<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 1-10074
-------
NATIONAL CITY CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 34-1111088
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 East Ninth Street
Cleveland, Ohio 44114
----------------------
(Address of principal executive office)
216-575-2000
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------ ------
Indicate the number shares outstanding of each of the issuer's classes
of Common Stock as of October 24, 1996
Common stock, $4.00 Par Value -- 222,760,641
<PAGE> 2
NATIONAL CITY CORPORATION (R)
QUARTER ENDED SEPTEMBER 30, 1996
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
NATIONAL CITY CORPORATION (R)
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
Financial Highlights.............................................................. 3
Financial Statements (Item 1):
Consolidated Statements of Income............................................ 4
Consolidated Balance Sheets.................................................. 5
Consolidated Statements of Cash Flows........................................ 6
Consolidated Statements of Changes in Stockholders' Equity................... 7
Notes to Financial Statements................................................ 7
Management's Discussion and Analysis (Item 2)..................................... 11
Consolidated Average Balance Sheets............................................... 15
Daily Average Balances/Net Interest Income/Rates.................................. 16
PART II -- OTHER INFORMATION
Changes in Securities (Item 2)
Refer to Note 9 on page 10.
Exhibits and Reports on Form 8-K (Item 6)
Exhibit 27:
Financial Data Schedule
Reports on Form 8-K:
July 3, 1996: On July 1, 1996 National City announced a quarterly dividend
on its common stock of $.375 per share, up from the previous dividend of
$.36.
National City also announced that second quarter earnings would exceed
first quarter earnings per share and that anticipated 1996 fiscal year
results would exceed analysts' estimates of $3.19 per share by about five
cents. The projected earnings are forward-looking statements. National
City's actual performance and operating and financial results may differ
from the projections as a result of a variety of factors, including but
not limited to changes in the economy, competition and the execution of
internal business plans.
Signature......................................................................... 19
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Percent Percent
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
Net interest income -- taxable
equivalent........................ $494,844 $471,360 5% $1,470,345 $1,387,462 6%
Provision for loan losses........... 38,608 32,160 20 108,000 86,327 25
Fees and other income............... 292,696 264,198 11 843,526 760,943 11
Security gains...................... (114) 18,646 -- 81,238 28,427 --
Noninterest expense*................ 474,054 484,984 (2) 1,404,980 1,409,843 --
Net income.......................... 185,822 158,884 17 545,518 462,331 18
Net income applicable to
common stock...................... 185,822 155,164 20 541,490 451,169 20
PERFORMANCE RATIOS:
Net interest margin................. 4.50% 4.18% 4.44% 4.30%
Return on average assets............ 1.53 1.28 1.50 1.30
Return on average common equity..... 17.55 16.75 17.82 17.30
Return on average total equity...... 17.55 16.32 17.63 16.83
PER SHARE MEASURES:
Fully diluted net income per common
share............................. .82 .71 15% 2.42 2.07 17%
Dividends paid per common share..... .375 .33 14 1.095 .97 13
Book value per common share......... 19.48 17.63 10
Market value per common share
(close)........................... 42.13 30.88 36
Average shares -- fully diluted..... 226,371,745 225,068,931 1 225,214,051 223,786,854 1
AVERAGE BALANCES
(IN MILLIONS):
Assets.............................. $48,284 $49,426 (2)% $48,625 $47,714 2%
Loans............................... 35,124 33,564 5 34,769 32,397 7
Securities.......................... 8,389 10,889 (23) 8,814 10,324 (15)
Earning assets...................... 43,952 45,125 (3) 44,140 43,491 1
Deposits............................ 34,952 34,804 -- 34,798 34,702 --
Common stockholders' equity......... 4,213 3,676 15 4,058 3,486 16
Total stockholders' equity.......... 4,213 3,862 9 4,134 3,672 13
AT PERIOD END:
Total equity to assets ratio........ 8.88% 7.99%
Tier 1 capital ratio................ 10.36 9.39
Total risk-based capital ratio...... 15.08 13.84
Leverage ratio...................... 8.22 7.18
Common shares outstanding........... 222,645,087 213,223,386 4%
Full-time equivalent employees...... 26,309 26,046 1
ASSET QUALITY:
Net charge-offs to loans
(annualized)...................... .44% .33% .40% .34%
Loan loss reserve to loans.......... 1.99 2.14
Nonperforming assets to loans &
OREO.............................. .49 .61
</TABLE>
Note: All previously reported amounts, except for dividends paid per share and
market value per share, have been restated to reflect the pooling-of-interests
transaction with Integra Financial Corporation which closed May 3, 1996.
*Excluding merger-related charges of $74.7 million for the first nine months of
1996 and $4.0 million for the third quarter and first nine months of 1995.
There were no merger-related charges in the third quarter of 1996.
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In Thousands Except Per Share Amounts) September 30 September 30
- ------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans:
Taxable.................................... $765,444 $749,550 $2,275,521 $2,140,332
Exempt from Federal income taxes........... 4,012 6,253 11,889 19,631
Securities:
Taxable.................................... 120,439 161,037 383,629 442,503
Exempt from Federal income taxes........... 14,503 11,052 49,183 48,326
Federal funds sold and security resale
agreements................................. 4,956 5,875 18,138 22,165
Eurodollar time deposits in banks............. -- 104 953 104
Other short-term investments.................. 1,060 4,255 2,495 12,126
-------- -------- ---------- ----------
Total interest income.................... 910,414 938,126 2,741,808 2,685,187
INTEREST EXPENSE
Deposits...................................... 305,499 319,786 907,593 934,149
Federal funds borrowed and security
repurchase agreements...................... 50,441 48,712 136,537 123,729
Borrowed funds................................ 39,493 79,317 167,612 196,839
Corporate long-term debt...................... 25,042 23,985 75,047 59,984
-------- -------- ---------- ----------
Total interest expense................... 420,475 471,800 1,286,789 1,314,701
-------- -------- ---------- ----------
NET INTEREST INCOME............................. 489,939 466,326 1,455,019 1,370,486
PROVISION FOR LOAN LOSSES....................... 38,608 32,160 108,000 86,327
-------- -------- ---------- ----------
Net interest income after provision
for loan losses....................... 451,331 434,166 1,347,019 1,284,159
NONINTEREST INCOME
Item processing revenue....................... 93,862 81,943 262,887 239,743
Service charges on deposit accounts........... 54,627 49,633 158,662 143,926
Trust fees.................................... 43,793 42,044 131,351 124,288
Credit card fees.............................. 29,855 23,045 90,547 63,071
Mortgage banking revenue...................... 25,750 20,076 79,902 69,905
Brokerage revenue............................. 11,413 9,531 35,196 19,760
Other......................................... 33,396 37,926 84,981 100,250
-------- -------- ---------- ----------
Total fees and other income.............. 292,696 264,198 843,526 760,943
Security gains (losses)....................... (114) 18,646 81,238 28,427
-------- -------- ---------- ----------
Total noninterest income................. 292,582 282,844 924,764 789,370
NONINTEREST EXPENSE
Salaries and employee benefits................ 233,751 222,665 685,719 653,256
Equipment..................................... 30,613 30,188 96,360 93,468
Net occupancy................................. 34,594 32,454 97,985 93,918
Assessments and taxes......................... 12,109 34,988 35,531 91,362
Merger-related charges........................ -- 4,000 74,745 4,000
Other......................................... 162,987 164,689 489,385 477,839
