<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 1-10074
NATIONAL CITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
34-1111088
(I.R.S. Employer
Identification No.)
1900 EAST NINTH STREET
CLEVELAND, OHIO 44114
(Address of principal executive office)
216-575-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practicable date.
Common stock - $4.00 Par Value
Outstanding as of October 30, 1998 - 330,748,919
<PAGE> 2
[NATIONAL CITY CORPORATION LOGO]
QUARTER ENDED SEPTEMBER 30, 1998
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
Financial Highlights........................................ 3
Financial Statements (Item 1):
Consolidated Statements of Income....................... 4
Consolidated Balance Sheets............................. 5
Consolidated Statements of Cash Flows................... 6
Consolidated Statements of Changes in Stockholders'
Equity................................................. 7
Notes to Consolidated Financial Statements.............. 7
Management's Discussion and Analysis (Item 2)............... 13
Consolidated Average Balance Sheets......................... 19
Daily Average Balances/Net Interest Income/Rates............ 20
PART II -- OTHER INFORMATION
Changes in Securities (Item 2)
Refer to Reports on Form 8-K below and Note 11 on page 11.
Exhibits and Reports on Form 8-K (Item 6)
Exhibit 27:
Financial Data Schedule
Reports on Form 8-K:
July 15, 1998: National City Corporation reported
earnings for the second quarter and first six months
of fiscal year 1998.
Signature................................................... 23
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Percent Percent
1998 1997 Change 1998 1997 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
- ---------------------------
Net interest income -- fully
taxable equivalent............ $745,850 $721,464 3% $2,194,041 $2,141,567 2%
Provision for loan losses....... 45,212 59,186 (24) 144,512 172,463 (16)
Fees and other income........... 555,517 435,589 28 1,603,417 1,264,516 27
Securities gains................ 64,451 53 -- 85,217 47,181 81
Noninterest expense (excluding
merger and restructuring)..... 782,400 672,070 16 2,230,881 1,987,721 12
Merger and restructuring
expense....................... -- -- -- 274,698 39,640 --
Net income...................... 344,456 283,053 22 779,422 830,050 (6)
Net income before merger and
restructuring expense......... 344,456 283,053 22 973,307 855,562 14
PERFORMANCE RATIOS:
- -------------------------
Net interest margin............. 4.10% 4.38% 4.15% 4.38%
Return on average assets*....... 1.69 1.55 1.65 1.60
Return on average common
equity*....................... 19.00 18.12 19.08 18.58
Return on average total
equity*....................... 18.93 18.12 19.04 18.58
PER SHARE MEASURES:
- -------------------------
Net income per common share:....
Basic......................... $1.05 $.88 19% $2.39 $2.56 (7)%
Diluted....................... 1.03 .87 18 2.35 2.52 (7)
Diluted-adjusted*............. 1.03 .87 18 2.94 2.60 13
Dividends paid per common
share......................... .48 .425 13 1.40 1.245 12
Book value per common share..... 21.91 19.30 14
Market value per common share
(close)....................... 65.94 61.56 7
Average shares -- diluted....... 336,348,661 326,344,073 3 331,617,449 329,250,450 1
AVERAGE BALANCES
- ----------------------
(IN MILLIONS):
--------------
Assets.......................... $81,062 $72,304 12% $78,683 $71,656 10%
Loans........................... 57,628 52,035 11 55,871 51,350 9
Securities...................... 13,614 13,166 3 13,710 13,116 5
Earning assets.................. 72,529 65,774 10 70,488 65,061 8
Deposits........................ 54,610 51,933 5 53,658 51,936 3
Common stockholders' equity..... 7,183 6,197 16 6,809 6,157 11
Stockholders' equity............ 7,220 6,197 16 6,833 6,157 11
AT PERIOD END:
- -----------------
Equity to assets ratio.......... 8.75% 8.27%
Tier 1 capital ratio............ 8.81 9.27
Total risk-based capital
ratio......................... 12.69 13.67
Leverage ratio.................. 6.98 7.63
Common shares outstanding....... 330,336,278 318,411,870 4%
Full-time equivalent
employees..................... 42,006 38,631 9
ASSET QUALITY:
- -----------------
Net charge-offs to loans
(annualized).................. .31% .41% .34% .40%
Loan loss reserve to loans...... 1.66 1.82
Nonperforming assets to loans &
OREO.......................... .43 .49
- -------------------------------------------------------------------------------------------------------------
</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 after-tax merger and restructuring expenses, which totaled $193.9
million and $25.5 million for the first nine months of 1998 and 1997,
respectively.
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In Thousands Except Per Share Amounts) September 30 September 30
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
<CAPTION>
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans................................... $1,229,009 $1,142,610 $3,579,665 $3,342,206
Securities:
Taxable.............................. 207,384 199,062 621,024 598,171
Exempt from Federal income taxes..... 13,145 11,575 39,307 33,559
Federal funds sold and security resale
agreements........................... 16,642 5,490 30,941 15,703
Other short-term investments............ 4,302 3,822 13,481 12,166
---------- ---------- ---------- ----------
Total interest income.............. 1,470,482 1,362,559 4,284,418 4,001,805
INTEREST EXPENSE
Deposits................................ 475,951 461,822 1,394,476 1,357,929
Federal funds borrowed and security
repurchase agreements................ 96,416 50,751 251,280 177,022
Borrowed funds.......................... 38,078 47,860 137,918 132,298
Long-term debt and capital securities... 123,672 90,945 336,281 223,156
---------- ---------- ---------- ----------
Total interest expense............. 734,117 651,378 2,119,955 1,890,405
---------- ---------- ---------- ----------
NET INTEREST INCOME....................... 736,365 711,181 2,164,463 2,111,400
PROVISION FOR LOAN LOSSES................. 45,212 59,186 144,512 172,463
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses................. 691,153 651,995 2,019,951 1,938,937
NONINTEREST INCOME
Item processing revenue................. 124,268 97,396 354,494 274,289
Service charges on deposit accounts..... 100,316 93,585 291,515 268,907
Trust and investment management fees.... 74,565 68,611 231,248 205,815
Card-related fees....................... 56,415 53,598 152,689 151,876
Mortgage banking revenue................ 79,362 42,734 237,835 110,237
Other................................... 120,591 79,665 335,636 253,392
---------- ---------- ---------- ----------
Total fees and other income........ 555,517 435,589 1,603,417 1,264,516
Securities gains........................ 64,451 53 85,217 47,181
---------- ---------- ---------- ----------
Total noninterest income........... 619,968 435,642 1,688,634 1,311,697
NONINTEREST EXPENSE
Salaries and other personnel............ 409,279 363,028 1,189,707 1,070,357
Equipment............................... 51,054 48,427 154,253 150,501
Net occupancy........................... 51,737 48,141 150,145 145,878
Assessments and taxes................... 15,395 13,631 39,181 45,027
Merger and restructuring................ -- -- 274,698 39,640
Other................................... 254,935 198,843 697,595 575,958
---------- ---------- ---------- ----------
Total noninterest expense.......... 782,400 672,070 2,505,579 2,027,361
---------- ---------- ---------- ----------
Income before income taxes................ 528,721 415,567 1,203,006 1,223,273
Income tax expense........................ 184,265 132,514 423,584 393,223
---------- ---------- ---------- ----------
NET INCOME................................ $344,456 $283,053 $779,422 $830,050
========== ========== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK..... $343,910 $283,053 $777,777 $830,050
========== ========== ========== ==========
NET INCOME PER COMMON SHARE
Basic................................... $1.05 $.88 $2.39 $2.56
Diluted................................. 1.03 .87 2.35 2.52
AVERAGE COMMON SHARES OUTSTANDING
Basic................................... 329,692 321,097 324,751 324,017
Diluted................................. 336,349 326,344 331,617 329,250
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31 September 30
(DOLLARS IN THOUSANDS) 1998 1997 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Loans:
Commercial.................................... $18,592,686 $16,280,575 $15,674,008
Real estate construction...................... 1,343,718 1,302,305 1,230,736
Lease financing............................... 809,301 635,957 568,016
Commercial real estate........................ 6,475,950 6,410,531 6,589,262
Residential real estate....................... 9,435,870 9,987,066 10,686,413
Mortgage loans held for sale.................. 2,748,139 1,249,708 1,126,903
Consumer...................................... 14,291,552 12,357,229 12,354,750
Credit card................................... 1,797,840 2,047,769 1,949,374
Home equity................................... 3,188,590 2,972,987 2,856,747
----------- ----------- -----------
Total loans.............................. 58,683,646 53,244,127 53,036,209
Allowance for loan losses................ 975,100 941,874 967,797
----------- ----------- -----------
Net loans................................ 57,708,546 52,302,253 52,068,412
Securities available for sale, at market......... 15,424,507 13,797,566 13,945,643
Federal funds sold and security resale
agreements.................................... 1,146,383 542,156 426,560
Other short-term investments..................... 100,292 84,204 140,347
Cash and demand balances due from banks.......... 3,406,647 4,319,309 3,580,501
Properties and equipment......................... 1,134,480 1,031,912 1,038,721
Customers' acceptance liability.................. 29,531 45,823 68,741
Accrued income and other assets.................. 4,184,293 3,655,858 3,079,461
----------- ----------- -----------
TOTAL ASSETS............................. $83,134,679 $75,779,081 $74,348,386
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing)............ $10,158,773 $10,287,007 $ 9,461,158
NOW and money market accounts.................... 17,187,380 15,547,560 15,316,369
Savings accounts................................. 4,599,228 4,781,806 4,966,820
