<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.D. 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, 1997
Commission file number 1-10074
NATIONAL CITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
34-1111088
(I.R.S. Employer
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 of shares outstanding of each of the issuer's classes
of Common Stock as of July 25, 1997.
Common stock, $4.00 Par Value -- 215,199,332
<PAGE> 2
[NATIONAL CITY LOGO]
QUARTER ENDED JUNE 30, 1997
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED JUNE 30, 1997
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 Consolidated 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 14, 1997, at the Annual Meeting of Stockholders of the Registrant, stockholders took
the following actions:
1. Elected as directors all nominees designated in the proxy statement of March 3, 1997, as
follows:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF VOTES
----------------------------
FOR WITHHELD
------------ -----------
<S> <C> <C>
Sandra H. Austin.................................... 194,649,087 1,635,020
Charles H. Bowman................................... 194,760,760 1,523,347
Edward B. Brandon................................... 194,910,098 1,374,009
John G. Breen....................................... 195,025,717 1,258,390
James S. Broadhurst................................. 194,980,938 1,303,169
Duane E. Collins.................................... 194,849,465 1,434,642
David A. Daberko.................................... 195,021,701 1,262,406
Daniel E. Evans..................................... 194,898,792 1,385,314
Otto N. Frenzell III................................ 194,890,728 1,393,379
Bernadine P. Healy.................................. 194,772,214 1,511,892
Joseph H. Lemieux................................... 194,826,476 1,457,631
W. Bruce Lunsford................................... 195,068,890 1,215,217
Robert A. Paul...................................... 195,075,777 1,208,330
William R. Robertson................................ 194,940,010 1,344,097
W. F. Roemer........................................ 194,840,572 1,443,535
Michael A. Schuler.................................. 194,868,423 1,415,684
Stephen A. Stitle................................... 195,014,865 1,269,242
Morry Weiss......................................... 185,775,211 10,508,896
2. Approved the adoption of the National City Corporation 1997 Stock Option Plan: 157,167,527
votes cast for, 18,974,771 votes cast against, 2,178,231 votes withheld;
3. Approved the adoption of the 1997 Restricted Stock Plan: 153,574,661 votes cast for,
21,802,226 votes cast against, 3,483,642 votes withheld;
4. Approved the proposal to increase the total number of shares of National City Corporation's
authorized capital stock from 355,000,000 to 705,000,000: 176,974,655 votes cast for,
17,420,374 votes cast against, 1,889,078 votes withheld;
5. Approved the selection of Ernst & Young LLP, independent accountants, as auditors for the
year 1997: 194,546,636 votes cast for, 540,294 votes cast against, 1,197,177 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
1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
- -----------------------------
Net interest income -- fully
taxable equivalent......... $494,402 $494,684 --% $971,781 $975,501 --%
Provision for loan losses.... 36,164 37,353 (3) 72,045 69,392 4
Fees and other income........ 309,398 273,235 13 598,408 534,267 12
Securities gains............. 31,189 68,617 (55) 47,153 81,352 (42)
Noninterest expense.......... 506,408 531,327 (5) 957,746 989,108 (3)
Net income................... 198,276 182,832 9 394,418 359,696 10
Net income applicable to
common stock............... 198,276 182,293 9 394,418 355,668 11
PERFORMANCE RATIOS:
- ---------------------------
Net interest margin.......... 4.31% 4.45% 4.28% 4.41%
Return on average assets..... 1.58 1.51 1.59 1.48
Return on average common
equity..................... 18.80 18.12 18.25 17.97
Return on average total
equity..................... 18.80 17.94 18.25 17.66
PER SHARE MEASURES:
- ---------------------------
Fully diluted net income per
common share............... $.90 $.81 11% $ 1.77 $ 1.60 11%
Dividends paid per common
share...................... .41 .36 14 .82 .72 14
Book value per common share.. 19.79 18.60 6
Market value per common share
(close).................... 52.50 35.13 49
Average shares -- fully
diluted.................... 220,033,779 225,104,350 (2) 223,294,675 224,628,843 (1)
AVERAGE BALANCES
- -----------------------
(IN MILLIONS):
---------------
Assets....................... $50,352 $48,777 3% $49,942 $48,801 2%
Loans........................ 36,723 34,871 5 36,277 34,592 5
Securities................... 8,614 8,795 (2) 8,574 9,029 (5)
Earning assets............... 45,890 44,273 4 45,409 44,242 3
Deposits..................... 35,229 34,793 1 35,006 34,724 1
Common stockholders' equity.. 4,228 4,047 4 4,359 3,980 10
Stockholders' equity......... 4,228 4,098 3 4,359 4,095 6
AT PERIOD END:
- ------------------
Equity to assets ratio....... 8.17% 8.44%
Tier 1 capital ratio......... 9.01 10.13
Total risk-based capital
ratio...................... 13.85 15.00
Leverage ratio............... 7.56 7.85
Common shares outstanding.... 214,859,868 221,533,760 (3)
Full-time equivalent
employees.................. 26,383 26,312 --
ASSET QUALITY:
- ------------------
Net charge-offs to loans
(annualized)............... .36% .40% .36% .38%
Loan loss reserve to loans... 1.90 2.02
Nonperforming assets to loans
& OREO..................... .42 .54
</TABLE>
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars In Thousands Except Per Share Amounts) June 30 June 30
- ------------------------------------------------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................ $793,437 $765,155 $1,549,223 $1,517,954
Securities:
Taxable....................................... 126,193 129,443 249,931 263,190
Exempt from Federal income taxes.............. 15,229 17,152 28,150 34,680
Federal funds sold and security resale
agreements.................................... 4,839 6,521 9,763 13,182
Other short-term investments..................... 3,204 1,150 6,125 2,388
-------- -------- ---------- ----------
Total interest income....................... 942,902 919,421 1,843,192 1,831,394
INTEREST EXPENSE
Deposits......................................... 310,823 297,596 610,475 602,094
Federal funds borrowed and security repurchase
agreements.................................... 48,284 52,683 106,427 110,093
Borrowed funds................................... 34,398 28,447 56,021 51,787
Long-term debt................................... 59,474 50,837 107,300 102,340
-------- -------- ---------- ----------
Total interest expense...................... 452,979 429,563 880,223 866,314
-------- -------- ---------- ----------
NET INTEREST INCOME................................ 489,923 489,858 962,969 965,080
PROVISION FOR LOAN LOSSES.......................... 36,164 37,353 72,045 69,392
-------- -------- ---------- ----------
Net interest income after provision
for loan losses.......................... 453,759 452,505 890,924 895,688
NONINTEREST INCOME
Item processing revenue.......................... 91,402 88,719 176,893 169,025
Service charges on deposit accounts.............. 54,848 52,677 108,173 104,035
Trust fees....................................... 48,844 44,157 95,662 87,558
Card-related fees................................ 33,084 32,011 65,205 60,692
Mortgage banking revenue......................... 29,756 18,103 50,274 37,589
Other............................................ 51,464 37,568 102,201 75,368
-------- -------- ---------- ----------
Total fees and other income................. 309,398 273,235 598,408 534,267
Securities gains................................. 31,189 68,617 47,153 81,352
-------- -------- ---------- ----------
Total noninterest income.................... 340,587 341,852 645,561 615,619
NONINTEREST EXPENSE
Salaries and employee benefits................... 242,333 229,535 473,446 451,968
Equipment........................................ 35,437 33,067 70,417 65,747
Net occupancy.................................... 33,591 30,073 66,419 63,391
Assessments and taxes............................ 12,305 11,443 24,425 23,422