-------- -------- ---------- ----------
Total noninterest expense................ 474,054 488,984 1,479,725 1,413,843
-------- -------- ---------- ----------
Income before income taxes...................... 269,859 228,026 792,058 659,686
Income tax expense.............................. 84,037 69,142 246,540 197,355
-------- -------- ---------- ----------
NET INCOME...................................... $185,822 $158,884 $ 545,518 $ 462,331
========= ========= ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK........... $185,822 $155,164 $ 541,490 $ 451,169
========= ========= ========== ==========
NET INCOME PER COMMON SHARE
Primary....................................... $.82 $.72 $2.44 $2.10
Fully Diluted................................. .82 .71 2.42 2.07
AVERAGE COMMON SHARES OUTSTANDING
Primary....................................... 226,152 216,124 221,494 214,842
Fully Diluted................................. 226,372 225,069 225,214 223,787
</TABLE>
See notes to financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER September
30 December 31 30
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Loans:
Commercial.................................... $11,104,781 $11,271,410 $11,120,757
International................................. 60,011 58,285 42,306
Real estate construction...................... 723,286 712,524 632,034
Lease financing............................... 409,668 357,883 326,351
Real estate mortgage -- nonresidential........ 3,513,070 3,332,164 3,382,224
Real estate mortgage -- residential........... 7,288,583 7,187,070 7,202,113
Mortgage loans held for sale.................. 208,332 314,350 190,718
Home equity................................... 1,715,162 1,558,070 1,509,849
Consumer...................................... 9,039,247 8,148,886 7,945,770
Credit card and other revolving credit........ 1,554,740 1,525,184 1,361,927
----------- ----------- -----------
Total loans.............................. 35,616,880 34,465,826 33,714,049
Allowance for loan losses................ 709,804 705,846 720,862
----------- ----------- -----------
Net loans................................ 34,907,076 33,759,980 32,993,187
Securities held to maturity (market value
$3,065,306)................................... -- -- 3,043,515
Securities available for sale, at market......... 8,614,423 10,344,988 7,388,830
Federal funds sold and security resale
agreements.................................... 558,345 734,564 432,252
Trading account assets........................... 13,738 23,715 27,982
Other short-term money market investments........ 74,789 105,993 211,804
Cash and demand balances due from banks.......... 2,986,308 2,995,905 2,539,683
Properties and equipment......................... 589,201 593,506 594,433
Customers' acceptance liability.................. 61,671 66,169 54,745
Accrued income and other assets.................. 1,923,328 1,917,025 2,127,417
----------- ----------- -----------
TOTAL ASSETS............................. $49,728,879 $50,541,845 $49,413,848
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest-bearing)............ $ 7,007,896 $6,993,221 $ 6,254,000
NOW and money market accounts.................... 8,784,241 9,035,259 8,497,342
Savings accounts................................. 4,045,967 4,198,518 4,309,010
Time deposits of individuals..................... 14,057,610 14,147,551 14,097,266
Other time deposits.............................. 620,817 488,595 544,184
Deposits in overseas offices..................... 926,574 717,823 976,241
----------- ----------- -----------
Total deposits........................... 35,443,105 35,580,967 34,678,043
Federal funds borrowed and security repurchase
agreements.................................... 3,500,388 4,263,873 3,287,380
Borrowed funds................................... 3,939,534 4,208,205 5,128,923
Acceptances outstanding.......................... 61,671 66,169 54,745
Accrued expenses and other liabilities........... 933,189 943,803 903,052
Corporate long-term debt......................... 1,514,806 1,414,982 1,415,246
----------- ----------- -----------
TOTAL LIABILITIES........................ 45,392,693 46,477,999 45,467,389
Stockholders' Equity:
Preferred stock.................................. -- 185,400 186,040
Common stock..................................... 4,336,186 3,878,446 3,760,419
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY............... 4,336,186 4,063,846 3,946,459
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $49,728,879 $50,541,845 $49,413,848
=========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in Thousands) September 30
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1996 1995
OPERATING ACTIVITIES
Net income..................................................... $ 545,518 $ 462,331
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 108,000 86,327
Depreciation and amortization of goodwill and
intangibles............................................ 112,161 117,709
Security gains............................................ (81,238) (28,427)
Net (increase) decrease in trading account assets......... 9,977 (10,938)
Other gains, net.......................................... (8,843) 579
Originations and purchases of mortgage loans held for
sale................................................... (1,692,444) (1,120,018)
Proceeds from the sale of mortgage loans held for sale.... 1,805,109 1,044,699
(Increase) in interest receivable......................... (34,102) (90,061)
Increase in interest payable.............................. 3,289 164,919
(Increase) decrease in other assets....................... 8,972 (129,321)
Increase (decrease) in other liabilities.................. (59,141) 61,444
---------- -----------
Net Cash Provided by Operating Activities.............. 717,258 559,243
LENDING AND INVESTING ACTIVITIES
Net decrease in short-term investments......................... 207,423 175,948
Purchases of securities........................................ (2,316,574) (6,079,917)
Proceeds from sales of securities.............................. 3,085,369 4,513,634
Proceeds from maturities and prepayments of securities......... 865,144 1,453,789
Net (increase) in loans........................................ (1,367,761) (2,314,201)
Net (increase) in properties and equipment..................... (62,885) (75,156)
Acquisitions................................................... -- (16,498)
---------- -----------
Net Cash Provided (Used) by Lending and Investing
Activities........................................... 410,716 (2,342,401)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in Federal funds borrowed and security
repurchase agreements....................................... (763,485) 402,499
Net increase (decrease) in borrowed funds...................... (268,671) 1,716,635
Net (decrease) in demand, savings, NOW, money market accounts,
and deposits in overseas offices............................ (180,143) (2,439,168)
Net increase in time deposits.................................. 42,281 1,673,410
Proceeds from issuance of long-term debt, net.................. 199,144 470,630
Repayment of long-term debt.................................... (100,608) (634)
Dividends paid, net of tax benefit of ESOP shares.............. (231,258) (201,553)
Issuances of common stock...................................... 47,533 33,026
Proceeds from issuance of common stock by subsidiary........... 114,966 --
Repurchase of common and preferred stock....................... -- (168,094)
ESOP trust repayment........................................... 2,670 5,591
---------- -----------
Net Cash Provided (Used) by Deposit and Financing
Activities........................................... (1,137,571) 1,492,342
---------- -----------
Net (Decrease) in Cash and Cash Equivalents.................... (9,597) (290,816)
Cash and Cash Equivalents, January 1........................... 2,995,905 2,830,499
---------- -----------
Cash and Cash Equivalents, September 30........................ $2,986,308 $ 2,539,683
========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid.................................................. $1,283,500 $ 1,149,597
Income taxes paid.............................................. 280,916 163,129
Shares issued in purchase acquisitions......................... -- 110,739
</TABLE>
See notes to financial statements.
