<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 June 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 July 25, 1996
Common stock, $4.00 Par Value -- 221,828,496
<PAGE> 2
[NATIONAL CITY CORPORATION LOGO]
QUARTER ENDED JUNE 30, 1996
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED JUNE 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 Reports on Form 8-K below and Note 9 on page 10.
Submission of Matters to a Vote of Security Holders (Item 4)
On April 22, 1996, at the Annual Meeting of Stockholders of the Registrant,
stockholders took the following actions:
1. Adopted the Agreement and Plan of Merger dated August 27, 1995, by and between
National City Corporation and Integra Financial Corporation: 104,524,202 votes cast
for, 3,926,545 votes cast against, 1,356,592 votes withheld;
2. Elected as directors all nominees designated in the proxy statement of March 15,
1996, as follows:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF VOTES
---------------------------
FOR WITHHELD
------------ ---------
<S> <C> <C>
Sandra H. Austin............. 119,806,859 908,606
Charles H. Bowman............ 119,766,120 949,344
Edward B. Brandon............ 119,716,176 999,288
John G. Breen................ 120,004,297 711,168
Duane Collins................ 119,980,067 735,397
David A. Daberko............. 119,738,082 977,382
Daniel E. Evans.............. 119,925,007 790,457
Otto N. Frenzel III.......... 119,679,871 1,035,594
Bernadine P. Healy, M.D...... 119,900,020 815,444
Joseph H. Lemieux............ 114,763,680 5,951,785
W. Bruce Lunsford............ 120,014,656 700,809
A. Stevens Miles............. 119,701,814 1,013,650
William R. Robertson......... 119,769,105 946,359
Stephen A. Stitle............ 119,980,210 735,255
Morry Weiss.................. 114,849,465 5,865,999
3. Approved an amendment of the National City Corporation 1993 Stock Option Plan:
98,862,330 votes cast for, 19,674,788 votes cast against, 2,178,346 votes withheld;
4. Approved the selection of independent auditors for 1996: 119,452,607 votes cast for,
458,135 votes cast against, 804,721 votes withheld;
5. On April 24, 1996, at the Special Meeting of Shareholders of Integra Financial
Corporation, shareholders approved the Agreement and Plan of Merger dated August 27,
1995, by and between National City Corporation and Integra Financial Corporation:
24,291,488 votes cast for, 145,875 votes cast against, 75,961 votes withheld.
Exhibits and Reports on Form 8-K (Item 6)
Exhibit 27:
Financial Data Schedule
Reports on Form 8-K.................................................................... 19
Signature.................................................................................. 19
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
- ------------------------------------------------------------------------------------------------------------
Percent Percent
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
- ------------------------
Net interest income -- fully
taxable equivalent.......... $494,684 $462,673 7% $975,501 $916,102 6%
Provision for loan losses..... 37,353 27,577 35 69,392 54,167 28
Fees and other income......... 282,083 251,428 12 550,830 496,745 11
Security gains................ 68,617 4,724 -- 81,352 9,781 --
Noninterest expense*.......... 468,836 469,857 -- 930,926 924,859 1
Net income.................... 182,832 152,522 20 359,696 303,447 19
Net income applicable to
common stock................ 182,293 148,800 23 355,668 296,005 20
PERFORMANCE RATIOS:
- -------------------
Net interest margin........... 4.45% 4.28% 4.41% 4.33%
Return on average assets...... 1.51 1.28 1.48 1.30
Return on average common
equity...................... 18.12 17.23 17.97 17.61
Return on average total
equity...................... 17.94 16.76 17.66 17.11
PER SHARE MEASURES:
- -------------------
Fully diluted net income per
common share................ .81 .69 17 1.60 1.36 18
Dividends paid per common
share....................... .36 .32 13 .72 .64 13
Book value per common share... 18.60 17.07 9
Market value per share (close):
Common.................... 35.13 29.38 20
Preferred................. -- 70.50 --
Average shares -- fully
diluted..................... 225,104,350 222,520,661 1 224,628,843 223,138,965 1
AVERAGE BALANCES
- ----------------
(IN MILLIONS):
--------------
Assets........................ $48,777 $47,756 2% $48,852 $46,845 4%
Loans......................... 34,871 32,346 8 34,592 31,807 9
Securities.................... 8,795 10,481 (16) 9,029 10,094 (11)
Earning assets................ 44,273 43,644 1 44,242 42,722 4
Deposits...................... 34,793 34,762 -- 34,724 34,655 --
Common stockholders' equity... 4,047 3,464 17 3,980 3,390 17
Total stockholders' equity.... 4,098 3,650 12 4,095 3,576 15
AT PERIOD END:
- --------------
Total equity to assets
ratio....................... 8.44% 7.65%
Tier 1 capital ratio.......... 10.13 9.40
Total risk-based capital
ratio....................... 15.00 12.87
Leverage ratio................ 7.85 7.21
Common shares outstanding..... 221,533,760 210,540,756 5%
Full-time equivalent
employees................... 26,312 25,758 2
ASSET QUALITY:
- --------------
Net charge-offs to loans
(annualized)................ .40% .34% .38% .35%
Loan loss reserve to loans.... 2.02 2.15
Nonperforming assets to loans
& OREO...................... .54 .67
</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 $71.3 million in the second quarter of 1996
and $74.7 million for the first half of 1996.
