<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 1-0074
NATIONAL CITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1900 EAST NINTH STREET
CLEVELAND, OHIO 44114
(Address of principal executive office)
216-575-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES x No __
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of April 30, 1998
Common stock, $4.00 Par Value -- 328,203,695
<PAGE> 2
NATIONAL CITY CORPORATION LOGO
QUARTER ENDED MARCH 31, 1998
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
NATIONAL CITY CORPORATION LOGO
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
PART I -- FINANCIAL INFORMATION
Financial Highlights........................................ 3
Financial Statements (Item 1):
Consolidated Statements of Income....................... 4
Consolidated Balance Sheets............................. 5
Consolidated Statements of Cash Flows................... 6
Consolidated Statements of Changes in Stockholders'
Equity................................................. 7
Notes to Consolidated Financial Statements.............. 7
Management's Discussion and Analysis (Item 2)............... 12
Daily Average Balances/Net Interest Income/Rates............ 16
PART II -- OTHER INFORMATION
Changes in Securities (Item 2)
Refer to Note 10 on page 10.
Submission of Matters to a Vote of Security Holders (Item 4)
On March 30, 1998, at the Annual Meeting of Stockholders
of the Registrant, stockholders took the following
actions:
1. Elected as directors all nominees designated in the
proxy statement of February 19, 1998, as follows:
NUMBER OF VOTES
---------------------------
FOR WITHHELD
----------- ----------
<S> <C>
Sandra H. Austin............................................ 185,821,967 2,210,262
Edward B. Brandon........................................... 185,796,542 2,235,686
John G. Breen............................................... 186,068,721 1,963,508
James S. Broadhurst......................................... 186,012,266 2,019,962
Duane E. Collins............................................ 186,014,170 2,018,059
David A. Daberko............................................ 185,960,466 2,071,762
Daniel E. Evans............................................. 186,010,211 2,022,017
Bernadine P. Healy, M.D..................................... 185,963,345 2,068,884
Joseph H. Lemieux........................................... 170,240,229 17,791,999
W. Bruce Lunsford........................................... 170,605,625 17,426,604
Robert A. Paul.............................................. 186,076,484 1,955,745
William F. Roemer........................................... 185,855,395 2,176,834
Michael A. Schuler.......................................... 186,020,460 2,011,768
Stephen A. Stitle........................................... 186,013,685 2,018,544
Morry Weiss................................................. 170,537,111 17,495,117
2. Approved the selection of Ernst & Young LLP,
independent auditors, as auditors for the year 1998:
186,658,066 votes cast for, 761,275 votes cast against,
612,887 votes withheld.
3. Adopted the Agreement and Plan of Merger dated November
30, 1997, by and between National City Corporation and
First of America Bank Corporation: 168,672,486 votes
cast for, 1,043,083 votes cast against, 902,848 votes
withheld.
Exhibits and Reports on Form 8-K (Item 6)................... 19
Signature................................................... 19
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended
March 31
- ---------------------------------------------------------------------------------------------------------------
Percent
1998 1997 Change
<S> <C> <C> <C>
EARNINGS (IN THOUSANDS):
- ---------------------------------
Net interest income -- fully taxable equivalent............. $708,276 $702,180 1%
Provision for loan losses................................... 56,267 58,697 (4)
Fees and other income....................................... 499,658 418,415 19
Securities gains............................................ 1,052 15,951 --
Noninterest expense (excluding merger and restructuring).... 705,190 651,893 8
Merger and restructuring expense............................ 274,698 6,340 --
Net income.................................................. 103,722 275,567 (62)
Net income before merger and restructuring expense.......... 297,607 279,434 7
PERFORMANCE RATIOS:
- ------------------------------
Net interest margin......................................... 4.19% 4.38%
Return on average assets*................................... 1.61 1.60
Return on average total equity*............................. 19.23 18.05
PER SHARE MEASURES:
- ------------------------------
Net income per common share:
Basic..................................................... $.33 $.84 (61)%
Diluted................................................... .32 .82 (61)
Diluted -- adjusted*...................................... .92 .83 11
Dividends paid per common share............................. .46 .41 12
Book value per common share................................. 20.73 18.64 11
Market value per common share (close)....................... 73.31 46.63 57
Average shares -- diluted................................... 323,006,334 334,747,442 (4)
AVERAGE BALANCES (IN MILLIONS):
- -------------------------------------------
Assets...................................................... $74,769 $71,078 5%
Loans....................................................... 53,488 50,663 6
Securities.................................................. 13,728 13,023 5
Earning assets.............................................. 67,789 64,306 5
Deposits.................................................... 51,962 51,848 --
Common stockholders' equity................................. 6,276 6,277 --
Stockholders' equity........................................ 6,276 6,277 --
AT PERIOD END:
- --------------------
Equity to assets ratio...................................... 8.46% 8.47%
Tier 1 capital ratio........................................ 8.55 9.88
Total risk-based capital ratio.............................. 12.61 14.26
Leverage ratio.............................................. 7.50 8.04
Common shares outstanding................................... 327,513,959 326,290,129 --
Full-time equivalent employees.............................. 41,056 38,141 8
ASSET QUALITY:
- --------------------
Net charge-offs to loans (annualized)....................... .40% .42%
Loan loss reserve to loans.................................. 1.73 1.88
Nonperforming assets to loans & OREO........................ .50 .56
</TABLE>
- --------------------------------------------------------------------------------
Note: All previously reported amounts, except for dividends paid per share and
market value per share, have been restated to reflect the
pooling-of-interests transaction with First of America Bank Corporation
which closed March 31, 1998.
* Excluding merger and restructuring expenses, which totaled $193.9 million and
$3.9 million after-tax in 1998 and 1997, respectively.
