<PAGE> 1
1996
ANNUAL REPORT
[GRAPHICS]
NATIONAL CITY (R)
<PAGE> 2
1996 ANNUAL REPORT
CORPORATE PROFILE
National City Corporation is a $51 billion diversified financial services
company based in Cleveland, Ohio. National City operates banks and other
financial service subsidiaries principally in Ohio, Kentucky, Indiana and
Pennsylvania. National City subsidiaries provide financial services that
meet a wide range of customer needs, including commercial and retail
banking, trust and investment services, item processing, mortgage banking,
and credit card processing.
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ANNUAL MEETING
The Annual Meeting of Stockholders will be on
Monday, April 14, 1997 at 10:00 a.m.:
National City Center
1900 East Ninth Street, 4th Floor
Cleveland, OH 44114
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts) 1996 1995 Percent Change
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
FOR THE YEAR:
Net Income $736,630 $591,460 25%
Preferred Dividend Requirements 4,028 14,830 (73)
Net Income Applicable to Common Stock 732,602 576,630 27
Net Income Per Common Share:
Primary 3.29 2.68 23
Fully Diluted 3.27 2.64 24
Dividends Paid Per Common Share 1.47 1.30 13
- -----------------------------------------------------------------------------------------------------------
Return on Average Common Equity 17.69% 16.18%
Return on Average Assets 1.51 1.23
- -----------------------------------------------------------------------------------------------------------
Average Shares -- Primary 222,674,326 215,097,124 4%
Average Shares -- Fully Diluted 225,503,431 224,004,487 1
- -----------------------------------------------------------------------------------------------------------
AT YEAR END:
Assets $50,855,835 $50,541,845 1%
Loans 35,830,068 34,465,826 4
Securities 8,997,322 10,344,988 (13)
Deposits 35,999,747 35,580,967 1
Common Stockholders' Equity 4,432,063 3,878,446 14
Stockholders' Equity 4,432,063 4,063,846 9
- -----------------------------------------------------------------------------------------------------------
Equity to Assets Ratio 8.71% 8.04%
Tier 1 Capital Ratio 9.84 9.14
Total Risk-Based Capital Ratio 14.79 13.47
Leverage Ratio 8.16 7.26
- -----------------------------------------------------------------------------------------------------------
Book Value Per Common Share $19.86 $18.33 8%
Market Value Per Common Share 44.88 33.13 35
- -----------------------------------------------------------------------------------------------------------
Common Shares Outstanding 223,198,494 211,571,079 5
Common Stockholders of Record 36,153 37,827 (4)
Full-Time Equivalent Employees 26,256 25,913 1
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Note: All prior period amounts, except for dividends paid per share and market
value per share, have been restated to reflect the pooling-of-interests
transaction with Integra Financial Corporation which closed May 3, 1996.
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ANNUAL TOTAL RETURN
National City vs. S&P 500
20 Yrs: 12/76-12/96 16.0% 14.5% CONTENTS
15 Yrs: 12/81-12/96 22.2% 16.8% To Our Stockholders...........2
10 Yrs: 12/86-12/96 16.6% 15.3% Financial Review..............5
5 Yrs: 12/91-12/96 24.4% 15.20% Financial Statements and
Notes......................22
1 Yrs: 12/95-12/96 40.7% 22.9%
Form 10-K.....................42
Board of Directors/Officers...46
Corporate Directory...........48
1
<PAGE> 4
TO OUR STOCKHOLDERS
===============================================================================
[PICTURE]
From left: David A. Daberko, Chairman & Chief Executive Officer;
William R. Robertson, President;
Vincent A. DiGirolamo, Vice Chairman
The year 1996 was an exciting and eventful one for National City. We
achieved record earnings, successfully completed the largest acquisition in our
history, and directly addressed the major strategic issues in a number of our
businesses.
Net income for 1996 was a record $736.6 million, or $3.27 per share, and
23.9% higher than 1995. Return on equity was 17.7% on a capital base that is one
of the strongest in the industry. Total revenues, excluding security gains, grew
8.8%, while overhead expenses, excluding one-time merger costs, were flat. The
provision for loan losses fully covered net loan charge-offs, so that reserve
balances were maintained. Credit quality, long a National City hallmark,
continues to be excellent both in absolute terms and relative to the industry.
National City stock closed the year at $44.88 per share, representing a
total return to investors (price appreciation plus dividends) of 40.7% for the
year. Over the last five years, National City stock has outperformed both the
banking industry and the general market as measured by the S&P Regional Bank
Index and the S&P 500 Index, respectively.
2
<PAGE> 5
The reported numbers include the results of Integra Financial Corporation,
a $14 billion Pittsburgh-based banking company which merged with National City
in a pooling-of-interests transaction consummated in May. This merger was the
most successful in our history. As of June 1996, less than 30 days after
closing, the new National City Bank of Pennsylvania made its debut, with all
systems and procedures of the former Integra Bank converted to National City's
single operating system. While the cost savings achieved from merger integration
enhance the initial return from this transaction, the real payoff is the
opportunity for revenue growth -- marketing National City products and services
in the western Pennsylvania market. It is clear that our earnings, and our
growth rate, will benefit from this acquisition for years to come.
As we outlined in last year's letter, our principal business strategy is to
capture a greater "share-of-wallet" by selling more products to existing
customers and therefore realize the maximum long-term value of the customer
relationship. To do so requires that we understand our customers' needs,
organize ourselves to meet those needs cost-effectively, and market the right
products and services through the appropriate delivery channels. In retail
banking, we are using sophisticated information management techniques to better
understand and predict customer needs and behaviors. In corporate banking, we
have automated the routine aspects of the credit administration process, and we
are using a team selling approach to bring an impressive array of capital
markets, cash management, and other corporate service capabilities to our large
base of middle-market clientele.
In addition, to better serve the growing base of affluent individuals and
households, we created the Private Client Group which combines the former
personal trust and private banking divisions into a single customer-driven
entity. The remainder of the former Trust Group, principally asset management,
employee benefits and corporate trust services, has been reorganized into
Institutional Trust, focusing on corporate clients and providing investment
management services to the Private Client Group.
Behind these initiatives is a financial performance culture which
emphasizes achieving the highest sustainable return on equity in each business.
The core banking businesses are already earning a high return. This year we also
addressed strategic challenges in the nonbank businesses.
For example, National City has long been an efficient and high-quality
servicer of mortgages, but mortgage origination volume has been insufficient to
maintain a critical mass of servicing. We have renewed our commitment to this
business and are seeking ways to increase mortgage originations, including
faster turnaround of applications and acquisitions. This month we announced the
acquisition of a mortgage origination network which will increase annual
origination volume by over fifty percent.
Commitment to Shareholder Value
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National City achieved a 17.7% return on equity in 1996 on an exceptionally
strong capital base.
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Net income per share grew 23.9% in 1996 to $3.27 from $2.64 in 1995, a record.
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In December 1996, the annual indicated dividend increased 11.6% to $1.64 per
share, compared to $1.47 per share paid in 1996. This continues our pattern of
semi-annual dividend increases over the past four years.
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Total return on National City stock over the past five years has exceeded that
of the S&P Super Regional Bank Index and the S&P 500 Index by 22.8% and 93.7%,
respectively.
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Share ownership requirements further align management's interests with those of
stockholders.
3
<PAGE> 6
In August, our National Processing Company (NPC) subsidiary made a
successful initial public stock offering, highlighting the "hidden value" in
this profitable, fast-growing specialty business. National City continues to own
85% of NPC and the stock trades on the New York Stock Exchange under the symbol
"NAP." As an aside, the current market value of National City's investment in
NPC exceeds the entire purchase price of First Kentucky National Corporation in
1988, of which NPC was a relatively small subsidiary.
In November, we exited the private label credit card business with the sale
of our $400 million private label portfolio. The business had not met our return
targets for the last several years. Going forward, our credit card focus will be
narrowed to marketing to our natural bank customer base in the four-state
region; back-office processing operations will be outsourced in 1997.
The purpose of these strategies and actions is to generate superior value
for our stockholders. We are committed to taking National City to the next level
of performance in terms of return on equity and consistent high growth in
earnings per share. Our balance sheet is solid, and we have more than adequate
capital to invest in high-return businesses, either internally or through
acquisition. In December, we increased the quarterly dividend to $.41 per share,
continuing our pattern of semi-annual dividend increases since 1993. At the same
time, following a reevaluation of our capital position, we announced a
five-million share stock repurchase program. We will continue to evaluate
capital needs and alternatives carefully.
Although the economy and interest rates may present some unanticipated
challenges in 1997, the fundamentals of our main operating businesses and
markets are sound. To remain successful, we must execute flawlessly in sales and
customer service, utilization of technology, risk management, cost control, and
deployment of capital. To assure that our employees are focused on the right
things, we have and will continue to emphasize merit-based and incentive-based
variable compensation over the traditional fixed salary. We have also encouraged
all employees to own more National City stock, and have established formal
ownership requirements for senior officers and directors. These programs are
indicative of our desire to foster a performance culture in which National City
employees and management are both customer- and shareholder-oriented. The
beneficiaries of this environment will be our customers, our employees and, most
importantly, our shareholders.
/s/ David A. Daberko
David A. Daberko
January 22, 1997
4
<PAGE> 7
FINANCIAL REVIEW
EARNINGS SUMMARY
National City Corporation reported record net income of $736.6 million in 1996,
compared with $591.5 million in 1995 and $598.5 million in 1994. Fully diluted
earnings per share increased 23.9% in 1996 to $3.27, compared with $2.64 in 1995
and $2.60 in 1994.
Return on average common equity was 17.69% in 1996, up from 16.18% in 1995
and 17.31% in 1994 (Chart 2). Return on average assets was 1.51% in 1996 versus
1.23% in 1995 and 1.35% in 1994 (Chart 3). The 1996 results reflect solid net
interest income, growing noninterest income and demonstrated expense management.
National City's results for all prior periods have been restated to include
the results of Integra Financial Corporation ("Integra"). Integra was merged
with National City, effective May 3, 1996, and was accounted for using the
pooling-of-interests method of accounting.
The following table reconciles the major changes in fully diluted net income
per common share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1996 1995
VS vs
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
NET INCOME PER COMMON SHARE, PRIOR YEAR $2.64 $2.60
Increase (decrease) from changes in:
Net interest income .33 .11
Provision for loan losses (.09) (.01)
Fee and other income .40 .15
Noninterest expense (.21) (.39)
Security gains .22 .04
Shares outstanding and taxes (.02) .14
- -------------------------------------------------------------------
NET INCOME PER COMMON SHARE, CURRENT YEAR $3.27 $2.64
- -------------------------------------------------------------------
</TABLE>
"Tangible" or "cash" earnings per share were $3.42 and $2.80 in 1996 and
1995, respectively. This calculation adjusts net income for the non-cash impact
of intangible amortization expense. "Return on tangible equity," which excludes
the impact of intangibles from both net income and equity, was 20.1% in 1996
versus 18.7% in 1995.
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 reported results reflect
the underlying economics of the 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 the
contribution table below.
The contribution of National City's major units to consolidated results for
the past two years is summarized in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1996 1995
---------------- ----------------
RETURN Return
NET ON Net on
(Dollars in Millions) INCOME EQUITY Income Equity
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate banking $175.6 20.74% $185.4 22.25%
Retail banking 481.3 25.06 383.7 21.43
Fee-based businesses 60.3 18.46 51.3 18.56
Parent and other 19.4 -- (28.9) --
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Consolidated total $736.6 17.69% $591.5 16.18%
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</TABLE>
The corporate banking business includes a broad range of commercial and
corporate lending, as well as commercial real estate, asset-based lending and
leasing. A full range of deposit, treasury management and international services
is also offered. In 1996, corporate banking had a return on equity of 20.74% and
earnings of $175.6 million. Although average commercial loans
- --------------------------------------------------------------------------------
Chart 1
Fully diluted net income and dividends per common share
(as originally reported)
Net income Dividends paid
per share per share
76 .75 .26
77 .81 .29
78 .84 .33
79 .91 .37
80 .89 .41
81 .76 .41
82 .84 .41
83 .95 .41
84 1.21 .42
85 1.52 .44
86 1.61 .50
87 1.16 .60
88 1.92 .72
89 2.18 .84
90 1.93 .94
91 1.80 .94
92 2.06 .94
93 2.37 1.06
94 2.64 1.18
95 2.95 1.30
96 3.25 1.47
5
<PAGE> 8
FINANCIAL REVIEW (continued)
increased 5.8% from 1995, competitive pricing pressure resulting in narrower
spreads on loans, compounded with a higher provision for loan losses, led to a
$9.8 million decrease in corporate banking net income.
The retail banking business includes the deposit-gathering branch franchise
along with lending to individuals and small businesses. Lending activities
include residential mortgages, indirect and direct consumer installment loans,
leasing, credit cards and student lending. The return on equity for this
business was 25.06% in 1996 and earnings were $481.3 million. The 25.4% increase
in net income was due to higher net interest income from consumer loan growth,
wider spreads on deposit accounts, and increases in banking office and card
related fees.
The fee-based businesses include institutional trust, mortgage banking, and
item processing:
- - Institutional trust includes employee benefit administration, mutual fund
management, charitable and endowment services, and custodial services. Trust
assets under management totaled $38.0 billion at December 31, 1996, up from
$35.0 billion at December 31, 1995. Assets in the ARMADA(TM)mutual funds
increased 50% to $5.1 billion, through new sales and a strong stock market.
- - Mortgage banking includes the origination of mortgages through retail offices
and broker networks, and mortgage servicing. The servicing portfolio totaled
$22.8 billion at December 31, 1996.
- - Item processing is conducted by National City's majority-owned subsidiary,
National Processing, Inc. (NYSE: NAP), and includes merchant credit card
processing, airline ticket processing, check guarantee services, and
receivables and payables processing services.
The increase in net income in the fee-based businesses reflects growing
revenues in all units which is further described in the Noninterest Income
discussion beginning on page 8.
The parent and other category includes general corporate expenses not
allocated to the business units, unallocated capital, interest expense on
corporate debt, and the net results of investment securities and interest rate
risk management.
NET INTEREST INCOME
On a tax equivalent basis, net interest income was up 6.2% to $1,963.5 million
in 1996, compared with $1,849.5 million in 1995, and $1,811.0 million in 1994
(Chart 4). Although average earning assets remained stable in 1996, net interest
income growth was the result of an improved asset and funding mix.
The following table reconciles net interest income as shown in the financial
statements to tax equivalent net interest income:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994
<S> <C> <C> <C>
- -------------------------------------------------------------------
Net interest income -
per financial statements $1,942.6 $1,828.3 $1,765.6
Tax equivalent adjustment 20.9 21.2 45.4
- -------------------------------------------------------------------
Net interest income -
tax equivalent $1,963.5 $1,849.5 $1,811.0
- -------------------------------------------------------------------
Average earning assets $ 44,227 $ 43,844 $ 40,197
- -------------------------------------------------------------------
Net interest margin 4.44% 4.22% 4.50%
- -------------------------------------------------------------------
</TABLE>
To compare nontaxable asset yields to taxable yields on a similar basis,
amounts are adjusted to pretax equivalents, based on the marginal corporate tax
rate of 35%.
The net interest margin, which is the difference between the tax equivalent
yield on earning assets and the rate paid on funds to support those earning
assets, increased 22 basis points to 4.44% in 1996 from 4.22% in 1995. The
margin increase reflects an improved asset and funding mix.
- --------------------------------------------------------------------------------
Chart 2
Return on average common equity
(net income after preferred dividends, divided by average common equity)
91 11.02 Return on average common equity rose to 17.69%
92 13.36 in 1996 on a very strong capital base. National
93 18.75 City seeks to produce a return which is higher
94 17.31 than its peers over time.
95 16.18
96 17.96
Chart 3
Return on average assets
(net income divided by average assets)
91 0.73 Return on average assets was 1.51% in 1996. Higher
92 0.99 fee income and expense efficiencies have helped
93 1.46 to boost this ratio.
94 1.35
95 1.23
96 1.51
6
<PAGE> 9
The following table summarizes the contribution of derivatives to net
interest income (amounts in brackets represent reductions of the related
interest income or expense line, as applicable):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------
INTEREST ADJUSTMENT TO:
Loans $ 21.9 $(13.1) $ 38.6
Securities (1.0) (7.7) (14.5)
- --------------------------------------------------------------------
Assets 20.9 (20.8) 24.1
Deposits (21.8) (4.6) (10.6)
- --------------------------------------------------------------------
EFFECT ON NET INTEREST INCOME $ 42.7 $(16.2) $ 34.7
- --------------------------------------------------------------------
</TABLE>
The future net interest income contribution of the derivative portfolio is
not significant at current interest rates. The effects of changing interest
rates are more fully discussed in the Asset/Liability Management discussion
starting on page 16.
The following table shows changes in interest income, expense and net
interest income due to volume and rate variances for major categories of assets
and liabilities:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 VS. 1995 1995 vs. 1994
------------------------- ---------------------------
DUE TO CHANGE IN Due to Change in
(Dollars in ----------------- NET ---------------- Net
Millions) VOLUME RATE* CHANGE Volume Rate* Change
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN TAX EQUIVALENT INTEREST INCOME --
Loans $197.1 $(51.4) $145.7 $297.1 $ 231.4 $528.5
Securities (102.6) 24.5 (78.1) 7.6 30.4 38.0
Money market
assets (12.6) (3.8) (16.4) (3.8) 14.5 10.7
- ----------------------------------------------------------------------
TOTAL $ 81.9 $(30.7) $51.2 $300.9 $ 276.3 $577.2
- ----------------------------------------------------------------------
(INCREASE) DECREASE IN INTEREST EXPENSE --
Savings and
NOW accounts $(14.1) $ (9.1) $(23.2) $ 12.0 $ (42.1) $(30.1)
Money market
accounts 8.9 4.8 13.7 13.9 (4.4) 9.5
Time deposits (4.0) 15.7 11.7 (127.4) (146.0) (273.4)
Purchased
funds 70.6 27.0 97.6 (58.5) (136.3) (194.8)
Long-term debt (48.1) 11.1 (37.0) (31.7) (18.1) (49.8)
- ----------------------------------------------------------------------
TOTAL $ 13.3 $ 49.5 $62.8 $(191.7) $(346.9) $(538.6)
- ----------------------------------------------------------------------
INCREASE IN TAX EQUIVALENT
NET INTEREST INCOME $114.0 $ 38.6
- ----------------------------------------------------------------------
<FN>
* Changes in interest income and interest expense not arising solely from rate
or volume variances are included in rate variances.
- ----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Chart 4
Net interest income and net interest margin
Net Interest Net Interest Tax equivalent net interest
Income Margin income increased 6.2% in 1996
92 1,714 4.54 due to solid loan growth and
93 1,790 4.63 reduced costs of interest-
94 1,811 4.50 bearing funds. The stable net
95 1,850 4.22 interest margin over time
96 1,964 4.44 reflects conservative interest
rate risk management.
7
<PAGE> 10
FINANCIAL REVIEW (continued)
NONINTEREST INCOME
An analysis of fees and other income for the last three years follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------
Item processing revenue $ 364,512 $ 327,929 $ 312,358
Service charges on deposits 214,659 196,474 190,707
Trust fees 177,124 167,224 153,431
Card related fees 123,306 98,806 97,197
Mortgage banking revenue 114,742 89,918 82,770
Service fees - other 54,209 53,693 59,854
Brokerage revenue 47,546 29,502 19,748
Other real estate owned income 7,474 5,188 13,696
Other 61,310 58,204 45,921
- --------------------------------------------------------------------
TOTAL $ 1,164,882 $1,026,938 $ 975,682
- --------------------------------------------------------------------
</TABLE>
Noninterest income increased 13.4% in 1996 to $1,164.9 million from $1,026.9
million in 1995. All categories of noninterest income increased in 1996, with
the highest growth coming from item processing, credit card fees, mortgage
banking revenue and brokerage revenue.
Item processing increased 11.2% in 1996 due to ongoing increases in merchant
card services and remittance processing revenues.
Deposit service charges increased 9.3% to $214.7 million in 1996 primarily
due to implementation of National City's fee structure in markets previously
served by Integra.
Trust fees increased 5.9% in 1996 and 9.0% in 1995 due to market-related
increases in assets under management. Increasing corporate custody assets over
the same two year period generated additional institutional trust revenue.
Card related fees increased 24.8% to $123.3 million in 1996. The increase
reflects the full year impact of excess servicing fees generated by the
September 1995 securitization of $440 million in credit card receivables, as
well as increased cardholder and merchant fees, and ATM interchange fees.
Mortgage banking revenues increased 27.6% to $114.7 million in 1996 due
mainly to the $25.2 million impact of Statement of Financial Accounting
Standards ("SFAS") No. 122, Accounting for Mortgage Servicing Rights, which was
adopted January 1, 1996. For explanation of the Corporation's accounting policy
regarding mortgage servicing rights, see Note 1 of the Notes to Consolidated
Financial Statements (Notes). Gains on mortgage servicing rights sold totaled
$18.4 million in 1995 and $16.7 million in 1994. There were no sales in 1996.
Brokerage revenue increased 61.2% to $47.5 million in 1996. This increase
reflects the full year impact from the July 1995 acquisition of Raffensperger,
Hughes & Co., Inc., a full-service investment banking and brokerage firm now
known as NatCity Investments, Inc. The increase also reflects additional
investment banking fees, higher transaction volume in retail brokerage, and a
strong stock market.
Other noninterest income increased 5.3% to $61.3 million in 1996. In 1996,
other income included a $6.0 million gain on the sale of the private label
credit card portfolio and $9.2 million of gains on branch sales. In 1995, other
income included a $9.2 million gain on the sale of credit card receivables.
NONINTEREST EXPENSE
The following table provides details of noninterest expenses for the last three
years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Salaries $ 736,439 $ 693,952 $ 654,660
Benefits 187,325 184,663 177,019
Equipment 135,139 127,612 122,278
Net occupancy 132,143 125,072 122,213
Third party services 139,928 147,595 116,834
Credit card fees 129,304 115,184 98,663
Postage and supplies 96,946 89,905 84,597
FDIC assessments 5,794 65,978 70,728
Amortization of intangibles 39,637 41,971 36,326
State and local taxes 38,561 39,027 39,227
Marketing and public relations 84,238 60,668 48,365
Transportation 34,377 31,293 30,247
Telephone 39,073 36,877 33,599
Other real estate owned expense 9,551 6,075 13,630
Merger-related charges 74,745 24,200 --
Other 127,480 148,949 154,525
- ----------------------------------------------------------------------
TOTAL $ 2,010,680 $1,939,021 $1,802,911
- ----------------------------------------------------------------------
</TABLE>
Noninterest expense increased 3.7% to $2,010.7 million in 1996, compared to
$1,939.0 million in 1995. One-time charges associated with the Integra merger
were the largest contributor to the increase. Excluding those charges,
noninterest expense was essentially flat compared to 1995.
Merger-related charges of $74.7 million were recorded in 1996 in connection
with the Integra merger. Merger charges included $33.4 million for severance and
other personnel costs, $26.2 million for write-offs of facilities, software,
equipment and other assets, and $15.1 million for transaction and miscellaneous
costs. In 1995, merger-related charges of $24.2 million were paid toward
contractual penalties and professional fees.
Third party service fees fluctuated over the past three years due to a higher
level of consulting and data processing fees in 1995. Elimination and
consolidation of third party service providers as a result of the Integra merger
caused the decrease from 1995.
FDIC assessments decreased $60.2 million in 1996 as a result of the statutory
reduction of the Federal Deposit Insurance Corporation's deposit insurance
premiums.
8
<PAGE> 11
Marketing and public relations expenses increased $23.6 million to $84.2 million
in 1996. The increase reflects a $30.4 million discretionary pre-funding of
National City's charitable foundation.
Other noninterest expense included $16.4 million and $13.2 million of unusual
items in 1995 and 1994, respectively, related to legal settlements and other
miscellaneous items.
The overhead performance measures of National City's major units for the past
two years are summarized in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Full-Time Overhead Efficiency
Equivalent Staff Ratio Ratio
<S> <C> <C> <C>
- -----------------------------------------------------------------------
1996
Corporate and retail banking 16,213 38.93% 53.43%
Fee-based businesses 8,719 -- 79.58
Corporate staff 1,324 -- --
- -----------------------------------------------------------------------
TOTAL 26,256 43.08% 64.27%
- -----------------------------------------------------------------------
Excluding merger charges 39.27% 61.88%
1995
Corporate and retail banking 17,009 45.67% 58.34%
Fee-based businesses 7,772 -- 81.58
Corporate staff 1,132 -- --
- -----------------------------------------------------------------------
TOTAL 25,913 49.31% 67.41%
- -----------------------------------------------------------------------
Excluding merger charges 48.01% 66.57%
</TABLE>
Full-time equivalent staff increased in 1996 primarily due to staffing in the
item processing subsidiary.
The overhead ratio (noninterest expense less fee income as a percentage of
fully taxable net interest income) was 43.1% in 1996, compared with 49.3% in
1995 and 45.7% in 1994 (Chart 5).
