<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 June 30, 1999
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 June 30, 1999 - 618,131,386
<PAGE> 2
[NATIONAL CITY CORPORATION LOGO]
QUARTER ENDED JUNE 30, 1999
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 3
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
Financial Highlights........................................ 3
Item 1. Financial Statements:
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
Item 2. Management's Discussion and Analysis................ 14
Consolidated Average Balance Sheets......................... 19
Daily Average Balances/Net Interest Income/Rates............ 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Market risk disclosures are presented in the Net Interest
Income section of Management's Discussion and Analysis.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings (None)
Item 2. Changes in Securities and Use of Proceeds
National City Corporation declared a two-for-one split of
its common stock on June 30, 1999. Refer to Note 10 of the
Consolidated Financial Statements for further discussion.
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of Security Holders
On April 12, 1999, at the Annual Meeting of Stockholders
of the Registrant, stockholders took the following actions
(vote counts are presented on a pre-split basis):
1. Elected as directors all nominees designated in the
proxy statement of March 24, 1999, as follows:
</TABLE>
<TABLE>
<CAPTION>
Number of Votes
-------------------------
For Withheld
----------- ----------
<S> <C> <C>
Sandra H. Austin............................................ 234,759,868 28,256,624
Jon E. Barfield............................................. 260,609,684 2,406,808
Edward B. Brandon........................................... 260,605,299 2,411,193
John G. Breen............................................... 260,611,150 2,405,342
James S. Broadhurst......................................... 260,617,242 2,399,250
John W. Brown............................................... 234,861,231 28,155,261
Duane E. Collins............................................ 260,645,868 2,370,624
David A. Daberko............................................ 260,646,459 2,370,033
Daniel E. Evans............................................. 260,475,500 2,540,992
Clifford L. Greenwalt....................................... 260,717,817 2,298,675
Bernadine P. Healy.......................................... 260,571,376 2,445,116
Dorothy A. Johnson.......................................... 260,727,337 2,289,155
Paul A. Ormond.............................................. 260,632,293 2,384,199
Robert A. Paul.............................................. 260,708,104 2,308,388
William F. Roemer........................................... 260,463,225 2,553,267
Michael A. Schuler.......................................... 260,756,510 2,259,982
Stephen A. Stitle........................................... 260,703,433 2,313,059
Jerome F. Tatar............................................. 260,391,390 2,625,102
Morry Weiss................................................. 233,746,949 29,269,543
</TABLE>
<TABLE>
<S> <C>
2. Approved the National City Corporation Management
Incentive Plan for Senior Officers: 227,604,911 votes
cast for, 26,575,278 votes cast against, and 8,836,303
votes withheld.
3. Approved an amendment to National City's Restated
Certificate of Incorporation to increase the authorized
number of shares of National City's common stock, par
value $4.00 per share, from 700,000,000 to
1,400,000,000: 221,190,505 votes cast for, 39,489,614
votes cast against, and 2,336,373 votes withheld.
4. Approved the selection of Ernst & Young LLP as
independent auditors for National City for 1999:
260,647,718 votes cast for, 824,123 votes cast against,
and 1,544,651 votes withheld.
Item 5. Other Information (None)
Item 6. Exhibits and Reports on Form 8-K.................... 23
Signature................................................... 23
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- Percent ------------------------- Percent
1999 1998 CHANGE 1999 1998 Change
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
- ---------------------------
Net interest income -- fully taxable
equivalent........................... $758,186 $739,915 2% $1,522,885 $1,448,191 5%
Provision for loan losses.............. 59,542 43,033 38 127,576 99,300 28
Fees and other income(1)............... 537,593 554,129 (3) 1,091,686 1,047,900 4
Securities gains(1).................... 25,171 19,714 28 48,859 20,766 --
Noninterest expense(1)................. 719,469 749,178 (4) 1,458,671 1,448,481 1
Net income before nonrecurring items... 354,942 331,244 7 702,813 628,851 12
Nonrecurring items(2)
Pre-tax.............................. 325 -- -- 37,123 (274,698) --
After-tax............................ (454) -- -- 2,694 (193,885) --
Net income............................. 354,488 331,244 7 705,507 434,966 62
PERFORMANCE RATIOS:
- -------------------------
Net interest margin.................... 4.04% 4.15% 4.03% 4.16%
Return on average assets(3)............ 1.71 1.66 1.68 1.64
Return on average common equity(3)..... 22.99 19.47 21.93 19.07
Return on average total equity(3)...... 22.90 19.43 21.85 19.05
PER SHARE MEASURES:
- -------------------------
Net income per common share:
Basic................................ $.56 $.51 10% $1.11 $.67 66%
Diluted.............................. .56 .50 12 1.10 .66 67
Diluted-adjusted(3).................. .56 .50 12 1.09 .95 15
Dividends paid per common share........ .26 .23 13 .52 .46 13
Book value per common share............ 9.44 10.62 (11)
Market value per common share (close).. 32.75 35.50 (8)
Average shares -- diluted.............. 633,280,420 672,765,564 (6) 642,637,332 659,087,750 (2)
AVERAGE BALANCES (IN MILLIONS):
- ------------------------------------
Assets................................. $83,369 $79,927 4% $84,439 $77,422 9%
Loans.................................. 57,257 54,621 5 57,295 53,336 7
Securities............................. 14,638 13,874 6 14,881 13,757 8
Earning assets......................... 75,238 71,414 5 75,872 69,433 9
Deposits............................... 52,543 54,559 (4) 53,494 53,106 1
Common stockholders' equity............ 6,185 6,802 (9) 6,456 6,639 (3)
Stockholders' equity................... 6,216 6,839 (9) 6,487 6,658 (3)
AT PERIOD END:
- -----------------
Equity to assets ratio................. 6.98% 8.64%
Tier 1 capital ratio................... 7.19 8.41
Total risk-based capital ratio......... 12.67 12.36
Leverage ratio......................... 6.12 7.09
Common shares outstanding.............. 618,131,386 657,255,294 (6)%
Full-time equivalent employees......... 37,804 43,005 (12)
ASSET QUALITY:
- -----------------
Net charge-offs to average loans
(annualized)......................... .42% .32% .45% .36%
Loan loss reserve to loans
(period-end)......................... 1.69 1.78
Nonperforming assets to loans and
OREO................................. .44 .47
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excluding pre-tax effects of items designated as nonrecurring.
(2) Items designated as nonrecurring for 1999 include the gain on the exchange
of shares of Electronic Payment Services, Inc. for shares of Concord EFS,
Inc. and the gain on the subsequent sale of the Concord EFS, Inc. shares,
the gain on the sale of Stored Value Systems, Inc., the net loss on the
sale of certain National Processing, Inc. business lines, charges pursuant
to a plan to improve the cost-efficiency of branch office facilities and
costs associated with executive contract obligations. Nonrecurring items
for 1998 are solely comprised of merger-related expenses. Nonrecurring
items are discussed in further detail in Note 3 to the consolidated
financial statements.
(3) Excluding after-tax effects of items designated as nonrecurring.
Note: All share and per share information reflects the two-for-one stock split
declared June 30, 1999.