Merger and restructuring......................... 33,300 71,339 39,640 74,745
Other............................................ 149,442 155,870 283,399 309,835
-------- -------- ---------- ----------
Total noninterest expense................... 506,408 531,327 957,746 989,108
-------- -------- ---------- ----------
Income before income taxes......................... 287,938 263,030 578,739 522,199
Income tax expense................................. 89,662 80,198 184,321 162,503
-------- -------- ---------- ----------
NET INCOME......................................... $198,276 $182,832 $ 394,418 $ 359,696
=======- ======== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK.............. $198,276 $182,293 $ 394,418 $ 355,668
=======- ======== ========== ==========
NET INCOME PER COMMON SHARE
Primary.......................................... $.90 $.82 $1.77 $1.62
Fully Diluted.................................... .90 .81 1.77 1.60
AVERAGE COMMON SHARES OUTSTANDING
Primary.......................................... 219,947 222,734 223,217 219,140
Fully Diluted.................................... 220,034 225,104 223,295 224,629
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Loans:
Commercial.................................... $12,534,787 $11,217,815 $11,211,300
Real estate construction...................... 747,673 774,991 657,475
Lease financing............................... 517,918 515,576 384,726
Commercial real estate........................ 3,054,018 3,440,696 3,483,329
Residential real estate....................... 7,248,212 7,288,677 7,237,002
Mortgage loans held for sale.................. 653,566 334,742 259,444
Consumer...................................... 9,487,659 9,251,982 8,758,564
Credit card................................... 1,134,172 1,222,129 1,506,123
Home equity................................... 1,912,239 1,783,460 1,624,924
----------- ------------ -----------
Total loans.............................. 37,290,244 35,830,068 35,122,887
Allowance for loan losses................ 707,476 705,893 709,055
----------- ------------ -----------
Net loans................................ 36,582,768 35,124,175 34,413,832
Securities available for sale, at market......... 8,864,910 8,997,322 8,561,475
Federal funds sold and security resale
agreements.................................... 964,419 493,733 473,426
Trading account assets........................... 27,916 102,493 21,641
Other short-term money market investments........ 159,633 281,563 22,276
Cash and demand balances due from banks.......... 2,681,590 2,935,282 2,612,981
Properties and equipment......................... 624,616 616,426 587,905
Customers' acceptance liability.................. 60,713 66,767 73,537
Accrued income and other assets.................. 2,060,544 2,238,074 2,038,696
----------- ------------ -----------
TOTAL ASSETS............................. $52,027,109 $50,855,835 $48,805,769
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing)............ $ 7,316,562 $7,436,403 $ 6,332,820
NOW and money market accounts.................... 8,978,986 9,162,353 9,054,050
Savings accounts................................. 3,794,072 3,896,234 4,239,508
Time deposits of individuals..................... 13,971,437 13,896,667 13,718,731
Other time deposits.............................. 935,665 721,647 598,810
Deposits in overseas offices..................... 577,486 886,443 752,369
----------- ------------ -----------
Total deposits........................... 35,574,208 35,999,747 34,696,288
Federal funds borrowed and security repurchase
agreements.................................... 3,242,751 4,276,722 3,848,306
Borrowed funds................................... 3,417,083 1,994,009 1,966,384
Long-term debt................................... 4,447,637 2,994,418 3,176,388
Acceptances outstanding.......................... 60,713 66,767 73,537
Accrued expenses and other liabilities........... 1,033,470 1,092,109 923,569
----------- ------------ -----------
TOTAL LIABILITIES........................ 47,775,862 46,423,772 44,684,472
Stockholders' Equity:
Preferred stock.................................. -- -- --
Common stock..................................... 4,251,247 4,432,063 4,121,297
----------- ------------ -----------
TOTAL STOCKHOLDERS' EQUITY............... 4,251,247 4,432,063 4,121,297
----------- ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $52,027,109 $50,855,835 $48,805,769
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands) Six Months Ended June 30
- ------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................................... $ 394,418 $ 359,696
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 72,045 69,392
Depreciation and amortization............................. 47,555 46,246
Amortization of intangibles and servicing rights.......... 28,455 32,287
Amortization of securities discount and premium........... (183) 829
Securities gains.......................................... (47,153) (81,352)
Net decrease in trading account securities................ 74,577 2,074
Other gains, net.......................................... (5,539) (6,164)
Originations and purchases of mortgage loans held for
sale................................................... (1,162,470) (1,192,277)
Proceeds from sales of mortgage loans held for sale....... 1,026,543 1,251,363
(Increase) decrease in interest receivable................ 5,974 (63,555)
Increase (decrease)in interest payable.................... (33,467) 37,655
Net change in other assets/liabilities.................... 98,790 (44,253)
----------- -----------
Net Cash Provided by Operating Activities.............. 499,545 411,891
LENDING AND INVESTING ACTIVITIES
Net (increase) decrease in short-term investments.............. (348,756) 344,855
Purchases of securities........................................ (1,808,395) (1,405,546)
Proceeds from sales of securities.............................. 1,588,462 2,357,181
Proceeds from maturities and prepayments of securities......... 467,868 633,528
Net (increase) in loans........................................ (1,474,336) (782,330)
Net (increase) in properties and equipment..................... (55,744) (41,458)
Proceeds from sales of loans................................... 79,625 --
----------- -----------
Net Cash (Used) Provided by Lending and Investing
Activities........................................... (1,551,276) 1,106,230
DEPOSIT AND FINANCING ACTIVITIES
Net (decrease) in Federal funds borrowed and security
repurchase agreements....................................... (1,033,971) (1,451,260)
Net increase in borrowed funds................................. 1,423,074 403,880
Net (decrease) in demand, savings, NOW, money market accounts,
and deposits in overseas offices............................ (714,327) (566,074)
Net increase (decrease) in time deposits....................... 288,788 (318,605)
Proceeds from issuance of long-term debt, net.................. 1,531,629 250,247
Repayment of long-term debt.................................... (78,184) (100,000)
Dividends paid, net of tax benefit of ESOP shares.............. (181,588) (148,142)
Issuances of common stock...................................... 39,840 26,687
Repurchase of common stock..................................... (477,222) --
ESOP trust repayment........................................... -- 2,222
----------- -----------
Net Cash Provided (Used) by Deposit and Financing
Activities........................................... 798,039 (1,901,045)
----------- -----------
Net (Decrease) in Cash and Demand Balances Due From Banks...... (253,692) (382,924)
Cash and Demand Balances Due From Banks, January 1............. 2,935,282 2,995,905
----------- -----------
Cash and Demand Balances Due From Banks, June 30............... $ 2,681,590 $ 2,612,981
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid.................................................. $ 913,690 $ 911,951
Income taxes paid.............................................. 86,050 162,994
</TABLE>
See notes to consolidated 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
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1996.................... $185,400 $846,284 $399,813 $2,635,090 $ (2,741)