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In Thousands Except Per Share Amounts) June 30 June 30
- ------------------------------------------------------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans:
Taxable...................................... $761,028 $716,037 $1,510,077 $1,390,782
Exempt from Federal income taxes............. 4,127 6,750 7,877 13,378
Securities:
Taxable...................................... 129,443 147,924 263,190 281,466
Exempt from Federal income taxes............. 17,152 18,874 34,680 37,274
Federal funds sold and security resale
agreements................................... 6,521 7,829 13,182 16,290
Eurodollar time deposits in banks............... 836 -- 953 --
Other short-term investments.................... 314 4,386 1,435 7,871
-------- -------- ---------- ----------
Total interest income...................... 919,421 901,800 1,831,394 1,747,061
INTEREST EXPENSE
Deposits........................................ 297,596 318,028 602,094 614,363
Federal funds borrowed and security repurchase
agreements................................... 43,789 43,126 86,096 75,017
Borrowed funds.................................. 63,482 64,906 128,119 117,522
Corporate long-term debt........................ 24,696 18,856 50,005 35,999
-------- -------- ---------- ----------
Total interest expense..................... 429,563 444,916 866,314 842,901
-------- -------- ---------- ----------
NET INTEREST INCOME............................... 489,858 456,884 965,080 904,160
PROVISION FOR LOAN LOSSES......................... 37,353 27,577 69,392 54,167
-------- -------- ---------- ----------
Net interest income after provision
for loan losses......................... 452,505 429,307 895,688 849,993
NONINTEREST INCOME
Item processing revenue......................... 88,719 82,074 169,025 157,800
Service charges on deposit accounts............. 52,677 47,910 104,035 94,293
Trust fees...................................... 44,157 40,871 87,558 82,244
Credit card fees................................ 32,011 20,881 60,692 40,026
Mortgage banking revenue........................ 26,951 21,059 54,152 49,829
Brokerage revenue............................... 11,190 5,592 23,783 10,229
Other........................................... 26,378 33,041 51,585 62,324
-------- -------- ---------- ----------
Total fees and other income................ 282,083 251,428 550,830 496,745
Security gains.................................. 68,617 4,724 81,352 9,781
-------- -------- ---------- ----------
Total noninterest income................... 350,700 256,152 632,182 506,526
NONINTEREST EXPENSE
Salaries and employee benefits.................. 229,535 215,259 451,968 430,591
Equipment....................................... 33,067 31,957 65,747 63,280
Net occupancy................................... 30,073 30,666 63,391 61,464
Assessments and taxes........................... 11,443 28,609 23,422 56,374
Merger-related charges.......................... 71,339 -- 74,745 --
Other........................................... 164,718 163,366 326,398 313,150
-------- -------- ---------- ----------
Total noninterest expense.................. 540,175 469,857 1,005,671 924,859
-------- -------- ---------- ----------
Income before income taxes........................ 263,030 215,602 522,199 431,660
Income tax expense................................ 80,198 63,080 162,503 128,213
-------- -------- ---------- ----------
NET INCOME........................................ $182,832 $152,522 $ 359,696 $ 303,447
======== ======== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK............. $182,293 $148,800 $ 355,668 $ 296,005
======== ======== ========== ==========
NET INCOME PER COMMON SHARE
Primary......................................... $.82 $.70 $1.62 $1.38
Fully Diluted................................... .81 .69 1.60 1.36
AVERAGE COMMON SHARES OUTSTANDING
Primary......................................... 222,734 213,574 219,140 214,193
Fully Diluted................................... 225,104 222,521 224,629 223,139
</TABLE>
See notes to financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Loans:
Commercial.................................... $11,145,676 $11,271,410 $10,919,468
International................................. 65,624 58,285 47,453
Real estate construction...................... 657,475 712,524 622,957
Lease financing............................... 384,726 357,883 291,180
Real estate mortgage -- nonresidential........ 3,483,329 3,332,164 3,332,595
Real estate mortgage -- residential........... 7,237,002 7,187,070 6,688,257
Mortgage loans held for sale.................. 259,444 314,350 339,018
Home equity................................... 1,624,924 1,558,070 1,478,253
Consumer...................................... 8,758,564 8,148,886 7,559,377
Credit card................................... 1,506,123 1,525,184 1,735,025
----------- ----------- -----------
Total loans.............................. 35,122,887 34,465,826 33,013,583
Allowance for loan losses................ 709,055 705,846 710,428
----------- ----------- -----------
Net loans................................ 34,413,832 33,759,980 32,303,155
Securities held to maturity (market value
$3,427,411)................................... -- -- 3,400,921
Securities available for sale, at market......... 8,561,475 10,344,988 7,620,545
Federal funds sold and security resale
agreements.................................... 473,426 734,564 591,505
Trading account assets........................... 21,641 23,715 52,010
Other short-term money market investments........ 22,276 105,993 202,348
Cash and demand balances due from banks.......... 2,612,981 2,995,905 2,645,681
Properties and equipment......................... 587,905 593,506 570,667
Customers' acceptance liability.................. 73,537 66,169 100,181
Accrued income and other assets.................. 2,038,696 1,917,025 1,885,126
----------- ----------- -----------
TOTAL ASSETS............................. $48,805,769 $50,541,845 $49,372,139
============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing)............ $ 6,332,820 $6,993,221 $ 6,302,602
NOW and money market accounts.................... 9,054,050 9,035,259 8,425,506
Savings accounts................................. 4,239,508 4,198,518 4,414,771
Time deposits of individuals..................... 13,718,731 14,147,551 13,840,893
Other time deposits.............................. 598,810 488,595 493,592
Deposits in overseas offices..................... 752,369 717,823 1,237,965
----------- ----------- -----------
Total deposits........................... 34,696,288 35,580,967 34,715,329
Federal funds borrowed and security repurchase
agreements.................................... 3,450,698 4,263,873 3,033,024
Borrowed funds................................... 4,025,287 4,208,205 5,630,506
Acceptances outstanding.......................... 73,537 66,169 100,181
Accrued expenses and other liabilities........... 923,569 943,803 921,736
Corporate long-term debt......................... 1,515,093 1,414,982 1,192,774
----------- ----------- -----------
TOTAL LIABILITIES........................ 44,684,472 46,477,999 45,593,550
Stockholders' Equity:
Preferred stock.................................. -- 185,400 186,040
Common stock..................................... 4,121,297 3,878,446 3,592,549
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY............... 4,121,297 4,063,846 3,778,589
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $48,805,769 $50,541,845 $49,372,139
============ ============= ============
</TABLE>
See notes to financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands) Six Months Ended June 30
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1996 1995
OPERATING ACTIVITIES
Net income..................................................... $ 359,696 $ 303,447
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 69,392 54,167
Depreciation and amortization of goodwill and
intangibles............................................ 79,312 74,428
Security gains............................................ (81,352) (9,781)
Net (increase) decrease in trading account assets......... 2,074 (44,070)
Other gains, net.......................................... (6,164) (1,648)