3
<PAGE> 5
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
(In Thousands Except Per Share Amounts) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans................................... $1,205,526 $1,210,235 $2,417,829 $2,350,656
Securities:
Taxable.............................. 208,446 207,228 432,359 413,640
Exempt from Federal income taxes..... 13,465 14,562 23,664 26,162
Federal funds sold and security resale
agreements........................... 9,903 8,293 20,916 14,299
Other short-term investments............ 2,925 4,973 5,987 9,179
---------- ---------- ---------- ----------
Total interest income.............. 1,440,265 1,445,291 2,900,755 2,813,936
INTEREST EXPENSE
Deposits................................ 393,145 472,064 812,168 918,525
Federal funds borrowed and security
repurchase agreements................ 79,352 81,101 179,046 154,864
Borrowed funds.......................... 36,957 48,564 65,441 99,840
Long-term debt and capital securities... 181,867 113,439 339,021 212,609
---------- ---------- ---------- ----------
Total interest expense............. 691,321 715,168 1,395,676 1,385,838
---------- ---------- ---------- ----------
NET INTEREST INCOME....................... 748,944 730,123 1,505,079 1,428,098
PROVISION FOR LOAN LOSSES................. 59,542 43,033 127,576 99,300
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses................. 689,402 687,090 1,377,503 1,328,798
NONINTEREST INCOME
Item processing revenue................. 105,089 117,686 226,792 230,226
Service charges on deposit accounts..... 104,834 96,104 204,697 187,817
Trust and investment management fees.... 80,683 79,729 162,530 156,683
Card-related fees....................... 49,259 49,383 94,569 96,274
Mortgage banking revenue................ 89,181 97,223 182,176 158,473
Other................................... 114,585 114,004 263,758 218,427
---------- ---------- ---------- ----------
Total fees and other income........ 543,631 554,129 1,134,522 1,047,900
Securities gains........................ 57,224 19,714 80,912 20,766
---------- ---------- ---------- ----------
Total noninterest income........... 600,855 573,843 1,215,434 1,068,666
NONINTEREST EXPENSE
Salaries and other personnel............ 389,585 396,574 790,349 780,428
Equipment............................... 52,955 51,471 105,716 103,199
Net occupancy........................... 49,234 49,671 103,361 98,408
Third party services.................... 48,551 51,352 94,121 100,954
Merger expenses......................... -- -- -- 274,698
Other................................... 216,910 200,110 402,890 365,492
---------- ---------- ---------- ----------
Total noninterest expense.......... 757,235 749,178 1,496,437 1,723,179
---------- ---------- ---------- ----------
Income before income taxes................ 533,022 511,755 1,096,500 674,285
Income tax expense........................ 178,534 180,511 390,993 239,319
---------- ---------- ---------- ----------
NET INCOME................................ $ 354,488 $ 331,244 $ 705,507 $ 434,966
========== ========== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK..... $ 354,078 $ 330,145 $ 704,682 $ 433,867
========== ========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
Basic................................... $.56 $.51 $1.11 $.67
Diluted................................. .56 .50 1.10 .66
AVERAGE COMMON SHARES OUTSTANDING
Basic................................... 623,117 656,373 632,004 644,480
Diluted................................. 633,280 672,766 642,637 659,088
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31 June 30
(In Thousands) 1999 1998 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Loans:
Commercial................................... $22,153,612 $22,243,114 $20,220,235
Real estate -- commercial.................... 6,277,934 6,251,879 6,518,933
Real estate -- residential................... 8,388,380 9,664,115 9,761,171
Consumer..................................... 15,184,825 14,822,759 13,473,157
Credit card.................................. 2,050,842 1,852,635 1,830,355
Home equity.................................. 3,261,466 3,176,664 3,113,685
----------- ----------- -----------
Total loans............................. 57,317,059 58,011,166 54,917,536
Allowance for loan losses............... (970,229) (970,243) (976,469)
----------- ----------- -----------
Net loans............................... 56,346,830 57,040,923 53,941,067
Mortgage loans held for sale.................... 2,338,641 3,507,487 2,560,612
Securities available for sale, at fair value.... 14,993,616 16,119,370 13,898,032
Federal funds sold and security resale
agreements................................... 864,178 930,492 1,333,374
Other short-term investments.................... 196,974 218,149 80,220
Cash and demand balances due from banks......... 3,807,336 4,783,491 4,111,415
Properties and equipment........................ 1,073,051 1,150,210 1,081,876
Accrued income and other assets................. 4,401,847 4,495,510 4,251,272
----------- ----------- -----------
TOTAL ASSETS............................ $84,022,473 $88,245,632 $81,257,868
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest bearing deposits.................... $11,624,345 $10,911,926 $10,750,524
NOW and money market accounts................... 16,845,872 18,610,832 17,742,088
Savings accounts................................ 3,870,281 4,021,113 4,263,384
Time deposits of individuals.................... 16,321,310 17,450,904 18,417,699
Other time deposits............................. 1,109,959 2,280,973 2,484,797
Deposits in overseas offices.................... 2,319,594 4,971,161 1,173,497
----------- ----------- -----------
Total deposits.......................... 52,091,361 58,246,909 54,831,989
Federal funds borrowed and security repurchase
agreements................................... 6,979,837 9,427,309 6,069,853
Borrowed funds.................................. 4,495,831 2,117,916 4,330,313
Long-term debt.................................. 13,137,293 9,009,448 6,916,808
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trusts
holding solely debentures of the
Corporation.................................. 180,000 679,895 679,894
Accrued expenses and other liabilities.......... 1,270,947 1,751,247 1,410,015
----------- ----------- -----------
TOTAL LIABILITIES....................... 78,155,264 81,232,724 74,238,872
Stockholders' Equity:
Preferred stock................................. 30,513 36,098 36,592
Common stock.................................... 5,836,696 6,976,810 6,982,404
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY.............. 5,867,209 7,012,908 7,018,996
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $84,022,473 $88,245,632 $81,257,868
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------
(In Thousands) 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 705,507 $ 434,966
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses............................ 127,576 99,300
Depreciation and amortization........................ 80,904 77,454
Amortization of intangibles and servicing rights..... 84,298 59,326
Amortization of securities discount and premium...... 2,422 5,650
Securities gains..................................... (80,912) (20,766)
Other gains, net..................................... (72,635) (117,102)
Net increase in trading account assets............... (32,021) (9,815)
Originations and purchases of mortgage loans held for
sale.............................................. (8,909,996) (8,714,309)
Proceeds from sales of mortgage loans held for
sale.............................................. 10,171,835 7,400,440
(Increase) decrease in interest receivable........... (27,838) 21,840
Increase (decrease) in interest payable.............. 28,390 (50,729)
Net change in other assets/liabilities............... (368,291) (162,604)
------------ -----------
Net Cash Provided (Used) by Operating
Activities...................................... 1,709,239 (976,349)
LENDING AND INVESTING ACTIVITIES
Net decrease (increase) in short-term investments......... 119,510 (757,601)
Purchases of securities................................... (2,847,799) (6,235,915)
Proceeds from sales of securities......................... 1,844,272 5,380,095
Proceeds from maturities and prepayments of securities.... 1,819,409 1,716,040
Net decrease (increase) in loans.......................... 391,757 (936,742)
Proceeds from sales of loans.............................. 82,962 --
Net decrease (increase) in properties and equipment....... 30,252 (73,924)
Acquisitions/disposals.................................... 72,408 157,632
------------ -----------
Net Cash Provided (Used) by Lending and Investing
Activities...................................... 1,512,771 (750,415)
DEPOSIT AND FINANCING ACTIVITIES
Net (decrease) increase in Federal funds borrowed and
security repurchase agreements......................... (2,447,472) 974,283
Net increase in borrowed funds............................ 2,377,915 35,223
Net (decrease) increase in noninterest bearing, savings,
NOW, money market accounts, and deposits in overseas
offices................................................ (3,854,940) 130,017
Net decrease in time deposits............................. (2,300,608) (465,397)
Repayment of long-term debt and capital securities........ (1,897,547) (615,253)
Proceeds from issuance of long-term debt, net............. 5,526,688 1,796,915
Dividends paid............................................ (334,130) (278,573)
Issuances of common stock................................. 95,389 87,655
Repurchases of common stock............................... (1,363,460) (146,000)
------------ -----------
Net Cash (Used) Provided by Deposit and Financing
Activities...................................... (4,198,165) 1,518,870
------------ -----------
Net Decrease in Cash and Demand Balances Due From Banks... (976,155) (207,894)
Cash and Demand Balances Due From Banks, January 1........ 4,783,491 4,319,309
------------ -----------
Cash and Demand Balances Due From Banks, June 30.......... $ 3,807,336 $ 4,111,415
============ ===========
SUPPLEMENTAL DISCLOSURES
Interest paid............................................. $ 1,367,286 $ 1,438,574
Income taxes paid......................................... 158,671 76,868
Common and preferred 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, 1998................. $ -- $1,262,790 $1,108,920 $3,440,763 $345,787
Comprehensive Income:
Net income.......................... 434,966
Other comprehensive income, net of
tax
Unrealized gains on securities of
$21,724 net of reclassification
adjustment for gains included in
net income of $13,498............. 8,226
Total comprehensive income............
Common dividends declared,
$.47 per share...................... (308,672)
Preferred dividends declared.......... (1,099)
Issuance of 4,215,524 common shares
under corporate stock and dividend
reinvestment plans.................. 8,432 79,223
Net issuance of 21,620,168 common
shares and 739,976 preferred shares
pursuant to acquisitions............ 36,999 43,240 690,245 (130,824)
Conversion of 8,130 shares of
preferred stock to 24,626 common
shares.............................. (407) 49 358
------- ---------- ---------- ---------- --------
Balance June 30, 1998................... $36,592 $1,314,511 $1,878,746 $3,435,134 $354,013
======= ========== ========== ========== ========
Balance January 1, 1999................. $36,098 $1,305,309 $1,968,751 $3,430,672 $272,078
Comprehensive Income:
Net income.......................... 705,507
Other comprehensive income, net of
tax
Unrealized losses on securities of
($170,862) net of reclassification
adjustment for gains included in
net income of $80,912............. (251,774)
Total comprehensive income............
Common dividends declared,
$.53 per share...................... (330,536)
Preferred dividends declared.......... (825)
Issuance of 4,316,732 common shares
under corporate stock and dividend
reinvestment plans.................. 8,633 86,756
Purchase of 39,178,400 common
shares.............................. (78,357) (66,825) (1,218,278)
Conversion of 111,697 shares of
preferred stock to 338,334 common
shares.............................. (5,585) 677 4,908
Stock split........................... 1,236,264 (1,236,264)
------- ---------- ---------- ---------- --------
Balance June 30, 1999................... $30,513 $2,472,526 $ 757,326 $2,586,540 $ 20,304
======= ========== ========== ========== ========
<CAPTION>
(Dollars in Thousands Except Per
Share Amounts) Total
<S> <C>
- -------------------------------------------------------------------
Balance January 1, 1998................. $6,158,260
Comprehensive Income:
Net income.......................... 434,966
Other comprehensive income, net of
tax
Unrealized gains on securities of
$21,724 net of reclassification
adjustment for gains included in
net income of $13,498............. 8,226
----------
Total comprehensive income............ 443,192
Common dividends declared,
$.47 per share...................... (308,672)
Preferred dividends declared.......... (1,099)
Issuance of 4,215,524 common shares
under corporate stock and dividend
reinvestment plans.................. 87,655
Net issuance of 21,620,168 common
shares and 739,976 preferred shares
pursuant to acquisitions............ 639,660
Conversion of 8,130 shares of
preferred stock to 24,626 common
shares.............................. --
----------
Balance June 30, 1998................... $7,018,996
==========
Balance January 1, 1999................. $7,012,908
Comprehensive Income:
Net income.......................... 705,507
Other comprehensive income, net of
tax
Unrealized losses on securities of
($170,862) net of reclassification
adjustment for gains included in
net income of $80,912............. (251,774)
----------
Total comprehensive income............ 453,733
Common dividends declared,
$.53 per share...................... (330,536)
Preferred dividends declared.......... (825)
Issuance of 4,316,732 common shares
under corporate stock and dividend
reinvestment plans.................. 95,389
Purchase of 39,178,400 common
shares.............................. (1,363,460)
Conversion of 111,697 shares of
preferred stock to 338,334 common
shares.............................. --
Stock split........................... --
----------
Balance June 30, 1999................... $5,867,209
==========
</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 of National City Corporation ("National City" or the
"Corporation") 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
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137,
7
<PAGE> 9
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133, requires 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
as hedges, changes in fair value are required to be recognized in earnings.