Net income............................... 359,696
Common dividends declared of National
City, $.72 per share................... (105,780)
Common dividends of Integra prior to
merger................................. (36,009)
Preferred dividends paid, $2.00 per
depositary share....................... (6,458)
Issuance of 1,123,023 common shares under
corporate stock and dividend
reinvestment plans..................... 4,493 22,194
Conversion of 3,708,000 depositary shares
of preferred stock to 8,839,650 common
shares................................. (185,400) 35,359 150,041
Shares distributed by ESOP trust and tax
benefit on dividends................... 105 2,222
Change in unrealized market value
adjustment on securities available for
sale, net of tax....................... (183,012)
-------- -------- -------- ---------- -------
Balance June 30, 1996...................... $ -- $886,136 $572,048 $2,663,632 $ (519)
======== ======== ======== ========== =======
Balance January 1, 1997.................... $ -- $892,794 $622,543 $2,916,726 $ --
Net income............................... 394,418
Common dividends declared, $.835 per
share.................................. (181,448)
Issuance of 1,661,374 common shares under
corporate stock and dividend
reinvestment plans..................... 6,647 33,193
Purchase of 10,000,000 common shares..... (40,000) (22,736) (414,486)
Change in unrealized market value
adjustment on securities available for
sale, net of tax....................... 43,596
-------- -------- -------- ---------- -------
Balance June 30, 1997...................... $ -- $859,441 $633,000 $2,758,806 $ --
======== ======== ======== ========== =======
<CAPTION>
(Dollars in Thousands Except Per
Share Amounts) Total
<S> <C>
- --------------------------------------------------------
Balance January 1, 1996.................... $4,063,846
Net income............................... 359,696
Common dividends declared of National
City, $.72 per share................... (105,780)
Common dividends of Integra prior to
merger................................. (36,009)
Preferred dividends paid, $2.00 per
depositary share....................... (6,458)
Issuance of 1,123,023 common shares under
corporate stock and dividend
reinvestment plans..................... 26,687
Conversion of 3,708,000 depositary shares
of preferred stock to 8,839,650 common
shares................................. 0
Shares distributed by ESOP trust and tax
benefit on dividends................... 2,327
Change in unrealized market value
adjustment on securities available for
sale, net of tax....................... (183,012)
----------
Balance June 30, 1996...................... $4,121,297
==========
Balance January 1, 1997.................... $4,432,063
Net income............................... 394,418
Common dividends declared, $.835 per
share.................................. (181,448)
Issuance of 1,661,374 common shares under
corporate stock and dividend
reinvestment plans..................... 39,840
Purchase of 10,000,000 common shares..... (477,222)
Change in unrealized market value
adjustment on securities available for
sale, net of tax....................... 43,596
----------
Balance June 30, 1997...................... $4,251,247
==========
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED 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. RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting the components of comprehensive income and requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be included in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income includes
net income as well as certain items that are reported directly within a separate
component of stockholders' equity and bypass net income. The provisions of this
statement are effective beginning with 1998 interim reporting. These disclosure
requirements will have no impact on financial position or results of operations.
7
<PAGE> 9
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION: In
June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
provisions of this statement require disclosure of financial and descriptive
information about an enterprise's operating segments in annual and interim
financial reports issued to shareholders. The statement defines an operating
segment as a component of an enterprise that engages in business activities that
generate revenue and incur expense, whose operating results are reviewed by the
chief operating decision maker in the determination of resource allocation and
performance, and for which discrete financial information is available. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement is effective for fiscal
years beginning after December 15, 1997, however, it is not required to be
applied for interim reporting in the initial year of application. The
Corporation is currently evaluating the impact of this statement on the
disclosures included in its annual and interim period financial statements.
3. 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.
4. 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) 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year............. $705,893 $705,846
Provision................................ 72,045 69,392
Reserves acquired (sold)................. (4,906) (546)
Charge-offs:
Commercial............................. 23,470 32,107
Real estate -- construction............ 211 56
Real estate -- commercial.............. 2,001 696
Real estate -- residential............. 2,958 2,006
Consumer............................... 54,953 38,253
Credit card............................ 29,299 32,023
Home equity............................ 1,265 1,350
-------- --------
Total charge-offs...................... 114,157 106,491
Recoveries:
Commercial............................. 11,272 13,781
Real estate -- construction............ 1,301 852
Real estate -- commercial.............. 2,544 1,828
Real estate -- residential............. 721 210
Consumer............................... 25,464 17,195
Credit card............................ 6,744 6,502
Home equity............................ 555 486
-------- --------
Total recoveries....................... 48,601 40,854
-------- --------
Net charge-offs.......................... 65,556 65,637
-------- --------
Balance at end of period................. $707,476 $709,055
======== ========
</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, 1997 and December 31, 1996, loans that were considered to be impaired under
SFAS No. 114 totaled $8.0 million and $13.9 million, respectively. All impaired
loans are included in nonperforming assets. The related allowance allocated to
these loans was $4.8 million and $9.6 million, respectively. The contractual
interest due and actual interest recorded on nonperforming assets, for the six
months ended June 30, 1997, was $10.0 million and $3.0 million, respectively.
5. SECURITIES
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
and Federal
agency
debentures.... $1,692,516 $ 1,777 $(26,848) $1,667,445
Mortgage-backed
securities.... 4,675,740 39,223 (29,308) 4,685,655
Asset-backed and
corporate debt
securities.... 1,298,558 5,738 (2,213) 1,302,083
States and
political
subdivisions... 288,849 12,135 (624) 300,360
Other........... 613,448 299,071 (3,152) 909,367
---------- -------- -------- ----------
Total
securities... $8,569,111 $357,944 $(62,145) $8,864,910
========== ======== ======== ==========
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Asset-backed and
corporate debt
securities.... 831,035 3,070 (12,725) 821,380
States and
political
subdivisions... 355,861 15,370 (3,537) 367,694
Other........... 809,440 141,893 (4,706) 946,627
---------- -------- --------- ----------
Total
securities... $8,540,535 $178,699 $(157,759) $8,561,475
========== ======== ========= ==========
</TABLE>
For the six months ended June 30, 1997 and 1996, gross gains of $51.6
million and $88.7 million, and gross losses of $4.4 million and $7.3 million
were realized, respectively.
At June 30, 1997, the unrealized appreciation in securities available for
sale included in retained earnings totaled $191.3 million, net of tax, compared
to unrealized appreciation of $13.6 million, net of tax, at June 30, 1996. 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.
