-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JbGG4ht71Qwcaone1LGYzYNhTYH+yTU/ssO3Lko5B7tEBn9Fy29MemO0Xw5i/vTA D9RVLAlWo3s8gIcD1VfiLQ== 0000950152-96-000252.txt : 19960131 0000950152-96-000252.hdr.sgml : 19960131 ACCESSION NUMBER: 0000950152-96-000252 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960130 FILED AS OF DATE: 19960130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL CITY CORP CENTRAL INDEX KEY: 0000069970 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 341111088 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10074 FILM NUMBER: 96508751 BUSINESS ADDRESS: STREET 1: 1900 E NINTH ST CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2165752000 10-K 1 NATIONAL CITY 10-K 1 1995 Annual Report [GRAPHIC] Customer Service...Shareholder Value NATIONAL CITY Corporation 2 1995 Annual Report National City - Today and Tomorrow Banking franchises of yesterday were often defined by geography... "who" they were was tied to "where" they operated. In the years to come, geography will no longer be a critical defining factor. At National City, customer relationships drive our business. The montage on the cover depicts elements of change and constancy that characterize National City today. We are organized around and focused on customers, who increasingly demand and expect "anytime, anyplace" financial services. By serving customers better and more profitably, we create value for our stockholders, while enhancing the quality of life in the communities we serve.
Contents FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 LETTER TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4 Chairman and CEO David A. Daberko reviews the year and discusses strategies to deal with the challenges and opportunities ahead. FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-22 An in-depth discussion of the financial performance of National City. It includes a review of each of the businesses along with analyses of major balance sheet and income statement items. Accompanying charts and tables show trends in various financial measures and ratios. FINANCIAL STATEMENTS AND NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23-39 The financial statements are the responsibility of management and are audited by Ernst & Young LLP. They are prepared according to Generally Accepted Accounting Principles and include all required disclosures. FORM 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40-43 As a publicly traded company, National City files a detailed annual report known as "Form 10-K" with the Securities and Exchange Commission. This report includes financial statements along with additional management, business and legal data. While all companies are required to furnish a Form 10-K on request, it has been our policy to provide this report to all stockholders. CORPORATE DIRECTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44-45 BOARD OF DIRECTORS/OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46-47 INVESTOR INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Important names and telephone numbers, debt ratings, stock listing data, and stockholder services.
Annual Meeting THE ANNUAL MEETING OF STOCKHOLDERS WILL BE ON MONDAY, APRIL 22, 1996 at 9:30 a.m. National City Bank, Indiana One National City Center, Fourth Floor Indianapolis, Indiana 46255 3 Financial Highlights
- -------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Amounts) 1995 1994 Percent Change - -------------------------------------------------------------------------------------------------------------------- FOR THE YEAR: Net Income $465,109 $429,434 8% Preferred Dividend Requirements 14,830 15,200 (2) Net Income Applicable to Common Stock 450,279 414,234 9 Net Income Per Common Share: Primary 3.03 2.70 12 Fully Diluted 2.95 2.64 12 Dividends Paid Per Common Share 1.30 1.18 10 - -------------------------------------------------------------------------------------------------------------------- Return on Average Common Equity 17.64% 17.06% Return on Average Assets 1.38 1.40 - -------------------------------------------------------------------------------------------------------------------- Average Shares -- Primary 148,851,462 153,353,555 (3)% Average Shares -- Fully Diluted 157,758,825 162,375,500 (3) ==================================================================================================================== AT YEAR END: Assets $36,199,010 $32,114,008 13% Loans 26,222,319 23,034,775 14 Securities 4,949,654 4,395,055 13 Deposits 25,200,508 24,471,920 3 Common Stockholders' Equity 2,735,577 2,413,514 13 Stockholders' Equity 2,920,977 2,601,054 12 - -------------------------------------------------------------------------------------------------------------------- Equity to Assets Ratio 8.07% 8.10% Tier 1 Capital Ratio 8.54 8.45 Total Risk-Based Capital Ratio 13.13 11.68 Leverage Ratio 7.37 7.82 - -------------------------------------------------------------------------------------------------------------------- Book Value Per Common Share $18.80 $16.36 15% Market Value Per Common Share 33.13 25.88 28 - -------------------------------------------------------------------------------------------------------------------- Common Shares Outstanding 145,545,689 147,555,632 (1) Common Stockholders of Record 22,194 21,739 2 Full-Time Equivalent Employees 20,767 20,306 2 ====================================================================================================================
Corporate Profile National City Corporation is a $36 billion diversified financial services company based in Cleveland, Ohio. National City operates banks and other financial service subsidiaries principally in Ohio, Kentucky and Indiana. National City subsidiaries provide financial services that meet a wide range of customer needs, including commercial and retail banking, trust and investment services, item processing, mortgage servicing and credit card processing. 1 4 To our Stockholders [photo] From left: VINCENT A. DIGIROLAMO, Vice Chairman; WILLIAM R. ROBERTSON, President; DAVID A. DABERKO, Chairman & Chief Executive Officer The year 1995 marked the 150th anniversary of National City's founding in 1845. It also marked another year of record earnings and dividends: net income per share of $3.03 was up 12% from 1994, and dividends were increased twice during the year, with a further boost, to an annual rate of $1.44 per share, in January 1996. Return on equity was 17.64%, and return on assets was 1.38%, again ranking National City among the industry's top performers. Reflecting the vibrancy of the economy and good business conditions within our primary banking markets of Ohio, Kentucky and Indiana, loans grew 13% during the year, excluding acquisitions, while credit quality and the balance sheet remained strong. While these results are gratifying, we enter 1996 and beyond with a sense of urgency. The banking industry is changing rapidly, as evidenced by the many bank mergers and acquisitions announced this year. Our competitors, both bank and non-bank, are becoming larger and more sophisticated. Many traditional banking services have become commodities, necessitating a low cost structure for providers of such services. Geographic boundaries continue to lose relevance, and technology is making many physical facilities obsolete. To be successful in this changing environment, National City must continue to evolve from a traditional banking institution to a more marketing-oriented financial service organization. First and foremost, our focus must be on the customer. Our products and services must be designed for and arranged around the customer's needs--a challenge that every financial institution faces. 