6
<PAGE> 8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unallocated
Shares
(Dollars in Thousands Except Per Preferred Common Capital Retained Held by
Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1995, as restated........ $187,540 $852,835 $291,091 $2,137,202 $ (9,018) $3,459,650
Net income................................ 462,331 462,331
Common dividends of National City, $.97
per share............................... (143,271) (143,271)
Common dividends of Integra, prior to
merger, $1.45 per Integra share......... (47,547) (47,547)
Preferred dividends paid, $3.00 per
depositary share........................ (11,192) (11,192)
Issuance of 1,700,782 common shares under
corporate stock and dividend
reinvestment plans...................... 6,810 26,216 33,026
Issuance of 4,267,760 common shares
pursuant to acquisition................. 17,071 93,668 110,739
Purchase of 5,953,822 common shares and
30,000 depositary shares of preferred
stock................................... (1,500) (23,821) (19,204) (123,569) (168,094)
Shares distributed by ESOP trust and tax
benefit on dividends.................... 457 5,591 6,048
Change in unrealized market value
adjustment on securities available for
sale, net of tax........................ 244,769 244,769
-------- -------- -------- ---------- -------- ----------
Balance September 30, 1995.................. $186,040 $852,895 $391,771 $2,519,180 $ (3,427) $3,946,459
======== ======== ======== ========== ======== ==========
Balance January 1, 1996, as restated........ $185,400 $846,284 $399,813 $2,635,090 $ (2,741) $4,063,846
Net income................................ 545,518 545,518
Common dividends of National City, $1.095
per share............................... (188,959) (188,959)
Common dividends of Integra, prior to
merger, $1.08 per Integra share......... (36,009) (36,009)
Preferred dividends paid, $2.00 per
depositary share........................ (6,458) (6,458)
Issuance of 2,234,350 common shares under
corporate stock and dividend
reinvestment plans...................... 8,938 38,595 47,533
Issuance of common stock by subsidiary.... 25,077 25,077
Conversion of 3,708,000 depositary shares
of preferred stock to 8,839,650 common
shares.................................. (185,400) 35,359 150,041 0
Shares distributed by ESOP trust and tax
benefit on dividends.................... 168 2,670 2,838
Change in unrealized market value
adjustment on securities available for
sale, net of tax........................ (117,200) (117,200)
-------- -------- -------- ---------- -------- ----------
Balance September 30, 1996.................. $ 0 $890,581 $613,526 $2,832,150 $ (71) $4,336,186
======== ======== ======== ========== ======== ==========
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on a basis consistent with accounting
principles applied in the prior periods and include all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. ACCOUNTING CHANGES
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF: On January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the expected undiscounted
future cash flows from the use of the asset and its eventual disposition are
less than the carrying amount of the asset, an impairment loss is recognized.
The impairment loss is measured based upon the present value of the expected
future cash flows. The
7
<PAGE> 9
adoption of this standard did not have a material impact on financial position
or results of operations.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS: On January 1, 1996, the
Corporation adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights."
This standard requires that entities recognize rights to service mortgage loans
for others as separate assets, whether those rights are acquired through loan
origination activities or through purchase activities. Additionally, the
enterprise must periodically assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. The adoption of this
standard did not have a material impact on financial position or results of
operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION: SFAS No. 123, "Accounting for
Stock-Based Compensation," was adopted on January 1, 1996. SFAS No. 123 defines
a fair value-based method of accounting for stock-based compensation plans.
Under the fair value-based method, compensation cost is measured at the grant
date based upon the value of the award and is recognized over the service
period. The standard encourages all entities to adopt this method of accounting,
however, it allows an entity to continue to measure compensation costs for its
plans as prescribed in APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under this election, the Corporation continues to account for
stock-based compensation in accordance with APB Opinion No. 25 and will provide
additional disclosure on the pro forma impact of the fair value-based method
under SFAS No. 123 in the 1996 annual report.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES: In June 1996, the Financial Accounting
Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which will be effective
for transactions occurring after December 31, 1996. The Statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings based on a control-oriented
"financial-components" approach. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished. The
Corporation is expected to adopt SFAS No. 125 on January 1, 1997, however, the
impact of adoption has not yet been determined.
3. ACQUISITIONS
On May 3, 1996, National City Corporation acquired Integra Financial
Corporation (Integra), a $14 billion bank holding company headquartered in
Pittsburgh, Pennsylvania, in a transaction accounted for as a pooling-of-
interests. National City issued 66.6 million shares of common stock to the
shareholders of Integra based upon an exchange ratio of two shares of National
City common stock for each outstanding share of Integra common stock. The
historical consolidated financial statements have been restated to reflect this
transaction.
4. CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments to
extend credit, guarantees, etc., which are not reflected in the financial
statements. In addition, the Corporation's subsidiaries are involved in a number
of legal proceedings arising out of their businesses. In management's opinion,
the financial statements would not be materially affected by the outcome of any
present legal proceedings or other commitments and contingent liabilities.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------
(In Thousands) 1996 1995
<S> <C> <C>
- -------------------------------------------------------------
Balance at beginning of year............. $705,846 $706,452
Provision................................ 108,000 86,327
Reserves acquired (sold)................. 84 10,200
Charge-offs:
Commercial............................. 38,328 26,867
Real estate -- construction............ 56 3,295
Real estate -- commercial.............. 1,533 21,759
Real estate -- residential............. 3,132 1,894
Home equity............................ 2,322 3,492
Consumer............................... 63,583 36,237
Credit card............................ 51,920 48,644
-------- --------
Total charge-offs...................... 160,874 142,188
Recoveries:
Commercial............................. 16,993 17,765
Real estate -- construction............ 1,072 1,697
Real estate -- commercial.............. 2,247 8,233
Real estate -- residential............. 445 870
Home equity............................ 833 1,275
Consumer............................... 25,459 20,357
Credit card............................ 9,699 9,874
-------- --------
Total recoveries....................... 56,748 60,071
-------- --------
Net charge-offs.......................... 104,126 82,117
-------- --------
Balance at end of period................. $709,804 $720,862
========= =========
</TABLE>
The allowance for loan losses is maintained at a level believed adequate to
absorb estimated probable credit losses. Both the provision and allowance for
loan losses are based upon an analysis of individual credits, adverse situations
that could affect a borrower's ability to repay (including the timing of future
payments), prior and current loss experience, overall growth in the portfolio,
current economic conditions, and other factors. This evaluation is inherently
subjective and requires material estimates, including the amounts and timing of
future cash flows expected to be received on impaired loans, that could be
susceptible to change.
Table 5 on page 13 provides detail regarding nonperforming loans. At
September 30, 1996, and December 31, 1995, loans that were considered to be
impaired under SFAS No. 114 totaled $37.5 million, and $42.8 million,
respectively. All impaired loans are included in nonperforming assets. The
related allowance for loan losses specifically allocated to these loans was
$24.7 million and $20.0 million, respectively. The contractual interest due and
actual interest income recorded on nonperforming assets for the nine months
ended September 30, 1996, was $16.3 million and $6.6 million, respectively.
8
<PAGE> 10
6. SECURITIES
The following is a summary of securities held to maturity and available for
sale:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
AVAILABLE FOR
SALE:
U.S. Treasury
and Federal
agency
debentures.... $2,076,390 $ 6,039 $ (35,075) $2,047,354
Mortgage-backed
securities.... 4,340,856 25,015 (57,936) 4,307,935
States and
political
subdivisions... 341,000 14,431 (2,051) 353,380
Other........... 1,734,043 185,796 (14,085) 1,905,754
---------- ---------- ---------- ----------
Total
securities... $8,492,289 $231,281 $(109,147) $8,614,423
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
-------------------------------------------------
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
Held to
Maturity:
U.S. Treasury
and Federal
agency
debentures... $ 783,057 $ 5,725 $ (2,433) $ 786,349
Mortgage-backed
securities... 1,338,095 7,835 (11,365) 1,334,565
States and
political
subdivisions... 445,770 22,543 (4,584) 463,729
Other.......... 476,593 5,828 (1,758) 480,663
----------- ---------- --------- -----------
Total held to
maturity... 3,043,515 41,931 (20,140) 3,065,306
Available for
Sale:
U.S. Treasury
and Federal
agency
debentures... 1,844,414 9,375 (20,994) 1,832,795
Mortgage-backed
securities... 4,295,731 18,769 (48,846) 4,265,654
States and
political
subdivisions... 29,905 433 (19) 30,319
Other.......... 1,090,916 194,559 (25,413) 1,260,062
----------- ---------- --------- -----------
Total
available
for sale... 7,260,966 223,136 (95,272) 7,388,830
----------- ---------- --------- -----------
Total
securities... $10,304,481 $265,067 $(115,412) $10,454,136
=========== ========== ========== ===========
</TABLE>
For the nine months ended September 30, 1996 and 1995, gross gains of $91.5
million and $47.6 million, and gross losses of $10.3 million and $19.2 million
were realized, respectively.