Time deposits of individuals..................... 18,013,811 18,631,280 19,485,848
Other time deposits.............................. 2,475,572 1,633,282 1,558,133
Deposits in overseas offices..................... 1,793,442 1,736,419 1,009,934
----------- ----------- -----------
Total deposits........................... 54,228,206 52,617,354 51,798,262
Federal funds borrowed and security repurchase
agreements.................................... 8,662,013 4,810,953 3,864,531
Borrowed funds................................... 3,122,562 4,264,556 5,112,241
Long-term debt................................... 7,788,754 5,647,302 5,132,488
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trusts
holding solely debentures of the
Corporation................................... 679,894 649,892 649,892
Acceptances outstanding.......................... 29,531 45,823 68,741
Accrued expenses and other liabilities........... 1,350,324 1,584,941 1,576,822
----------- ----------- -----------
TOTAL LIABILITIES........................ 75,861,284 69,620,821 68,202,977
Stockholders' Equity:
Preferred stock.................................. 36,556 -- --
Common stock..................................... 7,236,839 6,158,260 6,145,409
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY............... 7,273,395 6,158,260 6,145,409
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $83,134,679 $75,779,081 $74,348,386
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands) Nine Months Ended September 30
- ----------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 779,422 $ 830,050
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provision for loan losses............................ 144,512 172,463
Depreciation and amortization........................ 114,068 109,516
Amortization of intangibles and servicing rights..... 94,693 56,893
Amortization of securities discount and premium...... 4,094 (1,772)
Securities gains..................................... (85,217) (47,086)
Other gains, net..................................... (59,341) (42,760)
Net decrease in trading account assets............... 12,209 72,351
Originations and purchases of mortgage loans held for
sale.............................................. (12,542,367) (2,570,244)
Proceeds from sales of mortgage loans held for
sale.............................................. 11,059,557 2,418,098
(Increase) in interest receivable.................... (17,649) (97,145)
(Decrease) increase in interest payable.............. (22,274) 47,205
Net change in other assets/liabilities............... (256,436) 279,961
------------ -----------
Net Cash (Used) Provided by Operating
Activities...................................... (774,729) 1,227,530
LENDING AND INVESTING ACTIVITIES
Net (increase) decrease in short-term investments......... (612,706) 2,475
Purchases of securities................................... (9,832,244) (4,425,931)
Proceeds from sales of securities......................... 6,621,955 2,744,583
Proceeds from maturities and prepayments of securities.... 2,625,151 1,591,961
Net (increase) in loans................................... (2,192,774) (2,247,150)
Proceeds from sales of loans.............................. 176,032 109,177
Net (increase) in properties and equipment................ (163,142) (75,901)
Acquisitions.............................................. 157,632 --
------------ -----------
Net Cash (Used) by Lending and Investing
Activities...................................... (3,220,096) (2,300,786)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in Federal funds borrowed and
security repurchase agreements......................... 3,566,443 (1,540,190)
Net (decrease) increase in borrowed funds................. (1,172,528) 2,408,242
Net (decrease) in demand, savings, NOW, money market
accounts, and deposits in overseas offices............. (60,653) (1,424,423)
Net (decrease) in time deposits........................... (878,510) (392,636)
Repayment of long-term debt............................... (1,605,331) (132,324)
Proceeds from issuance of long-term debt, net............. 3,658,666 2,400,089
Dividends paid............................................ (436,984) (356,583)
Issuances of common stock................................. 157,060 65,273
Repurchase of common stock................................ (146,000) (770,893)
------------ -----------
Net Cash Provided by Deposit and Financing
Activities...................................... 3,082,163 256,555
------------ -----------
Net (Decrease) in Cash and Demand Balances Due From
Banks.................................................. (912,662) (816,701)
Cash and Demand Balances Due From Banks, January 1........ 4,319,309 4,141,244
------------ -----------
Cash and Demand Balances Due From Banks, September 30..... $ 3,406,647 $ 3,324,543
============ ===========
SUPPLEMENTAL DISCLOSURES
Interest paid............................................. $ 2,143,791 $ 1,867,082
Income taxes paid......................................... 146,054 302,974
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.......................... 830,050
Other comprehensive income, net of
tax............................... 153,187
Total comprehensive income............
Common dividends declared, $1.26 per
share............................... (272,264)
Common dividends declared of pooled
company, prior to merger............ (85,935)
Stock dividend declared of pooled
company, prior to merger............ 293,963 (293,963)
Issuance of 2,847,959 common shares
under corporate stock and dividend
reinvestment plans.................. 11,392 53,881
Issuance of 301,662 shares pursuant to
acquisitions........................ 1,207 8,507
Purchase of 15,600,066 common
shares.............................. (62,400) (185,868) (522,609)
------- ---------- ---------- ---------- --------
Balance September 30, 1997.............. $ -- $1,273,648 $1,106,453 $3,455,937 $309,371
======= ========== ========== ========== ========
Balance January 1, 1998................. $ -- $1,262,790 $1,108,920 $3,440,763 $345,787
Comprehensive Income:
Net income.......................... 779,422
Other comprehensive income, net of
tax
Unrealized gains on securities of
$63,453 net of reclassification
adjustment for gains included in
net income of $55,391............. 8,062
Total comprehensive income............
Common dividends declared, $1.42 per
share............................... (467,424)
Preferred dividends declared.......... (1,645)
Issuance of 3,815,301 common shares
under corporate stock and dividend
reinvestment plans.................. 15,261 141,799
Net issuance of 10,810,084 common
shares and 739,976 preferred shares
pursuant to acquisitions............ 36,999 43,240 690,245 (130,824)
Conversion of 8,850 shares of
preferred stock to 13,405 common
shares.............................. (443) 54 389
------- ---------- ---------- ---------- --------
Balance September 30, 1998.............. $36,556 $1,321,345 $1,941,353 $3,620,292 $353,849
======= ========== ========== ========== ========
<CAPTION>
(Dollars in Thousands Except Per
Share Amounts) Total
<S> <C>
- -------------------------------------------------------------------
Balance January 1, 1997................. $6,216,261
Comprehensive Income:
Net income.......................... 830,050
Other comprehensive income, net of
tax............................... 153,187
----------
Total comprehensive income............ 983,237
Common dividends declared, $1.26 per
share............................... (272,264)
Common dividends declared of pooled
company, prior to merger............ (85,935)
Stock dividend declared of pooled
company, prior to merger............ --
Issuance of 2,847,959 common shares
under corporate stock and dividend
reinvestment plans.................. 65,273
Issuance of 301,662 shares pursuant to
acquisitions........................ 9,714
Purchase of 15,600,066 common
shares.............................. (770,877)
----------
Balance September 30, 1997.............. $6,145,409
==========
Balance January 1, 1998................. $6,158,260
Comprehensive Income:
Net income.......................... 779,422
Other comprehensive income, net of
tax
Unrealized gains on securities of
$63,453 net of reclassification
adjustment for gains included in
net income of $55,391............. 8,062
----------
Total comprehensive income............ 787,484
Common dividends declared, $1.42 per
share............................... (467,424)
Preferred dividends declared.......... (1,645)
Issuance of 3,815,301 common shares
under corporate stock and dividend
reinvestment plans.................. 157,060
Net issuance of 10,810,084 common
shares and 739,976 preferred shares
pursuant to acquisitions............ 639,660
Conversion of 8,850 shares of
preferred stock to 13,405 common
shares.............................. --
----------
Balance September 30, 1998.............. $7,273,395
==========
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on a basis consistent with accounting
principles applied in the prior periods and include all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME: In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income. This statement establishes standards
for reporting the components of comprehensive income and requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be
7
<PAGE> 9
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
became effective beginning with 1998 interim reporting and have no impact on
financial position or results of operations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: In June 1998,
the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The provisions of this statement require that derivative instruments
be carried at fair value on the balance sheet. The statement continues to allow
derivative instruments to be used to hedge various risks and sets forth specific
criteria to be used to determine when hedge accounting can be used. The
statement also provides for offsetting changes in fair value or cash flows of
both the derivative and the hedged asset or liability to be recognized in
earnings in the same period; however, any changes in fair value or cash flow
that represent the ineffective portion of a hedge are required to be recognized
in earnings and cannot be deferred. For derivative instruments not accounted for
a hedges, changes in fair value are required to be recognized in earnings.