2 5 Nowhere are these changes more evident than in retail banking. Our customers are confronted with a panoply of alternatives to traditional banking products and services offering unprecedented convenience and utility. We have begun to utilize more sophisticated marketing techniques aimed at targeted customer segments. Using information resident in our operating systems and databases, combined with market demographic data, we can identify those customers with the highest propensity to buy a particular product or service. For example, a new mortgage loan customer would logically be solicited for a credit card or a home equity line. The results of our pilot programs have been quite promising, and we have significantly increased our marketing budget in this area for 1996. Also changing rapidly is the manner in which services are delivered to customers. The traditional delivery vehicle has been the branch network. Over time, changes in technology and customer preference have resulted in more and more banking transactions occurring outside the branch system. Many customers now transact business by telephone or personal computer, and can bank where they work or buy groceries. Likewise, most automobile installment loans are made at dealerships rather than at the bank. We have put in place 24-hour telephone service centers at all of our banks. We have bank branches at 31 supermarket locations, with 27 more to be opened shortly. The expense of these new delivery initiatives will be funded by savings from realigning and reducing conventional branch facilities, so total bank overhead expense remains flat. Our customer focus extends to many other facets of the business. We have created a new business unit to more effectively serve affluent customers on an individual basis, combining portions of private banking and trust which had previously served this segment. In corporate banking, new automation tools developed over the last few years reduce administrative demands on calling officers, providing more time for customer contact. In cash management, we are proud to be ranked among the top five in the country according to Corporate Finance magazine. Intense competition from within and outside the banking industry requires that we aggressively defend our customer franchise. We believe we have the market presence, information management capability, and the right mix of products to prosper in this environment. Among the events of 1995, two acquisitions are noteworthy. In July, we completed the purchase of Indianapolis-based Raffensperger, Hughes & Co., Inc, a full service investment banking and brokerage firm now called NatCity Investments, Inc. As part of the Federal Reserve's approval of this acquisition, National City was granted full "Tier 2" debt and equity underwriting powers, placing us among only a very few commercial banks nationwide with this capability. We see tremendous potential and unique competitive advantage in bringing this service to our large corporate customer base. In August, we announced the proposed acquisition of Integra Financial Corporation, a $14 billion Pittsburgh-based banking company with a major presence throughout western Pennsylvania. In terms of geographic proximity, cultural affinity, and potential synergies, we believe this acquisition represents an outstanding opportunity to enhance our earnings growth over the next several years. You will be receiving a proxy statement in March describing the transaction in more detail. Subject to shareholder and regulatory approval, closing is expected in the second quarter. Our acquisition strategy going forward will be cautious but opportunistic. Our balance sheet, operating systems and managerial ranks are fully capable of absorbing additional acquisitions, but the true test of success is in returns to stockholders. The return on capital deployed for an acquisition must be demonstrably superior to the alternative of returning that capital to stockholders for us to undertake a transaction. Active capital management in the form of dividend increases and substantial stock repurchases has long been a hallmark and will continue to be an integral part of our strategy. 3 6 Finally, 1995 saw some significant management changes. Ed Brandon, Chairman & Chief Executive Officer since 1987 and a National City employee for nearly 40 years, retired September 30, 1995. His vision and leadership guided National City through a period of unprecedented growth and expansion, and he leaves behind an organization well-equipped to face the further challenges ahead. Ed will continue to serve on the Board of Directors. Bill Robertson, Deputy Chairman since 1987, was named President; and Vince DiGirolamo, Executive Vice President since 1992, was named Vice Chairman responsible for all banking activities. I have known these individuals for many years and have complete confidence in their ability. As I consider the 150 years of history I am inheriting as newly-appointed Chairman and Chief Executive Officer, I am both humbled and energized. We are dedicated to building on the heritage of customer service, financial performance and stockholder returns on into the next century. January 22, 1996 /s/David A. Daberko - ---------------------------------- David A. Daberko Chairman & Chief Executive Officer [photo] A Tribute to Ed Brandon On September 30, 1995, Ed Brandon retired from National City after nearly 40 years of service. A native of Iowa, Ed graduated from Northwestern University, served as an officer in the U.S. Navy and earned his MBA degree from the Wharton School of Business prior to joining National City as a management trainee in 1956. After serving in various management capacities in the corporate banking group and as president of National City Bank, Cleveland, he was appointed Chairman and CEO of National City Corporation in September, 1987. Ed's tenure as Chairman coincided with a period of great change for the banking industry, and Ed ably guided National City through that period. National City's first expansion outside Ohio, the development of a single back-office system and common corporate identity, and the "Vision" cost redesign program all occurred during his watch. Most importantly, from a stockholder perspective, the total return on National City stock significantly outpaced the general market, 141 percent to 115 percent, as measured against the Standard & Poor's 500 index. On a personal level, Ed touched the lives of everyone he met with his genuineness, warmth and good humor. He had a gift for defusing the most difficult and tense situations with a smile and a quip. His involvement and dedication to the community included service to countless charitable, civic and educational causes. Ed will continue as a member of National City's board, in addition to a number of others in his retirement. Our sincerest thanks and appreciation to Ed for a job well done. We also wish the best to his wife, Phyllis, and their children and grandchildren. 4 7 - ---------------------------- Financial Review EARNINGS SUMMARY National City Corporation's consolidated net income was $465.1 million in 1995, compared with $429.4 million in 1994 and $404.0 million in 1993. Net income per common share, after dividend requirements on preferred stock, increased 12% in 1995 to $3.03, compared with $2.70 in 1994 and $2.41 in 1993. Both net income and earnings per share were record results for National City. Return on average common equity, a key performance measure, was 17.64% in 1995, compared with 17.06% in 1994 and 16.12% in 1993 (Chart 3). Return on average assets was 1.38% in 1995 compared with 1.40% in both 1994 and 1993 (Chart 4). The following table reconciles the major changes in net income per share:
- ----------------------------------------------------------- 1995 1994 VS vs 1994 1993 - ----------------------------------------------------------- NET INCOME PER COMMON SHARE, PRIOR YEAR $2.70 $2.41 Increase (decrease) from changes in: Net interest income .55 .23 Provision for loan losses (.12) .08 Fee income .26 .33 Noninterest expense (.44) (.34) Income taxes (.08) (.14) After-tax security gains .07 (.01) Average shares outstanding .09 .14 - ----------------------------------------------------------- NET INCOME PER COMMON SHARE $3.03 $2.70 ===========================================================
