<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 September 30, 2000 -- 608,397,735
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[NATIONAL CITY CORPORATION LOGO]
QUARTER ENDED SEPTEMBER 30, 2000
FINANCIAL REPORT
AND FORM 10-Q
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FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
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................ 18
Daily Average Balances/Net Interest Income/Rates............ 26
Consolidated Average Balance Sheets......................... 28
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
The information contained in Note 13 to the
Consolidated Financial Statements on page 13 of this
Quarterly Report is incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds (None)
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of Security Holders
(None)
Item 5. Other Information (None)
Item 6. Exhibits and Reports on Form 8-K
Exhibits: The index of exhibits has been filed as
separate pages of the September 30, 2000 Financial
Report and Form 10-Q and is available on request
from the Secretary of the Corporation at the
principal executive offices.
Reports on Form 8-K:
July 17, 2000 -- National City Corporation reported
earnings for the second quarter and first six months
of fiscal year 2000.
Signature................................................... 30
</TABLE>
2
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FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -----------------------
Percent Percent
2000 1999 Change 2000 1999 Change
------------------------------------------------------------------------------------------------------
EARNINGS (IN THOUSANDS)
Tax-equivalent net
interest income......... $746,020 $757,753 (2)% $2,235,887 $2,280,638 (2)%
Provision for loan
losses.................. 70,363 55,476 27 205,380 183,052 12
Fees and other income..... 590,878 528,614 12 1,822,572 1,663,136 10
Net securities gains...... 27,435 20,353 35 6,188 101,265 (94)
Noninterest expense....... 785,309 705,963 11 2,329,472 2,202,400 6
Income tax expense and
tax-equivalent
adjustment.............. 178,025 188,819 (6) 535,429 597,618 (10)
Net income................ 330,636 356,462 (7) 994,366 1,061,969 (6)
PER COMMON SHARE
Net income:
Basic................... $.55 $.58 (5) $1.64 $1.69 (3)
Diluted................. .54 .57 (5) 1.63 1.67 (2)
Dividends paid............ .285 .27 6 .855 .79 8
Book value................ 10.58 9.54 11
Market value (close)...... 22.00 26.69 (18)
Average diluted shares.... 613,232,391 624,581,200 (2) 611,671,365 636,413,367 (4)
PERFORMANCE RATIOS
Return on average common
equity.................. 21.13% 23.79% 22.22% 22.58%
Return on average
assets.................. 1.56 1.71 1.55 1.69
Net interest margin....... 3.90 4.03 3.83 4.03
Efficiency ratio.......... 58.74 54.88 57.40 55.84
AT PERIOD END ($ IN
MILLIONS)
Assets.................... $85,046 $85,058 --
Loans..................... 63,660 58,001 10
Securities (at fair
value).................. 9,656 15,811 (39)
Deposits.................. 52,726 50,395 5
Stockholders' equity...... 6,467 5,914 9
Equity to assets.......... 7.60% 6.95% 9
Common shares
outstanding............. 608,397,735 616,564,714 (1)
Full-time equivalent
employees............... 36,766 37,267 (1)
ASSET QUALITY
Net charge-offs to average
loans (annualized)...... .45% .38% .44% .43%
Allowance for loan losses
as a percentage of
period-end loans........ 1.49 1.67
Nonperforming assets to
period-end loans and
OREO.................... .57 .45
------------------------------------------------------------------------------------------------------
</TABLE>
3
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FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
(Dollars In Thousands, Except Per Share Amounts) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans.......................................... $1,479,328 $1,224,469 $4,255,590 $3,642,298
Securities:
Taxable...................................... 140,303 204,563 519,323 613,736
Exempt from Federal income taxes............. 10,750 11,245 32,835 34,909
Dividends.................................... 14,054 12,612 41,506 35,798
Federal funds sold and security resale
agreements................................... 3,058 8,656 16,818 29,572
Other short-term investments................... 4,464 3,189 12,378 9,176
---------- ---------- ---------- ----------
Total interest income...................... 1,651,957 1,464,734 4,878,450 4,365,489
INTEREST EXPENSE
Deposits....................................... 500,477 397,516 1,410,657 1,209,684
Federal funds borrowed and security repurchase
agreements................................... 103,895 87,901 292,190 266,947
Borrowed funds................................. 28,609 37,632 149,672 103,073
Long-term debt and capital securities.......... 281,443 194,206 815,287 533,227
---------- ---------- ---------- ----------
Total interest expense..................... 914,424 717,255 2,667,806 2,112,931
---------- ---------- ---------- ----------
NET INTEREST INCOME.............................. 737,533 747,479 2,210,644 2,252,558
PROVISION FOR LOAN LOSSES........................ 70,363 55,476 205,380 183,052
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses............................. 667,170 692,003 2,005,264 2,069,506
NONINTEREST INCOME
Item processing revenue........................ 104,916 91,519 299,860 318,311
Deposit service charges........................ 115,392 107,430 329,778 312,127
Mortgage banking revenue....................... 110,454 81,105 369,358 263,281
Trust and investment management fees........... 79,805 81,097 253,483 243,627
Card-related fees.............................. 48,283 48,383 137,241 142,952
Other.......................................... 132,028 119,080 432,852 382,838
---------- ---------- ---------- ----------
Total fees and other income................ 590,878 528,614 1,822,572 1,663,136
Net securities gains........................... 27,435 20,353 6,188 101,265
---------- ---------- ---------- ----------
Total noninterest income................... 618,313 548,967 1,828,760 1,764,401
NONINTEREST EXPENSE
Salaries, benefits and other personnel......... 405,984 367,638 1,214,164 1,157,987
Equipment...................................... 56,038 47,590 171,479 153,306
Net occupancy.................................. 52,730 48,944 157,214 152,305
Third-party services........................... 51,201 49,304 144,895 143,425
Other.......................................... 219,356 192,487 641,720 595,377
---------- ---------- ---------- ----------
Total noninterest expense.................. 785,309 705,963 2,329,472 2,202,400
---------- ---------- ---------- ----------
Income before income tax expense................. 500,174 535,007 1,504,552 1,631,507
Income tax expense............................... 169,538 178,545 510,186 569,538
---------- ---------- ---------- ----------
NET INCOME....................................... $ 330,636 $ 356,462 $ 994,366 $1,061,969
========== ========== ========== ==========
NET INCOME PER COMMON SHARE
Basic.......................................... $.55 $.58 $1.64 $1.69
Diluted........................................ .54 .57 1.63 1.67
AVERAGE COMMON SHARES OUTSTANDING
Basic.......................................... 608,276,536 616,883,898 606,994,772 626,908,263
Diluted........................................ 613,232,391 624,581,200 611,671,365 636,413,367
</TABLE>
See notes to consolidated financial statements.
4
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C> <C>
SEPTEMBER 30 December 31 September 30
(In Thousands) 2000 1999 1999
------------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial............................................. $25,873,664 $23,402,556 $22,426,781
Real estate - commercial............................... 6,372,924 6,012,016 6,207,547
Real estate - residential.............................. 12,303,054 10,396,422 9,844,507
Consumer............................................... 12,317,934 14,367,133 13,864,440
Credit card............................................ 2,260,766 2,339,658 2,199,984
Home equity............................................ 4,531,993 3,686,119 3,457,622
----------- ----------- -----------
Total loans....................................... 63,660,335 60,203,904 58,000,881
Allowance for loan losses......................... (945,492) (970,463) (970,736)
----------- ----------- -----------
Net loans....................................... 62,714,843 59,233,441 57,030,145
Mortgage loans held for sale............................. 2,945,975 2,731,166 2,439,039
Securities available for sale, at fair value............. 9,655,612 14,904,343 15,811,453
Federal funds sold and security resale agreements........ 111,222 556,351 727,822
Other short-term investments............................. 173,483 231,099 122,272
Cash and demand balances due from banks.................. 3,230,100 3,480,756 3,346,593
Properties and equipment................................. 1,090,185 1,127,980 1,105,220
Accrued income and other assets.......................... 5,124,455 4,856,363 4,475,009
----------- ----------- -----------
TOTAL ASSETS...................................... $85,045,875 $87,121,499 $85,057,553
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest bearing deposits............................. $10,646,830 $11,182,681 $10,909,167
NOW and money market accounts............................ 16,496,536 16,561,494 16,677,065
Savings accounts......................................... 3,036,999 3,470,700 3,700,585
Time deposits of individuals............................. 15,763,352 14,700,944 14,472,674
Other time deposits...................................... 2,780,526 2,897,166 3,016,770
Deposits in overseas offices............................. 4,001,338 1,253,325 1,619,190
----------- ----------- -----------
Total deposits.................................... 52,725,581 50,066,310 50,395,451
Federal funds borrowed and security repurchase
agreements............................................. 6,097,889 5,182,506 6,625,101
Borrowed funds........................................... 2,283,295 9,772,611 5,707,438
Long-term debt........................................... 15,455,589 14,858,014 14,625,031
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trusts holding solely
debentures of the Corporation.......................... 180,000 180,000 180,000
Accrued expenses and other liabilities................... 1,836,114 1,334,325 1,610,230
----------- ----------- -----------
TOTAL LIABILITIES................................. 78,578,468 81,393,766 79,143,251
Stockholders' Equity:
Preferred stock.......................................... 29,982 30,233 30,474
Common stock............................................. 2,433,591 2,428,234 2,466,259
Capital surplus.......................................... 828,220 782,960 776,587
Retained earnings........................................ 3,272,496 2,665,674 2,703,102
Accumulated other comprehensive loss..................... (96,882) (179,368) (62,120)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................ 6,467,407 5,727,733 5,914,302
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $85,045,875 $87,121,499 $85,057,553
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30
---------------------------
(In Thousands) 2000 1999
-----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income................................................ $ 994,366 $ 1,061,969
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................. 205,380 183,052
Depreciation and amortization of properties and
equipment............................................ 126,987 117,594
Amortization of intangibles and servicing rights...... 147,154 129,515
Amortization of premiums/discounts on securities and
debt................................................. (5,720) (7,978)
Net securities gains.................................. (6,188) (101,265)
Other gains and losses, net........................... (254,204) (192,604)
Originations and purchases of mortgage loans held for
sale................................................. (16,018,999) (12,772,328)
Proceeds from sales of mortgage loans held for sale... 15,694,532 14,184,989
Increase in accrued interest receivable............... (136,605) (54,903)
Increase in accrued interest payable.................. 207,054 76,774
Net change in other assets/liabilities................ 423,761 221,363
------------ ------------
Net cash provided by operating activities.......... 1,377,518 2,846,178
LENDING AND INVESTING ACTIVITIES
Net decrease in federal funds sold, security resale
agreements and other short-term investments............. 502,745 305,392
Purchases of available-for-sale securities................ (1,141,917) (4,666,392)
Proceeds from sales of available-for-sale securities...... 4,757,016 2,126,364
Proceeds from maturities and prepayments of
available-for-sale securities........................... 1,754,785 2,477,023
Net increase in loans..................................... (6,362,367) (869,995)
Proceeds from sales of loans.............................. 2,180,361 687,783
Proceeds from credit card loans securitized............... 600,000 --
Net increase in properties and equipment.................. (89,633) (53,682)
Acquisitions/disposals.................................... -- (192,297)
------------ ------------
Net cash provided by (used in) lending and
investing activities............................. 2,200,990 (185,804)
DEPOSIT AND FINANCING ACTIVITIES
Net increase (decrease) in Federal funds borrowed and
security repurchase agreements.......................... 915,383 (2,802,208)
Net (decrease) increase in borrowed funds................. (7,489,316) 3,267,935
Net increase (decrease) in noninterest bearing, savings,
NOW, money market accounts, and deposits in overseas
offices................................................. 1,713,503 (5,609,025)
Net increase (decrease) in time deposits.................. 945,768 (2,242,433)
Repayment of long-term debt and capital securities........ (5,425,666) (1,901,950)
Proceeds from issuance of long-term debt, net............. 6,021,542 7,020,068
Dividends paid............................................ (520,286) (501,519)
Issuances of common stock................................. 62,187 120,114
Repurchases of common stock............................... (52,279) (1,448,254)
------------ ------------
Net cash used in deposit and financing
activities....................................... (3,829,164) (4,097,272)
------------ ------------
Net decrease in cash and demand balances due from banks... (250,656) (1,436,898)
Cash and demand balances due from banks, January 1........ 3,480,756 4,783,491
------------ ------------
Cash and demand balances due from banks, September 30..... $ 3,230,100 $ 3,346,593
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid............................................. $ 2,460,752 $ 2,033,839
Income taxes paid......................................... 269,229 254,978
</TABLE>
See notes to consolidated financial statements.
6
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other
(Dollars in Thousands, Preferred Common Capital Retained Comprehensive
Except Per Share Amounts) Stock Stock Surplus Earnings Income (Loss) Total
--------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1999................ $36,098 $1,305,309 $ 1,968,751 $ 3,430,672 $ 272,078 $ 7,012,908
Comprehensive Income:
Net income.......................... 1,061,969 1,061,969
Other comprehensive income, net of
tax:
Change in unrealized gains and
losses on securities of
$(268,376), net of
reclassification adjustment for
net gains included in net income
of $65,822........................ (334,198) (334,198)
-----------
Total comprehensive income............ 727,771
Common dividends declared, $.80 per
share............................... (496,955) (496,955)
Preferred dividends declared.......... (1,282) (1,282)
Issuance of 5,493,602 common shares
under corporate stock and dividend
reinvestment plans.................. 12,863 107,251 120,114
Purchase of 41,924,300 common
shares.............................. (86,121) (70,831) (1,291,302) (1,448,254)
Conversion of 112,475 shares of
preferred stock to 340,692 common
shares.............................. (5,624) 686 4,938 --
Stock split........................... 1,233,522 (1,233,522) --
------- ---------- ----------- ----------- --------- -----------
Balance, September 30, 1999............. $30,474 $2,466,259 $ 776,587 $ 2,703,102 $ (62,120) $ 5,914,302
======= ========== =========== =========== ========= ===========
Balance, January 1, 2000................ $30,233 $2,428,234 $ 782,960 $ 2,665,674 $(179,368) $ 5,727,733
Comprehensive Income:
Net income.......................... 994,366 994,366
Other comprehensive income, net of
tax:
Change in unrealized gains and
losses on securities of $86,508,
net of reclassification adjustment
for net gains included in net
income of $4,022.................. 82,486 82,486
-----------
Total comprehensive income............ 1,076,852
Common dividends declared, $.57 per
share............................... (346,194) (346,194)
Preferred dividends declared.......... (892) (892)
Issuance of 3,723,588 common shares
under corporate stock and dividend
reinvestment plans.................. 14,894 47,293 62,187
Purchase of 2,399,400 common shares... (9,598) (2,223) (40,458) (52,279)
Conversion of 5,013 shares of
preferred stock to 15,183 common
shares.............................. (251) 61 190 --
------- ---------- ----------- ----------- --------- -----------
Balance, September 30, 2000............. $29,982 $2,433,591 $ 828,220 $ 3,272,496 $ (96,882) $ 6,467,407
======= ========== =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
National City Corporation ("National City" or "the Corporation") is a
financial holding company headquartered in Cleveland, Ohio. National City
operates banks and other financial services subsidiaries principally in Ohio,
Michigan, Pennsylvania, Indiana, Kentucky and Illinois. Principal activities
include commercial and retail banking, consumer finance, asset management,
mortgage financing and servicing, and item processing.