As of June 30, 1997, 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.
6. BORROWED FUNDS
<TABLE>
<CAPTION>
JUNE 30 Dec. 31 June 30
(In Thousands) 1997 1996 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury demand notes
and Federal funds
borrowed-term........... $2,417,180 $1,056,499 $1,149,683
Notes payable to Student
Loan Marketing
Association............. 300,000 300,000 300,000
Other..................... 56,494 79,648 62,930
---------- ---------- ----------
Total bank
subsidiaries.......... 2,773,674 1,436,147 1,512,613
Commercial paper.......... 643,026 556,100 453,728
Other..................... 383 1,762 43
---------- ---------- ----------
Total parent company and
other subsidiaries.... 643,409 557,862 453,771
---------- ---------- ----------
Total............. $3,417,083 $1,994,009 $1,966,384
========== ========== ==========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30 Dec. 31 June 30
(In Thousands) 1997 1996 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Floating rate subordinated
notes due 1997............. $ -- $ 74,998 $ 74,989
Floating rate notes due
1997....................... 49,992 49,983 49,972
9 7/8% subordinated notes
due 1999................... 64,895 64,872 64,848
6.50% subordinated notes
due 2000................... 99,854 99,820 99,798
8.50% subordinated notes
due 2002................... 99,884 99,881 99,865
6 5/8% subordinated notes
due 2004................... 249,136 249,072 249,007
7.20% subordinated notes
due 2005 .... 249,770 249,756 249,744
Other....................... 1,680 1,794 2,563
---------- ---------- ----------
Total parent company...... 815,211 890,176 890,786
6.50% subordinated notes
due 2003................... 199,563 199,525 199,488
7.25% subordinated notes
due 2010................... 222,862 222,779 222,696
6.30% subordinated notes
due 2011................... 200,000 200,000 200,000
7.25% subordinated notes
due 2011................... 197,179 197,080 --
Other....................... 1,864 2,103 2,123
---------- ---------- ----------
Total subsidiary
subordinated notes...... 821,468 821,487 624,307
---------- ---------- ----------
Total long-term debt
qualifying for Tier II
Capital................. 1,636,679 1,711,663 1,515,093
Senior bank notes........... 1,733,077 754,582 729,595
Federal Home Loan Bank
advances................... 577,991 528,173 931,700
Reset Asset Capital
Securities of National
City Capital Trust I...... 499,890 -- --
---------- ---------- ----------
Total other long-term
debt.................... 2,810,958 1,282,755 1,661,295
---------- ---------- ----------
Total................... $4,447,637 $2,994,418 $3,176,388
========== ========== ==========
</TABLE>
In June 1997, National City Capital Trust I (the Trust), a Delaware
statutory business trust of which 100% of the common equity is owned by the
Corporation, issued $500 million of Reset Asset Capital Securities (Capital
Securities). In connection with this issuance, the Trust invested the proceeds
in 6.75% Junior Subordinated Debt Securities of the Corporation. The Junior
Subordinated Debt Securities are the sole assets of the Trust and have a stated
maturity of June 1, 2029. Distributions on the Capital Securities are payable
semiannually at a rate per annum equal to the interest rate being earned by the
Trust on the Junior Subordinated Debt Securities and are recorded as interest
expense by the Corporation. The Capital Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Junior Subordinated Debt
Securities. The Junior Subordinated Debt Securities are first redeemable on June
1, 1999. If the Junior Subordinated Debt Securities are not redeemed on June 1,
1999, the interest rate per annum will be reset based on current market rates at
that time. The Capital Securities currently do not qualify for Tier I Capital of
the Corporation.
A credit agreement dated March 14, 1997, with a group of unaffiliated banks,
allows the Corporation to borrow up to $350 million until February 2, 2001. The
Corporation pays an annual facility fee of 10 basis points
9
<PAGE> 11
on the amount of the line. There were no borrowings outstanding under this
agreement at June 30, 1997.
8. CAPITAL RATIOS
The following table reflects various measures of capital:
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
1997 1996 1996
(Dollars in --------------- --------------- ---------------
Millions) AMOUNT RATIO Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Total
equity(1)..... $4,251.2 8.17% $4,432.1 8.71% $4,121.3 8.44%
Tangible
equity(2)..... 3,732.6 7.25 3,932.7 7.81 3,611.6 7.48
Tier 1
capital(3).... 3,781.2 9.01 3,976.5 9.84 3,797.5 10.13
Total risk-based
capital(4).... 5,820.6 13.85 5,980.6 14.79 5,621.8 15.00
Leverage(5)..... 3,781.2 7.56 3,976.5 8.16 3,797.5 7.85
- -------------------------------------------------------------------------
</TABLE>
(1) Computed in accordance with generally accepted accounting principles,
including unrealized market value adjustment of securities available for
sale.
(2) Stockholders' equity less all intangible assets and servicing rights;
computed as a ratio to total assets less intangible assets and servicing
rights.
(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.
- -------------------------------------------------------------------------------
National City's Tier 1, total risk-based capital and leverage ratios are
well above the required minimum levels of 4.00%, 8.00%, and 3.00%, respectively.
The capital levels at all of National City's subsidiary banks are maintained
at or above the well-capitalized minimum of 6.00%, 10.00% and 5.00% for the Tier
1 capital, total risk-based capital and leverage ratios, respectively.
Intangible asset and mortgage servicing right totals used in the capital
ratio calculations are summarized below:
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
(Dollars in Millions) 1997 1996 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Goodwill....................... $322.4 $ 307.8 $310.4
Other intangibles.............. 25.6 50.4 68.7
------ ------- ------
Total intangibles.............. $348.0 $ 358.2 $379.1
Mortgage servicing rights...... $170.6 $ 141.2 $130.6
- ------------------------------------------------------------
</TABLE>
9. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
(Outstanding Shares) 1997 1996 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $4.00
par value,
authorized
700,000,000 shares.. 214,859,868 223,198,494 221,533,760
</TABLE>
10. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------
(In Thousands) 1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Applicable to income exclusive
of securities transactions... $ 167,857 $ 134,030
Applicable to securities
transactions................. 16,464 28,473
---------- ----------
Total.................. $ 184,321 $ 162,503
========== ==========
</TABLE>
The effective tax rate was approximately 31.8% and 31.1% for the six months
ended June 30, 1997 and 1996, 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, 1997, bank subsidiaries may pay
the Parent company, without prior regulatory approval, approximately $664.4
million of dividends. During the first six months of 1997, dividends totaling
$70.0 million were declared and $327.5 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) 1997 1996 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Net income.................. $198,276 $182,832 $394,418 $359,696
Less preferred dividend
requirements.............. -- 539 -- 4,028
-------- -------- -------- --------
Net income applicable to
common stock.............. $198,276 $182,293 $394,418 $355,668
======== ======= ======== ========
Average common shares
outstanding............... 219,947 222,734 223,217 219,140
======== ======= ======== ========
Primary net income per
common share.............. $.90 $.82 $1.77 $1.62
======== ======= ======== ========
ASSUMING FULL DILUTION:
Net income.................. $198,276 $182,832 $394,418 $359,696
======== ======= ======== ========
Average common shares
outstanding............... 219,947 222,734 223,217 219,140
Stock option adjustment..... 87 77 78 131
Preferred stock
adjustment................ -- 2,293 -- 5,358
-------- -------- -------- --------
Average common shares
outstanding, as
adjusted.................. 220,034 225,104 223,295 224,629
======== ======= ======== ========
Fully diluted net income per
common share.............. $.90 $.81 $1.77 $1.60
======== ======= ======== ========
</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 for 1996 represented the assumed conversion of National
City's 8% Cumulative Convertible Preferred Stock as of the beginning of the
period. During the second quarter of 1996, all of the outstanding shares of
preferred stock converted into common stock.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1997 was $198.3 million, an
increase of 8.5% over the $182.8 million earned in the second quarter of 1996.