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in Thousands Except Per Share Amounts) March 31
- -----------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
INTEREST INCOME
Loans..................................................... $1,140,421 $1,080,802
Securities:
Taxable................................................ 206,412 195,523
Exempt from Federal income taxes....................... 11,600 10,913
Federal funds sold and security resale agreements......... 6,006 5,108
Other short-term investments.............................. 4,206 5,341
----------- -----------
Total interest income................................ 1,368,645 1,297,687
INTEREST EXPENSE
Deposits.................................................. 446,461 442,461
Federal funds borrowed and security repurchase
agreements............................................. 73,763 69,810
Borrowed funds............................................ 51,276 34,042
Long-term debt............................................ 99,170 58,895
----------- -----------
Total interest expense............................... 670,670 605,208
----------- -----------
NET INTEREST INCOME......................................... 697,975 692,479
PROVISION FOR LOAN LOSSES................................... 56,267 58,697
----------- -----------
Net interest income after provision for loan
losses............................................ 641,708 633,782
NONINTEREST INCOME
Item processing revenue................................... 112,540 85,491
Service charges on deposit accounts....................... 93,460 86,126
Trust fees................................................ 67,409 57,953
Card-related fees......................................... 52,778 52,719
Mortgage banking revenue.................................. 61,250 30,677
Other..................................................... 112,221 105,449
----------- -----------
Total fees and other income.......................... 499,658 418,415
Securities gains.......................................... 1,052 15,951
----------- -----------
Total noninterest income............................. 500,710 434,366
NONINTEREST EXPENSE
Salaries and other personnel.............................. 383,854 349,570
Equipment................................................. 51,728 50,769
Net occupancy............................................. 48,737 49,246
Assessments and taxes..................................... 11,689 15,295
Merger and restructuring.................................. 274,698 6,340
Other..................................................... 209,182 187,013
----------- -----------
Total noninterest expense............................ 979,888 658,233
----------- -----------
Income before income taxes.................................. 162,530 409,915
Income tax expense.......................................... 58,808 134,348
----------- -----------
NET INCOME.................................................. $ 103,722 $ 275,567
=========== ===========
NET INCOME APPLICABLE TO COMMON STOCK....................... $ 103,722 $ 275,567
=========== ===========
NET INCOME PER COMMON SHARE
Basic..................................................... $.33 $.84
Diluted................................................... .32 .82
AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 316,227,200 329,688,863
Diluted................................................... 323,006,334 334,747,442
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------
March 31 December 31 March 31
1998 1997 1997
<S> <C> <C> <C>
ASSETS
Loans:
Commercial............................................ $17,939,443 $16,280,575 $14,932,248
Real estate construction.............................. 1,346,728 1,302,305 1,230,067
Lease financing....................................... 678,421 635,957 494,742
Commercial real estate................................ 6,523,261 6,410,531 6,541,792
Residential real estate............................... 10,110,368 9,987,066 10,907,726
Mortgage loans held for sale.......................... 2,133,398 1,249,708 409,795
Consumer.............................................. 12,834,912 12,357,229 11,960,279
Credit card........................................... 1,855,401 2,047,769 2,106,766
Home equity........................................... 3,030,871 2,972,987 2,531,141
----------- ----------- -----------
Total loans...................................... 56,452,803 53,244,127 51,114,556
Allowance for loan losses........................ 976,464 941,874 960,040
----------- ----------- -----------
Net loans........................................ 55,476,339 52,302,253 50,154,516
Securities available for sale, at market................. 15,635,191 13,797,566 13,234,328
Federal funds sold and security resale agreements........ 475,890 542,156 428,358
Other short-term investments............................. 111,687 84,204 269,425
Cash and demand balances due from banks.................. 3,745,235 4,319,309 3,567,084
Properties and equipment................................. 1,037,159 1,031,912 1,058,161
Customers' acceptance liability.......................... 37,235 45,823 82,201
Accrued income and other assets.......................... 4,197,452 3,655,858 2,999,326
----------- ----------- -----------
TOTAL ASSETS..................................... $80,716,188 $75,779,081 $71,793,399
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing).................... $10,449,115 $10,287,007 $ 9,859,295
NOW and money market accounts............................ 16,728,998 15,547,560 15,344,173
Savings accounts......................................... 4,943,381 4,781,806 5,333,586
Time deposits of individuals............................. 18,980,294 18,631,280 19,445,926
Other time deposits...................................... 2,482,568 1,633,282 1,595,563
Deposits in overseas offices............................. 1,802,535 1,736,419 596,212
----------- ----------- -----------
Total deposits................................... 55,386,891 52,617,354 52,174,755
Federal funds borrowed and security repurchase
agreements............................................ 7,967,150 4,810,953 5,390,570
Borrowed funds........................................... 2,762,173 4,264,556 2,821,597
Long-term debt........................................... 6,213,508 6,297,194 3,951,254
Acceptances outstanding.................................. 37,235 45,823 82,201
Accrued expenses and other liabilities................... 1,523,429 1,584,941 1,292,135
----------- ----------- -----------
TOTAL LIABILITIES................................ 73,890,386 69,620,821 65,712,512
Stockholders' Equity:
Preferred stock.......................................... 36,999 -- --
Common stock............................................. 6,788,803 6,158,260 6,080,887
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY....................... 6,825,802 6,158,260 6,080,887
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $80,716,188 $75,779,081 $71,793,399
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in Thousands) March 31
- ---------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 103,722 $ 275,567
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................ 56,267 58,697
Depreciation and amortization........................ 33,630 34,818
Amortization of intangibles and servicing rights..... 24,425 19,554
Amortization of securities discount and premium...... 4,495 366
Securities gains..................................... (1,052) (15,951)
Other gains, net..................................... (45,866) (36,392)
Net decrease in trading account assets............... 6,333 94,169
Originations and purchases of mortgage loans held for
sale................................................ (3,339,955) (1,013,025)
Proceeds from sales of mortgage loans held for
sale................................................ 3,019,870 1,051,571
Decrease in interest receivable...................... 7,528 40,493
Increase (decrease) in interest payable.............. (33,317) 36,589
Net change in other assets/liabilities............... (57,485) 85,497
----------- -----------
Net cash provided (used) by operating
activities..................................... (221,405) 631,953
LENDING AND INVESTING ACTIVITIES
Net decrease in short-term investments.................... 52,268 195,439
Purchases of securities................................... (3,683,967) (1,427,508)
Proceeds from sales of securities......................... 2,133,433 1,128,089
Proceeds from maturities and prepayments of securities.... 684,850 498,371
Net (increase) in loans................................... (840,390) (396,050)
Proceeds from sales of loans.............................. -- 79,625
Net (increase) decrease in properties and equipment....... 14,617 (21,436)
Acquisitions.............................................. 157,632 --
----------- -----------
Net cash acquisitions provided (used) by lending
and investing activities....................... (1,481,557) 56,530
DEPOSIT AND FINANCING ACTIVITIES
Net increase in Federal funds borrowed and security
repurchase agreements.................................. 2,871,580 233,999
Net (decrease) in borrowed funds.......................... (1,532,917) (181,964)
Net increase (decrease) in demand, savings, NOW, money
market accounts, and deposits in overseas offices...... 124,553 (1,035,411)
Net increase (decrease) in time deposits.................. 94,969 (406,497)
Repayment of long-term debt............................... (302,415) (130,360)
Proceeds from issuance of long-term debt, net............. 101,404 616,111
Dividends paid............................................ (127,680) (119,748)
Issuance of common stock.................................. 45,394 22,844
Repurchase of common stock................................ (146,000) (261,617)
----------- -----------
Net cash provided (used) by deposit and financing
activities..................................... 1,128,888 (1,262,643)
----------- -----------
Net (decrease) in cash and demand balances due from
banks.................................................. (574,074) (574,160)
Cash and demand balances due from banks, January 1........ 4,319,309 4,141,244
----------- -----------
Cash and demand balances due from banks, March 31......... $ 3,745,235 $ 3,567,084
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid............................................. $ 703,987 $ 697,342
Income taxes paid......................................... 5,529 17,635
Common stock issued in purchase acquisitions.............. 787,184 --
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
(Dollars in Thousands Except Per Preferred Common Capital Retained Comprehensive
Share Amounts) Stock Stock Surplus Earnings Income
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997................... $ -- $1,323,449 $ 935,970 $3,800,658 $156,184
Comprehensive Income:
Net income............................ 275,495
Other comprehensive income, net of
tax................................. (63,747)
Total comprehensive income..............
Common dividends declared, $.41 per
share................................. (90,076)
Common dividends declared of pooled
company, prior to merger.............. (28,057)
Issuance of 1,032,152 common shares
under corporate stock and dividend
reinvestment plans.................... 4,129 18,785
Issuance of 301,662 shares pursuant to
acquisitions.......................... 1,207 8,507
Purchase of 6,938,152 common shares..... (23,624) (81,917) (156,076)
-------- ---------- ---------- ---------- --------
Balance March 31, 1997.................... $ -- $1,305,161 $ 881,345 $3,801,944 $ 92,437
======== ========== ========== ========== ========
Balance January 1, 1998................... $ -- $1,262,790 $1,108,920 $3,440,763 $345,787
Comprehensive Income:
Net income............................ 103,722
Other comprehensive income, net of tax
Unrealized gains on securities of
$28,677 net of reclassification
adjustment for gains included in net
income of $684...................... 27,994
Total comprehensive income..............