The efficiency ratio (noninterest expense as a percentage of fee income plus
tax-equivalent net interest income) was 61.9% in 1996 (excluding merger charges)
versus 66.6% in 1995 and 64.7% in 1994. The fee-based businesses generally have
lower gross margins than traditional banking. Therefore, growth in these
businesses penalizes the efficiency ratio; conversely, strong fee income
benefits the overhead ratio.
SECURITIES GAINS AND LOSSES
Net realized securities gains and losses are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Net gain (loss) on sales of debt
securities $ 5,838 $ (8,279) $ 12,095
Tax expense (benefit) 2,043 (2,898) 4,234
- ----------------------------------------------------------------------
After tax $ 3,795 $ (5,381) $ 7,861
- ----------------------------------------------------------------------
Net gains on sales of equity
securities $ 102,308 $ 50,644 18,184
Tax expense 27,544 16,399 6,014
- ----------------------------------------------------------------------
After tax $ 74,764 $ 34,245 $ 12,170
- ----------------------------------------------------------------------
Effect on net income $ 78,559 $ 28,864 $ 20,031
- ----------------------------------------------------------------------
Effect on earnings per share $ .35 $ .13 $ .09
- ----------------------------------------------------------------------
</TABLE>
As shown in the above table, equity securities gains represent the majority
of securities gains over the last three years. The primary source of these gains
has been the Corporation's internally-managed Bank Stock Fund, an equity
portfolio consisting primarily of bank and thrift common stock investments. At
December 31, 1996, the market value and unrealized appreciation of Bank Stock
Fund equity investments totaled $463.0 million and $207.9 million, respectively.
EARNING ASSETS
Average earning assets for 1996 were $44,227 million, compared with $43,844
million in 1995 and $40,197 million in 1994. Although average loans increased
6.7% over the prior year, this growth was offset by a decline in the securities
portfolio. Average earning assets increased 9.1% in 1995 versus 1994, driven by
a 12.4% increase in average loans.
- --------------------------------------------------------------------------------
Chart 5
Overhead ratio
(noninterest expenses less fee income, divided by net interest income)
91 54.89
92 55.25
93 47.47
94 45.68
95 49.31
96 43.08
The overhead ratio improved in 1996 to the lowest level in the last six years.
The improvement was due to successful integration of acquisitions, the
maintenance of flat overhead expenses at the banking level, and revenue growth.
9
<PAGE> 12
FINANCIAL REVIEW (continued)
LOANS: At year-end 1996, loans were $35,830 million, representing an increase
of 4.0% from year-end 1995. Average loans are shown in Chart 6. Ending loan
balances are summarized in the table below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Commercial and
industrial $ 10,935 $11,048 $ 9,888 $ 9,764 $ 9,452
Nontaxable 283 282 344 343 410
Real estate
construction 775 713 575 686 736
Leasing 516 358 297 310 323
Commercial mortgage 3,441 3,332 3,195 3,058 2,738
Residential mortgage 7,623 7,501 6,218 5,903 4,482
Consumer 9,252 8,149 7,161 6,325 5,742
Home equity 1,783 1,546 1,327 1,176 1,024
Credit card 1,222 1,537 1,696 1,037 1,044
- -------------------------------------------------------------------------
TOTAL LOANS $ 35,830 $34,466 $30,701 $28,602 $25,951
- -------------------------------------------------------------------------
</TABLE>
Commercial: More than 75% of the commercial loan portfolio consists of loans
made to middle-market customers in National City's four-state market area. The
loan mix is diverse, covering a broad range of borrowers characteristic of the
Midwest economy. As a matter of policy, concentrations within a particular
industry or segment are continually monitored and controlled.
Commercial loan growth remained steady throughout 1996. Future growth should
be supplemented by increased emphasis on commercial leasing and asset-based
lending.
An analysis of the maturity and interest rate sensitivity of commercial loans
at the end of 1996 follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
One Year One to Over
(Dollars in Millions) or Less Five Years Five Years Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic commercial $4,924 $5,074 $1,672 $11,670
Real estate
construction 262 257 256 775
International 37 13 14 64
- ---------------------------------------------------------------------
TOTAL $5,223 $5,344 $1,942 $12,509
- ---------------------------------------------------------------------
TOTAL VARIABLE RATE $4,773 $4,024 $1,040 $ 9,837
TOTAL FIXED RATE 450 1,320 902 2,672
- ---------------------------------------------------------------------
</TABLE>
Commercial Real Estate: Commercial mortgages included $2,451 million of loans
secured by income-producing real estate in 1996, up from $2,375 million in 1995
and $2,415 million in 1994.
Commercial real estate lending includes real estate construction and
permanent loans secured by income-producing investment real estate. The
following table shows outstanding balances and unfunded commitments at year-end:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Total
Commercial
Real
(Dollars in Millions) Construction Permanent Estate
- -----------------------------------------------------------------
<S> <C> <C> <C>
OUTSTANDING:
1996 $775 $ 2,451 $3,226
1995 713 2,375 3,088
1994 575 2,415 2,990
UNFUNDED COMMITMENTS:
1996 $394 $ 296 $ 690
1995 305 263 568
1994 261 206 467
- -----------------------------------------------------------------
</TABLE>
Activities in commercial real estate are based primarily on relationships
with developers who are active in local markets. More than 85% of outstandings
are in National City's primary markets of Ohio, Kentucky, Indiana and
Pennsylvania. The portfolio consists predominantly of relatively small-scale
office, retail and apartment buildings.
Total commercial real estate loans made up 9% of the total loan portfolio at
December 31, 1996, relatively the same percentage as at year-end 1995 and 1994.
The following table shows commercial real estate loans at year-end 1996 by
state and by project:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(Dollars in Millions)
- -------------------------------------------------------------------
<S> <C> <C> <C>
BY STATE: BY PROJECT:
Ohio $1,480 Retail $ 736
Pennsylvania 767 Land 102
Kentucky 308 Apartments 648
Indiana 250 Office 486
Florida 52 Industrial 154
Michigan 22 Other 1,100
Other 347
- -------------------------------------------------------------------
TOTAL $3,226 TOTAL $3,226
- -------------------------------------------------------------------
</TABLE>
At year-end, there were no concentrations of real estate loans in any
deteriorating economic areas.
Residential Mortgage: Residential mortgage loan demand continued strong in
1996. Loan originations totaled approximately $3.7 billion in 1996, up from $3.6
billion in 1995. Of the 1996 originations, $2.6 billion were sold in the
secondary market.
Consumer: During 1996, consumer loans continued the upward trend, increasing
13.5% from year-end 1995. More than 70% of consumer loans are installment loans,
primarily auto-related, and of these more than 65% are indirect, with the
majority at fixed rates. The remainder of the consumer portfolio is comprised of
student loans.
10
<PAGE> 13
Credit Card: The decline in credit card outstandings in 1996 reflects the
sale of the $400 million private label credit card portfolio in November 1996.
The decline in credit card receivables from 1994 to 1995 reflects the
securitization of $440 million of credit card receivables in September 1995. The
managed card portfolio, which includes both on-balance sheet receivables and
securitized balances, decreased 15.9% from year-end 1995 as the result of the
private label credit card portfolio sale.
SECURITIES: On a cost basis, the securities portfolio decreased from $10.0
billion at December 31, 1995 to $8.8 billion at December 31, 1996. The decrease
in the securities portfolio was used to finance growth in the loan portfolio.
The decrease during 1996 was primarily in mortgage-backed securities which
declined by $1.6 billion as sales, scheduled and unscheduled principal
repayments totaled $2.7 billion and exceeded purchases of $1.1 billion.
Summary information with respect to the securities portfolio at December 31
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
AMORTIZED 1996 Amortized Amortized
(Dollars in Millions) COST YIELD Cost Cost
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY AND FEDERAL AGENCY DEBENTURES:
Under 1 year $ 527 6.47% $ 50 $ 154
1 to 5 years 1,382 5.63 1,427 1,996
5 to 10 years 321 6.22 504 487
Over 10 years -- -- 95 67
- ----------------------------------------------------------------------
TOTAL 2,230 5.91 2,076 2,704
- ----------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES:
Under 1 year 122 5.88 104 13
1 to 5 years 2,619 6.86 2,826 1,716
5 to 10 years 1,635 6.86 811 902
Over 10 years 14 6.58 2,255 2,638
- ----------------------------------------------------------------------
TOTAL 4,390 6.83 5,996 5,269
- ----------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
AMORTIZED 1996 Amortized Amortized
(Dollars in Millions) COST YIELD Cost Cost
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED AND CORPORATE DEBT SECURITIES:
Under 1 year 93 6.47 2 --
1 to 5 years 591 6.81 159 188
5 to 10 years 221 7.35 75 69
Over 10 years 85 6.46 581 478
- ----------------------------------------------------------------------
TOTAL 990 6.87 817 735
- ----------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS:
Under 1 year 58 12.25 69 117
1 to 5 years 91 10.77 115 203
5 to 10 years 89 8.70 122 109
Over 10 years 87 9.02 130 149
- ----------------------------------------------------------------------
TOTAL 325 10.00 436 578
- ----------------------------------------------------------------------
OTHER SECURITIES:
Under 1 year 183 -- 25 18
1 to 5 years 2 -- 172 155
5 to 10 years 19 -- 93 81
Over 10 years 631 -- 428 347
- ----------------------------------------------------------------------
TOTAL 835 -- 718 601
- ----------------------------------------------------------------------
TOTAL SECURITIES $ 8,770 6.57%* $10,043 $ 9,887
- ----------------------------------------------------------------------
<FN>
* Yield on debt securities only; equity securities excluded.
- ----------------------------------------------------------------------
</TABLE>
Yields on tax-exempt securities are calculated on a tax equivalent basis
using the marginal Federal income tax rate of 35%. Mortgage-backed securities
are assigned to maturity categories based on their estimated average lives.
The general increase in interest rates during 1996 led to a decrease in the
unrealized appreciation of the securities portfolio. At December 31, 1996, a net
unrealized gain of $147.8 million, net of tax, was included in stockholders'
equity, compared to a net unrealized gain of $196.5 million, net of tax, at
December 31, 1995.
The portfolio yield at December 31, 1996 was 6.57%, compared to 6.74% at
December 31, 1995. The
- --------------------------------------------------------------------------------
Chart 6
Average Loans
($ in million)
Corporate Banking Consumer Banking
Comm'l Residential Revolving
Commercial Real Estate Installment Real Estate Credit
91 11,819 2,463 91 5,898 4,133 1,878
92 10,977 2,621 92 5,909 4,237 1,763
93 10,543 3,018 93 5,906 4,998 2,106
94 10,782 3,236 94 6,693 5,888 2,511
95 11,584 3,473 95 7,617 7,039 3,058
96 12,261 3,368 96 8,739 7,486 3,125
The loan portifolio mix is approximately 45% corporate and 55% retail loans. The
retail loan portifolio, which includes revlolving credit, residential real
estate and installment loans, has grown at a faster rate than corporate loans
in recent years.
11
<PAGE> 14
FINANCIAL REVIEW (continued)
decline in yield is attributable primarily to prepayments of higher yielding
mortgage-backed securities and the maturity and sale of higher yielding callable
Federal agency securities.
Investments in collateralized mortgage obligations (CMO's) totaled $1.6
billion and $2.1 billion at December 31, 1996 and 1995, respectively. At
December 31, 1996, CMO's with book values of $134 million and market values of
$137 million were considered "high risk" under regulatory definitions. These
securities are classified as "high risk" because either their price sensitivity
or average life extension is potentially beyond the limits for CMO's not
classified as "high risk" by regulatory definitions. These securities and all
CMO's are continually monitored and subjected to stress tests for price and
average life sensitivity. The amount of mortgage-backed securities that are
either variable or adjustable rate totaled $1.4 billion at December 31, 1996, or
32% of total mortgage-backed securities.
INTEREST-BEARING LIABILITIES
Average balances in transaction accounts, which include demand deposits,
savings, and interest-bearing checking, grew by 1.5% in 1996, while time
deposits of individuals remained flat. Overall, average core deposits increased
at a pace similar to earning assets.
On average, use of purchased funds decreased by $492 million in 1996, due to
an increase in lower cost deposits. Purchased funds include all interest-bearing
liabilities that are not core deposits.
A maturity distribution of certificates of deposit of $100,000 or more at
year-end follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(Dollars in Millions) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
DUE IN:
3 months or less $1,107 $ 890
3 to 6 months 349 345
6 to 12 months 450 469
Over 1 year 1,507 1,055
- -------------------------------------------------------------------
TOTAL $3,413 $2,759
- -------------------------------------------------------------------
</TABLE>
Details regarding federal funds borrowed and security repurchase agreements
follow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31 $4,277 $5,300 $3,842
Maximum outstanding at any month-end 4,512 5,300 3,893
Daily average amount outstanding 3,959 4,394 3,401
Weighted daily average interest rate 5.40% 5.43% 5.00%
Weighted daily interest rate for
amounts outstanding at December 31 5.89% 4.90% 5.28%
- ------------------------------------------------------------------
</TABLE>
CAPITAL
Total stockholders' equity was $4,432 million at December 31, 1996, representing
a 9.1% increase from year-end 1995.
The Corporation has consistently maintained capital ratios at or above the
"well capitalized" standards. For further detail on capital ratios, see Note 11.
Total equity was 8.71% of total assets at year-end 1996 compared to 8.04% a
year ago. Tangible equity, which excludes goodwill and other intangible assets
was 7.81% of tangible assets at December 31, 1996 versus 7.09% at December 31,
1995.
Book value per common share at December 31, 1996 was $19.86, compared to
$18.33 at December 31, 1995 (Chart 8). The 1996 book value included $.66 of
unrealized market appreciation in the securities available for sale portfolio,
compared with $.93 of market appreciation at year-end 1995.
- --------------------------------------------------------------------------------
Chart 7
Average Funding Sources
($ in million)
Core Other Purchased
Deposits Deposits Funds
91 24,904 2,152 5,126
92 25,496 1,199 5,427
93 25,052 827 6,494
94 25,097 1,519 7,146
95 26,739 1,886 8,745
95 27,005 1,504 8,635
12
<PAGE> 15
Cash dividend payout is continually reviewed by management and the Board of
Directors. For the past three- and five-year periods, the dividend payout has
averaged 46.0% and 46.4%, respectively.
In December 1996, the Board of Directors declared a first quarter dividend of
$.41 per common share, representing a 9% increase from the next preceding
quarterly dividend of $.375 per share. The dividend is payable February 1 to
stockholders of record on January 12, 1997.
At December 31, 1996, the Corporation had authorization to repurchase up to
five million shares of National City common stock in the open market. All shares
repurchased will be held as treasury shares for reissue in connection with the
dividend reinvestment and stock option plans, and for general corporate
purposes.
Effective May 1, 1996, the Corporation called for redemption all of the
outstanding depositary shares of the 8% Cumulative Convertible Preferred Stock.
The depositary shares were convertible at a rate of approximately 2.384 shares
of National City common stock per depositary share, and virtually all preferred
stockholders exercised their conversion rights prior to the redemption date.
National City Corporation's common stock trades on the New York Stock
Exchange under the symbol NCC. As of December 31, 1996, there were 36,153 common
stockholders of record. The total market capitalization of the Corporation was
approximately $10.0 billion at December 31, 1996.
Quarterly dividends paid and common stock prices follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
NYSE: NCC First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
1996
Dividends paid $ .36 $ .36 $ .375 $.375 $ 1.47
High 35.38 37.75 42.75 47.25 47.25
Low 30.63 33.25 33.75 41.50 30.63
Close 35.13 35.13 42.13 44.88 44.88
1995
Dividends paid $ .32 $ .32 $ .33 $ .33 $ 1.30
High 27.88 30.63 31.63 33.75 33.75
Low 25.25 26.50 29.00 29.88 25.25
Close 26.63 29.38 30.88 33.13 33.13
- -------------------------------------------------------------------------
</TABLE>
ASSET QUALITY
NONPERFORMING ASSETS: A summary of nonaccrual and restructured loans and
other nonperforming assets at December 31 follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL:
Nonaccrual $ 82.7 $ 108.2 $ 66.1 $102.1 $179.0
Restructured -- .1 2.4 4.1 6.6
- -------------------------------------------------------------------------
TOTAL COMMERCIAL 82.7 108.3 68.5 106.2 185.6
- -------------------------------------------------------------------------
REAL ESTATE RELATED:
Nonaccrual 57.2 75.0 104.6 156.7 182.9
Restructured 3.2 4.1 4.4 6.5 4.3
- -------------------------------------------------------------------------
TOTAL REAL ESTATE RELATED 60.4 79.1 109.0 163.2 187.2
- -------------------------------------------------------------------------
TOTAL NONPERFORMING LOANS 143.1 187.4 177.5 269.4 372.8
Other real estate owned
(OREO) 24.5 21.4 48.7 114.0 221.6
- -------------------------------------------------------------------------
TOTAL NONPERFORMING
ASSETS $ 167.6 $ 208.8 $226.2 $383.4 $594.4
- -------------------------------------------------------------------------
Loans 90 days past due
accruing interest $ 107.1 $ 64.7 $ 51.3 $ 68.1 $ 76.4
- -------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Chart 8
Book value and stock price history
(adjusted for stock splits; not restated for poolings)
High Low Year-end National City's stock
Book Stock Stock Stock price at December 31, 1996
Value Price Price Price was 2.3 times book value,
roughly in line with
76 4.80 6.76 4.26 6.76 peers. Over the past 20
77 5.31 6.67 6.08 6.13 years, the average
78 5.81 7.19 5.71 5.95 annual total return on
79 6.34 6.82 5.89 6.39 National City stock,
80 6.83 6.41 4.41 5.08 assuming reinvestment of
81 7.18 5.56 4.26 4.52 dividends, was 16.0%,
82 7.69 5.41 3.45 4.78 compared with 14.5% for
83 8.24 6.89 4.49 6.89 the S&P 500.
84 8.65 8.61 5.78 8.47
85 8.74 11.28 8.39 10.97
86 10.40 16.46 10.95 15.29
87 10.58 19.13 11.94 14.56
88 10.92 16.82 13.88 16.44
89 12.43 20.75 15.38 19.56
90 13.39 19.94 11.32 15.63
91 14.24 21.13 14.07 18.63
92 14.54 24.82 17.94 24.81
93 16.15 28.06 23.13 24.50
94 16.36 29.00 23.75 25.88
95 18.80 33.75 25.25 33.13
96 19.86 47.25 30.63 44.88
13
<PAGE> 16
FINANCIAL REVIEW (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONPERFORMING LOANS AND OREO AS A PERCENT OF:
Loans and OREO .5% .6% .7% 1.3% 2.3%
Assets .3 .4 .5 .8 1.4
Equity 3.8 5.1 6.5 10.1 18.3
Loan loss allowance to
nonperforming loans 493% 377% 398% 254% 167%
- -----------------------------------------------------------------------
</TABLE>
All loans considered impaired under SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, adopted on January 1, 1995, are included in non-performing
loans.
Commercial and residential real estate loans and securities are designated as
nonperforming when payments are 90 or more days past due, when credit terms are
renegotiated below market levels, or when individual analysis of a borrower's
creditworthiness indicates that a credit should be placed on nonaccrual status,
unless the loan is adequately collateralized and is in the process of
collection.
Consumer loans are reported as "90 days past due accruing interest" once the
90-day criterion has been met, and are charged off in the month in which the
loan becomes 120 days past due. Generally, when loans are classified as
nonperforming or impaired, unpaid accrued interest is written off and future
income may be recorded only as cash payments are received.
Nonperforming assets decreased $41.2 million in 1996, continuing the trend of
the past several years.
Loans 90 days past due accruing interest increased $42.4 million from the end
of 1995. Increased consumer delinquencies, experienced across the banking
industry, caused this rebound to a level more representative of historical
norms.
Although loans may be classified as nonperforming, many continue to pay
interest irregularly or at less than original contractual rates. A summary of
actual income booked on nonperforming loans versus their full contractual yields
for each of the past five years follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income potential based
on original contract $ 20.6 $21.3 $22.6 $27.6 $27.5
Actual income 9.0 12.1 10.3 8.6 5.7
- --------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES: The following table presents a reconciliation of
the allowance for loan losses:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING
OF YEAR $ 705.8 $706.5 $685.3 $622.7 $568.5
Provision 146.5 113.5 109.4 143.1 225.8
Net acquired allowance .1 11.5 9.7 50.7 19.5
LOANS CHARGED OFF:
Commercial 58.0 52.3 54.9 84.7 101.6
Real estate mortgage 10.2 27.5 27.3 29.4 32.1
Consumer 95.9 57.1 47.2 50.0 69.5
Revolving credit 72.5 65.6 50.8 49.3 57.9
- ------------------------------------------------------------------------
TOTAL CHARGE-OFFS 236.6 202.5 180.2 213.4 261.1
- ------------------------------------------------------------------------
RECOVERIES:
Commercial 35.0 25.7 36.1 40.1 24.5
Real estate mortgage 5.7 9.9 5.2 3.9 5.7
Consumer 35.5 27.8 27.9 26.2 27.5
Revolving credit 13.9 13.4 13.1 12.0 12.3
- ------------------------------------------------------------------------
TOTAL RECOVERIES 90.1 76.8 82.3 82.2 70.0
- ------------------------------------------------------------------------
Net charged-off loans 146.5 125.7 97.9 131.2 191.1
- ------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 705.9 $705.8 $706.5 $685.3 $622.7
- ------------------------------------------------------------------------
Ratio of ending allowance to
ending loans 1.97% 2.05% 2.30% 2.40% 2.40%
- ------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Chart 9
Nonperforming assets and the allowances for
loan losses
($ in millions)
Nonperforming Allowance for Nonperforming assets at
Assets loan losses December 31, 1996 totaled $168
91 816 569 million and represented a 20%
92 594 623 decrease from a year ago. At
93 383 686 December 31, 1996, the
94 226 707 allowance for loan losses
95 209 706 represented 1.97% of total
96 168 706 loans and 493% of nonperforming
assets.
14
<PAGE> 17
The commercial category includes real estate construction net
charge-offs/(recoveries) of $(10.4) million in 1996, $(2.4) million in 1995 and
$(1.5) million in 1994. The real estate mortgage category includes commercial
real estate net charge-offs/(recoveries) of $.02 million in 1996, $15.8 million
in 1995 and $19.2 million in 1994.
Net charge-offs as a percentage of average loans by portfolio type are shown
in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial .19% .23% .17% .42% .70%
Real estate mortgage .04 .17 .24 .31 .38
Consumer .69 .38 .29 .40 .71
Revolving credit 1.88 1.71 1.50 1.77 2.59
TOTAL NET CHARGE-OFFS TO
AVERAGE LOANS .42% .38% .34% .49% .75%
- -------------------------------------------------------------------------
</TABLE>
Net charge-offs as a percentage of loans increased 4 basis points from 1995,
and the 1995 rate was up 4 basis points from 1994 (Chart 10). Consumer and
credit card loans are charged off within industry norms, while commercial loans
are evaluated individually.
The adequacy of the allowance for loan losses is evaluated based on an
assessment of the losses inherent in the loan portfolio. This assessment results
in an allowance consisting of two components, allocated and unallocated.
The allocated component of the allowance for loan losses reflects expected
losses resulting from the analysis of individual loans, developed through
specific credit allocations for individual loans and historical loss experience
for each loan category. The specific credit allocations are based on a regular
analysis of all loans and commitments over a fixed dollar amount where the
internal credit rating is at or below a predetermined classification. The
historical loan loss element represents a projection of future credit problems
and is determined statistically using a loss migration analysis that examines
loss experience and the related internal gradings of loans charged off.
The allocated component of the allowance for loan losses also includes
management's determination of the amounts necessary for concentrations, economic
uncertainties, change in mix of the portfolio and other subjective factors.
Since banking is a cyclical business, National City's allocation methodology
gives consideration to potential losses in the portfolio over a two year period
of time.
An allocation of the ending allowance for loan losses by major loan type
follows:
- ------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and commercial
mortgage $ 205.2 $261.3 $272.5 $311.8 $325.0
Consumer and residential
mortgage 100.1 93.5 88.2 82.7 83.6
Revolving credit 48.9 40.9 43.3 22.1 30.1
Unallocated 351.7 310.1 302.5 268.7 184.0
- ----------------------------------------------------------------------
TOTAL $ 705.9 $705.8 $706.5 $685.3 $622.7
- ----------------------------------------------------------------------
</TABLE>
The allocations are made for analytical purposes. The total allowance is
available to absorb losses from any segment of the portfolio.
The following table shows the percentage of loans in each category to total
loans at year-end:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and commercial
mortgage 44.5% 45.6% 46.6% 49.5% 52.6%
Consumer and residential
mortgage 47.1 45.5 44.3 43.5 40.4
Revolving credit 8.4 8.9 9.1 7.0 7.0
- ----------------------------------------------------------------------
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
- ----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Chart 10
Net charge-offs as a percentage of average loans
Net C/O Ratio Net charge-offs were.42% of average
91 1.18% loans in 1996 compared with .38% in
92 .75% 1995 and .34% in 1994. The slight
93 .49% increase in 1996 reflects higher
94 .34% consumer loan losses.
