<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 1-0074
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 October 23, 1997.
Common stock, $4.00 Par Value -- 213,677,586
<PAGE> 2
[NATIONAL CITY LOGO]
QUARTER ENDED SEPTEMBER 30, 1997
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED SEPTEMBER 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)
See Note 8 on page 9.
Exhibits and Reports on Form 8-K (Item 6)
Exhibit 27:
Financial Data Schedule
Reports on Form 8-K:
None
Signature........................................................................................ 19
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Percent Percent
1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
- -----------------------------
Net interest income -- fully
taxable equivalent............ $495,421 $494,844 --% $1,467,202 $1,470,345 --%
Provision for loan losses....... 36,370 38,608 (6) 108,415 108,000 --
Fees and other income........... 322,544 285,495 13 920,952 819,762 12
Securities gains (losses)....... 2,112 (114) -- 49,265 81,238 (39)
Noninterest expense............. 482,677 466,853 3 1,440,423 1,455,961 (1)
Net income...................... 204,009 185,822 10 598,427 545,518 10
Net income applicable to common
stock......................... 204,009 185,822 10 598,427 541,490 11
PERFORMANCE RATIOS:
- ---------------------------
Net interest margin............. 4.26% 4.50% 4.27% 4.44%
Return on average assets........ 1.58 1.53 1.59 1.50
Return on average common
equity........................ 18.50 17.55 18.33 17.82
Return on average total
equity........................ 18.50 17.55 18.33 17.63
PER SHARE MEASURES:
- ---------------------------
Fully diluted net income per
common share.................. $.93 $.82 13% $2.70 $2.42 12%
Dividends paid per common
share......................... .425 .375 13 1.245 1.095 14
Book value per common share..... 20.23 19.48 4
Market value per common share
(close)....................... 61.56 42.13 46
Average shares -- fully
diluted....................... 219,557,770 226,371,745 (3) 222,063,746 225,214,051 (1)
AVERAGE BALANCES
- -----------------------
(IN MILLIONS):
---------------
Assets.......................... $51,074 $48,284 6% $50,324 $48,625 3%
Loans........................... 37,560 35,124 7 36,709 34,769 6
Securities...................... 8,407 8,389 2 8,518 8,814 (3)
Earning assets.................. 46,501 43,952 6 45,780 44,140 4
Deposits........................ 35,290 34,952 1 35,102 34,798 1
Common stockholders' equity..... 4,375 4,213 4 4,365 4,058 8
Stockholders' equity............ 4,375 4,213 4 4,365 4,134 6
AT PERIOD END:
- ------------------
Equity to assets ratio.......... 8.21% 8.88%
Tier 1 capital ratio............ 8.93 10.36
Total risk-based capital
ratio......................... 13.77 15.08
Leverage ratio.................. 7.41 8.22
Common shares outstanding....... 213,848,468 222,645,087 (4)
Full-time equivalent
employees..................... 26,957 26,309 2
ASSET QUALITY:
- ------------------
Net charge-offs to loans
(annualized).................. .34% .44% .36% .40%
Loan loss reserve to loans...... 1.84 1.99
Nonperforming assets to loans &
OREO.......................... .39 .49
</TABLE>
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In Thousands Except Per Share Amounts) September 30 September 30
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................ $816,724 $769,456 $2,368,039 $2,287,410
Securities:
Taxable....................................... 124,224 120,439 374,155 383,629
Exempt from Federal income taxes.............. 9,803 14,503 37,953 49,183
Federal funds sold and security resale
agreements.................................... 5,137 4,956 14,900 18,138
Other short-term investments..................... 2,320 1,060 6,353 3,448
-------- -------- ---------- ----------
Total interest income....................... 958,208 910,414 2,801,400 2,741,808
INTEREST EXPENSE
Deposits......................................... 318,444 305,499 928,919 907,593
Federal funds borrowed and security repurchase
agreements.................................... 44,818 50,441 151,245 160,534
Borrowed funds................................... 30,110 16,805 86,131 68,592
Long-term debt................................... 73,503 47,730 180,803 150,070
-------- -------- ---------- ----------
Total interest expense...................... 466,875 420,475 1,347,098 1,286,789
-------- -------- ---------- ----------
NET INTEREST INCOME................................ 491,333 489,939 1,454,302 1,455,019
PROVISION FOR LOAN LOSSES.......................... 36,370 38,608 108,415 108,000
-------- -------- ---------- ----------
Net interest income after provision
for loan losses.......................... 454,963 451,331 1,345,887 1,347,019
NONINTEREST INCOME
Item processing revenue.......................... 97,396 93,862 274,289 262,887
Service charges on deposit accounts.............. 58,831 54,627 167,004 158,662
Trust fees....................................... 48,293 43,793 143,955 131,351
Card-related fees................................ 35,898 29,855 101,103 90,547
Mortgage banking revenue......................... 35,181 18,549 85,455 56,138
Other............................................ 46,945 44,809 149,146 120,177
-------- -------- ---------- ----------
Total fees and other income................. 322,544 285,495 920,952 819,762
Securities gains (losses)........................ 2,112 (114) 49,265 81,238
-------- -------- ---------- ----------
Total noninterest income.................... 324,656 285,381 970,217 901,000
NONINTEREST EXPENSE
Salaries and other personnel..................... 253,058 233,751 726,504 685,719
Equipment........................................ 34,031 30,613 104,448 96,360
Net occupancy.................................... 32,891 34,594 99,310 97,985
Assessments and taxes............................ 11,574 12,109 35,999 35,531
Merger and restructuring......................... -- -- 39,640 74,745
Other............................................ 151,123 155,786 434,522 465,621
-------- -------- ---------- ----------
Total noninterest expense................... 482,677 466,853 1,440,423 1,455,961
-------- -------- ---------- ----------
Income before income taxes......................... 296,942 269,859 875,681 792,058
Income tax expense................................. 92,933 84,037 277,254 246,540
-------- -------- ---------- ----------
NET INCOME......................................... $204,009 $185,822 $ 598,427 $ 545,518
======== ======== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK.............. $204,009 $185,822 $ 598,427 $ 541,490
======== ======== ========== ==========
NET INCOME PER COMMON SHARE
Primary.......................................... $.93 $.82 $2.70 $2.44
Fully Diluted.................................... .93 .82 2.70 2.42
AVERAGE COMMON SHARES OUTSTANDING
Primary.......................................... 219,456 226,152 221,977 221,494
Fully Diluted.................................... 219,558 226,372 222,064 225,214
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31 September 30
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Loans:
Commercial.................................... $ 12,891,916 $11,217,815 $ 11,164,792
Real estate construction...................... 747,888 774,991 723,286
Lease financing............................... 564,914 515,576 409,668
Commercial real estate........................ 3,055,898 3,440,696 3,513,070
Residential real estate....................... 7,299,329 7,288,677 7,288,583
Mortgage loans held for sale.................. 1,032,525 334,742 208,332
Consumer...................................... 9,871,378 9,251,982 9,039,247
Credit card................................... 1,094,058 1,222,129 1,554,740
Home equity................................... 1,989,214 1,783,460 1,715,162
----------- ----------- -----------
Total loans.............................. 38,547,120 35,830,068 35,616,880
Allowance for loan losses................ 708,236 705,893 709,804
----------- ----------- -----------
Net loans................................ 37,838,884 35,124,175 34,907,076