The provisions of this statement become effective for quarterly and annual
reporting beginning January 1, 2000. Although the statement allows for early
adoption in any quarterly period after June 1998, National City has no plans to
adopt the provisions of SFAS No. 133 prior to the effective date. The impact of
adopting the provisions of this statement on National City's financial position,
results of operations and cash flow subsequent to the effective date is not
currently estimable and will depend on the financial position of the Corporation
and the nature and purpose of the derivative instruments in use by management at
that time.
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 are not 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 Nine Months
Ended Ended
September 30, September 30,
1997 1997
- -------------------------------------------------------------
<S> <C> <C>
Net income
National City............... $204,009 $598,427
First of America............ 79,044 231,623
-------- --------
Combined.................... $283,053 $830,050
======== ========
Diluted net income per common
share
National City............... $.93 $2.70
First of America............ .89 2.59
Combined.................... .87 2.52
</TABLE>
Merger and restructuring expenses for the first nine months of 1998 totaled
$274.7 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. An additional $100 million of merger and restructuring
costs, consisting primarily of costs related to system conversion activities,
are expected to be incurred in the fourth quarter 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 or its subsidiaries are involved in a
number of legal proceedings arising out of their businesses and regularly face
various claims, including unasserted claims, which may ultimately result in
litigation. While in management's opinion the financial statements would not be
materially affected by the outcome of any present legal proceedings,
commitments, or asserted claims, management is aware of a potential claim,
currently unasserted, by the Internal Revenue Service concerning the
Corporation's corporate-owned life insurance programs. While the exact nature of
the potential claim is unknown, management believes that it has complied with
all applicable tax laws and regulations with respect to such programs and will
vigorously contest any claim.
8
<PAGE> 10
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30
-------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------
Balance at beginning of year............. $941,874 $958,739
Provision................................ 144,512 172,463
Reserves acquired (sold)................. 29,291 (8,133)
Charge-offs:
Commercial............................. 35,068 44,371
Real estate -- construction............ 33 211
Real estate -- commercial.............. 7,407 6,455
Real estate -- residential............. 5,485 4,954
Consumer............................... 107,723 124,181
Credit card............................ 71,838 83,266
Home equity............................ 7,079 2,905
-------- --------
Total charge-offs...................... 234,633 266,343
Recoveries:
Commercial............................. 22,632 22,128
Real estate -- construction............ 932 1,648
Real estate -- commercial.............. 5,424 6,216
Real estate -- residential............. 363 1,127
Consumer............................... 46,690 62,640
Credit card............................ 15,419 16,171
Home equity............................ 2,596 1,141
-------- --------
Total recoveries....................... 94,056 111,071
-------- --------
Net charge-offs.......................... 140,577 155,272
-------- --------
Balance at end of period................. $975,100 $967,797
======== ========
</TABLE>
The allowance for loan losses is maintained at a level believed adequate to
absorb estimated probable credit losses. Both the provision and allowance for
loan losses are based upon an analysis of individual credits, adverse situations
that could affect a borrower's ability to repay (including the timing of future
payments), prior and current loss experience, overall growth in the portfolio,
current economic conditions, and other factors. This evaluation is inherently
subjective and it requires material estimates, including the amounts and timing
of future cash flows expected to be received on impaired loans, that could be
susceptible to change.
Table 5 on page 15 provides detail regarding nonperforming loans. At
September 30, 1998 and December 31, 1997, loans that were considered to be
impaired under SFAS No. 114 totaled $13.7 million and $28.8 million,
respectively. All impaired loans are included in nonperforming assets. The
related allowance allocated to these loans was $7.7 million and $10.1 million,
respectively. The contractual interest due and actual interest recorded on
nonperforming assets, for the nine months ended September 30, 1998, was $39.4
million and $8.4 million, respectively.
6. SECURITIES
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
U.S. Treasury and
Federal agency
debentures.......... $ 3,085,077 $ 94,062 $ -- $ 3,179,139
Mortgage-backed
securities.......... 7,752,728 143,086 15,625 7,880,189
Asset-backed and
corporate debt
securities.......... 2,327,773 26,383 3,933 2,350,223
States and political
subdivisions........ 957,835 55,891 466 1,013,260
Other................ 756,711 245,106 121 1,001,696
----------- -------- ------- -----------
Total securities.... $14,880,124 $564,528 $20,145 $15,424,507
=========== ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------------
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
U.S. Treasury and
Federal agency
debentures.......... $ 2,686,364 $ 8,508 $13,063 $ 2,681,809
Mortgage-backed
securities.......... 7,532,489 74,237 17,955 7,588,771
Asset-backed and
corporate debt
securities.......... 1,727,553 10,467 1,511 1,736,509
States and political
subdivisions........ 835,006 29,393 405 863,994
Other................ 685,554 389,494 488 1,074,560
----------- -------- ------- -----------
Total securities.... $13,466,966 $512,099 $33,422 $13,945,643
=========== ======== ======= ===========
</TABLE>
Other securities include the Corporation's internally-managed equity
portfolio of bank and thrift common stock investments, which had an amortized
cost and market value of $354.4 million and $591.1 million, respectively, as of
September 30, 1998.
For the nine months ended September 30, 1998 and 1997, gross gains of $113.5
million and $57.3 million, and gross losses of $28.3 million and $10.1 million
were realized, respectively, for the entire securities portfolio.
At September 30, 1998, the unrealized appreciation in securities available
for sale included in stockholders' equity totaled $353.9 million, net of tax,
compared to unrealized appreciation of $309.4 million, net of tax, at September
30, 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 to changes in market interest rates.
Management has concluded that current declines in value are temporary and,
accordingly, no valuation adjustments have been included as a charge to
earnings.
As of September 30, 1998, there were no securities of a single issuer, other
than U.S. Treasury securities and other U.S. government agencies, which exceeded
10% of stockholders' equity.