The provisions of this statement, as amended, become effective for quarterly
and annual reporting beginning January 1, 2001. 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. NONRECURRING ITEMS
During the first quarter of 1999, National City sold its 20% ownership
interest in Electronic Payment Services, Inc. ("EPS"), a provider of transaction
processing services, to Concord EFS, Inc. ("Concord") and recognized a gain of
$95.7 million pre-tax, or $62.2 million after-tax. The pre-tax gain on the sale
of EPS is included in other noninterest income on the Consolidated Statements of
Income. The transaction was effected by exchanging each common share of EPS for
7.9091 shares of unregistered Concord common stock. National City received 5.9
million shares of unregistered Concord common stock as a result of the exchange.
During the second quarter of 1999, the shares were registered by Concord and
National City sold its holdings in Concord in the open market and recognized a
gain of $32.1 million pre-tax, or $20.8 million after-tax. The pre-tax gain on
the sale of Concord common stock is included in securities gains on the
Consolidated Statements of Income.
In March 1999, National City sold its interest in Stored Value Systems, Inc.
("SVS"), a subsidiary that had been involved in the development of smart card
technology, for a gain of $6.1 million pre-tax, or $4.0 million after-tax. The
pre-tax gain on the sale of SVS is included in other noninterest income.
During the first six months of 1999, National Processing, Inc. ("National
Processing"), an 88%-owned subsidiary of the Corporation, sold its freight
payables, payables outsourcing, remittance and merchant check services business
lines. As a result, the Corporation recognized a loss of $59.0 million pre-tax,
or $59.8 million after-tax. The larger after-tax loss is the result of
nondeductible goodwill. An estimated impairment loss of $65.0 million pre-tax,
or $63.1 million after-tax was recognized during the first quarter when
management adopted the plan to dispose of the National Processing business
lines. As a result of the final sale of the business lines in the second quarter
of 1999, $6.0 million pre-tax, or $3.3 million after-tax, of the estimated
impairment loss was reversed. The effect of the business line disposals on the
earnings of the Corporation was partially offset by the minority interest
effects of $.5 million and $8.4 million for the second quarter and first half of
1999, respectively. The pre-tax effect of the National Processing business line
disposals are included in other noninterest income, net of the effects of
minority interest.
During the second quarter of 1999, National City recognized charges of $28.6
million pre-tax, or $18.6 million after-tax, pursuant to a plan to improve the
cost efficiency of branch office facilities. These facility charges are included
in other noninterest expense on the Consolidated Statements of Income. Also
during the second quarter, the Corporation recorded $9.2 million pre-tax, or
$5.9 million after-tax, of personnel expense related to executive contract
obligations.
In the first half of 1998, merger charges totaling $274.7 million pre-tax,
or $193.9 million after-tax, were incurred in connection with the acquisitions
of First of America Bank Corporation ("First of America") and Fort Wayne
National Corporation ("Fort Wayne").
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
------------------- -------------------
(In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Balance at beginning of year $970,336 $976,464 $970,243 $941,874
Provision 59,542 43,033 127,576 99,300
Allowance related to loans
acquired 268 -- 361 30,679
Charge-offs:
Commercial 32,018 7,978 45,041 17,848
Real estate -- commercial 738 2,526 3,596 4,733
Real estate -- residential 444 1,504 2,146 3,427
Consumer 40,019 34,324 95,690 76,759
Credit card 25,185 24,694 52,291 50,404
Home equity 2,032 2,233 4,041 4,516
-------- -------- -------- --------
Total charge-offs 100,436 73,259 202,805 157,687
Recoveries:
Commercial 6,937 6,153 11,144 11,443
Real estate -- commercial 3,343 921 5,559 4,009
Real estate -- residential 805 240 948 249
Consumer 22,910 17,187 44,347 34,579
Credit card 5,468 5,066 10,794 10,654
Home equity 1,056 664 2,062 1,369
-------- -------- -------- --------
Total recoveries 40,519 30,231 74,854 62,303
-------- -------- -------- --------
Net charge-offs 59,917 43,028 127,951 95,384
-------- -------- -------- --------
Balance at end of period $970,229 $976,469 $970,229 $976,469
======== ======== ======== ========
</TABLE>
The allowance for loan losses is maintained at a level believed adequate to
absorb estimated probable credit losses and is periodically evaluated based on
an assessment of the losses inherent in the loan portfolio. This assessment
results in an allowance consisting of two components, allocated and unallocated.
8
<PAGE> 10
The allocated component reflects expected losses resulting from the analysis
of individual loans, developed through specific credit allocations for
individual loans, historical loss experience for loan categories and
management's determination of the amounts necessary for concentrations and
changes in mix and volume of the portfolio.
The unallocated portion of the allowance is determined based on management's
assessment of general economic conditions as well as specific economic factors
in the individual markets in which National City operates. This determination
inherently involves a higher degree of uncertainty and considers current risk
factors that may not have yet manifested themselves in the Corporation's
historical loss factors used to determine the allocated component of the
allowance, and it recognizes that knowledge of the portfolio may be incomplete.
Details regarding nonperforming loans are included in the Asset Quality
section of Management's Discussion and Analysis. At June 30, 1999, December 31,
1998 and June 30, 1998, loans that were considered to be impaired under SFAS No.
114 totaled $36.9 million, $16.9 million and $20.3 million, respectively. The
related allowance allocated to these loans was $11.8 million, $7.4 million and
$8.4 million, respectively. All impaired loans were included in nonperforming
assets and had an associated allowance. The contractual interest due and actual
interest recorded on nonperforming assets for the six months ended June 30,
1999, was $14.1 million and $5.6 million, respectively, compared with $24.3
million and $4.9 million, respectively, for the six months ended June 30, 1998.
5. SECURITIES
The table below summarizes the Corporation's portfolio of securities
available for sale. The portfolio consists mainly of financial instruments that
pay back par value upon maturity. Fair value fluctuations occur over the lives
of the instruments due to changes in market interest rates.
Gross unrealized gains for the entire portfolio totaled $296.6 million,
$445.1 million and $569.3 million at June 30, 1999, December 31, 1998 and June
30, 1998, respectively. Gross unrealized losses at the same periods totaled
$265.4 million, $26.7 million and $22.8 million, respectively.
For the six months ended June 30, 1999 and 1998, gross gains of $90.2
million and $47.7 million, and gross losses of $9.3 million and $26.9 million
were realized, respectively, for the entire securities portfolio.
Other securities includes the Corporation's internally-managed equity
portfolio of bank and thrift common stock investments, which had an amortized
cost and fair value of $452.8 million and $636.8 million, respectively, as of
June 30, 1999.
As of June 30, 1999, 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.
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
AMORTIZED FAIR
(In Thousands) COST VALUE
<S> <C> <C>
- -----------------------------------------------------------
U.S. Treasury and Federal
agency debentures............ $ 1,178,507 $ 1,144,713
Mortgage-backed securities..... 9,109,144 8,923,184
Asset-backed and corporate debt
securities................... 2,887,087 2,869,398
States and political
subdivisions................. 865,308 883,860
Other.......................... 922,333 1,172,461
----------- -----------
Total securities............. $14,962,379 $14,993,616
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------
Amortized Fair
(In Thousands) Cost Value
<S> <C> <C>
- -----------------------------------------------------------
U.S. Treasury and Federal
agency debentures............ $ 1,212,437 $ 1,246,251
Mortgage-backed securities..... 9,717,908 9,809,332
Asset-backed and corporate debt
securities................... 3,044,075 3,045,457
States and political
subdivisions................. 917,424 968,119
Other.......................... 809,154 1,050,211
----------- -----------
Total securities............. $15,700,998 $16,119,370
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
--------------------------
Amortized Fair
(In Thousands) Cost Value
<S> <C> <C>
- -----------------------------------------------------------
U.S. Treasury and Federal
agency debentures............ $ 2,039,417 $ 2,048,082
Mortgage-backed securities..... 7,354,617 7,425,438
Asset-backed and corporate debt
securities................... 2,282,725 2,302,296
States and political
subdivisions................. 992,663 1,034,602
Other.......................... 682,149 1,087,614
----------- -----------
Total securities............. $13,351,571 $13,898,032
=========== ===========
</TABLE>
6. BORROWED FUNDS
<TABLE>
<CAPTION>
JUN. 30 Dec. 31 Jun. 30
(In Thousands) 1999 1998 1998
<S> <C> <C> <C>
- ----------------------------------------------------------------
U.S. Treasury demand notes
and Federal funds
borrowed-term........... $3,268,991 $ 916,342 $3,577,371
FHLB advances............. 250,000 250,000 200,000
Bank notes and other...... 55,865 556,313 236,466
---------- ---------- ----------
Total bank
subsidiaries.......... 3,574,856 1,722,655 4,013,837
Commercial paper.......... 917,987 392,938 299,655
Other..................... 2,988 2,323 16,821
---------- ---------- ----------
Total parent company and
other subsidiaries.... 920,975 395,261 316,476
---------- ---------- ----------
Total............. $4,495,831 $2,117,916 $4,330,313
========== ========== ==========
</TABLE>
9
<PAGE> 11
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUN. 30 Dec. 31 Jun. 30
(In Thousands) 1999 1998 1998
- ---------------------------------------------------------------
<S> <C> <C> <C>
9 7/8% subordinated
notes due 1999......... $ 64,988 $ 64,965 $ 64,936
6.50% subordinated notes
due 2000............... 99,957 99,931 99,906
8.50% subordinated notes
due 2002............... 99,932 99,920 99,908
6 5/8% subordinated
notes due 2004......... 249,396 249,330 249,266
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............... 249,826 249,814 249,799
5.75% subordinated notes
due 2009............... 298,899 -- --
6 7/8% subordinated
notes due 2019......... 698,377 -- --
Other................... 10,000 10,000 11,368
----------- ---------- ----------
Total parent company.. 2,121,375 1,123,960 1,125,183
----------- ---------- ----------
6.50% subordinated notes
due 2003............... 199,710 199,675 199,638
7.25% subordinated notes
due 2010............... 223,189 223,107 223,025
6.30% subordinated notes
due 2011............... 200,000 200,000 200,000
7.25% subordinated notes
due 2011............... 197,573 197,475 197,376
6.25% subordinated notes
due 2011............... 297,278 -- --
Other................... 1,188 1,475 1,597
----------- ---------- ----------
Total subsidiary...... 1,118,938 821,732 821,636
----------- ---------- ----------
Total long-term debt
qualifying for Tier
2 Capital........... 3,240,313 1,945,692 1,946,819
----------- ---------- ----------
Senior bank notes....... 7,527,279 4,992,219 3,490,423
FHLB advances........... 2,362,013 2,063,207 1,470,875
Other................... 7,688 8,330 8,691
----------- ---------- ----------
Total other long-term
debt................ 9,896,980 7,063,756 4,969,989
----------- ---------- ----------
Total............... $13,137,293 $9,009,448 $6,916,808
=========== ========== ==========
</TABLE>
During the six months ended June 30, 1999, National City issued $1.0 billion
in subordinated notes and its wholly-owned subsidiary, National City Bank,
issued $300 million in subordinated notes. These subordinated notes qualify for
inclusion in Tier 2 Capital.