Securities available for sale, at market......... 8,919,473 8,997,322 8,614,423
Federal funds sold and security resale
agreements.................................... 418,750 493,733 558,345
Trading account assets........................... 13,888 102,493 13,738
Other short-term money market investments........ 156,900 281,563 74,789
Cash and demand balances due from banks.......... 2,466,628 2,935,282 2,986,308
Properties and equipment......................... 632,492 616,426 589,201
Customers' acceptance liability.................. 67,783 66,767 61,671
Accrued income and other assets.................. 2,156,588 2,238,074 1,923,328
----------- ----------- -----------
TOTAL ASSETS............................. $ 52,671,386 $50,855,835 $ 49,728,879
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing)............ 6,645,348 7,436,403 7,007,896
NOW and money market accounts.................... 9,115,376 9,162,353 8,784,241
Savings accounts................................. 3,589,250 3,896,234 4,045,967
Time deposits of individuals..................... 14,012,722 13,896,667 14,057,610
Other time deposits.............................. 960,750 721,647 620,817
Deposits in overseas offices..................... 1,009,934 886,443 926,574
----------- ----------- -----------
Total deposits........................... 35,333,380 35,999,747 35,443,105
Federal funds borrowed and security repurchase
agreements.................................... 3,191,717 4,276,722 3,897,996
Borrowed funds................................... 3,784,535 1,994,009 2,182,309
Long-term debt................................... 4,745,546 2,994,418 2,874,423
Acceptances outstanding.......................... 67,783 66,767 61,671
Accrued expenses and other liabilities........... 1,221,981 1,092,109 933,189
----------- ----------- -----------
TOTAL LIABILITIES........................ 48,344,942 46,423,772 45,392,693
Stockholders' Equity:
Preferred stock.................................. -- -- --
Common stock..................................... 4,326,444 4,432,063 4,336,186
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY............... 4,326,444 4,432,063 4,336,186
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $ 52,671,386 $50,855,835 $ 49,728,879
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in Thousands) September 30
- ----------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 598,427 $ 545,518
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses............................... 108,415 108,000
Depreciation and amortization........................... 75,046 67,190
Amortization of intangibles and servicing rights........ 41,053 46,379
Amortization of securities discount and premium......... (1,772) (1,408)
Securities gains........................................ (49,265) (81,238)
Net decrease in trading account securities.............. 88,605 9,977
Other gains, net........................................ (698) (8,843)
Originations and purchases of mortgage loans held for
sale................................................. (1,776,477) (1,692,444)
Proceeds from sales of mortgage loans held for sale..... 1,581,809 1,805,109
(Increase) in interest receivable....................... (88,917) (34,102)
Increase in interest payable............................ 38,671 3,289
Net change in other assets/liabilities.................. 141,109 (50,169)
----------- -----------
Net Cash Provided by Operating Activities............ 756,006 717,258
LENDING AND INVESTING ACTIVITIES
Net decrease in short-term investments....................... 199,646 207,423
Purchases of securities...................................... (2,596,476) (2,316,574)
Proceeds from sales of securities............................ 2,096,539 3,085,369
Proceeds from maturities and prepayments of securities....... 837,009 865,144
Net (increase) in loans...................................... (2,737,633) (1,367,761)
Net (increase) in properties and equipment................... (85,206) (62,885)
Proceeds from sales of loans................................. 109,177 --
----------- -----------
Net Cash (Used) Provided by Lending and Investing
Activities......................................... (2,176,944) 410,716
DEPOSIT AND FINANCING ACTIVITIES
Net (decrease) in Federal funds borrowed and security
repurchase agreements..................................... (1,085,005) (1,401,570)
Net increase in borrowed funds............................... 1,790,526 619,805
Net (decrease) in demand, savings, NOW, money market
accounts, and deposits in overseas offices................ (1,021,525) (180,143)
Net increase in time deposits................................ 355,158 42,281
Proceeds from issuance of long-term debt, net................ 1,830,244 299,153
Repayment of long-term debt.................................. (78,189) (451,008)
Dividends paid, net of tax benefit of ESOP shares............ (272,935) (231,258)
Issuances of common stock.................................... 66,208 47,533
Proceeds from issuance of common stock by subsidiary......... -- 114,966
Repurchase of common stock................................... (632,198) --
ESOP trust repayment......................................... -- 2,670
----------- -----------
Net Cash Provided (Used) by Deposit and Financing
Activities......................................... 952,284 (1,137,571)
----------- -----------
Net (Decrease) in Cash and Demand Balances Due From Banks.... (468,654) (9,597)
Cash and Demand Balances Due From Banks, January 1........... 2,935,282 2,995,905
----------- -----------
Cash and Demand Balances Due From Banks, September 30........ $ 2,466,628 $ 2,986,308
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid................................................ $ 1,332,317 $ 1,283,500
Income taxes paid............................................ 172,046 280,916
</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 Total
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------
Balance January 1, 1996....................... $ 185,400 $846,284 $399,813 $2,635,090 $ (2,741) $4,063,846
Net income.................................. 545,518 545,518
Common dividends declared of National City,
$1.095 per share.......................... (188,959) (188,959)
Common dividends of Integra prior to
merger.................................... (36,009) (36,009)
Preferred dividends paid, $2.00 per
depositary share.......................... (6,458) (6,458)
Issuance of 2,234,350 common shares under
corporate stock and dividend reinvestment
plans..................................... 8,938 38,595 47,533
Issuance of common stock by subsidiary...... 25,077 25,077
Conversion of 3,708,000 depositary shares of
preferred stock to 8,839,650 common
shares.................................... (185,400) 35,359 150,041 0
Shares distributed by ESOP trust and tax
benefit on dividends...................... 168 2,670 2,838
Change in unrealized market value adjustment
on securities available for sale, net of
tax....................................... (117,200) (117,200)
--------- -------- -------- ---------- ------- ----------
Balance September 30, 1996.................... $ -- $890,581 $613,526 $2,832,150 $ (71) $4,336,186
========= ======== ======== ========== ======= ==========
Balance January 1, 1997....................... $ -- $892,794 $622,543 $2,916,726 $ -- $4,432,063
Net income.................................. 598,427 598,427
Common dividends declared, $1.26 per
share..................................... (272,264) (272,264)
Issuance of 2,650,040 common shares under
corporate stock and dividend reinvestment
plans..................................... 10,600 55,608 66,208
Purchase of 12,000,066 common shares........ (48,000) (61,591) (522,607) (632,198)
Change in unrealized market value adjustment
on securities available for sale, net of
tax....................................... 134,208 134,208
--------- -------- -------- ---------- ------- ----------
Balance September 30, 1997.................... $ -- $855,394 $616,560 $2,854,490 $ -- $4,326,444
========= ======== ======== ========== ======= ==========
</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. 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.