UNIT PROFITABILITY The financial performance of National City is monitored by an internal profitability measurement system which produces line-of-business results and key performance measures. National City's major business units include corporate banking, retail banking, national credit cards, investment/funding, trust and investment management, item processing and mortgage banking. The reported results reflect the underlying economics of the businesses. Expenses for centrally provided services are allocated based on estimated usage of those services. Capital has been allocated among the businesses on a risk-adjusted basis. The businesses are match-funded and interest rate risk is reported in the investment/funding unit. The contribution of National City's major units to consolidated results for the past two years is summarized in Table 1. The corporate banking business includes a broad range of commercial and corporate lending, as well as commercial real estate, asset-based lending, and leasing. A full range of deposit, cash management, and trade-related services is also offered. In 1995, corporate banking had a return on equity of 19.64% and earnings of $213.0 million. The 13% increase in earnings from 1994 was primarily due to higher net interest income and a decline in noninterest expenses. The higher net interest income resulted from strong loan growth. The retail banking business includes the deposit-gathering branch franchise along with lending to individuals and small businesses. Lending activities include residential mortgages, indirect and direct installment loans, leasing, credit cards, and student lending. The return on equity for this business was 24.60% in 1995 and earnings were $255.6 million. The 39% increase in net income was due to higher net interest income from loan growth as well as wider spreads on deposit accounts. The national credit card unit includes national Mastercard(R)/VISA(R) credit card outstandings, as well as private label credit card activities. This unit earns interest income on outstanding balances, as well as fees for servicing credit cards and processing monthly activity for its customers. National credit card net income was unchanged primarily due to a gain on the sale of a credit card portfolio offset by a higher loan loss provision and costs associated with sizable new account acquisitions. Interest rate risk is managed within, and reflected in the profitability of, the investment/funding unit. The decline in the earnings of the investment/funding unit in 1995 was due to narrower spreads on investment securities and interest rate swaps, reflecting a flat yield curve, as well as increased purchased funding activities to support loan growth. Trust and investment management includes personal asset management, employee benefit management, mutual funds, endowment and custody services. Trust net income declined in 1995 compared with 1994 as a result of a litigation settlement paid at the end of 1995. Absent this charge, net income increased approximately 10%. Fiduciary - -------------------------------------------------------------------------------- CHART 1. NET INCOME AND DIVIDENDS PER COMMON SHARE (as originally reported)
NET INCOME DIVIDENDS PAID PER SHARE PER SHARE 75 .63 .24 76 .75 .26 77 .81 .29 78 .84 .33 79 .91 .37 80 .89 .41 81 .76 .41 82 .84 .41 83 .95 .41 84 1.21 .42 85 1.52 .44 86 1.72 .50 87 1.17 .60 88 1.92 .72 89 2.18 .84 90 1.93 .94 91 1.81 .94 92 2.09 .94 93 2.41 1.06 94 2.70 1.18 95 3.03 1.30
5 8 - ---------------------------- Financial Review (continued) assets totalled $63 billion at year-end 1995, up from $55 billion in 1994. Assets under management totalled $30 billion at year-end 1995 versus $28 billion in 1994. Assets in the ARMADA FUNDS(SM), mutual funds administered by this group, increased 16% in 1995, to $3.4 billion, through new sales and a robust stock and bond market. Item processing comprises a number of business lines including: merchant credit card processing, airline ticket processing, check guarantee services, and receivables and payables processing. The merchant credit card business processes and clears bankcard deposits for retail merchants and also offers optional bankcard authorization services to its customer base through a third party service provider. The airline ticket processing business is responsible for settling travel agent generated airline ticket sales. This business unit collects the related funds from travel agents and disburses them to the appropriate airline. The check guarantee business specializes in the collection of bad checks for retail merchants. The increased profitability in item processing in 1995 was due to higher volume and expense control measures. The 1994 results included a one-time charge of $4.5 million in the check guarantee business. The mortgage banking unit originates mortgages through retail offices and broker networks, and services a mortgage portfolio. At December 31, 1995, the servicing portfolio totalled $16.2 billion. Net income declined in 1995 due to lower gains on sales of mortgage servicing. In 1996, the Corporation will adopt SFAS No. 122 "Accounting for Mortgage Servicing Rights." The adoption is expected to improve the reported results of the mortgage banking unit but will not have a material impact on consolidated net income. The corporate unit includes parent company expenses not allocated to the business units, unallocated capital and interest expense on corporate debt. The lower net loss in 1995 was the result of equity security gains. EARNING ASSETS Average earning assets for 1995 were $30,233 million compared with $27,261 million in 1994 and $25,745 million in 1993 (Chart 5). Average earning assets in 1995 increased 11% due to higher loan balances and acquisitions. Average earning assets increased 6% in 1994 versus 1993 due to strong loan growth offset somewhat by a decline in investment securities. LOANS: At year-end 1995, loans were $26,222 million, representing an increase of 14% from year-end 1994. Average loans are shown in Chart 6. Ending loan balances are summarized in the table below:
================================================================ (Dollars in Millions) 1995 1994 1993 1992 1991 ================================================================ Commercial and industrial $ 9,816 $ 8,414 $ 8,168 $ 7,801 $ 7,967 Nontaxable 204 254 262 310 391 International 58 52 70 50 52 Real estate construction 529 422 439 533 814 Leasing 271 216 228 225 240 Commercial mortgage 2,413 2,473 2,328 1,928 1,938 Residential mortgage 5,094 4,165 4,033 2,699 2,543 Consumer 5,545 4,782 4,241 3,727 3,733 Home equity 1,119 919 798 739 690 Credit card 1,173 1,338 719 726 803 ================================================================ TOTAL LOANS $26,222 $23,035 $21,286 $18,738 $19,171 ================================================================
The acquisitions of Central Indiana Bancorp and United Bancorp of Kentucky in 1995 added approximately $600 million to year-end loan balances, including $94 million to commercial, $136 million to commercial mortgage, $344 million to residential mortgage and $26 million to consumer. The acquisition of Ohio Bancorp in 1993 added $809 million to year-end 1993 loan balances. COMMERCIAL: More than 75% of the commercial loan portfolio consists of loans made to middle-market customers in National City's market area. The loan mix is diverse, covering a broad range of borrowers characteristic of the Midwest economy. As a matter of policy, concentrations within a particular industry or segment are continually monitored and controlled. The commercial loan portfolio increased significantly in 1995, the result of healthy demand in the middle-market commercial and industrial sector and additional emphasis on commercial leasing and asset-based lending. - -------------------------------------------------------------------------------- TABLE 1 Unit profitability
1995 1994 - --------------------------------------------------------------------------------------------------------------- (Dollars in Millions) NET INCOME RETURN ON EQUITY Net Income Return on Equity - --------------------------------------------------------------------------------------------------------------- Corporate banking $213.0 19.64% $188.8 17.08% Retail banking 255.6 24.60 183.6 19.16 National credit card 9.4 10.85 9.4 10.23 Investment/funding (52.8) (18.81) 29.7 7.65 Trust 28.6 22.47 31.0 22.36 Item processing 22.2 14.34 15.0 10.96 Mortgage banking 4.0 11.16 5.7 20.68 Corporate (14.9) --- (33.8) --- - --------------------------------------------------------------------------------------------------------------- CONSOLIDATED TOTAL $465.1 17.64% $429.4 17.06% ===============================================================================================================