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 June 30,
1999.
8. CORPORATION OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY DEBENTURES OF THE CORPORATION
<TABLE>
<CAPTION>
JUN. 30 Dec. 31 Jun. 30
(In Thousands) 1999 1998 1998
- ----------------------------------------------------------------
<S> <C> <C> <C>
8.12% Capital Securities of
First of America Capital Trust
I, due January 31, 2027........ $150,000 $150,000 $150,000
9.85% Capital Securities of Fort
Wayne Capital Trust I, due
April 15, 2027................. 30,000 30,000 30,000
-------- -------- --------
Total Capital Securities
qualifying as Tier 1
capital....................... 180,000 180,000 180,000
6.75% Capital Securities of
National City Capital Trust.... -- 499,895 499,894
-------- -------- --------
Total......................... $180,000 $679,895 $679,894
======== ======== ========
</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 and Fort Wayne
Capital Trust I are first redeemable, in whole or in part, by the Corporation on
January 31, 2007 and April 15, 2007, respectively. The debentures held by
National City Capital Trust I were redeemed by the Corporation on June 1, 1999.
10
<PAGE> 12
9. CAPITAL RATIOS
The following table reflects various measures of capital:
<TABLE>
<CAPTION>
JUN. 30 Dec. 31 Jun. 30
1999 1998 1998
(Dollars in ---------------- ---------------- ----------------
Millions) AMOUNT RATIO Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------
Total
equity(1)... $5,867.2 6.98% $7,012.9 7.95% $7,019.0 8.64%
Total common
equity(1)... 5,836.7 6.95 6,976.8 7.91 6,982.4 8.59
Tangible common
equity(2)... 4,799.5 5.78 5,850.6 6.72 5,846.5 7.30
Tier 1
capital(3).. 5,036.8 7.19 5,726.1 7.95 5,542.5 8.41
Total risk-
based
capital(4)... 8,875.1 12.67 8,493.7 11.79 8,143.0 12.36
Leverage(5)... 5,036.8 6.12 5,726.1 6.94 5,542.5 7.09
- ----------------------------------------------------------------------
</TABLE>
(1) Computed in accordance with generally accepted accounting principles,
including unrealized fair value adjustment of securities available for sale.
(2) Common stockholders' equity less all intangible assets; computed as a ratio
to total assets less intangible assets.
(3) Stockholders' equity less certain intangibles and the unrealized fair 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 and
unrealized holding gains on certain equity securities; 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.
- ------------------------------------------------------------
The Corporation and its banking subsidiaries must meet specific capital
requirements that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as set forth by banking industry regulators.
Failure to meet minimum capital requirements can result in certain mandatory and
possible additional discretionary actions by regulators that could have a
material effect on a bank's operations.
National City's Tier 1, total risk-based capital and leverage ratios for the
current period are based on preliminary data. Such ratios are 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 assets used in the capital ratio calculations are summarized
below:
<TABLE>
<CAPTION>
JUN. 30 Dec. 31 Jun. 30
(In Millions) 1999 1998 1998
- ------------------------------------------------------------
<S> <C> <C> <C>
Goodwill.................... $ 962.4 $1,043.3 $1,045.4
Other intangibles........... 74.8 82.9 90.5
-------- -------- --------
Total intangibles........... $1,037.2 $1,126.2 $1,135.9
======== ======== ========
</TABLE>
10. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUN. 30 Dec. 31 Jun. 30
(Outstanding Shares) 1999 1998 1998
<S> <C> <C> <C>
- -----------------------------------------------------------------
Preferred Stock, no par
value, authorized
5,000,000 shares...... 610,258 721,954 731,846
Common Stock, $4 par
value, authorized
1,400,000,000 shares.. 618,131,386 652,654,720 657,255,294
</TABLE>
National City's preferred stock has 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 the Corporation 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 3.0291 shares of National City common
stock.
During the fourth quarter of 1998, the board of directors authorized the
purchase of up to 60 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. To date, 49 million shares have been
repurchased. Of the 49 million repurchased shares, 39 million were repurchased
during the first six months of 1999.
On April 12, 1999, the Corporation's stockholders approved an increase in
the number of authorized common shares from 700,000,000 to 1,400,000,000.
On June 30, 1999, the Corporation declared a two-for-one stock split of its
common stock effected in the form of a 100% stock dividend, payable July 26,
1999, to stockholders of record July 9, 1999. The stock split was accounted for
by a transfer of $1.2 billion from capital surplus to common stock. All share
and per share information has been restated to reflect the stock split.
11. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------
(In Thousands) 1999 1998
<S> <C> <C>
- -----------------------------------------------------------
Applicable to income exclusive
of securities transactions... $362,674 $232,071
Applicable to securities
transactions................. 28,319 7,248
-------- --------
Total.................. $390,993 $239,319
======== ========
</TABLE>
The effective tax rate was approximately 35.7% and 35.5% for the six months
ended June 30, 1999 and 1998, respectively. Income taxes for the first six
months of 1999 include the effect of the write off of nondeductible goodwill
related to the disposal of certain National Processing business lines. See Note
3 for further discussion.
11
<PAGE> 13
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 June 30, 1999, bank subsidiaries may pay
the Parent company, without prior regulatory approval, approximately $1.5
billion of dividends. During the first six months of 1999, dividends totaling
$2.8 million were declared and $76.0 million of previously declared dividends
were paid to the Parent company by the bank subsidiaries.
13. NET INCOME PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
(In Thousands Except ------------------- -------------------
Per Share Amounts) 1999 1998 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
Net income................. $354,488 $331,244 $705,507 $434,966
Less preferred dividends... 410 1,099 825 1,099
-------- -------- -------- --------
Net income applicable to
common stock............. $354,078 $330,145 $704,682 $433,867
======== ======== ======== ========
Average common shares
outstanding.............. 623,117 656,373 632,004 644,480
======== ======== ======== ========
Net income per common
share -- basic........... $ .56 $ .51 $ 1.11 $ .67
======== ======== ======== ========
DILUTED:
Net income................. $354,488 $331,244 $705,507 $434,966
======== ======== ======== ========
Average common shares
outstanding.............. 623,117 656,373 632,004 644,480
Stock option adjustment.... 8,315 14,158 8,734 13,484
Preferred stock
adjustment............... 1,848 2,235 1,899 1,124
-------- -------- -------- --------
Average common shares
outstanding -- diluted... 633,280 672,766 642,637 659,088
======== ======== ======== ========
Net income per common
share -- diluted......... $ .56 $ .50 $ 1.10 $ .66
======== ======== ======== ========
</TABLE>
14. 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. Management believes it
has complied with all applicable tax laws and regulations with respect to such
programs and will vigorously contest any claim.
15. LINE OF BUSINESS REPORTING
National City operates four major lines of businesses: corporate banking,
retail sales and distribution, consumer finance and fee-based businesses. The
business units are identified by the product or services offered and the channel
through which the product or service is delivered. The accounting policies of
the individual business units are the same as those of the Corporation.
Effective for second quarter 1999 line of business disclosures, the retail
banking business line was divided into the retail sales and distribution and
consumer finance lines of business. In connection with this change, certain
prior period amounts were reclassified to conform to the current line of
business reporting structure. Transactions between business units are primarily
conducted at fair value, resulting in profits that are eliminated for reporting
consolidated results of operations. Parent and other is comprised of several
smaller business units including venture capital and the investment funding unit
as well as intersegment income elimination and unallocated expenses. Operating
results of the business units are discussed in the Line of Business Results
section of Management's Discussion and Analysis. Selected line of business
information, with revenues on a taxable equivalent basis, is included in the
table on the following page.