7
<PAGE> 9
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------
(In Thousands) 1997 1996
<S> <C> <C>
Balance at beginning of year............. $705,893 $705,846
Provision................................ 108,415 108,000
Reserves (sold) acquired................. (8,133) 84
Charge-offs:
Commercial............................. 35,823 38,328
Real estate -- construction............ 211 56
Real estate -- commercial.............. 4,515 1,533
Real estate -- residential............. 4,398 3,132
Consumer............................... 77,575 63,583
Credit card............................ 43,303 51,920
Home equity............................ 2,380 2,322
-------- --------
Total charge-offs...................... 168,205 160,874
Recoveries:
Commercial............................. 18,464 16,993
Real estate -- construction............ 1,648 1,072
Real estate -- commercial.............. 3,334 2,247
Real estate -- residential............. 1,082 445
Consumer............................... 35,021 25,459
Credit card............................ 9,745 9,699
Home equity............................ 972 833
-------- --------
Total recoveries....................... 70,266 56,748
-------- --------
Net charge-offs.......................... 97,939 104,126
-------- --------
Balance at end of period................. $708,236 $709,804
======== ========
</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
September 30, 1997 and December 31, 1996, loans that were considered to be
impaired under SFAS No. 114 totaled $6.1 million and
$13.9 million, respectively. All impaired loans are included in nonperforming
assets. The related allowance allocated to these loans was $4.2 million and $9.6
million, respectively. The contractual interest due and actual interest recorded
on nonperforming assets, for the nine months ended September 30, 1997, was $14.0
million and $4.3 million, respectively.
4. SECURITIES
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury
and Federal
agency
debentures.... $1,848,677 $ 3,003 $(13,063) $1,838,617
Mortgage-backed
securities.... 4,497,307 57,564 (17,955) 4,536,916
Asset-backed and
corporate debt
securities.... 1,294,289 7,854 (1,511) 1,300,632
States and
political
subdivisions... 270,990 11,882 (282) 282,590
Other........... 571,712 389,494 (488) 960,718
---------- -------- -------- ----------
Total
securities... $8,482,975 $469,797 $(33,299) $8,919,473
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and
Federal agency
debentures..... $2,076,390 $ 6,039 $ (35,075) $2,047,354
Mortgage-backed
securities..... 4,340,856 25,015 (57,936) 4,307,935
Asset-backed and
corporate debt
securities..... 917,624 3,717 (6,992) 914,349
States and
political
subdivisions... 341,000 14,431 (2,051) 353,380
Other............ 816,419 182,079 (7,093) 991,405
---------- -------- --------- ----------
Total
securities... $8,492,289 $231,281 $(109,147) $8,614,423
========== ======== ========= ==========
</TABLE>
For the nine months ended September 30, 1997 and 1996, gross gains of $54.9
million and $91.5 million, and gross losses of $5.6 million and $10.3 million
were realized, respectively.
At September 30, 1997, the unrealized appreciation in securities available
for sale included in retained earnings totaled $282.0 million, net of tax,
compared to unrealized appreciation of $79.4 million, net of tax, at September
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 September 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.
8
<PAGE> 10
5. BORROWED FUNDS
<TABLE>
<CAPTION>
SEPT. 30 Dec. 31 Sept. 30
(In Thousands) 1997 1996 1996
<S> <C> <C> <C>
- ------------------------------------------------------------
U.S. Treasury demand notes
and Federal funds
borrowed-term........... $2,621,888 $1,056,499 $1,441,676
Notes payable to Student
Loan Marketing
Association............. 300,000 300,000 300,000
Other..................... 77,638 79,648 56,387
---------- ---------- ----------
Total bank
subsidiaries.......... 2,999,526 1,436,147 1,798,063
Commercial paper.......... 784,600 556,100 384,204
Other..................... 409 1,762 42
---------- ---------- ----------
Total parent company and
other subsidiaries.... 785,009 557,862 384,246
---------- ---------- ----------
Total............. $3,784,535 $1,994,009 $2,182,309
========== ========== ==========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPT. 30 Dec. 31 Sept. 30
(In Thousands) 1997 1996 1996
<S> <C> <C> <C>
- ------------------------------------------------------------
Floating rate subordinated
notes due 1997............. $ -- $ 74,998 $ 74,994
Floating rate notes due
1997....................... 49,997 49,983 $ 49,977
9 7/8% subordinated notes
due 1999................... 64,907 64,872 64,860
6.50% subordinated notes
due 2000................... 99,867 99,820 99,809
8.50% subordinated notes
due 2002................... 99,890 99,881 99,873
6 5/8% subordinated notes
due 2004................... 249,169 249,072 249,040
7.20% subordinated notes
due 2005 .... 249,778 249,756 249,749
Other....................... 1,685 1,794 2,148
---------- ---------- ----------
Total parent company...... 815,293 890,176 890,450
6.50% subordinated notes
due 2003................... 199,581 199,525 199,505
7.25% subordinated notes
due 2010................... 222,903 222,779 222,737
6.30% subordinated notes
due 2011................... 200,000 200,000 200,000
7.25% subordinated notes
due 2011................... 197,228 197,080 --
Other....................... 1,853 2,103 2,114
---------- ---------- ----------
Total subsidiary
subordinated notes...... 821,565 821,487 624,356
---------- ---------- ----------
Total long-term debt
qualifying for Tier II
Capital................. 1,636,858 1,711,663 1,514,806
Senior bank notes........... 2,027,339 754,582 754,556
Federal Home Loan Bank
advances................... 581,457 528,173 605,061
Reset Asset Capital
Securities of National
City Capital Trust I...... 499,892 -- --
---------- ---------- ----------
Total other long-term
debt.................... 3,108,688 1,282,755 1,359,617
---------- ---------- ----------
Total................... $4,745,546 $2,994,418 $2,874,423
========== ========== ==========
</TABLE>
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 on the amount of the
line. There were no borrowings outstanding under this agreement at September 30,
1997.