Fully-diluted net income per common share was $.90 for the second quarter of
1997, an 11.1% increase over $.81 earned in 1996.
Net income for the first six months of 1997 increased 9.7% to $394.4
million from $359.7 million last year. Fully-diluted net income per common share
was $1.77 for the first six months, up 10.6% over $1.60 earned in 1996.
Returns on average common equity for the second quarter and first half of
1997 were 18.80% and 18.25%, respectively, compared to 18.12% and 17.97%, for
the same periods in 1996. Returns on average assets for the second quarter and
first half of 1997 were 1.58% and 1.59%, respectively, compared to 1.51% and
1.48% for the same periods in 1996.
Growth in net income for the second quarter and the first half was due to
loan growth, strong fee income and ongoing management of expenses. Excluding
securities gains, fee income benefited from increases in trust fees,
card-related fees, service charges on deposits and item processing revenue.
Excluding merger and restructuring expenses, operating expenses for the second
quarter of 1997 increased 2.9% from the same period last year. For the first six
months of 1997, operating expenses were flat relative to last year's comparable
period.
Second quarter 1997 securities gains of $31.2 million offset merger and
restructuring expenses of $33.3 million resulting from costs of reorganizing
National City's six Ohio banking subsidiaries under a single charter.
After-tax securities gains were $.09 per share in the second quarter of
1997, compared to $.20 per share for the same period last year. For the first
six months of 1997 and 1996, after-tax securities gains per share were $.14 and
$.24, respectively.
Results for the second quarter and first six months of 1997 reflect the
impact from the sale of the $400 million private label credit card portfolio
(Private Label) sold in November 1996. Although the portfolio was small relative
to National City's total loan portfolio, it did have an impact on net interest
income, the net interest margin and net loan charge-offs. On average, the
Private Label loan portfolio yielded over 20%, however, this was offset by a net
charge-off rate approaching 6% and a relatively costly infrastructure. The
tables below isolate the impact of the private label portfolio on the second
quarter and first six months of 1996 (assumes investment yield of 7% on
reinvested proceeds from the sale).
SECOND QUARTER OF 1996
<TABLE>
<CAPTION>
PRO-FORMA
EXCLUDING
REPORTED PRIVATE LABEL
-------- -------------
<S> <C> <C>
Net interest
income............. $489,858 $ 475,000
Net interest
margin............. 4.45% 4.34%
Loan yield.......... 8.78% 8.61%
Net charge-offs..... 34,607 29,440
Net charge-off
ratio.............. .40% .35%
</TABLE>
FIRST SIX MONTHS OF 1996
<TABLE>
<CAPTION>
PRO-FORMA
EXCLUDING
REPORTED PRIVATE LABEL
-------- -------------
<S> <C> <C>
Net interest
income............. $965,080 $ 935,000
Net interest
margin............. 4.41% 4.28%
Loan yield.......... 8.79% 8.62%
Net charge-offs..... 65,637 56,046
Net charge-off
ratio.............. .38% .32%
</TABLE>
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 corporate banking business
includes commercial and corporate lending, commercial real estate finance,
asset-based lending and leasing. The retail banking business includes the
deposit gathering branch franchise, small business lending, consumer lending,
and the Private Client Group. The fee-based businesses include institutional
trust, mortgage banking, item processing and brokerage.
Table 1 on page 12 reflects the results underlying the economics of each of
these businesses. Expenses for centrally provided services are allocated based
on estimated usage of those services. Capital has been allocated among the
businesses on a risk-adjusted basis. The businesses are match-funded and
interest rate risk is centrally managed by the investment/funding unit within
the "Parent and other" line item in Table 1. Methodologies may change from time
to time as accounting systems are enhanced or business products change.
The increase in corporate banking net income was primarily due to increased
loan volume, a decline in the provision for loan losses, an increase in fee
income and flat operating expenses.
Despite an increase in non-interest revenue, retail banking
11
<PAGE> 13
net income declined as a result of tighter spreads on deposit accounts and an
increase in the provision for loan losses.
The positive variance in the fee-based businesses was primarily due to an
increase in institutional trust and brokerage net income. Improved performance
in these business lines more than offset lower profitability in National City's
item processing subsidiary, National Processing, Inc.
NET INTEREST INCOME
On a tax-equivalent basis, net interest income was $494.4 million in the
second quarter of 1997, virtually flat compared to $494.7 million last year.
During these comparable periods, the net interest margin was 4.31% and 4.45%,
respectively. Although average total loans were up 5.3%, the contraction in the
margin was primarily due to the sale of the private label credit card portfolio,
overall tighter spreads on loans and deposits, and the use of higher cost
funding to support earning asset growth.
National City's net interest margin is affected by the use of off-balance
sheet derivative financial instruments. For the first six months of 1997, net
interest income included $21.8 million related to the use of derivative
instruments, compared to $20.9 million in 1996. For both the first half of 1997
and 1996, the derivatives portfolio contributed approximately 10 basis points to
the net interest margin.
During the second quarter of 1997, the notional outstandings of interest
rate swap agreements increased by $701 million to $10.6 billion. During the
quarter, $896 million in swaps were added to manage the Corporation's interest
rate risk position by synthetically converting fixed rate debt to variable
rate; $173 million swaps were added to hedge loans; $56 million swaps were
added to reduce the price risk of mortgage servicing rights; and $100 million
swap agreements were added to facilitate interest rate risk management at third
parties. A total of $524 million swaps matured or were terminated during the
quarter. The Corporation also purchased $563 million notional amount of
interest rate floors and $55 million of interest rate caps to hedge mortgage
servicing rights and investment securities during the quarter. The net
unrealized losses in the derivative portfolio were $35.4 million at June 30,
1997 compared to net unrealized losses of $95.4 million at March 31, 1997.