Common dividends declared, $.46 per
share................................. (150,752)
Issuance of 997,719 common shares under
corporate stock and dividend
reinvestment plans.................... 3,991 41,403
Net issuance of 10,818,752 common shares
and 739,976 preferred shares pursuant
to acquisitions....................... 36,999 43,275 691,734 (130,824)
-------- ---------- ---------- ---------- --------
Balance March 31, 1998.................... $ 36,999 $1,310,056 $1,842,057 $3,262,909 $373,781
======== ========== ========== ========== ========
<CAPTION>
(Dollars in Thousands Except Per
Share Amounts) Total
<S> <C>
Balance January 1, 1997................... $6,216,261
Comprehensive Income:
Net income............................ 275,495
Other comprehensive income, net of
tax................................. (63,747)
----------
Total comprehensive income.............. 211,748
Common dividends declared, $.41 per
share................................. (90,076)
Common dividends declared of pooled
company, prior to merger.............. (28,057)
Issuance of 1,032,152 common shares
under corporate stock and dividend
reinvestment plans.................... 22,914
Issuance of 301,662 shares pursuant to
acquisitions.......................... 9,714
Purchase of 6,938,152 common shares..... (261,617)
----------
Balance March 31, 1997.................... $6,080,887
==========
Balance January 1, 1998................... $6,158,260
Comprehensive Income:
Net income............................ 103,722
Other comprehensive income, net of tax
Unrealized gains on securities of
$28,677 net of reclassification
adjustment for gains included in net
income of $684...................... 27,994
----------
Total comprehensive income.............. 131,716
Common dividends declared, $.46 per
share................................. (150,752)
Issuance of 997,719 common shares under
corporate stock and dividend
reinvestment plans.................... 45,394
Net issuance of 10,818,752 common shares
and 739,976 preferred shares pursuant
to acquisitions....................... 641,184
----------
Balance March 31, 1998.................... $6,825,802
==========
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on a basis consistent with accounting
principles applied in the prior periods and include all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
Certain prior period amounts have been reclassified to conform with current
period presentation.
7
<PAGE> 9
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 Statement of Financial Accounting Standards (SFAS) No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which provides standards for distinguishing between transfers of
financial assets that are sales from transfers that are secured borrowings. The
statement also extends the treatment of mortgage servicing rights to all
servicing assets. The provisions of SFAS No. 125 were adopted by the Corporation
prospectively as of January 1, 1997 for the following types of transactions:
securitizations, recognition of servicing assets and liabilities, transfers of
receivables with recourse, loan participations, and extinguishments of
liabilities.
Certain provisions of SFAS No. 125, relating to repurchase agreements,
securities lending and other similar transactions, and pledged collateral, were
deferred for one year by SFAS No. 127 and were adopted prospectively on January
1, 1998. The adoption of these statements did not have a material impact on
financial position or results of operations.
REPORTING COMPREHENSIVE INCOME: In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, Reporting Comprehensive Income. This
statement establishes standards for reporting the components of comprehensive
income and requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be included in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
stockholders' equity and bypass net income. The provisions of this statement are
effective beginning with 1998 interim reporting. These disclosure requirements
had no impact on financial position or results of operation.
3. MERGERS AND ACQUISITIONS
On March 30, 1998, National City acquired Fort Wayne National Corporation
(FWNC), a $3 billion asset bank holding company headquartered in Fort Wayne,
Indiana. Upon acquisition, each share of FWNC common stock outstanding was
converted into .75 shares of National City common stock. A net of 10.8 million
shares of National City common stock were issued. National City also issued .7
million shares of 6% Cumulative Convertible Preferred Stock, Series 1 in
exchange for all of the outstanding shares of FWNC's 6% Cumulative Convertible
Class B Preferred Stock. Goodwill of $522.3 million and core deposit intangible
of $71.9 million were recorded in connection with the acquisition and are being
amortized on a straight-line basis over twenty-five and seven years,
respectively. The pro forma effects of this transaction would not have been
material to historical results of operations or financial condition.
On March 31, 1998, National City Corporation merged with First of America
Bank Corporation (FOA), a $21 billion asset bank holding company headquartered
in Kalamazoo, Michigan, in a transaction accounted for as a
pooling-of-interests. National City issued 104.9 million shares of common stock
to the shareholders of FOA based upon an exchange ratio of 1.2 shares of
National City common stock for each outstanding share of FOA common stock. The
historical consolidated financial statements have been restated to reflect this
transaction.
Net income and diluted net income per common share for National City and FOA
as reported for 1997 prior to restatement are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
- -----------------------------------------------------------
<S> <C>
Net income
National City........................ $196,142
First of America..................... 79,425
--------
Combined............................. $275,567
========
Diluted net income per common share
National City........................ $ .87
First of America..................... .88
Combined............................. .82
</TABLE>
Merger and restructuring expenses for the first quarter of 1998 totaled
$274.6 million as a result of this transaction. The major components of merger
and restructuring expenses included: personnel-related accruals in the amount of
$105.9 million, facilities and equipment adjustments of $73.4 million,
professional fees of $48.6 million, and miscellaneous expenses and accruals
totaling $46.7 million. Another $100 million of merger and restructuring
expenses are estimated to occur in the remainder of 1998.
4. CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments to
extend credit, guarantees, etc., which are not reflected in the financial
statements. In addition, the Corporation's subsidiaries are involved in a number
of legal proceedings arising out of their businesses. In management's opinion,
the financial statements would not be materially affected by the outcome of any
present legal proceedings or other commitments and contingent liabilities.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year........ $941,874 $958,739
Provision........................... 56,267 58,697
Reserves acquired (sold)............ 30,679 (4,906)
Charge-offs:
Commercial........................ 9,839 8,816
Real estate -- construction....... 31 151
Real estate -- commercial......... 2,207 1,911
Real estate -- residential........ 1,923 2,112
Consumer.......................... 42,435 48,204
Credit card....................... 25,710 28,908
Home equity....................... 2,283 914
-------- --------
Total charge-offs................. 84,428 91,016
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Recoveries:
Commercial........................ 5,201 7,281
Real estate -- construction....... 89 27
Real estate -- commercial......... 3,088 2,179
Real estate -- residential........ 9 143
Consumer.......................... 17,392 23,324
Credit card....................... 5,588 5,132
Home equity....................... 705 440
-------- --------
Total recoveries.................. 32,072 38,526
-------- --------
Net charge-offs..................... 52,356 52,490
-------- --------
Balance at end of period............ $976,464 $960,040
======== ========
</TABLE>
The allowance for loan losses is maintained at a level believed adequate to
absorb estimated probable credit losses. Both the provision and allowance for
loan losses are based upon an analysis of individual credits, adverse situations
that could affect a borrower's ability to repay (including the timing of future
payments), prior and current loss experience, overall growth in the portfolio,
current economic conditions, and other factors. This evaluation is inherently
subjective as it requires material estimates, including the amounts and timing
of future cash flows expected to be received on impaired loans, that could be
susceptible to change.
Table 5 on page 14 provides detail regarding nonperforming loans. At March
31, 1998 and December 31, 1997, loans that were considered to be impaired under
SFAS No. 114 totaled $27.9 million and $28.8 million, respectively. All impaired
loans are included in nonperforming assets. The related allowance allocated to
these loans was $11.6 million and $10.1 million, respectively. The contractual
interest due and actual interest recorded on impaired loans, as well as total
nonperforming assets, for the three months ended March 31, 1998, was $11.5
million and $2.6 million, respectively.
6. SECURITIES
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
Federal agency
debentures......... $ 3,284,438 $ 12,591 $ (8,963) $ 3,288,066
Mortgage-backed
securities......... 8,043,467 72,753 (12,719) 8,103,501
Asset-backed and
corporate debt
securities......... 1,854,553 10,492 (2,571) 1,862,474
States and political
subdivisions....... 1,050,290 46,462 (227) 1,096,525
Other................ 828,012 456,883 (270) 1,284,625
----------- -------- -------- -----------
Total securities... $15,060,760 $599,181 $(24,750) $15,635,191
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
Federal agency
debentures......... $ 2,702,506 $ 610 $ (54,812) $ 2,648,304
Mortgage-backed
securities......... 7,691,017 23,789 (87,402) 7,627,404
Asset-backed and
corporate debt
securities......... 1,004,285 3,373 (6,055) 1,001,603
States and political
subdivisions....... 755,849 12,923 (1,414) 767,358
Other................ 938,913 253,637 (2,891) 1,189,659
----------- -------- --------- -----------
Total securities... $13,092,570 $294,332 $(152,574) $13,234,328
=========== ======== ========= ===========
</TABLE>
Other securities includes the Corporation's internally-managed equity
portfolio of bank and thrift common stock investments, which had an amortized
cost and market value of $262.5 million and $705.1 million, respectively, as of
March 31, 1998.
