NBD Transportation Company Michigan
EX-23 9 EXHIBIT 23 1 Exhibit (23) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated January 17, 1995, included and incorporated by reference in this Annual Report on Form 10-K of NBD Bancorp, Inc. for the year ended December 31, 1994, in the following Registration Statements:
REGISTRATION FORM STATEMENT NO. DESCRIPTION S-8 33-21036 NBD Bancorp, Inc. Performance Incentive Plan S-8 33-17494 NBD Bancorp, Inc. Employees' (Post-Effective Savings and Investment Plan Amendment No. 1) (Investment Plus) S-8 33-48773 FNW Stock Incentive Plan S-8 33-46906 NBD Indiana, Inc. Employee (Post-Effective Stock Option Plan Amendment No. 1 to Form S-4) S-8 33-50300 NBD Indiana, Inc. Incentive (Post-Effective Stock Option Plan Amendment No. 1 to Form S-4) S-8 33-53928 NBD Indiana, Inc. 1990 Stock Incentive Plan S-3 33-60788 NBD Bancorp, Inc. 7 1/2% Preferred Purchase Units Due 2023
/s/ Deloitte & Touche LLP Deloitte & Touche LLP Detroit, Michigan March 16, 1995 EX-27 10 ARTICLE 9 - FINANCIAL DATA SCHEDULE FOR 10-K
9 1,000 YEAR DEC-31-1994 DEC-31-1994 2,587,007 630,688 399,725 122,135 4,814,252 7,608,713 7,381,476 29,229,664 435,051 47,111,133 33,229,441 7,119,972 771,963 2,504,348 160,877 0 0 3,130,666 47,111,133 2,102,936 764,274 48,184 2,915,394 873,190 1,290,626 1,624,768 52,032 (2,469) 1,304,270 814,032 547,279 (7,730) (7,885) 531,664 3.35 3.33 4.22 157,141 44,750 22,900 30,100 423,030 121,026 80,560 435,051 167,887 4,364 262,800
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