At June 30, 1997, the corporation's interest-rate risk position remained
modestly liability sensitive. The earnings simulation model projects that net
income will decrease by 1.2% 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 0.9%, relative to a
stable-rate scenario. As of March 31, 1997, the corresponding changes were
(1.1)% of net income in the rising-rate environment and 1.0% in the
falling-rate environment. The cumulative one-year gap was (11.9)% of adjusted
earning assets at June 30, 1997. 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 cashflows by an
amount equal to 1.7% of total assets at the end of the quarter.
NONINTEREST INCOME
Noninterest income totaled $309.4 million for the second quarter of 1997
and $598.4 million for the first half. This represented increases of 13.2% and
12.0%, respectively, over the same periods last year. The increases were driven
by gains in card-related
TABLE 1: UNIT PROFITABILITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED Six months ended
JUNE 30, 1997 June 30, 1996
-------------------- --------------------
NET RETURN ON Net Return on
(Dollars in Millions) INCOME EQUITY Income Equity
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Corporate banking.................. $ 96.9 22.96% $ 84.5 20.03%
Retail banking..................... 247.0 26.20 253.4 27.00
Fee-based businesses............... 28.1 11.85 26.2 17.11
Parent and other................... 22.4 -- (4.4) --
------ ------
Consolidated total............. $394.4 18.25% $359.7 17.97%
====== ======
</TABLE>
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<CAPTION>
Six months ended
June 30
-----------------------------
(In Millions) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------------
Interest adjustment to loans......................... 7.2 $12.0
Interest adjustment to securities.................... (1.3) (.1)
------ -----
Interest adjustment to earning assets.............. 5.9 11.9
Interest adjustment to interest bearing
liabilities........................................ (15.9) (9.0)
------- -----
Effect on net interest income...................... $ 21.8 $20.9
======= =====
</TABLE>
NOTE: Amounts in brackets represent reductions of the related interest
income or expense line, as applicable.
12
<PAGE> 14
fees, trust fees, item processing fees, bank office fees and service charges.
Mortgage banking revenue reflected the full quarter revenue contribution gained
from the acquisition of Bank United's mortgage origination business which
conducted business under the name, Commonwealth United Mortgage.
The second quarter and first six months of 1997 included $9.5 million of
gains on sales of branches and other assets. The first half of 1996 included
$2.3 million in branch sale gains.
NONINTEREST EXPENSE
For the quarter ended June 30, 1997 and first six months, noninterest
expense totaled $506.4 million and $957.7 million, respectively. This is
compared to $531.3 million and $989.1 million, respectively, for the same
periods last year. Excluding merger and restructuring expenses, noninterest
expense for the second quarter and first half of 1997 totaled $473.1 million and
$918.1 million, respectively, compared to $460.0 million and $914.4 million,
respectively, last year. The increase in second quarter 1997 operating expenses
reflects business growth.
For the six months ended June 30, 1997, merger and restructuring expenses
included a one-time charge of $33.3 million to cover the costs of reorganizing
National City's six Ohio banking subsidiaries under a single state-wide charter,
and a one-time charge of $6.3 million relating to organizational restructuring
at National City's item processing subsidiary, National Processing, Inc. For the
same period last year, restructuring and merger-related charges of $74.7 million
were incurred in connection with the Integra Financial Corporation
TABLE 3: FULL-TIME EQUIVALENT STAFFING AND
OVERHEAD PERFORMANCE MEASURES
<TABLE>
<CAPTION>
JUNE 30, 1997 June 30, 1996
-------------------------------------- --------------------------------------
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..................... 16,051 36.52% 51.20% 16,635 41.30% 51.39%
Fee-based businesses......... 9,096 -- 70.87% 8,489 -- 74.92
Corporate.................... 1,236 -- -- 1,188 -- --
------ ------
Total..................... 26,383 36.98% 61.00% 26,312 46.63% 65.51%
====== ======
Excluding merger and
restructuring charges....... 32.90% 58.47% 38.96% 60.56%
</TABLE>
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<CAPTION>
Second Quarter First Six Months
1997 1996 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial....................... .35% .45% .20% .31%
Real estate -- construction...... -- (.32) (.29) (.25)
Real estate -- commercial........ (.15) (.10) (.03) (.07)
Real estate -- residential....... .03 .07 .06 .05
Consumer......................... .52 .43 .64 .50
Credit card...................... 3.50 3.20 3.91 3.44
Home equity...................... .05 .08 .08 .10
Total net charge-offs to average
loans.......................... .36% .40% .36% .38%
</TABLE>
TABLE 5: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
JUNE 30 December 31 June 30
(In Millions) 1997 1996 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial:
Nonaccrual............................. $ 72.2 $ 73.8 $ 83.9
Restructured........................... -- -- --
------ ------ ------
Total commercial..................... 72.2 73.8 83.9
Real estate related:
Nonaccrual............................. 64.2 66.1 83.5
Restructured........................... 2.7 3.2 2.9
------ ------ ------
Total real estate related............ 66.9 69.3 86.4
------ ------ ------
Total nonperforming loans............ 139.1 143.1 170.3
Other real estate owned (OREO)........... 18.3 24.5 19.4
------ ------ ------
Nonperforming assets..................... $157.4 $167.6 $189.7
====== ====== ======
Loans 90 days past-due accruing
interest............................... $ 92.0 $107.1 $ 88.0
====== ====== ======
</TABLE>
13
<PAGE> 15
merger which closed on May 3, 1996.
As Table 3 indicates, National City's staff level on a full-time equivalent
basis was 26,383 at June 30, 1997, up slightly from 26,312 at June 30,1996. The
decline in the corporate and retail banking staff level was primarily due to the
sale of the Private Label credit card portfolio, branch sales, and planned
attrition at National City Bank of Pennsylvania. The increase in the fee-based
businesses staff level reflected additional employees at National City Mortgage
Company as a result of the Commonwealth United Mortgage acquisition.
The efficiency ratio is defined as noninterest expense as a percentage of
fee income plus tax-equivalent net interest income. For the first half of 1997,
the efficiency ratio was 61.00%, compared to 65.51% a year ago. Excluding merger
and restructuring expenses, the efficiency ratio for the first six months of
1997 was 58.47% compared to 60.57% last year.
The overhead ratio is defined as noninterest expenses less fee income as a
percentage of tax-equivalent net interest income. For the first six months of
1997, the overhead ratio was 36.98% compared to 46.63% a year ago. Excluding
merger and restructuring charges, the overhead ratio for the first six months
was 32.90% compared to 38.97% last year.
EARNING ASSETS AND INTEREST BEARING LIABILITIES
Average earning assets totaled $45,890 million for the second quarter of
1997, compared to $44,944 million for the first quarter of 1997, and $44,273
million for the second quarter of 1996. The increase over the second quarter of
last year reflected total average loans increasing 5.3% from last year, offset
by a slight decrease in the securities portfolio. Compared to the first quarter
of 1997, earning assets showed a linked quarter improvement due to commercial
and consumer loan growth.