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated. Certain prior period amounts have been
reclassified to conform with the current period presentation. The accounting and
reporting policies of National City conform with accounting principles generally
accepted in the United States. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Management believes the unaudited consolidated financial statements
reflect all adjustments of a normal recurring nature which are necessary for a
fair presentation of the results 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.
These interim financial statements should be read in conjunction with the
Corporation's 1999 Annual Report and Form 10-K.
7
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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, requires derivative instruments
to be carried at fair value on the balance sheet. This requirement is in
contrast to current accounting guidance, which does not require unrealized gains
and losses on derivative instruments used for hedging purposes to be recorded in
the financial statements. SFAS No. 133 does allow hedge accounting treatment for
derivatives used to hedge various risks and sets forth specific criteria to be
used to determine when hedge accounting can be applied. Hedge accounting
treatment provides for changes in fair value or cash flows of both the
derivative and the hedged item to be recognized in earnings in the same period.
Derivative instruments not designated in a hedge accounting relationship are
considered trading instruments and are required to be carried at fair value,
consistent with current guidance.
Derivative instruments used to hedge the exposure to changes in the fair
value of an asset or liability attributable to a particular risk, such as
interest rate risk, are considered fair value hedges under SFAS No. 133, while
derivative instruments used to hedge the exposure to variability in expected
future cash flows are considered cash flow hedges. Fair value hedges are
accounted for by recording the fair value related to the risk being hedged of
both the derivative instrument and the hedged asset or liability on the balance
sheet with a corresponding offset recorded in the income statement. Cash flow
hedges are accounted for by recording only the value of the derivative
instrument on the balance sheet as either an asset or liability with a
corresponding offset recorded in other comprehensive income within stockholders'
equity. Amounts are then reclassified from other comprehensive income to the
income statement in the same period as the hedged cash flow is recognized. Under
both scenarios, derivative gains and losses not considered effective in hedging
the change in fair value or expected cash flows of the hedged item are
recognized immediately in the income statement.
As discussed in Note 15 to the consolidated financial statements, the
Corporation uses derivative instruments to protect against the risk of adverse
price or interest rate movements on certain assets, including mortgage servicing
assets, liabilities or anticipated transactions. The fair value of these
derivative instruments is currently not recorded on the balance sheet. Based on
implementation progress to date, management expects to apply hedge accounting
treatment to derivatives used for interest rate risk management purposes.
Hedging strategies where derivatives are used to convert fixed rate assets and
liabilities to variable rate instruments will be accounted for as fair value
hedges, while hedging strategies where derivatives are used to convert the cash
flows related to variable rate assets and liabilities to fixed rate instruments
will be accounted for as cash flow hedges.
Because interpretive guidance on applying SFAS No. 133 continues to be
developed, management is still evaluating whether hedge accounting treatment
will be able to be applied to the derivative instruments used to hedge the value
of mortgage servicing assets. If hedge accounting treatment is not applied to
all or a portion of the servicing assets portfolio, management would consider
the use of alternative hedging strategies including carrying the derivative
instruments in the trading portfolio and/or using on-balance sheet investment
securities. Either strategy could result in greater income statement volatility
than if hedge accounting treatment was applied due to disparity in the
accounting treatment afforded servicing assets, trading instruments and
investment securities.
If the Corporation had applied the accounting prescribed in SFAS No. 133 to
the risk management strategies in place during 1999, a year in which rising
interest rates led to a decline in the value of the derivative instruments and
an increase in the value of the mortgage servicing assets, to hedge the fair
value change in mortgage servicing assets, and if the Corporation had met the
requirements for hedge accounting treatment, the estimated financial statement
effect would have been to increase net income by $5 million for the full year.
For each of the quarters in 1999, the effect would have been to (reduce)
increase net income by ($4) million, $11 million, $8 million and ($10) million,
respectively. If the requirements for hedge accounting treatment had not been
met, the estimated effect would have been to reduce net income by $156 million
for the full year, with quarterly reductions to net income of $46 million, $61
million, $18 million and $31 million, respectively. In the latter case, no
counterbalancing effect would have been recorded to give consideration to the
increase in fair value of the mortgage servicing asset. If the Corporation is
not able to meet the criterion for hedge accounting in managing the risk
associated with mortgage servicing, increased reported income volatility could
result. Such volatility would not necessarily be a reflection of the
Corporation's risk management strategies, but rather would reflect the disparity
in accounting treatment among the various elements of each risk management
strategy.
During the fourth quarter of 2000, management will conclude its assessment
of how each risk management strategy will be accounted for under SFAS No. 133.
The standard will be adopted on January 1, 2001, at which time the Corporation
will designate and document all hedging relationships in accordance with the new
standard and recognize transition adjustments associated with establishing the
fair values of the derivative instruments and hedged items on the balance sheet.
The transition adjustments, recorded in other comprehensive income and the
income statement, will be considered cumulative effect adjustments as described
in Accounting Principles Board Opinion No. 20, Accounting Changes, and will be
presented accordingly in the consolidated financial statements. The nature and
amount of the transition adjustments and the ongoing impact on the consolidated
financial statements will ultimately depend on the effectiveness of the hedging
relationships so designated under SFAS No. 133, the nature of derivative
instruments in use, and market conditions. SFAS No. 133, as applied to the
Corporation's risk management strategies, may increase or decrease reported net
income prospectively, depending on future levels of interest rates and other
variables affecting market values of derivative instruments, but will have no
effect on cash flows or economic risk.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES: SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued in
September of 2000 and replaces SFAS
8
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No. 125, which was issued in June 1996. The guidance
in SFAS No. 140, while not changing most of the guidance originally issued in
SFAS No. 125, revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain additional
disclosures related to transferred assets.
Certain provisions of the statement related to the recognition,
reclassification and disclosure of collateral, as well as the disclosure of
securitization transactions, become effective for the Corporation for 2000
year-end reporting. Other provisions related to the transfer and servicing of
financial assets and extinguishments of liabilities are effective for
transactions occurring after March 31, 2001. The impact of adopting the new
guidance is not expected to have a material impact on National City's results of
operations, financial position or liquidity.
3. ASSET DIVESTITURES
In the second and third quarters of 2000, National City divested certain
assets as part of a balance sheet restructuring initiative intended to improve
asset returns and capital position, reduce reliance on purchased funding and
lessen interest rate sensitivity.
Third quarter balance sheet restructuring activity included the sale through
securitization of $600 million of credit card loans and the sale of $1.1 billion
of fixed-rate debt securities. A pre-tax gain of $27.1 million, or $17.7 million
after-tax, was recorded related to the securitization of the credit card
receivables. An impairment loss was recorded in the second quarter related to
the debt securities sold during the third quarter.
The fixed-rate debt securities were sold, along with $300 million of
variable-rate debt securities, to an unconsolidated qualified special purpose
entity ("QSPE"). Through a receive fixed/pay variable interest rate swap, the
Corporation receives the spread between the yield earned on the debt securities
and the commercial paper funding cost. The interest rate swap is accounted for
as a trading derivative in the Corporation's consolidated financial statements.
The Corporation also provides certain services for which fees are earned. These
fees are included in card-related fees in the Corporation's consolidated
statements of income. As of September 30, 2000, the QSPE held $1.4 billion of
high grade fixed- and variable-rate securities.
Along with the sale of an additional $2.6 billion of debt securities in the
second quarter, net losses in 2000 related to debt securities sold as part of
the balance sheet restructuring totaled $56.3 million pre tax, or $36.6 million
after tax. Second quarter activity also included the sale of $2.0 billion of
student loans resulting in a pre-tax gain of $74.2 million, or $48.2 million
after tax.
The following summarizes certain asset divestitures included in the
Corporation's 1999 results:
In 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 pre-tax
gain of $95.7 million, or $62.2 million after tax. The gain on the sale of EPS
is included in other noninterest income. The transaction was effected by
exchanging common shares of EPS for shares of unregistered Concord common stock.
The shares were subsequently registered by Concord and, in the second quarter of
1999, National City sold its holdings in Concord in the open market and
recognized a pre-tax gain of $32.1 million, or $20.8 million after tax. The gain
is included in net securities gains.
Also in the first quarter of 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 gain is included in other noninterest income.
In the first half of 1999, National Processing, Inc. ("National
Processing"), an 87%-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, net of minority interest,
of $59.0 million pre tax, or $59.8 million after tax. The larger after-tax loss
was the result of nondeductible goodwill. The impact of the National Processing
business line divestitures is included in other noninterest income.
4. ASSET SECURITIZATIONS
Asset securitization involves the sale, generally to a trust, of a pool of
loan receivables. The Corporation continues to own the accounts, which generate
the loan receivables. In addition, the Corporation also sells the rights to new
loan receivables, including most fees generated by and payments received from
the accounts. The trust sells undivided interests in the trust to investors,
while the Corporation retains the remaining undivided interest. The senior
classes of the asset-backed securities receive an AAA or A credit rating at the
time of issuance. These ratings are generally achieved through the creation and
sale of lower-rated subordinated classes of asset-backed securities. The
Corporation continues to service the accounts and receives a servicing fee.
During the revolving period, which generally approximates 48 months, the
trust is not required to make principal payments to the investors. Instead, the
trust uses principal payments received on the accounts to purchase new loan
receivables. Therefore, the principal dollar amount of the investor's undivided
interest remains unchanged. Once the revolving period ends, the trust
distributes principal payments to the investors according to the terms of the
transaction.
Distribution of principal to the investors may begin earlier if the average
annualized yield on the receivables securitized (generally including interest
income, interchange and other fees) for three consecutive months drops below a
minimum yield (generally equal to the sum of the coupon rate payable to
investors, contractual servicing fees, and principal credit losses during the
period) or certain other events occur.
In accordance with SFAS No. 125, gains are recognized in income at the time
of initial sale and each subsequent sale of loan receivables in an asset
securitization. In the third quarter of 2000, the Corporation recognized a $27.1
million gain from the securitization of $600 million of credit card loans, which
was recorded in other noninterest income in the consolidated statements of
income, and consisted of a $25.0 million adjustment to the allowance for loan
losses and a $2.1 million gain attributable to the Corporation's retained
interest in the trust. The retained interest represents the contractual right to
receive interest and other cash flows from the trust and is reported at fair
value with unrealized gains
9
<PAGE> 11
and losses, net of tax, included as a component of stockholders' equity. At
September 30, 2000, the amount of the retained interest was $2.1 million and was
included in other assets. Transaction costs of approximately $3.0 million
incurred in 2000 by the Corporation were deferred and will be amortized over the
five-year term of the trust as a reduction of card-related fee income.
Card-related fee income also includes the other fees received by the Corporation
for the servicing of securitized and portfolio loans.
The Corporation uses certain assumptions and estimates in determining the
fair value allocated to the retained interest at the time of initial sale and
each subsequent sale in accordance with SFAS No. 125. These assumptions and
estimates included projections concerning the annual percentage rates charged to
customers, charge-off experience, loan repayment rates, the cost of funds, and
discount rates commensurate with the risks involved. These assumptions are
reviewed periodically by the Corporation. If these assumptions change, the
related asset and income would be affected.
At September 30, 2000 and 1999, $747.5 million and $500.0 million,
respectively, of securitized credit card receivables were outstanding.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Nine Months
Ended Ended
September 30 September 30
------------------- -------------------
(In Thousands) 2000 1999 2000 1999
----------------------------------------------------------------
Balance at beginning
of period $970,362 $970,229 $970,463 $970,243
Provision 70,363 55,476 205,380 183,052
Allowance related to
loans acquired
(sold or
securitized) (25,016) (16) (25,321) 345
Charge-offs:
Commercial 19,577 16,741 68,803 61,782
Real estate --
commercial 1,635 1,828 5,172 3,943
Real estate --
residential 6,169 3,980 17,990 11,136
Consumer 43,248 39,855 121,737 130,535
Credit card 27,103 23,831 79,096 76,122
Home equity 1,644 1,339 4,804 5,380
-------- -------- -------- --------
Total charge-offs 99,376 87,574 297,602 288,898
Recoveries:
Commercial 4,546 4,834 13,951 15,290
Real estate --
commercial 945 1,401 3,419 6,167
Real estate --
residential 172 277 810 1,514
Consumer 16,949 19,731 54,138 63,789
Credit card 5,176 5,299 17,383 16,093
Home equity 1,371 1,079 2,871 3,141
-------- -------- -------- --------
Total recoveries 29,159 32,621 92,572 105,994
-------- -------- -------- --------
Net charge-offs 70,217 54,953 205,030 182,904
-------- -------- -------- --------
Balance at end of
period $945,492 $970,736 $945,492 $970,736
======== ======== ======== ========
</TABLE>
The allowance for loan losses is the amount believed adequate to absorb
estimated credit losses in the loan portfolio based on management's evaluation
of various factors including overall growth in the portfolio, an analysis of
individual credits, adverse situations that could affect a borrower's ability to
repay (including the timing of future payments), prior and current loss
experience, and economic conditions. Loan losses are charged off against the
allowance, while recoveries of amounts previously charged off are credited to
the allowance. A provision for loan losses is charged to operations based on
management's periodic evaluation of the factors previously mentioned as well as
other pertinent factors.
The allowance established for certain impaired loans is determined based on
the fair value of the investment measured using either the present value of
expected future cash flows based on the initial effective interest rate on the
loan, the observable market price of the loan or the fair value of the
collateral if the loan is collateral-dependent.
The allowance for loan losses consists of an allocated component and an
unallocated component. The allocated component of the allowance for loan losses
reflects expected losses resulting from the analysis of individual loans,
developed through specific credit allocations for individual loans and
historical loss experience for each loan category. The specific credit
allocations are based on a regular analysis of all loans and commitments over a
fixed dollar amount where the internal credit rating is at or below a
predetermined classification. The historical loan loss element is determined
statistically using a loss migration analysis that examines loss experience and
the related internal grading of loans charged off. The loss migration analysis
is performed quarterly and loss factors are updated based on actual experience.
The allocated component of the allowance for loan losses also includes
management's determination of the amounts necessary for concentrations and
changes in portfolio mix and volume.
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.
In conjunction with the sale through securitization of $600 million of
credit card loans in the third quarter of 2000, the allowance for loan losses
was adjusted by $25.0 million.