7. CAPITAL RATIOS
The following table reflects various measures of capital:
<TABLE>
<CAPTION>
SEPT. 30 Dec. 31 Sept. 30
1997 1996 1996
(Dollars in --------------- --------------- ---------------
Millions) AMOUNT RATIO Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
Total
equity(1)..... $4,326.4 8.21% $4,432.1 8.71% $4,336.2 8.88%
Tangible
equity(2)..... 3,780.6 7.25 3,932.7 7.81 3,820.5 7.76
Tier 1
capital(3).... 3,759.4 8.93 3,976.5 9.84 3,943.8 10.36
Total risk-based
capital(4).... 5,800.4 13.77 5,980.6 14.79 5,739.9 15.08
Leverage(5)..... 3,759.4 7.41 3,976.5 8.16 3,943.8 8.22
- ------------------------------------------------------------
</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 4.00%, 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>
SEPT. 30 Dec. 31 Sept. 30
(Dollars in Millions) 1997 1996 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Goodwill............................ $329.7 $307.8 $313.1
Other intangibles................... 25.0 50.4 64.4
-------- ------- --------
Total intangibles................... $354.7 $358.2 $377.5
Mortgage servicing rights........... $191.2 $141.2 $138.2
- ---------------------------------------------------------------
</TABLE>
8. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPT. 30 Dec. 31 Sept. 30
(Outstanding Shares) 1997 1996 1996
<S> <C> <C> <C>
- -----------------------------------------------
Common Stock, $4.00
par value,
authorized
700,000,000 shares.. 213,848,468 223,198,494 222,645,087
</TABLE>
9
<PAGE> 11
9. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
(In Thousands) 1997 1996
<S> <C> <C>
- ------------------------------------------------------------
Applicable to income exclusive
of securities transactions... $ 260,029 $ 218,107
Applicable to securities
transactions................. 17,225 28,433
----------- -----------
Total.................. $ 277,254 $ 246,540
=========== ===========
</TABLE>
The effective tax rate was approximately 31.7% and 31.1% for the nine months
ended September 30, 1997 and 1996, respectively.
10. REGULATORY DIVIDENDS
A significant source of liquidity for the Parent company is dividends from
subsidiaries. Dividends paid by the subsidiary banks are subject to various
legal and regulatory restrictions. At September 30, 1997, bank subsidiaries had
the ability to pay the Parent company, without prior regulatory approval,
approximately $824.0 million of dividends. During the first nine months of 1997,
dividends totaling $105.0 million were declared and $327.5 million of previously
declared dividends were paid to the Parent company.
11. EARNINGS PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months
Ended
September 30 September 30
(In Thousands ------------------ ------------------
Except Per Share Amounts) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
PRIMARY:
Net income.................. $204,009 $185,822 $598,427 $545,518
Less preferred dividend
requirements.............. -- -- -- 4,028
-------- -------- -------- --------
Net income applicable to
common stock.............. $204,009 $185,822 $598,427 $541,490
======== ======== ======== ========
Average common shares
outstanding............... 219,456 226,152 221,977 221,494
======== ======== ======== ========
Primary net income per
common share.............. $.93 $.82 $2.70 $2.44
======== ======== ======== ========
ASSUMING FULL DILUTION:
Net income.................. $204,009 $185,822 $598,427 $545,518
======== ======== ======== ========
Average common shares
outstanding............... 219,456 226,152 221,977 221,494
Stock option adjustment..... 102 220 87 148
Preferred stock
adjustment................ -- -- -- 3,572
-------- -------- -------- --------
Average common shares
outstanding, as
adjusted.................. 219,558 226,372 222,064 225,214
======== ======== ======== ========
Fully diluted net income per
common share.............. $.93 $.82 $2.70 $2.42
======== ======== ======== ========
</TABLE>
Primary net income per common share is based upon net income after preferred
dividend requirements and the weighted average number of common shares
outstanding, adjusted for the dilutive effect of outstanding stock options.
Fully diluted earnings per share is based upon net income and the weighted
average number of shares outstanding, adjusted for the dilutive effect of
outstanding stock options and the conversion impact of convertible equity
instruments.
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 September 30, 1997 was $204.0 million, an
increase of 9.8% over the $185.8 million earned in the third quarter of 1996.
Fully-diluted net income per common share was $.93 for the third quarter of
1997, a 13.4% increase over $.82 earned in 1996.
Net income for the first nine months of 1997 increased 9.7% to $598.4
million from $545.5 million last year. Fully-diluted net income per common share
was $2.70 for the first nine months, up 11.6% over $2.42 earned in 1996.
Returns on average common equity for the third quarter and first nine
months of 1997 were 18.50% and 18.33%, respectively, compared to 17.55% and
17.82%, for the same periods in 1996. Returns on average assets for the third
quarter and first nine months of 1997 were 1.58% and 1.59%, respectively,
compared to 1.53% and 1.50% for the same periods in 1996.