9
<PAGE> 11
7. BORROWED FUNDS
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30
(IN THOUSANDS) 1998 1997 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------
U.S. Treasury demand notes
and Federal funds
borrowed-term........... $2,549,096 $2,001,665 $2,760,734
Notes payable to Student
Loan Marketing
Association............. -- 300,000 300,000
Bank notes................ -- 574,973 653,972
FHLB advances............. 200,000 450,000 525,000
Other..................... 93,600 141,729 87,526
---------- ---------- ----------
Total bank
subsidiaries.......... 2,842,696 3,468,367 4,327,232
Commercial paper.......... 246,805 795,895 784,600
Other..................... 33,061 294 409
---------- ---------- ----------
Total parent company and
other subsidiaries.... 279,866 796,189 785,009
---------- ---------- ----------
Total............. $3,122,562 $4,264,556 $5,112,241
========== ========== ==========
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30
(IN THOUSANDS) 1998 1997 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Floating rate notes due
1997....................... $ -- $ -- $ 49,997
9 7/8% subordinated notes
due 1999................... 64,953 64,918 64,907
6.50% subordinated notes
due 2000................... 99,919 99,881 99,867
8.50% subordinated notes
due 2002................... 99,914 99,896 99,890
6 5/8% subordinated notes
due 2004................... 249,299 249,201 249,169
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................... 249,807 249,785 249,778
Other....................... 10,426 10,939 11,685
---------- ---------- ----------
Total parent company...... 1,124,318 1,124,620 1,175,293
---------- ---------- ----------
6.50% subordinated notes
due 2003................... 199,657 199,600 199,581
7.25% subordinated notes
due 2010................... 223,066 222,944 222,903
6.30% subordinated notes
due 2011................... 200,000 200,000 200,000
7.25% subordinated notes
due 2011................... 197,425 197,278 197,228
Other....................... 1,582 3,133 1,853
---------- ---------- ----------
Total subsidiary.......... 821,730 822,955 821,565
---------- ---------- ----------
Total long-term debt
qualifying for Tier II
Capital................. 1,946,048 1,947,575 1,996,858
---------- ---------- ----------
Senior bank notes........... 4,320,529 2,394,055 2,302,175
Federal Home Loan Bank
advances................... 1,516,718 1,303,721 831,457
Other....................... 5,459 1,951 1,998
---------- ---------- ----------
Total other long-term
debt.................... 5,842,706 3,699,727 3,135,630
---------- ---------- ----------
Total................... $7,788,754 $5,647,302 $5,132,488
========== ========== ==========
</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 September 30,
1998.
9. CORPORATION OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY DEBENTURES OF THE CORPORATION
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30
(IN THOUSANDS) 1998 1997 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Capital Securities of First of
America Capital Trust I......... $150,000 $150,000 $150,000
Capital Securities of Fort Wayne
Capital Trust I................. 30,000 -- --
-------- -------- --------
Total Capital Securities
qualifying as Tier 1 capital... 180,000 150,000 150,000
Capital Securities of National
City Capital Trust I............ 499,894 499,892 499,892
-------- -------- --------
Total.......................... $679,894 $649,892 $649,892
======== ======== ========
</TABLE>
The corporation-obligated mandatorily redeemable capital securities (the
capital securities) of subsidiary trusts holding solely junior subordinated debt
securities of the Corporation (the debentures) were issued by three statutory
business trusts, First of America Capital Trust I, Fort Wayne Capital Trust I
and National City Capital Trust I, of which 100% of the common equity in each of
the trusts is owned by the Corporation. The trusts were formed for the purpose
of issuing the capital securities and investing the proceeds from the sale of
such capital securities in the debentures. The debentures held by each trust are
the sole assets of that trust. Distributions on the capital securities issued by
each trust are payable semiannually at a rate per annum equal to the interest
rate being earned by the trust on the debentures held by that trust and are
recorded as interest expense by the Corporation. The capital securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
debentures. The Corporation has entered into agreements which, taken
collectively, fully and unconditionally guarantee the capital securities subject
to the terms of each of the guarantees.
The debentures held by First of America Capital Trust I have a stated
maturity of January 31, 2027 and an interest rate of 8.12%. These debentures are
first redeemable, in whole or in part, by the Corporation on January 31, 2007.
The capital securities issued by First of America Capital Trust I qualify as
Tier 1 capital under Federal Reserve Board guidelines.
The debentures held by Fort Wayne Capital Trust I have a stated maturity of
April 15, 2027 and an interest rate of 9.85%. These debentures are first
redeemable, in whole or in part, by the Corporation on April 15, 2007. The
capital securities issued by Fort Wayne Capital Trust I qualify as Tier 1
capital.
The debentures held by National City Capital Trust I have a stated maturity
of June 1, 2029 and an interest rate of 6.75%. These debentures are first
redeemable by the Corporation on June 1, 1999. If the debentures are not
redeemed on June 1, 1999, the interest rate per annum will be reset based on an
interest rate auction at that time. The capital securities issued by National
City Capital Trust I currently do not qualify as Tier 1 capital.
10
<PAGE> 12
10. CAPITAL RATIOS
The following table reflects various measures of capital:
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30
1998 1997 1997
(Dollars in ---------------- ---------------- ----------------
MILLIONS) AMOUNT Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------
Total
equity(1)... $7,273.4 8.75% $6,158.3 8.13% $6,145.4 8.27%
Total common
equity(1)... 7,236.8 8.70 6,158.3 8.13 6,145.4 8.27
Tangible common
equity(2)... 5,652.9 6.93 5,327.3 7.11 5,376.2 7.16
Tier 1
capital(3).. 5,941.0 8.81 5,435.1 8.93 5,484.2 9.27
Total risk-
based
capital(4)... 8,557.7 12.69 8,013.4 13.16 8,087.6 13.67
Leverage(5)... 5,941.0 7.42 5,435.1 7.58 5,484.2 7.63
- ----------------------------------------------------------------------
</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 mortgage
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
based on preliminary data. Such 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>
Sept. 30 Dec. 31 Sept. 30
(DOLLARS IN MILLIONS) 1998 1997 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill............................ $1,035.4 $544.9 $523.8
Other intangibles................... 86.7 18.1 25.0
-------- ------ ------
Total intangibles................... $1,122.1 $563.0 $548.8
Mortgage servicing rights........... $ 461.8 $268.0 $220.4
- ------------------------------------------------------------------
</TABLE>
11. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30
(OUTSTANDING SHARES) 1998 1997 1997
<S> <C> <C> <C>
- ---------------------------------------------------
Preferred Stock, no par
value, authorized
5,000,000 shares...... 731,126 -- --
Common Stock, $4.00 par
value, authorized
700,000,000 shares.... 330,336,278 315,697,488 318,411,870
</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.
On October 26, 1998, the board of directors authorized the purchase of up to
30 million shares of National City common stock in the open market or through
privately negotiated transactions subject to an aggregate purchase limit of $2.7
billion.
12. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- -----------------------------------------------------------
Applicable to income exclusive
of securities transactions... $393,758 $376,710
Applicable to securities
transactions................. 29,826 16,513
-------- --------
Total.................. $423,584 $393,223
======== ========
</TABLE>
The effective tax rate was approximately 35.2% and 32.1% for the nine months
ended September 30, 1998 and 1997, respectively.
13. REGULATORY DIVIDENDS
A significant source of liquidity for the Parent company is dividends from
subsidiaries. Dividends paid by the subsidiary banks are subject to various
legal and regulatory restrictions. At September 30, 1998, bank subsidiaries may
pay the Parent company, without prior regulatory approval, approximately
$1,243.8 million of dividends. During the first nine months of 1998, dividends
totaling $113.4 million were declared and $111.0 million of previously declared
dividends were paid to the Parent company.
11
<PAGE> 13
14. NET INCOME PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
In Thousands September 30 September 30
Except Per Share ------------------- -------------------
Amounts) 1998 1997 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
Net income......... $344,456 $283,053 $779,422 $830,050
Less preferred
dividends........ 546 -- 1,645 --
-------- -------- -------- --------
Net income
applicable to
common stock..... $343,910 $283,053 $777,777 $830,050
======== ======== ======== ========
Average common
shares
outstanding...... 329,692 321,097 324,751 324,017
======== ======== ======== ========
Net income per
common
share -- basic... $1.05 $.88 $2.39 $2.56
======== ======== ======== ========
DILUTED:
Net income......... $344,456 $283,053 $779,422 $830,050
======== ======== ======== ========
Average common
shares
outstanding...... 329,692 321,097 324,751 324,017
Stock option
adjustment....... 5,549 5,247 5,962 5,233
Preferred stock
adjustment....... 1,108 -- 904 --
-------- -------- -------- --------
Average common
shares
outstanding --
diluted.......... 336,349 326,344 331,617 329,250
======== ======== ======== ========
Net income per
common
share -- diluted.. $1.03 $0.87 $2.35 $2.52
======== ======== ======== ========
</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.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
Net income for the third quarter of 1998 was $344.5 million, or $1.03 per
diluted share, compared to $283.1 million, or $.87 per diluted share, in 1997.