Details regarding nonperforming loans are included in the Asset Quality
section of Management's Discussion and Analysis. At September 30, 2000, December
31, 1999 and September 30, 1999, impaired loans totaled $80.2 million, $24.9
million and $40.7 million, respectively. The related allowance allocated to
these loans was $47.2 million, $10.9 million and $12.4 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 loans for the nine months ended September 30, 2000, was $25.8
million and $7.5 million, respectively, compared with $20.3 million and $7.9
million, respectively, for the nine months ended September 30, 1999.
10
<PAGE> 12
6. SECURITIES
The following table summarizes the Corporation's portfolio of securities
available for sale. Fair value fluctuations occur over the lives of the
instruments primarily due to changes in market interest rates.
Gross unrealized gains for the entire portfolio totaled $77.8 million,
$109.9 million and $189.3 million at September 30, 2000, December 31, 1999 and
September 30, 1999, respectively. Gross unrealized losses at the same period
ends totaled $226.8 million, $385.8 million and $284.9 million, respectively.
For the nine months ended September 30, 2000 and 1999, gross securities
gains of $73.4 million and $111.0 million, and gross securities losses of $67.2
million and $9.7 million were recognized, respectively.
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 $650.5 million and $692.1 million, respectively, as of
September 30, 2000.
As of September 30, 2000, there were no securities of a single issuer, other
than U.S. Treasury securities and other U.S. government agency securities, which
exceeded 10% of stockholders' equity.
<TABLE>
<S> <C> <C>
SEPTEMBER 30, 2000
------------------------
AMORTIZED FAIR
(In Thousands) COST VALUE
------------------------------------------------------------
U.S. Treasury and Federal agency
debentures...................... $ 967,083 $ 941,526
Mortgage-backed securities........ 5,744,758 5,567,986
Asset-backed and corporate debt
securities...................... 1,272,809 1,258,945
States and political
subdivisions.................... 784,553 800,426
Other............................. 1,035,444 1,086,729
---------- ----------
Total securities................ $9,804,647 $9,655,612
========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
December 31, 1999
--------------------------
Amortized Fair
(In Thousands) Cost Value
-----------------------------------------------------------
U.S. Treasury and Federal
agency debentures............ $ 1,171,397 $ 1,119,508
Mortgage-backed securities..... 9,629,200 9,351,797
Asset-backed and corporate debt
securities................... 2,633,335 2,600,128
States and political
subdivisions................. 825,941 828,810
Other.......................... 920,376 1,004,100
----------- -----------
Total securities............. $15,180,249 $14,904,343
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
September 30, 1999
--------------------------
Amortized Fair
(In Thousands) Cost Value
-----------------------------------------------------------
U.S. Treasury and Federal
agency debentures............ $ 1,171,855 $ 1,139,133
Mortgage-backed securities..... 10,098,896 9,913,963
Asset-backed and corporate debt
securities................... 2,806,575 2,780,436
States and political
subdivisions................. 849,370 862,850
Other.......................... 980,338 1,115,071
----------- -----------
Total securities............. $15,907,034 $15,811,453
=========== ===========
</TABLE>
7. BORROWED FUNDS
<TABLE>
<S> <C> <C> <C>
SEPT. 30 Dec. 31 Sept. 30
(In Thousands) 2000 1999 1999
---------------------------------------------------------------
U.S. Treasury demand
notes.................. $1,583,199 $9,228,154 $4,824,216
Commercial paper......... 505,213 313,396 449,985
Other.................... 194,883 231,061 433,237
---------- ---------- ----------
Total borrowed funds... $2,283,295 $9,772,611 $5,707,438
========== ========== ==========
</TABLE>
U.S. Treasury demand notes represent secured borrowings from the U.S.
Treasury. These borrowings are collateralized by qualifying securities and
loans. The funds are placed with the banks at the discretion of the U.S.
Treasury and may be called at any time.
8. LONG-TERM DEBT
<TABLE>
<S> <C> <C> <C>
SEPT. 30 Dec. 31 Sept. 30
(Dollars in Thousands) 2000 1999 1999
---------------------------------------------------------------
9 7/8% subordinated
notes due 1999....... $ -- $ -- $ 65,000
6.50% subordinated
notes due 2000....... -- 99,983 99,970
8.50% subordinated
notes due 2002....... 99,961 99,943 99,937
6 5/8% subordinated
notes due 2004....... 249,558 249,460 249,428
7.75% subordinated
notes due 2004....... 199,018 198,825 198,761
8.50% subordinated
notes due 2004....... 149,579 149,484 149,453
7.20% subordinated
notes due 2005....... 249,865 249,843 249,836
5.75% subordinated
notes due 2009....... 299,043 298,956 298,928
6 7/8% subordinated
notes due 2019....... 698,855 698,809 698,794
Other................. 10,000 10,000 10,000
----------- ----------- -----------
Total parent
company........... 1,955,879 2,055,303 2,120,107
----------- ----------- -----------
6.50% subordinated
notes due 2003....... 199,806 199,750 199,731
7.25% subordinated
notes due 2010....... 223,394 223,271 223,230
6.30% subordinated
notes due 2011....... 200,000 200,000 200,000
7.25% subordinated
notes due 2011....... 197,820 197,672 197,623
6.25% subordinated
notes due 2011....... 297,568 297,394 297,336
Other................. 13 1,142 1,159
----------- ----------- -----------
Total subsidiary.... 1,118,601 1,119,229 1,119,079
----------- ----------- -----------
Total long-term debt
qualifying for
Tier 2 Capital.... 3,074,480 3,174,532 3,239,186
----------- ----------- -----------
Senior bank notes..... 9,494,978 8,918,601 8,718,431
Federal Home Loan Bank
advances............. 2,881,169 2,757,648 2,660,141
Other................. 4,962 7,233 7,273
----------- ----------- -----------
Total other long-
term debt......... 12,381,110 11,683,482 11,385,845
----------- ----------- -----------
Total long-term
debt............ $15,455,589 $14,858,014 $14,625,031
=========== =========== ===========
</TABLE>
11
<PAGE> 13
All of the subordinated notes of the parent and bank subsidiaries pay
interest semi-annually and may not be redeemed prior to maturity.
Long-term advances from the Federal Home Loan Bank (FHLB) are at fixed and
variable rates and have maturities ranging from 2000 to 2023. The weighted
average interest rate of the advances as of September 30, 2000 was 6.63%.
Advances from the FHLB are collateralized by qualifying securities and loans.
The senior bank notes are at fixed and variable rates and have maturities
ranging from 2000 to 2078. The weighted average interest rate of the notes as of
September 30, 2000 was 6.70%.
A credit agreement dated March 14, 1997, with a group of unaffiliated banks,
allows the Corporation to borrow up to $350 million until February 1, 2001, with
a provision to extend the expiration date under certain circumstances. The
Corporation pays an annual facility fee of 10 basis points on the amount of the
line. There were no borrowings outstanding under this agreement at September 30,
2000.
9. CORPORATION-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY DEBENTURES OF THE CORPORATION
<TABLE>
<S> <C> <C> <C>
SEPT. 30 Dec. 31 Sept. 30
(Dollars in Thousands) 2000 1999 1999
----------------------------------------------------------------
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....... $180,000 $180,000 $180,000
======== ======== ========
</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 two
statutory business trusts, First of America Capital Trust I and Fort Wayne
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 qualify as Tier 1 capital under Federal Reserve Board guidelines
and are first redeemable, in whole or in part, by the Corporation on January 31,
2007 and April 15, 2007, respectively.
10. REGULATORY RESTRICTIONS AND CAPITAL RATIOS
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administrated by the federal banking agencies
that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors. 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 the Corporation's financial statements and operations.
Dividends paid by the subsidiary banks to the Parent company are also
subject to various legal and regulatory restrictions. At September 30, 2000,
bank subsidiaries may pay the Parent company, without prior regulatory approval,
$1.8 billion of dividends.
The table below reflects various measures of capital:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SEPT. 30 Dec. 31 Sept. 30
2000 1999 1999
(Dollars in
---------------- ---------------- ----------------
Millions) AMOUNT RATIO Amount Ratio Amount Ratio
----------------------------------------------------------------------
Total
equity(a)... $6,467.4 7.60% $5,727.7 6.57% $5,914.3 6.95%
Total common
equity(a)... 6,437.4 7.57 5,697.5 6.54 5,883.8 6.95
Tangible
common
equity(b)... 5,198.5 6.20 4,391.1 5.12 4,629.2 5.52
Tier 1
capital(c)... 5,549.9 7.24 4,828.0 6.61 4,948.6 6.89
Total risk-
based
capital(d)... 9,251.6 12.07 8,190.2 11.22 8,379.6 11.66
Leverage(e)... 5,549.9 6.67 4,828.0 5.72 4,948.6 6.07
</TABLE>
------------------------------------------------------------
(a) Computed in accordance with generally accepted accounting principles,
including unrealized fair value adjustment of securities available for sale.
(b) Common stockholders' equity less all intangible assets; computed as a ratio
to total assets less all intangible assets.
(c) Stockholders' equity plus qualifying capital securities less certain
intangibles and adjusted to exclude the unrealized fair value of securities
available for sale; computed as a ratio to risk-adjusted assets, as defined.
(d) 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.
(e) Tier 1 capital; computed as a ratio to average total assets less certain
intangible assets.
------------------------------------------------------------
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 3.00% 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.
12
<PAGE> 14
Intangible asset amounts used in the capital ratio calculations are
summarized below:
<TABLE>
<S> <C> <C> <C>
SEPT. 30 Dec. 31 Sept. 30
(In Millions) 2000 1999 1999
------------------------------------------------------------
Goodwill.................... $1,157.0 $1,210.4 $1,174.4
Other intangibles........... 81.9 96.0 80.2
-------- -------- --------
Total intangibles......... $1,238.9 $1,306.4 $1,254.6
======== ======== ========
</TABLE>
11. STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
SEPT. 30 Dec. 31 Sept. 30
(Outstanding Shares) 2000 1999 1999
-----------------------------------------------------------------
Preferred Stock, no par
value, authorized
5,000,000 shares...... 599,639 604,652 609,479
Common Stock, $4 par
value, authorized
1,400,000,000 shares.. 608,397,735 607,058,364 616,564,714
</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.
In late 1999, the Corporation's Board of Directors authorized the purchase
of up to 30 million shares of National City common stock subject to an aggregate
purchase limit of $1.0 billion. The repurchase of common stock may be made, from
time to time, on the open market or in privately negotiated transactions. To
date, 5.0 million shares have been repurchased, of which 2.4 million were
repurchased during the first nine months of 2000. In conjunction with the
foregoing authorization, the Corporation entered into an agreement with a third
party that provides the Corporation with an option to purchase up to $300
million of National City common stock through the use of forward transactions.
The forward transactions can be settled from time to time, at the Corporation's
election, on a physical, net cash or net share basis. In the case of net cash or
net share settlement, the amount at which these forward purchases can be settled
depends primarily on the future market price of the Corporation's common stock
as compared with the forward purchase price per share and the number of shares
to be settled. During the third quarter of 2000, the Corporation entered into
forward transactions involving 1.7 million shares, bringing the total number of
shares under open forward contracts to 9.3 million. The final maturity date of
the agreement is April 19, 2002.
12. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30
--------------------------
(In Thousands) 2000 1999
-------------------------------------------------------------
Applicable to income exclusive of
securities transactions........ $508,020 $534,095
Applicable to securities
transactions................... 2,166 35,443
-------- --------
Total income tax expense....... $510,186 $569,538
======== ========
</TABLE>
The effective tax rate was 33.9% and 34.9% for the nine months ended
September 30, 2000 and 1999, respectively. Income taxes for the first nine
months of 1999 included the effect of the write-off of nondeductible goodwill
related to the disposal of certain National Processing business lines. See Note
3.
13. CONTINGENT LIABILITIES
During the fourth quarter of 1999, the Corporation was notified by the
Internal Revenue Service ("IRS") of adjustments relating to its corporate-owned
life insurance ("COLI") programs proposed in the Revenue Agent's Reports for the
Corporation's Federal income tax returns for the years 1990 through 1995. These
proposed adjustments involve the disallowance of certain deductions, which, with
the expected effect on tax returns for years subsequent to 1995, represent an
exposure for tax and interest of approximately $200 million. In the first
quarter of 2000, the Corporation made payments of taxes and interest
attributable to COLI interest deductions for years 1990 through 1995 to avoid
the potential assessment by the IRS of any additional above-market rate interest
on the contested amount. The payments to the IRS are included on the balance
sheet in other assets pending the resolution of this matter. Management does not
agree with the proposed adjustments, will vigorously contest the IRS claim, and
will seek refund, either administratively or through litigation, of all amounts
paid plus interest. In the event resolution of this matter is unfavorable, it
may have a material adverse effect on the Corporation's net income for the
period in which such unfavorable resolution occurs.
National City or its subsidiaries are also 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.
Exclusive of the aforementioned claim by the IRS, it is management's opinion the
consolidated financial statements would not be materially affected by the
outcome of any present legal proceedings, commitments or asserted claims.
13
<PAGE> 15
14. NET INCOME PER SHARE
The calculation of net income per common share follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Nine Months
Ended Ended
September 30 September 30
(In Thousands, Except
------------------- ---------------------
Per Share Amounts) 2000 1999 2000 1999
------------------------------------------------------------------------
BASIC:
Net income................ $330,636 $356,462 $994,366 $1,061,969
Less preferred dividends.. 449 457 1,349 1,282
-------- -------- -------- ----------
Net income applicable to
common stock............ $330,187 $356,005 $993,017 $1,060,687
======== ======== ======== ==========
Average common shares
outstanding............. 608,277 616,884 606,995 626,908
======== ======== ======== ==========
Net income per common
share -- basic.......... $.55 $.58 $1.64 $1.69
======== ======== ======== ==========
DILUTED:
Net income................ $330,636 $356,462 $994,366 $1,061,969
======== ======== ======== ==========
Average common shares
outstanding............. 608,277 616,884 606,995 626,908
Stock option adjustment... 3,139 5,849 2,858 7,623
Preferred stock
adjustment.............. 1,816 1,848 1,818 1,882
-------- -------- -------- ----------
Average common shares
outstanding -- diluted... 613,232 624,581 611,671 636,413
======== ======== ======== ==========
Net income per common
share -- diluted........ $.54 $.57 $1.63 $1.67
======== ======== ======== ==========
</TABLE>
15. OFF-BALANCE SHEET FINANCIAL AGREEMENTS
The Corporation uses a variety of off-balance sheet financial instruments
such as interest rate swaps, futures, options, forwards, and cap and floor
contracts. These financial agreements, frequently called interest rate
derivatives, enable the Corporation to manage its exposure to changes in
interest rates. As with any financial instrument, derivatives have inherent
risks. Market risk includes the risk of gains and losses that result from
changes in interest rates. These gains and losses may be offset by other on- or
off-balance sheet transactions. Credit risk is the risk that a counterparty to a
derivative contract with an unrealized gain fails to perform according to the
terms of the agreement. Credit risk can be measured as the cost of acquiring a
new derivative agreement with cash flows identical to those of a defaulted
agreement in the current interest rate environment. The credit exposure to
counterparties is managed by limiting the aggregate amount of net unrealized
gains in agreements outstanding, monitoring the size and the maturity structure
of the derivatives portfolio, applying uniform credit standards maintained for
all activities with credit risk and by collateralizing unrealized gains. The
Corporation has established bilateral collateral agreements with its major
off-balance sheet counterparties that provide for exchanges of marketable
securities to collateralize either party's unrealized gains.