12
<PAGE> 14
<TABLE>
<CAPTION>
Corporate Retail Sales Consumer Fee-Based Parent Consolidated
(In Thousands) Banking and Distribution Finance Businesses and Other Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30, 1999
External revenues................. $264,929 $ 492,040 $172,761 $366,718 $ 62,593 $1,359,041
Intersegment revenues
(expenses)...................... -- 15,784 -- 1,124 (16,908) --
-------- ---------- -------- -------- --------- ----------
Total revenues.................... $264,929 $ 507,824 $172,761 $367,842 $ 45,685 $1,359,041
======== ========== ======== ======== ========= ==========
Net income........................ $ 93,357 $ 133,333 $ 43,448 $ 74,860 $ 9,490 $ 354,488
Average assets (In millions)...... 25,953 17,098 15,476 5,890 18,952 83,369
QUARTER ENDED JUNE 30, 1998
External revenues................. $271,350 $ 524,942 $157,696 $337,999 $ 21,771 $1,313,758
Intersegment revenues
(expenses)...................... -- 2,909 -- 8,684 (11,593) --
-------- ---------- -------- -------- --------- ----------
Total revenues.................... $271,350 $ 527,851 $157,696 $346,683 $ 10,178 $1,313,758
======== ========== ======== ======== ========= ==========
Net income........................ $105,883 $ 140,388 $ 26,230 $ 57,748 $ 995 $ 331,244
Average assets (In millions)...... 24,880 18,864 13,209 4,847 18,127 79,927
SIX MONTHS ENDED JUNE 30, 1999
External revenues................. $529,729 $ 984,945 $340,839 $642,921 $ 239,885 $2,738,319
Intersegment revenues
(expenses)...................... -- 27,820 -- 12,870 (40,690) --
-------- ---------- -------- -------- --------- ----------
Total revenues.................... $529,729 $1,012,765 $340,839 $655,791 $ 199,195 $2,738,319
======== ========== ======== ======== ========= ==========
Net income........................ $197,273 $ 254,515 $ 73,213 $ 70,169 $ 110,337 $ 705,507
Average assets (In millions)...... 25,892 17,763 15,175 6,099 19,510 84,439
SIX MONTHS ENDED JUNE 30, 1998
External revenues................. $528,947 $ 998,897 $309,378 $629,633 $ 50,002 $2,516,857
Intersegment revenues
(expenses)...................... -- 9,845 -- 18,181 (28,026) --
-------- ---------- -------- -------- --------- ----------
Total revenues.................... $528,947 $1,008,742 $309,378 $647,814 $ 21,976 $2,516,857
======== ========== ======== ======== ========= ==========
Net income (loss)................. $197,433 $ 249,402 $ 56,205 $ 97,835 $(165,909) $ 434,966
Average assets (In millions)...... 24,062 18,604 13,038 4,461 17,257 77,422
</TABLE>
Note: Net income for the fee-based businesses includes losses on the sale of
certain National Processing businesses, Table 1 on page 14 shows net income
excluding these losses and other nonrecurring items.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
Net income for the second quarter and six months ended June 30, 1999 was
$354.5 million and $705.5 million, respectively, compared with $331.2 million
and $435.0 million for the second quarter and first six months of 1998,
respectively. After giving consideration to the two-for-one stock split, net
income per diluted common share was $.56 for the second quarter and $1.10 for
the first six months of 1999, compared with $.50 and $.66 for the same periods
last year. Returns on average common equity and average assets for the second
quarter of 1999 were 22.96% and 1.71%, respectively, compared with 19.47% and
1.66% for the second quarter of 1998. For the first six months of 1999, returns
on average common equity were 22.01% and 1.68%, respectively, compared with
13.18% and 1.13% for the same period in 1998.
Excluding the effects of the nonrecurring items described in Note 3 to the
Consolidated Financial Statements, net income per diluted share was $.56 for the
second quarter and $1.09 for the first six months of 1999, compared with $.50
and $.95 for the same periods last year. On this same basis, returns on average
common equity and average assets were 22.99% and 1.71% for the second quarter of
1999, compared with 19.47% and 1.66% for the second quarter of 1998. Returns on
average common equity and average assets for the first six months of 1999,
excluding nonrecurring items, were 21.93% and 1.68%, compared with 19.07% and
1.64% for the same period in 1998.
LINE OF BUSINESS RESULTS
National City's operations are managed along four major lines of business:
corporate banking, retail sales and distribution, consumer finance and fee-
based businesses. Note 15 to the Consolidated Financial Statements provides
selected financial information for each business line. Table 1 summarizes net
income, excluding nonrecurring items, by line of business. Corporate banking net
income for both the second quarter and first half of 1999 decreased primarily
due to a higher loan loss provision, partially offset by a decrease in
noninterest expense resulting from merger integration synergies and expense
containment.
Retail sales and distribution net income for the second quarter of 1999 was
down from the comparable 1998 quarter due primarily to branch sale gains in
1998. For the first half of 1999, retail sales and distribution net income
increased over the prior year. The improvement was driven by cost efficiencies
gained as a result of merger integration synergies and functional centralization
efforts.
Consumer finance net income for the second quarter and first half of 1999
increased over the comparable 1998 periods due primarily to an increase in net
interest income driven by increased loan origination volume, especially in the
education lending and dealer finance areas, coupled with improved product
pricing.
Net income for the fee-based businesses as shown in Table 1 excludes the
loss on the sale of certain National Processing businesses. Excluding this loss,
fee-based business net income for the second quarter of 1999 increased over the
same period of 1998 due to cost efficiencies realized in the item processing and
trust businesses. For the first six months of 1999, fee-based business net
income growth over the same period of last year was primarily driven by the
Corporation's trust and mortgage banking businesses.
Net income for parent and other as shown in Note 15 to the Consolidated
Financial Statements includes the effects of nonrecurring items other than the
loss on the sale of National Processing businesses. Excluding these items,
parent and other net income for the second quarter and first six months of 1999
(Table 1) increased over the same periods of last year due to increased
securities gains and a higher contribution from the investment/funding units.
NET INTEREST INCOME
On a tax-equivalent basis, net interest income for the second quarter and
first six months of 1999 was $758.2 million and
TABLE 1: NET INCOME BY LINE OF BUSINESS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended Ended
June 30 June 30
---------------- ----------------
(In Millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
Corporate banking.......................... $ 93.4 $105.9 $197.3 $197.4
Retail sales and distribution.............. 133.3 140.4 254.5 249.4
Consumer finance........................... 43.4 26.2 73.2 56.2
Fee-based businesses....................... 71.6 57.7 130.0 97.8
Parent and other........................... 13.2 1.0 47.8 28.1
------ ------ ------ ------
Consolidated total..................... $354.9 $331.2 $702.8 $628.9
====== ====== ====== ======
</TABLE>
Note: Amounts exclude nonrecurring items.
14
<PAGE> 16
$1,522.9 million, respectively, up $18.3 million and $74.7 million over the same
periods last year. The acquisition of Fort Wayne added approximately $30 million
to net interest income for the first half of 1999. The remaining increase for
the second quarter and first six months of 1999 was due to increases in average
earning assets of 5.4% and 7.1%, respectively, over the second quarter and first
half of 1998, partially offset by decreases in the net interest margin of 11
basis points and 13 basis points for the same periods. The decline in net
interest margin both on a quarterly and year-to-date basis is attributed to
lower yields on earning assets, a reliance on higher cost funding, a lower
contribution from noninterest bearing deposits, and the effects of additional
long-term borrowings to fund the Corporation's share repurchase program.
National City's net interest income is affected by the use of off-balance
sheet derivative financial instruments. For the second quarter and first six
months of 1999, the derivative portfolio contributed $16.4 million and $31.4
million, respectively, to net interest income and added 9 basis points and 8
basis points, respectively, to the net interest margin.
During the second quarter of 1999 the notional amount of interest rate swap
agreements increased by $2.0 billion to $20.8 billion. The net unrealized losses
in the derivative portfolio were $139.1 million at June 30, 1999 compared to
unrealized gains of $88.1 million at March 31, 1999.
Since the end of 1998, there have been no significant changes in the nature
of off-balance sheet instruments used to manage exposure from changes in
interest rates, which represents the Corporation's primary market risk.
Management is responsible for monitoring and limiting the Corporation's
exposure to interest rate risk within established guidelines while maximizing
net interest income and the net value of the Corporation's future cash flows.
The Corporation employs three complementary measures to monitor interest rate
risk: static gap, income stimulation and net present value analysis. While each
of the interest rate risk measurements has its limitations, taken together they
represent a reasonably comprehensive view of the magnitude of interest rate risk
in the Corporation, the distribution of risk along the yield curve, the level of
risk through time, and the amount of exposure to changes in certain interest
rate relationships.
During the first half of 1999, the Corporation's interest rate risk
position grew more liability sensitive. The change in position primarily
resulted from an increase in interest rates and repurchases of the Corporation's
own stock.
As of June 30, 1999, the earnings stimulation model projects net income
would increase by 3.3% of net income in a stable-rate environment if rates fall
gradually by 200 basis points over the next year and decrease by 3.4% if rates
rise gradually by 200 basis points over the next year. Within a two-year
horizon, and assuming an additional 200 basis point move in rates, the model
forecasts net income would decrease below that earned in a stable-rate
environment by 2.6% in a falling rate scenario and decrease by 9.9% in a
rising-rate scenario.
The cumulative one-year gap, at June 30, 1999, was negative 13.5% of total
adjusted earning assets.
The Corporation's net present value model indicates a 150 basis 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 12.5% of total net present
value at June 30, 1999, whereas a 150 basis point immediate downward shock would
cause total net present value to rise by 5.2%. Although the estimated effect of
a 150 basis point downward shock exceeds the Corporation's guideline of a 10%
decline in net present value, analysis of the average quarterly change in the
Treasury yield curve over the past ten years indicates a parallel curve shift of
150 basis points is unlikely. In addition, as an integral part of managing
interest rate risk, management considers many factors in determining what, if
any, action should be taken. Most prominent among these factors are expected
future interest rate movements, variability and timing of balance sheet cash
flows, mortgage prepay-
TABLE 2: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended Ended
June 30 June 30
---------------- ----------------
(In Millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Interest adjustment to loans.............. $ 1.0 $ .5 $ 3.1 $ 1.2
Interest adjustment to securities......... (.2) (.2) (.5) (.6)
------ ------ ------ ------
Interest adjustment to earning assets... .8 .3 2.6 .6
Interest adjustment to interest bearing
liabilities............................. (15.6) (9.9) (28.8) (19.8)
------ ------ ------ ------
Effect on net interest income........... $ 16.4 $ 10.2 $ 31.4 $ 20.4
====== ====== ====== ======
</TABLE>
Note: Amounts in brackets represent reductions of the related interest income or
expense line, as applicable.
15
<PAGE> 17
ments, and potential attrition of the core deposit portfolios.
NONINTEREST INCOME
For the second quarter of 1999, noninterest income, excluding securities
gains and nonrecurring items, decreased 3.0% to $537.6 million from $554.1
million in 1998. For the first half of 1999, noninterest income, on the same
basis, increased 4.2% to $1,091.7 million from $1,047.9 million in 1998. The
acquisition of Fort Wayne added approximately $9 million to noninterest income
for the first six months of 1999.