Returns on average common equity and average assets were 19.00% and 1.69%,
respectively, for the third quarter of 1998, compared to returns of 18.12% and
1.55% respectively for the third quarter of 1997.
Excluding merger and restructuring expenses, net income for the first nine
months of 1998 was $973.3 million, or $2.94 per diluted share, compared to
$855.6 million, or $2.60 per diluted share, for the same period in 1997. On this
basis, returns on average common equity and average assets were 19.08% and
1.65%, respectively, compared to 18.58% and 1.60%, respectively, for the same
period last year. After-tax merger and restructuring expenses were $193.9
million or $.59 per diluted share for the first nine months of 1998, and $25.5
million or $.08 per diluted share for the same period in 1997.
Financial data for all prior periods have been restated to reflect the
merger with First of America Bank Corporation ("First of America"), which was
completed March 31, 1998 and accounted for as a pooling-of-interests. The
financial results of Fort Wayne National Corporation ("Fort Wayne"), accounted
for as a purchase acquisition, are included in the results of operations
subsequent to the date of acquisition, March 30, 1998.
Results for the third quarter and first nine months of 1998 reflect loan
growth, increased revenue, and improved credit quality.
UNIT PROFITABILITY
The financial performance of National City is monitored by an internal
profitability measurement system, which produces line-of-business results and
key performance measures. National City's major business units include corporate
banking, retail banking and fee-based businesses. The corporate banking business
includes commercial and corporate lending, commercial real estate finance,
asset-based lending, commercial leasing and cash management. The retail banking
business includes branch-based deposit gathering, small business lending, and
consumer lending. The fee-based businesses include institutional trust, mortgage
banking, item processing, brokerage and private banking.
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 amongst
businesses on a risk-adjusted basis. The businesses are match-funded and
interest rate risk is centrally managed by the investment/
funding unit which is reported 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 27.4% increase in corporate banking net income was driven by higher net
interest income as a result of loan growth, and lower operating expenses, with
no increase in credit costs.
The 15.4% increase in retail banking net income was due to higher fee
income, lower operating expenses and a lower loan loss provision.
The 25.4% increase in fee-based net income reflects broad-based revenue
growth with notably strong growth in mortgage banking.
The decline in the parent and other category reflects the after-tax merger
and restructuring expense of $193.9 million, partially offset by securities
gains.
NET INTEREST INCOME
On a tax-equivalent basis, net interest income for the third quarter and
first nine months of 1998 was $745.8 million and $2,194.0 million, respectively,
compared to $721.5 million and $2,141.6 million, respectively, for the same
periods last year. The increase over both periods reflects an increase in
average earning assets, primarily driven by loan growth, offset by lower loan
spreads and higher reliance on purchased funds. This dynamic contributed to the
decline in the net interest margin to 4.10% and 4.15% for the third quarter and
first nine months of 1998 from 4.38% for both the third quarter and first nine
months of 1997.
National City's net interest income is affected by the use of off-balance
sheet derivative financial instruments. For the first nine months of 1998, the
derivatives portfolio contributed $29.1 million to net interest income and added
6 basis points to the net interest margin.
During the third quarter of 1998, the notional outstandings of interest
rate swap agreements increased $2.8 billion to
13
<PAGE> 15
$17.1 billion. During the quarter, $75.0 million of swaps were added to manage
the Corporation's interest rate risk position by synthetically converting fixed
rate debt to variable rate; $493.6 million of swaps were added to hedge loans;
$554.0 million of swaps were added to hedge the value of mortgage servicing
rights; $250.0 million of swaps were added to synthetically convert short-term
borrowing costs to LIBOR basis; $225.0 million of swaps were added to convert
variable rates to fixed rates on certain loans; and $579.0 million of swap
agreements were added to facilitate interest rate risk management at third
parties. A total of $376.6 million of swaps matured or were terminated during
the quarter. The net unrealized gains in the derivative portfolio were $262.9
million at September 30, 1998, compared to unrealized gains of $119.6 million at
June 30, 1998.
Since the end of 1997, there have been no significant changes in the nature
of the off-balance sheet instruments used to manage exposure from changes in
interest rates, which represents the Corporation's primary market risk.
Management attempts to prevent adverse swings in current and future net
interest income and capital resulting from interest rate movements by placing
conservative limits on interest rate risk. Interest rate risk is monitored
through static gap, income simulation and net present value analyses.
At September 30, 1998, the Corporation's interest rate risk position
remained modestly liability sensitive. The earnings simulation model projects
that net income would decrease by 2.5% if market rates rise gradually by two
percentage points over the next year, relative to a stable-rate scenario. In
an environment where market rates fall gradually by two percentage points over
the next year, the model estimates an increase in net income of 1.8%, relative
to a stable-rate scenario. At the end of June 1998, the corresponding changes
were (2.5)% of net income in the rising-rate environment and 1.6% in the
falling-rate environment. The cumulative one-year gap was (8.4)% of adjusted
earning assets at September 30, 1998 compared to (6.0)% at June 30, 1998. The
Corporation's net present value model indicates that a one-and-a-half
percentage point immediate upward shock in rates would cause a reduction in the
value of expected asset and liability cash flows by an amount equal to 3.0% of
total net present value at the end of the quarter. In addition, a
one-and-a-half percentage point immediate downward rate shock is estimated to
cause total net present value to fall by 3.4%.
TABLE 1: UNIT PROFITABILITY
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
-------------------- -------------------
NET Return on Net Return on
(DOLLARS IN MILLIONS) INCOME Equity Income Equity
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Corporate banking..................... $ 242.1 22.0% $190.0 21.6%
Retail banking........................ 544.0 26.0 471.3 22.8
Fee-based businesses.................. 146.7 24.7 117.0 17.2
Parent and other...................... (153.4) -- 51.8 --
------- ------
Consolidated total................ $ 779.4 15.30% $830.1 18.02%
======= ======
Excluding merger and
restructuring expenses.......... $ 973.3 19.04% $855.6 18.58%
======= ======
</TABLE>
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<CAPTION>
Nine months ended
September 30
---------------------------
(IN MILLIONS) 1998 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Interest adjustment to loans................................ $ .5 $ 9.0
Interest adjustment to securities........................... (.8) (1.9)
------ ------
Interest adjustment to earning assets..................... (.3) 7.1
Interest adjustment to interest bearing
liabilities............................................... (29.4) (25.9)
------ ------
Effect on net interest income............................. $ 29.1 $ 33.0
====== ======
</TABLE>
NOTE: Amounts in brackets represent reductions of the related interest income
or expense line, as applicable.
NONINTEREST INCOME
For the third quarter of 1998, noninterest income, excluding securities
gains, increased 27.5% to $555.5 million from $435.6 million in 1997. For the
first nine months of 1998, noninterest income increased 26.8% to $1,603.4
million from $1,264.5 million for the same period in 1997. The increase in
each comparable period reflects broad-based growth among virtually all the fee
businesses, particularly mortgage banking, and the inclusion of Fort Wayne,
which contributed $16.0 million to year-to-date noninterest income. In the third
quarter and first nine months of 1998, mortgage banking revenue increased 85.7%
and 116.7%, to $79.4 million and $237.8 million, respectively, when compared
against the same periods in 1997. This growth was due to increased mortgage
origination activity, which was spurred by lower mortgage rates. For the first
nine months of 1998, residential loans originated
14
<PAGE> 16
increased to $13.8 billion compared to $5.5 billion in 1997.
The third quarters of 1998 and 1997 included branch sale gains of $21.4
million and $1.8 million, respectively, and the first nine months of 1998 and
1997 included branch sale gains of $32.1 million and $27.4 million,
respectively.
In the third quarter of 1998, securities gains totaled $64.4 million
pre-tax, or $.12 per share after-tax, compared to $.1 million, in the third
quarter of 1997. For the first nine months of 1998, securities gains totaled
$85.2 million pre-tax, or $.17 per share after-tax, compared to $47.2 million,
or $.09 per share after-tax, for the same period in 1997. These securities
gains were generated primarily from National City's internally-managed equity
portfolio of bank and thrift common stock investments.