Average core deposits were relatively flat versus both the first quarter
and the second quarter of 1996. Although demand deposits and time deposits
increased over the prior year, these gains were offset by decreases in savings
and money market account balances. Purchased deposits increased from both
periods in an effort to obtain cost effective funding to support loan growth.
ASSET QUALITY
The allowance for loan losses was $707.5 million at June 30, 1997, or 1.90%
of loans outstanding. This is compared to $709.1 million or 2.02% at June 30,
1996. For the second quarter and first six months of 1997, the provision for
loan losses was $36.2 million and $72.0 million, respectively, compared to $37.4
million and $69.4 million, respectively, for the same periods a year ago. During
these periods, the provision for loan losses exceeded net charge-offs.
Table 4 indicates net charge-offs as a percentage of average loans by
portfolio type. For the second quarter and first six months of 1997, net
charge-offs totaled $33.0 million and $65.6 million, respectively. This is
compared to $34.6 million and $65.6 million, respectively, for the same periods
last year. Net charge-offs as a percentage of average loans were .36% for the
second quarter of 1997 and first six months, down from .40% and .38%,
respectively, for the same periods a year ago.
Table 5 indicates non-performing assets were $157.4 million at June 30,
1997, down $32.3 million from the same time last year. Nonperforming assets as a
percentage of loans and OREO were .42%, compared to .54% a year ago.
CAPITAL
At June 30, 1997, stockholders' equity totaled $4.3 billion, up from $4.1
billion at June 30, 1996.
During the second quarter, National City completed its previously announced
five million share purchase program by purchasing the remaining 1.4 million
shares of its common stock. On April 14, 1997, the board of directors authorized
the purchase of an additional 10 million shares of National City common stock in
the open market or through privately negotiated transactions. Of the ten million
share authorization, 5.0 million shares were purchased during the quarter.
Book value per common share at June 30, 1997 was $19.79 compared to $18.60
per share at June 30, 1996 and $19.96 at March 31, 1997. Book value per common
at June 30, 1997, March 31, 1997 and June 30, 1996 included $.89, $.50, and $.06
per share, respectively, related to market value appreciation 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
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial................................................ $ 16,654 $ 15,723 $ 16,353 $ 15,602
Residential real estate................................... 7,655 7,477 7,571 7,484
Consumer.................................................. 9,409 8,590 9,348 8,439
Credit card............................................... 1,133 1,487 1,164 1,490
Home equity............................................... 1,872 1,594 1,841 1,577
-------- -------- -------- --------
Total loans............................................. 36,723 34,871 36,277 34,592
Securities.................................................. 8,614 8,795 8,574 9,029
Federal funds sold and security resale agreements........... 357 493 364 489
Other short-term investments................................ 196 114 194 132
-------- -------- -------- --------
Total earning assets.................................... 45,890 44,273 45,409 44,242
Allowance for loan losses..................................... (712) (705) (712) (705)
Market value appreciation of securities available for sale.... 176 114 199 206
Cash and demand balances due from banks....................... 2,309 2,447 2,332 2,464
Properties and equipment...................................... 638 589 638 588
Customers' acceptance liability............................... 72 59 76 62
Accrued income and other assets............................... 1,979 2,000 2,000 1,944
-------- -------- -------- --------
Total assets............................................ $ 50,352 $ 48,777 $ 49,942 $ 48,801
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits............................................. $ 6,392 $ 6,373 $ 6,372 $ 6,306
NOW and money market accounts............................... 9,115 9,171 9,085 9,073
Savings accounts............................................ 3,843 4,180 3,868 4,177
Time deposits of individuals................................ 13,880 13,725 13,833 13,753
Other time deposits......................................... 931 624 851 663
Deposits in overseas office................................. 1,068 720 997 752
-------- -------- -------- --------
Total deposits.......................................... 35,229 34,793 35,006 34,724
Federal funds borrowed and security repurchase agreements... 3,816 3,885 4,226 4,003
Borrowed funds.............................................. 2,420 1,733 2,005 1,721
Long-term debt.............................................. 3,751 3,325 3,434 3,309
Acceptances outstanding..................................... 72 59 76 62
Accrued expenses and other liabilities...................... 836 884 836 887
-------- -------- -------- --------
Total liabilities....................................... 46,124 44,679 45,583 44,706
Stockholders' Equity:
Preferred stock............................................. -- 51 -- 115
Common stock................................................ 4,228 4,047 4,359 3,980
-------- -------- -------- --------
Total stockholders' equity.............................. 4,228 4,098 4,359 4,095
-------- -------- -------- --------
Total liabilities and stockholders' equity.............. $ 50,352 $ 48,777 $ 49,942 $ 48,801
======= ======= ======= =======
</TABLE>
15
<PAGE> 17
DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
- -----------------------------------------------------------------------------------------------------------
1997 1996
------------------ -----------------------------
SECOND First Fourth Third Second
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $16,654 $16,048 $15,769 $15,544 $15,723
Residential real estate......................... 7,655 7,486 7,503 7,473 7,477
Consumer........................................ 9,409 9,295 9,161 8,913 8,590
Credit Card..................................... 1,133 1,196 1,418 1,527 1,487
Home equity..................................... 1,872 1,809 1,753 1,667 1,594
------- ------- ------- ------- -------
Total loans................................... 36,723 35,834 35,604 35,124 34,871
Securities:
Taxable......................................... 8,318 8,225 7,991 8,045 8,414
Tax-exempt...................................... 296 309 331 344 381
------- ------- ------- ------- -------
Total securities.............................. 8,614 8,534 8,322 8,389 8,795
Federal funds sold................................ 73 73 82 110 184
Security resale agreements........................ 284 293 263 256 309
Other short-term investments...................... 196 210 214 73 114
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 45,890 44,944 44,485 43,952 44,273
Market value appreciation of securities available
for sale.......................................... 176 222 201 49 114
Allowance for loan losses........................... (712) (712) (711) (709) (705)
Cash and demand balances due from banks............. 2,309 2,360 2,468 2,341 2,447
Properties and equipment............................ 638 637 599 592 589
Customers' acceptance liability..................... 72 81 65 68 59
Accrued income and other assets..................... 1,979 2,012 1,939 1,991 2,000
------- ------- ------- ------- -------
Total assets.................................. $50,352 $49,544 $49,046 $48,284 $48,777
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $ 9,115 $ 9,055 $ 8,973 $ 9,004 $ 9,171
Savings accounts.................................. 3,843 3,894 3,982 4,135 4,180
Time deposits of individuals...................... 13,880 13,787 14,038 13,875 13,725
Other time deposits............................... 931 771 671 597 624
Deposits in overseas offices...................... 1,068 931 946 994 720
Federal funds borrowed............................ 1,166 1,426 1,089 983 959
Security repurchase agreements.................... 2,650 3,212 2,807 2,809 2,926
Borrowed funds.................................... 2,420 1,627 1,441 1,307 1,733
Long-term debt.................................... 3,751 3,072 2,950 3,065 3,325
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 38,824 37,775 36,897 36,769 37,363
Noninterest bearing deposits...................... 6,392 6,355 6,635 6,347 6,373
Acceptances outstanding........................... 72 81 65 68 59
Accrued expenses and other liabilities............ 836 842 1,113 887 884
------- ------- ------- ------- -------
Total liabilities............................. 46,124 45,053 44,710 44,071 44,679
Stockholders' equity.......................... 4,228 4,491 4,336 4,213 4,098
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $50,352 $49,544 $49,046 $48,284 $48,777
======= ======= ======= ======= =======
Net interest income.......................................................................................