For the three months ended March 31, 1998 and 1997, gross gains of $15.9
million and $20.9 million, and gross losses of $14.8 million and $4.9 million,
respectively, were realized for the entire securities portfolio.
At March 31, 1998, the unrealized appreciation in securities available for
sale included in retained earnings totaled $373.8 million, net of tax, compared
to unrealized appreciation of $92.4 million, net of tax, at March 31, 1997. 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 primarily 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.
At March 31, 1998, 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.
7. BORROWED FUNDS
<TABLE>
<CAPTION>
March 31 Dec 31 March 31
(IN THOUSANDS) 1998 1997 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury demand notes
and Federal funds
borrowed-term........... $1,160,768 $2,001,665 $1,065,747
Notes payable to Student
Loan Marketing
Association............. 300,000 300,000 300,000
Bank notes................ 524,989 574,973 558,235
FHLB advances............. 350,000 450,000 300,000
Other..................... 97,682 141,729 77,208
---------- ---------- ----------
Total bank
subsidiaries.......... 2,433,439 3,468,367 2,301,190
Commercial paper.......... 325,990 795,895 516,610
Other..................... 2,744 294 3,797
---------- ---------- ----------
Total parent company and
other subsidiaries.... 328,734 796,189 520,407
---------- ---------- ----------
Total............. $2,762,173 $4,264,556 $2,821,597
========== ========== ==========
</TABLE>
9
<PAGE> 11
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31 Dec 31 March 31
(IN THOUSANDS) 1998 1997 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Floating rate notes due
1997........................ $ -- $ -- $ 49,986
9 7/8% subordinated notes due
1999........................ 64,925 64,918 64,883
6.50% subordinated notes due
2000........................ 99,892 99,881 99,841
8.50% subordinated notes due
2002........................ 99,902 99,896 99,879
6 5/8% subordinated notes due
2004........................ 249,234 249,201 249,104
7.75% subordinated notes due
2004........................ 200,000 200,000 200,000
8.50% subordinated notes due
2004........................ 150,000 150,000 150,000
7.20% subordinated notes due
2005........................ 249,792 249,785 249,763
Other........................ 11,345 10,939 11,774
---------- ---------- ----------
Total parent company....... 1,125,090 1,124,620 1,175,230
---------- ---------- ----------
6.50% subordinated notes due
2003........................ 199,619 199,600 199,544
7.25% subordinated notes due
2010........................ 222,984 222,944 222,822
6.30% subordinated notes due
2011........................ 200,000 200,000 200,000
7.25% subordinated notes due
2011........................ 197,326 197,278 197,129
Capital securities of
subsidiary trusts........... 180,000 150,000 150,000
Other........................ 1,607 3,133 1,847
---------- ---------- ----------
Total subsidiary........... 1,001,536 972,955 971,342
---------- ---------- ----------
Total long-term debt
qualifying for Tier I or
Tier II Capital.......... 2,126,626 2,097,575 2,146,572
---------- ---------- ----------
Senior bank notes............ 2,144,170 2,394,055 1,224,432
Federal Home Loan Bank
advances.................... 1,421,310 1,303,721 578,154
Reset Asset Capital
Securities of National City
Capital Trust I............. 499,893 499,892 --
Other........................ 21,509 1,951 2,096
---------- ---------- ----------
Total other long-term
debt..................... 4,086,882 4,199,619 1,804,682
---------- ---------- ----------
Total................ $6,213,508 $6,297,194 $3,951,254
========== ========== ==========
</TABLE>
A credit agreement dated March 14, 1997, with a group of unaffiliated banks,
allows the Corporation to borrow up to $350 million until February 1, 2001, 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 March 31,
1998.
9. CAPITAL RATIOS
The following table reflects various measures of capital:
<TABLE>
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
(Dollars in ---------------- ---------------- ----------------
MILLIONS) AMOUNT Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total equity(1)...... $6,825.8 8.46% $6,158.3 8.13% $6,080.9 8.47%
Total common
equity.............. 6,788.8 8.41 6,158.3 8.13 6,080.9 8.47
Tangible common
equity(2)........... 5,325.9 6.72 5,327.3 7.11 5,340.4 7.52
Tier 1 capital(3).... 5,501.2 8.55 5,435.1 8.93 5,640.0 9.88
Total risk-based
capital(4).......... 8,111.6 12.61 8,013.4 13.16 8,144.1 14.26
Leverage(5).......... 5,501.2 7.50 5,435.1 7.58 5,640.0 8.04
- -----------------------------------------------------------------------------
</TABLE>
(1) Computed in accordance with generally accepted accounting principles,
including unrealized market value adjustment of securities available for
sale.
(2) Common stockholders' equity less all intangible assets and servicing rights;
computed as a ratio to total assets less intangible assets and servicing
rights.
(3) Stockholders' equity less certain intangibles and the unrealized market
value adjustment of securities available for sale; computed as a ratio to
risk-adjusted assets, as defined.
(4) Tier 1 capital plus qualifying loan loss allowance and subordinated debt;
computed as a ratio to risk-adjusted assets, as defined.
(5) Tier 1 capital; computed as a ratio to average total assets less certain
intangibles.
- ------------------------------------------------------------
National City's Tier 1, total risk-based capital and leverage ratios are
well above the required minimum levels of 4.00%, 8.00%, and 4.00%, respectively.
The capital levels at all of National City's subsidiary banks are maintained
at or above the well-capitalized minimums of 6.00%, 10.00% and 5.00% for the
Tier 1 capital, total risk-based capital and leverage ratios, respectively.
Intangible asset and mortgage servicing right totals used in the capital
ratio calculations are summarized below:
<TABLE>
<CAPTION>
March 31 December 31 March 31
(DOLLARS IN MILLIONS) 1998 1997 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Goodwill.................. $1,062.8 $544.9 $525.1
Other intangibles......... 91.6 18.1 42.7
-------- ------ ------
Total intangibles......... $1,154.4 $563.0 $567.8
======== ====== ======
Mortgage servicing
rights.................. $ 308.5 $268.0 $172.7
- --------------------------------------------------------------
</TABLE>
10. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 Dec 31 March 31
(OUTSTANDING SHARES) 1998 1997 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock, no par
value, authorized
5,000,000 shares...... 739,976 -- --
Common Stock, $4.00 par
value, authorized
700,000,000 shares.... 327,513,959 315,697,488 326,290,129
</TABLE>
As part of the acquisition of Fort Wayne National Corporation (FWNC),
National City issued 739,976 shares of 6% Cumulative Convertible Preferred
Stock, Series 1 in exchange for all of the outstanding shares of FWNC's 6%
Cumulative Convertible Class B Preferred Stock. The preferred shares have a
stated value of $50 per share. The holders of the preferred shares are entitled
to receive cumulative preferred dividends payable quarterly at the annual rate
of 6%. The preferred shares may be redeemed by National City at its option at
any time, or from time to time, on or after April 1, 2002 at $50 per share, plus
accrued and unpaid dividends. Such redemption may be subject to prior approval
by the Federal Reserve Bank. Holders of the preferred shares have the right, at
any time at their option, to convert each share of preferred stock into 1.51455
shares of National City common stock.
10
<PAGE> 12
11. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Applicable to income exclusive of
securities transactions......... $58,440 $128,765
Applicable to securities
transactions.................... 368 5,583
------- --------
Total..................... $58,808 $134,348
======= ========
</TABLE>
The effective tax rate was approximately 36.2% and 32.8% for the three
months ended March 31, 1998 and 1997, respectively.
12. REGULATORY DIVIDENDS
A significant source of liquidity for the parent company is dividends from
subsidiaries. Dividends paid by the subsidiary banks are subject to various
legal and regulatory restrictions. At March 31, 1998, bank subsidiaries may pay
the parent company, without prior regulatory approval, approximately $577.0
million of dividends. During the first quarter of 1998, $99.0 million in
dividends were declared and $136.0 million of previously declared dividends were
paid to the parent company by the bank subsidiaries.