Item processing revenue for the second quarter and first six months of 1999
decreased 10.7% and 1.5% from revenues in the respective periods in 1998 as a
result of the disposal of four National Processing business lines during the
second quarter of 1999. Item processing revenue generated by remaining core
business units for the second quarter and first six months of 1999 increased by
13.4% and 14.3%, respectively, over the same periods last year.
Service charges on deposit accounts for the second quarter and first half
of 1999 increased 9.1% and 9.0% over revenues generated in the respective
periods of 1998 due to increases in debit card and other transaction volume
coupled with improved deposit fee management. The inclusion of service charges
on former Fort Wayne deposits accounted for approximately 1% of the
year-over-year increase.
Trust and investment management fees for the second quarter of 1999 were
relatively unchanged compared with respective amounts for the second quarter of
1998. For the first six months of 1999, trust and investment management fees
grew 3.7% over fees generated in the same period of 1998 due to new business
volume and an increase in the market value of assets under management.
Mortgage banking revenues for the second quarter of 1999 decreased 8.3% due
to a decline in origination volume from $5.4 billion in the second quarter of
1998 to $4.4 billion in the second quarter of 1999. For the first six months of
1999, mortgage banking revenues increased 15.0% over the same period in 1998 as
a result of growth in origination volume and servicing revenue. Origination
volume for the first six months of 1999 was $8.9 billion compared to volume for
the same period of 1998 of $8.7 billion. The servicing portfolio at June 30,
1999 was $41.4 billion, compared with $24.1 billion at June 30, 1998.
Other noninterest income, excluding the nonrecurring items discussed in
Note 3 to the Consolidated Financial Statements and branch sale gains of $7.5
million and $8.7 million recognized in the second quarter and first half of
1998, respectively, increased over the 1998 periods due primarily to growth in
brokerage revenues.
Net securities gains for the second quarter and first six months of 1999,
excluding the nonrecurring gain of $32.1 million on the sale of Concord EFS,
Inc. common stock, were $25.2 million and $48.9 million, respectively. This
compares to $19.7 million and $20.8 million for the respective periods of 1998.
NONINTEREST EXPENSE
Noninterest expense, excluding nonrecurring items, declined 4.0% to $719.5
million in the second quarter of 1999 from $749.2 million in the second quarter
of 1998. Excluding the effects of nonrecurring items and the acquisition of Fort
Wayne, which added approximately $27 million to 1999 expenses, noninterest
expense for the first six months of 1999 was also down from the same period a
year ago. Merger integration savings and lower expenses resulting from the
disposition of the National Processing business lines in the second quarter of
1999 contributed to the declines in both periods.
National City's staffing level on a full-time equivalent basis was 37,804
at June 30, 1999, down from 43,005 at June 30, 1998 as a result of business line
divestitures and efficiencies gained from the 1998 business combinations with
First of America and Fort Wayne partially offset by volume-driven growth in
certain businesses.
The efficiency ratio calculates noninterest expense as a percentage of fee
and other income plus tax equivalent net interest income. The overhead ratio
calculates noninterest
TABLE 3: OVERHEAD AND EFFICIENCY PERFORMANCE
MEASURES BY LINE OF BUSINESS
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended
---------------------------------------------
JUNE 30, 1999 June 30, 1998
--------------------- ---------------------
OVERHEAD EFFICIENCY Overhead Efficiency
RATIO RATIO Ratio Ratio
- ---------------------------------------------------------------------------------
Corporate banking................. 19.69% 35.09% 25.67% 39.35%
Retail sales and distribution..... 42.19 57.67 44.63 59.91
Consumer finance.................. 28.35 37.93 33.20 42.25
Fee-based businesses.............. -- 71.75 -- 76.29
Parent and other.................. -- -- -- --
Consolidated total excluding
nonrecurring items.......... 24.10% 55.79% 27.66% 58.03%
Consolidated total............ 23.77% 56.31% 46.63% 69.04%
</TABLE>
16
<PAGE> 18
expense less fee and other income as a percentage of tax-equivalent net interest
income. Excluding the effects of nonrecurring items, the efficiency ratios for
the first six months of 1999 and 1998 were 55.79% and 58.03%, respectively. On
the same basis, the overhead ratios for the first six months of 1999 and 1998
were 24.10% and 27.66%, respectively.
EARNING ASSETS AND INTEREST BEARING LIABILITIES
Average earning assets for the second quarter were $75,238 million, down
1.7% from $76,514 million in the first quarter of 1999 and up 5.3% from $71,414
million in the second quarter of last year. The decrease from the first quarter
of 1999 was due to the managed reduction of lower-yielding assets, primarily
residential real estate loans and securities. The growth in average earning
assets over the second quarter of 1998 was driven by a $2.9 billion increase in
average loans and an $764 million increase in average securities. Average loan
growth was primarily concentrated in the commercial and consumer installment
categories and was partially offset by the real estate loan runoff.
Average interest bearing liabilities in the second quarter of 1999 were
$64,660 million, down 1.9% from $65,919 million in the first quarter of 1999 as
a result of a decrease in interest bearing deposits, partially offset by an
increase in long-term debt. Average interest bearing liabilities increased 5.0%
over $61,569 million in the second quarter of 1998 as a result of an increase in
long-term debt, partially offset by a decrease in interest bearing deposits.
For the second quarter of 1999, average core deposits of $49,002 million
were down 1.3% from $49,670 million in the first quarter of 1999 and 3.2% from
$50,603 million in the second quarter of 1998.
ASSET QUALITY
The allowance for loan losses was $970.2 million at June 30, 1999 or 1.69%
of loans, compared with $970.2 million or 1.67% of loans at December 31, 1998
and $976.5 million or 1.78% of loans at June 30, 1998. For the second quarter of
1999, net charge-offs were $60.0 million compared with $43.0 million for the
same period last year.
Table 4 presents net charge-offs as a percentage of average loans by
portfolio type. Net charge-offs were .42% and .45% of average loans for the
second quarter and first six months of 1999, respectively, compared with .32%
and 36% for the same periods in 1998.
Nonperforming assets (Table 5) were $249.5 million at June 30, 1999 up from
$248.5 million at December 31, 1998 and down from $257.0 million at June 30,
1998. Nonperforming assets as a percentage of loans and OREO were .44% at June
30, 1999, .43% at December 31, 1998 and .47% at June 30, 1998. Loans 90 days
past due and accruing interest were $199.6 million at June 30, 1999 compared
with $209.5 million at December 31, 1998 and $142.5 million at June 30, 1998.
CAPITAL
At June 30, 1999, total stockholders' equity was $5.9 billion compared to
$7.0 billion at December 31, 1998 and June 30, 1998. Book value per common share
at June 30, 1999, December 31, 1998 and June 30, 1998 was $9.44, $10.69 and
$10.62, respectively. Book value per common share at June 30, 1999, December 31,
1998 and June 30, 1998 included unrealized gains on securities available
TABLE 4: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended Ended
June 30 June 30
------------ ------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------
Commercial....................................... .45% .04% .31% .07%
Real estate -- commercial........................ (.17) .10 (.06) .02
Real estate -- residential....................... (.02) .05 .03 .06
Consumer......................................... .45 .52 .69 .66
Credit card...................................... 4.05 4.23 4.43 4.21
Home equity...................................... .12 .20 .13 .21
Total net charge-offs to average loans......... .42% .32% .45% .36%
</TABLE>
TABLE 5: NONPERFORMING ASSETS
<TABLE>
<S> <C> <C> <C>
JUN. 30 Dec. 31 Jun. 30
(In Millions) 1999 1998 1998
- -----------------------------------------------------------------------------------
Commercial:
Nonaccrual..................................... $ 97.1 $ 95.4 $ 97.9
Restructured................................... .3 .4 .4
------ ------ ------
Total commercial............................. 97.4 95.8 98.3
Real estate mortgage:
Nonaccrual..................................... 123.0 120.2 124.2
Restructured................................... 2.4 2.6 2.5
------ ------ ------
Total real estate mortgage................... 125.4 122.8 126.7
------ ------ ------
Total nonperforming loans.................... 222.8 218.6 225.0
Other real estate owned (OREO)................... 26.7 29.9 32.0
------ ------ ------
Nonperforming assets............................. $249.5 $248.5 $257.0
====== ====== ======
Loans 90 days past-due accruing interest......... $199.6 $209.5 $142.5
====== ====== ======
</TABLE>
17
<PAGE> 19
for sale of $.03, $.42 and $.54 per share, respectively.
During the first half of 1999, 39 million common shares were repurchased by
the Corporation. As of June 30, 1999, approximately 11 million shares remained
authorized for repurchase under the 60 million share authorization granted by
the board of directors in the fourth quarter of 1998.
During the second quarter of 1999, the Corporation declared a two-for-one
stock split of its common stock effected in the form of a 100% stock dividend.
All share and per share information has been restated to reflect the stock
split. Also during the second quarter, the Corporation's stockholders approved
an increase in the number of authorized shares from 700 million to 1.4 billion.
Dividends of $.27 per common share were declared during the second quarter
of 1999, reflecting a dividend payout ratio of 48.21%. This compares with $.24
per share and 48.00% for the second quarter of 1998.
Average equity as a percentage of average assets for the second quarter and
six months ended June 30, 1999 was 7.46% and 7.68%, respectively, compared with
8.56% and 8.60% for the same periods in 1998.
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 all 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 has modified its existing business continuity plans and has
developed contingency plans to address potential risks in the event of Year 2000
failures, including non-compliance or failure by third parties. Throughout the
remainder of 1999, management will continue to monitor the Corporation's state
of readiness and will continue to work closely with significant customers,
vendors and other business counterparties to monitor their Year 2000 progress.
Efforts in the second half of the year will include activities related to the
ongoing preparation and management of the actual Year 2000 event.
Management believes it has an effective plan in place to manage and resolve
the Year 2000 issue in a timely manner and, thus far, activities have tracked in
accordance with the original plan. Despite National City's efforts to date to
remediate affected systems and develop contingency plans for potential failures,
management continues to manage and monitor the various Year 2000 readiness
risks. Under the unlikely scenario that unanticipated failures occur, 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 negative
impact of undeterminable magnitude on National City.