95 .38%
96 .42%
15
<PAGE> 18
FINANCIAL REVIEW (continued)
LIQUIDITY MANAGEMENT
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of the
Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, the ability to acquire large deposits and
issue bank notes in the local and national markets, and the capability to
securitize or package loans for sale.
The parent company has four major sources of funding to meet its liquidity
requirements: dividends from its subsidiaries, the commercial paper market, a
revolving credit agreement, and access to the capital markets.
The main source for parent company cash requirements has been dividends from
its subsidiaries. At January 1, 1997, $378.0 million was available within the
bank subsidiaries to pay parent company dividends without prior regulatory
approval, versus $498.5 million at January 1, 1996. During 1996, subsidiary
banks declared $579.5 million in dividends to the parent company. In addition,
the issuance of Tier 2 debt capital at certain subsidiary banks permitted the
banks to return $495.0 million in equity capital to the parent company.
As discussed in Item 1 of Form 10-K (page 42), subsidiary banks are subject
to regulation and, among other things, may be limited in their ability to pay
dividends or transfer funds to the parent company. Accordingly, consolidated
cash flows as presented in the Consolidated Statements of Cash Flows on page 26
may not represent cash available to National City Corporation's stockholders.
Funds raised in the commercial paper market through the Corporation's
subsidiary, National City Credit Corporation, are primarily used to support the
activities of National City Mortgage Co., the Corporation's mortgage banking
subsidiary, as well as other occasional short-term cash needs. Commercial paper
outstandings at December 31, 1996 were $556 million, compared with $374 million
at year-end 1995.
National City Corporation has a $350 million revolving credit agreement with
a group of unaffiliated banks which serves as a back-up liquidity facility. The
agreement expires February 1, 2000, with a provision to extend the expiration
date under certain circumstances. No borrowings have occurred under this
facility.
The parent company also has in place a $250 million shelf registration with
the Securities and Exchange Commission permitting ready access to the public
debt and preferred stock markets.
In February 1996, National City Bank of Kentucky issued $200 million
principal amount of 6.30% Subordinated Bank Notes due 2011. The notes are not
redeemable prior to maturity and qualify as Tier 2 capital for regulatory
purposes.
In October 1996, National City Bank of Pennsylvania issued $200 million
principal amount of 7.25% Subordinated Bank Notes due 2011. The notes are not
redeemable prior to maturity and qualify as Tier 2 capital for regulatory
purposes.
ASSET/LIABILITY MANAGEMENT
The primary goal of asset/liability management is to maximize net interest
income within the interest rate risk limits set by the Corporate Asset/Liability
Committee.
Interest rate risk is monitored and controlled through the use of three
different measures: static gap analysis, earnings simulation and net present
value modeling. The most useful of these measures is earnings simulation. The
model forecasts earnings under a variety of scenarios that incorporate changes
in the absolute level of interest rates, the shape of the yield curve,
prepayments, interest rate relationships, and changes in the volumes and rates
of various loan and deposit categories. The model also incorporates all
off-balance sheet commitments, as well as assumptions about reinvestment and the
repricing characteristics of certain noncontractual assets and liabilities.
While each of the interest rate risk measurements has limitations, taken
together they represent a reasonably comprehensive view of the magnitude of
interest rate risk in the Corporation, the distribution of risk along the yield
curve, the level of risk through time, and the amount of exposure to certain
interest rate relationships.
National City uses a variety of financial instruments to manage its interest
rate sensitivity. These include the securities in its investment portfolio,
interest rate swaps, interest rate caps and floors, and, to a lesser extent,
exchange-traded futures and options contracts. Frequently called interest rate
derivatives, interest rate swaps, caps and floors have similar characteristics
to securities but possess the advantages of customization of the risk-reward
profile of the instrument, minimization of balance sheet leverage and
improvement of the liquidity position.
STATIC GAP: As illustrated in the following table, at year-end, the amount of
interest earning assets, adjusted for off-balance sheet instruments, less
interest bearing liabilities which reprice within a given period, was (2.0)% of
adjusted total earning assets within six months and (3.9)% within one year.
However, the ongoing management of the gap incorporates noninterest earning
assets, noninterest bearing liabilities and equity. These items, which include
cash, mortgage servicing rights and noninterest bearing demand deposits, are
included in the periods in which they are likely to affect National City's
interest rate sensitivity. At year-end, the amount of total assets, adjusted for
off-balance sheet instruments, less total liabilities which reprice
16
<PAGE> 19
within a given period, was (10.3)% of adjusted total earning assets within six
months and (12.2)% within one year. The policy limit for the one-year gap is
plus or minus 20% of adjusted total earning assets, including the effect of
noninterest earning assets, noninterest bearing liabilities and equity.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Within Six to One to Three to Over
Six Twelve Three Five Five
(Dollars in Millions) Months Months Years Years Years
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $19,546 $ 3,212 $ 6,442 $ 2,879 $ 3,750
Securities 2,903 904 1,937 1,523 1,731
Money market assets 693 185 0 0 0
- ---------------------------------------------------------------------------
Total interest earning
assets 23,142 4,301 8,379 4,402 5,481
Interest bearing
liabilities 18,266 5,862 9,856 1,127 2,717
- ---------------------------------------------------------------------------
Gap between interest
earning assets and
interest bearing
liabilities before
swaps and options 4,876 (1,561) (1,477) 3,275 2,764
Net swaps and options (5,958) 551 2,672 1,439 1,296
- ---------------------------------------------------------------------------
Gap between interest
earning assets and
interest bearing
liabilities, adjusted
for swaps and options $(1,082) $(1,010) $ 1,195 $ 4,714 $ 4,060
- ---------------------------------------------------------------------------
Cumulative gap between
interest earning assets
and interest bearing
liabilities, adjusted
for swaps and options $(1,082) $(2,092) $ (897) $ 3,817 $ 7,877
- ---------------------------------------------------------------------------
Gap between interest
earning assets and
interest bearing
liabilities, adjusted
for swaps and options (1,082) (1,010) 1,195 4,714 4,060
Nonearning assets 2,660 252 287 491 1,460
Noninterest bearing
liabilities, demand
deposits and equity 7,052 265 1,058 220 4,432
- ---------------------------------------------------------------------------
Gap adjusted for swaps,
options, nonearning
assets, noninterest
bearing liabilities,
demand deposits and
equity $(5,474) $(1,023) $ 424 $ 4,985 $ 1,088
- ---------------------------------------------------------------------------
Cumulative gap adjusted
for swaps, options,
nonearning assets,
noninterest bearing
liabilities, demand
deposits
and equity $(5,474) $(6,497) $(6,073) $(1,088) $ 0
- ---------------------------------------------------------------------------
</TABLE>
Core deposits and loans with noncontractual maturities are distributed or
spread among the various repricing categories based upon historical patterns of
repricing which are reviewed at least annually. Management constructs rolling
portfolios of fixed rate certificates of deposit whose interest cash flows over
historical time periods most closely replicate the current portfolio of
noncontractual assets and liabilities. It is the maturity or repricing
distribution of this replicating portfolio which appears in the gap table as a
surrogate for the particular noncontractual asset or liability. The gap table
presented includes the following loans and core deposits that reprice on average
in the noted time frames: fixed rate credit card loans (21 months), demand
deposits (7 months), savings accounts (17 months), and money market and NOW
accounts (9 months). The assumptions regarding these repricing characteristics
greatly influence conclusions regarding interest sensitivity. Management
believes its assumptions regarding these assets and liabilities are
conservative.
EARNINGS SIMULATION: Management evaluates the effects on income of
alternative interest rate scenarios against earnings in a stable interest rate
environment. The most recent earnings simulation model projects net income would
increase by approximately 1.1% if rates fell gradually by two percentage points
over the next year. It projects a decrease of approximately 1.2% if rates rose
gradually by two percentage points, well within the (5.0)% policy limit.
Management believes this reflects a slight liability sensitive rate risk
position for the one year horizon.
Earnings are also affected by changes in spread relationships. For example, a
50 basis point contraction in the relationship between the prime rate and
Federal funds rate would cause an estimated 3.3% reduction in net income over a
12-month period.
NET PRESENT VALUE: National City's net present value model analyzes the
impacts of changes in interest rates on expected asset and liability cash flows,
including those maturing in time periods greater than one year.
At year-end, a two percentage point immediate increase in rates would reduce the
present value of these cash flows by an amount estimated to equal 1.8% of total
assets. Policy limits restrict this amount to 2.0% of total assets. The value of
these cash flows was projected to increase by 1.9% of total assets for an
immediate decrease in rates of two percentage points.
Due to borrowers' preferences for floating-rate loans and depositors'
preferences for fixed-rate deposits, National City's balance sheet moves toward
less liability sensitivity with the passage of time. In fact, earnings
simulation indicates that if all prepayments, calls and maturities of the
securities and derivatives portfolios, which are expected over the next year,
were to remain uninvested, then the liability sensitivity in a 200 basis point
rising interest rate environment would result in a decrease in net income of
0.5% compared with a stable rate environment.
Purchases of fixed-rate securities or interest rate derivative instruments
have been made to offset the natural tendency toward an asset sensitive interest
rate risk position. Using a one-year static gap measure, National City would be
7.7% asset sensitive without securities and interest rate derivatives.
Management expects interest rates to be relatively stable during 1997 and
believes that the current modest level of liability sensitivity is appropriate.
17
<PAGE> 20
QUARTERLY DATA
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1996 was $191.1 million, or $.85 per fully
diluted common share up from $129.1 million, or $.57 per fully diluted common
share for the same period in 1995. The increase in earnings was primarily due to
higher net interest income and noninterest income when merger charges and other
unusual items affecting income and expense are excluded.
Annualized return on average common equity for the fourth quarter of 1996 was
17.53%, compared to 13.12% for the fourth quarter 1995. Annualized return on
average assets was 1.55% in 1996 versus 1.04% in 1995.
Tax equivalent net interest income was $493.2 million, reflecting a 6.7%
increase over $462.1 million in 1995. Net interest margin for the fourth quarter
of 1996 was 4.43%.
Net overhead decreased 19% from the fourth quarter of 1995 as a result of
higher fee-based business revenues and relatively flat noninterest expense.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly results of operations for the
years 1996, 1995 and 1994:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts) First Second Third Fourth Full Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Interest income $ 914,284 $ 919,421 $ 910,414 $ 911,216 $ 3,655,335
Interest expense 439,062 429,563 420,475 423,659 1,712,759
Net interest income 475,222 489,858 489,939 487,557 1,942,576
Provision for loan losses 32,039 37,353 38,608 38,480 146,480
Securities gains 12,735 68,617 (114) 26,908 108,146
Net overhead 196,749 258,092 181,358 209,599 845,798
Income before income taxes 259,169 263,030 269,859 266,386 1,058,444
Net income 176,864 182,832 185,822 191,112 736,630
Net income applicable to common stock 173,375 182,293 185,822 191,112 732,602
Primary net income per common share .80 .82 .82 .85 3.29
Fully diluted net income per common share .79 .81 .82 .85 3.27
Dividends paid per common share .36 .36 .375 .375 1.47
- ------------------------------------------------------------------------------------------------------------------------------
1995
Interest income $845,261 $901,800 $938,126 $918,844 $3,604,031
Interest expense 397,985 444,916 471,800 460,985 1,775,686
Net interest income 447,276 456,884 466,326 457,859 1,828,345
Provision for loan losses 26,590 27,577 32,160 27,155 113,482
Securities gains 5,057 4,724 18,646 13,938 42,365
Net overhead 209,685 218,429 224,786 259,183 912,083
Income before income taxes 216,058 215,602 228,026 185,459 845,145
Net income 150,925 152,522 158,884 129,129 591,460
Net income applicable to common stock 147,205 148,800 155,164 125,461 576,630
Primary net income per common share .68 .70 .72 .58 2.68
Fully diluted net income per common share .67 .69 .71 .57 2.64
Dividends paid per common share .32 .32 .33 .33 1.30
- ------------------------------------------------------------------------------------------------------------------------------
1994
Net income $150,595 $147,597 $149,847 $150,428 $ 598,467
Primary net income per common share .65 .66 .66 .67 2.64
Fully diluted net income per common share .64 .64 .66 .66 2.60
Dividends paid per common share .29 .29 .30 .30 1.18
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
- --------------------------------------------------------------------------------
<PAGE> 21
STATISTICAL DATA
CONSOLIDATED SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Calendar Year
- ----------------------------------------------------------------------------------------------------------------------------------
(In Millions Except Per
Share Amounts and
Ratios) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,059 $ 2,910 $ 2,386 $ 2,195 $ 2,249 $ 2,651 $ 2,922 $ 2,868 $ 2,444 $ 2,104 $ 1,931
Securities 567 648 582 640 720 721 699 619 553 508 500
Other interest income 29 46 35 33 72 131 122 142 117 114 156
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest
income 3,655 3,604 3,003 2,868 3,041 3,503 3,743 3,629 3,114 2,726 2,587
INTEREST EXPENSE
Deposits 1,216 1,250 911 887 1,153 1,631 1,821 1,748 1,426 1,197 1,234
Other interest
expense 497 526 326 238 228 308 395 400 323 305 254
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest
expense 1,713 1,776 1,237 1,125 1,381 1,939 2,216 2,148 1,749 1,502 1,488
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 1,942 1,828 1,766 1,743 1,660 1,564 1,527 1,481 1,365 1,224 1,099
PROVISION FOR LOAN
LOSSES 146 113 110 143 226 323 439 254 231 318 139
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 1,796 1,715 1,656 1,600 1,434 1,241 1,088 1,227 1,134 906 960
FEES AND OTHER INCOME 1,165 1,027 976 911 840 748 700 607 596 500 443
SECURITIES GAINS 108 42 30 42 85 49 6 13 19 22 34
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest
income 1,273 1,069 1,006 953 925 797 706 620 615 522 477
NONINTEREST EXPENSE 2,011 1,939 1,803 1,761 1,787 1,643 1,575 1,376 1,270 1,171 1,101
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income
taxes and cumulative
effect of accounting
changes 1,058 845 859 792 572 395 219 471 479 257 336
INCOME TAXES 321 254 261 235 164 96 84 108 110 34 53
- ----------------------------------------------------------------------------------------------------------------------------------
Income before
cumulative effect of
accounting changes 737 591 598 557 408 299 135 363 369 223 283
Cumulative effect of
accounting changes,
net -- -- -- 60 -- -- -- -- -- -- --
NET INCOME $ 737 $ 591 $ 598 $ 617 $ 408 $ 299 $ 135 $ 363 $ 369 $ 223 $ 283
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON
SHARE:
Primary $ 3.29 $ 2.68 $ 2.64 $ 2.62 $ 1.76 $ 1.37 $ .65 $ 1.74 $ 1.75 $ 1.06 $ 1.37
Fully diluted 3.27 2.64 2.60 2.59 1.76 1.38 .65 1.74 1.77 1.06 1.35
Dividends paid per
common share 1.47 1.30 1.18 1.06 .94 .94 .94 .84 .72 .60 .50
Average shares --
primary 222.67 215.10 220.82 228.79 221.28 207.77 207.70 208.45 208.47 208.90 202.06
Average shares --
fully diluted 225.50 224.00 229.84 238.31 232.12 216.33 207.70 208.45 208.47 210.52 209.94
FINANCIAL RATIOS:
Return on average
common equity 17.69% 16.18% 17.31% 18.75% 13.63% 11.02% 5.14% 14.60% 16.19% 10.59% 14.75%
Return on average
assets 1.51 1.23 1.35 1.46 .99 .73 .34 .99 1.08 .70 .97
Average equity to
average assets 8.61 7.80 8.05 8.11 7.47 6.78 6.76 6.91 6.70 6.76 6.68
Dividends paid to net
income 44.68 48.51 44.70 40.46 53.41 68.61 144.62 48.28 41.14 56.60 36.50
Net interest margin 4.44 4.22 4.50 4.63 4.54 4.39 4.50 4.71 4.69 4.68 4.79
AT YEAR-END:
Assets $50,856 $50,542 $45,869 $45,165 $42,322 $41,973 $40,627 $39,126 $37,162 $33,984 $32,343
Loans 35,830 34,466 30,701 28,602 25,952 25,495 26,264 25,510 23,717 21,634 19,782
Securities 8,997 10,345 9,637 11,323 10,898 10,066 8,228 7,618 7,507 6,728 6,402
Deposits 36,000 35,581 34,555 33,144 33,192 32,887 32,521 30,412 29,363 26,686 24,930
Long-term debt 2,994 3,025 2,012 1,261 1,010 520 395 397 382 414 447
Common equity 4,432 3,878 3,272 3,597 3,008 2,654 2,505 2,602 2,343 2,129 2,043
Total equity 4,432 4,064 3,460 3,795 3,245 2,891 2,543 2,639 2,380 2,171 2,093
Common shares
outstanding 223.20 211.57 213.21 225.69 224.08 207.96 209.70 211.62 208.00 209.16 208.35
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All prior period amounts, except for dividends paid per common share, have been
restated to reflect the pooling-of-interests transaction with Integra Financial
Corporation which closed May 3, 1996.
19
<PAGE> 22
STATISTICAL DATA (continued)
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
Daily Average Balance
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans:
Commercial $12,261 $11,584 $10,782 $10,543 $10,977
Real estate mortgage 10,854 10,512 9,169 8,126 6,858
Consumer 8,739 7,617 6,693 5,906 5,909
Revolving credit 3,125 3,058 2,511 2,106 1,763
- ------------------------------------------------------------------------------------------------------------------
Total loans 34,979 32,771 29,155 26,681 25,507
Securities:
Taxable 8,323 9,788 9,544 10,358 9,576
Tax-exempt 367 515 633 757 956
- ------------------------------------------------------------------------------------------------------------------
Total securities 8,690 10,303 10,177 11,115 10,532
Federal funds sold 135 87 79 90 358
Security resale agreements 285 404 470 274 706
Eurodollar time deposits in banks 22 2 107 278 417
Other short-term money
market investments 116 277 209 202 276
- ------------------------------------------------------------------------------------------------------------------
Total earning assets/
Total interest income/rates 44,227 43,844 40,197 38,640 37,796
Allowance for loan losses (708) (720) (706) (651) (635)
Market value appreciation
of securities available for sale 165 31 23 -- --
Cash and demand balances due from banks 2,434 2,385 2,420 2,352 2,142
Properties and equipment 592 582 553 521 537
Customers' acceptance liability 65 91 69 51 78
Accrued income and other assets 1,955 1,867 1,655 1,482 1,420
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $48,730 $48,080 $44,211 $42,395 $41,338
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts $ 9,031 $ 8,507 $ 9,054 $ 9,365 $ 9,049
Savings accounts 4,118 4,446 4,977 4,562 3,882
Time deposits of individuals 13,856 13,786 11,066 11,125 12,565
Other time deposits 645 521 493 564 948
Deposits in overseas offices 859 1,365 1,026 263 251
Federal funds borrowed 1,011 1,404 1,398 1,501 1,047
Security repurchase agreements 2,948 2,990 2,003 2,336 2,010
Borrowed funds 1,510 1,916 1,853 1,325 1,487
Long-term debt 3,166 2,435 1,892 1,332 883
- ------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities/
Total interest expense/rates 37,144 37,370 33,762 32,373 32,122
Noninterest bearing deposits 6,398 6,090 6,216 5,971 5,527
Acceptances outstanding 65 91 69 51 78
Accrued expenses and other liabilities 925 780 603 563 521
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 44,532 44,331 40,650 38,958 38,248
Preferred stock 56 186 191 200 200
Common stock 4,142 3,563 3,370 3,237 2,890
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,198 3,749 3,561 3,437 3,090
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,730 $48,080 $44,211 $42,395 $41,338
- ------------------------------------------------------------------------------------------------------------------
Net interest income
- ------------------------------------------------------------------------------------------------------------------
Interest spread
Contribution of noninterest bearing sources of funds
- ------------------------------------------------------------------------------------------------------------------
Net interest margin
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Tax equivalent basis computed using 35% for years 1996 through 1993, and 34% in
1992.
Average loan balances include nonperforming loans.
20
<PAGE> 23
<TABLE>
<CAPTION>
Interest
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans:
Commercial $1,034.9 $1,000.9 $ 841.4 $ 777.9 $ 824.9
Real estate mortgage 895.6 868.5 712.0 651.1 625.0
Consumer 764.1 697.0 554.2 532.1 560.1
Revolving credit 375.0 357.6 287.9 243.5 249.4
- ------------------------------------------------------------------------------------------------------------------
Total loans 3,069.6 2,924.0 2,395.5 2,204.6 2,259.4
Securities:
Taxable 540.4 608.4 558.9 604.9 669.1
Tax-exempt 37.1 47.2 58.7 72.5 94.4
- ------------------------------------------------------------------------------------------------------------------
Total securities 577.5 655.6 617.6 677.4 763.5
Federal funds sold 7.4 5.3 3.4 4.9 12.6
Security resale agreements 15.4 23.9 20.0 8.8 26.9
Eurodollar time deposits in banks 1.2 .1 3.0 9.6 16.4
Other short-term money
market investments 5.2 16.3 8.5 10.1 16.3
- ------------------------------------------------------------------------------------------------------------------
Total earning assets/ $3,676.3 $3,625.2 $3,048.0 $2,915.4 $3,095.1
Total interest income/rates
Allowance for loan losses
Market value appreciation
of securities available for sale
Cash and demand balances due from banks
Properties and equipment
Customers' acceptance liability
Accrued income and other assets
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts $ 252.6 $ 229.4 $ 199.3 $ 210.9 $ 261.7
Savings accounts 107.4 121.1 130.6 126.7 130.6
Time deposits of individuals 779.9 791.6 518.2 522.9 711.8
Other time deposits 31.6 28.3 18.6 20.1 40.7
Deposits in overseas offices 44.6 79.2 44.1 6.9 8.3
Federal funds borrowed 65.9 87.2 59.3 47.4 36.0
Security repurchase agreements 147.7 151.3 110.7 65.7 61.8
Borrowed funds 85.8 127.3 44.7 47.7 65.6
Long-term debt 197.3 160.3 111.5 77.3 64.3
- ------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities/ $1,712.8 $1,775.7 $1,237.0 $1,125.6 $1,380.8
Total interest expense/rates
Noninterest bearing deposits
Acceptances outstanding
Accrued expenses and other liabilities
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
Preferred stock
Common stock
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Net interest income $1,963.5 $1,849.5 $1,811.0 $1,789.8 $1,714.3
- ------------------------------------------------------------------------------------------------------------------
Interest spread
Contribution of noninterest bearing sources of funds
- ------------------------------------------------------------------------------------------------------------------
Net interest margin
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Daily Average Rate
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans:
Commercial 8.44% 8.64% 7.80% 7.38% 7.51%
Real estate mortgage 8.25 8.26 7.77 8.01 9.11
Consumer 8.74 9.15 8.28 9.01 9.48
Revolving credit 12.00 11.69 11.47 11.56 14.15
- ------------------------------------------------------------------------------------------------------------------
Total loans 8.78 8.92 8.22 8.26 8.86
Securities:
Taxable 6.49 6.22 5.86 5.84 6.99
Tax-exempt 10.11 9.17 9.27 9.58 9.87
- ------------------------------------------------------------------------------------------------------------------
Total securities 6.65 6.36 6.07 6.09 7.25
Federal funds sold 5.48 6.09 4.30 5.44 3.52
Security resale agreements 5.40 5.92 4.26 3.21 3.81
Eurodollar time deposits in banks 5.45 5.00 2.80 3.45 3.93
Other short-term money
market investments 4.48 5.88 4.07 5.00 5.91
- ------------------------------------------------------------------------------------------------------------------
Total earning assets/ 8.31% 8.27% 7.58% 7.55% 8.19%
Total interest income/rates
Allowance for loan losses
Market value appreciation
of securities available for sale
Cash and demand balances due from banks
Properties and equipment
Customers' acceptance liability
Accrued income and other assets
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts 2.80% 2.70% 2.20% 2.25% 2.89%
Savings accounts 2.61 2.72 2.62 2.78 3.36
Time deposits of individuals 5.63 5.74 4.68 4.70 5.66
Other time deposits 4.90 5.43 3.77 3.56 4.29
Deposits in overseas offices 5.19 5.80 4.30 2.62 3.31
Federal funds borrowed 6.52 6.21 4.24 3.16 3.44
Security repurchase agreements 5.01 5.06 5.53 2.81 3.07
Borrowed funds 5.68 6.64 2.41 3.60 4.41
Long-term debt 6.23 6.58 5.89 5.80 7.28
- ------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities/ 4.61% 4.75% 3.66% 3.48% 4.30%
Total interest expense/rates
Noninterest bearing deposits
Acceptances outstanding
Accrued expenses and other liabilities
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
Preferred stock
Common stock
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Net interest income
- ------------------------------------------------------------------------------------------------------------------
Interest spread 3.70% 3.52% 3.92% 4.07% 3.89%
Contribution of noninterest bearing sources of funds .74 .70 .58 .56 .65
- ------------------------------------------------------------------------------------------------------------------
Net interest margin 4.44% 4.22% 4.50% 4.63% 4.54%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
REPORT OF MANAGEMENT
The management of National City Corporation has prepared the accompanying
financial statements and is responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include amounts that are based on management's best
estimates and judgments. Management also prepared the other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
National City Corporation maintains a system of internal control over
financial reporting designed to produce reliable financial statements. The
system contains self-monitoring mechanisms, and compliance is tested and
evaluated through an extensive program of internal audits. Actions are taken to
correct potential deficiencies as they are identified. Any internal control
system has inherent limitations, including the possibility that controls can be
circumvented or overridden. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Audit Committee, consisting entirely of outside directors, meets
regularly with management, internal auditors and independent auditors, and
reviews audit plans and results as well as management's actions taken in
discharging responsibilities for accounting, financial reporting, and internal
controls. Ernst & Young LLP, independent auditors, and the internal auditors
have direct and confidential access to the Audit Committee at all times to
discuss the results of their examinations.