6 9 An analysis of the maturity and interest rate sensitivity of commercial loans at the end of 1995 follows:
- --------------------------------------------------------------------- One One to Over Year Five Five (Dollars in Millions) or Less Years Years Total - --------------------------------------------------------------------- Domestic commercial $5,574 $3,500 $1,217 $10,291 Real estate construction 150 216 163 529 International 20 28 10 58 - --------------------------------------------------------------------- TOTAL $5,744 $3,744 $1,390 $10,878 - --------------------------------------------------------------------- TOTAL VARIABLE RATE $4,112 $2,510 $ 780 $ 7,402 TOTAL FIXED RATE 1,632 1,234 610 3,476 =====================================================================
COMMERCIAL REAL ESTATE: Commercial mortgages included $1,884 million of loans secured by income-producing real estate in 1995, compared with $1,912 million in 1994 and $1,777 million in 1993. The remainder consists of owner-occupied loans. Commercial real estate lending includes real estate construction and permanent loans secured by income-producing investment real estate. The following table shows outstanding balances and unfunded commitments at year-end:
- -------------------------------------------------------------- Total (Dollars in Commercial Millions) Construction Permanent Real Estate - -------------------------------------------------------------- OUTSTANDING: 1995 $ 529 $ 1,884 $2,413 1994 422 1,912 2,334 1993 439 1,777 2,216 UNFUNDED COMMITMENTS: 1995 $ 253 $ 132 $ 385 1994 225 117 342 1993 206 137 343 ==============================================================
Activities in commercial real estate are based primarily on relationships with developers who are active in local markets. More than 85% of outstandings are in National City's primary markets of Ohio, Kentucky and Indiana. The portfolio consists predominantly of relatively small-scale office, retail and apartment buildings. Total commercial real estate loans made up 9% of the total loan portfolio at December 31, 1995, compared with 10% at year-end 1994 and 1993. The following table shows commercial real estate loans at year-end 1995 by state and by project:
- ------------------------------------------------------------- (Dollars in Millions) - ------------------------------------------------------------- BY STATE: BY PROJECT: Ohio $1,501 Retail $ 588 Kentucky 301 Apartments 543 Indiana 279 Office 431 Florida 52 Land 130 Michigan 32 Industrial 128 Other 248 Other 593 - ------------------------------------------------------------- TOTAL $2,413 TOTAL $2,413 =============================================================
At year-end, there were no concentrations of real estate loans in any deteriorating economic areas. RESIDENTIAL MORTGAGE: Residential mortgage loan demand continued strong in 1995. Loan originations totalled approximately $2.3 billion in 1995, compared with $2.4 billion in 1994. Of the 1995 originations, $1.0 billion were sold in the secondary market. CONSUMER: During 1995, consumer spending patterns remained robust. Year-end consumer loans increased 16% from year-end 1994. More than 70% of consumer loans are installment loans, and of these more than 70% are indirect, with the majority being fixed rate. The remainder of the consumer portfolio is largely student loans. - -------------------------------------------------------------------------------- CHART 2. BOOK VALUE AND STOCK PRICE HISTORY
HIGH LOW YEAR-END BOOK STOCK STOCK STOCK VALUE PRICE PRICE PRICE 75 4.32 4.82 3.23 4.35 76 4.80 6.76 4.26 6.76 77 5.31 6.67 6.08 6.13 78 5.81 7.19 5.71 5.95 79 6.34 6.82 5.89 6.39 80 6.83 6.41 4.41 5.08 81 7.18 5.56 4.26 4.52 82 7.69 5.41 3.45 4.78 83 8.24 6.89 4.49 6.89 84 8.65 8.61 5.78 8.47 85 9.59 11.28 8.39 10.97 86 10.40 16.46 10.95 15.29 87 10.58 19.13 11.94 14.56 88 10.92 16.82 13.88 16.44 89 12.43 20.75 15.38 19.56 90 13.39 19.94 11.32 15.63 91 14.24 21.13 14.07 18.63 92 14.54 24.82 17.94 24.81 93 16.15 28.06 23.13 24.50 94 16.36 29.00 23.75 25.88 95 18.80 33.75 25.25 33.13
National City's common stock price at December 31, 1995 was $33.13. Over the past 20 years, the annual compound rate of return of an investment in National City common stock, assuming reinvestment of dividends, was 16.7%, compared with 14.5% for the S&P 500. 7 10 Financial Review (continued) CREDIT CARD: Year-end credit card balances are summarized below:
- ------------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------- Local market credit card $ 456 $ 506 $ 331 $ 268 $ 347 National market 289 475 258 206 266 Private label 428 357 130 252 190 - ------------------------------------------------------------------- TOTAL $1,173 $1,338 $ 719 $ 726 $ 803 ===================================================================
The decline in credit card outstandings was due to the securitization of $440 million of credit card receivables in September 1995. At year-end 1994 and 1993, securitized balances were $70 million and $363 million, respectively. The managed portfolio, which includes both credit card receivables on the balance sheet and securitized credit cards, increased 15% in 1995. SECURITIES: On November 15, 1995, the Financial Accounting Standards Board issued a special report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities, which permitted a one time reallocation of debt securities from the held to maturity category to the available for sale category. On December 1, 1995, National City reclassified its entire held to maturity debt securities portfolio to available for sale. The amortized cost of the transferred securities was $911 million and the unrealized gain on those securities was $17 million. The reallocation of securities to the available for sale category provides for increased flexibility in managing interest rate sensitivity, portfolio returns, and liquidity. On a cost basis, the securities portfolio increased from $4.5 billion in 1994 to $4.8 billion at December 31, 1995. Net purchases of securities totalling $1.0 billion were primarily in mortgage-backed securities which increased from $2.3 billion at December 31, 1994 to $3.2 billion at December 31, 1995. Partly offsetting the net purchases were mortgage prepayments of $542 million and maturities and calls of $327 million. Summary information with respect to the securities portfolio at December 31 follows:
- --------------------------------------------------------------------- 1995 1994 1993 AMORTIZED 1995 Amortized Amortized (Dollars in Millions) COST YIELD Cost Cost - --------------------------------------------------------------------- U.S. TREASURY AND FEDERAL AGENCY DEBENTURES: Under 1 year $ 50 7.45 % $ 126 $ 200 1 to 5 years 928 5.80 1,217 1,047 5 to 10 years 27 5.98 25 53 Over 10 years -- -- -- -- - --------------------------------------------------------------------- TOTAL 1,005 5.90 1,368 1,300 - --------------------------------------------------------------------- MORTGAGE-BACKED SECURITIES: Under 1 year 102 6.17 13 374 1 to 5 years 2,714 6.64 1,701 2,226 5 to 10 years 376 7.55 533 273 Over 10 years 1 -- 84 2 - --------------------------------------------------------------------- TOTAL 3,193 6.74 2,331 2,875 - --------------------------------------------------------------------- STATES AND POLITICAL SUBDIVISIONS: Under 1 year 68 10.90 117 125 1 to 5 years 97 11.18 189 314 5 to 10 years 63 10.62 78 92 Over 10 years 74 10.38 97 106 - --------------------------------------------------------------------- TOTAL 302 10.89 481 637 - --------------------------------------------------------------------- OTHER SECURITIES: Under 1 year 21 7.80 15 119 1 to 5 years 6 -- 18 4 5 to 10 years 21 6.74 22 -- Over 10 years 257 4.99 * 241 177 - --------------------------------------------------------------------- TOTAL 305 5.58 * 296 300 - --------------------------------------------------------------------- TOTAL SECURITIES $4,805 6.79 % $4,476 $5,112 ===================================================================== * Yield on debt securities only; equity securities excluded. ===========================================================