The total cost of the Year 2000 project is estimated at $65 million.
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, $54 million of the total
project costs have been incurred. During the first six months of 1999,
incremental noninterest expense associated with the project totaled
approximately $7 million.
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.
18
<PAGE> 20
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In Millions) June 30, June 30,
- ---------------------------------------------------------------------------------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial(1)........................................ $28,503 $26,735 $28,480 $25,743
Real estate -- residential........................... 8,483 9,844 8,712 9,864
Consumer............................................. 15,130 13,107 15,040 12,793
Credit Card.......................................... 1,953 1,861 1,891 1,902
Home equity.......................................... 3,188 3,074 3,172 3,034
------- ------- ------- -------
Total loans........................................ 57,257 54,621 57,295 53,336
Mortgage loans held for sale........................... 2,344 2,088 2,650 1,646
Securities available for sale, at cost................. 14,638 13,874 14,881 13,757
Federal funds sold and security resale agreements...... 850 713 898 577
Other short-term investments........................... 149 118 148 117
------- ------- ------- -------
Total earning assets................................. 75,238 71,414 75,872 69,433
Allowance for loan losses................................ (989) (995) (987) (975)
Fair value appreciation of securities available for
sale................................................... 268 564 322 550
Cash and demand balances due from banks.................. 3,506 3,616 3,785 3,492
Properties and equipment................................. 1,124 1,055 1,135 1,045
Accrued income and other assets.......................... 4,222 4,273 4,312 3,877
------- ------- ------- -------
Total assets......................................... $83,369 $79,927 $84,439 $77,422
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest bearing deposits........................... $11,542 $10,053 $11,610 $ 9,724
NOW and money market accounts.......................... 16,997 17,628 16,949 16,897
Savings accounts....................................... 3,922 4,282 3,938 4,226
Time deposits of individuals........................... 16,541 18,640 16,836 18,523
Other time deposits.................................... 1,199 2,536 1,477 2,240
Deposits in overseas offices........................... 2,342 1,420 2,684 1,496
------- ------- ------- -------
Total deposits....................................... 52,543 54,559 53,494 53,106
------- ------- ------- -------
Federal funds borrowed and security repurchase
agreements........................................... 7,377 6,433 8,187 6,164
Borrowed funds......................................... 2,977 3,395 2,908 3,447
Long-term debt and capital securities.................. 13,305 7,235 12,309 6,753
Accrued expenses and other liabilities................. 951 1,466 1,054 1,294
------- ------- ------- -------
Total liabilities.................................... 77,153 73,088 77,952 70,764
Stockholders' Equity:
Preferred.............................................. 31 37 31 19
Common................................................. 6,185 6,802 6,456 6,639
------- ------- ------- -------
Total stockholders' equity........................... 6,216 6,839 6,487 6,658
------- ------- ------- -------
Total liabilities and stockholders' equity........... $83,369 $79,927 $84,439 $77,422
======= ======= ======= =======
</TABLE>
(1) Includes commercial real estate loans.
19
<PAGE> 21
DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions) Daily Average Balance
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------- ---------------------------
SECOND First Fourth Third Second
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial(1)................................... $28,503 $28,459 $27,923 $26,672 $26,735
Real estate -- residential(2)................... 10,827 11,902 12,318 12,030 11,932
Consumer........................................ 15,130 14,956 14,491 13,964 13,107
Credit Card..................................... 1,953 1,829 1,818 1,818 1,861
Home equity..................................... 3,188 3,149 3,193 3,144 3,074
------- ------- ------- ------- -------
Total loans................................... 59,601 60,295 59,743 57,628 56,709
Securities:
Taxable......................................... 13,761 14,227 13,563 12,647 12,846
Tax-exempt...................................... 877 899 937 967 1,028
------- ------- ------- ------- -------
Total securities.............................. 14,638 15,126 14,500 13,614 13,874
Federal funds sold................................ 78 43 141 175 169
Security resale agreements........................ 772 902 1,016 1,002 544
Other short-term investments...................... 149 148 113 110 118
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 75,238 76,514 75,513 72,529 71,414
Allowance for loan losses........................... (989) (985) (988) (994) (995)
Fair value appreciation of securities available for
sale.............................................. 268 377 509 511 564
Cash and demand balances due from banks............. 3,506 4,068 3,826 3,685 3,616
Properties and equipment............................ 1,124 1,145 1,148 1,124 1,055
Accrued income and other assets..................... 4,222 4,401 4,200 4,207 4,273
------- ------- ------- ------- -------
Total assets.................................. $83,369 $85,520 $84,208 $81,062 $79,927
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $16,997 $16,899 $18,181 $17,890 $17,628
Savings accounts.................................. 3,922 3,955 4,033 4,157 4,282
Time deposits of individuals...................... 16,541 17,135 17,795 18,222 18,640
Other time deposits............................... 1,199 1,757 2,472 2,505 2,536
Deposits in overseas offices...................... 2,342 3,030 2,050 1,785 1,420
Federal funds borrowed............................ 2,467 3,970 3,730 3,397 2,676
Security repurchase agreements.................... 4,910 5,034 5,465 4,034 3,757
Borrowed funds.................................... 2,977 2,838 2,515 2,644 3,395
Long-term debt and capital securities............. 13,305 11,301 9,292 7,962 7,235
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 64,660 65,919 65,533 62,596 61,569
Noninterest bearing deposits...................... 11,542 11,681 10,168 10,051 10,053
Accrued expenses and other liabilities............ 951 1,159 1,144 1,195 1,466
------- ------- ------- ------- -------
Total liabilities............................. 77,153 78,759 76,845 73,842 73,088
Stockholders' equity................................ 6,216 6,761 7,363 7,220 6,839
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $83,369 $85,520 $84,208 $81,062 $79,927
======= ======= ======= ======= =======
Net interest income..................................................................................
Interest spread......................................................................................
Contribution of noninterest bearing sources of funds.................................................
Net interest margin..................................................................................
</TABLE>
(1) Includes commercial real estate loans.
(2) Includes mortgage loans held for sale.
20
<PAGE> 22
<TABLE>
<CAPTION>
Quarterly Interest
----------------------------------------------------
1999 1998
------------------- ------------------------------
Second First Fourth Third SECOND
Quarter Quarter Quarter Quarter QUARTER
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial(1)................................... $ 557.2 $ 553.6 $ 560.4 $ 567.5 $ 564.8
Real estate -- residential(2)................... 202.5 215.3 221.6 226.1 225.9
Consumer........................................ 317.5 313.3 315.6 305.6 289.4
Credit Card..................................... 65.5 59.6 63.6 62.9 64.7
Home equity..................................... 66.2 72.0 71.4 72.4 69.2
-------- -------- -------- -------- --------
Total loans................................... 1,208.9 1,213.8 1,232.6 1,234.5 1,214.0
Securities:
Taxable......................................... 208.4 223.9 215.4 205.8 207.8
Tax-exempt...................................... 19.3 17.3 19.9 18.7 19.9
-------- -------- -------- -------- --------
Total securities.............................. 227.7 241.2 235.3 224.5 227.7
Federal funds sold................................ .9 .5 1.8 3.0 1.7
Security resale agreements........................ 9.0 10.5 11.0 13.7 6.6
Other short-term investments...................... 3.0 3.1 2.2 4.3 5.1
-------- -------- -------- -------- --------
Total earning assets/
Total interest income/rates................ $1,449.5 $1,469.1 $1,482.9 $1,480.0 $1,455.1
Allowance for loan losses...........................
Fair value appreciation of securities available for
sale..............................................
Cash and demand balances due from banks.............
Properties and equipment............................
Accrued income and other assets.....................
Total assets..................................
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... $ 126.7 $ 126.5 $ 133.2 $ 143.9 $ 139.5
Savings accounts.................................. 16.6 16.9 18.6 20.8 21.8
Time deposits of individuals...................... 209.3 219.3 243.1 253.1 257.8
Other time deposits............................... 12.8 21.4 31.7 33.9 34.1
Deposits in overseas offices...................... 27.7 35.0 25.2 24.2 18.9
Federal funds borrowed............................ 29.6 47.8 46.4 48.2 36.8
Security repurchase agreements.................... 49.8 51.9 56.3 48.2 44.3
Borrowed funds.................................... 36.9 28.5 30.5 38.1 48.6
Long-term debt and capital securities............. 181.9 157.1 140.0 123.8 113.4
-------- -------- -------- -------- --------
Total interest bearing liabilities/
Total interest expense/rates............... $ 691.3 $ 704.4 $ 725.0 $ 734.2 $ 715.2
Noninterest bearing deposits......................
Accrued expenses and other liabilities............
Total liabilities.............................
Stockholders' equity................................
Total liabilities and stockholders' equity....
Net interest income................................. $ 758.2 $ 764.7 $ 757.9 $ 745.8 $ 739.9
======== ======== ======== ======== ========
Interest spread.............................................................................................
Contribution of noninterest bearing sources of funds........................................................
Net interest margin.........................................................................................
<CAPTION>
Average Annualized Rate
-----------------------------------------------
1999 1998
----------------- ---------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial(1)................................... 7.84% 7.89% 7.96% 8.44% 8.47%
Real estate -- residential(2)................... 7.48 7.24 7.20 7.52 7.57
Consumer........................................ 8.42 8.50 8.64 8.68 8.86
Credit Card..................................... 13.45 13.22 13.88 13.72 13.92
Home equity..................................... 8.32 9.27 8.87 9.14 9.03
Total loans................................... 8.13 8.14 8.20 8.51 8.58
Securities:
Taxable......................................... 6.06 6.30 6.35 6.50 6.47
Tax-exempt...................................... 8.80 7.68 8.42 7.76 7.78
6.22 6.38 6.48 6.59 6.57
Total securities.............................. 4.84 4.79 4.93 6.71 4.07
Federal funds sold................................ 4.66 4.73 4.34 5.42 4.85
Security resale agreements........................ 7.87 8.38 8.48 15.49 16.79
Other short-term investments......................