13. EARNINGS PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars In Thousands Except Per -------------------------
Share Amounts) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
BASIC:
Net income..................... $103,722 $275,567
Less preferred dividends....... -- --
----------- -----------
Net income applicable to common
stock........................ $103,722 $275,567
=========== ===========
Average common shares
outstanding.................. 316,227,200 329,608,863
=========== ===========
Net income per common
share--basic................. $.33 $.84
=========== ===========
DILUTED:
Net income..................... $103,722 $275,567
=========== ===========
Average common shares
outstanding.................. 316,227,200 329,688,863
Stock option adjustment........ 6,779,134 5,058,579
----------- -----------
Average common shares
outstanding--diluted......... 323,006,334 334,747,442
=========== ===========
Net income per common
share--diluted............... $.32 $.82
=========== ===========
</TABLE>
Net income per common share for 1997 has been restated in accordance with
the provisions of SFAS No. 128, Earnings Per Share. This statement became
effective for the Corporation for reporting periods ending after December 15,
1997.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
Excluding merger and restructuring expenses, net income for the first
quarter of 1998 was $297.6 million, or $.92 per diluted share, compared to
$279.5 million or $.83 per diluted share in 1997. On this basis, return on
assets was 1.61% and return on average common equity was 19.23% in the first
quarter of 1998, compared to returns of 1.60% and 18.05%, respectively, in the
first quarter of 1997. Including after-tax merger and restructuring expenses of
$193.6 million or $.60 per diluted share, first quarter net income was $103.7
million or $.32 per diluted share, compared to $275.6 million or $.82 per
diluted share in 1997.
The merger with First of America Bank Corporation was completed on March
31, 1998 and was accounted for as a pooling-of-interests. Financial data for all
prior periods have been restated. The financial results of Fort Wayne National
Corporation ("Fort Wayne"), accounted for as a purchase, are included in the
results of operations subsequent to the date of acquisition, March 30, 1998.
The growth in net income noted above was due to increased fee income and a
modest increase in net interest income, partially offset by increased operating
expenses. Fee income growth was driven by gains in all major revenue categories.
The modest increase in net interest income was due to loan growth, offset by
increased use of higher cost purchased funds to fund this growth. Noninterest
expenses, excluding merger and restructuring expenses, increased 8.2% from the
same period last year as a result of fee business growth.
UNIT PROFITABILITY
The financial performance of National City is monitored by an internal
profitability measurement system that produces line-of-business results and key
performance measures. National City's major business units include corporate
banking, retail banking and fee-based businesses. The corporate banking business
includes commercial and corporate lending, commercial real estate finance,
asset-based lending and commercial leasing. The retail banking business includes
the deposit gathering branch franchise, small business lending, and consumer
lending. The fee-based businesses include institutional trust, mortgage banking,
item processing, brokerage and the Private Client Group.
Table 1 on page 14 reflects the results underlying the fundamentals of each
of these businesses. Expenses for centrally provided services are allocated
based on estimated usage of those services. Capital has been allocated to the
businesses on a risk-adjusted basis. The businesses are match-funded and
interest rate risk is centrally managed by the investment/funding unit within
the "Parent and other" line item in Table 1. Methodologies may change from time
to time as accounting systems are enhanced or organizational changes occur.
The 22.0% increase in corporate banking net income was driven by double
digit growth in net interest income and noninterest income, with no increase in
credit costs. The quarter reflected strong loan growth primarily in the core
middle market lending business, and was supplemented by growth in commercial
leasing, asset-based lending, loan syndications and cash management.
The 10.3% increase in retail banking net income was due to higher service
fee income, lower operating expenses and a lower loan loss provision.
The 22.1% increase in fee-based businesses net income reflected broad based
revenue growth.
Brokerage net income increased as a result of higher brokerage commissions
and investment banking fees. Institutional trust net income increased as a
result of new business, improved pricing, a strong stock market and lower
operating expenses. Private Client Group net income benefitted from strong loan
growth and higher trust fees. Mortgage banking net income increased due to
increased origination volume and higher servicing fees.
The year-over-year negative variance in parent and other reflects the
after-tax merger and restructuring expenses of $193.6 million as well as lower
securities gains.
NET INTEREST INCOME
On a tax-equivalent basis, net interest income was $708.3 million in the
first quarter of 1998, up $6.1 million from the first quarter of 1997. The
modest increase reflected 5.4% growth in average earning assets, offset by a 19
basis point decline in the net interest margin to 4.19%. The margin decline was
due to increased reliance on higher cost purchased funds to support loan growth.
In the first quarter of 1998, net interest income included approximately
$10.2 million related to the use of derivative instruments compared to $12.0
million in 1997 (Table 2).
During the first quarter of 1998, the notional outstandings of interest
rate swap agreements increased $1.4 billion to $13.3 billion. During the
quarter, $205
12
<PAGE> 14
million of swaps were added to manage the Corporation's interest rate risk
position by synthetically converting fixed rate debt to variable rate; $1.3
billion of swaps were added to hedge loans; $351 million of swaps were added to
reduce the price risk of mortgage servicing rights; and $832 million of swap
agreements were added to facilitate interest rate risk management at third
parties. A total of $1.0 billion of swaps matured or were terminated during the
quarter. The net unrealized gains in the derivative portfolio were $75.4 million
at March 31, 1998, compared to unrealized gains of $63.8 million at December 31,
1997.
NONINTEREST INCOME
Noninterest income is a significant source of National City's revenues,
representing 41.4% of tax-equivalent revenues compared to 37.3% for the first
quarter of 1997. For the first quarter of 1998, noninterest income, excluding
securities gains, increased 19.4% to $499.7 million compared to $418.4 million
in 1997.
The most notable increase occurred in mortgage banking where fees doubled
to $61.3 million, compared to $30.7 million in 1997, as a result of increased
origination activity and higher gains on mortgage loans sold. For the first
quarter of 1998, residential loans originated at National City Mortgage Company
increased to $3.6 billion compared to $.9 billion in 1997. Increased production
was attributable to acquisitions and higher levels of mortgage loan refinancing
driven by lower mortgage rates.
Other income included $1.2 million of gains on branch sales in the first
quarter of 1998, versus $23.1 million in 1997.
Securities gains were $1.1 million in the first quarter of 1998, compared
to $16.0 million in 1997.
NONINTEREST EXPENSE
For the first quarter of 1998, noninterest expense, excluding merger and
restructuring expenses, increased 8.2% to $705.2 million compared to $651.9
million in 1997. The primary reason for this increase in expenses is the fee
business acquisitions within the mortgage banking and item processing
subsidiaries.
Merger and restructuring expenses totaled $274.7 million in the first
quarter of 1998 in connection with the First of America Bank Corporation merger
which closed March 31, 1998. In 1997, merger and restructuring expenses included
$6.3 million of expenses related to organizational restructuring at National
City's 88%-owned item processing subsidiary, National Processing, Inc.
(NYSE:NAP).
As Table 3 indicates, National City's staffing level on a full-time
equivalent basis was 41,056 at
March 31, 1998, up from 38,141 at March 31, 1997. The increase was due to
business activity in the mortgage banking and item processing subsidiaries and
acquisitions. The lower staff level in corporate and retail banking was
primarily due to ongoing reconfiguration of the branch network.
The efficiency ratio is defined as noninterest expense divided by fee
income plus tax-equivalent net interest income. Excluding merger and
restructuring expenses, the efficiency ratio for the first quarter of 1998 and
1997 was 58.38% and 58.17%, respectively.
The overhead ratio is defined as noninterest expense less fee income
divided by tax-equivalent net interest income. Excluding merger and
restructuring expenses, the overhead ratio for the first quarter of 1998 and
1997 was 29.02% and 33.25%, respectively.