National City Corporation assessed its internal control system as of December
31, 1996 in relation to criteria for effective internal control over financial
reporting described in "Internal Control -- Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 1996, its system of
internal control met those criteria.
Cleveland, Ohio
January 22, 1997
/s/ DAVID A. DABERKO /s/ ROBERT G. SIEFERS
DAVID A. DABERKO ROBERT G. SIEFERS
Chairman and Chief Executive Vice President and
Executive Officer Chief Financial Officer
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Stockholders
National City Corporation
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of National City
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of National City's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
merger of National City Corporation and Integra Financial Corporation,
(Integra), which has been accounted for using the pooling of interests
accounting method as described in Note 3 to the consolidated financial
statements. We did not audit the 1995 and 1994 financial statements of Integra,
which statements reflect total assets constituting 28% for 1995 and net income
constituting 21% for 1995 and 28% for 1994 of the related consolidated financial
statement totals. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Integra, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, and for 1995 and 1994 the reports of
other auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National City
Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Cleveland, Ohio
January 22, 1997
/s/ Ernst & Young LLP
22
<PAGE> 25
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Loans:
Commercial $ 11,217,815 $11,329,695
Real estate construction 774,991 712,524
Lease financing 515,576 357,883
Real estate mortgage - nonresidential 3,440,696 3,332,164
Real estate mortgage - residential 7,288,677 7,187,070
Mortgage loans held for sale 334,742 314,350
Consumer 9,251,982 8,148,886
Revolving credit 3,005,589 3,083,254
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 35,830,068 34,465,826
Allowance for loan losses (705,893) (705,846)
- ---------------------------------------------------------------------------------------------------------------------------------
Net loans 35,124,175 33,759,980
Securities available for sale, at market 8,997,322 10,344,988
Federal funds sold and security resale agreements 493,733 734,564
Trading account assets 102,493 23,715
Other short-term money market investments 281,563 105,993
Cash and demand balances due from banks 2,935,282 2,995,905
Properties and equipment 616,426 593,506
Customers' acceptance liability 66,767 66,169
Accrued income and other assets 2,238,074 1,917,025
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 50,855,835 $50,541,845
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing) $ 7,436,403 $ 6,993,221
NOW and money market accounts 9,162,353 9,035,259
Savings accounts 3,896,234 4,198,518
Time deposits of individuals 13,896,667 14,147,551
Other time deposits 721,647 488,595
Deposits in overseas offices 886,443 717,823
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 35,999,747 35,580,967
Federal funds borrowed and security repurchase agreements 4,276,722 5,299,566
Borrowed funds 1,994,009 1,562,504
Long-term debt 2,994,418 3,024,990
Acceptances outstanding 66,767 66,169
Accrued expenses and other liabilities 1,092,109 943,803
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 46,423,772 46,477,999
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock -- 185,400
Common stock, par value $4 per share, authorized 350,000,000 shares,
outstanding 223,198,494 shares in 1996 and 211,571,079 shares in 1995 892,794 846,284
Capital surplus 622,543 399,813
Retained earnings 2,916,726 2,635,090
Unallocated shares held by Employee Stock Ownership Plan (ESOP) trust -- (2,741)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,432,063 4,063,846
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,855,835 $50,541,845
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Calendar Year
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 3,059,041 $2,910,070 $2,385,782
Securities:
Taxable 543,006 617,635 543,622
Exempt from Federal income taxes 24,114 30,675 38,141
Federal funds sold and security resale agreements 22,831 30,228 23,427
Eurodollar time deposits in banks 1,198 104 3,044
Other short-term investments 5,145 15,319 8,626
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 3,655,335 3,604,031 3,002,642
INTEREST EXPENSE
Deposits 1,216,089 1,249,698 910,737
Federal funds borrowed and security repurchase agreements 213,554 238,484 170,011
Borrowed funds 85,781 127,250 44,728
Long-term debt 197,335 160,254 111,538
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,712,759 1,775,686 1,237,014
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 1,942,576 1,828,345 1,765,628
PROVISION FOR LOAN LOSSES 146,480 113,482 109,356
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,796,096 1,714,863 1,656,272
NONINTEREST INCOME
Item processing revenue 364,512 327,929 312,358
Service charges on deposit accounts 214,659 196,474 190,707
Trust fees 177,124 167,224 153,431
Card related fees 123,306 98,806 97,197
Mortgage banking revenue 114,742 89,918 82,770
Brokerage revenue 47,546 29,502 19,748
Other 122,993 117,085 119,471
- ---------------------------------------------------------------------------------------------------------------------------------
Total fees and other income 1,164,882 1,026,938 975,682
Securities gains 108,146 42,365 30,279
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,273,028 1,069,303 1,005,961
NONINTEREST EXPENSE
Salaries and employee benefits 923,764 878,615 831,679
Equipment 135,139 127,612 122,278
Net occupancy 132,143 125,072 122,213
Assessments and taxes 44,355 105,005 109,955
Merger-related charges 74,745 24,200 --
Other 700,534 678,517 616,786
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,010,680 1,939,021 1,802,911
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,058,444 845,145 859,322
Income tax expense 321,814 253,685 260,855
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 736,630 $ 591,460 $ 598,467
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 732,602 $ 576,630 $ 583,267
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Primary $3.29 $2.68 $2.64
Fully diluted 3.27 2.64 2.60
AVERAGE COMMON SHARES OUTSTANDING
Primary 222,674,326 215,097,124 220,822,755
Fully diluted 225,503,431 224,004,487 229,844,700
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Unallocated
Preferred Common Capital Retained Shares Held by
(Dollars in Thousands Except Per Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994 $ 198,310 $902,777 $318,092 $2,392,780 $(16,446) $3,795,513
Net income 598,467 598,467
Common dividends declared, National City,
$1.18 per share (179,675) (179,675)
Common dividends declared of Integra, prior
to merger (56,865) (56,865)
Preferred dividends, $4.00 per depositary
share (15,415) (15,415)
Issuance of 1,499,589 common shares under
corporate stock and dividend reinvestment
plans 5,998 23,265 29,263
Purchase of 14,030,032 common shares and
215,400 depositary shares of preferred
stock (10,770) (56,120) (50,618) (256,077) (373,585)
Shares distributed by ESOP trust and tax
benefit on dividends 665 7,428 8,093
Change in unrealized market value adjustment
on securities available for sale, net of
tax (346,599) (346,599)
Other 180 352 (79) 453
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 187,540 852,835 291,091 2,137,202 (9,018) 3,459,650
Net income 591,460 591,460
Common dividends declared, National City,
$1.30 per share (191,907) (191,907)
Common dividends declared of Integra, prior
to merger (64,006) (64,006)
Preferred dividends, $4.00 per depositary
share (14,910) (14,910)
Issuance of 2,279,422 common shares under
corporate stock and dividend reinvestment
plans 9,116 37,015 (1,246) 44,885
Purchase of 8,215,284 common shares and
30,000 depositary shares of preferred stock (1,500) (32,860) (22,479) (184,414) (241,253)
Issuance of 4,267,760 common shares pursuant
to acquisitions 17,071 93,668 110,739
Conversion of 12,800 depositary shares of
preferred stock to 30,515 common shares (640) 122 518 --
Shares distributed by ESOP trust and tax
benefit on dividends 544 6,277 6,821
Change in unrealized market value adjustment
on securities available for sale, net of
tax 362,367 362,367
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 185,400 846,284 399,813 2,635,090 (2,741) 4,063,846
Net income 736,630 736,630
Common dividends declared, National City,
$1.88 per share (363,999) (363,999)
Common dividends declared of Integra, prior
to merger (36,009) (36,009)
Preferred dividends, $2.00 per depositary
share (6,458) (6,458)
Issuance of 2,787,765 common shares under
corporate stock and dividend reinvestment
plans 11,151 47,612 58,763
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 --
Shares distributed by ESOP trust and tax
benefit on dividends 189 2,741 2,930
Change in unrealized market value adjustment
on securities available for sale, net of
tax (48,717) (48,717)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $ -- $892,794 $622,543 $2,916,726 $ -- $4,432,063
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 28
CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Calendar Year
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 736,630 $ 591,460 $ 598,467
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 146,480 113,482 109,356
Depreciation and amortization 92,710 87,355 82,464
Amortization of intangibles and servicing rights 61,838 65,232 57,411
Amortization of securities discount and premium 3,502 18,728 10,734
Securities gains (108,146) (42,365) (30,279)
Other gains, net (14,446) (23,271) (19,808)
Net (increase) decrease in trading account securities (78,778) (6,671) 142,356
Originations and purchases of mortgage loans held for sale (2,610,000) (2,075,968) (2,039,026)
Proceeds from sales of mortgage loans held for sale 2,421,252 1,878,381 2,668,063
Deferred income taxes (16,801) 2,672 10,647
Increase in interest receivable (40,479) (89,851) (49,035)
Increase in interest payable 4,837 156,582 42,128
Net change in other assets/liabilities (322,864) (105,767) (194,159)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 275,735 569,999 1,389,319
LENDING AND INVESTING ACTIVITIES
Net (increase) decrease in short-term investments 65,261 (20,553) 382,619
Purchases of securities (3,439,159) (7,269,362) (4,800,590)
Proceeds from sales of securities 3,416,044 5,589,865 4,165,952
Proceeds from maturities and prepayments of securities 1,401,079 1,932,384 1,767,919
Net increase in loans (1,722,485) (3,043,087) (2,831,110)
Proceeds from sales of loans 400,558 61,225 --
Net increase in properties and equipment (115,630) (101,676) (98,220)
Acquisitions -- (16,498) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by lending and investing activities 5,668 (2,867,702) (1,413,430)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in Federal funds borrowed and security
repurchase agreements (1,022,844) 1,457,409 (404,740)
Net increase (decrease) in borrowed funds 431,505 278,464 (123,651)
Net increase (decrease) in demand, savings, NOW, money market
accounts, and deposits in overseas offices 436,612 (1,530,940) 76,560
Net increase (decrease) in time deposits (17,832) 1,668,121 1,334,279
Repayment of long-term debt (528,261) (72,935) (15,362)
Proceeds from issuance of long-term debt, net 497,086 1,123,360 207,207
Dividends paid, net of tax benefit of ESOP shares (314,762) (270,279) (251,290)
Issuance of common stock and preferred stock 58,763 44,885 30,453
Repurchase of common and preferred stock -- (241,253) (373,585)
Proceeds from issuance of common stock by subsidiary 114,966 -- --
ESOP trust repayment 2,741 6,277 7,428
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by deposit and financing activities (342,026) 2,463,109 487,299
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and demand balances due from banks (60,623) 165,406 463,188
Cash and demand balances due from banks, January 1 2,995,905 2,830,499 2,367,311
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and demand balances due from banks, December 31 $ 2,935,282 $ 2,995,905 $ 2,830,499
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Interest paid $ 1,707,922 $ 1,619,204 $ 1,195,018
Income taxes paid 392,247 238,400 258,187
Common stock issued in purchase acquisitions -- 110,739 --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
National City Corporation ("National City" or "the Corporation") is a
multi-bank holding company headquartered in Cleveland, Ohio. The Corporation's
principal banking subsidiaries are located in Cleveland, Columbus, Indianapolis,
Louisville and Pittsburgh. In addition to retail and commercial banking, the
Corporation and its subsidiaries are engaged in trust and investment management,
mortgage banking, investment banking, leasing, item processing, venture capital,
insurance and other financial-related businesses.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of National City conform with generally
accepted accounting principles and prevailing industry practices. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. A description of the
significant accounting policies is presented below:
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The consolidated
financial statements include the accounts of the Corporation and its
subsidiaries. All material intercompany transactions and balances have been
eliminated. The consolidated financial statements have been prepared to give
retroactive effect to the May 3, 1996 merger with Integra Financial Corporation
(Integra) which was accounted for as a pooling-of-interests. Certain prior year
amounts have been reclassified to conform with the current year presentation.
BUSINESS COMBINATIONS: Business combinations which have been accounted for
under the purchase method of accounting include the results of operations of the
acquired businesses from the date of acquisition. Net assets of the companies
acquired were recorded at their estimated fair value as of the date of
acquisition.
Other business combinations have been accounted for under the
pooling-of-interests method of accounting which requires the assets, liabilities
and shareholders' equity of the merged entity to be retroactively combined with
the Corporation's respective accounts at recorded value. Prior period financial
statements have been restated to give effect to business combinations accounted
for under this method.
CASH FLOWS: Cash and cash equivalents are defined as those amounts included
in the balance sheet caption "Cash and demand balances due from banks."
LOANS: Loans are generally reported at the principal amount outstanding, net
of unearned income. Loans held for sale are valued at the lower of cost or
market, as calculated on an aggregate basis.
Loan origination fees and certain direct costs are amortized into interest or
other income using a method which approximates the interest method over the
estimated life of the related loan.
Loans are classified as nonaccrual or restructured based on management's
judgment and requirements established by bank regulatory agencies. Subsequent
receipts on nonaccrual loans, including those considered impaired under the
provisions of Statement of Financial Accounting Standards No. 114, are recorded
as a reduction of principal, and interest income is recorded once principal
recovery is reasonably assured.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is that amount
believed adequate to absorb estimated credit losses in the portfolio based on
management's evaluation of various factors including overall growth in the
portfolio, 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, and current and anticipated economic
conditions. A provision for loan losses is charged to operations based on
management's periodic evaluation of these and other pertinent factors.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of
a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures. These standards require an allowance
to be established as a component of the allowance for loan losses for certain
loans when it is probable that all amounts due pursuant to the contractual terms
of the loan will not be collected and the recorded investment in the loan
exceeds the fair value. Fair value is measured using either the present value of
expected future cash flows based on the initial effective interest rate on the
loan, the observable market price of the loan or the fair value of the
collateral if the loan is collateral dependent. The adoption of these standards
did not have a material impact on the overall allowance for loan losses and did
not affect the Corporation's charge-off or income recognition policies.
SECURITIES AND TRADING ACCOUNT ASSETS: Trading account assets are held for
resale in anticipation of short-term market movements and are carried at market
value. Gains and losses, both realized and unrealized, are included in other
income.
Securities are classified as held to maturity when management has the intent
and ability to hold the securities to maturity. Securities held to maturity,
when present, are carried at amortized cost.
Securities not classified as held to maturity or trading are classified as
available for sale. Securities available for sale are carried at fair value with
unreal-
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ized gains and losses reported separately through retained earnings, net of
tax.
Interest and dividends on securities, including amortization of premiums
and accretion of discounts, is included in interest income. Realized gains and
losses are recorded as net security gains (losses). The adjusted cost of
specific securities sold is used to compute gains or losses on sales.
Other income includes gains, losses and adjustments to market on interest
rate futures and forward contracts related to trading account assets and
liabilities.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE: Securities purchased under agreements to resell and
securities sold under agreements to repurchase are generally treated as
collateralized financing transactions and are recorded at the amount at which
the securities were acquired or sold plus accrued interest. It is the
Corporation's policy to obtain control or take possession of securities
purchased under resale agreements, which are primarily U.S. Government and
Federal agency securities. The market value of the collateral is monitored and
additional collateral obtained when deemed appropriate. The Corporation also
monitors its exposure with respect to securities borrowed transactions and
requests the return of excess collateral as required.
INTANGIBLES: The excess of the purchase price over net identifiable tangible
and intangible assets acquired in a purchase business combination (goodwill) is
included in other assets. Goodwill related to bank acquisitions is amortized
over varying periods not exceeding 25 years. Goodwill related to nonbank
acquisitions is amortized over varying periods not exceeding 40 years, based on
industry practice within the respective nonbank industry. Core deposit and other
identified intangibles are amortized over periods ranging from 4 to 15 years.
MORTGAGE SERVICING RIGHTS: Beginning January 1, 1996, the Corporation changed
its accounting for mortgage servicing rights to include the capitalization of
both originated and purchased servicing rights as required under the provisions
of SFAS No. 122, Accounting for Mortgage Servicing Rights. Prior to 1996,
capitalization was limited to purchased servicing. The total cost of loans
originated or purchased is allocated between loans and servicing rights based on
the relative fair values of each. The servicing rights capitalized are amortized
in proportion to and over the period of estimated servicing income. Management
stratifies servicing rights based on origination period and interest rate and
evaluates the recoverability in relation to the impact of actual and anticipated
loan portfolio prepayment, foreclosure, and delinquency experience. The
Corporation did not have a valuation allowance associated with the mortgage
servicing rights portfolio as of December 31, 1996. The Corporation hedges its
exposure to the prepayment risk associated with the servicing rights by using
off-balance sheet derivative agreements. Further discussion regarding this
activity is provided in Note 19. The adoption of SFAS No. 122 did not have a
material impact on financial position or results of operations.
DEPRECIABLE ASSETS: Properties and equipment are stated at cost less
accumulated depreciation and amortization. Buildings and equipment are
depreciated on a straight-line basis over their useful lives. Leasehold
improvements are amortized over the lives of the leases. Maintenance and repairs
are charged to expense as incurred, while improvements which extend the useful
life are capitalized and depreciated over the remaining life.
Long-lived assets to be held and those to be disposed of and certain
intangibles are evaluated for impairment using the guidance provided by SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which was adopted on January 1, 1996. The provisions
of this statement establish when an impairment loss should be recognized and how
it should be measured. The adoption of the statement did not have a material
impact on financial position or results of operations.
OFF-BALANCE SHEET FINANCIAL AGREEMENTS: The Corporation utilizes a variety of
off-balance sheet financial instruments to manage various financial risks. These
instruments include interest rate swaps, interest rate caps and floors, futures,
forwards and option contracts. Interest rate swaps are used to synthetically
alter the price risk or cash flow characteristics of various on-balance sheet
assets and liabilities. The net interest income or expense on interest rate
swaps is accrued and recognized as an adjustment to the interest income or
expense of the associated on-balance sheet asset or liability. The Corporation
purchases interest rate caps and floors to reduce the cash flow risk of various
on-balance sheet variable rate assets and liabilities. The cost or premium paid
for purchased interest rate caps and floors is capitalized and charged to income
based on the economic value at the time of purchase. The unamortized cost of
caps or floors purchased is carried in other assets. Interest payments received
on interest rate caps and floors are recorded as an interest income or expense
adjustment to the related assets and liabilities. Unrealized gains or losses on
interest rate swaps or purchased interest rate caps and floors are deferred.
Deferred gains and losses are recorded in other assets or other liabilities, as
applicable. Net cash flows related to interest rate swaps and interest rate caps
and floors used to hedge mortgage servicing rights
28
<PAGE> 31
are recognized as adjustments to the carrying value of the servicing rights and
are amortized over the estimated life of the servicing rights.
Futures, forwards and options are also utilized to manage exposures to
changes in interest rates. Futures, forwards and options that are used for risk
management are carried at cost and realized gains and losses are amortized into
interest income or interest expense over the life of the instrument.
Realized gains and losses on all off-balance sheet transactions used to
manage risk that are terminated prior to maturity are deferred and amortized as
a yield adjustment over the remaining original life of the agreement.
The Corporation also enters into off-balance sheet financial agreements on
behalf of its customers and for its trading account. These instruments include
interest rate swaps, interest rate caps and floors, futures, forwards and option
contracts. These contracts are carried at market value as other assets or
liabilities with changes in market value reflected in other income.
INCOME TAXES: Deferred income taxes reflect the temporary tax consequences on
future years of differences between the tax bases and financial statement
amounts of assets and liabilities at each year-end.
TREASURY STOCK: Acquisitions of treasury stock are recorded on the par value
method, which requires the cash paid to be allocated to common or preferred
stock, surplus and retained earnings.
2. RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES: In June 1996, the Financial Accounting Standards
Board issued SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings based on a control-oriented
"financial-components" approach. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished. The
provisions of SFAS No. 125 are effective for transactions occurring after
December 31, 1996, except those provisions relating to repurchase agreements,
securities lending, and other similar transactions and pledged collateral, which
have been delayed until after December 31, 1997 by SFAS No. 127, Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of
FASB Statement No. 125. The adoption of these statements is not expected to have
a material impact on financial position or results of operations.
3. MERGERS AND ACQUISITIONS
On May 3, 1996, National City Corporation merged with Integra Financial
Corporation, a $14 billion bank holding company headquartered in Pittsburgh,
Pennsylvania, in a transaction accounted for as a pooling-of-interests. National
City issued 66.6 million shares of common stock to the shareholders of Integra
based upon an exchange ratio of two shares of National City common stock for
each outstanding share of Integra common stock.
Separate results of operations for National City and Integra follow:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31, For the Calendar Year
1996 -------------------------
(Dollars In Thousands) (UNAUDITED) 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Net interest income
National City $ 340,042 $1,321,085 $1,236,809
Integra 135,180 507,260 528,819
- ---------------------------------------------------------------------
COMBINED $ 475,222 $1,828,345 $1,765,628
Net income
National City $ 124,834 $ 465,109 $ 429,434
Integra 52,030 126,351 169,033
- ---------------------------------------------------------------------
COMBINED $ 176,864 $ 591,460 $ 598,467
Net income per common share
National City $ .81 $3.03 $2.70
Integra 1.56 3.81 5.01
COMBINED .80 2.68 2.64
- ---------------------------------------------------------------------
</TABLE>
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Total loans outstanding were recorded net of unearned income of $325.6 million
in 1996 and $238.6 million in 1995.
The following table summarizes the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
For the Calendar Year
- --------------------------------------------------------------------
(In Thousands) 1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $ 705,846 $ 706,452 $ 685,313
Acquired allowance 94 11,643 9,729
Provision 146,480 113,482 109,356
Loans charged off (236,615) (202,547) (180,249)
Recoveries 90,088 76,816 82,303
- --------------------------------------------------------------------
Net charge-offs (146,527) (125,731) (97,946)
- --------------------------------------------------------------------
BALANCE AT END OF YEAR $ 705,893 $ 705,846 $ 706,452
- --------------------------------------------------------------------
</TABLE>
The financial review section provides detail regarding nonperforming loans.
At December 31, 1996, and December 31, 1995, loans that were considered to be
impaired under SFAS No. 114 totaled $13.9 million and $42.8 million,
respectively. All impaired loans are included in nonperforming assets.
Management does not individually evaluate certain smaller-balance loans for
impairment. These loans are evaluated on an aggregate basis using a
formula-based approach in
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
accordance with the Corporation's policy. The majority of the loans deemed
impaired were evaluated using the fair value of the collateral as the
measurement method. The related allowance allocated to impaired loans was $9.6
million and $20.0 million, respectively. The contractual interest due and actual
interest recognized on impaired loans, as well as on total nonperforming assets,
for the twelve months ended December 31, 1996 was $20.6 million and $9.0
million, compared to $21.3 million and $12.1 million, respectively, for the
twelve months ended December 31, 1995.
At December 31, 1996, nonaccrual and restructured loans were $143.1 million
and other real estate owned was $24.5 million. At December 31, 1995, the
corresponding amounts were $187.4 million and $21.4 million, respectively.
5. SECURITIES
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- --------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
U.S. Treas. and
Fed. agency
debentures $ 2,230,328 $ 5,330 $(22,903) $ 2,212,755
Mortgage-backed
securities 4,390,066 32,417 (30,968) 4,391,515
Asset-backed and
corporate debt
securities 990,014 6,171 (2,453) 993,732
States and
political
subdivisions 324,520 13,351 (915) 336,956
Other 835,009 230,555 (3,200) 1,062,364
- --------------------------------------------------------------------------
TOTAL SECURITIES $ 8,769,937 $287,824 $(60,439) $ 8,997,322
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
U.S. Treas. and
Fed. agency
debentures $ 2,075,783 $ 28,524 $ (7,576) $ 2,096,731
Mortgage-backed
securities 5,996,309 63,034 (23,723) 6,035,620
Asset-backed and
corporate debt
securities 816,578 217,289 (9,050) 1,024,817
States and
political
subdivisions 435,988 22,681 (1,154) 457,515
Other 718,077 15,136 (2,908) 730,305
- --------------------------------------------------------------------------
TOTAL SECURITIES $10,042,735 $346,664 $(44,411) $10,344,988
- --------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the unrealized appreciation in securities available for
sale included in retained earnings totaled $147.8 million, net of tax, compared
to unrealized appreciation of $196.5 million, net of tax, at December 31, 1995.