At September 30, 1996, the unrealized appreciation in securities available
for sale included in retained earnings totaled $79.4 million, net of tax,
compared to unrealized appreciation of $83.1 million, net of tax, at September
30, 1995. The Corporation's securities portfolio consists mainly of financial
instruments that pay back par value upon maturity. Market value fluctuations
occur over the lives of the instruments due to changes in market interest rates.
Management has concluded that current declines in value are temporary and,
accordingly, no valuation adjustments have been included as a charge to
earnings.
For the nine months ended September 30, 1996 and 1995, the following
represents the cash flows of the securities portfolio:
<TABLE>
<CAPTION>
AVAILABLE HELD TO
(In Thousands) FOR SALE MATURITY TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------
1996:
Purchases of securities... $2,316,574 -- $2,316,574
Proceeds from sales of
securities.............. 3,085,369 -- 3,085,369
Proceeds from maturities
of securities........... 865,144 -- 865,144
1995:
Purchases of securities... $4,869,222 $1,210,695 $6,079,917
Proceeds from sales of
securities.............. 4,513,634 -- 4,513,634
Proceeds from maturities
of securities........... 497,104 956,685 1,453,789
</TABLE>
At September 30, 1996, there were no securities of a single issuer which
exceeded 10% of stockholders' equity other than U.S. Treasury securities and
other U.S. government agencies.
7. BORROWED FUNDS
<TABLE>
<CAPTION>
SEPTEMBER 30 Dec. 31 September 30
(In Thousands) 1996 1995 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
U.S. Treasury demand
notes and Federal
funds
borrowed-term..... $1,441,676 $ 391,765 $1,060,028
Federal Home Loan
Bank Advances..... 605,061 955,461 898,938
Notes payable to
Student Loan
Marketing
Association....... 300,000 600,000 600,000
Bank notes.......... 754,556 654,547 539,524
Security repurchase
agreements........ 397,608 1,035,693 1,313,315
Military banking
liabilities....... -- 109,401 146,503
Other............... 56,387 77,515 65,996
------------ ---------- ------------
Bank
subsidiaries.... 3,555,288 3,824,382 4,624,304
Commercial paper.... 384,204 374,017 504,572
Other............... 42 9,806 47
------------ ---------- ------------
Other
subsidiaries.... 384,246 383,823 504,619
------------ ---------- ------------
Total....... $3,939,534 $4,208,205 $5,128,923
============ ========== ============
</TABLE>
9
<PAGE> 11
8. CORPORATE LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30 Dec. 31 September 30
(In Thousands) 1996 1995 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
8 3/8% Notes due
1996................. $ -- $ 99,987 $ 99,966
Floating Rate Sub.
Notes due 1997....... 74,994 74,980 74,975
Floating Rate Notes
due 1997............. 49,977 49,962 49,957
9 7/8% Sub. Notes due
1999................. 64,860 64,825 64,813
6.50% Sub. Notes due
2000................. 99,809 99,777 99,765
8.50% Sub. Notes due
2002................. 99,873 99,849 99,842
6 5/8% Sub. Notes due
2004................. 249,040 248,942 248,910
7.20% Sub. Notes due
2005................. 249,749 249,727 249,807
Other................. 2,148 2,561 2,881
------------ ---------- ------------
Total parent
company........... 890,450 990,610 990,916
6.50% Sub. Notes due
2003................. 199,505 199,451 199,432
7.25% Sub. Notes due
2010................. 222,737 222,612 222,575
6.30% Sub. Notes due
2011................. 200,000 -- --
Other................. 2,114 2,309 2,323
------------ ---------- ------------
Total
subsidiaries...... 624,356 424,372 424,330
------------ ---------- ------------
Total......... $1,514,806 $1,414,982 $1,415,246
============ ========== ============
</TABLE>
A credit agreement with a group of banks, dated February 2, 1996, allows the
Corporation to borrow up to $350 million until February 2, 2001. The Corporation
pays an annual facility fee of 10 basis points on the amount of the line. There
were no borrowings outstanding under this agreement at September 30, 1996.
9. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30 Dec. 31 September 30
(Outstanding Shares) 1996 1995 1995
<S> <C> <C> <C>
- -------------------------------------------------------------
Preferred Stock, no
par value,
authorized
5,000,000
shares............ -- 741,600 744,160
Common Stock, $4.00
par value,
authorized
350,000,000
shares............ 222,645,087 211,571,079 213,223,386
</TABLE>
On March 5, 1996, the Corporation called for redemption its 8% Cumulative
Convertible Preferred Stock, effective May 1, 1996. During the second quarter,
all outstanding depositary shares of the 8% Cumulative Convertible Preferred
Stock converted into common stock.
In August 1996, National Processing, Inc. (NPI), a subsidiary of National
City, issued 7,475,000 shares of its common stock in an underwritten public
offering. The net proceeds from the transaction were retained by NPI to finance
its internal business development needs. This capital transaction resulted in a
$25.1 million increase in the carrying value of National City's interest in the
net assets of NPI. National City owned 85.2% of NPI as of September 30, 1996.
10. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
(In Thousands) 1996 1995
<S> <C> <C>
- ------------------------------------------------------------
Applicable to income exclusive
of security transactions..... $ 218,107 $ 194,676
Applicable to security
transactions................. 28,433 2,679
----------- -----------
Total.................. $ 246,540 $ 197,355
=========== ===========
</TABLE>
The effective tax rate was approximately 31.1% and 29.9% for the nine months
ended September 30, 1996 and 1995, respectively.
11. REGULATORY DIVIDENDS
A significant source of liquidity for the Parent company is dividends from
subsidiaries. Dividends paid by the subsidiary banks are subject to various
legal and regulatory restrictions. At September 30, 1996, bank subsidiaries had
the ability to pay the Parent company, without prior regulatory approval,
approximately $880.5 million of dividends. During the first nine months of 1996,
dividends totaling $134.3 million were declared and $216.0 million of previously
declared dividends were paid to the Parent company.
12. EARNINGS PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months
Ended
September 30 September 30
(In Thousands ------------------ ------------------
Except Per Share Amounts) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
PRIMARY:
Net income.................. $185,822 $158,884 $545,518 $462,331
Less preferred dividend
requirements.............. -- 3,720 4,028 11,162
-------- -------- -------- --------
Net income applicable to
common stock.............. $185,822 $155,164 $541,490 $451,169
======== ======== ======== ========
Average common shares
outstanding............... 226,152 216,124 221,494 214,842
======== ======== ======== ========
Primary net income per
common share.............. $.82 $.72 $2.44 $2.10
======== ======== ======== ========
ASSUMING FULL DILUTION:
Net income.................. $185,822 $158,884 $545,518 $462,331
======== ======== ======== ========
Average common shares
outstanding............... 226,152 216,124 221,494 214,842
Stock option adjustment..... 220 75 148 75
Preferred stock
adjustment................ -- 8,870 3,572 8,870
-------- -------- -------- --------
Average common shares
outstanding, as
adjusted.................. 226,372 225,069 225,214 223,787
======== ======== ======== ========
Fully diluted net income per
common share.............. $.82 $.71 $2.42 $2.07
======== ======== ======== ========
</TABLE>
The stock option adjustment in the calculation of fully diluted common
shares outstanding represents the assumed exercise of all outstanding stock
options as of the beginning of year or date of grant, if later, computed using
the treasury stock method.
The preferred stock adjustment in the calculation of fully diluted common
shares outstanding represents the conversion impact of the 8% Cumulative
Convertible Preferred Stock.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY
Fully diluted net income per common share was $.82 for the quarter ended
September 30, 1996, an increase of 15% over the $.71 for the corresponding
quarter last year. Net income for the quarter ended September 30, 1996 was
$185.8 million versus $158.9 million earned in the quarter ended September 30,
1995.