TABLE 1: UNIT PROFITABILITY
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
------------------- -------------------
NET Return on Net Return on
(DOLLARS IN MILLIONS) INCOME Equity Income Equity
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Corporate banking.................. $71.6 20.99% $58.7 19.79%
Retail banking..................... 162.2 23.70 147.0 21.93
Fee-based businesses............... 45.8 23.01 37.5 17.39
Parent and other................... (175.9) -- 32.4 --
------ ------
Consolidated total............. $103.7 6.70% $275.6 17.80%
====== ======
Excluding merger and restructuring
expenses......................... $297.6 19.23% $279.4 18.05%
====== ======
</TABLE>
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------------
(IN MILLIONS) 1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------
Interest adjustment to loans......................... $ .7 $ 5.1
Interest adjustment to securities.................... (.4) (.8)
----- -----
Interest adjustment to earning assets.............. .3 4.3
Interest adjustment to interest-bearing
liabilities........................................ (9.9) (7.7)
----- -----
Effect on net interest income...................... $10.2 $12.0
===== =====
</TABLE>
NOTE: Amounts in brackets represent reductions of the related interest income
or expense line, as applicable.
13
<PAGE> 15
EARNING ASSETS AND INTEREST BEARING LIABILITIES
For the first quarter of 1998, average earning assets were $67,789 million,
up from $64,871 for the fourth quarter of 1997 and $64,306 million for the first
quarter of 1997. The increase in average earning assets over both periods was
primarily due to growth in average loans and investment securities. Total
average loans grew 2.0% from the fourth quarter of 1997 and 5.6% compared to the
first quarter of 1997. Total average investment securities increased 5.8% from
the fourth quarter of 1997 and 5.4% compared to the first quarter of 1997.
For the first quarter of 1998, average interest-bearing liabilities were
$58,195 million, up from $55,750 million for the fourth quarter of 1997 and
$54,488 million for the first quarter of 1997. The increase was primarily driven
by increased use of longer term funding, including senior bank notes and the
June 1997 issuance of $500 million of 6.75% Reset Asset Capital Securities.
Average interest-bearing deposits were flat compared to the fourth quarter
of 1997 and first quarter of 1997.
ASSET QUALITY
The allowance for loan losses was $976.5 million at March 31, 1998, or
1.83% of average loans, compared to $960.0 million or 1.89% of average loans at
March 31, 1997. For the first quarter of 1998, the provision for loan losses was
$56.3 million compared to $58.7 million for the same period last year. For both
periods, the provision exceeded net charge-offs.
Table 4 presents net charge-offs as a percentage of average loans by
portfolio type. For the first quarter of 1998, net charge-offs totaled $52.4
million or .40% of average loans, compared to $67.3 million or .51% during the
fourth quarter of 1997, and $52.5 million or .42% during the first quarter of
1997.
As Table 5 indicates, nonperforming assets were $281.7 million at March 31,
1998, up $7.8 million from $273.3 million at December 31, 1997, and down $5.4
million from $286.5 million at March 31, 1997. The increase from December 31,
1997, was due to the inclusion of $14.4 million in nonperforming assets at Fort
Wayne. Excluding Fort Wayne, nonperforming assets decreased $6.6 million from
the prior quarter. Nonperforming assets as a percentage of loans and OREO at
March 31, 1998, December 31, 1997, and March 31, 1997, were .50%, .51% and .56%,
respectively.
CAPITAL
At March 31, 1998, total stockholders' equity was $6.8 billion compared to
$6.1 billion at March 31, 1997. Book value per common share at March 31, 1998
was $20.73, compared to $19.51 at December 31, 1997 and $18.64 at March 31,
1997. Book value per common share at March 31, 1998, December 31, 1997 and March
31, 1997 included unrealized gains on securities available for sale of $1.18,
$1.10 and $.28 per share, respectively.
TABLE 3: FULL-TIME EQUIVALENT STAFFING AND OVERHEAD
PERFORMANCE MEASURES
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
---------------------------------- ----------------------------------
Full-Time Full-Time
EQUIVALENT OVERHEAD Efficiency Equivalent Overhead Efficiency
STAFF RATIO Ratio Staff Ratio Ratio
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Corporate and retail
banking................ 20,957 38.55% 51.47% 21,850 42.15% 53.91%
Fee-based businesses.... 15,231 -- 75.31 10,751 -- 75.96
Corporate............... 4,868 -- -- 5,540 -- --
---------- ----------
Total................ 41,056 67.80% 81.12% 38,141 34.15% 58.74%
========== ==========
Excluding merger and
restructuring
expenses............... 29.02% 58.38% 33.25% 58.17%
</TABLE>
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
- ------------------------------------------------------------------------------
Commercial.................................................. .11% .04%
Real estate -- construction................................. -- .03
Real estate -- commercial................................... (.06) (.02)
Real estate -- residential.................................. .07 .07
Consumer.................................................... .80 .41
Credit card................................................. 4.14 4.36
Home equity................................................. .21 .08
Total net charge-offs to average loans...................... .40 .42
</TABLE>
TABLE 5: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
March 31 December 31 March 31
(IN MILLIONS) 1998 1997 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Commercial:
Nonaccrual................................ $108.3 $103.7 $117.2
Restructured.............................. .4 1.1 3.4
------ ------ ------
Total commercial........................ 108.7 104.8 120.6
Real estate related:
Nonaccrual................................ 131.3 128.5 110.4
Restructured.............................. 4.0 4.5 6.0
------ ------ ------
Total real estate related............... 135.3 133.0 116.4
------ ------ ------
Total nonperforming loans............... 244.0 237.8 237.0
Other real estate owned (OREO).............. 37.1 35.5 49.5
------ ------ ------
Nonperforming assets........................ $281.1 $273.3 $286.5
====== ====== ======
Loans 90 days past-due accruing interest.... $146.0 $136.1 $130.7
====== ====== ======
</TABLE>
14
<PAGE> 16
(This page intentionally left blank)
15
<PAGE> 17
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
- -----------------------------------------------------------------------------------------------------
1998 1997
------- -------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $24,777 $24,116 $23,503 $23,303 $22,648
Residential real estate......................... 11,215 11,160 11,529 11,339 11,332
Consumer........................................ 12,546 12,254 12,197 12,005 11,996
Credit card..................................... 1,944 1,991 2,031 2,081 2,180
Home equity..................................... 3,006 2,907 2,775 2,616 2,507
------- ------- ------- ------- -------
Total loans................................... 53,488 52,428 52,035 51,344 50,663
Securities:
Taxable......................................... 12,890 12,157 12,354 12,391 12,288
Tax-exempt...................................... 838 812 812 766 735
------- ------- ------- ------- -------
Total securities.............................. 13,728 12,969 13,166 13,157 13,023
Federal funds sold................................ 70 62 85 94 89
Security resale agreements........................ 378 260 289 284 293
Other short-term investments...................... 125 113 199 215 238
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 67,789 65,832 65,774 65,094 64,306
Allowance for loan losses........................... (958) (961) (976) (974) (966)
Market value appreciation of securities available
for sale.......................................... 537 490 377 162 229
Cash and demand balances due from banks............. 3,359 3,416 3,213 3,346 3,418
Properties and equipment............................ 1,042 1,023 1,038 1,053 1,059
Customers' acceptance liability..................... 41 69 66 73 82
Accrued income and other assets..................... 2,959 2,909 2,812 2,824 2,950
------- ------- ------- ------- -------
Total assets.................................. $74,769 $72,778 $72,304 $71,578 $71,078
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $15,691 $15,329 $15,450 $15,372 $15,346
Savings accounts.................................. 4,756 4,842 5,085 5,266 5,331
Time deposits of individuals...................... 18,566 18,896 19,561 19,532 19,605
Other time deposits............................... 1,940 1,538 1,579 1,628 1,518
Deposits in overseas offices...................... 1,598 1,149 1,030 1,068 931
Federal funds borrowed............................ 2,687 1,896 1,358 1,464 1,818
Security repurchase agreements.................... 3,194 2,691 2,615 2,941 3,696
Borrowed funds.................................... 3,499 3,291 3,328 3,489 2,599
Long-term debt.................................... 6,264 6,118 5,605 4,485 3,644
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 58,195 55,750 55,611 55,245 54,488
Noninterest bearing deposits...................... 9,411 9,406 9,228 9,173 9,117
Acceptances outstanding........................... 41 69 66 73 82
Accrued expenses and other liabilities............ 846 1,360 1,202 1,091 1,114
------- ------- ------- ------- -------
Total liabilities............................. 68,493 66,585 66,107 65,582 64,801
Stockholders' equity.......................... 6,276 6,193 6,197 5,996 6,277
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $74,769 $72,778 $72,304 $71,578 $71,078
======= ======= ======= ======= =======
Net interest income ...........................................................................