INTEREST RATE RISK MANAGEMENT: The Corporation uses interest rate
derivatives principally to manage exposure to interest rate risk. Receive fixed
interest rate swaps are used to convert variable rate loans and securities into
fixed rate instruments and to convert fixed rate funding sources into variable
rate funding instruments. Pay fixed interest rate swaps and futures contracts
are used to convert fixed rate loans and securities into variable rate
instruments and to convert variable rate funding sources into fixed rate funding
instruments. Interest rate cap and floor contracts are used to help protect the
Corporation's interest margin in periods of extremely high or low interest
rates. Basis swaps are used to manage the short-term repricing risk of variable
rate assets and liabilities.
MORTGAGE SERVICING RISK MANAGEMENT: The carrying value of mortgage servicing
assets at September 30, 2000 and December 31, 1999 was $976.4 million and $785.0
million, respectively, and included capitalized net cash outflows of $51.4
million and $9.7 million, respectively, related to off-balance sheet derivative
contracts. The Corporation uses off-balance sheet derivative contracts to hedge
the market value of its mortgage servicing portfolio. The market value of the
mortgage servicing portfolio is adversely affected when mortgage interest rates
decline and mortgage loan prepayments increase. To hedge this exposure, the
Corporation enters into receive fixed interest rate swaps and purchases interest
rate caps and floors. The Corporation also enters into interest rate swaps where
the Corporation receives the periodic total return of principal only
mortgage-backed securities and pays a variable rate based on one-month
Eurodollar rates.
14
<PAGE> 16
Summary information regarding derivatives used for interest rate and
mortgage servicing risk management at September 30, 2000 and December 31, 1999
follows:
<TABLE>
<CAPTION>
Interest Rate Risk Management
--------------------------------------------------------------------------
Notional Amount Applicable to Hedged Item
------------------------------------------- Total Net Unrealized
(In Thousands) Loans Securities Funding Notional Gain (Loss)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 2000:
Interest rate swaps
Receive fixed swaps............. $ 60,000 $ -- $ 5,994,250 $ 6,054,250 $(158,029)
Pay fixed swaps................. 3,040,807 -- 3,000,000 6,040,807 60,265
Basis swaps..................... 2,200,000 -- 3,051,000 5,251,000 (10,926)
Principal only swaps............ -- -- -- -- --
---------- ---------- ----------- ----------- ---------
Total interest rate swaps..... 5,300,807 -- 12,045,250 17,346,057 (108,690)
Interest rate caps and floors
Eurodollar caps purchased....... 3,449 -- -- 3,449 (57)
Eurodollar caps sold............ 415,000 -- -- 415,000 4,250
Eurodollar floors purchased..... 1,165,000 25,000 -- 1,190,000 (2,184)
Eurodollar floors sold.......... 10,000 -- -- 10,000 (285)
U.S. Treasury caps purchased.... -- -- -- -- --
U.S. Treasury floors
purchased..................... -- -- -- -- --
---------- ---------- ----------- ----------- ---------
Total interest rate caps and
floors...................... 1,593,449 25,000 -- 1,618,449 1,724
Interest rate futures
Eurodollar futures purchased.... 127,000 -- -- 127,000 83
Eurodollar futures sold......... 1,649,000 1,094,000 3,770,000 6,513,000 (10,854)
---------- ---------- ----------- ----------- ---------
Total interest rate futures... 1,776,000 1,094,000 3,770,000 6,640,000 (10,771)
---------- ---------- ----------- ----------- ---------
Total interest rate swaps,
caps, floors and futures.... $8,670,256 $1,119,000 $15,815,250 $25,604,506 $(117,737)
========== ========== =========== =========== =========
<CAPTION>
Mortgage Servicing Risk
Management
---------------------------
Net Unrealized
(In Thousands) Notional Gain (Loss)
---------------------------------- ---------------------------
<S> <C> <C>
SEPTEMBER 30, 2000:
Interest rate swaps
Receive fixed swaps............. $1,478,000 $(37,887)
Pay fixed swaps................. -- --
Basis swaps..................... -- --
Principal only swaps............ 487,850 (28,697)
---------- --------
Total interest rate swaps..... 1,965,850 (66,584)
Interest rate caps and floors
Eurodollar caps purchased....... -- --
Eurodollar caps sold............ -- --
Eurodollar floors purchased..... -- --
Eurodollar floors sold.......... -- --
U.S. Treasury caps purchased.... 2,675,000 5,341
U.S. Treasury floors
purchased..................... 270,000 263
---------- --------
Total interest rate caps and
floors...................... 2,945,000 5,604
Interest rate futures
Eurodollar futures purchased.... -- --
Eurodollar futures sold......... -- --
---------- --------
Total interest rate futures... -- --
---------- --------
Total interest rate swaps,
caps, floors and futures.... $4,910,850 $(60,980)
========== ========
</TABLE>
<TABLE>
<CAPTION>
Interest Rate Risk Management
------------------------------------------------------------------------
Notional Amount Applicable to Hedged Item
----------------------------------------- Total Net Unrealized
(In Thousands) Loans Securities Funding Notional Gain (Loss)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999:
Interest rate swaps
Receive fixed swaps............. $ 961,488 $ -- $ 4,792,000 $ 5,753,488 $(210,781)
Pay fixed swaps................. 2,690,841 156,000 1,000,000 3,846,841 100,366
Basis swaps..................... 2,000,000 -- 4,091,000 6,091,000 (4,676)
Principal only swaps............ -- -- -- -- --
---------- ----------- ----------- ----------- ---------
Total interest rate swaps..... 5,652,329 156,000 9,883,000 15,691,329 (115,091)
Interest rate caps and floors
Eurodollar caps purchased....... 3,605 70,000 1,500,000 1,573,605 (592)
Eurodollar caps sold............ 35,000 -- -- 35,000 (190)
Eurodollar floors purchased..... 665,000 525,000 -- 1,190,000 (2,649)
Eurodollar floors sold.......... 10,000 -- -- 10,000 92
U.S. Treasury caps purchased.... -- -- -- -- --
U.S. Treasury floors
purchased..................... -- -- -- -- --
---------- ----------- ----------- ----------- ---------
Total interest rate caps and
floors...................... 713,605 595,000 1,500,000 2,808,605 (3,339)
Interest rate futures
Eurodollar futures purchased.... 637,000 -- -- 637,000 (203)
Eurodollar futures sold......... 808,000 10,613,000 -- 11,421,000 1,135
U.S. Treasury futures sold...... -- 143,000 -- 143,000 --
---------- ----------- ----------- ----------- ---------
Total interest rate futures... 1,445,000 10,756,000 -- 12,201,000 932
---------- ----------- ----------- ----------- ---------
Total interest rate swaps,
caps, floors and futures.... $7,810,934 $11,507,000 $11,383,000 $30,700,934 $(117,498)
========== =========== =========== =========== =========
<CAPTION>
Mortgage Servicing Risk
Management
---------------------------
Net Unrealized
(In Thousands) Notional Gain (Loss)
---------------------------------- ---------------------------
<S> <C> <C>
DECEMBER 31, 1999:
Interest rate swaps
Receive fixed swaps............. $1,808,000 $(102,915)
Pay fixed swaps................. -- --
Basis swaps..................... -- --
Principal only swaps............ 364,792 (60,332)
---------- ---------
Total interest rate swaps..... 2,172,792 (163,247)
Interest rate caps and floors
Eurodollar caps purchased....... -- --
Eurodollar caps sold............ -- --
Eurodollar floors purchased..... -- --
Eurodollar floors sold.......... -- --
U.S. Treasury caps purchased.... 2,690,000 29,334
U.S. Treasury floors
purchased..................... 700,000 143
---------- ---------
Total interest rate caps and
floors...................... 3,390,000 29,477
Interest rate futures
Eurodollar futures purchased.... -- --
Eurodollar futures sold......... -- --
U.S. Treasury futures sold...... -- --
---------- ---------
Total interest rate futures... -- --
---------- ---------
Total interest rate swaps,
caps, floors and futures.... $5,562,792 $(133,770)
========== =========
</TABLE>
15
<PAGE> 17
16. LINE OF BUSINESS REPORTING
National City operates six major lines of business: corporate banking,
retail sales and distribution, consumer finance, asset management, National City
Mortgage and National Processing. During the third quarter of 2000, National
City announced several organizational changes, which, once operationally
complete, may result in changes to the presentation of the line of business
results.
Corporate banking includes lending and related financial services to large-
and medium-sized corporations. Retail sales and distribution includes direct
lending, deposit gathering and small business services. Consumer finance is
comprised of credit card lending, education finance, dealer finance, national
home equity lending and nonconforming residential lending. Asset management
includes the institutional trust, brokerage and wealth management businesses.
National City Mortgage represents conforming mortgage banking activities
conducted through the Corporation's wholly-owned subsidiary, National City
Mortgage Co. National Processing consists of merchant card processing services
and corporate outsourcing services conducted through National Processing, Inc.,
National City's 87%-owned item processing subsidiary.
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. Certain prior period amounts have been reclassified to conform with
the current period presentation.
The reported results reflect the underlying economics of the businesses.
Expenses for centrally provided services are allocated based upon estimated
usage of those services. The business units' assets and liabilities are
match-funded and interest rate risk is centrally managed. 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, the results
of investment/funding activities, intersegment revenue (expense) eliminations
and unallocated amounts. Operating results of the business units are discussed
in the Line of Business Results section of Management's Discussion and Analysis.
Selected financial information by line of business is included in the table on
the following page.
16
<PAGE> 18
<TABLE>
<CAPTION>
Retail
Sales
Corporate and Consumer Asset National City
(In Thousands) Banking Distribution Finance Management Mortgage
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED
SEPTEMBER 30, 2000
Net interest income (expense)(a)..... $242,954 $ 373,846 $156,680 $ 25,782 $ 12,843
Provision (benefit) for loan
losses.............................. 10,543 14,220 44,985 2,951 --
-------- ---------- -------- -------- --------
Net interest income (expense)
after provision..................... 232,411 359,626 111,695 22,831 12,843
Noninterest income................... 56,753 142,491 30,124 113,598 99,989
Noninterest expense.................. 104,675 291,458 91,532 83,515 87,318
-------- ---------- -------- -------- --------
Income (loss) before taxes........... 184,489 210,659 50,287 52,914 25,514
Income tax expense (benefit)(a)...... 69,594 80,762 18,955 19,552 9,725
-------- ---------- -------- -------- --------
Net income (loss).................... $114,895 $ 129,897 $31,332 $ 33,362 $ 15,789
======== ========== ======== ======== ========
Intersegment revenue (expense)....... $ -- $ 3,709 $ -- $ 7,356 $ 2,399
Average assets (in millions)......... 28,836 15,629 17,946 2,637 3,994
QUARTER ENDED
SEPTEMBER 30, 1999
Net interest income (expense)(a)..... $215,045 $ 373,205 $144,802 $ 22,709 $ 12,883
Provision (benefit) for loan
losses.............................. 10,249 9,988 40,040 476 --
-------- ---------- -------- -------- --------
Net interest income (expense) after
provision........................... 204,796 363,217 104,762 22,233 12,883
Noninterest income................... 50,250 143,033 31,662 116,140 74,302
Noninterest expense.................. 100,784 295,513 80,516 82,623 58,233
-------- ---------- -------- -------- --------
Income before taxes.................. 154,262 210,737 55,908 55,750 28,952
Income tax expense (benefit)(a)...... 57,457 79,744 20,313 20,416 11,179
-------- ---------- -------- -------- --------
Net income........................... $ 96,805 $ 130,993 $35,595 $ 35,334 $ 17,773
======== ========== ======== ======== ========
Intersegment revenue (expense)....... $ -- $ 2,426 $ -- $ 7,255 $ 2,495
Average assets (in millions)......... 25,866 16,768 15,407 2,348 2,885
NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net interest income (expense)(a)..... $696,033 $1,113,673 $471,673 $ 74,695 $ 31,915
Provision (benefit) for loan
losses.............................. 48,339 33,014 127,515 6,158 --
-------- ---------- -------- -------- --------
Net interest income (expense)
after provision..................... 647,694 1,080,659 344,158 68,537 31,915
Noninterest income................... 170,889 407,105 189,320 359,971 307,525
Noninterest expense.................. 307,138 856,076 302,157 255,409 252,298
-------- ---------- -------- -------- --------
Income (loss) before taxes........... 511,445 631,688 231,321 173,099 87,142
Income tax expense (benefit)(a)...... 193,026 242,172 87,048 64,181 33,181
-------- ---------- -------- -------- --------
Net income (loss).................... $318,419 $ 389,516 $144,273 $108,918 $ 53,961
======== ========== ======== ======== ========
Intersegment revenue (expense)....... $ -- $ 11,140 $ -- $ 21,745 $ 7,890
Average assets (in millions)......... 27,811.. 16,220 18,338 2,479 3,474
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net interest income (expense)(a)..... $643,017 $1,114,741 $440,011 $ 66,573 $ 42,658
Provision (benefit) for loan
losses.............................. 39,817 28,981 134,258 1,732 --
-------- ---------- -------- -------- --------
Net interest income (expense) after
provision........................... 603,200 1,085,760 305,753 64,841 42,658
Noninterest income................... 151,925 414,073 77,227 355,153 240,236
Noninterest expense.................. 293,430 877,237 213,453 251,681 178,626
-------- ---------- -------- -------- --------
Income (loss) before taxes........... 461,695 622,596 169,527 168,313 104,268
Income tax expense(a)................ 171,948 235,734 62,353 61,563 40,061
-------- ---------- -------- -------- --------
Net income (loss).................... $289,747 $ 386,862 $107,174 $106,750 $ 64,207
======== ========== ======== ======== ========
Intersegment revenue (expense)....... $ -- $ 36,337 $ -- $ 23,743 $ 7,983
Average assets (in millions)......... 25,895 17,441 15,261 2,291 3,213
------------------------------------------------------------------------------------------------------
<CAPTION>
National Parent Consolidated
(In Thousands) Processing and Other Total
------------------------------------- -------------------------------------
<S> <C> <C> <C>
QUARTER ENDED
SEPTEMBER 30, 2000
Net interest income (expense)(a)..... $ 2,535 $ (68,620) $ 746,020
Provision (benefit) for loan
losses.............................. -- (2,336) 70,363
-------- --------- ----------
Net interest income (expense)
after provision..................... 2,535 (66,284) 675,657
Noninterest income................... 106,599 68,759 618,313
Noninterest expense.................. 87,975 38,836 785,309
-------- --------- ----------
Income (loss) before taxes........... 21,159 (36,361) 508,661
Income tax expense (benefit)(a)...... 8,174 (28,737) 178,025
-------- --------- ----------
Net income (loss).................... $ 12,985 $ (7,624) $ 330,636
======== ========= ==========
Intersegment revenue (expense)....... $ -- $ (13,464) $ --
Average assets (in millions)......... 389 14,770 84,201
QUARTER ENDED
SEPTEMBER 30, 1999
Net interest income (expense)(a)..... $ 1,260 $ (12,151) $ 757,753
Provision (benefit) for loan
losses.............................. -- (5,277) 55,476
-------- --------- ----------
Net interest income (expense) after
provision........................... 1,260 (6,874) 702,277
Noninterest income................... 93,629 39,951 548,967
Noninterest expense.................. 82,220 6,074 705,963
-------- --------- ----------
Income before taxes.................. 12,669 27,003 545,281
Income tax expense (benefit)(a)...... 4,348 (4,638) 188,819
-------- --------- ----------
Net income........................... $ 8,321 $ 31,641 $ 356,462
======== ========= ==========
Intersegment revenue (expense)....... $ -- $ (12,176) $ --
Average assets (in millions)......... 332 19,085 82,691
NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net interest income (expense)(a)..... $ 6,621 $(158,723) $2,235,887
Provision (benefit) for loan
losses.............................. -- (9,646) 205,380
-------- --------- ----------
Net interest income (expense)
after provision..................... 6,621 (149,077) 2,030,507
Noninterest income................... 305,674 88,276 1,828,760
Noninterest expense.................. 258,456 97,938 2,329,472
-------- --------- ----------
Income (loss) before taxes........... 53,839 (158,739) 1,529,795
Income tax expense (benefit)(a)...... 20,831 (105,010) 535,429
-------- --------- ----------
Net income (loss).................... $ 33,008 $ (53,729) $ 994,366
======== ========= ==========
Intersegment revenue (expense)....... $ -- $ (40,775) $ --
Average assets (in millions)......... 375 16,940 85,637
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net interest income (expense)(a)..... $ 3,381 $ (29,743) $2,280,638
Provision (benefit) for loan
losses.............................. -- (21,736) 183,052
-------- --------- ----------
Net interest income (expense) after
provision........................... 3,381 (8,007) 2,097,586
Noninterest income................... 260,230 265,557 1,764,401
Noninterest expense.................. 300,494 87,479 2,202,400
-------- --------- ----------
Income (loss) before taxes........... (36,883) 170,071 1,659,587
Income tax expense(a)................ 11,305 14,654 597,618
-------- --------- ----------
Net income (loss).................... $(48,188) $ 155,417 $1,061,969
======== ========= ==========
Intersegment revenue (expense)....... $ -- $ (68,063) $ --
Average assets (in millions)......... 415 19,334 83,850
-----------------------------------------------------------------------------------------
</TABLE>
(a) Includes tax-equivalent adjustment for tax-exempt interest income.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
Net income for the third quarter and first nine months of 2000 was $330.7
million and $994.4 million, respectively, compared to net income of $356.5
million and $1,062.0 million, respectively, for the same periods in 1999. Net
income per diluted share was $.54 in the third quarter of 2000 and $1.63 for the
first nine months of 2000, versus net income per diluted share of $.57 and
$1.67, respectively, for the comparable 1999 periods. Returns on average common
equity and assets were 21.1% and 1.56%, respectively, for the third quarter of
2000 compared to 23.8% and 1.71%, respectively, for the 1999 third quarter. On a
year-to-date basis, returns on average common equity and assets were 22.2% and
1.55%, respectively, for 2000 and 22.6% and 1.69%, respectively, for 1999.