Interest spread...........................................................................................
Contribution of noninterest bearing sources of funds......................................................
Net interest margin.......................................................................................
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Quarterly Interest Average Annualized Rate
------------------------------------------------------- -------------------------------------------------------
1997 1996 1997 1996
------------------- ------------------------------- ------------------- -------------------------------
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>
$355.2 $334.8 $338.6 $337.0 $340.0 8.55% 8.43% 8.56% 8.64% 8.68%
148.8 144.4 144.1 144.7 147.4 7.78 7.72 7.68 7.74 7.88
207.8 199.3 201.5 194.4 186.5 8.86 8.70 8.75 8.68 8.73
41.4 38.6 51.9 59.0 58.1 14.63 12.90 14.64 15.47 15.64
41.7 40.6 38.6 36.9 35.0 8.94 8.99 8.77 8.79 8.83
------- ------- ------- ------- -------
794.9 7.57.7 774.7 772.0 767.0 8.67 8.53 8.67 8.76 8.83
136.8 132.0 128.7 127.4 139.7 6.58 6.43 6.41 6.30 6.68
7.6 7.1 8.3 9.8 9.4 10.32 9.19 9.98 11.33 9.92
------- ------- ------- ------- -------
144.4 139.1 137.0 137.2 149.1 6.71 6.53 6.57 6.54 6.67
1.1 1.0 1.1 1.6 2.4 5.89 5.46 5.58 5.67 5.37
3.8 3.9 3.5 3.4 4.1 5.31 5.43 5.36 5.26 5.31
3.2 2.9 2.8 1.1 1.7 6.57 5.68 5.20 5.76 5.98
------- ------- ------- ------- -------
$947.4 $904.6 $919.1 $915.3 $924.3 8.27% 8.11% 8.24% 8.31% 8.35%
$ 67.1 $ 64.0 $ 64.2 $ 63.6 $ 62.7 2.95% 2.87% 2.85% 2.81% 2.75%
23.8 24.5 25.7 26.8 27.2 2.49 2.55 2.58 2.58 2.62
193.7 190.3 197.6 195.3 191.2 5.60 5.60 5.61 5.60 5.59
11.9 9.2 8.2 6.7 7.7 5.13 4.79 4.86 4.48 4.95
14.4 11.7 12.2 13.2 8.9 5.41 5.08 5.15 5.26 4.98
16.3 19.9 17.1 15.8 15.6 5.60 5.66 6.24 6.39 6.54
32.0 38.2 36.0 34.6 37.1 4.84 4.83 5.10 4.90 5.10
34.4 21.6 17.9 16.7 28.2 5.70 5.39 4.94 5.08 6.55
59.4 47.8 47.0 47.8 51.0 6.35 6.32 6.34 6.20 6.17
------- ------- ------- ------- -------
$453.0 $427.2 $425.9 $420.5 $429.6 4.68% 4.59% 4.59% 4.55% 4.62%
$494.4 $477.4 $493.2 $494.8 $494.7
======= ======= ======= ======= =======
........................................................... 3.59% 3.52% 3.65% 3.76% 3.73%
........................................................... .72 .74 .78 .74 .72
------- ------- ------- ------- -------
........................................................... 4.31% 4.26% 4.43% 4.50% 4.45%
======= ======= ======= ======= =======
</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
Manager, 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
Participating common stockholders receive a three percent discount from
market price when reinvesting their National City dividends in additional
shares. Participants may 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, call,
1-800-622-6757.
INTERNET ADDRESS
www.national-city.com
DEBT RATINGS
<TABLE>
<CAPTION>
MOODY'S
INVESTORS STANDARD DUFF & THOMSON
SERVICE & 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:
<TABLE>
<S> <C> <C> <C> <C>
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 14, 1997: On April 14, 1997, National City announced the actions that
took place at the Registrant's Annual Meeting of Stockholders on April 14,
1997.
National City announced that at the April 14, 1997 Board of Directors
meeting the Board authorized the purchase of up to ten million shares of
the Corporation's issued and outstanding common stock, subject to a total
purchase limit of $600 million.
May 6, 1997: On May 2, 1997, National City announced its intent to
purchase up to two million shares of the issued and outstanding common
stock of National Processing, Inc., a majority owned subsidiary. The
purchase of all two million shares would result in an increase in National
City's ownership percentage to approximately 89%.
National City also reported that National Processing Company, the wholly
owned operating subsidiary of National Processing, Inc., announced on May
2, 1997, that it was awarded a new five year agreement with Dayton Hudson
Corporation for credit card processing.
FORM 10-Q -- JUNE 30, 1997
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: August 13, 1997
/s/ ROBERT G. SIEFERS
--------------------------------
Robert G. Siefers
Executive Vice President
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
19
<PAGE> 21
[LOGO] 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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,681,590
<INT-BEARING-DEPOSITS> 159,633
<FED-FUNDS-SOLD> 964,419
<TRADING-ASSETS> 27,916
<INVESTMENTS-HELD-FOR-SALE> 8,864,910
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 8,864,910
<LOANS> 37,290,244
<ALLOWANCE> 707,476
<TOTAL-ASSETS> 52,027,109
<DEPOSITS> 35,574,208
<SHORT-TERM> 6,659,834
<LIABILITIES-OTHER> 1,094,183
<LONG-TERM> 4,447,637
<COMMON> 859,441
0
0
<OTHER-SE> 3,391,806
<TOTAL-LIABILITIES-AND-EQUITY> 52,027,109
<INTEREST-LOAN> 1,549,223
<INTEREST-INVEST> 278,081
<INTEREST-OTHER> 15,888
<INTEREST-TOTAL> 1,843,192
<INTEREST-DEPOSIT> 610,475
<INTEREST-EXPENSE> 880,223
<INTEREST-INCOME-NET> 962,969
<LOAN-LOSSES> 72,045
<SECURITIES-GAINS> 47,153
<EXPENSE-OTHER> 957,746
<INCOME-PRETAX> 578,739
<INCOME-PRE-EXTRAORDINARY> 578,739
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394,418
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 4.28
<LOANS-NON> 157,400
<LOANS-PAST> 92,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 705,893
<CHARGE-OFFS> 114,157
<RECOVERIES> 48,601
<ALLOWANCE-CLOSE> 707,476
<ALLOWANCE-DOMESTIC> 707,330
<ALLOWANCE-FOREIGN> 146
<ALLOWANCE-UNALLOCATED> 288,050
</TABLE>