The Corporation's securities portfolio consists mainly of financial instruments
that pay back par value upon maturity. Market value fluctuations occur over the
lives of the instruments due to changes in market interest rates. Management has
concluded that current declines in value are temporary and accordingly, no
valuation adjustments have been included as a charge to income.
The following table shows the amortized cost and market value (carrying
value) of securities at December 31, 1996 by maturity:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Available for Sale
-------------------------------
(In Thousands) Amortized Cost Market Value
<S> <C> <C>
- ---------------------------------------------------------------------
Due in 1 year or less $ 983,188 $ 988,660
Due in 1 to 5 years 4,685,383 4,682,091
Due in 5 to 10 years 2,284,551 2,280,718
Due after 10 years 816,815 1,045,853
- ---------------------------------------------------------------------
TOTAL $ 8,769,937 $8,997,322
- ---------------------------------------------------------------------
</TABLE>
Mortgage-backed securities and other securities which have prepayment
provisions are assigned to maturity categories based on estimated average lives.
At December 31, 1996, the carrying value of securities pledged to secure
public and trust deposits, trading account liabilities, U.S. Treasury demand
notes and security repurchase agreements totaled $5.5 billion.
At December 31, 1996, there were no securities of a single issuer, other than
U.S. Treasury and other U.S. government agency securities, which exceeded 10% of
stockholders' equity.
The following table represents the segregation of cash flows between
securities available for sale and securities held to maturity:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Available Held to
(In Thousands) for Sale Maturity Total
<S> <C> <C> <C>
- ---------------------------------------------------------------------
1996:
Purchases of securities $ 3,439,159 $ -- $ 3,439,159
Proceeds from sales
of securities 3,416,044 -- 3,416,044
Proceeds from maturities
and prepayments of
securities 1,401,079 -- 1,401,079
1995:
Purchases of securities $ 6,058,386 $ 1,210,976 $ 7,269,362
Proceeds from sales
of securities 5,589,865 -- 5,589,865
Proceeds from maturities
and prepayments of
securities 916,138 1,016,246 1,932,384
- ---------------------------------------------------------------------
</TABLE>
On November 15, 1995, the FASB staff issued a special report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with provisions in that special report,
management chose to reclassify all securities classified as held to maturity to
available for sale. At December 1, 1995, the date of the transfer, the amortized
cost of those securities was $3.0 billion.
In 1996, 1995, and 1994, gross gains of $122.3 million, $71.4 million, and
$46.9 million and gross losses of $14.2 million, $29.0 million, and $16.6
million were realized, respectively.
30
<PAGE> 33
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value disclosures of financial instruments are made to comply with the
requirements of SFAS No. 107, Disclosures About Fair Value of Financial
Instruments. The market value of securities is primarily based upon quoted
market prices. For substantially all other financial instruments, the fair
values are management's estimates of the values at which the instruments could
be exchanged in a transaction between willing parties. Fair values are based on
estimates using present value and other valuation techniques in instances where
quoted market prices are not available. These techniques are significantly
affected by the assumptions used, including discount rates and estimates of
future cash flows. As such, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, further, may not be
realizable in an immediate settlement of the instruments.
SFAS No. 107 also excludes certain items from its disclosure requirements.
These items include non-financial assets, intangibles, and future business
growth, as well as certain liabilities such as pension and other post-retirement
benefits, deferred compensation arrangements, and leases. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Corporation.
Portions of the unrealized gains and losses inherent in the valuation are a
result of management's program to manage overall interest rate risk and
represent a point in time valuation. It is not management's intention to
immediately dispose of a significant portion of its financial instruments and,
thus, the unrealized gains or losses should not be interpreted as a forecast of
future earnings and cash flows.
The following table presents the estimates of fair value of financial
instruments at December 31, 1996 and 1995. Bracketed amounts in the carrying
value columns represent either reduction of asset accounts, liabilities, or
commitments representing potential cash outflows. Bracketed amounts in the fair
value columns represent estimated cash outflows required to settle the
obligations at current market rates.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1996 1995
------------------- -------------------
CARRYING FAIR Carrying Fair
(In Millions) VALUE VALUE Value Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 4,318 $ 4,318 $ 4,378 $ 4,378
Loans held for sale 335 335 314 314
Loans receivable 35,495 35,578 34,151 34,371
Allowance for loan losses (706) -- (706) --
Securities 8,997 8,997 10,345 10,346
Trading account assets 102 102 24 24
- -----------------------------------------------------------------------
LIABILITIES:
Demand deposits $ (7,436) $ (7,436) $ (6,993) $ (6,993)
Savings and time deposits (28,563) (28,763) (28,588) (28,814)
Short-term borrowings (6,271) (6,271) (6,862) (6,862)
Long-term debt (2,994) (3,231) (3,024) (3,118)
Other liabilities (475) (475) (450) (450)
- -----------------------------------------------------------------------
OFF-BALANCE SHEET INSTRUMENTS:
Interest rate swaps $ (4) $ 15 $ -- $ 94
Interest rate caps,
floors and corridors 21 24 29 47
Commitments to
extend credit (12) (12) (11) (11)
Standby letters of credit (2) (2) (1) (1)
- -----------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values. For
purposes of this disclosure only, cash equivalents include Federal funds sold,
security resale agreements, Eurodollar time deposits, customers' acceptance
liability, accrued interest receivable, and other short-term money market
investments.
LOANS RECEIVABLE AND LOANS HELD FOR SALE: For performing variable rate loans
that reprice frequently and loans held for sale, estimated fair values are based
on carrying values. The fair values for all other loans are estimated using a
discounted cash flow calculation that applies interest rates used to price new,
similar loans to a schedule of aggregated expected monthly maturities, adjusted
for market and credit risks.
SECURITIES: The market values of securities are based upon quoted market
prices, where available, and on quoted market prices of comparable instruments
when specific quoted prices are not available.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
amounts payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts for variable-rate money market accounts and certificates of
deposit approximate their fair values at the reporting date. Fair values for
fixed rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of Federal funds purchased,
borrowings under repurchase agreements, commercial paper, and other short-term
borrowings approximate their fair values.
LONG-TERM DEBT: The fair values of long-term borrowings (other than deposits)
are based on quoted market prices, where available, or are estimated using
discounted cash flow analyses based on the Corporation's current incremental
borrowing rates for similar types of borrowing arrangements.
OFF-BALANCE SHEET INSTRUMENTS: The amounts shown under carrying value
represent accruals or deferred income (fees) arising from the related
off-balance sheet financial instruments. Fair values for off-balance sheet
instruments (futures, swaps, forwards, options, guarantees, and lending
commitments) are based on quoted market prices (futures); current settlement
values (financial forwards); quoted market prices of comparable instruments;
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing
(guarantees, loan commitments); or, if there are no relevant comparables, on
pricing models or formulas using current assumptions (interest rate swaps and
options).
7. CASH AND DEMAND BALANCES DUE FROM BANKS
The Corporation's subsidiary banks are required to maintain noninterest bearing
reserve balances with the Federal Reserve Bank. The consolidated average reserve
balance was $244 million for 1996.
8. PROPERTIES AND EQUIPMENT
A summary of properties and equipment follows:
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------
(In Thousands) 1996 1995
<S> <C> <C>
- --------------------------------------------------------------------
Land $ 87,060 $ 87,572
Buildings and leasehold improvements 585,838 601,713
Equipment 701,477 665,472
- --------------------------------------------------------------------
1,374,375 1,354,757
Less accumulated depreciation
and amortization 757,949 761,251
- --------------------------------------------------------------------
NET PROPERTIES AND EQUIPMENT $ 616,426 $ 593,506
- --------------------------------------------------------------------
</TABLE>
The Corporation and certain of its subsidiary banks occupy their respective
headquarters offices under long-term operating leases and, in addition, lease
certain data processing equipment. The aggregate minimum annual rental
commitments under these leases total approximately $56.3 million in 1997, $51.4
million in 1998, $48.5 million in 1999, $45.2 million in 2000, $42.3 million in
2001, and $263.7 million thereafter.
Total expense recorded under all operating leases in 1996, 1995, and 1994 was
$79.8 million, $73.3 million, and $69.2 million, respectively.
9. BORROWED FUNDS
The composition of borrowed funds follows:
<TABLE>
<CAPTION>
December 31
- -------------------------------------------------------------------
(In Thousands) 1996 1995
<S> <C> <C>
- -------------------------------------------------------------------
U.S. Treasury demand notes and
Federal funds borrowed-term $ 1,056,499 $ 391,765
Notes payable to Student Loan
Marketing Association 300,000 600,000
Other 79,648 186,916
- -------------------------------------------------------------------
Total bank subsidiaries 1,436,147 1,178,681
Commercial paper 556,100 374,017
Other 1,762 9,806
- -------------------------------------------------------------------
Total parent company and other
subsidiaries 557,862 383,823
- -------------------------------------------------------------------
TOTAL $ 1,994,009 $1,562,504
- -------------------------------------------------------------------
</TABLE>
U.S. Treasury demand notes represent secured borrowings from the U.S.
Treasury. These borrowings are collateralized with securities or 1-4 family
residential mortgage loans. The funds are placed with the banks at the
discretion of the U.S. Treasury and may be called at any time.
The $300 million floating rate note payable to Student Loan Marketing
Association is secured by and provides funding for student loan receivables.
32
<PAGE> 35
10. LONG-TERM DEBT
The composition of long-term debt, net of unamortized discount, if applicable,
follows:
<TABLE>
<CAPTION>
December 31
- -------------------------------------------------------------------
(In Thousands) 1996 1995
<S> <C> <C>
- -------------------------------------------------------------------
8 3/8% Notes due 1996 $ -- $ 99,987
Floating Rate Subordinated Notes due
1997 74,998 74,980
Floating Rate Notes due 1997 49,983 49,962
9 7/8% Subordinated Notes due 1999 64,872 64,825
6.50% Subordinated Notes due 2000 99,820 99,777
8.50% Subordinated Notes due 2002 99,881 99,849
6 5/8% Subordinated Notes due 2004 249,072 248,942
7.20% Subordinated Notes due 2005 249,756 249,727
Other 1,794 2,561
- -------------------------------------------------------------------
TOTAL PARENT COMPANY 890,176 990,610
- -------------------------------------------------------------------
6.50% Subordinated Notes due 2003 199,525 199,451
7.25% Subordinated Notes due 2010 222,779 222,612
6.30% Subordinated Notes due 2011 200,000 --
7.25% Subordinated Notes due 2011 197,080 --
Other 2,103 2,309
- -------------------------------------------------------------------
TOTAL SUBSIDIARY SUBORDINATED NOTES 821,487 424,372
- -------------------------------------------------------------------
TOTAL LONG-TERM DEBT QUALIFYING FOR
TIER II CAPITAL 1,711,663 1,414,982
- -------------------------------------------------------------------
Senior Bank Notes 754,582 654,547
Federal Home Loan Bank Advances 528,173 955,461
- -------------------------------------------------------------------
TOTAL OTHER LONG-TERM DEBT OF
SUBSIDIARIES 1,282,755 1,610,008
- -------------------------------------------------------------------
TOTAL $ 2,994,418 $3,024,990
- -------------------------------------------------------------------
</TABLE>
The $75 million floating rate notes and the $50 million floating rate notes
pay interest quarterly at a rate of 12.5 basis points over the three-month
Eurodollar deposit rate and may be redeemed in whole or in part at the option of
the Corporation.
All of the subordinated notes of the parent and bank subsidiaries pay
interest semi-annually and may not be redeemed prior to maturity. The 6.30%
Subordinated Notes were issued in February 1996 by National City Bank of
Kentucky. The 7.25% Subordinated Notes were issued in October 1996 by National
City Bank of Pennsylvania.
The Senior Bank Notes are at fixed and variable rates and mature at various
dates through 2007. The weighted average interest rate of the notes as of
December 31, 1996 and 1995 was 6.07% and 6.29%, respectively.
Long-term advances from the Federal Home Loan Bank (FHLB) are at fixed and
variable rates ranging up to 8.40% and mature at various dates through 2023.
Advances from the FHLB are collateralized by qualifying securities and loans.
A credit agreement dated February 2, 1996, with a group of unaffiliated
banks, allows the Corporation to borrow up to $350 million until February 1,
2000, with a provision to extend the expiration date under certain
circumstances. 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 December 31, 1996.
Long-term debt maturities for the next five years are as follows: $227.8
million in 1997; $27.9 million in 1998; $67.5 million in 1999; $677.7 million in
2000; and $126.8 million in 2001.
11. CAPITAL RATIOS
The following table reflects various measures of capital at year-end:
<TABLE>
<CAPTION>
1996 1995
------------------- ------------------
(DOLLARS IN MILLIONS) AMOUNT RATIO Amount Ratio
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total equity(1) $ 4,432.1 8.71% $4,063.8 8.04%
Tangible equity(2) 3,932.7 7.81 3,545.9 7.09
Tier 1 capital(3) 3,976.5 9.84 3,546.4 9.14
Total risk-based
capital(4) 5,980.6 14.79 5,228.4 13.47
Leverage(5) 3,976.5 8.16 3,546.4 7.26
- ---------------------------------------------------------------------
<FN>
(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.
- ---------------------------------------------------------------------
</TABLE>
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 minimums of 6.00%, 10.00% and 5.00% for the
Tier I 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>
December 31
- --------------------------------------------------------------------
(Dollars in Millions) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Goodwill $307.8 $319.7
Core deposit intangibles 17.7 26.9
Other intangibles 1.6 2.4
Purchased credit cards 31.1 47.4
Mortgage servicing rights 141.2 121.5
- --------------------------------------------------------------------
</TABLE>
12. OTHER CAPITAL TRANSACTIONS
The Corporation is authorized to issue 5,000,000 shares of no par value
preferred stock. At December 31, 1995, the Corporation had 741,600 shares of 8%
Cumulative Convertible Preferred Stock outstanding in the form of 3,708,000
depositary shares. The depositary shares had a stated value of $50.00 per share
and each share represented a one-fifth interest in a preferred share. The
preferred shares were convertible at the option of the
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
holder into 2.384 common shares per depositary share. On March 5, 1996, the
Corporation called the preferred stock for redemption, effective May 1, 1996, at
the fixed redemption price of $52.00 per depositary share. Prior to the
redemption date, all of the outstanding depositary shares were converted into
common stock.
The final 613,429 shares in the Employee Stock Ownership Plan (ESOP) were
allocated to benefit plan participants during 1996. The ESOP, which was part of
the National City Savings and Investment Plan, earned dividends on company
shares of $.4 million and $1.4 million in 1996 and 1995, respectively. Company
contributions of $2.8 million and $6.8 million in 1996 and 1995, respectively,
were used with dividends to service the loan which was fully paid during 1996.
In August 1996, National Processing, Inc. (NPI), a subsidiary of National
City, issued 7,475,000 shares of common stock in an underwritten public
offering. The net proceeds from the transaction were retained by NPI to finance
internal business development needs. This capital transaction resulted in a
$25.1 million increase in the carrying value of National City's interest in the
net assets of NPI. Amounts related to the minority shareholders' interest in the
equity of NPI are not material to the consolidated financial statements.
13. NET INCOME PER COMMON SHARE
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 calculation of net income per common share follows:
<TABLE>
<CAPTION>
For the Calendar Year
- ----------------------------------------------------------------------
(In Thousands Except
Per Share Amounts) 1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------
PRIMARY:
Net income $736,630 $591,460 $598,467
Less preferred dividends 4,028 14,830 15,200
- ----------------------------------------------------------------------
Net income applicable to
common stock $732,602 $576,630 $583,267
- ----------------------------------------------------------------------
Average common shares
outstanding 222,674,326 215,097,124 220,822,755
- ----------------------------------------------------------------------
Net income per common
share $3.29 $2.68 $2.64
- ----------------------------------------------------------------------
ASSUMING FULL DILUTION:
Net income $736,630 $591,460 $598,467
- ----------------------------------------------------------------------
Fully diluted average common
shares outstanding 225,503,431 224,004,487 229,844,700
- ----------------------------------------------------------------------
Fully diluted
net income per share $3.27 $2.64 $2.60
- ----------------------------------------------------------------------
</TABLE>
14. PARENT COMPANY AND REGULATORY RESTRICTIONS
At December 31, 1996, retained earnings of the parent company included $1,973.7
million of equity in undistributed earnings of subsidiaries.
Dividends paid by the Corporation's subsidiary banks are subject to various
legal and regulatory restrictions. In 1996, subsidiary banks declared $579.5
million in dividends to the parent company. The subsidiary banks can initiate
dividend payments in 1997, without prior regulatory approval, of $378.0 million,
plus an additional amount equal to their net profits for 1997, as defined by
statute, up to the date of any such dividend declaration.
Under Section 23A of the Federal Reserve Act, as amended, loans from
subsidiary banks to nonbank affiliates, including the parent company, are
required to be collateralized.
Commercial paper borrowings of a subsidiary ($556.1 million outstanding at
December 31, 1996) are guaranteed by the parent company.
Condensed parent company financial statements, which include transactions
with subsidiaries, follow:
34
<PAGE> 37
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------
(In Thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and demand balances
due from banks $ 14,355 $ 12,658
Loans to and accounts receivable
from subsidiaries 1,014,375 587,534
Securities 747,644 252,686
Investments in:
Subsidiary banks 3,149,276 3,592,561
Nonbank subsidiaries 442,711 642,812
Goodwill, net of accumulated
amortization of $34,897 and $32,217,
respectively 47,793 50,473
Other assets 184,015 87,435
- --------------------------------------------------------------------
TOTAL ASSETS $ 5,600,169 $5,226,159
- --------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper $ -- $ 34,319
Corporate long-term debt 890,176 990,610
Accrued expenses and other liabilities 277,930 137,384
- --------------------------------------------------------------------
Total liabilities 1,168,106 1,162,313
Stockholders' equity 4,432,063 4,063,846
- --------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 5,600,169 $5,226,159
- --------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Calendar Year
- ------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from:
Subsidiary banks $ 579,500 $ 329,751 $ 354,878
Nonbank subsidiaries 10,420 12,676 16,129
Interest on loans
to subsidiaries 10,810 11,686 5,250
Interest and dividends
on securities 21,997 9,268 7,487
Security gains 93,720 19,764 476
Other income 2,851 1,046 3,542
- ------------------------------------------------------------------------
TOTAL INCOME 719,298 384,191 387,762
- ------------------------------------------------------------------------
EXPENSE
Interest on debt and
other borrowings 67,280 68,578 55,147
Goodwill amortization 2,588 2,360 2,344
Other expense 153,487 118,909 70,915
- ------------------------------------------------------------------------
TOTAL EXPENSE 223,355 189,847 128,406
- ------------------------------------------------------------------------
Income before taxes and
equity in undistributed
income of subsidiaries 495,943 194,344 259,356
Income tax (benefit) (81,357) (79,474) (60,082)
- ------------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 577,300 273,818 319,438
Equity in undistributed net
income of subsidiaries 159,330 317,642 279,029
- ------------------------------------------------------------------------
NET INCOME $ 736,630 $ 591,460 $ 598,467
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Calendar Year
- -----------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 736,630 $ 591,460 $ 598,467
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed net
income of subsidiaries (159,330) (317,642) (279,029)
Amortization of goodwill 2,588 2,360 2,344
Depreciation of premises and
equipment 5,447 4,339 7,750
Decrease (increase) in dividends
receivable from subsidiaries (114,820) (89,500) 55,669
Security gains (93,720) (19,764) (476)
Other, net (114,604) (79,879) (109,762)
- -----------------------------------------------------------------------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 262,191 91,374 274,963
- -----------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in short-term money
market investments 29,065 (35,613) (26,750)
Purchases of securities (260,765) (144,259) (123,613)
Sales and maturities of
securities 199,324 93,129 91,261
Net sales (purchases) of premises
and equipment 11,513 19,266 (10,221)
Principal collected on
loans to subsidiaries 8,524 7,800 50,850
Loans to subsidiaries (49,167) (24,975) (25,805)
Investment in subsidiaries -- (72,961) (14,784)
Return of investment
from subsidiaries 198,000 286,000 168,000
- -----------------------------------------------------------------------
NET CASH PROVIDED
BY INVESTING ACTIVITIES 136,494 128,387 108,938
- -----------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of corporate
long-term debt (100,000) (556) (13,405)
Proceeds from issuance
of long-term debt -- 249,710 247,080
Increase (decrease) in other
borrowings (43,730) (7,115) (26,148)
Common and preferred dividends (314,762) (270,279) (251,290)
Issuance of common stock 58,763 44,885 30,453
Repurchase of stock -- (241,253) (373,585)
Shares distributed by ESOP 2,741 6,277 7,428
- -----------------------------------------------------------------------
NET CASH (USED)
BY FINANCING ACTIVITIES (396,988) (218,331) (379,467)
- -----------------------------------------------------------------------
Increase in cash and
demand balances due
from banks 1,697 1,430 4,434
Cash and demand balances due
from banks, January 1 12,658 11,228 6,794
- -----------------------------------------------------------------------
Cash and demand balances due
from banks, December 31 $ 14,355 $ 12,658 $ 11,228
- -----------------------------------------------------------------------
</TABLE>
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
For the Calendar Year
- ------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 64,764 $ 65,106 $ 46,700
Securities transferred to (from)
subsidiaries (248,234) 89,400 --
Shares issued in purchase
acquisitions and additional
investment in subsidiaries -- 110,739 --
- ------------------------------------------------------------------------
</TABLE>
15. STOCK OPTIONS AND AWARDS
National City maintains various incentive and non-qualified stock-based
compensation plans that allow for the granting of restricted shares, stock
options or other stock-based awards to eligible employees and directors. The
Corporation has elected not to adopt the recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, which requires a fair-value based
method of accounting for stock options and similar equity awards, and will
continue to follow APB No. 25, Accounting For Stock Issued to Employees, and
related Interpretations to account for its stock-based compensation plans.
Included below are pro forma net income and earnings per share, as required by
SFAS No. 123, determined as if the Corporation had accounted for stock options
granted in 1995 and 1996 under the provisions of SFAS No. 123.
STOCK OPTION PLANS: The stock option plans for officers and key employees
authorize the issuance of up to 10,000,000 options to purchase shares of common
stock at the market price of the shares at the date of grant. These options
generally become exercisable to the extent of either 25% or 50% annually
beginning one year from the date of grant and expire not later than ten years
from the date of grant. In addition, stock options may be granted that include
the right to receive additional options not exceeding the number of options
exercised under the original grant if certain criteria are met. The exercise
price of an additional option is equal to the market price of the common stock
on the date the additional option is granted. Additional options vest six months
from the date of grant and have a contractual term equal to the remaining term
of the original option.
In 1995, the Corporation was authorized to grant up to 3,500,000 options to
purchase common stock to virtually all employees in commemoration of National
City's 150th anniversary. One-third of these options become exercisable in each
of the years 1998, 1999, and 2000.
As of the merger date, all former Integra options were assumed by National
City with appropriate conversion of the option price per share and the number of
shares under option. All former Integra plans were terminated with respect to
the granting of any additional options.
RESTRICTED STOCK PLAN: The 1991 Restricted Stock Plan provides for the
issuance of up to 1,000,000 shares of common stock to officers, key employees,
and outside directors. In general, restrictions on outside directors' shares
granted after 1992 expire after nine months and restrictions on shares granted
to key employees and officers expire over a four-year period. The Corporation
generally recognizes compensation expense over the restricted period.
Compensation expense recognized in 1996, 1995 and 1994 totaled $2.0 million,
$1.9 million and $1.4 million, respectively, related to shares issued under this
plan.
OPTION AND RESTRICTED STOCK AWARD ACTIVITY: A summary of stock option and
restricted stock award activity follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Shares
--------------------------------------
Available Weighted-
for Grant Average
---------- Outstanding Option
Awards & ----------------------- Price Per
Options Awards Options Share
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
January 1, 1994 10,339,300 243,750 9,023,949 $20.75
Integra shares
authorized 650,223
Cancelled 109,492 (4,350) (105,142) 28.74
Exercised (4,400) (952,028) 17.72
Granted (2,205,600) 92,800 2,112,800 29.79
- ----------------------------------------------------------------------------
December 31, 1994 8,893,415 327,800 10,079,579 22.84
Authorized 3,500,000
Cancelled 95,577 (8,950) (793,767) 29.12
Acquired 88,418
Exercised (139,250) (1,822,509) 20.40
Granted (5,849,640) 111,090 5,738,550 30.10
- ----------------------------------------------------------------------------
December 31, 1995 6,639,352 290,690 13,290,271 25.86
Cancelled 125,368 (11,300) (820,718) 29.35
Exercised (49,532) (2,999,388) 19.83
Granted (3,649,117) 162,977 4,105,003 35.20
- ----------------------------------------------------------------------------
DECEMBER 31, 1996 3,115,603 392,835 13,575,168 $29.89
- ----------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 1995 and 1994, options exercisable under National City
option plans totaled 6,975,620, 6,160,826, and 5,669,645 shares, respectively,
and had a weighted average option price per share of $22.45, $20.71, and $18.74,
respectively. All options outstanding under the Integra option plan became
exercisable as of the acquisition date. For options outstanding at December 31,
1996, the option price per share ranged from $5.31 to $47.50 and the
weighted-average remaining contractual life of the options was 7.3 years.
