Annual Report (Form 10-K), fiscal year 1994

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
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.
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
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.



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
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.

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.

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:
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.
PART II
ITEM 5.

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.
ITEM 6.

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.
ITEM 7.

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.
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.
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.
- ------------------------- * 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.
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)
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------- * 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.
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
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
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF LOAN AND LEASE LOSSES
DAILY AVERAGE LOANS AND LEASES OUTSTANDING
ANALYSIS OF NET CHARGE-OFF RATIOS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SELECTED CREDIT RATIOS
- ------------------------- * 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF NON-INTEREST INCOME
- ------------------------- 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF COMPENSATION EXPENSE
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF NON-INTEREST EXPENSES
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
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
- ------------------------- (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
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
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF SOURCES OF FUNDS FOR EARNING ASSETS
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
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
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
- ------------------------- 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.
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:
- ------------------------- * 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
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:
PERCENT DISTRIBUTION:
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.
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.
=====
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.
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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSUMER LOANS:
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
- ------------------------- * 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
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:
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
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.
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
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:
AS OF DECEMBER 31, 1993:
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
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:
AS OF DECEMBER 31, 1993:
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
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
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.
* * *
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.
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
- ------------------------- * 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY AVERAGE BALANCES AND AVERAGE RATES
- ------------------------- 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%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED) AVERAGE BALANCES AND AVERAGE RATES
- ------------------------- 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED) SUPPLEMENTARY FINANCIAL DATA
- ------------------------- 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED) SUPPLEMENTARY FINANCIAL DATA
- ------------------------- 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.
ITEM 8.


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:
(b) The following additional data is set forth in this Form 10-K on the following pages:
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
NBD BANCORP, INC. - ---------------------------
CONSOLIDATED BALANCE SHEET (in thousands except share data)
ASSETS
The accompanying notes are an integral part of the financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of the financial statements.
NBD BANCORP, INC. - ---------------------------
CONSOLIDATED STATEMENT OF INCOME (in thousands except share data)
The accompanying notes are an integral part of the financial statements.
NBD BANCORP, INC. - ---------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands except share data)
The accompanying notes are an integral part of the financial statements.
NBD BANCORP, INC. - ---------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
The accompanying notes are an integral part of the financial statements.
NBD BANCORP, INC. - ------------------------------
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NBD Bancorp, Inc. and its subsidiaries (the Corporation) conform to generally accepted accounting principles.
(A) CONSOLIDATION:
The consolidated financial statements of the Corporation include the accounts of NBD Bancorp, Inc. (the Parent) and its majority-owned subsidiary companies. All material intercompany accounts and transactions have been eliminated.
(B) STATEMENT OF CASH FLOWS:
Cash and Due From Banks is considered Cash and Cash Equivalents in the Consolidated Statement of Cash Flows.
(C) SECURITIES:
The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective December 31, 1993.
In accordance with SFAS No. 115, Investment Securities are accounted for as follows: (a) Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as Held-to-Maturity and reported at amortized cost; (b) Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as Trading Account Securities and reported at fair value, with realized and unrealized gains and losses included in Other Non-Interest Income; and (c) Debt and equity securities not classified as Held-to-Maturity or Trading Account Securities are classified as Available-for-Sale and reported at fair value. Fair value adjustments are excluded from earnings and reported in a separate component of shareholders' equity, net of tax.
Prior to December 31, 1993, the Corporation classified securities purchased with the intent and the ability to hold to maturity as Investment Securities and reported them at amortized cost. If it was subsequently determined that certain investment securities were to be sold, their reported value was adjusted as necessary to the lower of cost or fair value with the adjustments included in Securities Gains(Losses). Securities purchased that the Corporation intended to sell prior to maturity were classified as Other Money Market Investments and recorded at the lower of amortized cost or fair value. Fair value adjustments were included in Securities Gains(Losses). The Corporation's accounting for Trading Account Securities was not changed by the adoption of SFAS No. 115; these securities are carried at fair value with unrealized gains and losses included in Other Non-Interest Income.
Gains and losses realized on the sale of Investment Securities are determined by the specific identification method and included in Securities Gains(Losses).
(D) LOANS:
Loans are generally reported at the principal amount outstanding, net of unearned income. Non-refundable loan origination and commitment fees and certain costs of origination are deferred and either included in interest income over the term of the related loan or commitment or, if the loan is held for sale, included in Other Non-Interest Income when the loan is sold.
Mortgages Held For Sale are valued at the lower of aggregate cost or fair value. Unrealized losses, as well as realized gains or losses, are included in Other Non-Interest Income.
Interest income on loans is accrued as earned. Except for consumer loans, loans are placed on non-accrual status and previously accrued but unpaid interest is reversed against current period interest income when collectibility of principal or interest is considered doubtful, payment of principal or interest is 90 days or more past due, or the loan is completely or partially charged off. Interest income on loans considered doubtful or 90 days or more past due is recorded as collected. Collections of principal and interest on charged-off loans are applied in the following sequence: (1) as a reduction of remaining principal balance; (2) as recovery of principal charged off; and (3) as interest income.
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.
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.
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.
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:
- ------------------------- (a) All Collateralized Mortgage Obligations of private issuers have underlying collateral consisting of obligations of U.S. Government Agencies.
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:
- -------------------------
(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.
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.
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:
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:
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
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:
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.
NBD BANCORP, INC. - ------------------------------
Notes to Financial Statements
8. LONG-TERM DEBT
The following is a summary of long-term debt:
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
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 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.
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 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:
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.
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:
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:
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.
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:
As of December 31, 1994, 1,192,000 options were exercisable.
NBD BANCORP, INC. - ------------------------------
Notes to Financial Statements
10. INCOME TAXES
The consolidated income tax expense(benefit) is comprised of the following elements:
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:
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:
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:
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
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.
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:
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.
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.
NBD BANCORP, INC. - ------------------------------
Notes to Financial Statements
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
CUSTOMER ACCOMMODATION AND OTHER CONTRACTS:
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:
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.
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
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.
- ------------------------- * 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.
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:
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.
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.
- ------------------------- * 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.
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)
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)
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)
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
NBD BANCORP, INC. - ---------------------------
SUPPLEMENTARY DATA EARNINGS PER SHARE COMPUTATION (in thousands except per share amounts)
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - -------------------------------------------------------------------------------- AND FINANCIAL DISCLOSURE - ----------------------------------------
Not applicable.
PART III
ITEM 10.



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.

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.

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.

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.
PART IV
ITEM 14.

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: - ------------------------
- -------------------------
* 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)]
(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.
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.
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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.