Originations and purchases of mortgage loans held for
sale................................................... (1,192,277) (572,960)
Proceeds from the sale of mortgage loans held for sale.... 1,251,363 347,205
(Increase) in interest receivable......................... (63,555) (51,862)
Increase in interest payable.............................. 37,655 115,812
Decrease in other assets.................................. 13,689 5,433
Increase (decrease) in other liabilities.................. (57,942) 10,561
----------- -----------
Net Cash Provided by Operating Activities.............. 411,891 230,732
LENDING AND INVESTING ACTIVITIES
Net decrease in short-term investments......................... 344,855 21,121
Purchases of securities........................................ (1,405,546) (4,234,546)
Proceeds from sales of securities.............................. 2,357,181 3,050,435
Proceeds from maturities and prepayments of securities......... 633,528 488,985
Net (increase) in loans........................................ (782,330) (1,855,515)
Net (increase) in properties and equipment..................... (41,458) (51,872)
Acquisitions................................................... -- (38,115)
----------- -----------
Net Cash Provided (Used) by Lending and Investing
Activities........................................... 1,106,230 (2,619,507)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in Federal funds borrowed and security
repurchase agreements....................................... (813,175) 171,238
Net increase (decrease) in borrowed funds...................... (182,918) 2,246,045
Net (decrease) in demand, savings, NOW, money market accounts,
and deposits in overseas offices............................ (566,074) (1,566,460)
Net increase (decrease) in time deposits....................... (318,605) 1,366,353
Proceeds from issuance of long-term debt, net.................. 199,144 248,085
Repayment of long-term debt.................................... (100,184) (366)
Dividends paid, net of tax benefit of ESOP shares.............. (148,142) (132,842)
Issuances of common stock...................................... 26,687 20,022
Repurchase of common and preferred stock....................... -- (152,190)
ESOP trust repayment........................................... 2,222 4,072
----------- -----------
Net Cash Provided (Used) by Deposit and Financing
Activities........................................... (1,901,045) 2,203,957
----------- -----------
Net (Decrease) in Cash and Cash Equivalents.................... (382,924) (184,818)
Cash and Cash Equivalents, January 1........................... 2,995,905 2,830,499
----------- -----------
Cash and Cash Equivalents, June 30............................. $ 2,612,981 $ 2,645,681
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid.................................................. $ 911,951 $ 727,688
Income taxes paid.............................................. 162,994 76,082
Shares issued in purchase acquisitions......................... -- 46,206
</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............................... 303,447 303,447
Common dividends of National City, $.64
per share.............................. (94,619) (94,619)
Common dividends of Integra, prior to
merger, $.95 per Integra share......... (31,101) (31,101)
Preferred dividends paid, $2.00 per
depositary share....................... (7,472) (7,472)
Issuance of 1,110,081 common shares under
corporate stock and dividend
reinvestment plans..................... 4,446 15,576 20,022
Issuance of 1,785,726 common shares
pursuant to acquisition................ 7,143 39,063 46,206
Purchase of 5,563,822 common shares and
30,000 depositary shares of preferred
stock.................................. (1,500) (22,261) (13,546) (114,883) (152,190)
Shares distributed by ESOP trust and tax
benefit on dividends................... 350 4,072 4,422
Change in unrealized market value
adjustment on securities available for
sale, net of tax....................... 230,224 230,224
---------- ---------- ---------- ------------ ----------- ------------
Balance June 30, 1995...................... $186,040 $842,163 $332,184 $2,423,148 $ (4,946) $3,778,589
========== ========== ========== ============ =========== ============
Balance January 1, 1996, as restated....... $185,400 $846,284 $399,813 $2,635,090 $ (2,741) $4,063,846
Net income............................... 359,696 359,696
Common dividends of National City, $.72
per share.............................. (105,780) (105,780)
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 1,123,023 common shares under
corporate stock and dividend
reinvestment plans..................... 4,493 22,194 26,687
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................... 105 2,222 2,327
Change in unrealized market value
adjustment on securities available for
sale, net of tax....................... (183,012) (183,012)
---------- ---------- ---------- ------------ ----------- ------------
Balance June 30, 1996...................... $ 0 $886,136 $572,048 $2,663,632 $ (519) $4,121,297
========== ========== ========== ============ =========== ============
</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.
7
<PAGE> 9
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 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.
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.
Net income and net income per common share (primary) for National City and
Integra prior to restatement are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Net income
National City............ $ 112,530 $ 223,561
Integra.................. 39,992 80,146
Conforming accounting
adjustment............. -- (260)
------------- -------------
Combined............. $ 152,522 $ 303,447
=========== ===========
Net income per common share
National City............ $ .74 $1.46
Integra.................. 1.21 2.43
Combined............. .70 1.38
</TABLE>
The 1995 net income for Integra has been adjusted by $.26 million from
amounts originally reported in order to conform the timing of Integra's adoption
of SFAS No. 122, Accounting for Mortgage Servicing Rights, to that of National
City's.
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>
Six Months Ended
June 30
-------------------
(In Thousands) 1996 1995
<S> <C> <C>
- -------------------------------------------------------------
Balance at beginning of year............. $705,846 $706,452
Provision................................ 69,392 54,167
Reserves acquired (sold)................. (546) 4,466
Charge-offs:
Commercial............................. 32,107 20,879
Real estate -- construction............ 56 3,295
Real estate -- commercial.............. 696 18,164
Real estate -- residential............. 2,006 1,207
Home equity............................ 1,350 1,868
Consumer............................... 38,253 23,256
Credit card............................ 32,023 31,797
-------- --------
Total charge-offs...................... 106,491 100,466
Recoveries:
Commercial............................. 13,781 15,558
Real estate -- construction............ 852 1,660
Real estate -- commercial.............. 1,828 6,603
Real estate -- residential............. 210 339
Home equity............................ 486 887
Consumer............................... 17,195 14,221
Credit card............................ 6,502 6,541
-------- --------
Total recoveries....................... 40,854 45,809
-------- --------
Net charge-offs.......................... 65,637 54,657
-------- --------
Balance at end of period................. $709,055 $710,428
========= =========
</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 it 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 June
30, 1996, and December 31, 1995, loans that were considered to be impaired under
SFAS No. 114 totalled $37.4 million, and $42.8 million, respectively. All
impaired loans are included in nonperforming assets. The related allowance
allocated to these loans was $21.6 million and $20.0 million, respec-
8
<PAGE> 10
tively. The contractual interest due and actual interest recorded on
nonperforming assets, for the six months ended June 30, 1996 was $10.2 million
and $3.7 million, respectively.