Fully diluted net income per common share was $2.42 for the first nine
months, up 17% over the $2.07 earned in 1995. Net income for the first nine
months was $545.5 million, compared to $462.3 million in the prior year.
All prior period data have been restated as required to reflect the
pooling-of-interests merger with Integra Financial Corporation, completed on May
3, 1996.
Returns on average common equity for the third quarter and first nine
months of 1996 were 17.55% and 17.82%, respectively, compared with 16.75% and
17.30% for the same periods in 1995. Returns on average assets for the third
quarter and year-to-date 1996 were 1.53% and 1.50%, respectively, compared with
1.28% and 1.30% for the same periods in 1995.
Net income for the quarter and first nine months increased from a year ago
due to solid revenue growth from both net interest income and fee income
sources. The increase in net interest income was the result of higher loan
balances and a wider net interest margin. Noninterest income was higher due to
an increase in fee-related revenue in all lines of business.
Noninterest expense, excluding merger-related charges, decreased for the
third quarter and first nine months of 1996 when compared with those same
periods in the prior year. Noninterest expense in 1996 includes the operating
expense of purchase acquisitions made during the second half of 1995. Excluding
the merger-related charges and the timing effect of 1995 purchase acquisitions,
noninterest expense for the first nine months of 1996 decreased by 2% from the
same period a year ago.
Offsetting the merger charges were security gains of $81.2 million for the
first nine months of 1996, primarily from the sale of equity securities.
Security gains for the first nine months of 1995 were $28.4 million.
UNIT PROFITABILITY
The financial performance of National City is monitored by an internal
profitability measurement system which produces line-of- business results and
key performance measures. National City's major business units include corporate
banking, retail banking and fee-based businesses. The fee-based businesses
include trust, mortgage banking and item processing.
Table 1 presents profitability contributions by the Corporation's major
units to consolidated results. Unit profitability is determined based on an
internal accounting process. Unlike generally accepted accounting principles, no
authoritative guidance exists for internal financial accounting and reporting.
National City's internal accounting process is based on practices which support
the management
structure of the Corporation. Expenses for centrally provided services are
allocated based on estimated usage of those services. Lending and deposit-taking
activities are match-funded to remove the effects of interest rate risk from
those activities. Capital has been allocated among the businesses on a
risk-adjusted basis. Methodologies may change from time to time as accounting
systems are enhanced or business products change.
The decline in corporate banking net income was due primarily to tighter
spreads and management's decision to increase the loan loss provision in excess
of losses during the first nine months of 1996.
The increase in retail banking was due to strong loan growth and continued
favorable spreads on core deposit accounts.
<TABLE>
TABLE 1: UNIT PROFITABILITY
<CAPTION>
NINE MONTHS ENDED Nine months ended
SEPTEMBER 30, 1996 September 30, 1995
-------------------- --------------------
NET RETURN ON Net Return on
(Dollars in Millions) INCOME EQUITY Income Equity
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Corporate banking.................. $129.4 20.55% $141.2 22.81%
Retail banking..................... 342.7 25.78 265.2 21.42
Fee-based businesses............... 74.4 21.76 66.2 21.89
Parent and other................... (1.0) -- (10.3) --
------ ------
Total.......................... $545.5 17.82% $462.3 17.30%
====== ======
</TABLE>
2
<PAGE> 13
The increased net income in the fee-based businesses reflects
solid revenue growth in item processing, higher mortgage banking origination
income and improving trust results. The first nine months of 1995 results
included $19.6 million from gains on the sale of mortgage servicing rights,
further affecting comparisons.
EARNING ASSETS AND
INTEREST-BEARING LIABILITIES
Average earning assets totaled $43,952 million for the third quarter of
1996, down from $44,273 million for the second quarter of 1996 and $45,125
million for the third quarter of 1995. The decrease from these prior periods is
attributable to the decline in the securities portfolio which has more than
offset loan growth.
Average interest-bearing liabilities decreased in the third quarter
compared with the second quarter of 1996 and the third quarter of 1995 due to a
decline in other borrowings. While total average interest-bearing deposits
remained at a relatively consistent level with the second quarter of 1996 and
the third quarter of prior year, there was a shift in funds from time and
savings accounts to NOW and money market accounts.
NET INTEREST INCOME
Tax equivalent net interest income increased to $494.8 million in the third
quarter of 1996 versus $471.4 million for the corresponding quarter in 1995. For
the first nine months of 1996, taxable equivalent net interest income increased
6.0% to $1,470.3 million from $1,387.5 million in 1995.
The net interest margin was 4.50% for the quarter ended September 30, 1996,
compared with 4.45% for the quarter ended June 30, 1996 and 4.18% a year ago.
The wider net interest margin relative to previous quarters is due primarily to
a lower overall cost of interest-bearing funds, the positive impact of the
derivatives portfolio (see Table 2), and an increased benefit from
noninterest-bearing funds. Average noninterest-bearing deposits increased $255
million from the third quarter of 1995.
During the third quarter of 1996, the notional outstandings of interest
rate swap agreements increased by $391 million to $11.4 billion. During the
quarter, $350 million of swaps were added to effectively convert variable rate
loans to fixed rate; $241 million of swaps were added to effectively convert
fixed rate debt to variable rate; $304 million of swaps were added to hedge
securities added to the investment portfolio; $47 million of swaps were added to
reduce the price risk of mortgage servicing rights; and $176 million of swaps
were added to facilitate interest rate
risk management at third parties. A total of $727 million of swaps matured or
were terminated during the quarter. The notional amount of interest rate caps
and floors decreased by $498 million due to maturities of existing contracts.
The net unrealized losses in the derivative portfolio were $26 million at
September 30, 1996, compared to unrealized losses of $95 million at June 30,
1996.
Management attempts to prevent adverse swings in current and future net
interest income and capital resulting from interest rate movements by placing
conservative limits on interest rate risk. Interest rate risk is monitored
through static gap, income simulation and net present value analyses.
At September 30, 1996, the Corporation's interest-rate risk position
remained modestly liability sensitive. The earnings simulation model projects
that net income would decrease by 0.5% if market rates rise gradually by
<TABLE>
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<CAPTION>
Nine months ended
September 30
-----------------------------
(In Millions) 1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------
Interest adjustment to loans......................... $17.0 $ (11.6)
Interest adjustment to securities.................... (.2) (3.7)
----- -------
Interest adjustment to earning assets.............. 16.8 (15.3)
Interest adjustment to interest-bearing
liabilities........................................ (14.2) (8.4)
----- -------
Effect on net interest income...................... $31.0 $ (6.9)
===== =======
</TABLE>
NOTE: Amounts in brackets represent reductions of the related interest income
or expense line, as applicable.