NET INTEREST INCOME
Tax-equivalent net interest income for the third quarter of 2000 was $746.0
million compared to $749.0 million in the second quarter and $757.7 million in
1999's third quarter. The 2000 third quarter net interest margin of 3.90% was up
from 3.80% in the second quarter, but down from 4.03% in the 1999 third quarter.
Tax-equivalent net interest income and the net interest margin for the first
nine months of 2000 were $2.24 billion and 3.83%, respectively, down from $2.28
billion and 4.03%, respectively, for the same period in 1999.
During the second and third quarters of 2000, the Corporation took steps
toward improving the net interest margin and reducing the Corporation's
sensitivity to rising interest rates, including the sales of $2.0 billion of
thin-spread student loans, $3.7 billion of fixed-rate debt securities, and $1.0
billion of low-spread adjustable-rate mortgage ("ARM") loans, along with the
securitization of $600 million of credit card loans. Despite a decline in
average earning assets from the second quarter (Table 1) due to the asset sales,
the net interest margin and net interest income for the third quarter of 2000
benefited from a richer earning asset mix, a stable level of core deposits
(Table 2) and less pressure from rising interest rates, which allowed certain
assets to reprice and catch up with funding rate increases.
TABLE 1: AVERAGE EARNING ASSETS
<TABLE>
<S> <C> <C> <C>
Three Months Ended
---------------------------------
SEPT. 30 Jun. 30 Sept. 30
(In Millions) 2000 2000 1999
--------------------------------------------------------
Loans................ $62,248 $62,537 $57,142
Mortgage loans held
for sale........... 3,001 2,848 2,172
Securities (at
cost).............. 10,786 13,064 14,851
Other................ 343 578 806
------- ------- -------
Total earning
assets............. $76,378 $79,027 $74,971
======= ======= =======
</TABLE>
TABLE 2: AVERAGE SOURCES OF FUNDING
<TABLE>
<S> <C> <C> <C>
Three Months Ended
---------------------------------
SEPT. 30 Jun. 30 Sept. 30
(In Millions) 2000 2000 1999
--------------------------------------------------------
Noninterest bearing
deposits........... $10,837 $10,934 $11,338
Interest bearing core
deposits........... 35,264 35,183 34,998
------- ------- -------
Total core
deposits........... 46,101 46,117 46,336
Purchased deposits... 5,812 5,743 5,297
Short-term
borrowings......... 8,667 11,109 10,511
Long-term debt and
capital
securities......... 16,014 16,636 13,532
Stockholders'
equity............. 6,246 5,976 5,969
------- ------- -------
Total funding.... $82,840 $85,581 $81,645
======= ======= =======
Total interest-
bearing
liabilities........ $65,757 $68,671 $64,338
======= ======= =======
</TABLE>
On a year-over-year basis, higher-cost funding in a rising rate environment
coupled with the Corporation's liability sensitivity and competitive lending
markets led to the decline in net interest income and the narrower net interest
margin. In addition, interest expense incurred as a result of funding 1999 share
repurchase activity had the effect of reducing the 2000 net interest margin.
Average earning assets for the third quarter of 2000 were $76.4 billion,
down from $79.0 billion last quarter, but up from $75.0 billion for the third
quarter of 1999. Excluding the impact of the aforementioned asset sales, which
reduced average earning assets by $5.8 billion in the third quarter of 2000 and
$1.0 billion in the second quarter, average assets are up over both prior
periods due to strong loan growth. Average loans for the third quarter of 2000
totaled $62.2 billion compared to $62.5 billion in the second quarter of this
year and $57.1 billion in the third quarter of 1999. Excluding the impact of
second quarter student and ARM loan sales and the third quarter credit card loan
securitization, average loans for the third quarter grew
18
<PAGE> 20
$2.4 billion over the second
quarter of 2000 and represented an annualized growth rate of 15%. Strong growth
in commercial loans and leases was the main driver of the linked-quarter
increase and also contributed significantly to the year-over-year increase. The
retention of nonconforming residential real estate loans and solid growth in
home equity loans were also primary factors behind the year-over-year increase.
Steady origination volume drove the increase in average mortgage loans held for
sale to $3.0 billion in the third quarter of 2000 from $2.8 billion last
quarter. Average securities in the third quarter were $10.8 billion, down $2.3
billion from $13.1 billion in the second quarter and $4.1 billion from $14.9
billion in the 1999 third quarter due to the sale of $3.7 billion of lower-
yielding fixed-rate debt securities in 2000.
Average interest-bearing liabilities (Table 2) in the 2000 third quarter
were $65.8 billion, down from $68.7 billion in the second quarter as a portion
of the proceeds from asset sales was used to reduce purchased funding, while
average core deposits in the third quarter at $46.1 billion held steady relative
to the second quarter. Compared to the third quarter of 1999, average
interest-bearing liabilities increased $1.4 billion, with a shift in mix from
lower-cost noninterest bearing deposits and short-term borrowings to more
expensive purchased deposits and long-term debt (Table 3).
TABLE 3: PERCENTAGE COMPOSITION OF AVERAGE FUNDING SOURCES
<TABLE>
<S> <C> <C> <C>
Three Months Ended
---------------------------------
SEPT. 30 Jun. 30 Sept. 30
(In Millions) 2000 2000 1999
--------------------------------------------------------
Core deposits........ 55.7% 53.9% 56.7%
Purchased deposits... 7.0 6.7 6.5
Short-term
borrowings......... 10.5 13.0 12.9
Long-term debt and
capital
securities......... 19.3 19.4 16.6
Stockholders'
equity............. 7.5 7.0 7.3
----- ----- -----
Total............ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Credit card securitization transactions are undertaken primarily to
diversify the Corporation's funding sources and for overall balance sheet
management. Asset securitization involves the sale of a pool of loan receivables
to a trust which sells undivided interests to investors through the public or
private issuance of asset-backed securities. As loan receivables are
securitized, the Corporation's on-balance sheet funding needs are reduced by the
amount of loans securitized.
During the third quarter of 2000, the Corporation transferred credit card
loans to the National City Credit Card Master Trust, which sold $600 million of
undivided interests in the trust to investors. No loans were securitized in
1999; however, loan securitizations transacted prior to 1999 began unwinding in
late 1998 resulting in $353 million and $270 million of credit card loans coming
back onto the Corporation's balance sheet in 2000 and 1999, respectively.
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 present value of the Corporation's cash flows.
As part of carrying out these responsibilities, management continually takes
into consideration many factors, primarily expected future interest rate
movements, variability and timing of cash flows, mortgage prepayments, and
potential changes in core deposits.
Interest rate risk is monitored principally through the use of two
complementary measures: earnings simulation modeling and net present value
estimation. While each of these interest rate risk measurements has limitations,
taken together they represent a reasonably comprehen- sive 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.
Over the course of the previous two quarters, management has taken steps to
lessen the Corporation's liability sensitivity. At September 30, 2000, the
earnings simulation model projects net income would decrease by approximately
.6% of stable-rate net income if rates rise gradually by two percentage points
over the next year. It projects an increase of approximately .4% if rates
decline gradually by two percentage points over the next year. At June 30, 2000,
these measures projected a decrease in net income of 1.4% in a rising rate
environment and an increase of 1.0% in a falling rate environment. The
calculated exposure at September 30, 2000 is within the Corporation's guideline
of minus 4.0%.
At September 30, 2000, the net present value model indicates a 150 basis
point immediate increase in rates would result in approximately a 3.5% decline
in the net present value of the
19
<PAGE> 21
balance sheet, while a 150 basis point immediate decrease in rates was projected
to decrease the net present value of the balance sheet by approximately .6%. At
June 30, 2000, the corresponding measurements were a 3.8% decline and no change,
respectively. Policy limits restrict the amount of the estimated decline in net
present value to minus 7.0%.
NONINTEREST INCOME
For the third quarter of 2000, fees and other income (Table 4) were $590.9
million compared to $674.3 million for the second quarter and $528.6 million for
the third quarter of 1999. Fees and other income for the first nine months of
2000 reached $1.82 billion, up 10% from $1.66 billion for the same period in
1999.
TABLE 4: NONINTEREST INCOME
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
----------------------------- ----------------------
SEPT. 30 Jun. 30 Sept. 30 SEPT. 30 Sept. 30
(In Thousands) 2000 2000 1999 2000 1999
-------------------------------------------------------------------------------
Item processing
revenue............ $104,916 $100,575 $ 91,519 $ 299,860 $ 318,311
Deposit service
charges............ 115,392 108,073 107,430 329,778 312,127
Mortgage banking
revenue............ 110,454 147,610 81,105 369,358 263,281
Trust and investment
management fees.... 79,805 90,054 81,097 253,483 243,627
Card-related fees.... 48,283 45,312 48,383 137,241 142,952
Other service fees... 24,033 30,918 22,647 79,288 68,999
Brokerage revenue.... 23,202 24,587 24,514 74,800 78,000
Other................ 84,793 127,199 71,919 278,764 235,839
-------- -------- -------- ---------- ----------
Total fees and
other
income........... 590,878 674,328 528,614 1,822,572 1,663,136
Net securities
gains
(losses)......... 27,435 (42,780) 20,353 6,188 101,265
-------- -------- -------- ---------- ----------
Total noninterest
income............. $618,313 $631,548 $548,967 $1,828,760 $1,764,401
======== ======== ======== ========== ==========
</TABLE>
On a linked-quarter comparative basis, third quarter growth in item
processing revenue and deposit service charges, along with a $27.1 million gain
on a credit card securitization, was more than offset by lower trust and
investment management fees and mortgage banking revenue and the second quarter
gain of $74.2 million on the sale of student loans. Item processing revenue
benefited from an expanded merchant base and an increase in card volume, while
the increase in deposit service charges was attributable to higher volume and a
reduction in fee waivers. Sequential quarter trust and investment management
fees declined principally as a result of seasonal tax preparation and estate
settlement fees recognized in the second quarter, and to a lesser extent, a
decline in market values of assets under administration. Although assisted by
healthy origination volume and higher servicing contributions, mortgage banking
revenue declined from the second quarter, a quarter in which a $13.5 million
gain from the sale of mortgage servicing rights and a $10.6 million gain on the
sale of certain low-spread adjustable-rate mortgage loans were recognized.
Mortgage banking revenue was also lowered in the third quarter due to a decline
in nonconforming loan sales, as more high-quality nonconforming loan production
was retained to benefit future periods, while foregoing gains on whole-loan
sales.
On a year-over-year basis, fees and other income increased due to growth in
mortgage banking revenue, deposit service charges, trust and investment
management fees, other service fees, and item processing revenue, exclusive of
revenue related to the 1999 divestitures of certain business lines at National
Processing, Inc., the Corporation's 87%-owned item processing subsidiary, as
well as the gains recognized in 2000 related to the credit card securitization
and sale of student loans of $27.1 million and $74.2 million, respectively,
offset partially by $42.8 million in net gains recognized in 1999 related to the
disposal of certain equity interests and the National Processing business lines.