Yields on tax-exempt securities are calculated on a fully taxable equivalent basis using the marginal Federal income tax rate of 35%. Mortgage-backed securities are assigned to maturity categories based on their estimated average lives. - -------------------------------------------------------------------------------- CHART 3. RETURN ON AVERAGE COMMON EQUITY (net income after preferred dividends, divided by average common equity) 90 12.97 91 11.20 92 15.31 93 16.12 94 17.06 95 17.64
Return on average common equity rose to 17.64% in 1995 due to improved net income and the repurchase of shares during the year. National City seeks to produce a return which is higher than its peers over time while maintaining optimal capital ratios. CHART 4. RETURN ON AVERAGE ASSETS (net income divided by average assets) 90 0.87 91 0.81 92 1.21 93 1.40 94 1.40 95 1.38 Return on average assets was 1.38% in 1995. Historically high profitability was maintained on an asset base that grew by 13%. 8 11 The general decline in interest rates during 1995 led to an increase in the market value of the securities portfolio. At December 31, 1995, net unrealized gains of $94 million, net of tax, were included in stockholders' equity, as compared to a net unrealized loss of $53 million, net of tax, at December 31, 1994. The portfolio yield at December 31, 1995 was 6.79% compared to 6.94% at December 31, 1994. The decline in yield is attributable primarily to prepayments of higher yielding mortgage-backed securities. Investments in collateralized mortgage obligations (CMO's) totalled $1,344 million and $1,074 million at December 31, 1995 and 1994, respectively. At December 31, 1995, CMO's with book values of $252 million and market values of $257 million were considered "high risk" under regulatory definitions. These securities are classified as "high risk" because either their price sensitivity or average life extension is potentially beyond the limits of CMO's not classified as "high risk." Each of these securities are issued and guaranteed by agencies of the U.S. Government and marginally exceed one of the thresholds that define CMO's as being "high risk." These securities and all CMO's are continually monitored and subjected to stress tests for price and average life sensitivity. The amount of mortgage-backed securities that are either variable or adjustable rate totalled $1,226 million at December 31, 1995, or 38% of total mortgage-backed securities. INTEREST-BEARING LIABILITIES Average balances in transaction accounts, which include demand deposits, savings, and interest-bearing checking, declined by 7% in 1995, while time deposits of individuals increased by 36%. Overall, average core deposits increased less than earning assets. On average, use of purchased funds increased by $1,632 million in 1995, due to efforts to obtain cost-effective longer-term funding in the existing interest rate environment to support the growth in assets. Purchased funds include domestic certificates of deposit over $100,000, Eurodollar deposits, bank notes, and short-term borrowings. A maturity distribution of certificates of deposit of $100,000 or more at year-end follows:
- ----------------------------------------------------------- (Dollars in Millions) 1995 1994 - ----------------------------------------------------------- DUE IN: 3 months or less $ 631 $ 453 3 to 6 months 184 112 6 to 12 months 323 161 Over 1 year 1,004 641 - ----------------------------------------------------------- TOTAL $2,142 $1,367 ===========================================================
Federal funds borrowed and security repurchase agreements represent borrowings with overnight to 30-day maturities. Information for these borrowings follows:
- -------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 - -------------------------------------------------------------- Balance at December 31 $4,010 $2,609 $3,083 Maximum outstanding at any month-end 4,010 2,689 3,083 Daily average amount outstanding 2,863 2,539 2,518 Weighted daily average interest rate 5.72% 3.99% 2.91% Weighted daily interest rate for amounts outstanding at December 31 4.72% 5.18% 2.87% ==============================================================
- -------------------------------------------------------------------------------- CHART 5. AVERAGE EARNING ASSETS
MONEY MARKET LOANS SECURITIES INSTRUMENTS 90 19,456 5,087 1,120 91 19,581 4,896 1,802 92 18,671 5,385 1,625 93 19,454 5,498 793 94 21,715 4,757 789 95 24,858 4,785 590
Average earning assets grew by 11% in 1995. The loan portfolio grew by 14% primarily due to the vibrancy of the economy in our banking markets. 9 12 - ---------------------------- Financial Review (continued) CAPITAL The following table reflects various measures of capital at year-end:
- ----------------------------------------------------------------- 1995 1994 --------------- --------------- (Dollars in Millions) AMOUNT RATIO Amount Ratio - ----------------------------------------------------------------- Total equity(1) $2,921.0 8.07% $2,601.1 8.10% Common equity(1) 2,735.6 7.56 2,413.5 7.52 Tangible common equity(2) 2,297.3 6.42 2,026.4 6.39 Tier 1 capital(3) 2,544.7 8.54 2,442.2 8.45 Total risk-based capital(4) 3,913.1 13.13 3,374.8 11.68 Leverage(5) 2,544.7 7.37 2,442.2 7.82 - -----------------------------------------------------------------
(1) Computed in accordance with generally accepted accounting principles, including unrealized market value adjustment of securities available for sale. (2) Common equity less all intangible assets; computed as a ratio to total assets less intangible assets. (3) Stockholders' equity less certain intangibles and the unrealized market value adjustment of securities available for sale; computed as a ratio to risk-adjusted assets, as defined. (4) Tier 1 capital plus qualifying loan loss allowance and subordinated debt; computed as a ratio to risk-adjusted assets, as defined. (5) Tier 1 capital; computed as a ratio to average total assets less certain intangibles. - ------------------------------------------------------------ Total stockholders' equity at year-end 1995 included $185.4 million of 8% Cumulative Convertible Preferred Stock, compared with $187.5 million at year-end 1994. National City's Tier 1, total risk-based capital and leverage ratios are well above the required minimum levels of 4.00%, 8.00% and 4.00%, respectively. At December 31, 1995, all of National City's member banks were well-capitalized under the capital definitions prescribed in the FDIC Improvement Act of 1991. Intangible asset totals, included in accrued income and other assets, at year-end are summarized in the following table:
- -------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 - -------------------------------------------------------------- Goodwill $282.4 $246.6 $257.0 Purchased mortgage servicing rights 92.4 67.5 63.3 Purchased credit cards 47.4 52.7 31.1 Core deposit intangibles 13.7 19.2 25.9 Other intangibles 2.4 1.1 2.5 - -------------------------------------------------------------- TOTAL INTANGIBLE ASSETS $438.3 $387.1 $379.8 ==============================================================
The Corporation will adopt SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in 1996. The adoption is not expected to have a material impact on results of operations. National City Corporation's common stock trades on the New York Stock Exchange under the symbol NCC. As of December 31, 1995, there were 22,194 common stockholders of record. Quarterly dividends paid and common stock prices rounded to the nearest cent follow:
------------------------------------------------------------ NYSE: NCC First Second Third Fourth Year - -------------------------------------------------------------------------- 1995 Dividends paid $ .32 $ .32 $ .33 $ .33 $ 1.30 High 27.88 30.63 31.63 33.75 33.75 Low 25.25 26.50 29.00 29.88 25.25 Close 26.63 29.38 30.88 33.13 33.13 1994 Dividends paid $ .29 $ .29 $ .30 $ .30 $ 1.18 High 28.38 29.00 28.38 28.13 29.00 Low 24.00 25.63 26.00 23.75 23.75 Close 26.63 27.38 28.13 25.88 25.88 - --------------------------------------------------------------------------
Cash dividend payout is continually reviewed by management and the Board of Directors. For the past three- and five-year periods, the dividend payout has averaged 43.5% and 45.5%, respectively (Chart 8). - -------------------------------------------------------------------------------- CHART 6. AVERAGE LOANS ($ in millions)
CORPORATE BANKING CONSUMER BANKING COMM'L RESIDENTIAL REVOLVING COMMERCIAL REAL ESTATE INSTALLMENT REAL ESTATE CREDIT 90 8,884 2,816 90 3,872 2,514 1,370 91 8,819 2,764 91 3,738 2,721 1,539 92 8,352 2,479 92 3,675 2,723 1,412 93 8,314 2,668 93 3,893 3,131 1,448 94 9,133 2,432 94 4,441 3,914 1,794 95 10,197 2,443 95 5,185 4,745 2,288
National City's loan portfolio mix is approximately 51% corporate and 49% consumer loans. The loan mix has become more balanced as the consumer loan portfolio, which includes residential mortgages, has grown at a faster rate in recent years. 10 13 In January 1996, the Board of Directors declared a first quarter dividend of $.36 per common share, representing a 9% increase from the next preceding quarterly dividend of $.33 per share. The dividend is payable February 1 to stockholders of record on January 12, 1996. At December 31, 1995, the total market capitalization of the Corporation was approximately $4.8 billion. Book value per common share at December 31, 1995 was $18.80 compared with $16.36 at December 31, 1994 (Chart 2). The 1995 book value included $.63 of market appreciation in the securities available for sale portfolio compared with $.34 of market depreciation at year-end 1994. During the year, 7.9 million common shares were repurchased in the open market primarily for the anticipated conversion of preferred stock (see Note 11). At December 31, 1995, the Corporation had remaining authorization to purchase up to 1.5 million common shares. LIQUIDITY MANAGEMENT Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the securities portfolio, the extensive core deposit base, the ability to acquire large deposits and issue bank notes in the local and national markets, and the capability to securitize or package loans for sale. The parent company has four major sources of funding to meet its liquidity requirements: dividends from its subsidiaries, the commercial paper market, a revolving credit agreement, and access to the capital markets. The main source for parent company cash requirements has been dividends from its subsidiaries. At January 1, 1996, $432 million was available within the bank subsidiaries to pay the parent company in dividends without prior regulatory approval, compared with $77 million at January 1, 1995. During 1995, subsidiary banks declared $221 million in dividends to the parent company. In addition, the issuance of Tier 2 debt capital at certain subsidiary banks permitted the banks to return $286 million in equity capital to the parent company. As discussed in Item 1 of Form 10-K (page 41), subsidiary banks are subject to regulation and, among other things, may be limited in their ability to pay dividends or transfer funds to the parent company. Accordingly, consolidated cash flows as presented in the Consolidated Statements of Cash Flows on page 26 may not represent cash available to National City Corporation's stockholders. Funds raised in the commercial paper market through the Corporation's subsidiary, National City Credit Corporation, are primarily used to support the activities of National City Mortgage Co., the Corporation's mortgage banking subsidiary, as well as other occasional short-term cash needs. Commercial paper outstandings at December 31, 1995 were $340 million, compared with $379 million at year-end 1994. National City Corporation has a $300 million revolving credit agreement with a group of unaffiliated banks which serves as a back-up liquidity facility. The agreement expires June 30, 1998, with a provision to extend the expiration date under certain circumstances. No borrowings have occurred under this facility. The parent company also has in place a $250 million shelf registration with the Securities and Exchange Commission permitting ready access to the public debt and preferred stock markets. In May 1995, National City Corporation issued $250 million principal amount of 7.20% Subordinated Notes due 2005. The notes are not redeemable prior to maturity and qualify as Tier 2 capital for regulatory purposes. In July 1995, five subsidiary banks issued a combined $225 million principal amount of 7.25% Subordinated Bank Notes due 2010. The notes are not redeemable prior to maturity and qualify as Tier 2 capital for regulatory purposes. ASSET/LIABILITY MANAGEMENT The primary goal of the asset/liability management function is to maximize net interest income within the interest rate risk limits set by the Corporate Asset/Liability Committee. Interest rate risk is monitored and controlled through the use of three different measures: static gap analysis, earnings simulation, and net present value modeling. The most useful of these measures is earnings simulation. The model forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments, interest rate relationships, and changes in the volumes and rates of various loan and deposit categories. The model also incorporates all off-balance sheet commitments, as - -------------------------------------------------------------------------------- CHART 7. EQUITY TO ASSETS
TANGIBLE TOTAL EQUITY TO EQUITY TO ASSETS ASSETS 90 5.75 6.58 91 6.60 7.53 92 7.49 8.63 93 7.77 8.89 94 6.98 8.10 95 6.94 8.07
Total equity as a percentage of total assets was 8.07% at year-end 1995 compared with 8.10% a year ago. Tangible equity to assets was 6.94% at December 31, 1995. 11 14 Financial Review (continued) well as assumptions about reinvestment and the repricing characteristics of certain non-contractual assets and liabilities. While each of the interest rate risk measurements has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Corporation, the distribution of risk along the yield curve, the level of risk through time and the amount of exposure to certain interest rate relationships. National City uses a variety of financial instruments to manage its interest rate sensitivity. These include the securities in its investment portfolio, interest rate swaps, interest rate caps and floors, and, to a lesser extent, exchange-traded futures and options contracts. Frequently called interest rate derivatives, interest rate swaps, caps and floors have similar characteristics to securities but possess the advantages of customization of the risk-reward profile of the instrument, minimization of balance sheet leverage and improvement of the liquidity position. STATIC GAP: As illustrated in the following table, at year-end, the amount of interest earning assets, adjusted for off-balance sheet instruments, less interest bearing liabilities which reprice within a given period was (2.0)% of adjusted total earning assets within six months, and (3.2)% within one year. However, the ongoing management of the gap incorporates noninterest earning assets, noninterest bearing liabilities and equity. These items, which include cash, mortgage servicing rights, and noninterest bearing demand deposits, are included in the periods in which they are likely to affect National City's interest rate sensitivity. At year-end, the amount of total assets, adjusted for off-balance sheet instruments, less total liabilities which reprice within a given period was (4.2)% of adjusted total earning assets within six months, and (8.5)% within one year. The policy limit for the one-year gap is plus or minus 12% of adjusted total earning assets, including the effect of noninterest earning assets, noninterest bearing liabilities and equity.