Growth in net income for the third quarter and the first nine months was
due to loan growth, strong fee income and ongoing management of expenses. For
the third quarter and first nine months of 1997, noninterest income, excluding
securities gains, was up 13.0% and 12.3%, respectively, as a result of increases
in all major revenue categories. Noninterest expense for the third quarter of
1997 increased 3.4% from the same period last year. For the first nine months of
1997, noninterest expense, excluding merger and restructuring expenses,
increased 1.4% from last year's comparable period.
Securities gains/(losses) were immaterial for the third quarter of 1997 and
1996. Year-to-date, securities gains were $49.3 million, most of which offset
restructuring expenses of $33.3 million in the second quarter of 1997. The
restructuring expense represented the estimated costs of reorganizing six Ohio
banking subsidiaries under a single statewide charter. On a per share basis,
after-tax securities gains were $.14 per share for the first nine months of 1997
and $.23 per share for the comparable period in 1996.
Results for the third quarter of 1997 reflect the impact from the sale of
the $400 million private label credit card portfolio ("Private Label") sold in
mid-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 loan portfolio on the third quarter and first
nine months of 1996 (assumes investment yield of 7% on reinvested proceeds from
the sale).
THIRD QUARTER OF 1996
<TABLE>
<CAPTION>
PRO-FORMA
EXCLUDING
REPORTED PRIVATE LABEL
---------- -------------
<S> <C> <C>
Net interest
income............ $489,939 $476,000
Net interest
margin............ 4.50% 4.38%
Loan yield......... 8.76% 8.64%
Net charge-offs.... $38,000 $31,411
Net charge-off
ratio............. .44% .37%
</TABLE>
FIRST NINE MONTHS OF 1996
<TABLE>
<CAPTION>
PRO-FORMA
EXCLUDING
REPORTED PRIVATE LABEL
---------- -------------
<S> <C> <C>
Net interest
income............ $1,455,019 $1,411,000
Net interest
margin............ 4.44% 4.31%
Loan yield......... 8.80% 8.64%
Net charge-offs.... $103,637 $87,457
Net charge-off
ratio............. .40% .34%
</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 in-
clude 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 reduced provision for loan losses, an increase in fee income and
controlled operating expenses.
Despite an increase in noninterest revenue, retail banking net income
remained relatively flat primarily as a result of a decline in deposits, tighter
spreads on deposit accounts, and an increase in the provision for loan losses.
The increased profitability in fee-based businesses was primarily due to
growth in mortgage banking, brokerage, and institutional trust net income.
Parent and other net income increased primarily because of higher
contribution from the investment/funding unit.
11
<PAGE> 13
NET INTEREST INCOME
For the third quarter and first nine months of 1997, tax-equivalent net
interest income of $495.4 million and $1,467.2 million, respectively, were flat
compared to the same periods last year. The net interest margin for the third
quarter of 1997 was 4.26% compared to 4.50% for the comparable 1996 period.
Although third quarter average total loans were up 6.9% over the same period
last year, margins narrowed over last year as a result of the sale of the
private label credit card portfolio, generally tighter spreads on loans and
deposits, and increased use of purchased funding to fund loan growth.
National City's net interest margin is affected by the use of off-balance
sheet derivative financial instruments. For the first nine months of 1997, net
interest income included approximately $33.1 million related to the use of
derivative instruments, compared to $31.0 million in 1996. For the first nine
months of 1997 and 1996, the derivatives portfolio contributed approximately 9
basis points to the net interest margin.
During the third quarter of 1997, the notional outstandings of interest
rate swap agreements increased $2.1 billion to $12.7 billion. During the
quarter, $335 million in swaps were added to manage the Corporation's interest
rate risk position by synthetically converting fixed rate debt to variable
rate; $2.5 billion in swaps were added to hedge loans; $42 million in swaps
were added to hedge securities added to the investment portfolio; $22 million
in swaps were added to hedge the market value of mortgage servicing rights; and
$195 million in swap agreements were added to facilitate interest rate risk
management at third parties. A total of $1.0 billion in swaps matured or were
terminated during the quarter. The net unrealized gains in the derivative
portfolio were $22.4 million at September 30, 1997 compared to unrealized losses
of $35.4 million at June 30, 1997.
Management attempts to prevent adverse swings in current and future net
interest income and capital resulting from interest rate movements by placing
conservative limits on interest rate risk. Interest rate risk is monitored
through income simulation, static gap and net present value analyses.
At September 30, 1997, the Corporation's interest-rate risk position
remained modestly liability sensitive. The earnings simulation model projects
that net income would decrease by 0.7% 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 1.0%, relative to a
stable-rate scenario. As of June 30, 1997, the corresponding changes were (1.2)%
of net income in the rising-rate environment and 0.9% in the falling-rate
environment. The cumulative one-year gap was (6.5%) of adjusted earning assets
at September 30, 1997. The Corporation's net present value model indicates that
a one and a half 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 3.1% of total net present value at the end of the quarter. In
addition, a one and a half percentage point immediate downward rate shock is
estimated to cause total net present value to fall by 4.4%.
NONINTEREST INCOME
Noninterest income, excluding securities gains, totaled $322.5 million for
the third quarter of 1997 and $921.0 million for the first nine months. This
represented increases of 13.0% and 12.3%, respectively, over the same periods
last year. The increases were driven by revenue increases in mortgage banking,
item processing, trust, card-related fees and deposit service charges. The large
increase in mortgage banking revenue was primarily due to increased
TABLE 1: UNIT PROFITABILITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED Nine months ended
SEPTEMBER 30, 1997 September 30, 1996
-------------------- --------------------
NET RETURN ON Net Return on
(Dollars in Millions) INCOME EQUITY Income Equity
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Corporate banking.................. $148.3 22.85% $132.0 20.91%
Retail banking..................... 368.3 25.92 370.0 25.71
Fee-based businesses............... 48.2 13.30 42.2 16.64
Parent and other................... 33.6 -- 1.3 --
------ ------
Consolidated total............. $598.4 18.33% $545.5 17.82%
======= =======
</TABLE>
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<CAPTION>
Nine months ended
September 30
-----------------------------
(In Millions) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------------
Interest adjustment to loans......................... $ 9.0 $17.0
Interest adjustment to securities.................... (1.9) (.2)
----------- -----------
Interest adjustment to earning assets.............. 7.1 16.8
Interest adjustment to interest bearing
liabilities........................................ (26.0) (14.2)
----------- -----------
Effect on net interest income...................... $ 33.1 $31.0
=========== ===========
</TABLE>
NOTE: Amounts in brackets represent reductions of the related interest income
or expense line, as applicable.