PRO FORMA DISCLOSURES: For purposes of providing the pro forma disclosures
required under SFAS No. 123, the fair value of stock options granted in 1995 and
1996 was estimated at the date of grant using a Black-Scholes option pricing
model. The Black-Scholes option pricing model was originally developed for use
in estimating the fair value of traded options which have different
characteristics than the Corporation's employee stock options. The model is also
sensitive to changes in the subjective assumptions which can materially affect
the fair value estimate. As a result,
36
<PAGE> 39
management believes that the Black-Scholes model may not necessarily provide a
reliable single measure of the fair value of employee stock options.
The following weighted-average assumptions were used in the option pricing
model: a risk-free interest rate of 6.04% and 5.64% for 1996 and 1995,
respectively; an expected life of the option of 4.2 years and 5.4 years for 1996
and 1995, respectively; and an expected dividend yield and volatility factor of
3.80% and .21 respectively, for both years. For purposes of the pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period.
Had compensation cost for the Corporation's stock-based compensation plans
been determined consistent with SFAS No. 123, net income and earnings per share
would have been as summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(In Thousands, Except Per Share Amounts) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Pro forma net income $ 725,726 $ 588,122
Pro forma earnings per share:
Primary $3.24 $2.67
Fully diluted 3.22 2.63
- --------------------------------------------------------------------
</TABLE>
Due to the inclusion of only 1995 and 1996 option grants, the effects of
applying SFAS No. 123 in 1995 and 1996 may not be representative of the pro
forma impact in future years.
16. PENSION PLANS
National City has a noncontributory, defined benefit retirement plan covering
substantially all employees. Retirement benefits are based upon the employees'
length of service and salary levels. Actuarially determined pension costs are
charged to current operations. The funding policy is to pay at least the minimum
amount required by the Employee Retirement Income Security Act of 1974.
The defined benefit pension plan's funded status (at its year-end September
30) follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(In Thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation:
Vested benefits $ 422,876 $ 414,937
Nonvested benefits 21,121 15,342
- --------------------------------------------------------------------
Accumulated benefit obligation 443,997 430,279
Effect of projected future
compensation levels 84,875 99,229
- --------------------------------------------------------------------
Projected benefit obligation 528,872 529,508
Plan's assets at fair value, primarily
stocks and bonds, including $22.7
million and $16.7 million in the common
stock of the Corporation for 1996 and
1995, respectively 561,133 496,400
- --------------------------------------------------------------------
Funded status - plan assets in excess of
(less than) projected benefit
obligation $ 32,261 $ (33,108)
- --------------------------------------------------------------------
Comprised of:
Unrecognized net gains (losses) $ 31,626 $ (35,482)
Unrecognized net assets being
recognized over 15 years 20,787 24,477
Less accrued pension liability on
balance sheet 20,152 22,103
- --------------------------------------------------------------------
$ 32,261 $ (33,108)
- --------------------------------------------------------------------
</TABLE>
Assumptions used in the valuation of the defined benefit pension plan at its
year-end (September 30) follow:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 7.50% 8.25-8.50%
Average assumed rate of
compensation increase 5.00 4.75-5.00 4.75-5.50
Long-term rate of return on
assets 10.00 10.00 9.50
- -----------------------------------------------------------------------
</TABLE>
Net defined benefit pension plan costs include the following components:
<TABLE>
<CAPTION>
For the Calendar Year
- ------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during year $ 20,306 $ 19,871 $ 22,775
Interest cost on projected
benefit obligation 36,033 36,324 33,619
Actual return on plan assets (78,548) (74,411) (7,889)
Net amortization and deferral 30,577 29,732 (37,140)
- ------------------------------------------------------------------------
Net periodic pension cost $ 8,368 $ 11,516 $ 11,365
- ------------------------------------------------------------------------
</TABLE>
The Corporation also maintains nonqualified supplemental retirement plans for
certain key employees. All benefits provided under these plans are unfunded and
any payments to plan participants are made by the Corporation. As of December
31, 1996 and 1995 approximately $32.6 million and $18.2 million, respectively,
were included in accrued expenses and other liabilities for these plans. For the
years ended Decem-
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ber 31, 1996, 1995 and 1994, expense related to these plans was $17.6 million,
$5.6 million, and $5.4 million, respectively. The accrued liability and expense
for 1996 include a $11.4 million charge relating to the curtailment of a
supplemental executive retirement plan for former key employees of Integra.
Substantially all employees with one or more years of service are eligible to
contribute a portion of their pre-tax salary to a defined contribution plan. The
Corporation may make contributions to the plan in varying amounts depending on
the level of employee contributions. For the years ended 1996, 1995 and 1994,
the expense related to this plan was $10.7 million, $17.8 million, and $18.5
million, respectively.
17. OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation has a benefit plan which offers postretirement medical and life
insurance benefits to all employees who have attained the age of 55 and have at
least 10 years of service (five years of service if age 65 or older). The
medical portion is contributory and the life insurance coverage is
noncontributory to the participants. For any employee who retired on or after
April 1, 1989, the Corporation's medical contribution is fixed, based on years
of service and age at retirement. The accounting for the medical portion
anticipates contributions for retirees prior to April 1, 1989, to continue to
increase as a proportion of the total costs of the plan. The Corporation
reserves the right to terminate or make plan changes at any time.
The Corporation has no plan assets attributable to the plan and funds the
benefits as the claims arise. Postretirement benefit costs are recognized during
the periods in which employees provide service for such benefits. The following
table presents the Plan's status at December 31, reconciled with amounts
recognized in the consolidated balance sheet:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(Dollars in Thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 40,704 $ 38,982
Fully eligible active plan participants 10,826 8,671
Other active plan participants 15,573 13,593
- --------------------------------------------------------------------
Accumulated postretirement benefit
obligation 67,103 61,246
Unrecognized net gain (loss) (9,585) (6,206)
Unrecognized transition obligation (27,210) (29,133)
- --------------------------------------------------------------------
Accrued postretirement benefit cost $ 30,308 $ 25,907
- --------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
For the Calendar Year
(Dollars in Thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $1,270 $ 983 $1,194
Interest cost 4,805 4,406 4,433
Net amortization and deferral 2,231 1,822 2,172
- ---------------------------------------------------------------------
Net periodic postretirement
benefit cost $8,306 $7,211 $7,799
- ---------------------------------------------------------------------
</TABLE>
Assumptions used in the valuation of the accumulated postretirement benefit
obligation at December 31 follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.75% 7.75% 8.50%
Average salary scale 5.00 5.00 5.50
- ----------------------------------------------------------------------
</TABLE>
The health care trend rate assumption only affects those participants retired
under the plan prior to April 1, 1989. The 1996 health care trend rate is
projected to be 10.5 percent for participants under 65 and 7.5 percent for
participants over 65. These rates are assumed to decrease incrementally by .5
percentage point per year until they reach 5 percent and remain at that level
thereafter. The health care trend rate assumption does not have a significant
effect on the medical plan, therefore, a 1 percentage point change in the trend
rate is not material in the determination of the accumulated postretirement
benefit obligation or the ongoing expense.
18. INCOME TAXES
The composition of income tax expense(benefit) follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
For the Calendar Year
1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $320,696 $234,809 $237,452
State 17,919 16,204 12,756
- --------------------------------------------------------------------
Total current 338,615 251,013 250,208
Deferred:
Federal (15,682) 1,733 8,886
State (1,119) 939 1,761
- --------------------------------------------------------------------
Total deferred (16,801) 2,672 10,647
- --------------------------------------------------------------------
Tax expense $321,814 $253,685 $260,855
- --------------------------------------------------------------------
Tax expense applicable to
security transactions $ 29,587 $ 13,501 $ 10,248
- --------------------------------------------------------------------
</TABLE>
The effective tax rate differs from the statutory rate applicable to
corporations as a result of permanent differences between accounting and taxable
income as shown below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
For the Calendar Year
1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Life insurance (2.2) (3.0) (2.2)
Tax-exempt income (1.5) (2.3) (2.6)
Other (.9) .3 .2
- -------------------------------------------------------------------
EFFECTIVE TAX RATE 30.4% 30.0% 30.4%
- -------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
Significant components of deferred tax liabilities and assets as of December
31 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(Dollars in Thousands) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Lease accounting $ 98,707 $ 79,937
Depreciation 23,210 24,444
Mark to market adjustments 83,452 116,206
Other - net 77,925 76,974
- -------------------------------------------------------------------
Total deferred tax liabilities 283,294 297,561
Deferred tax assets:
Provision for losses 248,462 246,637
Employee benefits 33,308 11,384
Other - net 76,553 112,071
- -------------------------------------------------------------------
Total deferred tax assets 358,323 370,092
- -------------------------------------------------------------------
Net deferred tax assets $ 75,029 $ 72,531
- -------------------------------------------------------------------
</TABLE>
19. OFF-BALANCE SHEET FINANCIAL AGREEMENTS
The Corporation uses a variety of off-balance sheet financial instruments such
as interest rate swaps, futures, options, forwards, and cap and floor contracts.
These financial agreements, frequently called interest rate derivatives, enable
the Corporation to efficiently manage its exposure to changes in interest rates.
As with any financial instrument, derivatives have inherent risks. Market risk
represents the risk of gains and losses that result from changes in interest
rates. These gains and losses may be offset by other on- or off-balance sheet
transactions. Credit risk is the risk that a counterparty to a derivative
contact with an unrealized gain fails to perform according to the terms of the
agreement. Credit risk can be measured as the cost of acquiring a new derivative
agreement with cash flows identical to those of a defaulted agreement in the
current interest rate environment. The credit exposure to counterparties is
managed by limiting the aggregate amount of net unrealized gains in agreements
outstanding, monitoring the size and the maturity structure of the derivative
portfolio, applying uniform credit standards maintained for all activities with
credit risk, and by collateralizing unrealized gains. The Corporation has
established bilateral collateral agreements with its major off-balance sheet
counterparties that provide for exchanges of marketable securities to
collateralize either party's unrealized gains. On December 31, 1996, these
collateral agreements covered 95% of the notional amount of the derivative
portfolio, and the Corporation was holding net U.S. government and agency
securities with a market value of $34 million from various counterparties to
collateralize unrealized gains. The Corporation has never experienced, nor does
it have any reason to expect, a credit loss associated with any interest rate
derivative.
INTEREST RATE RISK MANAGEMENT: On December 31, 1996, the total notional
amount of the interest rate swap portfolio used to manage interest rate
sensitivity was $8.0 billion, which is an increase of $1.0 billion from December
31, 1995. The Corporation uses receive fixed interest rate swaps, receive fixed
cancelable interest rate swaps and receive fixed indexed amortizing interest
rate swaps to convert variable rate loans and securities into synthetic fixed
rate instruments and to convert fixed rate funding sources into synthetic
variable rate funding instruments. The Corporation increased its use of receive
fixed rate interest rate swaps and cancelable interest rate swaps during the
year primarily to facilitate its funding activities. During 1996, the
Corporation entered into $1.1 billion of receive fixed interest rate swaps and
$550 million of receive fixed cancelable swaps in association with the issuance
of fixed rate and fixed rate callable funding products. During 1996, the
Corporation entered in $2.6 billion of receive fixed indexed amortizing interest
rate swaps. These swaps were used primarily to convert portions of variable rate
loan portfolios into synthetic fixed rate loans. During 1996, $175 million of
receive fixed interest rate swaps matured or amortized and $1.8 billion of
indexed amortizing receive fixed interest rate swaps matured or amortized.
The Corporation uses pay fixed interest rate swaps to convert fixed rate
loans and securities into synthetic variable rate instruments and to convert
variable rate funding sources into synthetic fixed rate funding instruments.
During 1996, the Corporation entered into $424 million of pay fixed interest
rate swaps, with weighted initial expected maturity of 4.62 years. During 1996,
$32 million of pay fixed interest rate swaps matured and $100 million of pay
fixed interest rate swaps were terminated prior to maturity.
The Corporation uses interest rate floors to help protect its interest margin
in periods of low interest rates and a flattening yield curve. During 1996, the
Corporation purchased $165 million three-month Eurodollar floors with an average
maturity of 5 years and an average strike rate of 5.75%.
The Corporation uses interest rate corridors to help protect its net interest
margin in various interest rates environments. These interest rate corridors pay
1.0% of the notional amount per annum over their lives only when the three-month
Eurodollar rate is between the corridor strike rates. There are no payments due
to the Corporation when three-month Eurodollar rates are outside of the corridor
strike rates.
On December 31, 1996, the Corporation had $8 million of net deferred gains on
terminated derivative contracts and had no derivative contracts outstanding that
were hedging anticipated transactions.
Summary information with respect to the interest rate derivative portfolio
used for risk management purposes follows:
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
----------------------------------------------------------------------------------------
Weighted Average
-------------------------------------------- December 31, 1995
(Dollars in Notional Unrealized Unrealized Receive Pay Strike Life -----------------
Thousands) Amount Gains Losses Rate Rate Rate (Years) Notional Amount
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE
SWAPS:
Receive fixed
indexed
amortizing swaps $ 3,107,448 $ 7,371 $(18,574) 6.26% 5.55% N/A 1.8 $ 2,769,970
Receive fixed
callable swaps 905,000 5,212 (2,611) 6.86 5.56 N/A 6.4 105,000
Receive fixed
swaps 3,047,370 49,274 (16,458) 6.46 5.49 N/A 4.13 2,456,370
Pay fixed swaps 874,145 -- (3,942) 5.53 6.86 N/A 2.21 582,000
Basis swaps 75,000 523 -- 5.92 5.68 N/A 3.82 1,050,000
- ------------------------------------------------------------------------------------------------------------------------------
Total interest
rate swaps 8,008,963 62,380 (41,585) 6,963,340
INTEREST RATE CAPS
AND FLOORS:
Three-month
Eurodollar
floors purchased 1,400,000 8,826 (4,235) N/A N/A 5.71% 3.88 1,435,000
Five-year U.S.
Treasury
floors purchased -- -- -- N/A N/A -- -- 50,000
Ten-year U.S.
Treasury
floors sold 163,000 -- -- N/A N/A 5.17% 4.66 --
Three-month
Eurodollar caps
purchased 100,000 -- -- N/A N/A 7.00% 0.08 300,000
One-month
Eurodollar caps
sold 19,000 -- -- N/A N/A 12.00% 0.29 95,000
- ------------------------------------------------------------------------------------------------------------------------------
Total interest
rate caps
and floors 1,682,000 8,826 (4,235) 1,880,000
INTEREST RATE
CORRIDORS PURCHASED:
1% Payout
corridors 200,000 -- (33) N/A N/A 4.50% TO 5.50% 0.5 200,000
1% Payout
corridors 250,000 62 -- N/A N/A 6.00% TO 7.50% 1.53 250,000
1% Payout
corridors -- -- -- N/A N/A 6.13% TO 7.50% -- 2,000,000
1% Payout
corridors 500,000 -- (334) N/A N/A 6.50% TO 7.50% 1.69 500,000
1% Payout
corridors 300,000 -- (152) N/A N/A 8.50% TO 9.75% .22 300,000
- ------------------------------------------------------------------------------------------------------------------------------
Total interest
rate
corridors 1,250,000 62 (519) 3,250,000
- ------------------------------------------------------------------------------------------------------------------------------
Total interest
rate swaps,
caps, floors
& corridors $10,940,963 $ 71,268 $(46,339) $12,093,340
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The variable rates in the interest rate swap contracts are primarily based on
the three-month Eurodollar rate. The average variable rates included in the
table above are those in effect in the specific contracts at December 31, 1996.
The following table details the expected notional maturities of off-balance
sheet instruments used for interest-rate risk management at December 31, 1996:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Less than 1 to 3 3 to 5 5 to 10 Greater
(In Thousands) 1 Year Years Years Years than 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Receive fixed indexed amortizing swaps $1,430,194 $ 591,978 $1,085,276 $ -- $ --
Receive fixed callable swaps -- 450,000 -- 245,000 210,000
Receive fixed swaps 837,370 1,015,000 365,000 405,000 425,000
Pay fixed swaps 550,000 194,000 -- 127,000 3,145
Basis swaps -- -- 75,000 -- --
Three-month Eurodollar floors purchased -- 735,000 200,000 465,000 --
Ten-year U.S. Treasury floors sold -- -- 163,000 -- --
Three-month Eurodollar caps purchased 100,000 -- -- -- --
One-month Eurodollar caps sold 19,000 -- -- -- --
Interest rate corridors purchased 500,000 750,000 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $3,436,564 $3,735,978 $1,888,276 $1,242,000 $ 638,145
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Indexed amortizing interest rate swaps are contracts where the notional
amount amortizes after a predetermined lock-out period. The rate of amortization
is determined by formula and is based upon movements of short-term interest
rates, usually three-month Eurodollar rates. The indexed amortizing interest
rate swap portfolio contains no imbedded options that have multiplicative
impacts affecting valuations or expected notional maturities. The following
table shows the estimated impact on valuation, average life, and the expected
notional amortization schedule of the indexed amortizing swap portfolio if
interest rates immediately
40
<PAGE> 43
increase or decrease 100 basis points from December 31, 1996 levels:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(unaudited) Expected Notional
Net Amortization
Unrealized Average Less than 1 to 2 2 to 5
(In Millions) Gain/(Loss) Life(Years) 1 Year Years Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rates at year
end $ (12) 1.8 $ 1,430 $473 $1,205
Interest rates +100bp (71) 2.5 621 550 1,937
Interest rates -100bp 22 0.8 2,207 717 183
- ----------------------------------------------------------------------------------
</TABLE>
MORTGAGE SERVICING RISK MANAGEMENT: The Corporation uses off-balance sheet
derivative contracts to hedge the market value of a portion of its mortgage
servicing portfolio. The market value of the mortgage servicing portfolio is
adversely affected when mortgage interest rates decline and mortgage loan
prepayments increase. To hedge this exposure, the Corporation entered into
receive fixed interest rate swaps, purchased and sold interest rate floors (net
purchased options) and purchased interest rate caps all with payoffs based on 10
year U.S. Treasury note yields. The Corporation has also entered into $34
million of interest rate swaps where the Corporation receives the periodic total
return of Principal Only Mortgage Backed Securities and pays a variable rate
based on one-month Eurodollar rates.
Information with respect to the interest rate derivative portfolio used for
hedging mortgage servicing assets is summarized in the table below. At December
31, 1996, the net unrealized loss on the derivative portfolio was more than
offset by net unrealized appreciation in the mortgage servicing portfolio.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
-----------------------------------------------------------------------------------
Weighted Average
------------------------------------------- December 31, 1995
Notional Unrealized Unrealized Receive Pay Strike Life -----------------
(Dollars in Thousands) Amount Gains Losses Rate Rate Rate (Years) Notional Amount
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS:
Receive fixed swaps $ 630,000 $ 990 $ (9,335) 5.90% 5.53% N/A 3.9 $ 315,000
Principal only swaps 34,251 601 (1,260) -- 5.91 N/A 2.8 --
- ------------------------------------------------------------------------------------------------------------------------------
Total interest rate
swaps 664,251 1,591 (10,595) 315,000
INTEREST RATE CAPS AND
FLOORS:
Ten-year U.S. Treasury
caps purchased 85,000 482 -- N/A N/A 8.82% 4.6 --
Ten-year U.S. Treasury
floors purchased 1,015,662 2,440 -- N/A N/A 5.45% 3.2 906,820
Ten-year U.S. Treasury
floors sold 400,000 -- (407) N/A N/A 4.91% 3.1 --
- ------------------------------------------------------------------------------------------------------------------------------
Total interest rate
caps and floors 1,500,662 2,922 (407) 906,820
- ------------------------------------------------------------------------------------------------------------------------------
Total interest rate
swaps,
caps and floors $ 2,164,913 $4,513 $(11,002) $ 1,221,820
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TRADING ACTIVITIES: The Corporation also enters into off-balance sheet
financial instruments for its trading account. These transactions are executed
primarily with customers to facilitate their interest rate risk management
strategies. The trading portfolio consists entirely of off-setting pairs of
derivative contracts which effectively eliminate the risk of market value
fluctuations in the portfolio caused by changes in market conditions. During
1996, the Corporation executed $3.6 billion notional amount of derivative
contracts for its trading portfolio. As of December 31, 1996, the total notional
amount of derivative contracts held for trading was $3.0 billion with a net
market value of $3 million. Total trading revenue for derivative contracts
during 1996 was $3 million. In prior years, derivative trading activity was not
significant.
All contracts in the preceding tables are valued using cash flow projection
models either acquired from third parties or developed in-house. Pricing models
used for valuing derivative instruments are regularly validated by testing
through comparison with other third parties. Valuations and notional maturities
presented above are based on yield curves, forward yield curves, and implied
volatilities that were observable in the cash and derivatives markets at
year-end 1996.
OTHER OFF-BALANCE SHEET COMMITMENTS: The Corporation also enters into forward
contracts related to its mortgage banking business. At December 31, 1996 and
1995, the Corporation had commitments to sell mortgages and mortgage-backed
securities totaling $613 million and $473 million, respectively. These contracts
mature in less than one year.
In the normal course of business, the Corporation makes various commitments
to extend credit which are not reflected in the balance sheet. A summary of
these commitments follows:
<TABLE>
<CAPTION>
December 31
- -----------------------------------------------------------------
(In Millions) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $ 11,160 $9,473
Standby letters of credit 1,781 1,867
- -----------------------------------------------------------------
</TABLE>
The credit risk associated with loan commitments and standby letters of
credit is essentially the same as that involved in extending loans to customers
and is subject to normal credit policies. Collateral is obtained based on
management's credit assessment of the customer.
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information is contained on page 18.
41
<PAGE> 44
FORM 10-K
The Annual Report includes the materials required in Form 10-K filed with the
Securities and Exchange Commission. The integration of the two documents gives
stockholders and other interested parties timely, efficient and comprehensive
information on 1996 results. Portions of the Annual Report are not required by
the Form 10-K report and are not filed as part of the Corporation's Form 10-K.
Only those portions of the Annual Report referenced in the cross-reference index
are incorporated in the Form 10-K. The report has not been approved or
disapproved by the Securities and Exchange Commission, nor has the Commission
passed upon its accuracy or adequacy.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required].
For the transition period from _____ to _____ .
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
---------------------------------------------------------
(Address of principal executive offices)
44114-3484
---------------------------------------------------------
(Zip Code)
Registrant's telephone number, including area code, 216-575-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered:
Securities registered pursuant to Section 12(g) of the Act:
National City Corporation Common Stock, $4.00 Per Share
- --------------------------------------------------------------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the voting stocks held by nonaffiliates of the
registrant as of December 31, 1996 - $9,860,248,766.
The number of shares outstanding of each of the registrant's classes of common
stock, as of December 31, 1996.
Common Stock, $4.00 Per Share -- 223,198,494
Documents Incorporated By Reference:
Portions of the registrant's Proxy Statement (to be dated approximately February
26, 1997) are incorporated by reference into Item 10. Directors and Executive
Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security
Ownership of Certain Beneficial Owners and Management; and Item 13. Certain
Relationships and Related Transactions, of Part III.
42
<PAGE> 45
FORM 10-K CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
Pages
- -------------------------------------------------------------------
<S> <C> <C>
PART I
Item 1 -- Business
Description of Business 43
Average Balance Sheets/Interest/Rates 20-21
Volume and Rate Variance Analysis 7
Securities 11-12
Loans 10-11
Risk Elements of Loan Portfolio 13-15
Loan Loss Experience 13-15
Allocation of Allowance for Loan Losses 13-15
Deposits 12, 20-21
Financial Ratios 19
Short-Term Borrowings 12, 32
Item 2 -- Properties 44
Item 3 -- Legal Proceedings 44
Item 4 -- Submission of Matters to a Vote of
Security Holders - None
- -------------------------------------------------------------------
PART II
Item 5 -- Market for the Registrant's Common
Equity and Related Stockholder
Matters 13
Item 6 -- Selected Financial Data 19
Item 7 -- Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5-17
Item 8 -- Financial Statements and
Supplementary Data 22-41
Item 9 -- Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure - None
- -------------------------------------------------------------------
PART III
Item 10 -- Directors and Executive Officers
of the Registrant - Note (1)
Executive Officers 44
Compliance with Section 16(a) of
the Securities Exchange Act -
Note (1)
Item 11 -- Executive Compensation - Note (1)
Item 12 -- Security Ownership of Certain
Beneficial Owners and Management
- Note (1)
Item 13 -- Certain Relationships and Related
Transactions - Note (1)
- -------------------------------------------------------------------
PART IV
Item 14 -- Exhibits, Financial Statement
Schedules and Reports on Form
8-K
Report of Ernst & Young LLP,
Independent Auditors 22
Financial Statements:
Consolidated Balance Sheets -
December 31, 1996 and 1995 23
Consolidated Statements of Income
- Calendar Years 1996, 1995 and
1994 24
Consolidated Statements of Changes
in Stockholders' Equity -
Calendar Years 1996, 1995, and
1994 25
Consolidated Statements of Cash
Flows - Calendar Years 1996,
1995 and 1994 26
Notes to Financial Statements 27-41
Signatures 45
</TABLE>
Reports on Form 8-K filed in the fourth quarter of 1996: Form 8-K, dated
December 17, 1996, announced an increase in the quarterly dividend on common
stock from $.375 per share to .$41 per share and the approval of an
authorization by the Board of Directors to purchase up to five million shares
of common stock in the open market or otherwise subject to a total purchase
limit of $275 million.