Three Within Six to One to to Over Six Twelve Three Five Five (Dollars in Millions) Months Months Years Years Years - ----------------------------------------------------------------------------- Loans $15,778 $ 2,684 $4,318 $1,685 $ 1,757 Securities 1,749 423 1,096 988 694 Money market assets 799 -- -- -- -- - ----------------------------------------------------------------------------- Total interest earning assets 18,326 3,107 5,414 2,673 2,451 Interest bearing liabilities 16,704 3,906 3,698 1,029 1,614 - ----------------------------------------------------------------------------- Gap between interest earning assets and interest bearing liabilities before swaps and options 1,622 (799) 1,716 1,644 837 Net swaps and options (2,380) 338 1,042 440 560 - ----------------------------------------------------------------------------- Gap between interest earning assets and interest bearing liabilities, adjusted for swaps and options $ (758) $ (461) $2,758 $2,084 $ 1,397 - ----------------------------------------------------------------------------- Cumulative gap between interest earning assets and interest bearing liabilities, adjusted for swaps and options $ (758) $(1,219) $1,539 $3,623 $ 5,020 - ----------------------------------------------------------------------------- Gap between interest earning assets and interest bearing liabilities, adjusted for swaps and options (758) (461) 2,758 2,084 1,397 Nonearning assets 3,512 213 156 386 (40) Noninterest bearing liabilities, demand deposits and equity 4,341 1,384 484 298 2,740 - ----------------------------------------------------------------------------- Gap adjusted for swaps, options, nonearning assets, noninterest bearing liabilities, demand deposits and equity $(1,587) $(1,632) $2,430 $2,172 $(1,383) ============================================================================= Cumulative gap adjusted for swaps, options, nonearning assets, noninterest bearing liabilities, demand deposits and equity $(1,587) $(3,219) $ (789) $1,383 $ -- =============================================================================
- -------------------------------------------------------------------------------- CHART 8. CASH DIVIDEND PAYOUT (dividends per share divided by originally reported earnings per share)
DIVIDEND 3 YR 5 YR PAYOUT AVG AVG 90 48.7 41.6 41.0 91 51.9 46.4 45.6 92 44.9 48.5 44.3 93 44.0 46.9 45.6 94 43.7 44.2 46.6 95 42.9 43.5 45.5
National City's dividend policy is to pay out approximately 40% of earnings over time. Despite a somewhat higher payout ratio in recent years, internal capital generation continues to exceed asset growth. 12 15 Core deposits and loans with non-contractual maturities are distributed or spread among the various repricing categories based upon historical patterns of repricing which are reviewed at least annually. Management constructs rolling portfolios of fixed rate certificates of deposit whose interest cash flows over historical time periods most closely replicate the current portfolio of non-contractual assets and liabilities. It is the maturity or repricing distribution of this replicating portfolio which appears in the gap table as a surrogate for the particular non-contractual asset or liability. The gap table presented includes the following loans and core deposits that reprice on average in the noted time frames: fixed rate credit card loans (16 months), demand deposits (9 months), savings accounts (15 months), and money market and NOW accounts (4 months). The assumptions regarding these repricing characteristics greatly influence conclusions regarding interest sensitivity. Management believes its assumptions regarding these assets and liabilities are conservative. EARNINGS SIMULATION: Management evaluates the effects on income of alternative interest rate scenarios against earnings in a stable interest rate environment. The most recent earnings simulation model projects net income would decrease by approximately .3% if rates fell gradually by two percentage points over the next year. It projects an increase of approximately .3% if rates rose gradually by two percentage points, well within the (5.0)% policy limit. Management believes this reflects an essentially neutral interest rate sensitivity position. Earnings are also affected by changes in spread relationships. For example, a 50 basis point contraction in the relationship between the prime rate and Federal funds rate would cause an estimated 3.1% reduction in net income over a 12-month period. NET PRESENT VALUE: National City's net present value model analyzes the impacts of changes in interest rates on expected asset and liability cash flows, including those maturing in time periods greater than one year. At year-end, a two percentage point immediate increase in rates would reduce the present value of these cash flows by an amount estimated to equal 1.3% of total assets. Policy limits restrict this amount to 1.5% of total assets. The value of these cash flows was projected to increase by 1.4% of total assets for an immediate decrease in rates of two percentage points. Due to borrowers' preferences for floating-rate loans and depositors' preferences for fixed-rate deposits, National City's balance sheet moves toward higher levels of asset sensitivity with the passage of time. In fact, if all prepayments, calls and maturities of the securities and derivative portfolios were to remain uninvested, then the asset sensitivity in a 200 basis point rising interest rate environment would result in an increase in net income of 6.5% compared with a stable rate environment. Purchases of fixed-rate securities or interest rate derivative instruments were made in 1995 to offset the natural asset-sensitive interest rate risk position. Using a one-year static gap measure, National City would be 4.2% asset sensitive without securities and interest rate derivatives. Management expects short-term interest rates to fall moderately throughout 1996 and believes the neutral interest rate sensitivity position is appropriate given the current level of market interest rates. NET INTEREST INCOME On a fully taxable equivalent basis, net interest income was $1,342.3 million in 1995 compared with $1,266.3 million in 1994 and $1,235.8 million in 1993 (Chart 10). The following table reconciles net interest income as shown in the financial statements to tax equivalent net interest income:
- -------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 - -------------------------------------------------------------- Net interest income - per financial statements $1,321.1 $1,236.8 $1,200.0 Tax equivalent adjustment 21.2 29.5 35.8 - -------------------------------------------------------------- Net interest income - tax equivalent $1,342.3 $1,266.3 $1,235.8 ============================================================== Average earning assets $ 30,233 $ 27,261 $ 25,745 ============================================================== Net interest margin - tax equivalent 4.44% 4.65% 4.80% ===============================================================