Strong origination volumes and a growing servicing portfolio, along with
purchase acquisitions in the second half of 1999, led to the year-over-year
growth in mortgage banking revenue. National City's residential loan servicing
portfolio grew to $53.5 billion at September 30, 2000, up 14% from $46.7 billion
at year-end 1999 and up 20% from $44.4 billion a year ago. Service charges on
deposits and other service fees benefited from a standardized fee structure
instituted in 1999, higher cash management and syndicated lending fees,
increased customer debit card usage and fewer waived fees. An increase in assets
under administration combined with a more uniform fee structure led to the
growth in trust and investment management fees. Excluding revenue recognized in
the first half of 1999 related to the aforementioned divested business lines,
item processing revenue experienced strong growth in both the year-over-year
quarter and year-
20
<PAGE> 22
to-date periods due to an expanded merchant base and higher debit and credit
card volume. Card-related fee income is down from the prior-year periods due to
reduced servicing income from credit card securitizations that have been
unwinding since late 1998.
In the third quarter of 2000, pre-tax securities gains, primarily from
equity securities, totaled $27.5 million, or $.03 per share after tax, up from
$20.3 million, or $.02 per share after tax, in the third quarter of 1999. For
the first nine months of 2000, net pre-tax securities gains totaled $6.2
million, or $.01 per share after tax, down from $101.3 million, or $.10 per
share after tax, for the same period last year. Net securities gains for the
first nine months of 2000 included pre-tax losses of $56.3 million, or $.06 per
share after tax, from the sale of $3.7 billion of primarily lower-yielding,
fixed-rate debt securities, whereas for the first nine months of 1999,
securities gains included a pre-tax gain of $32.1 million from the sale of the
Corporation's holdings in Concord EFS, Inc.
NONINTEREST EXPENSE
Noninterest expense (Table 5) was $785.3 million in the third quarter of
2000, relatively unchanged from $785.1 million in the second quarter, but up
from $705.9 million in the 1999 third quarter. Noninterest expense for the first
nine months of 2000 was $2.33 billion, compared to $2.20 billion for the same
period in 1999. On a linked-quarter basis, higher third quarter expenses
resulting principally from increased personnel costs and state and local taxes
were offset by a lower level of marketing spending, a $15.0 million second
quarter write-down of residual values on the Corporation's auto lease portfolio,
along with other expense adjustments. Compared to the third quarter of 1999,
noninterest expense rose due to higher technology and marketing spending to
support strategic growth initiatives, fee-based business volume increases, and
expenses and intangibles amortization from 1999 purchase acquisitions whose
costs were not fully included in the 1999 third quarter base. These same factors
also led to the increase in noninterest expense for the first nine months of
2000, compared to the same 1999 period, with the effect partially offset by
lower expenses resulting from National Processing's second quarter 1999 business
line divestitures, $37.8 million of charges pursuant to a plan to improve the
cost-efficiency of branch office facilities, along with certain unrelated
executive contract obligations, decreases in benefits and other personnel
expense and reduced state and local tax expense. A decline in expense related to
compensation and benefit plans and an increase in costs capitalized in
connection with internally-developed software projects accounted for the
decrease in benefits and other personnel expense, while state and local tax
expense declined due to several refunds in 2000.
TABLE 5: NONINTEREST EXPENSE
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
----------------------------- ----------------------
SEPT. 30 Jun. 30 Sept. 30 SEPT. 30 Sept. 30
(In Thousands) 2000 2000 1999 2000 1999
-------------------------------------------------------------------------------
Salaries............. $347,248 $341,735 $306,468 $1,024,020 $ 941,518
Benefits and other
personnel.......... 58,736 59,574 61,170 190,144 216,469
Equipment............ 56,038 57,759 47,590 171,479 153,306
Net occupancy........ 52,730 51,816 48,944 157,214 152,305
Third-party
services........... 51,201 48,546 49,304 144,895 143,425
Card processing
fees............... 40,393 40,493 37,261 119,084 108,880
Postage and
supplies........... 29,692 31,701 29,504 92,004 94,458
Amortization of
intangibles........ 21,966 21,975 19,190 66,041 54,236
Telephone............ 20,538 18,371 15,124 59,185 53,714
Marketing and public
relations.......... 18,827 23,377 15,656 64,916 41,238
State and local
taxes.............. 12,913 8,122 13,040 28,743 38,222
Travel and
entertainment...... 14,754 15,149 12,522 43,542 37,152
Other................ 60,273 66,452 50,190 168,205 167,477
-------- -------- -------- ---------- ----------
Total noninterest
expense........ $785,309 $785,070 $705,963 $2,329,472 $2,202,400
======== ======== ======== ========== ==========
</TABLE>
National City's staffing level on a full-time equivalent basis was 36,766
at September 30, 2000, down from 37,267 a year ago as personnel additions from
second half 1999 purchase acquisitions were more than offset by
efficiency-related reductions in retail branch personnel and other support
staff.
Operating expenses are often measured by the efficiency ratio, which
expresses noninterest expense as a percentage of tax-equivalent net interest
income and total fees and other income. The efficiency ratio for the third
quarter and first nine months of 2000 was 58.7% and 57.4%, respectively,
compared to 54.9% and 55.8%, respectively, for the same periods in 1999.
21
<PAGE> 23
LINE OF BUSINESS RESULTS
Following is a discussion of National City's results by line of business.
Selected financial information for each business line is presented in Note 16 to
the Consolidated Financial Statements and in Table 6.
National City's operations are currently managed under six major lines of
business: corporate banking, retail sales and distribution, consumer finance,
asset management, National City Mortgage and National Processing. During the
third quarter of 2000, National City announced several organizational changes,
which, once operationally complete, may result in changes to the presentation of
the line of business results.
Corporate Banking net income for the third quarter and first nine months of
2000 was $114.9 million and $318.4 million, respectively, up from $96.8 million
and $289.7 million, respectively, in 1999. An increase in net interest income
and noninterest income offset in part by a higher loan loss provision and an
increase in noninterest expense resulted in the improved performance in both
comparative year-over-year periods. Strong commercial loan and lease growth and
increased spreads drove the increase in net interest income, while successful
syndication efforts benefited noninterest income. Higher net charge-offs led to
an increased provision for loan losses, and expenses associated with new offices
and expansion in the Philadelphia, Detroit and Chicago markets contributed to
the increase in noninterest expense. Compared to Corporate Banking's net income
in the second quarter of 2000 of $107.0 million, third quarter results improved
due to continued strong commercial loan and lease growth and lower loan losses.
TABLE 6: NET INCOME BY LINE OF BUSINESS
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
-------------------------- -----------------
SEPT. 30 Jun. 30 Sept. 30 SEPT. 30 Sept. 30
(In Millions) 2000 2000 1999 2000 1999
--------------------------------------------------------------------------
Corporate banking.... $114.9 $107.0 $ 96.8 $318.4 $ 289.7
Retail sales and
distribution....... 129.9 133.2 131.0 389.5 386.9
Consumer finance..... 31.3 78.0 35.6 144.3 107.2
Asset management..... 33.4 40.6 35.3 108.9 106.8
National City
Mortgage........... 15.8 22.8 17.8 54.0 64.2
National Processing.. 13.0 10.5 8.3 33.0 (48.2)
Parent and other..... (7.6) (49.7) 31.7 (53.7) 155.4
------ ------ ------ ------ --------
Consolidated
total.......... $330.7 $342.4 $356.5 $994.4 $1,062.0
====== ====== ====== ====== ========
</TABLE>
Retail Sales and Distribution reported net income of $129.9 million and
$389.5 million for the third quarter and year-to-date periods of 2000,
respectively, relatively unchanged from net income of $131.0 million and $386.9
million, respectively, for the same periods in 1999. Results for Retail Sales
and Distribution in 2000 have been dampened by an increase in the provision for
loan losses and lower noninterest income, offset partially by improved spreads
and lower noninterest expense. A lower level of earning assets, due in part to
the sale in the second quarter of 2000 of $1.0 billion of low-spread adjustable
rate mortgages, along with a lower level of core deposits, have hindered net
interest income growth. The increased provision for loan losses reflected a
higher level of net charge-offs in 2000. Noninterest income decreased due to
$6.4 million of branch sale gains recognized in the 1999 third quarter and fewer
intercompany servicing asset sale gains, offset partially by the 2000 second
quarter gain of $3.8 million from the sale of the mortgage loans. Noninterest
expense has benefited over the past year from cost efficiencies achieved through
branch reconfiguration and functional centralization initiatives. Third quarter
2000 net income declined slightly from second quarter net income of $133.2
million due primarily to a higher loan loss provision and an increase in net
overhead due to a higher level of transaction related losses.
Consumer Finance's third quarter and year-to-date net income totaled $31.3
million and $144.3 million, respectively, versus $35.6 million and $107.2
million, respectively, for the same periods in 1999. Current year results
included a pre-tax gain of $74.2 million, or $48.2 million after tax, from the
sale of $2.0 billion of student loans in the second quarter. Excluding this
gain, net income for the first nine months of 2000 was $96.1 million. Results in
2000, excluding the student loan sale gain, have been unfavorably impacted by a
lower net interest margin, net overhead attributable to the acquisition of First
Franklin Financial Companies, Inc. ("First Franklin") late in the third quarter
of 1999 and a $15.0 million write-down of auto lease residual values in the
second quarter of 2000, offset to some extent by strong growth in nonconforming
residential real estate loans, which has benefited net interest income. Compared
to 2000 second quarter net income, excluding the student loan sale gain, third
quarter net income was relatively unchanged as the benefit of a lower level of
ex-
22
<PAGE> 24
pense was offset by fewer nonconforming mortgage loan sale gains, due to the
retention of a larger percentage of First Franklin's production in the third
quarter, and an increase in the loan loss provision.
Net income for Asset Management was $33.4 million and $108.9 million for
the third quarter and first nine months of 2000, compared to net income of $35.3
million and $106.8 million for the comparable 1999 periods. Asset Management's
performance in 2000, relatively flat compared to 1999, has been dampened by
lower revenue generated from investment banking and retail brokerage activity
and higher loan losses offset for the most part by an increase in net interest
income, due to strong loan growth and improved spreads, and an increase in fees
relative to noninterest expense related to private investment advisory services.
Net income in the third quarter of 2000 was down from $40.6 million in the
second quarter of this year primarily due to seasonal tax preparation and estate
planning fees recognized in the second quarter.
National City Mortgage reported net income of $15.8 million and $54.0
million for the third quarter and first nine months of 2000, respectively,
versus net income of $17.8 million and $64.2 million for the same periods last
year. Despite an increase in servicing revenue and higher origination volume,
net income in 2000 was negatively affected by narrower net interest spreads and
a higher level of expenses relative to revenues. Third quarter net income
declined compared to second quarter 2000 net income of $22.8 million primarily
due to an after-tax gain of $8.8 million recognized in the second quarter
related to the sale of servicing assets.
National Processing's net income for the third quarter and first nine
months of 2000 was $13.0 million and $33.0 million, respectively, up from net
income of $8.3 million in the 1999 third quarter and a net loss of $48.2 million
for the first nine months of 1999. Year-to-date results for 1999 included losses
associated with the divestiture of certain business lines and the impact of
their operations until sold. Excluding the effects of the divested business
lines, National Processing's results in 2000 improved over 1999, due primarily
to strong revenue growth and higher operating margins in the merchant services
segment resulting from new customers, volume increases from existing customers,
better pricing and volume-driven economies of scale. Compared to net income of
$10.5 million in the second quarter of 2000, third quarter net income increased
24% and reflected continued growth in the merchant services segment and a higher
revenue contribution from healthcare related processing in the corporate
outsourcing segment.
The parent and other category in 2000 included the after-tax net loss of
$36.6 million related to the sale of the fixed-rate debt securities and the
after-tax gain of $17.7 million from the credit card securitization transaction.
In 1999, the parent and other category included net after-tax income of $87.0
million related to several one-time gains from the sale of the Corporation's
investments in EPS, Concord and SVS (see Note 3 to the Consolidated Financial
Statements), offset by $24.5 million in after-tax charges pursuant to a plan to
improve the cost efficiency of branch office facilities, along with certain
unrelated executive contract obligations. Excluding these items, the parent and
other category incurred net losses of $26.6 million and $34.8 million for the
third quarter and first nine months of 2000, respectively, compared to net
income of $31.7 million and $92.9 million for the same 1999 periods due largely
to the effect of rising interest rates on investment and funding activities.
TABLE 7: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
------------------------------ --------------------
SEPT. 30 Jun. 30 Sept. 30 SEPT. 30 Sept. 30
2000 2000 1999 2000 1999
---------------------------------------------------------------------------------
Commercial........... .24% .35% .21% .30% .28%
Real estate -
commercial......... .04 .16 .03 .04 (.05)
Real estate -
residential........ .21 .21 .15 .20 .13
Consumer............. .86 .51 .58 .67 .65
Credit card.......... 3.51 3.16 3.52 3.37 4.10
Home equity.......... .03 .13 .03 .06 .09
Total net
charge-offs to
average loans.... .45% .44% .38% .44% .43%
</TABLE>
ASSET QUALITY
Credit quality remained relatively stable in the third quarter of 2000. Net
charge-offs totaled $70.2 million, or .45% of average loans, compared to $68.7
million, or .44% of average loans in the second quarter of 2000, and $55.0
million, or .38% of average loans in the third quarter of 1999. Year-to-date,
net charge-offs were $205.0 million, or .44% of average loans, in 2000, compared
to net charge-offs of $182.9 million, or .43% of average loans, in 1999. Table 7
presents net charge-offs as a
23
<PAGE> 25
percentage of average loans by portfolio type.
At September 30, 2000, the allowance for loan losses was $945.5 million, or
1.49% of loans, compared to $970.4 million, or 1.58% of loans at the end of the
second quarter, and $970.7 million, or 1.67% of loans a year ago. In conjunction
with the sale through securitization of $600 million of credit card loans in the
third quarter of 2000, the allowance was adjusted by $25.0 million, resulting in
a decline in the ratio of allowance for loan losses as a percentage of loans at
the end of the third quarter.
Nonperforming assets (Table 8) totaled $365.3 million at September 30,
2000, compared to $339.3 million at June 30, 2000, and $260.0 million at
September 30, 1999. Weakness in the healthcare sector along with the addition of
several credits in the retail and manufacturing industries and higher
delinquencies in residential real estate contributed to the rise in
nonperforming assets over the past year. As a percentage of loans and other real
estate, nonperforming assets were .57% at September 30, 2000, compared to .55%
at the end of the second quarter, and .45% a year ago. Nonconforming residential
real estate delinquencies served as the primary contributor to the rise in loans
90 days past due accruing interest in the third quarter of 2000 (Table 8).