Exhibits -- The index of exhibits has been filed as separate pages of the 1996
Form 10-K and is available to stockholders on request from the Secretary of
the Corporation at the principal executive offices. Copies of exhibits may be
obtained at a cost of 30 cents per page.
Financial Statement Schedules -- Omitted due to inapplicability or because
required information is shown in the Financial Statements or the Notes
thereto.
- -------------------------------------------------------------------------------
Note (1) -- Incorporated by reference from the Corporation's Proxy Statement to
be dated approximately February 26, 1997.
- -------------------------------------------------------------------------------
BUSINESS
At December 31, 1996, National City Corporation ("National City" or "the
Corporation") was the third largest bank holding company headquartered in the
State of Ohio and approximately the 18th largest in the United States on the
basis of total assets. National City owns and operates 11 commercial banks with
a total of 885 banking offices in Ohio, Kentucky, Indiana and Pennsylvania. The
five largest subsidiary banks (and only significant subsidiaries) are National
City Bank of Pennsylvania; National City Bank (Cleveland), National City Bank of
Columbus; National City Bank of Indiana; and National City Bank of Kentucky. The
banks and other subsidiaries and divisions are engaged in a variety of financial
services businesses. In addition to a general commercial banking business,
National City or its subsidiaries are engaged in trust, mortgage banking,
merchant banking, leasing, item processing, venture capital, insurance, and
other financial-related businesses. National City and its subsidiaries had
26,256 full-time equivalent employees at December 31, 1996.
COMPETITION
The banking business is highly competitive. The banking subsidiaries of National
City compete actively with national and state banks, savings and loan
associations, securities dealers, mortgage bankers, finance companies, insurance
companies and other financial service entities.
SUPERVISION AND REGULATION
National City is subject to regulation under the Bank Holding Company Act of
1956, as amended (the "Act"). The Act requires the prior approval of the Federal
Reserve Board for a bank holding company to acquire or hold more than a 5%
voting interest in any bank, and restricts interstate banking activities. On
43
<PAGE> 46
FORM 10-K (continued)
September 29, 1994, the Act was amended by The Interstate Banking and Branch
Efficiency Act of 1994 which authorizes interstate bank acquisitions anywhere in
the country, effective one year after the date of enactment and interstate
branching by acquisition and consolidation, effective June 1, 1997 in those
states that have not opted out by that date. The impact of this amendment on the
Corporation cannot be measured at this time.
The Act restricts National City's nonbanking activities to those which are
determined by the Federal Reserve Board to be closely related to banking and a
proper incident thereto. The Act does not place territorial restrictions on the
activities of nonbank subsidiaries of bank holding companies. National City's
banking subsidiaries are subject to limitations with respect to transactions
with affiliates.
A substantial portion of National City's cash revenue is derived from
dividends paid by its subsidiary banks. These dividends are subject to various
legal and regulatory restrictions as summarized in Note 14.
The subsidiary banks are subject to the provisions of the National Bank Act
or the banking laws of their respective states, are under the supervision of,
and are subject to periodic examination by, the Comptroller of the Currency (the
"OCC") or the respective state banking departments, and are subject to the rules
and regulations of the OCC, Board of Governors of the Federal Reserve System and
the Federal Deposit Insurance Corporation (FDIC).
National City's subsidiary banks are also subject to certain state laws of
each state in which such bank is located. Such state laws may restrict branching
of banks within the state and acquisition or merger involving banks and bank
holding companies located in other states. Ohio, Kentucky, Indiana and
Pennsylvania have all adopted nationwide reciprocal interstate banking.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the FDIC in connection with the default of or any
FDIC-assisted transaction involving an affiliated insured bank or savings
association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC
Improvement Act") covers a wide expanse of banking regulatory issues. The FDIC
Improvement Act deals with the recapitalization of the Bank Insurance Fund, with
deposit insurance reform, including requiring the FDIC to establish a risk-based
premium assessment system, and with a number of other regulatory and supervisory
matters.
The monetary policies of regulatory authorities, including the Federal
Reserve Board, have a significant effect on the operating results of banks and
bank holding companies. The nature of future monetary policies and the effect of
such policies on the future business and earnings of National City and its
subsidiary banks cannot be predicted.
PROPERTIES
National City and its significant subsidiaries occupy their headquarter offices
under long-term leases. The Corporation also own freestanding operations centers
in Columbus and Cleveland and leases an operations center in Pittsburgh. Branch
office locations are variously owned or leased.
LEGAL PROCEEDINGS
National City and its subsidiaries are parties (either as plaintiff or
defendant) to a number of lawsuits incidental to their businesses and, in
certain lawsuits, claims or counterclaims have been asserted. Although
litigation is subject to many uncertainties and the ultimate exposure with
respect to many of these matters cannot be ascertained, management does not
believe the ultimate outcome of these matters will have a material adverse
effect on the financial condition or the liquidity of the Corporation.
EXECUTIVE OFFICERS
The Executive Officers of National City (as of January 22, 1997) are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------------------------------
<S> <C> <C>
David A. Daberko 51 Chairman and Chief
Executive Officer
William R. Robertson 55 President
Vincent A. DiGirolamo 59 Vice Chairman
James R. Bell III 40 Executive Vice President
Gary A. Glaser 52 Executive Vice President
Thomas W. Golonski 54 Executive Vice President
Jon L. Gorney 46 Executive Vice President
Christopher Graffeo 49 Executive Vice President
Jeffrey D. Kelly 43 Executive Vice President
William E. MacDonald III 50 Executive Vice President
Robert J. Ondercik 50 Executive Vice President
Robert G. Siefers 51 Executive Vice President
and Chief Financial
Officer
Harold B. Todd, Jr. 55 Executive Vice President
James P. Gulick 38 Senior Vice President
and General Auditor
Thomas A. Richlovsky 45 Senior Vice President
and Treasurer
David L. Zoeller 47 Senior Vice President,
General Counsel
and Secretary
</TABLE>
The term of office for executive officers is one year.
There is no family relationship between any of the above executive officers.
Mr. Bell was elected president and chief executive officer of National City
Bank of Kentucky in 1996. Prior to that time he was an executive vice president
since 1994 and a senior vice president of National City Bank in Cleveland from
1990 to 1993.
44
<PAGE> 47
Mr. Golonski was elected executive vice president in 1996. Prior to that time
he was the president of Integra Bank since 1995, chairman and director of
Altegra Credit Company and Integra Mortgage Company from 1994 to 1995, executive
vice president of Integra Bank from 1994 to 1995, and chairman and chief
executive officer of Integra Bank/North from 1991 to 1993.
Mr. Graffeo was appointed an executive vice president in 1995. Prior to that
time he was president and chief executive officer of National City Bank,
Northeast since 1992 and an executive vice president of that Bank from 1991 to
1992.
Mr. Gulick was appointed a senior vice president in 1995. Prior to that time
he was a vice president since 1992 and an audit manager with Coopers & Lybrand
LLP from 1987 to 1992.
Mr. Kelly was appointed an executive vice president in 1994. Prior to that
time he was a senior vice president since 1990 and a senior vice president of
National City Bank in Cleveland from 1987 to 1990.
Mr. Ondercik was appointed an executive vice president in 1994. Prior to that
time he was a senior vice president since 1991 and a senior vice president of
National City Bank in Cleveland from 1989 to 1991.
Mr. Gorney was appointed an executive vice president in 1993. Prior to that
time he was a senior vice president since 1991 and senior vice president of
National City Bank in Cleveland from 1988 to 1991.
Mr. Zoeller was elected senior vice president, general counsel and secretary
in 1992. Prior to that time he was senior vice president, general counsel and
secretary of Merchants National Corporation.
With the exception of Mr. Golonski, each of the remaining officers listed
above has been an executive officer of the Corporation or one of its
subsidiaries during the past five years.
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on January 22, 1997.
National City Corporation
/s/ David A. Daberko
- ----------------------
David A. Daberko
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on
January 22, 1997.
/s/ David A. Daberko
- ----------------------
David A. Daberko
Chairman and Chief Executive Officer
/s/ William R. Robertson /s/ Vincent A. DiGirolamo
- ---------------------------- --------------------------
William R. Robertson Vincent A. DiGirolamo
President Vice Chairman
/s/ Robert G. Siefers /s/ Thomas A. Richlovsky
- ---------------------------- --------------------------
Robert G. Siefers Thomas A. Richlovsky
Executive Vice President Senior Vice President
and Chief Financial Officer and Treasurer
The Directors of National City Corporation (listed below) executed a power of
attorney appointing David L. Zoeller their attorney-in-fact, empowering him to
sign this report on their behalf.
Sandra H. Austin Joseph H. Lemieux
Charles H. Bowman W. Bruce Lunsford
Edward B. Brandon A. Stevens Miles
John G. Breen Robert A. Paul
James S. Broadhurst William R. Robertson
Duane E. Collins William F. Roemer
David A. Daberko Michael A. Schuler
Daniel E. Evans Stephen A. Stitle
Otto N. Frenzel III Morry Weiss
Bernadine P. Healy, M.D.
/s/ David L. Zoeller
------------------------
By David L. Zoeller
Attorney-in-fact
45
<PAGE> 48
BOARD OF DIRECTORS/OFFICERS
Board of Directors
DAVID A. DABERKO (2,3,4)
Chairman & CEO
National City Corporation
WILLIAM R. ROBERTSON (7)
President
National City Corporation
SANDRA H. AUSTIN (1,3,7)
Retired President
Physicians Services
Caremark International
CHARLES H. BOWMAN (3,6,7)
Retired Chairman & CEO
BP America Inc.
EDWARD B. BRANDON (2,3,4)
Retired Chairman
National City Corporation
JOHN G. BREEN (3,4,5)
Chairman & CEO
The Sherwin-Williams Company
JAMES S. BROADHURST (1,5)
Chairman & CEO
Eat'n Park Restaurants
DUANE E. COLLINS (2,5,6)
President & CEO
Parker Hannifin Corporation
DANIEL E. EVANS (1,5)
Chairman & CEO
Bob Evans Farms, Inc.
OTTO N. FRENZEL III (3,4)
Retired Chairman
National City Bank of Indiana
BERNADINE P. HEALY, M.D. (6,7)
Dean
Ohio State University
College of Medicine
JOSEPH H. LEMIEUX (2,3,5)
Chairman & CEO
Owens-Illinois, Inc.
W. BRUCE LUNSFORD (1,6)
Chairman, President & CEO
Vencor, Inc.
A. STEVENS MILES (3,4)
Retired President
National City Corporation
ROBERT A. PAUL (2,7)
President & CEO
Ampco-Pittsburgh Corporation
COMMITTEES:
(1) Audit Committee
(2) Dividend Committee
(3) Executive Committee
(4) Nominating Committee
(5) Compensation & Organization Committee
(6) Public Policy Committee
(7) Investment Committee
<PAGE> 49
WILLIAM F. ROEMER (3,4)
Chairman
National City Bank of Pennsylvania
MICHAEL A. SCHULER (1,5,6)
Chairman, President & CEO
Zippo Manufacturing Company
STEPHEN A. STITLE (6,7)
Chairman
National City Bank of Indiana
MORRY WEISS (1,3,4)
Chairman & CEO
American Greetings Corporation
- --------------------------------------------------------------------------------
Honorary Directors
CLAUDE M. BLAIR
Retired Chairman
National City Corporation
JULIEN L. MCCALL
Retired Chairman
National City Corporation
- --------------------------------------------------------------------------------
Officers
Office of the Chairman
DAVID A. DABERKO
Chairman & CEO
WILLIAM R. ROBERTSON
President
VINCENT A. DIGIROLAMO
Vice Chairman
Executive Vice Presidents
JAMES R. BELL III
Kentucky Banking
GARY A. GLASER
Columbus Banking
THOMAS W. GOLONSKI
Pennsylvania Banking
JON L. GORNEY
Information Services & Operations
CHRISTOPHER GRAFFEO
Indiana Banking
JEFFREY D. KELLY
Investments
WILLIAM E. MACDONALD III
Cleveland Banking
ROBERT J. ONDERCIK
Credit Administration
ROBERT G. SIEFERS
Chief Financial Officer
HAROLD B. TODD, JR.
Institutional Trust & Investment Services
Senior Vice Presidents
W. DOUGLAS BANNERMAN
Corporate Banking
JEFFREY M. BIGGAR
Private Client Group
MARY H. GRIFFITH
Marketing Communications
JAMES P. GULICK
General Auditor
JOSEPH J. HERR
Loan Review
GARY P. OBERS
Corporate Services
A. JOSEPH PARKER
Retail Business Line Management
J. ARMANDO RAMIREZ
Strategic Planning and Mergers & Acquisitions
EDWARD B REILLY
Corporate Business Line Management
THOMAS A. RICHLOVSKY
Treasurer
WILLIAM H. SCHECTER
Merchant Banking
SHELLEY J. SEIFERT
Human Resources
THEODORE H. TUNG
Economist
ALLEN C. WADDLE
Public Affairs
DAVID L. ZOELLER
General Counsel & Secretary
<PAGE> 50
CORPORATE DIRECTORY
PRINCIPAL MEMBER BANKS
OHIO
National City Bank
William E. MacDonald III
Chairman, President & CEO
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
National City Bank of Columbus
Gary A. Glaser
President & CEO
155 East Broad Street
Columbus, Ohio 43251
(614) 463-7100
National City Bank, Northeast
Robert E. Showalter
President & CEO
One Cascade Plaza
Akron, Ohio 44308-1198
(330) 375-8450
National City Bank of Dayton
Frederick W. Schantz
President & CEO
6 North Main Street
Dayton, Ohio 45412-2790
(937) 226-2000
National City Bank, Northwest
Salvatore E. Gianino
President & CEO
405 Madison Avenue
Toledo, Ohio 43603-1263
(419) 259-7700
KENTUCKY
National City Bank of Kentucky
Leonard V. Hardin
Chairman
James R. Bell III
Chief Executive Officer
101 South Fifth Street
Louisville, Kentucky 40202-3101
(502) 581-4200
INDIANA
National City Bank of Indiana
Christopher Graffeo
President & CEO
One National City Center, Suite 400E
Indianapolis, Indiana 46255
(317) 267-7000
PENNSYLVANIA
National City Bank of Pennsylvania
Thomas W. Golonski
President & CEO
National City Center
20 Stanwix Street
Pittsburgh, PA 15222-4802
(412) 644-8111
OTHER UNITS
NATIONAL CITY
COMMERCIAL FINANCE, INC.
Thomas R. Poe
President
1965 East Sixth Street, Suite 400
Cleveland, Ohio 44114-2214
(216) 575-3274
NATCITY INVESTMENTS, INC.
Herbert R. Martens, Jr.
Chairman & CEO
1965 East Sixth Street
Cleveland, Ohio 44114
(216) 575-9590
NATIONAL CITY CAPITAL CORPORATION
NATIONAL CITY VENTURE CORPORATION
William H. Schecter
Chairman & President
1965 East Sixth Street
Cleveland, Ohio 44114
(216) 575-3340
NATIONAL ASSET MANAGEMENT
COMPANY
William F. Chandler, Jr.
Managing Director & Principal
Carl W. Hafele
Managing Director & Principal
101 South Fifth Street
Louisville, Kentucky 40202
(502) 581-7668
NATIONAL CITY COMMUNITY
DEVELOPMENT CORPORATION
Danny H. Cameron
President
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2293
Offices: Akron, Cleveland,
Columbus, Dayton, Indianapolis,
Lexington, Louisville, Pittsburgh,
Toledo, Youngstown
ALTEGRA CREDIT COMPANY
Robert C. Mercer
President
150 Allegheny Center Mall
Pittsburgh, Pennsylvania 15212
1-800-225-8347
NATIONAL PROCESSING, INC.
Tony G. Holcombe
President & CEO
One Oxmoor Place
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
(502) 326-7000
NATIONAL CITY LEASING CORPORATION
J. Edward Vittitow
Senior Vice President
101 South Fifth Street
Louisville, Kentucky 40202-3101
(502) 581-7679
NATIONAL CITY MORTGAGE CO.
Leo E. Knight, Jr.
President & CEO
3232 Newmark Drive
Miamisburg, Ohio 45342
(937) 436-3025
INSTITUTIONAL TRUST AND INVESTMENT
SERVICES
Harold B. Todd, Jr.
Senior Trust Executive
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2863
National City Trust Company (Florida)
Ellen J. Abrams
President & CEO
1401 Forum Way, Suite 503
West Palm Beach, Florida 33401-2324
(561) 697-2424
1-800-826-9095
Offices:
Naples, West Palm Beach
48
<PAGE> 51
INVESTOR INFORMATION CORPORATE HEADQUARTERS
COMMON STOCK LISTING National City Center
National City Corporation common stock is traded on 1900 East Ninth Street
the New York Stock Exchange under the symbol NCC. Cleveland, Ohio 44114-3484
The stock is abbreviated in financial publications (216) 575-2000
as NTLCITY.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN TRANSFER AGENT AND
Participating common stockholders receive a three REGISTRAR
percent discount from market price when reinvesting National City Bank
their National City dividends in additional shares. Corporate Trust Operations
Participants may also make optional cash purchases Department 5352
of common stock at a three percent discount from P.O. Box 92301
market price and pay no brokerage commissions. To Cleveland, Ohio 44193-0900
obtain our Plan prospectus and authorization card, 1-800-622-6757
call 1-800-622-6757.
DIRECT DEPOSIT OF DIVIDENDS INVESTOR CONTACT
This free service provides for the deposit of Julie I. Sabroff
quarterly dividends directly to a checking or Manager, Investor Relations
savings account. For information regarding this Dept. 2145
program, call 1-800-622-6757. P.O. Box 5756
Cleveland, Ohio 44101-0756
1-800-622-4204
STOCKHOLDER ACCOUNTS
If you have questions regarding your stockholder
account, please call our transfer agent, National INTERNET ADDRESS
City Bank, at 1-800-622-6757. www:national-city.com
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
DEBT RATINGS
Moody's Standard Duff Thomson
Investors 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>
CUSTOMER INFORMATION
National City operates full
service banking offices in
four states. For customer
service call:
OHIO:
Akron/Canton (800) 861-8450
Cleveland (800) 622-6736
Columbus (800) 738-3888
Dayton (800) 368-0122
Toledo (800) 331-8275
Youngstown (800) 861-8450
INDIANA:
Indianapolis (800) 774-2424
Madison (800) 766-0388
Southern Indiana (800) 766-0377
KENTUCKY: (800) 727-8686
PENNSYLVANIA: (800) 352-0186
[LOGO]
OWN YOUR SHARE OF AMERICA
National City Corporation is a
proud sponsor of the National
Association of Investors
Corporation's (NAIC) "Own Your
Share of America" campaign,
which encourages individual
investors to invest in common
stock. NAIC is a not-for-profit
association dedicated to
teaching investment principles
to individual investors.
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
- ------- ------------------------------------------------------------------- --------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of August 27, 1995 by and
between National City Corporation and Integra Financial Corporation
filed as Exhibit 2.1 to Form 8-K dated August 30, 1995, and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of NCC, as amended (filed as
Exhibit 3.1 to Registration Statement No. 33-49823 and incorporated
herein by reference).
3.2 National City Corporation First Restatement of By-laws adopted
April 27, 1987 (As Amended through October 24, 1994) (filed as
Exhibit 3.2 to Registrant's Form S-4 Registration Statement No.
33-56539 dated November 18, 1994 and incorporated herein by
reference).
4.1 Instruments defining the rights of holders of certain long-term
debt of NCC and its consolidated subsidiaries are not filed as
exhibits because the amount of debt under such instruments is less
than 10% of the total consolidated assets of NCC. NCC undertakes to
file these instruments with the Commission upon request.
4.2 Credit Agreement dated as of February 2, 1996, by and between NCC
and the banks named therein. (filed as Exhibit 4.2 to Registrant's
Proxy Statement Form 14A #001-10074 dated February 6, 1996 and
incorporated herein by Reference).
4.3 Certificate of Stock Designation dated April 18, 1991, designating
NCC's 8% Cumulative Convertible Preferred Stock, without par value,
and fixing the powers, preference, rights, and qualifications,
limitations and restrictions thereof in addition to those set forth
in NCC's Restated Certificate of Incorporation, as amended
(incorporated herein by reference to Exhibit 4.4 to NCC's Annual
Report on Form 10-K for the year ended December 31, 1991).
10.1 National City Corporation Short Term Incentive Compensation Plan
for Senior Officers As Amended and Restated Effective January 1,
1995. (filed as Exhibit 10.1 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and incorporated
herein by reference).
10.2 National City Corporation Long Term Incentive Compensation Plan for
Senior Officers As Amended and Restated Effective January 1, 1995.
(filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein
by reference).
10.3 National City Corporation Annual Corporate Performance Incentive
Plan Effective January 1, 1995. (filed as Exhibit 10.21 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.4 National City Savings and Investment Plan, As Amended and Restated
Effective July 1, 1992. (filed as Exhibit 10.24 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.5 The National City Savings and Investment Plan No. 2, As Amended and
Restated Effective January 1, 1992 (filed as Exhibit 10.25 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.6 National City Corporation's Amended and Restated 1973 Stock Option
Plan, as amended (filed as Exhibit 10.4 to Registration Statement
No. 2-91434) and amended 1984 Stock Option Plan (filed as Exhibit
No. 10.2 to NCC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987); both incorporated herein by reference.
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
- ------- ------------------------------------------------------------------- --------------
<S> <C> <C>
10.7 National City Corporation 1989 Stock Option Plan (filed as Exhibit
10.7 to NCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, and incorporated herein by reference).
10.8 National City Corporation's 1993 Stock Option Plan, as amended and
restated (filed as Appendix F to Registration Statement No.
333-01697 and incorporated herein by reference).
10.9 National City Corporation 150th Anniversary Stock Option Plan.
(Filed as Exhibit 10.9 to Registration Statement No. 33-59487 and
incorporated herein by reference).
10.10 National City Corporation Plan for Deferred Payment of Directors'
Fees, as amended (filed as Exhibit 10.5 to Registration Statement
No. 2-914334 and incorporated herein by reference).
10.11 National City Corporation Supplemental Executive Retirement Plan,
as amended and restated effective January 1, 1995 (filed as Exhibit
10.5 to NCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.12 National City Corporation Executive Savings Plan As Amended and
Restated Effective January 1, 1995 (filed as Exhibit 10.9 to NCC's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.13 National City Corporation Amended and Second Restated 1991
Restricted Stock Plan (filed as Exhibit 10.9 to Registration
Statement No. 33-49823 and incorporated herein by reference).
10.14 First Kentucky National Corporation 1985 Stock Option Plan (filed
as Exhibit 10.2 to First Kentucky National Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,
and incorporated herein by reference).
10.15 First Kentucky National Corporation 1982 Stock Option Plan (filed
as Exhibit 10.3 to First Kentucky National Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,
and incorporated herein by reference).
10.16 Form of grant made under National City Corporation 1991 Restricted
Stock Plan made in connection with National City Corporation
Supplemental Executive Retirement Plan as amended (filed as Exhibit
10.10 to NCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
10.17 Amended Employment Agreement dated July 21, 1989 by and between
Merchants National Corporation or a subsidiary and Otto N. Frenzel,
III (filed as Exhibit 10(21) to Merchants National Corporation
Annual Report of Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference).
10.18 Split Dollar Insurance Agreement dated January 4, 1988 between
Merchants National Corporation and Otto N. Frenzel, III Irrevocable
Trust II (filed as Exhibit 10(26) to Merchants National Corporation
Annual Report on Form 10-K for the fiscal year ended December 31,
1989 and incorporated herein by reference).
10.19 Merchants National Corporation Director's Deferred Compensation
Plan, as amended and restated August 16, 1983 (filed as Exhibit
10(3) to Merchants National Corporation Registration Statement as
Form S-2 filed June 28, 1985, incorporated herein by reference).