NONINTEREST EXPENSE
For the third quarter and first nine months of 1998, noninterest expense
totaled $782.4 million and $2,505.6 million, respectively, compared to $672.0
million and $2,027.4 million, respectively, for the same periods last year.
Excluding merger and restructuring expenses, noninterest expenses for the third
quarter and first nine months of 1998 were $782.4 million and $2,230.9 million,
respectively, compared to $672.0 million and $1,987.7 million, respectively, for
the third quarter and first nine months of 1997. Higher operating expenses in
1998 were primarily attributable to growth in the fee-based businesses,
technology-related projects and initiatives, including the Year 2000 Project
(see the "Year 2000" section) and the Fort Wayne acquisition. For the third
quarter and first nine months of 1998, Fort Wayne added $26.5 million and
$54.9 million, respectively, to operating expenses.
TABLE 3: FULL-TIME EQUIVALENT STAFFING AND
OVERHEAD PERFORMANCE MEASURES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 September 30, 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................ 22,018 35.18% 50.15% 21,597 39.58% 52.37%
Fee-based businesses.... 15,314 -- 76.60 11,720 -- 75.87%
Corporate............... 4,674 -- -- 5,314 -- --
-------- --------
Total................ 42,006 41.12% 65.98% 38,631 35.62% 59.52%
======== ========
Excluding merger and
restructuring
charges................ 28.59% 58.75% 33.77% 58.36%
</TABLE>
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<CAPTION>
Third Quarter First Nine Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
Commercial........................ .12% .22% .09% .19%
Real estate -- construction....... (.23) (.11) (.09) (.15)
Real estate -- commercial......... .08 .11 .04 --
Real estate -- residential........ .06 .04 .06 .04
Consumer.......................... .54 .64 .62 .68
Credit card....................... 3.64 4.27 4.03 4.28
Home equity....................... .17 .12 .20 .09
Total net charge-offs to average
loans........................... .31% .41% .34% .40%
</TABLE>
TABLE 5: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPT. 30 Dec. 31 Sept. 30
(IN MILLIONS) 1998 1997 1997
<S> <C> <C> <C>
------------------------------------------------------------------------------
Commercial:
Nonaccrual................................... $ 90.4 $103.7 $127.5
Restructured................................. .4 1.1 2.5
------ ------ ------
Total commercial........................... 90.8 104.8 130.0
Real estate related:
Nonaccrual................................... 128.5 128.5 87.2
Restructured................................. 2.6 4.5 3.2
------ ------ ------
Total real estate related.................. 131.1 133.0 90.4
------ ------ ------
Total nonperforming loans.................. 221.9 237.8 220.4
Other real estate owned (OREO)................. 30.5 35.5 38.4
------ ------ ------
Nonperforming assets........................... $252.4 $273.3 $258.8
====== ====== ======
Loans 90 days past-due accruing interest....... $170.8 $136.1 $137.1
====== ====== ======
</TABLE>
Salary and other personnel expenses increased over the prior year for the
third quarter and year-to-date as a result of the Fort Wayne acquisition,
increased incentive compensation expense as a result of new business generation,
and third-party contract labor.
In addition to the factors mentioned previously, other noninterest expense
also included a $4.0 million fraud loss in the third quarter of 1998, as well as
losses incurred at National City's 88%-owned item processing subsidiary,
National Processing, Inc., which totaled $3.7 million and $7.9 million in the
third quarter and first nine months of 1998, respectively, related to unrecov-
15
<PAGE> 17
erable chargebacks and the write-off of capitalized software.
For the first nine months of 1998, merger and restructuring expenses
totaled $274.7 million in connection with the First of America merger which
closed March 31, 1998. For the first nine months of 1997, merger and
restructuring expenses totaled $39.6 million and included a $33.3 million
one-time charge to cover the costs of reorganizing National City's six Ohio
banking subsidiaries under a single statewide charter, and a one-time charge of
$6.3 million related to organizational restructuring at National Processing,
Inc.
As Table 3 indicates, National City's staffing level on a full-time
equivalent basis was 42,006 at September 30, 1998, up from 38,631 at September
30, 1997. Corporate and retail banking staff levels were up due to the Fort
Wayne acquisition, partially offset by reductions resulting from ongoing
reconfigurations of the retail bank branch network.
The increased staff level in the fee-based businesses was due to
acquisitions made by National Processing and increased business activity in
mortgage banking.
The efficiency ratio is defined as noninterest expenses as a percentage of
fee income plus tax-equivalent net interest income. Excluding merger and
restructuring expenses, the efficiency ratio for the first nine months of 1998
and 1997 was 58.75% and 58.36%, respectively.
The overhead ratio is defined as noninterest expenses less fee income as a
percentage of tax-equivalent net interest income. Excluding merger and
restructuring expenses, the overhead ratio for the first nine months of 1998 and
1997 was 28.59% and 33.77%, respectively.
EARNING ASSETS AND INTEREST BEARING LIABILITIES
Average earning assets were $72,529 million for the third quarter of 1998,
compared to $71,414 million for the second quarter of 1998 and $65,774 million
for the third quarter of 1997. The increase in average earning assets over both
periods was primarily driven by growth in loans. The acquisition of Fort Wayne
on March 30 also contributed $2.1 billion to the increase in average earning
assets over the prior year.
For the third quarter of 1998, average interest-bearing liabilities were
$62,596 million, up from $61,569 million for the second quarter of 1998 and
$55,611 million for the third quarter of 1997. The increase over both periods
was primarily due to the increased use of short- and long-term borrowings to
fund loan growth.
For the third quarter and first nine months of 1998, average core deposits
were up $996 million and $375 million, respectively to $50,320 million and
$49,727 million. This increase was primarily due to the purchase acquisition of
Fort Wayne. Average balances of NOW and money market account and non-interest
bearing deposits increased over both periods, while savings and time deposits
were lower. For the third quarter and first nine months of 1998, average
non-interest bearing deposits were 20% of total core deposits.
ASSET QUALITY
The allowance for loan losses was $975.1 million at September 30, 1998 or
1.66% of loans, compared to $967.8 million or 1.82% of loans at September 30,
1997. For the third quarter and first nine months of 1998, the provision for
loan losses was $45.2 million and $144.5 million, respectively, compared to
$59.2 million and $172.5 million, respectively, for the same periods last year.
Table 4 presents net charge-offs as a percentage of average loans by
portfolio type. For the third quarter and first nine months of 1998, net
charge-offs totaled $45.2 million and $140.6 million, respectively, compared
to $53.6 million and $155.3 million, respectively, for the same periods last
year. Net charge-offs as a percentage of loans were .31% and .34%,
respectively, for the third quarter and first nine months of 1998, down from
.41% and .40%, respectively, for the same periods last year.
As Table 5 indicates, nonperforming assets were $252.4 million at September
30, 1998, down $20.9 million from $273.3 million at December 31, 1997, and $6.4
million from $258.8 million at September 30, 1997. Nonperforming assets as a
percentage of loans and OREO at September 30, 1998, December 31, 1997 and
September 30, 1997, were .43%, .51% and .49%, respectively.
Loans 90-days past due accruing interest were $170.8 million at September
30, 1998, compared to $136.1 million at December 31, 1997 and $137.1 million at
September 30, 1997. The increase reflects both an increase in past due consumer
loans as well as the timing of extensions on several corporate credits.
CAPITAL
At September 30, 1998, total stockholders' equity was $7.3 billion compared
to $6.1
16
<PAGE> 18
billion at September 30, 1997. Book value per common share at September 30,
1998, December 31, 1997 and September 30, 1997 was $21.91, $19.51 and $19.30,
respectively. Book value per common share at September 30, 1998, December 31,
1997 and September 30, 1997 included unrealized gains on securities available
for sale of $1.07, $1.10 and $.98 per share, respectively.
On October 26, 1998, the board of directors authorized the purchase of up
to 30 million shares of National City common stock in the open market or through
privately negotiated transactions subject to an aggregate purchase limit of $2.7
billion.
YEAR 2000
Management initiated the process of preparing its computer systems and
applications for the Year 2000 in January 1995. The process involves identifying
and remediating date recognition problems in computer systems and software and
other operating equipment that could be caused by the date change from December
31, 1999 to January 1, 2000.