Total earning assets/
Total interest income/rates................ 7.72% 7.75% 7.81% 8.11% 8.16%
Allowance for loan losses...........................
Fair value appreciation of securities available for
sale..............................................
Cash and demand balances due from banks.............
Properties and equipment............................
Accrued income and other assets.....................
Total assets..................................
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
NOW and money market accounts..................... 2.99% 3.04% 2.91% 3.19% 3.18%
Savings accounts.................................. 1.70 1.73 1.83 1.99 2.04
Time deposits of individuals...................... 5.08 5.19 5.42 5.51 5.55
Other time deposits............................... 4.28 4.94 5.08 5.38 5.38
Deposits in overseas offices...................... 4.74 4.68 4.86 5.39 5.34
Federal funds borrowed............................ 4.82 4.89 4.93 5.63 5.51
Security repurchase agreements.................... 4.06 4.18 4.08 4.74 4.74
Borrowed funds.................................... 4.98 4.22 4.81 5.71 5.74
Long-term debt and capital securities............. 5.48 5.60 5.99 6.16 6.29
Total interest bearing liabilities/
Total interest expense/rates............... 4.29% 4.33% 4.38% 4.65% 4.66%
Noninterest bearing deposits......................
Accrued expenses and other liabilities............
Total liabilities.............................
Stockholders' equity................................
Total liabilities and stockholders' equity....
Net interest income.................................
Interest spread..................................... 3.43% 3.42% 3.43% 3.46% 3.50%
Contribution of noninterest bearing sources of funds .61 .60 .57 .64 .65
----- ----- ----- ----- -----
Net interest margin................................. 4.04% 4.02% 4.00% 4.10% 4.15%
===== ===== ===== ===== =====
</TABLE>
(1) Includes commercial real estate loans.
(2) Includes mortgage loans held for sale.
21
<PAGE> 23
CORPORATE INVESTOR INFORMATION
CORPORATE HEADQUARTERS
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
www.national-city.com
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
Jeffrey C. Douglas
Vice President and Assistant Treasurer
Department 2101
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.
DEBT RATINGS
<TABLE>
<CAPTION>
MOODY'S
INVESTORS STANDARD DUFF & THOMSON
SERVICE & POOR'S PHELPS BANKWATCH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National City Corporation............................... A/B
Commercial paper (short-term debt).................... P-1 A-1 D-1+ TBW1
Senior debt........................................... A1 A AA-
Subordinated debt..................................... A2 A- A+ A
Bank Subsidiaries:*
Certificates of deposit............................... Aa3 A+ AA
Subordinated bank notes............................... A1 A AA- A+
</TABLE>
* Includes the following subsidiaries:
<TABLE>
<S> <C> <C> <C> <C>
National City Bank
National City Bank of Indiana
National City Bank of Kentucky
National City Bank of Pennsylvania
National City Bank of Michigan/Illinois
</TABLE>
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
EXHIBITS:
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 -- Financial Data Schedule
REPORTS ON FORM 8-K:
April 16, 1999 -- National City Corporation reported earnings for the first
quarter of fiscal year 1999.
May 3, 1999 -- National City Corporation filed a schedule presenting the
computation of ratio of earnings to fixed charges for each of the five
years ended December 31, 1998 in connection with its issuance of $700
million in debt securities.
May 5, 1999 -- National City Corporation filed various exhibits in connection
with its issuance of $700 million in debt securities.
FORM 10-Q -- JUNE 30, 1999
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY CORPORATION
Date: August 3, 1999
/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>
<PAGE> 1
<TABLE>
<CAPTION>
NATIONAL CITY CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Six Months Ended
June 30 Years Ended December 31
--------------------- -------------------------------------------------------------------
(Dollars in Thousands) 1999 1998 1998 1997 1996 1995 1994
- -------------------------------------------------------------- -------------------------------------------------------------------
COMPUTATION EXCLUDING
PREFERRED STOCK DIVIDENDS:
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 1,096,500 $ 674,285 $ 1,647,277 $ 1,640,033 $ 1,441,787 $ 1,208,000 $ 1,183,000
Interest on non-deposit interest
bearing liabilities 583,508 467,313 998,753 738,923 611,741 673,000 420,000
Portion of rental expense deemed
representative of interest 15,280 14,889 30,397 27,597 25,053 23,563 22,050
------------------------- -------------------------------------------------------------------
Total income for computation
excluding interest on deposits 1,695,288 1,156,487 2,676,427 2,406,553 2,078,581 1,904,563 1,625,050
Interest on deposits 812,168 918,525 1,846,276 1,813,251 1,862,084 1,975,000 1,478,700
------------------------- -------------------------------------------------------------------
Total income for computation
including interest on deposits $ 2,507,456 $ 2,075,012 $ 4,522,703 $ 4,219,804 $ 3,940,665 $ 3,879,563 $ 3,103,750
========================= ===================================================================
Fixed charges excluding interest
on deposits $ 598,788 $ 482,202 $ 1,029,150 $ 766,520 $ 636,794 $ 696,563 $ 442,050
========================= ===================================================================
Fixed charges including interest
on deposits $ 1,410,956 $ 1,400,727 $ 2,875,426 $ 2,579,771 $ 2,498,878 $ 2,671,563 $ 1,920,750
========================= ===================================================================
Ratio excluding interest on
deposits 2.83x 2.40x 2.60x 3.14x 3.26x 2.73x 3.68x
Ratio including interest on
deposits 1.78x 1.48x 1.57x 1.64x 1.58x 1.45x 1.62x
COMPUTATION INCLUDING PREFERRED
STOCK DIVIDENDS:
Total income for computation
excluding interest on deposits $ 1,695,288 $ 1,156,487 $ 2,676,427 $ 2,406,553 $ 2,078,581 $ 1,904,563 $ 1,625,050
========================= ===================================================================
Total income for computation
including interest on deposits $ 2,507,456 $ 2,075,012 $ 4,522,703 $ 4,219,804 $ 3,940,665 $ 3,879,563 $ 3,103,750
========================= ===================================================================
Fixed charges excluding interest
on deposits and dividends on
preferred stock $ 598,788 $ 482,202 $ 1,029,150 $ 766,520 $ 636,794 $ 696,563 $ 442,050
Tax-effected preferred stock
dividends 1,269 1,691 3,357 - 6,197 22,815 23,385
------------------------- -------------------------------------------------------------------
Fixed charges including preferred
stock dividends, excluding
interest on deposits 600,057 483,893 1,032,507 766,520 642,991 719,378 465,435
Interest on deposits 812,168 918,525 1,846,276 1,813,251 1,862,084 1,975,000 1,478,700
------------------------- -------------------------------------------------------------------
Fixed charges including interest
on deposits and dividends on
preferred stock $ 1,412,225 $ 1,402,418 $ 2,878,783 $ 2,579,771 $ 2,505,075 $ 2,694,378 $ 1,944,135
========================= ===================================================================
Ratio excluding interest on
deposits 2.83x 2.39x 2.59x 3.14x 3.23x 2.65x 3.49x
Ratio including interest on
deposits 1.78x 1.48x 1.57x 1.64x 1.57x 1.44x 1.60x
COMPONENTS OF FIXED CHARGES:
Interest:
Interest on deposits $ 812,168 $ 918,525 $ 1,846,276 $ 1,813,251 $ 1,862,084 $ 1,975,000 $ 1,478,700
Interest on non-deposit interest
bearing liabilities 583,508 467,313 998,753 738,923 611,741 673,000 420,000
------------------------- -------------------------------------------------------------------
Total interest charges $ 1,395,676 $ 1,385,838 $ 2,845,029 $ 2,552,174 $ 2,473,825 $ 2,648,000 $ 1,898,700
========================= ===================================================================
Rental Expense:
Building rental expense $ 46,304 $ 45,119 $ 92,112 $ 83,627 $ 75,918 $ 71,403 $ 66,818
Portion of rental expense deemed
representative of interest 15,280 14,889 30,397 27,597 25,053 23,563 22,050
Preferred Stock Charge:
Preferred stock dividends 825 1,099 2,182 - 4,028 14,830 15,200
Tax-effected preferred dividends 1,269 1,691 3,357 - 6,197 22,815 23,385
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,807,336
<INT-BEARING-DEPOSITS> 40,467,016
<FED-FUNDS-SOLD> 864,178
<TRADING-ASSETS> 49,377
<INVESTMENTS-HELD-FOR-SALE> 14,993,616
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 59,655,700
<ALLOWANCE> 970,229
<TOTAL-ASSETS> 84,022,473
<DEPOSITS> 52,091,361
<SHORT-TERM> 11,475,668
<LIABILITIES-OTHER> 1,270,947
<LONG-TERM> 13,317,293
0
30,513
<COMMON> 2,472,526
<OTHER-SE> 3,364,170
<TOTAL-LIABILITIES-AND-EQUITY> 84,022,473
<INTEREST-LOAN> 2,417,829
<INTEREST-INVEST> 456,023
<INTEREST-OTHER> 26,903
<INTEREST-TOTAL> 2,900,755
<INTEREST-DEPOSIT> 812,168
<INTEREST-EXPENSE> 1,395,676
<INTEREST-INCOME-NET> 1,505,079
<LOAN-LOSSES> 127,576
<SECURITIES-GAINS> 80,912
<EXPENSE-OTHER> 1,496,437
<INCOME-PRETAX> 1,096,500
<INCOME-PRE-EXTRAORDINARY> 705,507
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705,507
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 4.03
<LOANS-NON> 222,800
<LOANS-PAST> 199,600
<LOANS-TROUBLED> 2,700
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 970,243
<CHARGE-OFFS> 202,805
<RECOVERIES> 74,854
<ALLOWANCE-CLOSE> 970,229
<ALLOWANCE-DOMESTIC> 970,069
<ALLOWANCE-FOREIGN> 160
<ALLOWANCE-UNALLOCATED> 406,609
</TABLE>