6. SECURITIES
The following is a summary of securities held to maturity and available for
sale:
<TABLE>
<CAPTION>
JUNE 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.... $2,106,271 $ 4,788 $ (48,627 ) $2,062,432
Mortgage-backed
securities.... 4,437,928 13,578 (88,164 ) 4,363,342
States and
political
subdivisions... 355,861 15,370 (3,537 ) 367,694
Other........... 1,640,475 144,963 (17,431 ) 1,768,007
---------- ---------- ---------- ----------
Total
securities... $8,540,535 $178,699 $(157,759 ) $8,561,475
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 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... $ 1,108,753 $ 7,495 $ (1,715) $ 1,114,533
Mortgage-backed
securities... 1,266,552 8,012 (12,047) 1,262,517
States and
political
subdivisions... 499,608 22,264 (4,257) 517,615
Other.......... 526,008 7,362 (624) 532,746
----------- -------- --------- -----------
Total held to
maturity... 3,400,921 45,133 (18,643) 3,427,411
Available for
Sale:
U.S. Treasury
and Federal
agency
debentures... 2,023,618 13,632 (20,428) 2,016,822
Mortgage-backed
securities... 4,418,705 23,030 (54,458) 4,387,277
States and
political
subdivisions. 33,678 496 (26) 34,148
Other.......... 1,039,562 167,624 (24,888) 1,182,298
----------- -------- --------- -----------
Total
available
for sale... 7,515,563 204,782 (99,800) 7,620,545
----------- -------- --------- -----------
Total
securities... $10,916,484 $249,915 $(118,443) $11,047,956
=========== ======== ========= ===========
</TABLE>
For the six months ended June 30, 1996 and 1995, gross gains of $88.7
million and $31.5 million, and gross losses of $7.3 million and $21.7 million
were realized, respectively.
At June 30, 1996, the unrealized appreciation in securities available for
sale included in retained earnings totalled $13.6 million, net of tax, compared
to unrealized appreciation of $68.2 million, net of tax, at June 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 six months ended June 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............. $1,405,546 $ -- $1,405,546
Proceeds from sale of
securities............. 2,357,181 -- 2,357,181
Proceeds from maturities
of securities.......... 633,528 -- 633,528
1995:
Purchases of
securities............. $3,389,879 $844,667 $4,234,546
Proceeds from sale of
securities............. 3,050,435 -- 3,050,435
Proceeds from maturities
of securities.......... 236,022 252,963 488,985
</TABLE>
As of June 30, 1996, there were no securities of a single issuer, other than
U.S. Treasury securities and other U.S. government agencies, which exceeded 10%
of stockholders' equity.
7. BORROWED FUNDS
<TABLE>
<CAPTION>
JUNE 30 Dec. 31 June 30
(In Thousands) 1996 1995 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
U.S. Treasury demand notes
and Federal funds
borrowed-term........... $1,149,683 $ 391,765 $1,474,458
Federal Home Loan Bank
Advances................ 931,700 955,461 987,634
Notes payable to Student
Loan Marketing
Association............. 300,000 600,000 510,000
Bank notes................ 729,595 654,547 374,599
Security repurchase
agreements.............. 397,608 1,035,693 1,282,480
Military banking
liabilities............. -- 109,401 228,136
Other..................... 62,930 77,515 161,688
---------- ---------- ----------
Bank subsidiaries....... 3,571,516 3,824,382 5,018,995
Commercial paper.......... 453,728 374,017 536,691
Other..................... 43 9,806 74,820
---------- ---------- ----------
Other subsidiaries...... 453,771 383,823 611,511
---------- ---------- ----------
Total............. $4,025,287 $4,208,205 $5,630,506
========== ========== ==========
</TABLE>
9
<PAGE> 11
8. CORPORATE LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30 Dec. 31 June 30
(In Thousands) 1996 1995 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
8 3/8% Notes due 1996....... $ -- $ 99,987 $ 99,946
Floating Rate Sub. Notes due
1997....................... 74,989 74,980 74,970
Floating Rate Notes due
1997....................... 49,972 49,962 49,951
9 7/8% Sub. Notes due
1999....................... 64,848 64,825 64,802
6.50% Sub. Notes due 2000... 99,798 99,777 99,753
8.50% Sub. Notes due 2002... 99,865 99,849 99,835
6 5/8% Sub. Notes due
2004....................... 249,007 248,942 248,878
7.20% Sub. Notes due 2005... 249,744 249,727 249,734
Other....................... 2,563 2,561 3,232
---------- ---------- ----------
Total parent company...... 890,786 990,610 991,101
6.50% Sub. Notes due 2003... 199,488 199,451 199,413
7.25% Sub. Notes due 2010... 222,696 222,612 --
6.30% Sub. Notes due 2011... 200,000 -- --
Other....................... 2,123 2,309 2,260
---------- ---------- ----------
Total subsidiaries........ 624,307 424,372 201,673
---------- ---------- ----------
Total............... $1,515,093 $1,414,982 $1,192,774
========== ========== ==========
</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 June 30, 1996.
9. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30 Dec. 31 June 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.... 221,533,760 211,571,079 210,540,756
</TABLE>
On March 5, 1996, the Corporation called for redemption its outstanding
depositary shares of the 8% Cumulative Convertible Preferred Stock, effective
May 1, 1996. During the quarter, the outstanding depositary shares of the 8%
Cumulative Convertible Preferred Stock converted into common stock.
10. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------
(In Thousands) 1996 1995
<S> <C> <C>
- ------------------------------------------------------------
Applicable to income exclusive
of security transactions..... $ 134,030 $ 127,893
Applicable to security
transactions................. 28,473 320
--------- ---------
Total.................. $ 162,503 $ 128,213
========= =========
</TABLE>
The effective tax rate was approximately 31.1% and 29.7% for the six months
ended June 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 June 30, 1996, bank subsidiaries may pay
the Parent company, without prior regulatory approval, approximately $776
million of dividends. During the first six months of 1996, dividends totalling
$57 million were declared and $155 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 Six Months
Ended Ended
June 30 June 30
(In Thousands ------------------ ------------------
Except Per Share Amounts) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
PRIMARY:
Net income.................. $182,832 $152,522 $359,696 $303,447
Less preferred dividend
requirements.............. 539 3,722 4,028 7,442
-------- -------- -------- --------
Net income applicable to
common stock.............. $182,293 $148,800 $355,668 $296,005
======== ======== ======== ========
Average common shares
outstanding............... 222,734 213,574 219,140 214,193
======== ======== ======== ========
Primary net income per
common share.............. $.82 $.70 $1.62 $1.38
======== ======== ======== ========
ASSUMING FULL DILUTION:
Net income.................. $182,832 $152,522 $359,696 $303,447
======== ======== ======== ========
Average common shares
outstanding............... 222,734 213,574 219,140 214,193
Stock option adjustment..... 77 77 131 76
Preferred stock
adjustment................ 2,293 8,870 5,358 8,870
-------- -------- -------- --------
Average common shares
outstanding, as
adjusted.................. 225,104 222,521 224,629 223,139
======== ======== ======== ========
Fully diluted net income per
common share.............. $.81 $.69 $1.60 $1.36
======== ======== ======== ========
</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 assumed conversion of 8% Cumulative Convertible
Preferred Stock.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY
Fully diluted net income per common share was $.81 for the quarter ended
June 30, 1996, an increase of 17% over the $.69 for the corresponding quarter
last year. Net income for the quarter ended June 30, 1996 was $182.8 million
versus $152.5 million earned in the quarter ended June 30, 1995.
Fully diluted net income per common share was $1.60 for the first six
months, up 18% over the $1.36 earned in 1995. Net income for the first six
months was $359.7 million, compared with $303.4 million in the prior year.
All prior period data have been restated as required to reflect the
pooling-of-interests acquisition of Integra Financial Corporation, completed on
May 3, 1996.
Returns on average common equity for the second quarter and first half of
1996 were 18.12% and 17.97%, respectively, compared with 17.23% and 17.61% for
the same periods in 1995. Returns on average assets for the second quarter and
first half of 1996 were 1.51% and 1.48%, respectively, compared with 1.28% and
1.30% for the same periods in 1995.
Net income for the quarter and first half 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. Fee income was higher due to increased item
processing revenue, service charges on deposits and credit card fees.
Noninterest expenses for the first six months of 1996 included one-time merger
charges of $74.7 million. In addition, the first half of 1996 included expenses
from purchase acquisitions made during the second half of 1995. Excluding these
one-time charges and expenses, noninterest expenses decreased by 2% from the
same period a year ago. Largely offsetting the merger charges were security
gains of $68.6 million in the second quarter of 1996 and $81.4 million for the
first half of 1996 primarily from the sale of equity securities. Security
gains for the first six months of 1995 were $9.8 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 businesses 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
management's decision to increase the loan loss provision in excess of losses
during the first half of 1996.
The increase of retail banking was due to strong loan growth and continued
favorible spreads on core deposit accounts.
The increased net income in the fee-based businesses reflects
TABLE 1: UNIT PROFITABILITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED Six months ended
JUNE 30, 1996 June 30, 1995
-------------------- --------------------
NET RETURN ON Net Return on
(Dollars in Millions) INCOME EQUITY Income Equity
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Corporate banking.................. $88.0 20.99% $94.3 22.78%
Retail banking..................... 230.7 26.56 172.7 22.41
Fee-based businesses............... 47.8 22.52 43.2 20.59
Parent and other................... (6.8) -- (6.7) --
------ ------
Total.......................... $359.7 17.97% $303.5 17.61%
====== ======
</TABLE>
11
<PAGE> 13
sold revenue growth in item processing, trust, and mortgage banking. First half
1995 results included gains on the sale of mortgage servicing rights, further
affecting comparisons.
EARNING ASSETS AND
INTEREST-BEARING LIABILITIES
Average earning assets totalled $44,273 million for the second quarter of
1996 compared with $44,203 million for the first quarter and $43,644 million for
the second quarter of 1995. The increase over the second quarter of last year
was due to commercial and consumer loan growth as well as the acquisition of
United Bancorp of Kentucky in the second half of 1995.
Earning assets were stable compared with the first quarter due to growth in
loans offset by a decline in securities.
Average core deposits increased $849 million in the second quarter from the
second quarter 1995 due to growth in insured money market accounts, demand
deposits, and the aforementioned acquisition.
NET INTEREST INCOME
On a fully taxable equivalent basis, net interest income increased to
$494.7 million in the second quarter 1996 versus $462.7 million for the
corresponding quarter in 1995. For the first half of 1996, fully taxable
equivalent net interest income increased 6.5% to $975.5 million from $916.1
million in 1995.
The tax equivalent net interest margin was 4.45% in the quarter ended June
30, 1996 compared with 4.28% a year ago and 4.35% for the quarter ended March
31, 1996. The wider net interest margin relative to previous quarters was due
primarily to a higher-yielding asset mix and a lower cost of funds.
Management attempts to prevent adverse swings in net interest income
resulting from interest rate movements by placing conservative limits on
interest rate risk. Interest rate risk is monitored through static gap,
simulation and duration analyses.
At June 30, 1996, the Corporation's interest rate risk position
remained modestly liability sensitive, virtually unchanged from March 31, 1996
in rising rate scenarios but slightly more sensitive in falling rate
environments. The earnings simulation model projects that net income would
decrease by 2.3% if market rates rise gradually by 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 estimates an increase in net income of 1.1%, relative to a stable rate
scenario. At the end of the first quarter, the corresponding changes were a
decrease in net income of 2.4% in the rising rate environment and a decrease of
0.1% in the falling rate environment. The cumulative one-year gap was (11.7)%
of adjusted earning assets at June 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.
During the second quarter of 1996, the notional outstandings of
interest rate swap agreements decreased by $337 million. During the quarter,
$425 million swaps were added to manage the Corporation's interest rate risk
position by synthetically converting variable rate loans to fixed rate; $155
million swaps were added to convert fixed rate debt to variable rate; $65
million swaps were added to reduce the risk of mortgage servicing rights; and
$150 million of swap agreements were entered into to facilitate interest rate
risk management at third parties. A total of $1,132 million interest rate swaps
matured or were terminated during the
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<CAPTION>
Six months ended
June 30
-----------------------------
(In Millions) 1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------
Interest adjustment to loans......................... $12.0 $ (8.1)
Interest adjustment to securities.................... (.1) (2.9)
----- -------
Interest adjustment to earning assets.............. 11.9 (11.0)
Interest adjustment to deposits...................... (9.0) (7.5)
----- -------
Effect on net interest income...................... $20.9 $ (3.5)
===== =======
</TABLE>
NOTE: Amounts in brackets represent reductions of the related interest income
or expense line, as applicable.