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
- ------- ------------------------------------------------------------------- --------------
<S> <C> <C>
10.20 Merchants National Corporation Supplemental Pension Plan dated
November 20, 1984; First Amendment to the Supplemental Pension
Plans dated January 21, 1986; Second Amendment to the Supplemental
Pension Plans dated July 3, 1989; and Third Amendment to the
Supplemental Pension Plans dated November 21, 1990 (filed
respectively as Exhibit 10(n) to Merchants National Corporation
Annual Report on Form 10-K for the year ended December 31, 1984; as
Exhibit 10(q) to the Merchants National Corporation Annual Report
on Form 10-K for the year ended December 31, 1985; as Exhibit
10(49) to Merchants National Corporation Annual Report on Form 10-K
for the year ended December 31, 1990; and as Exhibit 10(50) to the
Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1990; all incorporated herein by
reference).
10.21 Merchants National Corporation Employee Benefit Trust Agreement,
effective July 1, 1987 (filed as Exhibit 10(27) to Merchants
National Corporation Annual Report on Form 10-K for the year ended
December 31, 1987, incorporated herein by reference).
10.22 Merchants National Corporation Non-qualified Stock Option Plan
effective January 20, 1987, and the First Amendment to that
Merchants National Non-qualified Stock Option Plan, effective
October 16, 1990 (filed respectively as Exhibit 10(23) to Merchants
National Corporation Annual Report on Form 10-K for the year ended
December 31, 1986, and as Exhibit 10(55) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December
31, 1990, both of which are incorporated herein by reference).
10.23 Merchants National Corporation 1987 Non-qualified Stock Option
Plan, effective November 17, 1987, and the First Amendment to
effective October 16, 1990, (filed respectively as Exhibit 10(30)
to Merchants National Corporation Annual Report on Form 10-K for
the year ended December 31, 1987, and as Exhibit 10(61) to
Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1990, both of which are incorporated herein
by reference).
10.24 Merchants National Corporation Directors Non-qualified Stock Option
Plan and the First Amendment to Merchants National Corporation
Directors Non-qualified Stock Option Plan effective October 16,
1990 (filed respectively as Exhibit 10(44) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December
31, 1988, and as Exhibit 10(68) to Merchants National Corporation
Annual Report on Form 10-K for the year ended December 31, 1990,
both of which are incorporated herein by reference).
10.25 Central Indiana Bancorp Option Plan effective March 15, 1991 (filed
as Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.26 Central Indiana Bancorp 1993 Option Plan effective October 12, 1993
(filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein
by reference).
10.27 Forms of contracts with David A. Daberko, William R. Robertson,
Vincent A. DiGirolamo, William E. MacDonald III, Jon L. Gorney,
Harold B. Todd, Jr., Robert G. Siefers, Robert J. Ondercik, Jeffrey
D. Kelly, David L. Zoeller, Thomas A. Richlovsky, James P. Gulick,
Gary A. Glaser, J. Christopher Graffeo, Morton Boyd, Thomas W.
Golonski and James R. Bell (filed as Exhibit 10.22 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
- ------- ------------------------------------------------------------------- --------------
<S> <C> <C>
10.28 Split Dollar Insurance Agreement effective January 1, 1994 between
National City Corporation and those individuals listed in Exhibit
10.27 and other key employees. (filed as exhibit 10.28 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.29 National City Corporation Short-Term Incentive Compensation Plan
for Senior Officers--Corporate Results As Amended and Restated
Effective January 1, 1996 (filed as Exhibit 10.31 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995 and incorporated herein by reference).
10.30 Consulting Agreement dated as of August 27, 1995 by and between
Integra Financial Corporation and William F. Roemer. (Filed as
Exhibit 10.30)
11.1 Computation of Earnings per share. (Filed as Exhibit 11.1).
21.1 Subsidiaries. (Filed as Exhibit 21.1).
23.1 Consent of Ernst & Young LLP, Independent Auditors for NCC. (Filed
as Exhibit 23.1).
23.2 Consent of Coopers & Lybrand LLP, Independent Accountants for Integra
Financial Corporation. (Filed as Exhibit 23.2).
24.1 Powers of attorney. (Filed as Exhibit 24.1).
27.1 Financial Data Schedule (Filed as Exhibit 27.1).
99.1 Report of Coopers & Lybrand LLP on Integra Financial Corporation's
Financial Statement as of December 31, 1995 and for each of the
years in the two year period ended December 31, 1995. (Filed as
Exhibit 99.1).
</TABLE>
<PAGE> 1
Exhibit 10.30
CONSULTING AGREEMENT
THIS AGREEMENT, made by and between Integra Financial Corporation, a
Pennsylvania corporation (the "Corporation"), and William F. Roemer (the
"Executive") dated the 27th day of August, 1995.
WHEREAS, the Corporation has entered into an Agreement and Plan of
Merger (the "Merger Agreement") with National City Corporation, a Delaware
corporation of even date herewith;
WHEREAS, the Executive has served as Chairman and Chief Executive
Officer of the Corporation, and has gained significant and valuable knowledge
and experience with respect to the Corporation in such capacities; and
WHEREAS, The Executive and the Corporation have entered into an
Employment Agreement dated as of the 25th day of January, 1995 (the "Prior
Agreement"); and
WHEREAS, the Corporation wishes to provide for the continued
involvement of the Executive in the business of the Corporation following the
consummation of the Merger (as such term is defined in the Merger Agreement) and
the Executive desires to perform such services;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
provisions herein contained, the Executive and the Corporation agree with each
other as follows:
1. CONSULTING PERIOD. The Corporation hereby retains the Executive as a
consultant for the period commencing on the Effective Date (as such term is
defined in the Merger Agreement) and ending on the date on which the Executive
attains the age of 65 (the "Consulting Period") during which time the Executive
shall be available to aid the Corporation in the transition period following the
acquisition of the Corporation with respect to (a) general corporate and
personnel organizational matters; (b) the retention of employees and employee
relations; (c) the retention of customers; and (d) cost reduction and
organizational efficiencies. For purposes of the Prior Agreement, the Executive
shall be deemed to have terminated his employment with the Corporation
immediately after the Merger in a manner qualifying him for the benefits set for
the in Section 6(d) of the Prior Agreement. Except as specifically provided
herein, this Agreement shall not affect the Executive's rights under the Prior
Agreement.
2. CONSULTING FEE AND OFFICE SPACE. In consideration of the services
and duties agreed to be rendered and performed by the Executive hereunder, the
Corporation hereby convenants and agrees to pay the Executive a monthly
consulting fee at the rate of one-twelfth of two hundred twenty-five thousand
dollars ($225,000). The Corporation shall provide the Executive with office
space and secretarial assistance in Pittsburgh, Pennsylvania reasonably
acceptable to the Executive for the duration of the Consulting Period. Further,
the Executive shall be entitled to post-retirement welfare benefits no less
favorable than those in effect, in his capacity as Chief Executive Officer of
the Corporation, as of the date hereof.
<PAGE> 2
3. CHANGE IN CONTROL PAYMENT. Upon consummation of the Merger the
Corporation shall immediately pay to the Executive the termination benefits,
including the continuation of the benefits described in Section 6(a)(3),
provided by the Prior Agreement as if the Executive had been terminated by the
Corporation as a result of a Change in Control pursuant to Section 6(d) and
Section 8 thereof whether or not the Executive is then employed by the
Corporation and regardless of the reason for any such cessation of employment.
4. TERMINATION.
(a) Subject to Section 4(b), during the Consulting Period the
Corporation may not terminate the Executive's consulting services other than for
"Cause." For purposes of this Agreement, Cause means either:
i. Conviction of a felony involving moral turpitude; or
ii. Conduct willfully injurious to the Corporation.
(b) In addition to the foregoing, in the event that, during the
Consulting Period, the Corporation shall terminate the Executive's consulting
services (other than for Cause) without the Executive's written consent, the
Executive shall be entitled to receive a termination payment equal to the
balance of his consulting fees that would be payable if his services had
continued through the end of the Consulting Period.
5. FULL SETTLEMENT. the Corporation's obligation to make the payments
provided for in this Agreement and other-wise to perform its obligations
hereunder shall not be affected by any set off, counterclaim, recoupment,
defense or other claim, right or action which the Corporation may have against
the Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment. The Corporation agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Corporation, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
6. CERTAIN ADDITIONAL PAYMENTS. In the event it shall be determined
that any payment (within the meaning of Section 280G of the Code) or
distribution to or for the benefit of the Executive (determined without regard
to any additional payments required under this Section 6) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to received from the Corporation an
<PAGE> 3
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto), and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. All determinations
under this Section 6 shall be made by a nationally recognized accounting firm
selected by the Executive.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall limit or
otherwise affect such rights as the Executive may have under any other
agreements with, or plans or programs of, the Corporation or any of its
affiliated companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan or program of the Corporation or
any of their affiliated companies at or subsequent to the Effective Date
including, but not limited to, the Executive's entitlement to severance under
the Prior Agreement shall be payable in accordance with such plan or program,
except as otherwise expressly provided herein.
8. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assigned by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
the Corporation as here-inbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
9. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
<PAGE> 4
IF TO THE EXECUTIVE:
-------------------
IF TO THE CORPORATION:
---------------------
Chief Executive Officer
Integra Financial Corporation
Four PPG Place
Pittsburgh, Pennsylvania 15222
with a copy to: General Counsel
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) This invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Corporation may withhold from any amounts payable under this
Agreement such amounts as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused these presents to be executed in its name on its behalf, all of the day
and year first above written.
/S/ WILLIAM F. ROEMER
--------------------------------
William F. Roemer
INTEGRA FINANCIAL CORPORATION
By /S/ LEONARD M. CARROLL
----------------------------
<PAGE> 1
Exhibit 11.1
EXHIBIT (11.1) -- COMPUTATION OF EARNINGS PER SHARE
NATIONAL CITY CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE CALENDAR YEAR
--------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
PRIMARY:
- --------
Net Income $736,630 $591,460 $598,467
Less Preferred Dividend Requirements 4,028 14,830 15,200
----------- ----------- -----------
Net Income Applicable to Common Stock $732,602 $576,630 $583,267
=========== =========== ===========
Average Common Shares Outstanding 222,674,326 215,097,124 220,822,755
=========== =========== ===========
Net Income Per Share-Primary $ 3.29 $ 2.68 $ 2.64
=========== =========== ===========
ASSUMING FULL DILUTION:
- -----------------------
Net Income $736,630 $591,460 $598,467
=========== =========== ===========
Average Common Shares Outstanding 222,674,326 215,097,124 220,822,755
Average Effect of Assumed Conversion
of 8% Cumulative Convertible
Preferred Stock 2,679,175 8,839,872 8,941,907
Fully Diluted Average Common
Shares Outstanding Assuming Exercise
of all Outstanding Stock Options as of
the Beginning of Year or Date of
Grant, if Later 149,930 67,491 80,038
----------- ----------- -----------
Fully Diluted Common
Shares Outstanding 225,503,431 224,004,487 229,844,700
=========== =========== ===========
Fully Diluted Net Income
Per Share $ 3.27 $ 2.64 $ 2.60
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
The following table sets forth all of National City Corporation's direct or
indirect subsidiaries, as of December 31, 1996
<TABLE>
<CAPTION>
State or
Jurisdiction
Under the Law
% of Voting of which
Securities Owned Organized
---------------- -----------------
SUBSIDIARIES OF NATIONAL CITY CORPORATION:
------------------------------------------
<S> <C> <C>
Advent Guaranty Corporation 100% Vermont
Advent Life Insurance Company 100% Arizona
Buckeye Service Corporation 100% Ohio
Circle Equity Leasing Corporation of Michigan 100% Michigan
Commercial Servicing, Inc. 100% Indiana
Computer Bank Services, Inc. 100% Kentucky
Cortland Bancorp 7.15% Ohio
Electronic Payments Services, Inc. 20% Delaware
Gem America Realty and Investment Corp. 100% Ohio
Harva, Inc. 100% Delaware
Integra Holdings Limited (Inactive) 100% Delaware
Integra Investment Company 100% Delaware
Madison Bank & Trust Company 100% Indiana
Merchants Capital Management, Inc. 100% Indiana
Merchants Service Corporation (Inactive) 100% Indiana
Money Station, Inc. 16.3% Ohio
National Asset Management Corporation 100% Kentucky
National City Bank 100% United States
National City Bank of Ashland 99.5% United States
National City Bank of Columbus 100% United States
National City Bank of Dayton 100% United States
National City Bank of Indiana 100% United States
National City Bank of Kentucky 100% United States
National City Bank, Northeast 100% United States
National City Bank, Northwest 100% United States
National City Bank of Pennsylvania 100% United States
National City Bank of Southern Indiana 100% United States
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
State or
Jurisdiction
Under the Law
% of Voting of which
Securities Owned Organized
---------------- -------------
SUBSIDIARIES OF NATIONAL CITY CORPORATION:
- ------------------------------------------
<S> <C> <C>
National City Capital Corporation 100% Delaware
National City Community Development Corporation 100% Ohio
National City Credit Corporation 100% Ohio
National City Financial Corporation 100% Delaware
National City Life Insurance Co. 100% Arizona
National City Mortgage Company 100% Ohio
National Processing, Inc. 85% Ohio
National City Trust Company 100% United States
National City Venture Corporation 100% Delaware
NC Acquisition, Inc. (inactive) 100% Delaware
NatCity Investments, Inc. 100% Indiana
Second Premises Corporation 100% Kentucky
Stored Value Systems, Inc. 100% Delaware
UBK Realty, Inc. 100% Kentucky
Western Reserve Company 100% Pennsylvania
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
State or
Jurisdiction
Under the Law
% of Voting of which
Securities Owned Organized
---------------- -------------
SUBSIDIARIES OF NATIONAL CITY BANK:
- -----------------------------------
<S> <C> <C>
Capstone Realty, Inc. 100% Ohio
National City Commercial Finance, Inc. 100% Ohio
National City Investments Corporation 100% Kentucky
Ohio National Corporation Trade Services 100% Ohio
SUBSIDIARY OF NATIONAL CITY BANK, NORTHEAST:
- --------------------------------------------
AKREO Service Corporation 100% Ohio
SUBSIDIARIES OF NATIONAL CITY BANK OF COLUMBUS:
- -----------------------------------------------
Scott Street Properties, Inc. 100% Ohio
The Loan Zone, Inc. (Inactive) 100% Ohio
SUBSIDIARIES OF NATIONAL CITY BANK OF KENTUCKY:
- -----------------------------------------------
Churchill Insurance Agency, Inc. 100% Kentucky
First National Broadway Corp. 100% Kentucky
FNB Service Corporation 100% Kentucky
National Capital Properties, Inc. 100% Kentucky
National City Auto Leasing Corporation (Inactive) 100% Kentucky
National City Leasing Corporation 100% Kentucky
SUBSIDIARIES OF NATIONAL CITY BANK OF PENNSYLVANIA:
- ---------------------------------------------------
Altegra Credit Company 100% Florida
Herron Land Company 100% Pennsylvania
Integra Brokerage Services Company 100% Pennsylvania
Integra Business Credit Company 100% Pennsylvania
Liberty Business Credit Corporation 100% Pennsylvania
Nottingham Corporation (Inactive 100% Pennsylvania
Western Properties, Inc. 100% Pennsylvania
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
State or
Jurisdiction
Under the Law
% of Voting of which
Securities Owned Organized
---------------- -------------
SUBSIDIARIES OF NATIONAL PROCESSING, INC.
- -----------------------------------------
<S> <C> <C>
National Processing Company 100% Kentucky
SUBSIDIARY OF GEM AMERICA REALTY & INVESTMENT CORP.:
- ----------------------------------------------------
Gem Financial Insurance Agency, Inc. 100% Ohio
SUBSIDIARIES OF NATIONAL CITY BANK OF INDIANA:
- ----------------------------------------------
Ash Realty Company, Inc. 100% Indiana
Bank Service Corporation of Indiana 33 1/3% Indiana
MNB Trustee Co., (UK) Ltd. 50%1 United
Kingdom
SUBSIDIARIES OF NATIONAL CITY INVESTMENTS CORPORATION
- -----------------------------------------------------
National City Commodity Corp. 100% Indiana
SUBSIDIARY OF MADISON BANK & TRUST COMPANY:
- -------------------------------------------
National City Insurance Agency, Inc. 100% Indiana
SUBSIDIARY OF OHIO NATIONAL CORPORATION TRADE SERVICES:
- -------------------------------------------------------
National City Trade Services Limited. 99%2 New York
<FN>
- ------------------
1 Additional 50% Owned by National City Bank.
2 Additional 1% Owned by National City Corporation.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
State or
Jurisdiction
Under the Law
% of Voting of which
Securities Owned Organized
---------------- -------------
SUBSIDIARY OF ASH REALTY COMPANY, INC.:
- ---------------------------------------
<S> <C> <C>
Sterling Equities Corp. 100% Indiana
SUBSIDIARY OF NOTTINGHAM CORPORATION:
- -------------------------------------
EQK Realty Holdings, Inc. 100% Pennsylvania
Horsham Penn, Inc. 100% Delaware
LBCC Properties, Inc. 100% Delaware
LSB Properties, Inc. 100% Delaware
LTL Acquisition Corp. (Inactive) 100% Delaware
SUBSIDIARY OF ELECTRONIC PAYMENT SERVICES, INC.:
- ------------------------------------------------
Electronic Payment Service Corporation 100% Delaware
SUBSIDIARY OF ELECTRONIC PAYMENT SERVICES CORPORATION:
- ------------------------------------------------------
Buypass Corporation 100% Georgia
Money Access Services, Inc. 100% Delaware
SUBSIDIARY OF BUYPASS CORPORATION:
- ----------------------------------
Buypass Inco Corporation 100% Delaware
Data Now National Services, Inc. (Inactive) 100% Georgia
SUBSIDIARY OF MONEY ACCESS SERVICE, INC.:
- -----------------------------------------
MAS Inco Corporation 100% Delaware
Metroteller Security Corporation (Inactive) 100% New York
Money Access Service Corporation 100% Ohio
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
State or
Jurisdiction
Under the Law
% of Voting of which
Securities Owned Organized
---------------- -------------
SUBSIDIARY OF NATIONAL PROCESSING COMPANY:
- ------------------------------------------
<S> <C> <C>
B. & L. Consultants, Inc. 100% Massachusetts
NPC Check Services, Inc. 100% Delaware
NPC International, S.A. de C.V. (7) 100% Mexico
NPC Services, Inc. 100% Arizona
SUBSIDIARY OF WESTERN RESERVE COMPANY:
- --------------------------------------
Great Cascade Development Company, Inc. (Inactive) 100% Pennsylvania
SUBSIDIARY OF GREAT CASCADE DEVELOPMENT COMPANY, INC. (INACTIVE):
- -----------------------------------------------------------------
Perry's Landing Yacht Club, Inc. (Inactive) 100% Pennsylvania
Pier West, Inc. (Inactive) 100% Pennsylvania
SUBSIDIARY OF ALTEGRA CREDIT COMPANY:
- -------------------------------------
New England AFC. (Inactive) 100% Massachusetts
</TABLE>
6
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement No.
33-39479 on Form S-3, Registration Statement No. 33-39480 on Form S-3,
Registration No. 33-44209 on Form S-3, Post-Effective Amendment No. 1 (on Form
S-8) to Registration Statement No. 33-20267 on Form S-4, Registration Statement
No. 33-52271 on Form S-8, Registration Statement No. 33-45363 on Form S-8,
Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement
No. 33-45980 on Form S-4, Post-Effective Amendment No. 1 (on Form S-8) to
Registration Statement No. 33-56539, Registration Statement No. 33-58115 on
Form S-8, Registration Statement No. 33-55487 on Form S-8 and Post-Effective
Amendment No. 1 (on Form S-8) to Registration Statement No. 333-01697 of our
report dated January 22, 1997, with respect to the consolidated financial
statements of National City Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1996.
Ernst & Young LLP
Cleveland, Ohio
January 29, 1997
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD] Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
National City Corporation on Form S-3 (File Numbers 33-39479, 33-39480,
33-44209, 33-54323), Form S-8 (File Numbers 33-52271, 33-45363, 33-57045,
33-58115, 33-59487), Post-Effective Amendment No. 1 (on Form S-8) to
Registration Statement No. 33-45980 on Form S-4, Post-Effective Amendment No. 1
(on Form S-8) to Registration Statement No. 33-56539 and Post-Effective
Amendment No. 1 (on Form S-8) to Registration Statement No. 333-01697 of our
report dated January 17, 1996, on our audits of the consolidated financial
statements of Integra Financial Corporation and subsidiaries as of December 31,
1995, and for the years ended December 31, 1995 and 1994, which report is
included in this Form 10-K dated January 30, 1997.
/s/ Coopers & Lybrand LLP
Pittsburgh, Pennsylvania
January 29, 1997
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
The undersigned Directors and Officers of National City Corporation, a Delaware
corporation (the "Corporation"), which anticipate filing a Form 10-K annual
report pursuant to Section 12(g) Securities and Exchange Commission Act of 1934
for the Corporation's fiscal year ended December 31, 1996, with the Securities
and Exchange Commission hereby constitute and appoint David L. Zoeller, Carlton
E. Langer and Thomas A. Richlovsky, and each of them, with full power of
substitution and resubstitution, as attorneys or attorney to sign for us and in
our names, in the capacities indicated below, said Form 10-K, and any and all
amendments and exhibits thereto, or other documents to be filed with the
Securities and Exchange Commission pertaining thereto, with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
we could do if personally present, hereby ratifying and approving the acts of
said attorneys, and any of them, and any such substitute.
EXECUTED this 16th day of December, 1996.
/s/ Sandra H. Austin
- ------------------------- Director
Sandra H. Austin
/s/ Charles H. Bowman
- ------------------------- Director
Charles H. Bowman
/s/ Edward B. Brandon
- ------------------------- Director
Edward B. Brandon
/s/ John G. Breen
- ------------------------- Director
John G. Breen
/s/ James S. Broadhurst
- ------------------------- Director
James S. Broadhurst
<PAGE> 2
/s/ Duane E. Collins
- ----------------------------- Director
Duane E. Collins
/s/ David A. Daberko
- ----------------------------- Chairman of the Board and Chief
David A. Daberko Executive Officer (Principal Executive
Officer)
/s/ Daniel E. Evans
- ----------------------------- Director
Daniel E. Evans
/s/ Otto N. Frenzel III
- ----------------------------- Director
Otto N. Frenzel III
/s/ Bernadine P. Healy, M.D.
- ----------------------------- Director
Bernadine P. Healy, M.D.
/s/ Joseph H. Lemieux
- ----------------------------- Director
Joseph H. Lemieux
/s/ W. Bruce Lunsford
- ----------------------------- Director
W. Bruce Lunsford
/s/ A. Stevens Miles
- ----------------------------- Director
A. Stevens Miles
/s/ Robert A. Paul
- ----------------------------- Director
Robert A. Paul
2
<PAGE> 3
/s/ William R. Robertson
- ----------------------------- Director and President
William R. Robertson
/s/ William F. Roemer
- ---------------------------- Director
William F. Roemer
/s/ Michael A. Schuler
- ---------------------------- Director
Michael A. Schuler
/s/ Stephen A. Stitle
- ---------------------------- Director
Stephen A. Stitle
/s/ Morry Weiss
- ---------------------------- Director
Morry Weiss
3
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,935,282
<INT-BEARING-DEPOSITS> 281,563
<FED-FUNDS-SOLD> 493,733
<TRADING-ASSETS> 102,493
<INVESTMENTS-HELD-FOR-SALE> 8,997,322
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 35,830,068
<ALLOWANCE> 705,893
<TOTAL-ASSETS> 50,855,835
<DEPOSITS> 35,999,747
<SHORT-TERM> 6,270,731
<LIABILITIES-OTHER> 1,158,876
<LONG-TERM> 2,994,418
<COMMON> 892,794
0
0
<OTHER-SE> 3,539,269
<TOTAL-LIABILITIES-AND-EQUITY> 50,855,835
<INTEREST-LOAN> 3,059,041
<INTEREST-INVEST> 567,120
<INTEREST-OTHER> 29,174
<INTEREST-TOTAL> 3,655,335
<INTEREST-DEPOSIT> 1,216,089
<INTEREST-EXPENSE> 1,712,759
<INTEREST-INCOME-NET> 1,942,576
<LOAN-LOSSES> 146,480
<SECURITIES-GAINS> 108,146
<EXPENSE-OTHER> 2,010,680
<INCOME-PRETAX> 1,058,444
<INCOME-PRE-EXTRAORDINARY> 1,058,444
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736,630
<EPS-PRIMARY> 3.29
<EPS-DILUTED> 3.27
<YIELD-ACTUAL> 4.44
<LOANS-NON> 143,100
<LOANS-PAST> 107,100
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 705,846
<CHARGE-OFFS> 236,615
<RECOVERIES> 90,088
<ALLOWANCE-CLOSE> 705,893
<ALLOWANCE-DOMESTIC> 424,410
<ALLOWANCE-FOREIGN> 282
<ALLOWANCE-UNALLOCATED> 281,201
</TABLE>
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD] Exhibit 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the consolidated balance sheet of Integra Financial Corporation
and subsidiaries (Integra) as of December 31, 1995, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
years ended December 31, 1995 and 1994 (not presented herein). These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We have conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Integra as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the years ended December 31, 1995 and 1994,
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
Pittsburgh, Pennsylvania
January 17, 1996