Management has completed its assessment of all business processes that
could be affected by the Year 2000 issue. Each business process assessment
included a review of the information systems used in that process, including
related hardware and software, the involvement of any third parties, and any
affected operating equipment. To date, the affected systems within 75% of those
business processes determined to be critical for supporting the core services
offered by National City have been remediated, unit tested, and returned to
production. As part of the testing process, National City established a separate
isolated testing environment that further tests the functioning of modified
systems when linked together. Management expects to complete the remediation and
testing of all affected systems within the critical business processes by the
end of the second quarter of 1999.
Management is also working with significant customers, vendors, and
business counterparties to monitor the progress of their Year 2000 efforts.
Management believes it has an effective plan in place to resolve the Year
2000 issue in a timely manner and, thus far, activities have tracked in
accordance with the original plan. Management is in the process of modifying its
existing business continuity plans and is also developing contingency plans to
address potential risks in the event of Year 2000 failures, including
non-compliance by third parties. Despite National City's efforts to date to
remediate affected systems and develop contingency plans for potential risks,
management has not yet completed all activities associated with resolving its
Year 2000 issues. Under the unlikely scenario that the additional phases are not
completed, National City could be materially adversely affected as a result of
not being able to process transactions related to its core business activities.
In addition, non-compliance by third parties (including loan customers) and
disruptions to the economy in general resulting from Year 2000 issues could also
have a material negative impact of undeterminable magnitude on National City.
The revised estimate of the total cost of the Year 2000 project is
approximately $65 million. The increase from the previous estimate of $40
million primarily relates to the increased use and cost of contract labor and
the effect of acquisitions. Approximately one-half of this estimate represents
costs related to internal personnel working on the project and certain
capitalizable costs related to replacing non-compliant hardware and software. To
date, $25 million of the total project costs have been incurred. During the
third quarter and first nine months of 1998, incremental noninterest expense
associated with the project totaled approximately $5 million and $11 million,
respectively.
FORWARD-LOOKING STATEMENTS
The discussion regarding the Corporation's interest rate risk position
included in the section entitled "Net Interest Income" as well as the section
entitled "Year 2000" contain certain forward-looking statements (as defined in
the Private Securities Litigation Reform Act of 1995). These forward-looking
statements involve risks and uncertainties including changes in general economic
conditions, the Corporation's ability to execute its business plans, including
its plan to address the Year 2000 issue, and the ability of third parties to
effectively address their Year 2000 issues. Although National City believes that
the expectations reflected in such forward-looking statements are reasonable,
actual results may differ materially from the results discussed in these
forward-looking statements.
17
<PAGE> 19
(This page intentionally left blank)
18
<PAGE> 20
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars In Millions) Ended September 30 Ended September 30
- -------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial.............................................. $26,672 $23,503 $26,080 $23,156
Residential real estate................................. 12,030 11,529 11,683 11,400
Consumer................................................ 13,964 12,197 13,164 12,064
Credit card............................................. 1,818 2,031 1,873 2,097
Home equity............................................. 3,144 2,775 3,071 2,633
------- ------- ------- -------
Total loans........................................... 57,628 52,035 55,871 51,350
Securities................................................ 13,614 13,166 13,710 13,116
Federal funds sold and security resale agreements......... 1,177 374 793 377
Other short-term investments.............................. 110 199 114 218
------- ------- ------- -------
Total earning assets.................................. 72,529 65,774 70,488 65,061
Market value appreciation of securities available for
sale...................................................... 511 377 537 256
Allowance for loan losses................................... (994) (976) (981) (972)
Cash and demand balances due from banks..................... 3,685 3,213 3,592 3,324
Properties and equipment.................................... 1,124 1,038 1,077 1,051
Customers' acceptance liability............................. 31 66 35 74
Accrued income and other assets............................. 4,176 2,812 3,935 2,862
------- ------- ------- -------
Total assets.......................................... $81,062 $72,304 $78,683 $71,656
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... $10,051 $ 9,228 $ 9,872 $ 9,172
NOW and money market accounts............................. 17,326 15,450 16,657 15,389
Savings accounts.......................................... 4,721 5,085 4,776 5,226
Time deposits of individuals.............................. 18,222 19,561 18,422 19,565
Other time deposits....................................... 2,505 1,579 2,329 1,575
Deposits in overseas office............................... 1,785 1,030 1,602 1,009
------- ------- ------- -------
Total deposits........................................ 54,610 51,933 53,658 51,936
Federal funds borrowed and security repurchase
agreements.............................................. 7,431 3,973 6,577 4,627
Borrowed funds............................................ 2,644 3,328 3,181 3,142
Long-term debt and capital securities..................... 7,962 5,605 7,158 4,585
Acceptances outstanding................................... 31 66 35 74
Accrued expenses and other liabilities.................... 1,164 1,202 1,241 1,135
------- ------- ------- -------
Total liabilities..................................... 73,842 66,107 71,850 65,499
Stockholders' Equity:
Preferred stock........................................... 37 -- 24 --
Common stock.............................................. 7,183 6,197 6,809 6,157
------- ------- ------- -------
Total stockholders' equity............................ 7,220 6,197 6,833 6,157
------- ------- ------- -------
Total liabilities and stockholders' equity............ $81,062 $72,304 $78,683 $71,656
======= ======= ======= =======
</TABLE>
19
<PAGE> 21
DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
- -----------------------------------------------------------------------------------------------------
1998 1997
--------------------------- -----------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $26,672 $26,735 $24,777 $24,116 $23,503
Residential real estate......................... 12,030 11,932 11,215 11,160 11,529
Consumer........................................ 13,964 13,107 12,546 12,254 12,197
Credit Card..................................... 1,818 1,861 1,944 1,991 2,031
Home equity..................................... 3,144 3,074 3,006 2,907 2,775
------- ------- ------- ------- -------
Total loans................................... 57,628 56,709 53,488 52,428 52,035
Securities:
Taxable......................................... 12,647 12,846 12,890 12,157 12,354
Tax-exempt...................................... 967 1,028 838 812 812
------- ------- ------- ------- -------
Total securities.............................. 13,614 13,874 13,728 12,969 13,166
Federal funds sold................................ 175 169 70 62 85
Security resale agreements........................ 1,002 544 378 260 289
Other short-term investments...................... 110 118 125 113 199
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 72,529 71,414 67,789 65,832 65,774
Allowance for loan losses........................... (994) (995) (958) (961) (976)
Market value appreciation of securities available
for sale.......................................... 511 564 537 490 377
Cash and demand balances due from banks............. 3,685 3,616 3,359 3,416 3,213
Properties and equipment............................ 1,124 1,055 1,042 1,023 1,038
Customers' acceptance liability..................... 31 33 41 69 66
Accrued income and other assets..................... 4,176 4,240 2,959 2,909 2,812
------- ------- ------- ------- -------
Total assets.................................. $81,062 $79,927 $74,769 $72,778 $72,304
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $17,326 $17,040 $15,691 $15,329 $15,450
Savings accounts.................................. 4,721 4,870 4,756 4,842 5,085
Time deposits of individuals...................... 18,222 18,640 18,566 18,896 19,561
Other time deposits............................... 2,505 2,536 1,940 1,538 1,579
Deposits in overseas offices...................... 1,785 1,420 1,598 1,149 1,030
Federal funds borrowed............................ 3,397 2,676 2,687 1,896 1,358
Security repurchase agreements.................... 4,034 3,757 3,194 2,691 2,615
Borrowed funds.................................... 2,644 3,395 3,499 3,291 3,328
Long-term debt and capital securities............. 7,962 7,235 6,264 6,118 5,605
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 62,596 61,569 58,195 55,750 55,611
Noninterest bearing deposits...................... 10,051 10,053 9,411 9,406 9,228
Acceptances outstanding........................... 31 33 41 69 66
Accrued expenses and other liabilities............ 1,164 1,433 846 1,360 1,202
------- ------- ------- ------- -------
Total liabilities............................. 73,842 73,088 68,493 66,585 66,107
Stockholders' equity.......................... 7,220 6,839 6,276 6,193 6,197
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $81,062 $79,927 $74,769 $72,778 $72,304
======= ======= ======= ======= =======
Net interest income..................................................................................
Interest spread......................................................................................
Contribution of noninterest bearing sources of funds.................................................