<TABLE>
TABLE 3: FULL-TIME EQUIVALENT STAFFING AND OVERHEAD PERFORMANCE MEASURES
<CAPTION>
SEPTEMBER 30, 1996 September 30, 1995
-------------------------------------- --------------------------------------
FULL-TIME Full-Time
EQUIVALENT OVERHEAD EFFICIENCY Equivalent Overhead Efficiency
STAFF RATIO RATIO Staff Ratio Ratio
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Corporate and retail banking.... 15,839 39.45% 52.04% 16,534 46.16% 57.33%
Fee-based businesses............ 9,222 -- 68.85 8,202 -- 69.78
Corporate staff................. 1,248 -- -- 1,310 -- --
------ ------
Total........................ 26,309 43.27% 63.95% 26,046 47.06% 65.81%
====== ======
Excluding merger charges........ 38.19% 60.72% 46.77% 65.62%
</TABLE>
3
<PAGE> 14
<TABLE>
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS
<CAPTION>
Third Quarter First Nine Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Commercial........................ .11 % .14 % .25 % .11 %
Real estate -- construction....... (.13) (.03) (.21) .38
Real estate -- commercial......... .06 .23 (.03) .53
Real estate -- residential........ .05 -- .05 .02
Home equity....................... .14 .14 .12 .05
Consumer.......................... .76 .38 .59 .30
Credit card....................... 4.38 3.68 3.75 3.74
Total net charge-offs to average
loans........................... .44 % .33 % .40 % .34 %
</TABLE>
<TABLE>
TABLE 5: NONPERFORMING ASSETS
<CAPTION>
SEPT 30 December 31 Sept 30
(In Millions) 1996 1995 1995
<S> <C> <C> <C>
----------------------------------------------------------------------------
Commercial:
Nonaccrual.............................. $ 91.8 $103.0 $ 79.0
Restructured............................ .1 .1 .1
------ ------ ------
Total commercial...................... 91.9 103.1 79.1
Real estate related:
Nonaccrual.............................. 61.5 80.2 97.4
Restructured............................ 3.0 4.1 5.0
------ ------ ------
Total real estate related............. 64.5 84.3 102.4
------ ------ ------
Total nonperforming loans............. 156.4 187.4 181.5
Other real estate owned (OREO)............ 20.2 21.4 23.6
------ ------ ------
Nonperforming assets...................... $176.6 $208.8 $205.1
====== ====== ======
Loans 90 days past-due accruing
interest................................ $115.3 $ 57.6 $ 66.3
====== ====== ======
Nonperforming assets plus loans 90 days
past due accruing interest.............. $291.9 $266.4 $271.4
====== ====== ======
Nonperforming assets to loans and OREO.... .49% .62% .61%
Nonperforming assets plus accruing loans
90 days past due to loans............... .82% .77% .81%
</TABLE>
<TABLE>
TABLE 6: CAPITAL AND CAPITAL/ASSET RATIOS
<CAPTION>
SEPT 30, 1996 Dec 31, 1995 Sept 30, 1995
(In Millions) AMOUNT RATIO Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
Total equity1.............. $4,336.2 8.88 % $4,063.8 8.04 % $3,946.5 7.99 %
Common equity1............. 4,336.2 8.88 3,878.4 7.67 3,760.4 7.61
Tangible common equity2.... 3,826.5 7.92 3,360.6 6.72 3,251.1 6.65
Tier 1 capital3............ 3,943.8 10.36 3,546.4 9.14 3,522.8 9.39
Total risk-based
capital4................. 5,739.9 15.08 5,228.4 13.47 5,188.3 13.84
Leverage ratio5............ 3,943.8 8.22 3,546.4 7.26 3,522.8 7.18
</TABLE>
--------------------
1 Computed in accordance with generally accepted accounting principles,
including the unrealized market value adjustment of securities available
for sale.
2 Common equity less all intangible assets; computed as a ratio to total
assets less intangible assets.
3 Stockholders' equity less certain intangibles and the unrealized market
value adjustment of securities available for sale; computed as a ratio to
risk-adjusted assets, as defined.
4 Tier 1 capital plus qualifying loan loss allowance and subordinated debt;
computed as a ratio to risk-adjusted assets, as defined.
5 Tier 1 capital; computed as a ratio to average total assets less certain
intangibles.
two percentage points over the next year, relative to a stable rate scenario. In
an environment where market rates fall gradually by two percentage points over
the next year, the model projects an increase in net income of 0.4%, relative to
a stable rate scenario. At the end of the second quarter, the corresponding
changes were a decrease in net income of 2.3% in the rising-rate environment and
increase of 1.1% in the falling-rate environment. The cumulative one-year gap
was (11.2%) of adjusted earning assets at September 30, 1996. The Corporation's
net present value model indicates that a two percentage point immediate upward
shock in rates would cause a reduction in the value of expected asset and
liability cash flows by an amount equal to 1.7% of total assets at the end of
the quarter.
FEES AND OTHER INCOME
Total fees and other income was $292.7 million for the quarter ended
September 30, 1996, versus $264.2 million for the third quarter of 1995. The
increase was due primarily to increased brokerage revenue, credit card fees,
service charges on deposits and item processing fees. Brokerage revenue
increased as a direct result of the Raffensperger, Hughes & Co., Inc. purchase
acquisition which was completed July 13, 1995. The increase in credit card fees
was primarily due to servicing revenue from a $440 million credit card
securitization transaction which closed in September 1995.
Effective January 1, 1996, the Corporation adopted SFAS 122, "Accounting
for Mortgage Servicing Rights." The adoption of this statement has had a
positive effect on mortgage banking revenue and net income in 1996 as the
capitalization of originated
13
<PAGE> 15
mortgage servicing rights and resulting immediate income recognition has
exceeded the
amortization of such assets.
Third quarter and year-to-date 1996 other income includes a $6.0 million
gain on the sale of branches. The first nine months of 1995 included $19.6
million of gains on the sale of mortgage servicing and a $9.2 million gain on
the sale of credit card receivables in September.
NONINTEREST EXPENSE
Noninterest expense was $474.1 for the quarter ended September 30, 1996,
compared to $489.0 million for the corresponding quarter in 1995.
Year-to-date noninterest expense was $1,479.7 million,
compared to $1,413.8 million for the same period in 1995. Noninterest expense
excluding merger charges totaled $1,405.0 million and $1,409.8 million for the
nine months ended September 30, 1996 and 1995, respectively. Comparatively, 1996
noninterest expense reflects increased expenses resulting from purchase
acquisitions completed in the second half of 1995 as well as increased salaries
and benefits due to growth in certain business units, offset by a reduction in
assessments on insured deposits. Excluding merger charges, there were no
significant unusual expense items during the first nine months of 1996.
During the third quarter of 1996, legislation was passed which imposed a
special assessment on certain thrift deposits. This legislation did not have a
significant impact on financial position or results of operations.
The efficiency ratio, defined as noninterest expense as a percentage of fee
income plus tax equivalent net interest income, was 60.72% for the first nine
months of 1996, compared to 65.62% a year ago, excluding merger charges.
The overhead ratio, defined as noninterest expense less fee income as a
percentage of tax equivalent net interest income, was 38.19% for the first nine
months of 1996, compared to 46.77% a year ago, excluding merger charges.
Table 3 shows full-time equivalent staff and the efficiency
and overhead ratios within the Corporation's major units.
Total staff at September 30, 1996 increased from a year ago due mainly to
growth in the item processing business which was partially offset by staff
banking and corporate reductions related to the Integra merger.
ASSET QUALITY
The allowance for loan losses was $709.8 million at September 30, 1996,
representing 1.99% of loans outstanding. This loan loss reserve ratio compares
with 2.05% at year-end 1995 and 2.14% at September 30, 1995.
The provision for loan losses increased to $38.6 million for
the third quarter of 1996 and $108.0 million year-to-date, from $32.2 million
and $86.3 million for the same periods in 1995, respectively.
Net charge-offs were $38.5 million and $27.5 million for the quarters ended
September 30, 1996 and 1995, respectively, and $104.1 million and $82.1 million,
respectively, for the first nine months of 1996 and 1995.
Table 4 shows net charge-offs as a percentage of average loans by portfolio
type.
Table 5 summarizes nonperforming assets and related data.
Nonperforming assets plus accruing loans 90 days past due totaled $291.9
million as of September 30, 1996, or .82% of loans. Compared to prior periods,
general consumer delinquencies account for the increase from .77% and .81% of
loans as of
December 31, 1995, and
September 30, 1995, respectively.
Nonperforming assets as a percentage of loans and OREO were .49% at
September 30, 1996, compared with .61% a year ago and .62% at December 31, 1995.