TABLE 3: FULL-TIME EQUIVALENT STAFFING AND
OVERHEAD PERFORMANCE MEASURES
<TABLE>
<CAPTION>
JUNE 30, 1996 June 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..................... 15,943 41.30% 51.39% 16,509 48.51% 57.38%
Fee-based businesses......... 9,181 -- 74.92 8,057 -- 75.56
Corporate staff.............. 1,188 -- -- 1,192 -- --
-------- ----------
Total..................... 26,312 46.63% 65.89% 25,758 46.69% 65.44%
======== ==========
</TABLE>
12
<PAGE> 14
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<CAPTION>
Second Quarter First Six Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------
Commercial........................ .44% (.02)% .31% .10%
Real estate -- construction....... (.35) 1.09 (.25) .57
Real estate -- commercial......... (.17) .97 (.07) .69
Real estate -- residential........ .08 .03 .05 .02
Home equity....................... .08 -- .10 .17
Consumer.......................... .40 .17 .50 .23
Credit card....................... 3.57 3.46 3.44 3.75
Total net charge-offs to average
loans........................... .40% .34% .38% .35%
</TABLE>
TABLE 5: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
(In Millions) 1996 1995 1995
<S> <C> <C> <C>
------------------------------------------------------------------------------
Commercial:
Nonaccrual............................. $ 90.0 $103.0 $ 86.7
Restructured........................... -- .1 --
------ ------ ------
Total commercial..................... 90.0 103.1 86.7
Real estate related:
Nonaccrual............................. 77.4 80.2 101.6
Restructured........................... 2.9 4.1 5.2
------ ------ ------
Total real estate related............ 80.3 84.3 106.8
------ ------ ------
Total nonperforming loans............ 170.3 187.4 193.5
Other real estate owned (OREO)........... 19.4 21.4 28.4
------ ------ ------
Nonperforming assets..................... $189.7 $208.8 $221.9
====== ====== ======
Loans 90 days past-due accruing
interest............................... $ 88.0 $ 49.0 $ 54.6
====== ====== ======
</TABLE>
TABLE 6: CAPITAL AND CAPITAL/ASSET RATIOS
<TABLE>
<CAPTION>
JUNE 30, 1996 Dec 31, 1995 June 30, 1995
(In Millions) AMOUNT RATIO Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
Total equity1.............. $4,121.3 8.44% $4,063.8 8.04% $3,778.6 7.65%
Common equity1............. 4,121.3 8.44 3,878.4 7.67 3,592.8 7.28
Tangible common equity2.... 3,611.6 7.48 3,360.6 6.72 3,122.3 6.38
Tier 1 capital3............ 3,797.5 10.13 3,546.4 9.14 3,421.1 9.40
Total risk-based
capital4................. 5,621.8 15.00 5,228.4 13.47 4,868.1 12.87
Leverage ratio5............ 3,797.5 7.85 3,546.4 7.26 3,421.1 7.21
</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.
quarter. The notional amount of interest rate caps, floors and corridors
decreased by $990 million due to maturities of existing contracts. The net
unrealized losses in the derivative portfolio were $95 million at June 30, 1996,
compared to unrealized losses of $3 million at March 31, 1996.
FEES AND OTHER INCOME
Fee income was $282.1 million for the quarter ended June 30, 1996 versus
$251.4 million for the second quarter of 1995. The increase in fee income was
due primarily to increased brokerage revenue, credit card fees, service charges
on deposits and item processing volume.
Effective January 1, 1996, the Corporation adopted SFAS 122, "Accounting
for Mortgage Servicing Rights." The adoption of this statement has a positive
effect on mortgage banking revenue and net income due to the deferral and
amortization of costs associated with originated mortgage servicing rights.
There was no significant nonrecurring income in the second quarter or first
half of 1996. The first half of 1995 included $10.6 million gains on the sale of
mortgage servicing, of which $3.5 million was recorded in the second quarter.
NONINTEREST EXPENSE
Noninterest expense was $540.2 million for the quarter ended June 30, 1996
and $1,005.7 million for the first six months. Excluding one-time merger charges
of $71.3 million, second quarter expenses were $468.9 million compared with
$469.9 million for the second quarter of 1995. For the six months ended June 30,
1996, expenses excluding $74.7 million of one-time merger charges, were $930.9
million compared with $924.9 million for the first half of 1995.
13
<PAGE> 15
The efficiency ratio, defined as noninterest expense as a percentage of
fee income plus fully-taxable net interest income, was 60.99%, excluding merger
charges, for the first half of 1996 compared with 65.44% a year ago.
The overhead ratio, defined as noninterest expenses less fee income as a
percentage of fully-taxable net interest income, was 38.97%, excluding merger
charges, for the first half of 1996 compared with 46.69% a year ago.
Table 3 shows full-time equivalent staff and the efficiency and overhead
ratios within the Corporation's major units.
Total staff at June 30, 1996 increased from a year ago due mainly to growth
in the item processing business offset by a decline in the banking business due
to staff reductions from the merger of Integra.
ASSET QUALITY
The allowance for loan losses was $709.1 million at June 30, 1996
representing 2.02% of loans outstanding at quarter-end. This loan loss reserve
ratio compared with 2.03% at year-end 1995 and 2.15% at June 30, 1995.
The provision for loan losses increased to $37.4 million for the second
quarter of 1996 and $69.4 million year to date from $27.6 million and $54.2
million for the same periods in 1995, respectively.
Net charge-offs were $34.6 million and $27.5 million for the quarters ended
June 30, 1996 and 1995, respectively, and $65.6 million and $54.7 million,
respectively, for the first six 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 of $189.7 million at June 30, 1996 declined from the
first quarter of 1996.