12
<PAGE> 14
mortgage origination activity as a result of the favorable rate environment and
the February 1997 acquisition of Bank United's non-Texas mortgage origination
business, Commonwealth United.
The first nine months of 1997 included $9.5 million of gains on sales of
branches and other assets. The first nine months of 1996 included gains of $8.3
million on the sale of branches.
NONINTEREST EXPENSE
For the third quarter and first nine months of 1997, noninterest expense
totaled $482.7 million and $1,440.4 million, respectively. This is compared to
$466.9 million and $1,456.0 million, respectively, for the same periods in 1996.
Excluding merger and restructuring expenses, noninterest expense for the nine
months of 1997 and 1996 totaled $1,400.8 million and $1,381.2 million,
respectively. The modest increases in expenses compared to the 1996 periods are
the result of acquisitions within the mortgage and item processing businesses.
For the first nine months of 1997, merger and restructuring expenses
included $33.3 million of expenses associated with the consolidation of National
City's six Ohio banking subsidiaries under a single statewide charter, and a
$6.3 million charge relating to organizational restructuring at National City's
88%-owned item processing subsidiary, National Processing, Inc. (NYSE:NAP). For
the same period last year, merger expenses of $74.7 million were incurred in
connection with the Integra Financial Corporation merger which closed on May 3,
1996.
As Table 3 indicates, National City's staff level on a full-time equivalent
basis was 26,957 at September 30, 1997, up from 26,309 at September 30, 1996.
The increased staff level in the fee-based businesses was prima-
TABLE 3: FULL-TIME EQUIVALENT STAFFING AND
OVERHEAD PERFORMANCE MEASURES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 September 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..................... 15,308 37.01% 51.50% 16,543 41.54% 52.53%
Fee-based businesses......... 10,222 -- 69.68% 8,518 -- 84.70
Corporate.................... 1,427 -- -- 1,248 -- --
---------- ----------
Total..................... 26,957 35.41% 60.32% 26,309 43.27% 63.58%
=========== ==========
Excluding merger and
restructuring charges....... 32.70% 58.66% 38.19% 60.31%
</TABLE>
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<CAPTION>
Third Quarter First Nine Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
Commercial........................ .16% .11% .18% .25%
Real estate -- construction....... (.16) (.13) (.25) (.21)
Real estate -- commercial......... .23 .06 .05 (.03)
Real estate -- residential........ .06 .05 .06 .05
Consumer.......................... .54 .76 .60 .59
Credit card....................... 3.87 4.38 3.88 3.75
Home equity....................... .14 .14 .10 .12
Total net charge-offs to average
loans........................... .34% .44% .36% .40%
</TABLE>
TABLE 5: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31 September 30
(In Millions) 1997 1996 1996
<S> <C> <C> <C>
----------------------------------------------------------------------------
Commercial:
Nonaccrual.................. $ 62.4 $ 73.8 $ 83.9
Restructured................ -- -- .1
------------- ------------ -------------
Total commercial.......... 62.4 73.8 84.0
Real estate related:
Nonaccrual.................. 64.4 66.1 69.4
Restructured................ 2.6 3.2 3.0
------------- ------------ -------------
Total real estate
related................. 67.0 69.3 72.4
------------- ------------ -------------
Total nonperforming
loans................... 129.4 143.1 156.4
Other real estate owned
(OREO)...................... 18.9 24.5 20.2
------------- ------------ -------------
Nonperforming assets.......... $ 148.3 $167.6 $ 176.6
============== ============= ==============
Loans 90 days past-due
accruing interest........... $ 103.2 $107.1 $ 115.3
============== ============= ==============
</TABLE>
13
<PAGE> 15
rily due to recent acquisitions at National Processing, and the increased number
of mortgage loan originators due to the Commonwealth United acquisition. The
lower staff level in corporate and retail banking was primarily due to ongoing
retail branch restructurings and sales, the sale of the Private Label loan
portfolio, and outsourcing of credit card processing.
The efficiency ratio is defined as noninterest expense as a percentage of
fee income plus tax-equivalent net interest income. For the third quarter and
first nine months of 1997, the efficiency ratio was 59.01% and
60.32%, respectively, compared to 59.83% and 63.58%, respectively, a year ago.
Excluding merger and restructuring expenses, the efficiency ratio for the third
quarter and the first nine months of 1997 was 59.01% and 58.66%, respectively,
compared to 59.83% and 60.31%, respectively, during the same periods last year.
The overhead ratio is defined as noninterest expenses less fee income as a
percentage of tax-equivalent net interest income. For the third quarter and
first nine months of 1997, the overhead ratio was 32.32% and 35.41%,
respectively, compared to 36.65% and 43.27%, respectively, a year ago. Excluding
merger and restructuring expenses, the overhead ratio for the third quarter and
the first nine months of 1997 was 32.32% and 32.70%, respectively, compared to
36.65% and 38.19%, respectively, last year.
EARNING ASSETS AND INTEREST BEARING LIABILITIES
Average earning assets totaled $46,501 million for the third quarter of
1997, compared to $45,890 million for the second quarter of 1997, and $43,952
million for the third quarter of 1996. The increase over the third quarter of
last year primarily reflected total average loans increasing 6.9% from last
year. Compared to the second quarter of 1997, earning assets grew as a result of
commercial, residential and consumer loan growth, offset by a slight decrease in
the securities portfolio.
Average interest-bearing liabilities increased 6.8% in the third quarter of
1997 over the same period last year. This was primarily due to increased use of
longer term funding, including increased utilization of the senior bank note
program and the issuance in June of 1997 of $500 million of 6.75% Reset Asset
Capital Securities.
Average core deposits were flat compared to the second quarter of 1997 and
third quarter of 1996. Although demand deposits and time deposits increased over
the prior year, these gains were offset by decreases in savings account
balances. Purchased deposits increased from last year as part of the
Corporation's funding strategy.