CAPITAL
Table 6 reflects various measures of capital at quarter-end. Book value per
common share was $19.48 at September 30, 1996 compared with originally reported
book value per share of $18.21 at September 30, 1995, and $18.80 at December 31,
1995. The book value per common share at September 30, 1996, September 30, 1995,
and December 31, 1995, included $.36, $.39, and $.93, respectively, related to
market value appreciation of securities available for sale.
14
<PAGE> 16
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars In Millions) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial................................................ $ 12,050 $ 11,746 $ 12,244 $ 11,440
Real estate mortgage--nonresidential...................... 3,494 3,537 3,338 3,476
Real estate mortgage--residential......................... 7,253 7,105 7,263 6,727
Mortgage loans held for sale.............................. 220 250 217 170
Consumer.................................................. 8,913 8,415 8,598 8,132
Revolving credit.......................................... 3,194 2,511 3,109 2,452
-------- -------- -------- --------
Total loans............................................. 35,124 33,564 34,769 32,397
Securities.................................................. 8,389 10,889 8,814 10,324
Federal funds sold and security resale agreements........... 366 356 445 472
Trading account assets...................................... 24 43 25 53
Eurodollar time deposits in banks........................... -- 7 23 2
Other short-term money market investments................... 49 266 64 243
-------- -------- -------- --------
Total earning assets.................................... 43,952 45,125 44,140 43,491
Allowance for loan losses..................................... (709) (721) (707) (719)
Market value appreciation of securities available for sale.... 49 112 153 59
Cash and demand balances due from banks....................... 2,341 2,358 2,423 2,363
Properties and equipment...................................... 592 596 590 576
Customers' acceptance liability............................... 68 86 64 99
Accrued income and other assets............................... 1,991 1,870 1,962 1,845
-------- -------- -------- --------
Total assets............................................ $ 48,284 $ 49,426 $ 48,625 $ 47,714
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits............................................. $ 6,347 $ 6,092 $ 6,319 $ 6,015
NOW and money market accounts............................... 9,004 8,561 9,050 8,400
Savings accounts............................................ 4,135 4,384 4,163 4,512
Time deposits of individuals................................ 13,875 14,062 13,793 13,671
Other time deposits......................................... 597 514 640 518
Deposits in overseas offices................................ 994 1,191 833 1,586
-------- -------- -------- --------
Total deposits.......................................... 34,952 34,804 34,798 34,702
Federal funds borrowed and security repurchase agreements... 3,393 3,314 3,528 3,029
Borrowed funds.............................................. 3,256 5,192 3,703 4,364
Acceptances outstanding..................................... 68 86 64 99
Accrued expenses and other liabilities...................... 887 814 889 731
Corporate long-term debt.................................... 1,515 1,354 1,509 1,117
-------- -------- -------- --------
Total liabilities....................................... 44,071 45,564 44,491 44,042
Stockholders' Equity:
Preferred stock............................................. -- 186 76 186
Common stock................................................ 4,213 3,676 4,058 3,486
-------- -------- -------- --------
Total stockholders' equity.............................. 4,213 3,862 4,134 3,672
-------- -------- -------- --------
Total liabilities and stockholders' equity.............. $ 48,284 $ 49,426 $ 48,625 $ 47,714
======= ======= ======= =======
</TABLE>
15
<PAGE> 17
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
- ----------------------------------------------------------------------------------------------------------
1996 1995
----------------------------- ------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $12,050 $12,476 $12,209 $11,926 $11,746
Real estate mortgage............................ 10,967 10,724 10,762 10,930 10,892
Consumer........................................ 12,107 11,671 11,341 11,033 10,926
------- ------- ------- ------- -------
Total loans................................... 35,124 34,871 34,312 33,889 33,564
Securities:
Taxable......................................... 7,406 7,698 8,154 8,829 9,682
Tax-exempt...................................... 983 1,097 1,109 1,158 1,207
------- ------- ------- ------- -------
Total securities.............................. 8,389 8,795 9,263 9,987 10,889
Federal funds sold................................ 110 184 165 89 85
Security resale agreements........................ 256 309 315 458 271
Eurodollar time deposits in banks................. -- 60 9 -- 7
Short-term money market investments............... 73 54 139 223 309
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 43,952 44,273 44,203 44,646 45,125
Market value appreciation of securities available
for sale.......................................... 49 114 298 201 112
Allowance for loan losses........................... (709) (705) (706) (723) (721)
Cash and demand balances due from banks............. 2,341 2,447 2,482 2,451 2,358
Properties and equipment............................ 592 589 588 600 596
Customers' acceptance liability..................... 68 59 66 65 86
Accrued income and other assets..................... 1,991 2,000 1,899 1,977 1,870
------- ------- ------- ------- -------
Total assets.................................. $48,284 $48,777 $48,830 $49,217 $49,426
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $ 9,004 $ 9,171 $ 8,976 $ 8,826 $ 8,561
Savings accounts.................................. 4,135 4,180 4,174 4,247 4,384
Time deposits of individuals...................... 13,875 13,725 13,780 14,131 14,062
Other time deposits............................... 597 624 701 523 514
Deposits in overseas offices...................... 994 720 792 707 1,191
Federal funds borrowed............................ 983 959 1,016 1,491 1,425
Security repurchase agreements.................... 2,410 2,525 2,697 1,915 1,889
Borrowed funds.................................... 3,256 3,944 3,913 4,623 5,192
Corporate long-term debt.......................... 1,515 1,515 1,497 1,415 1,354
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 36,769 37,363 37,546 37,878 38,572
Non-interest bearing deposits..................... 6,347 6,373 6,238 6,313 6,092
Acceptances outstanding........................... 68 59 66 65 86
Accrued expenses and other liabilities............ 887 884 889 980 814
------- ------- ------- ------- -------
Total liabilities............................. 44,071 44,679 44,739 45,236 45,564
Stockholders' equity.......................... 4,213 4,098 4,091 3,981 3,862
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $48,284 $48,777 $48,830 $49,217 $49,426
======= ======= ======= ======= =======
Net interest income.......................................................................................
Interest spread...........................................................................................
Contribution of non-interest bearing sources of funds.....................................................
Net interest margin.......................................................................................