Interest spread ...............................................................................
Contribution of noninterest bearing sources of
funds.......................................................................................
Net interest margin ...........................................................................
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Quarterly Interest Average Annualized Rate
---------------------------------------------------- -----------------------------------------------
1998 1997 1998 1997
-------- ----------------------------------------- ------- -------------------------------------
First Fourth Third Second FIRST First Fourth Third Second First
Quarter Quarter Quarter Quarter QUARTER Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 525.2 $ 526.5 $ 516.6 $ 505.9 $ 480.2 8.56% 8.69% 8.75% 8.70% 8.56%
212.6 214.6 223.9 221.4 218.5 7.58 7.69 7.77 7.81 7.71
271.6 273.6 272.3 263.3 257.1 8.78 8.86 8.86 8.80 8.69
67.3 68.9 69.9 72.3 71.1 14.03 13.84 13.77 13.91 13.22
67.3 67.1 63.7 59.6 57.3 9.08 9.15 9.11 9.13 9.26
-------- -------- -------- -------- --------
1,144.0 1,150.7 1,146.4 1,122.5 1,084.2 8.64 8.74 8.77 8.76 8.64
207.4 197.6 199.6 203.1 197.1 6.45 6.49 6.46 6.56 6.43
17.3 17.4 17.4 17.2 15.7 8.26 8.54 8.59 8.98 8.57
-------- -------- -------- -------- --------
224.7 215.0 217.0 220.3 212.8 6.56 6.62 6.59 6.70 6.55
.8 .8 1.3 1.3 1.1 4.78 5.48 5.86 5.76 5.31
5.2 3.6 4.2 3.8 4.0 5.56 5.57 5.82 5.31 5.43
4.2 3.4 3.9 3.9 5.3 13.65 11.91 7.69 7.17 9.39
-------- -------- -------- -------- --------
$1,378.9 $1,373.5 $1,372.8 $1,351.8 $1,307.4 8.20% 8.31% 8.31% 8.32% 8.20%
$ 121.3 $ 124.6 $ 124.1 $ 118.1 $ 113.2 3.14% 3.23% 3.19% 3.08% 2.99%
25.8 27.8 29.7 30.8 31.9 2.20 2.28 2.32 2.35 2.43
252.4 267.7 273.8 269.6 267.2 5.51 5.63 5.56 5.53 5.53
25.9 19.9 20.4 20.9 18.6 5.42 5.17 5.18 5.14 4.96
21.0 15.3 13.7 14.3 11.7 5.33 5.28 5.28 5.36 5.08
36.4 26.8 19.3 20.4 25.0 5.50 5.60 5.64 5.59 5.60
37.3 32.0 31.4 36.1 44.7 4.67 4.73 4.77 4.92 4.84
51.3 47.8 47.9 50.4 34.0 5.93 5.76 5.71 5.79 5.30
99.2 99.8 91.0 73.3 58.9 6.42 6.47 6.44 6.56 6.56
-------- -------- -------- -------- --------
$ 670.6 $ 661.7 $ 651.3 $ 633.9 $ 605.2 4.67% 4.71% 4.65% 4.60% 4.50%
$ 708.3 $ 711.8 $ 721.5 $ 717.9 $ 702.2
======== ======== ======== ======== ========
........................................................ 3.53% 3.60% 3.66% 3.72% 3.70%
........................................................ .66 .72 .72 .69 .68
----- ----- ----- ----- -----
........................................................ 4.19% 4.32% 4.38% 4.41% 4.38%
===== ===== ===== ===== =====
</TABLE>
17
<PAGE> 19
CORPORATE INVESTOR INFORMATION
CORPORATE HEADQUARTERS
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Operations
Department 5352
P.O. Box 92301
Cleveland, Ohio 44193-0900
1-800-622-6757
INVESTOR CONTACT
Julie I. Sabroff
Manager, Investor Relations
Department 2145
P.O. Box 5756
Cleveland, Ohio 44101-0756
1-800-622-4204
COMMON STOCK LISTING
National City Corporation common stock is traded on the New York Stock
Exchange under the symbol NCC. The stock is abbreviated in financial
publications as NTLCITY.
DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
Participating common stockholders receive a three percent discount from
market price when reinvesting their National City dividends in additional
shares. Participants may also make optional cash purchases of common stock
at a three percent discount from market price and pay no brokerage
commissions. To obtain our Plan prospectus and authorization card, call
1-800-622-6757
INTERNET ADDRESS
www.national-city.com
DEBT RATINGS
<TABLE>
<CAPTION>
MOODY'S 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 A
</TABLE>
* Includes the following subsidiaries:
National City Bank
National City Bank of Kentucky
National City Bank of Indiana
National City Bank of Pennsylvania
First of America Bank, N.A.
Fort Wayne National Bank
Duff & Phelps ratings for certificates of deposit apply only to the banks
in Ohio, Kentucky and Indiana. Duff & Phelps subordinated bank note ratings
apply only to the banking subsidiaries in Ohio.
18
<PAGE> 20
EXHIBITS
<TABLE>
<S> <C>
Exhibit 10.31:
Employment Agreement dated November 30, 1997 by and
between National City Corporation and Richard F.
Chormann (filed as Exhibit 10.31).
Exhibit 27:
Financial Data Schedule
Exhibits not included in this document are 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.
</TABLE>
REPORTS ON FORM 8-K:
January 13, 1998: On January 12, 1998, National City announced the signing
of a definitive agreement to acquire Fort Wayne National Corporation, a $3.3
billion asset bank holding company headquartered in Fort Wayne, Indiana.
March 9, 1998: On March 5, 1998, National City announced that the proposed
mergers of First of America Bank Corporation (FOA) and Fort Wayne National
Corporation (FWNC) had each been approved by the Board of Governors of the
Federal Reserve and that the stockholder meetings for National City, FOA and
FWNC had all been scheduled for March 30, 1998. The filing also stated that,
based on the expected transaction closing dates of March 30, 1998 for FWNC and
March 31, 1998 for FOA, that FWNC and FOA stockholders would be eligible to
receive the National City common stock dividend to be declared in late March.
March 31, 1998: On March 30, 1998, National City announced the actions that
took place at its annual meeting of stockholders held earlier that day. National
City also announced that the shareholders of Fort Wayne National Corporation and
First of America Bank Corporation had each approved the respective mergers of
those companies with and into National City and that the transactions were
expected to close no later than March 31, 1998. Further, National City announced
that at the Board of Directors meeting held immediately following the annual
meeting of stockholders the Board authorized the repurchase of up to two million
shares of common stock and that the authorization would expire upon consummation
of the merger with First of America Bank Corporation. The Board also declared a
cash dividend of $.46 per share on National City's common stock.
FORM 10-Q -- MARCH 31, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY CORPORATION
Date: May 14, 1998
/s/ ROBERT G. SIEFERS
- ---------------------------------------------------------
Robert G. Siefers
Vice Chairman and
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
19
<PAGE> 21
<TABLE>
<S> <C>
National City Logo Bulk Rate
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT by and between National City Corporation, a Delaware
corporation (the "Company") and Richard F. Chormann (the "Executive") dated as
of the 30th day of November, 1997.
The Company has determined that it is in the best interests of the
Company and its respective shareholders to assure that First of America Bank
Corporation, a Michigan corporation ("FOA") will have the continued dedication
of the Executive pending the merger of the Company and FOA (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of November 30, 1997 and
to provide the surviving corporation after the Merger with continuity of
management. Therefore, in order to accomplish these objectives, the Company has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EFFECTIVE DATE. The "Effective Date" shall mean the effective date
of the Merger.