Nonperforming assets as a percentage of loans and OREO were .54% at June
30, 1996 compared with .67% 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 at June 30, 1996 was $18.60 compared with originally reported book
value per share of $17.54 at June 30, 1995 and $18.80 at December 31, 1995. The
book value per common share at June 30, 1996, June 30, 1995, and December 31,
1995, included $.06, $(.23), and $.63, respectively, related to the market value
appreciation/(depreciation) of securities available for sale.
14
<PAGE> 16
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
Three Months Six Months
(Dollars In Millions) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial................................................ $ 12,476 $ 11,536 $ 12,343 $ 11,362
Real estate mortgage--nonresidential...................... 3,247 3,578 3,259 3,445
Real estate mortgage--residential......................... 7,184 6,587 7,254 6,490
Mortgage loans held for sale.............................. 293 190 230 174
Consumer.................................................. 8,590 8,001 8,439 7,919
Revolving credit.......................................... 3,081 2,454 3,067 2,417
-------- -------- -------- --------
Total loans............................................. 34,871 32,346 34,592 31,807
Securities.................................................. 8,795 10,481 9,029 10,094
Federal funds sold and security resale agreements........... 493 501 489 532
Trading account assets...................................... 11 54 26 57
Eurodollar time deposits in banks........................... 60 -- 34 --
Other short-term money market investments................... 43 262 72 232
-------- -------- -------- --------
Total earning assets.................................... 44,273 43,644 44,242 42,722
Allowance for loan losses..................................... (705) (719) (705) (718)
Market value appreciation (depreciation) of securities
available for sale.......................................... 114 10 206 (22)
Cash and demand balances due from banks....................... 2,447 2,379 2,464 2,365
Properties and equipment...................................... 589 568 588 567
Customers' acceptance liability............................... 59 106 62 106
Accrued income and other assets............................... 2,000 1,768 1,995 1,825
-------- -------- -------- --------
Total assets............................................ $ 48,777 $ 47,756 $ 48,852 $ 46,845
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits............................................. $ 6,373 $ 5,945 $ 6,306 $ 5,976
NOW and money market accounts............................... 9,171 8,306 9,073 8,317
Savings accounts............................................ 4,180 4,493 4,177 4,577
Time deposits of individuals................................ 13,725 13,856 13,753 13,499
Other time deposits......................................... 624 517 663 499
Deposits in overseas office................................. 720 1,645 752 1,787
-------- -------- -------- --------
Total deposits.......................................... 34,793 34,762 34,724 34,655
Federal funds borrowed and security repurchase agreements... 3,484 3,160 3,600 2,884
Borrowed funds.............................................. 3,944 4,335 3,929 3,945
Acceptances outstanding..................................... 59 106 62 106
Accrued expenses and other liabilities...................... 884 695 936 683
Corporate long-term debt.................................... 1,515 1,048 1,506 996
-------- -------- -------- --------
Total liabilities....................................... 44,679 44,106 44,757 43,269
Stockholders' Equity:
Preferred stock............................................. 51 186 115 186
Common stock................................................ 4,047 3,464 3,980 3,390
-------- -------- -------- --------
Total stockholders' equity.............................. 4,098 3,650 4,095 3,576
-------- -------- -------- --------
Total liabilities and stockholders' equity.............. $ 48,777 $ 47,756 $ 48,852 $ 48,845
======= ======= ======= =======
</TABLE>
15
<PAGE> 17
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
- ---------------------------------------------------------------------------------------------------------
1996 1995
------------------ -----------------------------
SECOND First Fourth Third Second
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $12,476 $12,209 $11,926 $11,746 $11,536
Real estate mortgage............................ 10,724 10,762 10,930 10,892 10,355
Consumer........................................ 11,671 11,341 11,033 10,926 10,455
------- ------- ------- ------- -------
Total loans................................... 34,871 34,312 33,889 33,564 32,346
Securities:
Taxable......................................... 7,698 8,154 8,829 9,682 9,199
Tax-exempt...................................... 1,097 1,109 1,158 1,207 1,282
------- ------- ------- ------- -------
Total securities.............................. 8,795 9,263 9,987 10,889 10,481
Federal funds sold................................ 184 165 89 85 99
Security resale agreements........................ 309 315 458 271 402
Eurodollar time deposits in banks................. 60 9 -- 7 --
Short-term money market investments............... 54 139 223 309 316
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 44,273 44,203 44,646 45,125 43,644
Market value appreciation (depreciation) of
securities available for sale..................... 114 298 201 112 10
Allowance for loan losses........................... (705) (706) (723) (721) (719)
Cash and demand balances due from banks............. 2,447 2,482 2,451 2,358 2,379
Properties and equipment............................ 589 588 600 596 568
Customers' acceptance liability..................... 59 66 65 86 106
Accrued income and other assets..................... 2,000 1,899 1,977 1,870 1,768
------- ------- ------- ------- -------
Total assets.................................. $48,777 $48,830 $49,217 $49,426 $47,756
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $ 9,171 $ 8,976 $ 8,826 $ 8,561 $ 8,306
Savings accounts.................................. 4,180 4,174 4,247 4,384 4,493
Time deposits of individuals...................... 13,725 13,780 14,131 14,062 13,856
Other time deposits............................... 624 701 523 514 517
Deposits in overseas offices...................... 720 792 707 1,191 1,645
Federal funds borrowed............................ 959 1,016 1,491 1,425 1,483
Security repurchase agreements.................... 2,525 2,697 1,915 1,889 1,677
Borrowed funds.................................... 3,944 3,913 4,623 5,192 4,335