Net interest margin..................................................................................
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
Quarterly Interest Average Annualized Rate
-------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
------------------------------ ------------------- ---------------------------- -----------------
THIRD Second First Fourth Third THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 567.5 $ 564.8 $ 525.2 $ 526.5 $ 516.6 8.44% 8.47% 8.56% 8.69% 8.75%
226.1 225.9 212.6 214.6 223.9 7.52 7.57 7.58 7.69 7.77
305.6 289.4 271.6 273.6 272.3 8.68 8.86 8.78 8.86 8.86
62.9 64.7 67.3 68.9 69.9 13.72 13.92 14.03 13.84 13.77
72.4 69.2 67.3 67.1 63.7 9.14 9.03 9.08 9.15 9.11
-------- -------- -------- -------- --------
1,234.5 1,214.0 1,144.0 1,150.7 1,146.4 8.51 8.58 8.64 8.74 8.77
205.8 207.8 207.4 197.6 199.6 6.50 6.47 6.45 6.49 6.46
18.7 19.9 17.3 17.4 17.4 7.76 7.78 8.26 8.54 8.59
-------- -------- -------- -------- --------
224.5 227.7 224.7 215.0 217.0 6.59 6.57 6.56 6.62 6.59
3.0 1.7 .8 .8 1.3 6.71 4.07 4.78 5.48 5.86
13.7 6.6 5.2 3.6 4.2 5.42 4.85 5.56 5.57 5.82
4.3 5.1 4.2 3.4 3.9 15.49 16.79 13.65 11.91 7.69
-------- -------- -------- -------- --------
$1,480.0 $1,455.1 $1,378.9 $1,373.5 $1,372.8 8.11% 8.16% 8.20% 8.31% 8.31%
$ 139.5 $ 135.0 $ 121.3 $ 124.6 $ 124.1 3.19% 3.18% 3.14% 3.23% 3.19%
25.2 26.3 25.8 27.8 29.7 2.11 2.16 2.20 2.28 2.32
253.1 257.8 252.4 267.7 273.8 5.51 5.55 5.51 5.63 5.56
33.9 34.1 25.9 19.9 20.4 5.38 5.38 5.42 5.17 5.18
24.2 18.9 21.0 15.3 13.7 5.39 5.34 5.33 5.28 5.28
48.2 36.8 36.4 26.8 19.3 5.63 5.51 5.50 5.60 5.64
48.2 44.3 37.3 32.0 31.4 4.74 4.74 4.67 4.73 4.77
38.1 48.6 51.3 47.8 47.9 5.71 6.57 5.93 5.76 5.71
123.8 113.4 99.2 99.8 91.0 6.16 6.29 6.42 6.47 6.44
-------- -------- -------- -------- --------
$ 734.2 $ 715.2 $ 670.6 $ 661.7 $ 651.3 4.65% 4.66% 4.67% 4.71% 4.65%
$ 745.8 $ 739.9 $ 708.3 $ 711.8 $ 721.5
======== ======== ======== ======== ========
........................................................ 3.46% 3.50% 3.53% 3.60% 3.66%
........................................................ .64 .65 .66 .72 .72
-------- ----- ----- ----- -----
........................................................ 4.10% 4.15% 4.19% 4.32% 4.38%
======== ===== ===== ===== =====
</TABLE>
21
<PAGE> 23
CORPORATE INVESTOR INFORMATION
CORPORATE HEADQUARTERS
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Operations
Department 5352
P.O. Box 92301
Cleveland, Ohio 44193-0900
1-800-622-6757
INVESTOR INFORMATION
Julie I. Sabroff
Manager, Investor Relations
Department 2145
P.O. Box 5756
Cleveland, Ohio 44101-0756
1-800-622-4204
COMMON STOCK LISTING
National City Corporation common stock
is traded on the New York Stock
Exchange under the symbol NCC. The
stock is abbreviated in financial
publications as NTLCITY.
DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
Participating common stockholders receive a three percent discount from
market price when reinvesting their National City dividends in additional
shares. Participants may also make optional cash purchases of common stock
at a three percent discount from market price and pay no brokerage
commissions. To obtain our Plan prospectus and authorization card, call,
1-800-622-6757.
INTERNET ADDRESS
www.national-city.com
DEBT RATINGS
<TABLE>
<CAPTION>
MOODY'S
INVESTORS STANDARD DUFF & THOMSON
SERVICE & POOR'S PHELPS BANKWATCH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National City Corporation............................... A/B
Commercial paper (short-term debt).................... P-1 A-1 D-1+ TBW1
Senior debt........................................... A1 A AA-
Subordinated debt..................................... A2 A- A+ A
Bank Subsidiaries:*
Certificates of deposit............................... Aa3 A+ AA
Subordinated bank notes............................... A1 A AA- A
</TABLE>
*Includes the following subsidiaries:
National City Bank
National City Bank of Indiana
National City Bank of Kentucky
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 Ohio banking subsidiary.
22
<PAGE> 24
FORM 10-Q -- SEPTEMBER 30, 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: November 5, 1998
/s/ ROBERT G. SIEFERS
Robert G. Siefers
Vice Chairman and
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
23
<PAGE> 25
<TABLE>
<S> <C>
National City Corporation Logo Bulk Rate
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,406,647
<INT-BEARING-DEPOSITS> 44,069,433
<FED-FUNDS-SOLD> 1,146,383
<TRADING-ASSETS> 12,317
<INVESTMENTS-HELD-FOR-SALE> 15,424,507
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 58,683,646
<ALLOWANCE> 975,100
<TOTAL-ASSETS> 83,134,679
<DEPOSITS> 54,228,206
<SHORT-TERM> 11,784,575
<LIABILITIES-OTHER> 1,379,855
<LONG-TERM> 8,468,648
0
36,556
<COMMON> 1,321,345
<OTHER-SE> 5,915,494
<TOTAL-LIABILITIES-AND-EQUITY> 83,134,679
<INTEREST-LOAN> 3,579,665
<INTEREST-INVEST> 660,331
<INTEREST-OTHER> 44,422
<INTEREST-TOTAL> 4,284,418
<INTEREST-DEPOSIT> 1,394,476
<INTEREST-EXPENSE> 2,119,955
<INTEREST-INCOME-NET> 2,164,463
<LOAN-LOSSES> 144,512
<SECURITIES-GAINS> 85,217
<EXPENSE-OTHER> 2,505,579
<INCOME-PRETAX> 1,203,006
<INCOME-PRE-EXTRAORDINARY> 779,422
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 779,422
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 4.15
<LOANS-NON> 218,900
<LOANS-PAST> 170,800
<LOANS-TROUBLED> 3,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 941,874
<CHARGE-OFFS> 234,633
<RECOVERIES> 94,056
<ALLOWANCE-CLOSE> 975,100
<ALLOWANCE-DOMESTIC> 605,365
<ALLOWANCE-FOREIGN> 156
<ALLOWANCE-UNALLOCATED> 369,579
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,580,501
<INT-BEARING-DEPOSITS> 42,337,104
<FED-FUNDS-SOLD> 426,560
<TRADING-ASSETS> 24,526
<INVESTMENTS-HELD-FOR-SALE> 13,945,643
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 53,036,209
<ALLOWANCE> 967,797
<TOTAL-ASSETS> 74,348,386
<DEPOSITS> 51,798,262
<SHORT-TERM> 8,976,772
<LIABILITIES-OTHER> 1,645,563
<LONG-TERM> 5,782,380
0
0
<COMMON> 1,273,648
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<INTEREST-INCOME-NET> 2,111,400
<LOAN-LOSSES> 172,463
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<EXPENSE-OTHER> 2,027,361
<INCOME-PRETAX> 1,223,273
<INCOME-PRE-EXTRAORDINARY> 1,223,273
<EXTRAORDINARY> 0
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<NET-INCOME> 830,050
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.52
<YIELD-ACTUAL> 4.38
<LOANS-NON> 214,700
<LOANS-PAST> 137,100
<LOANS-TROUBLED> 5,700
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<ALLOWANCE-DOMESTIC> 669,157
<ALLOWANCE-FOREIGN> 144
<ALLOWANCE-UNALLOCATED> 298,496
</TABLE>