2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to enter into the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary thereof
(the "Employment Period").
3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) (A) During the
Employment Period, the Executive shall serve as Vice Chairman of the Company and
Chairman of its Michigan bank with such authority, duties and responsibilities
as are commensurate with such position and as may be consistent with such
position and (B) the Executive's services shall be performed in Kalamazoo,
Michigan. The Executive shall serve on the Company's Board of Directors and on
the Executive Committee thereof during the Employment Period.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable
<PAGE> 2
best efforts to perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company. In this regard, the Executive shall continue to
serve on the Board of Directors of VISA, the Bankers' Roundtable and the
International Finance Counsel on the same basis as immediately prior to the
Effective Date.
(b) COMPENSATION. (i) INITIAL PAYMENT. On the Effective Date, the
Company shall make a lump sum payment to the Executive equal to the cash payment
to which the Executive would have been entitled to receive pursuant to the
Management Continuity Agreement between the Company and the Executive dated as
of November 20, 1996 had he been terminated by the Company without Cause
immediately after the Effective Date.
(ii) BASE SALARY. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of no less than the base
salary paid to the Executive immediately prior to the Effective Date, or if
greater, 90% of the annual base salary paid to the Chief Executive Officer of
the Company. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(iii) ANNUAL BONUS. During the Employment Period, the Executive
shall receive an annual cash bonus
2
<PAGE> 3
("Annual Bonus") in an amount such that the sum of his Annual Base Salary and
the Annual Bonus is the higher of (x) the sum of the annual base salary and
annual bonus paid to the Executive with respect to calendar year 1997, and (y)
90% of the sum of the annual base salary and annual bonus paid to the Chief
Executive Officer of the Company with respect to the year in question.
(iv) INCENTIVE AWARDS. On the Effective Date, the Company shall
grant the Executive 75,000 shares of restricted stock (the "Restricted Stock")
and an option to acquire 150,000 shares of the Company's stock (the "Option")
pursuant to the terms of the Company's stock incentive plan. The Option will
have an exercise price equal to the fair market value of the stock subject
thereto on the date of grant. Except as otherwise provided herein, the Option
and the Restricted Stock shall vest in three equal installments, on the first,
second and third anniversaries of the date of grant or, if earlier, upon a
change of control of the Company (as defined in the Company's stock incentive
plan).
(v) RETIREMENT AND DEATH BENEFITS. Upon termination of employment
for any reason (the "Pension Commencement Date"), the Executive shall be paid an
annual retirement benefit of $1,250,000 for his life less any benefit payable
pursuant to the Company's and FOA's qualified retirement plan and in lieu of any
benefit to which he might be entitled under FOA's Supplemental Retirement Plan
or any nonqualified retirement plan of the Company (the "Retirement Benefit").
Upon the Executive's death, his current spouse, should she survive the
Executive, shall be paid an annual benefit of 75% of the Retirement Benefit for
her life; provided that in the event that both the Executive and his spouse
should die before the tenth anniversary of the Pension Commencement Date, the
Retirement Benefit will continue to be paid to the beneficiaries of the
Executive or his spouse, as the case may be, until the tenth anniversary of the
Pension Commencement Date. If not provided by FOA prior to the Effective Date,
the Company shall provide the Executive with a life insurance policy on his life
with a death benefit of $10,000,000 pursuant to a split-dollar arrangement
providing for an initial one-time premium not to exceed $3.8 million.
(vi) OTHER EMPLOYEE BENEFIT PLANS. During the Employment Period,
except as otherwise expressly provided herein, the Executive shall be entitled
to participate in all employee benefit, welfare and other plans, practices,
policies and programs applicable to the Chief Executive Officer of the Company
on a basis no less favorable than that provided to the Chief Executive Officer
of the Company.
3
<PAGE> 4
(vii) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(viii) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, payment of
club dues, use of corporate aircraft, and use of an automobile and payment of
related expenses, to the extent applicable to the Chief Executive Officer of the
Company.
(ix) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(x) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company and its affiliated companies as in effect with respect
to the Chief Executive Officer of the Company.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
4
<PAGE> 5
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the continued failure of the Executive to perform substantially
the Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company,
or
(iii) conviction of a felony or guilty or nolo contendere plea by
the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean in the absence of a written consent of the Executive:
5
<PAGE> 6
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 3(a) of this Agreement, or any other action by the Company which, in
the Executive's reasonable judgment, results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 3(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location more than 35 miles from that provided in Section 3(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
10(c) of this Agreement.
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more
6
<PAGE> 7
than thirty days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein within 30 days of such notice, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER
THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, and (2) the
product of (x) the highest annual bonus paid to the Executive for any
of the three years prior to the Effective Date (the "Recent Annual
Bonus") and (y) a fraction, the numerator of which is the number of
days in the fiscal year in which the Date of Termination occurs through
the Date of Termination, and the denominator of which is 365, in each
case to the extent not theretofore paid (the sum of the amounts
described in clauses (1) and (2), shall be hereinafter referred to as
the "Accrued Obligations"); and
B. the amount equal to the product of (1) the number of months and
portions thereof from the Date of Termination until the third
anniversary of the
7
<PAGE> 8
Effective Date, divided by twelve and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Recent Annual Bonus; and
(ii) for the remainder of the Executive's life and that of his
current spouse, the Company shall continue to provide medical and dental
benefits to the Executive, his spouse and dependents at the Company's cost on a
basis such benefits were provided to the Executive immediately prior to the Date
of Termination (collectively "Medical Benefits");
(iii) the Option and the Restricted Stock shall vest immediately;
and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies through the Date of Termination (such other
amounts and benefits shall be hereinafter referred to as the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. In addition, the Option and the Restricted Stock
shall vest immediately. Accrued Obligations shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this Section 5(b) shall include death
benefits as in effect on the date of the Executive's death with respect to the
Chief Executive Officer of the Company and his beneficiaries and the continued
provision of Medical Benefits to the Executive's current spouse.
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits. In
addition, the Option and the Restricted Stock shall vest immediately. Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this
8
<PAGE> 9
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits as in effect
at any time thereafter generally with respect to the Chief Executive Officer of
the Company and the continued provision of Medical Benefits to the Executive and
his current spouse.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y)
provision of Medical Benefits to the Executive and his current spouse, and (z)
Other Benefits, in each case to the extent theretofore unpaid.
6. NON-EXCLUSIVITY OF RIGHTS. Except as specifically provided, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 11(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company 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
Company 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 Company, the Executive or
others of the validity or
9
<PAGE> 10
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").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (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 receive an 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. Notwithstanding the foregoing
provisions of this Section 8(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount (the "Reduced Amount") that could be paid to the Executive such
that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by KPMG Peat
Marwick LLP or such other certified public accounting firm reasonably acceptable
to the Company as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of
10
<PAGE> 11
notice from the Executive that there has been a Payment, or such earlier time as
is requested by the Company. All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 8, shall be paid by the Company to the Executive within five days
of (i) the later of the due date for the payment of any Excise Tax, and (ii) the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
11
<PAGE> 12
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a
12
<PAGE> 13
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. CONFIDENTIAL INFORMATION. (a) The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this Section 9,
the Executive agrees that the Company shall be entitled to injunctive relief in
a court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 9.
10. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable 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 Company and its successors and assigns.
13
<PAGE> 14
(c) The Company 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 Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
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.
11. 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:
14
<PAGE> 15
IF TO THE EXECUTIVE:
IF TO THE COMPANY:
National City Center
PO Box 5756
Cleveland, Ohio 44101
Attention: 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) The 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 Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will",
and prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time, in which case the Executive
shall have no further rights under this Agreement. From and after the Effective
Date this Agreement shall supersede any other employment, severance or change of
control agreement between the parties with respect to the subject matter hereof.
15
<PAGE> 16
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ RICHARD F. CHORMAN
---------------------------------------
RICHARD F. CHORMANN
NATIONAL CITY CORPORATION
By /s/ Vincent A. DiGirolamo
------------------------------------
Vincent A. DiGirolamo, Vice Chairman
16
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