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Quarterly Interest Average Annualized Rate
------------------------------------------------------- -------------------------------------------------------
1996 1995 1996 1995
------------------------------- ------------------- ------------------------------- -------------------
THIRD Second First Fourth Third THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$257.8 $263.7 $254.3 $258.7 $256.4 8.51% 8.50% 8.37% 8.68% 8.73%
223.9 223.6 224.5 226.3 226.2 8.17 8.34 8.34 8.28 8.31
290.3 279.7 277.1 268.2 271.4 9.55 9.63 9.82 9.72 9.94
------ ------ ------ ------ ------
772.0 767.0 755.9 753.2 754.0 8.76 8.83 8.84 8.89 9.05
120.4 129.4 133.7 143.0 161.0 6.50 6.60 6.57 6.48 6.65
16.8 19.7 20.5 19.5 17.8 6.88 7.17 7.39 6.74 5.90
------ ------ ------ ------ ------
137.2 149.1 154.2 162.5 178.8 6.54 6.67 6.67 6.51 6.57
1.6 2.4 2.3 1.3 1.2 5.67 5.37 5.49 5.87 5.65
3.4 4.1 4.4 6.7 4.7 5.26 5.31 5.63 5.82 5.89
-- .8 .1 -- .1 -- 5.61 5.18 -- 5.89
1.1 .9 .7 3.2 4.3 5.70 5.60 4.98 5.74 5.57
------ ------ ------ ------ ------
$915.3 $924.3 $917.6 $926.9 $943.1 8.31% 8.35% 8.33% 8.30% 8.36%
$ 63.6 $ 62.7 $ 62.1 $ 60.8 $ 59.1 2.81% 2.75% 2.78% 2.76% 2.76%
26.8 27.2 27.7 29.0 30.3 2.58 2.62 2.67 2.73 2.76
195.3 191.2 195.8 208.7 206.2 5.60 5.59 5.72 5.91 5.87
6.7 7.7 9.0 7.1 7.1 4.48 4.95 5.14 5.47 5.50
13.2 8.9 10.3 9.8 17.1 5.26 4.98 5.21 5.51 5.71
15.8 15.6 17.4 26.5 24.6 6.39 6.54 6.88 7.11 6.91
34.6 28.1 24.8 24.8 24.0 5.72 4.49 3.72 5.18 5.08
39.5 63.5 62.8 69.5 79.3 4.82 6.67 6.44 6.01 6.11
25.0 24.7 26.9 24.8 24.0 6.58 6.12 7.24 7.01 7.09
------ ------ ------ ------ ------
$420.5 $429.6 $436.8 $461.0 $471.7 4.55% 4.62% 4.68% 4.87% 4.89%
$494.8 $494.7 $480.8 $465.9 $471.4
====== ====== ====== ====== ======
........................................................... 3.76% 3.73% 3.65% 3.43% 3.47%
........................................................... .74 .72 .70 .74 .71
------- ------- ------- ------- -------
........................................................... 4.50% 4.45% 4.35% 4.17% 4.18%
======= ======= ======= ======= =======
</TABLE>
17
<PAGE> 19
CORPORATE INVESTOR INFORMATION
CORPORATE HEADQUARTERS
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Operations
Department 5352
P.O. Box 92301
Cleveland, Ohio 44193-0900
1-800-622-6757
INVESTOR INFORMATION
Julie I. Sabroff, Assistant Vice President
Investor Relations
Department 2145
P.O. Box 5756
Cleveland, Ohio 44101-0756
1-800-622-4204
COMMON STOCK LISTING
National City Corporation common stock
is traded on the New York Stock
Exchange under the symbol NCC. The
stock is abbreviated in financial
publications as NTLCITY.
DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
Common stockholders participating in the plan receive a three percent
discount from market price when they reinvest
their National City dividends in additional shares. Participants can also
make optional cash purchases of common
stock at a three percent discount from
market price and pay no brokerage
commissions. To obtain our Plan
prospectus and authorization card, write
or call:
National City Bank
Corporate Trust Department
Dividend Reinvestment Plan
P.O. Box 92301
Cleveland, Ohio 44193-0900
1-800-622-6757
DEBT RATINGS
<TABLE>
<CAPTION>
STANDARD DUFF & THOMSON
MOODY'S & POOR'S PHELPS BANKWATCH
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National City Corporation........................ A/B
Commercial paper (short-term debt)............. P-1 A-1 D-1+ TBW1
Senior debt.................................... A1 A AA-
Subordinated debt.............................. A2 A- A+ A
Bank Subsidiaries:*
Certificates of deposit........................ Aa3 A+ AA
Subordinated bank notes........................ A1 A AA- A+
</TABLE>
* Includes the following subsidiaries:
National City Bank -- Cleveland
National City Bank of Columbus
National City Bank of Indiana
National City Bank of Kentucky
National City Bank of Pennsylvania
National City Bank, Northeast (Akron)
National City Bank of Dayton
National City Bank, Northwest (Toledo)
Duff & Phelps ratings for certificates of deposit apply only to the banks
in Cleveland, Columbus, Kentucky and Indiana. Duff & Phelps subordinated bank
note ratings apply only to the banking subsidiaries in Cleveland and Columbus.
18
<PAGE> 20
NATIONAL CITY CORPORATION (R)
FORM 10-Q -- SEPTEMBER 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY CORPORATION
Date: October 31, 1996
/s/ ROBERT G. SIEFERS
-------------------------------
Robert G. Siefers
Executive Vice President
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
19
<PAGE> 21
NATIONAL CITY CORPORATION (R)
---------------
| |
| Bulk Rate |
National City Center | U.S. Postage |
1900 East Ninth Street | PAID |
Cleveland, Ohio 44114- 3484 | National City |
| Corporation |
| |
---------------
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,539,683
<INT-BEARING-DEPOSITS> 211,804
<FED-FUNDS-SOLD> 432,252
<TRADING-ASSETS> 27,982
<INVESTMENTS-HELD-FOR-SALE> 7,388,830
<INVESTMENTS-CARRYING> 3,043,515
<INVESTMENTS-MARKET> 3,065,306
<LOANS> 33,714,049
<ALLOWANCE> 720,862
<TOTAL-ASSETS> 49,413,848
<DEPOSITS> 34,678,043
<SHORT-TERM> 8,416,303
<LIABILITIES-OTHER> 957,797
<LONG-TERM> 1,415,246
<COMMON> 852,895
0
186,040
<OTHER-SE> 2,907,524
<TOTAL-LIABILITIES-AND-EQUITY> 49,413,848
<INTEREST-LOAN> 2,159,963
<INTEREST-INVEST> 490,829
<INTEREST-OTHER> 34,395
<INTEREST-TOTAL> 2,685,187
<INTEREST-DEPOSIT> 934,149
<INTEREST-EXPENSE> 1,314,701
<INTEREST-INCOME-NET> 1,370,486
<LOAN-LOSSES> 86,327
<SECURITIES-GAINS> 28,427
<EXPENSE-OTHER> 1,413,843
<INCOME-PRETAX> 659,686
<INCOME-PRE-EXTRAORDINARY> 659,686
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462,331
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.07
<YIELD-ACTUAL> 4.30
<LOANS-NON> 205,100
<LOANS-PAST> 66,300
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 706,452
<CHARGE-OFFS> 142,188
<RECOVERIES> 60,071
<ALLOWANCE-CLOSE> 720,862
<ALLOWANCE-DOMESTIC> 490,620
<ALLOWANCE-FOREIGN> 297
<ALLOWANCE-UNALLOCATED> 229,945
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,986,308
<INT-BEARING-DEPOSITS> 74,789
<FED-FUNDS-SOLD> 558,345
<TRADING-ASSETS> 13,738
<INVESTMENTS-HELD-FOR-SALE> 8,614,423
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 35,616,880
<ALLOWANCE> 709,804
<TOTAL-ASSETS> 49,728,879
<DEPOSITS> 35,443,105
<SHORT-TERM> 7,439,922
<LIABILITIES-OTHER> 994,860
<LONG-TERM> 1,514,806
<COMMON> 890,581
0
0
<OTHER-SE> 3,445,605
<TOTAL-LIABILITIES-AND-EQUITY> 49,728,879
<INTEREST-LOAN> 2,287,410
<INTEREST-INVEST> 432,812
<INTEREST-OTHER> 21,586
<INTEREST-TOTAL> 2,741,808
<INTEREST-DEPOSIT> 907,593
<INTEREST-EXPENSE> 1,286,789
<INTEREST-INCOME-NET> 1,455,019
<LOAN-LOSSES> 108,000
<SECURITIES-GAINS> 81,238
<EXPENSE-OTHER> 1,479,725
<INCOME-PRETAX> 792,058
<INCOME-PRE-EXTRAORDINARY> 792,058
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 545,518
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.42
<YIELD-ACTUAL> 4.44
<LOANS-NON> 176,600
<LOANS-PAST> 115,300
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 705,846
<CHARGE-OFFS> 160,874
<RECOVERIES> 56,748
<ALLOWANCE-CLOSE> 709,804
<ALLOWANCE-DOMESTIC> 483,094
<ALLOWANCE-FOREIGN> 292
<ALLOWANCE-UNALLOCATED> 226,418
</TABLE>