ASSET QUALITY
The allowance for loan losses was $708.2 million at September 30, 1997, or
1.84% of loans outstanding, compared to $709.8 million or 1.99% at September 30,
1996. For the third quarter and first nine months of 1997, the provision for
loan losses was $36.4 million and $108.4 million, respectively, compared to
$38.6 million and $108.0 million, respectively, for the same periods a year ago.
During all of these periods, the provision for loan losses matched or exceeded
net charge-offs.
Table 4 presents net charge-offs as a percentage of average loans by
portfolio type. For the third quarter and first nine months of 1997, net
charge-offs totaled $32.4 million and $97.9 million, respectively. This is
compared to $38.5 million and $104.1 million, respectively, for the same periods
last year. For the third quarter and first nine months of 1997, net charge-offs
as a percentage of average loans were .34% and .36%, respectively. This marked
further improvement from .44% and .40%, respectively, from the same periods a
year ago. These measures reflected an overall improvement in consumer credit
quality, partially due to the sale of the private label credit card portfolio.
Table 5 indicates nonperforming assets were $148.3 million at September 30,
1997, down $28.3 million from the same time last year. Nonperforming assets as a
percentage of loans and OREO were .39%, compared to .49% a year ago.
CAPITAL
At September 30, 1997, stockholders' equity totaled $4.3 billion.
During the third quarter, National City repurchased approximately 2 million
shares of its common stock, bringing the nine-month year-to-date repurchases up
to approximately 12 million shares. As of September 30, 1997, approximately 3
million shares remained authorized for repurchase.
Book value per common share at September 30, 1997 was $20.23 compared to
$19.79 at June 30, 1997 and $19.48 at September 30, 1996. Book value per common
share at September 30, 1997, June 30, 1997 and September 30, 1996 included
$1.32, $.89 and $.36 per share, respectively, related to unrealized appreciation
of securities available for sale.
14
<PAGE> 16
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars In Millions) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial................................................ $ 16,805 $ 15,544 $ 16,505 $ 15,582
Residential real estate................................... 7,981 7,473 7,709 7,480
Consumer.................................................. 9,687 8,913 9,462 8,598
Credit card............................................... 1,136 1,527 1,155 1,502
Home equity............................................... 1,951 1,667 1,878 1,607
-------- -------- -------- --------
Total loans............................................. 37,560 35,124 36,709 34,769
Securities.................................................. 8,407 8,389 8,518 8,814
Federal funds sold and security resale agreements........... 350 366 357 445
Other short-term investments................................ 184 73 196 112
-------- -------- -------- --------
Total earning assets.................................... 46,501 43,952 45,780 44,140
Allowance for loan losses..................................... (715) (709) (713) (707)
Market value appreciation of securities available for sale.... 349 49 249 153
Cash and demand balances due from banks....................... 2,286 2,341 2,317 2,423
Properties and equipment...................................... 629 592 635 590
Customers' acceptance liability............................... 65 68 73 64
Accrued income and other assets............................... 1,959 1,991 1,983 1,962
-------- -------- -------- --------
Total assets............................................ $ 51,074 $ 48,284 $ 50,324 $ 48,625
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits............................................. $ 6,438 $ 6,347 $ 6,394 $ 6,319
NOW and money market accounts............................... 9,162 9,004 9,111 9,050
Savings accounts............................................ 3,693 4,135 3,809 4,163
Time deposits of individuals................................ 13,998 13,875 13,889 13,793
Other time deposits......................................... 969 597 891 640
Deposits in overseas office................................. 1,030 994 1,008 833
-------- -------- -------- --------
Total deposits.......................................... 35,290 34,952 35,102 34,798
Federal funds borrowed and security repurchase agreements... 3,556 3,792 4,001 3,581
Borrowed funds.............................................. 2,205 1,307 2,086 2,032
Long-term debt.............................................. 4,645 3,065 3,829 3,127
Acceptances outstanding..................................... 65 68 73 64
Accrued expenses and other liabilities...................... 938 887 868 889
-------- -------- -------- --------
Total liabilities....................................... 46,699 44,071 45,959 44,491
Stockholders' Equity:
Preferred stock............................................. -- -- -- 76
Common stock................................................ 4,375 4,213 4,365 4,058
-------- -------- -------- --------
Total stockholders' equity.............................. 4,375 4,213 4,365 4,134
-------- -------- -------- --------
Total liabilities and stockholders' equity.............. $ 51,074 $ 48,284 $ 50,324 $ 48,625
======= ======= ======= =======
</TABLE>
15
<PAGE> 17
DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
- ----------------------------------------------------------------------------------------------------------
1997 1996
----------------------------- ------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $16,805 $16,654 $16,048 $15,769 $15,544
Residential real estate......................... 7,981 7,655 7,486 7,503 7,473
Consumer........................................ 9,687 9,409 9,295 9,161 8,913
Credit Card..................................... 1,136 1,133 1,196 1,418 1,527
Home equity..................................... 1,951 1,872 1,809 1,753 1,667
------- ------- ------- ------- -------
Total loans................................... 37,560 36,723 35,834 35,604 35,124