TABLE 8: NONPERFORMING ASSETS
<TABLE>
<S> <C> <C> <C> <C> <C>
SEPT. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30
(In Millions) 2000 2000 2000 1999 1999
---------------------------------------------------------------------------
Commercial:
Nonaccrual......... $170.6 $155.3 $138.4 $130.2 $106.7
Restructured....... .2 .2 .2 .2 .2
------ ------ ------ ------ ------
Total
commercial..... 170.8 155.5 138.6 130.4 106.9
Real estate mortgage:
Nonaccrual......... 166.6 158.0 150.5 137.0 126.9
Restructured....... .2 .2 1.7 1.8 2.3
------ ------ ------ ------ ------
Total real estate
mortgage....... 166.8 158.2 152.2 138.8 129.2
------ ------ ------ ------ ------
Total
nonperforming
loans.......... 337.6 313.7 290.8 269.2 236.1
Other real estate
owned (OREO)....... 27.7 25.6 23.3 19.9 23.9
------ ------ ------ ------ ------
Nonperforming
assets............. $365.3 $339.3 $314.1 $289.1 $260.0
====== ====== ====== ====== ======
Loans 90 days past
due accruing
interest........... $310.3 $249.4 $250.0 $230.0 $244.0
====== ====== ====== ====== ======
</TABLE>
CAPITAL
The Corporation has consistently maintained regulatory capital ratios at or
above the "well-capitalized" standards. Further detail on capital ratios is
presented in Note 10 to the Consolidated Financial Statements.
Total stockholders' equity was $6.5 billion at September 30, 2000. Equity
as a percentage of assets increased to 7.60% at the end of the third quarter
from 7.25% at the end of the second quarter and 6.95% a year ago. Reduced share
buyback activity and appreciation in the fair value of securities
available-for-sale have aided the growth in stockholders' equity over the past
several quarters. Average equity to average assets was 7.01% for the nine months
ended September 30, 2000, compared to 7.53% for the same period in 1999. Book
value per common share at September 30, 2000 was $10.58, compared to $10.05 at
June 30, 2000 and $9.54 at September 30, 1999. Book value per common share at
the end of the 2000 third quarter included unrealized losses on securities
available-for-sale of $.16 compared to unrealized losses of $.43 at the end of
the second quarter and unrealized losses of $.10 a year ago.
In late 1999, the Corporation's Board of Directors authorized a share
repurchase program for up to 30 million shares, or approximately five percent of
the Corporation's outstanding common stock, with an aggregate purchase limit of
$1.0 billion. The repurchase of common stock may be made from time to time, on
the open market or in privately-negotiated transactions. During the first and
third quarters of 2000, the Corporation repurchased 2.1 million and .3 million
shares of National City common stock, respectively, on the open market, for a
total cost of $52.3 million. As of September 30, 2000, 25 million shares remain
authorized for repurchase. In conjunction with this authorization, the
Corporation entered into an agreement with a third party that provides the
Corporation with an option to purchase up to $300 million of National City
common stock through the use of forward transactions. The forward transactions
can be settled from time to time, at the Corporation's election, on a physical,
net cash or net share basis. In the case of net cash or net share settlement,
the amount at which these forward contracts can be settled depends primarily on
the future market price of the Corporation's common stock as compared with the
forward purchase price per share and the number of shares to be settled. During
the third quarter of 2000, the Corporation
24
<PAGE> 26
entered into forward transactions involving 1.7 million shares, bringing the
total shares under open forward contracts to 9.3 million. The final maturity
date of the agreement is April 19, 2002.
The dividend payout is continually reviewed by management and the Board of
Directors. Dividends of $.285 per common share were declared in the third
quarter of 2000, reflecting a dividend payout ratio of 52.8%. In the third
quarter of 1999, dividends of $.27 were declared with a corresponding dividend
payout ratio of 47.4%.
As of September 30, 2000, the Corporation's market capitalization was
approximately $13.4 billion. National City's common stock is traded on the New
York Stock Exchange under the symbol "NCC." Stock price information for National
City's common stock is presented in Table 9.
FORWARD-LOOKING STATEMENTS
The discussion regarding the Corporation's interest rate risk position
included in the section entitled "Net Interest Income" contains certain
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). These forward-looking statements involve significant risks
and uncertainties including changes in general economic and financial market
conditions and the Corporation's ability to execute its business plans. Although
National City believes the expectations reflected in such forward-looking
statements are reasonable, actual results may differ materially.
TABLE 9: COMMON STOCK INFORMATION
<TABLE>
<S> <C> <C> <C> <C> <C>
2000 1999
--------------------------- -----------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
----------------------------------------------------------------------
High................. $23.13 $22.75 $23.56 $31.44 $33.38
Low.................. 17.19 16.00 17.19 22.13 26.13
Close................ 22.00 17.06 20.63 23.69 26.69
</TABLE>
25
<PAGE> 27
DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES
<TABLE>
<S> <C> <C> <C> <C> <C>
(Dollars in Millions) Daily Average Balance
--------------------------------------------------------------------------------------------
2000 1999
--------------------------- -----------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
ASSETS
Earning Assets:
Loans:
Commercial............................. $25,294 $24,379 $23,496 $22,988 $22,066
Real estate - commercial............... 6,273 6,157 6,020 6,141 6,238
Real estate - residential(a)........... 14,628 14,318 13,002 12,602 11,922
Consumer............................... 12,224 13,973 14,520 14,045 13,664
Credit card............................ 2,487 2,514 2,336 2,224 2,088
Home equity............................ 4,343 4,044 3,770 3,561 3,336
------- ------- ------- ------- -------
Total loans.......................... 65,249 65,385 63,144 61,561 59,314
Securities:
Taxable................................ 9,999 12,267 13,789 14,565 14,000
Tax-exempt............................. 787 797 811 838 851
------- ------- ------- ------- -------
Total securities..................... 10,786 13,064 14,600 15,403 14,851
Short-term investments................... 343 578 635 798 806
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates....... 76,378 79,027 78,379 77,762 74,971
Allowance for loan losses.................. (991) (995) (996) (985) (990)
Fair value depreciation of securities
available for sale....................... (304) (430) (408) (116) (8)
Cash and demand balances due from banks.... 3,091 3,116 3,140 3,376 3,306
Properties and equipment, accrued income
and other assets......................... 6,027 6,053 5,836 5,563 5,412
------- ------- ------- ------- -------
Total assets......................... $84,201 $86,771 $85,951 $85,600 $82,691
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW and money market accounts............ $16,473 $16,477 $16,443 $16,580 $16,742
Savings accounts......................... 3,139 3,321 3,413 3,605 3,795
Time deposits of individuals............. 15,652 15,385 15,019 14,578 14,461
Other time deposits...................... 2,838 2,881 2,825 3,141 2,908
Deposits in overseas offices............. 2,974 2,862 3,400 3,105 2,389
Federal funds borrowed................... 3,221 2,277 3,642 3,713 2,889
Security repurchase agreements........... 3,720 3,776 4,081 4,531 4,814
Borrowed funds........................... 1,726 5,056 3,126 2,893 2,808
Long-term debt and capital securities.... 16,014 16,636 16,259 15,081 13,532
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates...... 65,757 68,671 68,208 67,227 64,338
Noninterest bearing deposits............. 10,837 10,934 10,716 11,278 11,338
Accrued expenses and other liabilities... 1,361 1,190 1,249 1,105 1,046
------- ------- ------- ------- -------
Total liabilities.................... 77,955 80,795 80,173 79,610 76,722
Total stockholders' equity................. 6,246 5,976 5,778 5,990 5,969
------- ------- ------- ------- -------
Total liabilities and stockholders'
equity............................ $84,201 $86,771 $85,951 $85,600 $82,691
======= ======= ======= ======= =======
Net interest income.........................................................................
Interest spread.............................................................................
Contribution of noninterest bearing sources of funds........................................
Net interest margin.........................................................................
</TABLE>
--------------------------------------------------------------------------------
(a) Includes mortgage loans held for sale.
26
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C> <C>
Quarterly Interest
----------------------------------------------------
2000 1999
------------------------------ -------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
-------- -------- -------- -------- --------
ASSETS
Earning Assets:
Loans:
Commercial........................... $ 573.2 $ 533.8 $ 490.1 $ 471.6 $ 434.9
Real estate -- commercial............ 141.0 134.9 130.7 134.4 135.8
Real estate -- residential(a)........ 308.4 296.3 260.2 251.1 232.8
Consumer............................. 264.7 292.2 302.9 293.7 284.1
Credit Card.......................... 89.5 86.3 77.7 71.7 70.3
Home equity.......................... 105.4 93.0 83.4 76.4 70.6
-------- -------- -------- -------- --------
Total loans....................... 1,482.2 1,436.5 1,345.0 1,298.9 1,228.5
Securities:
Taxable.............................. 154.8 191.2 216.0 226.6 217.2
Tax-exempt........................... 15.9 16.2 16.6 17.3 17.5
-------- -------- -------- -------- --------
Total securities.................. 170.7 207.4 232.6 243.9 234.7
Short-term investments................. 7.5 10.9 10.9 13.3 11.7
-------- -------- -------- -------- --------
Total earning assets/
Total interest income/rates....... $1,660.4 $1,654.8 $1,588.5 $1,556.1 $1,474.9
Allowance for loan losses
Fair value depreciation 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
Interest bearing liabilities:
NOW and money market accounts........ $ 162.7 $ 149.3 $ 140.0 $ 135.2 $ 131.2
Savings accounts..................... 13.1 13.7 14.2 15.1 16.0
Time deposits of individuals......... 230.1 215.1 201.0 190.3 183.5
Other time deposits.................. 46.1 43.9 41.0 43.6 36.7
Deposits in overseas offices......... 48.5 44.3 47.7 41.6 30.1
Federal funds borrowed............... 53.2 37.1 53.9 51.3 37.5
Security repurchase agreements....... 50.7 48.6 48.7 49.9 50.3
Borrowed funds....................... 28.6 77.8 43.3 41.1 37.7
Long-term debt and capital
securities.......................... 281.4 276.0 257.8 231.6 194.2
-------- -------- -------- -------- --------
Total interest bearing
liabilities/
Total interest expense/rates..... $ 914.4 $ 905.8 $ 847.6 $ 799.7 $ 717.2
Noninterest bearing deposits
Accrued expenses and other
liabilities
Total liabilities
Total stockholders' equity
Total liabilities and
stockholders' equity
Net interest income..................... $ 746.0 $ 749.0 $ 740.9 $ 756.4 $ 757.7
======== ======== ======== ======== ========
Interest spread
Contribution of noninterest bearing
sources of funds
Net interest margin
</TABLE>
--------------------------------------------------------------------------------
(a) Includes mortgage loans held for sale.
[Additional columns below]
[Continued from above table, first column(s) repeated]
<TABLE>
<S> <C> <C> <C> <C> <C>
Average Annualized Rate
----------------------------------------------------
2000 1999
------------------------------ -------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
-------- -------- -------- -------- --------
ASSETS
Earning Assets:
Loans:
Commercial........................... 9.01% 8.80% 8.39% 8.14% 7.82%
Real estate -- commercial............ 8.94 8.82 8.73 8.68 8.63
Real estate -- residential(a)........ 8.43 8.28 8.00 7.97 7.81
Consumer............................. 8.61 8.42 8.39 8.29 8.25
Credit Card.......................... 14.32 13.81 13.38 12.79 13.36
Home equity.......................... 9.71 9.19 8.85 8.52 8.40
Total loans....................... 9.05 8.82 8.56 8.38 8.23
Securities:
Taxable.............................. 6.19 6.24 6.27 6.22 6.20
Tax-exempt........................... 8.07 8.13 8.19 8.25 8.24
Total securities.................. 6.33 6.35 6.38 6.33 6.32
Short-term investments................. 8.73 7.51 6.88 6.58 5.83
Total earning assets/
Total interest income/rates...... 8.67% 8.41% 8.14% 7.96% 7.83%
Allowance for loan losses
Fair value depreciation 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
Interest bearing liabilities:
NOW and money market accounts........ 3.93% 3.64% 3.43% 3.24% 3.11%
Savings accounts..................... 1.67 1.66 1.67 1.67 1.67
Time deposits of individuals......... 5.85 5.62 5.38 5.18 5.04
Other time deposits.................. 6.46 6.13 5.84 5.51 5.00
Deposits in overseas offices......... 6.48 6.22 5.64 5.32 5.00
Federal funds borrowed............... 6.57 6.56 5.95 5.46 5.16
Security repurchase agreements....... 5.42 5.18 4.80 4.38 4.15
Borrowed funds....................... 6.60 6.19 5.57 5.64 5.32
Long-term debt and capital
securities.......................... 7.00 6.67 6.37 6.09 5.69
Total interest bearing
liabilities/
Total interest expense/rates..... 5.53% 5.30% 5.00% 4.72% 4.42%
Noninterest bearing deposits
Accrued expenses and other
liabilities
Total liabilities
Total stockholders' equity
Total liabilities and
stockholders' equity
Net interest income
Interest spread......................... 3.14% 3.11% 3.14% 3.24% 3.41%
Contribution of noninterest bearing
sources of funds....................... .76 .69 .65 .63 .62
-------- -------- -------- -------- --------
Net interest margin..................... 3.90% 3.80% 3.79% 3.87% 4.03%
======== ======== ======== ======== ========
</TABLE>
--------------------------------------------------------------------------------
(a) Includes mortgage loans held for sale.