Corporate long-term debt.......................... 1,515 1,497 1,415 1,354 1,048
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 37,363 37,546 37,878 38,572 37,360
Non-interest bearing deposits..................... 6,373 6,238 6,313 6,092 5,945
Acceptances outstanding........................... 59 66 65 86 106
Accrued expenses and other liabilities............ 884 889 980 814 695
------- ------- ------- ------- -------
Total liabilities............................. 44,679 44,739 45,236 45,564 44,106
Stockholders' equity.......................... 4,098 4,091 3,981 3,862 3,650
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $48,777 $48,830 $49,217 $49,426 $47,756
======= ======= ======= ======= =======
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
------------------- ------------------------------- ------------------- -------------------------------
SECOND First Fourth Third Second SECOND First Fourth Third Second
QUARTER Quarter Quarter Quarter Quarter QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$263.7 $254.3 $258.7 $256.4 $247.1 8.50% 8.37% 8.68% 8.73% 8.57%
223.6 224.5 226.3 226.2 216.2 8.34 8.34 8.28 8.31 8.35
279.7 277.1 268.2 276.6 263.3 9.63 9.82 9.72 10.13 10.07
------ ------ ------ ------ ------
767.0 755.9 753.2 759.2 726.6 8.83 8.84 8.89 9.05 8.99
129.4 133.7 143.0 157.3 150.1 6.60 6.57 6.48 6.50 6.53
19.7 20.5 19.5 21.5 23.4 7.17 7.39 6.74 7.13 7.30
------ ------ ------ ------ ------
149.1 154.2 162.5 178.8 173.5 6.67 6.67 6.51 6.57 6.62
2.4 2.3 1.3 1.2 1.5 5.37 5.49 5.87 5.65 6.06
4.1 4.4 6.7 4.0 6.3 5.31 5.63 5.82 5.89 6.29
.8 .1 -- .1 -- 5.61 5.18 -- 5.89 --
.9 .7 3.2 4.9 4.4 5.60 4.98 5.74 6.34 5.57
------ ------- ------- ------- -------
$924.3 $917.6 $926.9 $948.2 $912.3 8.35% 8.33% 8.30% 8.41% 8.36%
$ 62.7 $ 62.1 $ 60.8 $ 59.1 $ 54.9 2.75% 2.78% 2.76% 2.76% 2.64%
27.2 27.7 29.0 30.3 30.6 2.62 2.67 2.73 2.76 2.72
190.7 195.8 208.7 206.2 200.9 5.59 5.72 5.91 5.87 5.80
7.7 9.0 7.1 7.1 7.1 4.95 5.14 5.47 5.50 5.50
8.9 10.3 9.8 17.1 24.6 4.98 5.21 5.51 5.71 5.99
15.6 17.4 26.5 24.6 21.4 6.54 6.88 7.11 6.91 5.77
28.1 24.8 24.8 24.0 21.7 4.49 3.72 5.18 5.08 5.18
65.6 62.8 69.5 79.3 64.8 6.67 6.44 6.01 6.11 5.98
23.1 26.9 24.8 24.0 18.9 6.12 7.24 7.01 7.09 7.21
------ ------ ------ ------ ------
$429.6 $436.8 $461.0 $471.7 $444.9 4.62% 4.68% 4.87% 4.89% 4.76%
------ ------ ------ ------ ------
$494.7 $480.8 $465.9 $476.5 $467.4
====== ====== ====== ====== ======
........................................................... 3.73% 3.65% 3.43% 3.52% 3.60%
........................................................... .72 .70 .74 .70 .68
------ ------ ------ ------ ------
........................................................... 4.45% 4.35% 4.17% 4.22% 4.28%
====== ====== ====== ====== ======
</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
Janis E. Lyons, Vice President
Corporate 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+
* 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)
</TABLE>
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
Reports on Form 8-K:
April 25, 1996: On April 22, 1996 National City announced the actions
that took place at the Registrant's Annual Meeting of Stockholders on April
22, 1996.
On April 24, 1996, Integra Financial Corporation announced that, at a
special meeting held on April 24, 1996, Integra Financial Corporation
shareholders approved the Agreement and Plan of Merger dated August 27,
1995, by and between National City Corporation and Integra Financial
Corporation.
National City announced that at the April 22, 1996 Board of Directors
meeting, the Board rescinded all remaining unutilized authority to
purchase shares of National City Corporation's common stock.
May 3, 1996: On May 3, 1996, National City announced that National City
Processing Company, a wholly-owned subsidiary, intended to file a
registration statement with the Securities and Exchange Commission for an
initial public offering of its common stock in an underwritten public
offering.
May 14, 1996: On May 3, 1996, National City announced the completion of
its pooling-of-interests acquisition of Integra Financial Corporation and
the addition of four members of Integra Financial Corporation's board of
directors to National City's board. Both actions were effective May
3, 1996.
Under Item 7(a), the historical consolidated financial statements of
Integra Financial Corporation as of December 31, 1995 and 1994 and for
each of the three yearsin the period ended December 31, 1995 were
incorporated by reference.
Under Item 7(b), the unaudited pro forma combined consolidated
financial information of National City and Integra was incorporated by
reference.
June 28, 1996: National City filed supplemental consolidated financial
statements as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995 that give effect to the merger
of National City Corporation and Integra Financial Corporation as if the
entities had always been combined. Said statements became the historical
financial statements of National City.
National City announced that National Processing, Inc., a wholly-owned
subsidiary, filed a preliminary registration statement with the Securities
and Exchange Commission on June 7, 1996 in anticipation of its planned
initial public offering of common stock in an underwritten public
offering.
FORM 10-Q -- JUNE 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: July 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 LOGO]
Bulk Rate
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation
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<ARTICLE> 9
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
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<CASH> 2,645,681
<INT-BEARING-DEPOSITS> 202,348
<FED-FUNDS-SOLD> 591,505
<TRADING-ASSETS> 52,010
<INVESTMENTS-HELD-FOR-SALE> 7,620,545
<INVESTMENTS-CARRYING> 3,400,921
<INVESTMENTS-MARKET> 3,427,411
<LOANS> 33,013,583
<ALLOWANCE> 710,428
<TOTAL-ASSETS> 49,372,139
<DEPOSITS> 34,715,329
<SHORT-TERM> 8,663,530
<LIABILITIES-OTHER> 1,021,917
<LONG-TERM> 1,192,774
<COMMON> 842,163
0
186,040
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<INTEREST-TOTAL> 1,747,061
<INTEREST-DEPOSIT> 614,363
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<INTEREST-INCOME-NET> 904,160
<LOAN-LOSSES> 54,167
<SECURITIES-GAINS> 9,781
<EXPENSE-OTHER> 924,859
<INCOME-PRETAX> 431,660
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<NET-INCOME> 303,447
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 4.33
<LOANS-NON> 221,900
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0
0
<COMMON> 886,136
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<INTEREST-TOTAL> 1,831,394
<INTEREST-DEPOSIT> 602,094
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</TABLE>