Securities:
Taxable......................................... 8,129 8,318 8,225 7,991 8,045
Tax-exempt...................................... 278 296 309 331 344
------- ------- ------- ------- -------
Total securities.............................. 8,407 8,614 8,534 8,322 8,389
Federal funds sold................................ 61 73 73 82 110
Security resale agreements........................ 289 284 293 263 256
Other short-term investments...................... 184 196 210 214 73
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 46,501 45,890 44,944 44,485 43,952
Market value appreciation of securities available
for sale.......................................... 349 176 222 201 49
Allowance for loan losses........................... (715) (712) (712) (711) (709)
Cash and demand balances due from banks............. 2,286 2,309 2,360 2,468 2,341
Properties and equipment............................ 629 638 637 599 592
Customers' acceptance liability..................... 65 72 81 65 68
Accrued income and other assets..................... 1,959 1,979 2,012 1,939 1,991
------- ------- ------- ------- -------
Total assets.................................. $51,074 $50,352 $49,544 $49,046 $48,284
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $ 9,162 $ 9,115 $ 9,055 $ 8,973 $ 9,004
Savings accounts.................................. 3,693 3,843 3,894 3,982 4,135
Time deposits of individuals...................... 13,998 13,880 13,787 14,038 13,875
Other time deposits............................... 969 931 771 671 597
Deposits in overseas offices...................... 1,030 1,068 931 946 994
Federal funds borrowed............................ 1,064 1,166 1,426 1,089 983
Security repurchase agreements.................... 2,492 2,650 3,212 2,807 2,809
Borrowed funds.................................... 2,205 2,420 1,627 1,441 1,307
Long-term debt.................................... 4,645 3,751 3,072 2,950 3,065
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 39,258 38,824 37,775 36,897 36,769
Noninterest bearing deposits...................... 6,438 6,392 6,355 6,635 6,347
Acceptances outstanding........................... 65 72 81 65 68
Accrued expenses and other liabilities............ 938 836 842 1,113 887
------- ------- ------- ------- -------
Total liabilities............................. 46,699 46,124 45,053 44,710 44,071
Stockholders' equity.......................... 4,375 4,228 4,491 4,336 4,213
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $51,074 $50,352 $49,544 $49,046 $48,284
======= ======= ======= ======= =======
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
------------------------------- ------------------- ------------------------------- -------------------
THIRD Second First Fourth Third THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$363.5 $355.2 $334.8 $338.6 $337.0 8.60% 8.55% 8.43% 8.56% 8.64%
154.7 150.0 145.3 144.1 144.7 7.75 7.84 7.76 7.68 7.74
216.1 207.8 199.3 201.5 194.4 8.85 8.86 8.70 8.75 8.68
39.9 41.4 38.6 51.9 59.0 14.03 14.63 12.90 14.64 15.47
44.0 41.7 40.6 38.6 36.9 8.95 8.94 8.99 8.77 8.79
------- ------- ------- ------- -------
818.2 796.1 758.6 774.7 772.0 8.67 8.69 8.53 8.67 8.76
130.0 136.8 132.0 128.7 127.4 6.41 6.58 6.43 6.41 6.30
6.6 7.6 7.1 8.3 9.8 9.57 10.32 9.19 9.98 11.33
------- ------- ------- ------- -------
136.6 144.4 139.1 137.0 137.2 6.52 6.71 6.53 6.57 6.54
.9 1.1 1.0 1.1 1.6 5.81 5.89 5.46 5.58 5.67
4.2 3.8 3.9 3.5 3.4 5.82 5.31 5.43 5.36 5.26
2.4 2.0 2.0 2.8 1.1 5.02 4.06 3.86 5.20 5.76
------- ------- ------- ------- -------
$962.3 $947.4 $904.6 $919.1 $915.3 8.24% 8.27% 8.11% 8.24% 8.31%
$ 71.5 $ 67.1 $ 64.0 $ 64.2 $ 63.6 3.10% 2.95% 2.87% 2.85% 2.81%
22.8 23.8 24.5 25.7 26.8 2.44 2.49 2.55 2.58 2.58
197.9 193.7 190.3 197.6 195.3 5.61 5.60 5.60 5.61 5.60
12.7 11.9 9.2 8.2 6.7 5.25 5.13 4.79 4.86 4.48
13.5 14.4 11.7 12.2 13.2 5.21 5.41 5.08 5.15 5.26
15.2 16.3 19.9 17.1 15.8 5.66 5.60 5.66 6.24 6.39
29.7 32.0 38.2 36.0 34.6 4.73 4.84 4.83 5.10 4.90
30.1 34.4 21.6 17.9 16.7 5.44 5.70 5.39 4.94 5.08
73.5 59.4 47.8 47.0 47.8 6.28 6.35 6.32 6.34 6.20
------- ------- ------- ------- -------
$466.9 $453.0 $427.2 $425.9 $420.5 4.72% 4.68% 4.59% 4.59% 4.55%
$495.4 $494.4 $477.4 $493.2 $494.8
======= ======= ======= ======= =======
........................................................... 3.52% 3.59% 3.52% 3.65% 3.76%
........................................................... .74 .72 .74 .78 .74
------- ------- ------- ------- -------
........................................................... 4.26% 4.31% 4.26% 4.43% 4.50%
======= ======= ======= ======= =======
</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
FORM 10-Q -- SEPTEMBER 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: October 31, 1997
/s/ ROBERT G. SIEFERS
Robert G. Siefers
Vice Chairman
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
19
<PAGE> 21
<TABLE>
<S> <C>
Bulk Rate
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,466,628
<INT-BEARING-DEPOSITS> 156,900
<FED-FUNDS-SOLD> 418,750
<TRADING-ASSETS> 13,888
<INVESTMENTS-HELD-FOR-SALE> 8,919,473
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 38,547,120
<ALLOWANCE> 708,236
<TOTAL-ASSETS> 52,671,386
<DEPOSITS> 35,333,380
<SHORT-TERM> 6,976,252
<LIABILITIES-OTHER> 1,289,764
<LONG-TERM> 4,745,546
0
0
<COMMON> 855,394
<OTHER-SE> 3,471,050
<TOTAL-LIABILITIES-AND-EQUITY> 52,671,386
<INTEREST-LOAN> 2,368,039
<INTEREST-INVEST> 412,108
<INTEREST-OTHER> 21,253
<INTEREST-TOTAL> 2,801,400
<INTEREST-DEPOSIT> 928,919
<INTEREST-EXPENSE> 1,347,098
<INTEREST-INCOME-NET> 1,454,302
<LOAN-LOSSES> 108,415
<SECURITIES-GAINS> 49,265
<EXPENSE-OTHER> 1,440,423
<INCOME-PRETAX> 875,681
<INCOME-PRE-EXTRAORDINARY> 875,681
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 598,427
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.70
<YIELD-ACTUAL> 0
<LOANS-NON> 127,000
<LOANS-PAST> 103,000
<LOANS-TROUBLED> 3,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 705,893
<CHARGE-OFFS> 168,205
<RECOVERIES> 70,266
<ALLOWANCE-CLOSE> 708,236
<ALLOWANCE-DOMESTIC> 409,596
<ALLOWANCE-FOREIGN> 144
<ALLOWANCE-UNALLOCATED> 298,496
</TABLE>