27
<PAGE> 29
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
(In Millions) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
ASSETS
Earning Assets:
Loans:
Commercial............................................ $25,294 $22,066 $24,393 $22,147
Real estate - commercial.............................. 6,273 6,238 6,150 6,272
Real estate - residential............................. 11,627 9,750 11,334 9,879
Consumer.............................................. 12,224 13,664 13,569 13,759
Credit card........................................... 2,487 2,088 2,446 1,958
Home equity........................................... 4,343 3,336 4,053 3,228
------- ------- ------- -------
Total loans........................................ 62,248 57,142 61,945 57,243
Mortgage loans held for sale.............................. 3,001 2,172 2,651 2,489
Securities available for sale, at cost.................... 10,786 14,851 12,810 14,870
Federal funds sold and security resale agreements......... 178 666 363 819
Other short-term investments.............................. 165 140 155 146
------- ------- ------- -------
Total earning assets............................... 76,378 74,971 77,924 75,567
Allowance for loan losses................................... (991) (990) (994) (988)
Fair value (depreciation) appreciation of securities
available for sale........................................ (304) (8) (380) 211
Cash and demand balances due from banks..................... 3,091 3,306 3,115 3,624
Properties and equipment.................................... 1,099 1,108 1,113 1,149
Accrued income and other assets............................. 4,928 4,304 4,859 4,287
------- ------- ------- -------
Total Assets....................................... $84,201 $82,691 $85,637 $83,850
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest bearing deposits.............................. $10,837 $11,338 $10,829 $11,519
NOW and money market accounts............................. 16,473 16,742 16,464 16,879
Savings accounts.......................................... 3,139 3,795 3,290 3,890
Time deposits of individuals.............................. 15,652 14,461 15,354 14,971
Other time deposits....................................... 2,838 2,908 2,848 3,023
Deposits in overseas offices.............................. 2,974 2,389 3,078 2,585
------- ------- ------- -------
Total deposits..................................... 51,913 51,633 51,863 52,867
Federal funds borrowed and security repurchase
agreements.............................................. 6,941 7,703 6,906 8,024
Borrowed funds............................................ 1,726 2,808 3,297 2,875
Long-term debt and capital securities..................... 16,014 13,532 16,302 12,721
Accrued expenses and other liabilities.................... 1,361 1,046 1,268 1,051
------- ------- ------- -------
Total Liabilities.................................. 77,955 76,722 79,636 77,538
Stockholders' Equity:
Preferred............................................... 30 31 30 32
Common.................................................. 6,216 5,938 5,971 6,280
------- ------- ------- -------
Total Stockholders' Equity......................... 6,246 5,969 6,001 6,312
------- ------- ------- -------
Total Liabilities and Stockholders' Equity......... $84,201 $82,691 $85,637 $83,850
======= ======= ======= =======
</TABLE>
28
<PAGE> 30
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
Derek Green
Vice President
Investor Relations
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.
The common stock of National City's 87%-owned item processing subsidiary,
National Processing, Inc., is traded on the New York Stock Exchange under
the symbol NAP. The stock is abbreviated in financial publications as
NTLPROC.
DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
National City Corporation offers stockholders a convenient way to increase
their investment through the National City Corporation Amended and Restated
Dividend Reinvestment and Stock Purchase Plan (the "Plan"). Under this
Plan, investors can elect to acquire shares in the open market by
reinvesting dividends and through optional cash payments. National City
absorbs fees and brokerage commissions on shares acquired through the Plan.
To obtain a Plan prospectus and authorization card, please call
1-800-622-6757.
DEBT RATINGS
<TABLE>
<CAPTION>
MOODY'S
INVESTORS STANDARD THOMSON
SERVICE & POOR'S FITCH(B) BANKWATCH
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National City Corporation............................... A/B
Commercial paper (short-term debt).................... P-1 A-1 F-1+ TBW-1
Senior debt........................................... A1 A AA-
Subordinated debt..................................... A2 A- A+ A
Bank Subsidiaries:(a)
Certificates of deposit............................... Aa3 A+ AA
Subordinated bank notes............................... A1 A A+ A+
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes National City Bank, National City Bank of Indiana, National City
Bank of Kentucky, National City Bank of Pennsylvania and National City Bank
of Michigan/Illinois, except as noted below.
(b) Fitch ratings for certificates of deposit apply only to the banks in Ohio,
Kentucky and Indiana. Fitch subordinated bank note ratings apply only to the
Ohio banking subsidiary.
29
<PAGE> 31
FORM 10-Q -- SEPTEMBER 30, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY CORPORATION
Date: November 14, 2000
/s/ JEFFREY D. KELLY
-----------------------------------
Jeffrey D. Kelly
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
30
<PAGE> 32
<TABLE>
<S> <C>
[NATIONAL CITY CORPORATION LOGO] Presort Standard
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation
</TABLE>
<PAGE> 33
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
3.1 Restated Certificate of Incorporation of National City
Corporation, as amended (filed as Exhibit 3.1 to National City
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and incorporated herein by reference).
3.2 Amended and Restated Certificate of Incorporation of National
City Corporation dated April 13, 1999 (filed as Exhibit 3.2).
3.3 National City Corporation First Restatement of By-laws adopted
April 27, 1987 (As Amended through October 24, 1994) (filed as
Exhibit 3.2 to Registrant's Form S-4 Registration Statement No.
33-56539 dated November 18, 1994 and incorporated herein by
reference).
4.1 The Company agrees to furnish upon request to the Commission a
copy of each instrument defining the rights of holders of
Senior and Subordinated debt of the Company.
4.2 Credit Agreement dated as of February 2, 1996 by and between
National City and the banks named therein (filed as Exhibit 4.2
to Registrant's Form S-4 Registration Statement No. 333-01697
dated March 15, 1996 and incorporated herein by reference).
4.3 Certificate of Stock Designation dated as of February 2, 1998
designating National City Corporation's 6% Cumulative
Convertible Preferred Stock, Series 1, without par value, and
fixing the powers, preferences, rights, qualifications,
limitations and restrictions thereof (filed as Appendix D to
Registrant's Form S-4 Registration Statement No. 333-45609
dated February 19, 1998 and incorporated herein by reference)
in addition to those set forth in National City Corporation's
Restated Certificate of Incorporation, as amended (filed as
Exhibit 3.2).
10.1 National City Savings and Investment Plan, As Amended and
Restated Effective July 1, 1992 (filed as Exhibit 10.24 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.2 The National City Savings and Investment Plan No. 2 As Amended
and Restated Effective January 1, 1992 (filed as Exhibit 10.25
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.3 National City Corporation's Amended 1984 Stock Option Plan
(filed as Exhibit No. 10.2 to National City's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
10.4 National City Corporation 1989 Stock Option Plan (filed as
Exhibit 10.7 to National City's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, and incorporated
herein by reference).
10.5 National City Corporation's 1993 Stock Option Plan (filed as
Exhibit 10.5 to Registration Statement No. 33-49823 and
incorporated herein by reference).
10.6 National City Corporation 150th Anniversary Stock Option Plan
(filed as Exhibit 10.9 to Registrant's Form S-4 Registration
Statement No. 33-59487 dated May 19, 1995 and incorporated
herein by reference).
10.7 National City Corporation Plan for Deferred Payment of
Directors' Fees, As Amended (filed as Exhibit 10.5 to
Registration Statement No. 2-914334 and incorporated herein by
reference).
<PAGE> 34
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
10.8 National City Corporation Supplemental Executive Retirement
Plan, As Amended and Restated Effective January 1, 1997 (filed
as Exhibit 10.12 to Registrant's Form S-4 Registration
Statement No. 333-46571 dated February 19, 1998 and
incorporated herein by reference).
10.9 National City Corporation Executive Savings Plan, As Amended
and Restated Effective January 1, 1995 (filed as Exhibit 10.9
to National City's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and incorporated herein by
reference).
10.10 National City Corporation Amended and Second Restated 1991
Restricted Stock Plan (filed as Exhibit 10.9 to Registration
Statement No. 33-49823 and incorporated herein by reference).
10.11 Form of grant made under National City Corporation 1991
Restricted Stock Plan in connection with National City
Corporation Supplemental Executive Retirement Plan As Amended
(filed as Exhibit 10.10 to National City's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.12 Merchants National Corporation Director's Deferred Compensation
Plan, As Amended and Restated August 16, 1983 (filed as Exhibit
10(3) to Merchants National Corporation's Form S-2 Registration
Statement dated June 28, 1985, and incorporated herein by
reference).
10.13 Merchants National Corporation Supplemental Pension Plan dated
November 20, 1984; First Amendment to the Supplemental Pension
Plans dated January 21, 1986; Second Amendment to the
Supplemental Pension Plans dated July 3, 1989; and Third
Amendment to the Supplemental Pension Plans dated November 21,
1990 (filed respectively as Exhibit 10(n) to Merchants National
Corporation Annual Report on Form 10-K for the year ended
December 21, 1984; as Exhibit 10(q) to the Merchants National
Corporation Annual Report on Form 10-K for the year ended
December 31, 1985; as Exhibit 10(49) to Merchants National
Corporation Annual Report on Form 10-K for the year ended
December 31, 1990; and as Exhibit 10(50) to the Merchants
National Corporation Annual Report on Form 10-K for the year
ended December 31, 1990; all incorporated herein by reference).
10.14 Merchants National Corporation Employee Benefit Trust
Agreement, effective July 1, 1987 (filed as Exhibit 10(27) to
Merchants National Corporation Annual Report on Form 10-K for
the year ended December 31, 1987, and incorporated herein by
reference).
10.15 Merchants National Corporation Non-Qualified Stock Option Plan,
effective January 20, 1987, and the First Amendment to that
Merchants National Non-Qualified Stock Option Plan, effective
October 16, 1990 (filed respectively as Exhibit 10(23) to
Merchants National Corporation Annual Report on Form 10-K for
the year ended December 31, 1986, and as Exhibit 10(55) to
Merchants National Corporation Annual Report on Form 10-K for
the year ended December 31, 1990, both of which are
incorporated herein by reference).
10.16 Merchants National Corporation 1987 Non-Qualified Stock Option
Plan, effective November 17, 1987, and the First Amendment to
effective October 16, 1990 (filed respectively as Exhibit
10(30) to Merchants National Corporation Annual Report on Form
10-K for the year ended December 31, 1987, and as Exhibit
10(61) to Merchants
-2-
<PAGE> 35
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
National Corporation Annual Report on Form 10-K for the year
ended December 31, 1990, both of which are incorporated herein
by reference).
10.17 Merchants National Corporation Directors Non-Qualified Stock
Option Plan and the First Amendment to Merchants National
Corporation Directors Non-qualified Stock Option Plan effective
October 16, 1990 (filed respectively as Exhibit 10(44) to
Merchants National Corporation Annual Report on Form 10-K for
the year ended December 31, 1988, and as Exhibit 10(68) to
Merchants National Corporation Annual Report on Form 10-K for
the year ended December 31, 1990, both of which are
incorporated herein by reference).
10.18 Central Indiana Bancorp Option Plan effective March 15, 1991
(filed as Exhibit 10.26 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.19 Central Indiana Bancorp 1993 Option Plan effective October 12,
1993 (filed as Exhibit 10.27 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.20 Forms of contracts with David A. Daberko, Vincent A.
DiGirolamo, William E. MacDonald III, Jon L. Gorney, Robert G.
Siefers, Robert J. Ondercik, Jeffrey D. Kelly, David L.
Zoeller, Thomas A. Richlovsky, James P. Gulick, Gary A. Glaser,
Herbert R. Martens, Jr., Thomas W. Golonski, Stephen A. Stitle,
James R. Bell III, Paul G. Clark, A. Joseph Parker, and
Frederick W. Schantz (filed as Exhibit 10.29 to Registrant's
Form S-4 Registration Statement No. 333-46571 dated February
19, 1998 and incorporated herein by reference).
10.21 Split Dollar Insurance Agreement effective January 1, 1994
between National City Corporation and those individuals listed
in Exhibit 10.27 and other key employees filed as exhibit 10.28
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.22 Restated First of America Bank Corporation 1987 Stock Option
Plan (filed as Exhibit 4.4 to Registrant's Post-Effective
Amendment No. 2 (on Form S-8) to Form S-4 Registration
Statement No. 333-46571), Amended and Restated First of America
Bank Corporation Stock Compensation Plan (filed as Exhibit 4.5
to Registrant's Post-Effective Amendment No. 2 (on Form S-8) to
Form S-4 Registration Statement No. 333-46571) and First of
America Bank Corporation Directors Stock Compensation Plan
(filed as Exhibit 4.6 to Registrant's Post-Effective Amendment
No. 2 (on Form S-8 to Form S-4 Registration Statement No.
333-46571) and each incorporated herein by reference).
10.23 Fort Wayne National Corporation 1985 Stock Incentive Plan
(filed as Exhibit 4.4 to Registrant's Post-Effective Amendment
No. 1 (on Form S-8) to Form S-4 Registration Statement No.
333-45609), Fort Wayne National Corporation 1994 Stock
Incentive Plan (filed as Exhibit 4.5 to Registrant's
Post-Effective Amendment No. 1 (on Form S-8) to Form S-4
Registration Statement No. 333-45609) and Fort Wayne National
Corporation 1994 Nonemployee Director Stock Incentive Plan
(filed as Exhibit 4.6 to Registrant's Post-Effective Amendment
No. 1 (on Form S-8 to Form S-4 Registration Statement No.
333-45609) and each incorporated herein by reference).
10.24 National City Corporation 1997 Stock Option Plan (filed as
Exhibit 4.4 to Registrant's Form S-8 Registration Statement No.
333-58923, dated July 10, 1998, and incorporated herein by
reference).
-3-
<PAGE> 36
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
10.25 National City Corporation 1997 Restricted Stock Plan (filed as
Exhibit 4.4 to Registrant's Form S-8 Registration Statement No.
333-60411, dated July 31, 1998, and incorporated herein by
reference).
10.26 National City Corporation Long-Term Supplemental Incentive
Compensation Plan for Executive Officers (filed as Exhibit
10.40 to National City Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 and incorporated
herein by reference).
10.27 Integra Financial Corporation Employee Stock Option Plan (filed
as Exhibit 4.3 to Registrant's Form S-8 Registration Statement
No. 333-01697, dated April 30, 1996 and incorporated herein by
reference).
10.28 Integra Financial Corporation Management Incentive Plan (filed
as Exhibit 4.4 to Registrant's Form S-8 Registration Statement
No. 333-01697, dated April 30, 1996 and incorporated herein by
reference).
10.29 Integra Financial Corporation Non-Employee Directors Stock
Option Plan (filed as Exhibit 4.5 to Registrant's Form S-8
Registration Statement No. 333-01697, dated April 30, 1996 and
incorporated herein by reference).
10.30 National City Corporation Amended and Restated Long-Term
Incentive Compensation Plan for Senior Officers as Amended and
Restated Effective January 1, 2000 (filed as Exhibit A to Proxy
Statement Form 14A Registration No. 000-07229 dated March 6,
2000 and incorporated herein by reference).
10.31 National City Corporation Management Incentive Plan for Senior
Officers effective January 1, 1999 (filed as Exhibit A to Proxy
Statement Form 14A Registration No. 33-71403 dated March 5,
1999 and incorporated herein by reference).
10.32 National City Corporation Amended and Restated Long-Term
Incentive Compensation Plan for Senior Officers as Amended and
Restated Effective January 1, 2001 (filed as Exhibit 10.32).
10.33 National City Corporation Management Incentive Plan for Senior
Officers as Amended and Restated Effective January 1, 2001
(filed as Exhibit 10.33).
10.34 National City Corporation Supplemental Cash Balance Pension
Plan (filed as Exhibit 10.34).
10.35 National City Corporation Executive Savings Plan as Amended and
Restated Effective January 1, 2001 (filed as Exhibit 10.35).
10.36 The National City Corporation Deferred Compensation Plan,
Effective January 1, 2001 (filed as Exhibit 10.36).
12.1 Computation of Ratio of Earnings to Fixed Charges (filed as
Exhibit 12.1).
27.1 Financial Data Schedule (filed as Exhibit 27.1).
-4-