To compare non-taxable asset yields to taxable yields on a similar basis, amounts are adjusted to their pre-tax equivalents, based on the marginal corporate tax rate of 35%. - -------------------------------------------------------------------------------- CHART 9. AVERAGE FUNDING SOURCES ($ in millions)
CORE OTHER PURCHASED DEPOSITS DEPOSITS FUNDS 90 18,839 2,918 4,396 91 20,190 2,284 4,221 92 20,780 1,187 3,866 93 20,831 815 4,164 94 21,327 1,506 4,666 95 22,598 1,874 5,931
Core deposits grew at a slower pace than loans in 1995. Purchased funds and other deposit balances increased to support the growth in loans. 13 16 Financial Review (continued) The margin decline in 1995 was mainly due to narrower loan spreads, a flat yield curve, and the use of higher-cost wholesale borrowings to fund loan growth. The following table summarizes the contribution of derivatives to net interest income (Note: Amounts in brackets represent reductions of the related interest income or expense line, as applicable):
- -------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 - -------------------------------------------------------------- INTEREST ADJUSTMENT TO: Loans $(13.0) $36.4 $72.1 Securities (2.8) (16.3) (27.2) - -------------------------------------------------------------- Assets (15.8) 20.1 44.9 Deposits (11.6) (9.6) (21.1) - -------------------------------------------------------------- EFFECT ON NET INTEREST INCOME $ (4.2) $29.7 $66.0 ==============================================================
The future net interest income contribution of the derivative portfolio is not significant at current interest rates. The effects of changing interest rates are more fully discussed in the Asset/Liability Management discussion starting on page 11. The following table shows changes in interest income, expense and net interest income due to volume and rate variances for major categories of assets and liabilities:
- ------------------------------------------------------------------------ 1995 VS. 1994 1994 vs. 1993 ------------------------- ------------------------- DUE TO CHANGE IN Due to Change in (Dollars in ---------------- NET ---------------- Net Millions) VOLUME RATE* CHANGE Volume Rate* Change - ------------------------------------------------------------------------ INCREASE (DECREASE) IN TAX EQUIVALENT INTEREST INCOME -- Loans $ 257.1 $ 181.3 $ 438.4 $ 183.8 $ -- $ 183.8 Securities 1.6 40.9 42.5 (40.8) 2.8 (38.0) Money market assets (7.9) 10.0 2.1 (.2) (.2) (.4) - ------------------------------------------------------------------------ TOTAL $ 250.8 $ 232.2 $ 483.0 $ 142.8 $ 2.6 $ 145.4 ======================================================================== (INCREASE) DECREASE IN INTEREST EXPENSE -- Savings and NOW accounts $ 15.5 $ (4.0) $ 11.5 $ (11.4) $ 5.4 $ (6.0) Insured money market accounts 7.6 (26.6) (19.0) 4.7 (5.4) (.7) Time deposits (101.3) (112.3) (213.6) (5.0) (2.5) (7.5) Purchased funds (55.8) (109.6) (165.4) (30.0) (49.9) (79.9) Corporate debt (19.4) (1.1) (20.5) (16.3) (4.5) (20.8) - ------------------------------------------------------------------------ TOTAL $(153.4) $(253.6) $(407.0) $ (58.0) $ (56.9) $(114.9) ======================================================================== INCREASE IN TAX EQUIVALENT NET INTEREST INCOME $ 76.0 $ 30.5 ========================================================================
* Changes in interest income and interest expense not arising solely from rate or volume variances are included in rate variances. - ------------------------------------------------------------ - -------------------------------------------------------------------------------- CHART 10. NET INTEREST INCOME AND NET INTEREST MARGIN ($ in millions)
NET INTEREST NET INTEREST INCOME MARGIN 90 1,156 4.50 91 1,185 4.51 92 1,195 4.65 93 1,236 4.80 94 1,266 4.65 95 1,342 4.44
Tax equivalent net interest income increased in 1995 due to a larger earning asset base offset somewhat by a narrower net interest margin. 14 17 FEES AND OTHER INCOME An analysis of fees and other income for the last three years follows:
- ------------------------------------------------------------ (Dollars in Thousands) 1995 1994 1993 - ------------------------------------------------------------ Item processing revenue $327,929 $312,358 $267,962 Deposit service charges 157,486 153,870 152,609 Trust fees 138,028 125,668 122,597 Credit card and ATM fees 82,226 85,308 92,966 Mortgage banking revenue 69,827 67,406 58,678 Service fees -- other 46,830 42,737 40,263 Brokerage revenue 28,329 18,790 9,013 Other real estate owned income 5,188 13,696 12,332 Trading account profits (losses) (958) (861) 9,161 Other 37,808 33,866 34,234 - ------------------------------------------------------------ TOTAL $892,693 $852,838 $799,815 ============================================================
Fees and other income increased 5% in 1995 from 1994 primarily due to growth in item processing, trust, and brokerage revenues. Item processing revenue grew in both 1995 and 1994 primarily due to growth in the existing bankcard processing business. Trust fees increased 10% in 1995 due to new business and strong stock and bond markets. Brokerage revenue includes the July, 1995 acquisition of Raffensperger, Hughes & Co., Inc., a full-service investment banking/brokerage firm. This subsidiary is now known as NatCity Investments, Inc. Other income in 1995 included a $9.2 million gain on the sale of credit card receivables. In addition, $12.9 million of gains on the sale of mortgage servicing were included in mortgage banking revenue. In 1994, gains on the sale of mortgage servicing totalled $14.4 million. NONINTEREST EXPENSE The following table shows noninterest expenses for the last three years:
------------------------------------------------------------ (Dollars in Thousands) 1995 1994 1993 - -------------------------------------------------------------- Salaries $ 551,410 $ 517,981 $ 499,879 Benefits 133,912 135,909 123,593 Equipment 95,181 93,345 89,005 Net occupancy 93,777 89,994 89,729 Third party services 88,173 80,604 77,368 Processing assessments 107,625 91,598 81,822 Postage and supplies 72,786 68,218 67,842 FDIC assessments 41,754 48,709 50,157 Amortization of intangibles 49,010 44,903 61,721 State and local taxes 29,942 30,160 30,297 Marketing and public relations 42,139 35,677 28,581 Transportation 24,481 23,200 21,978 Telephone 27,250 24,057 21,862 Other real estate owned expense 3,539 10,403 26,177 Other 109,675 108,375 77,729 - -------------------------------------------------------------- TOTAL $1,470,654 $1,403,133 $1,347,740 ==============================================================
Noninterest expense rose 5% in 1995 compared with 1994. Approximately $5 million of the increase was due to higher business volumes at the item processing subsidiary and $20 million was due to acquisitions. FDIC expenses declined in 1995 due to a reduction in the assessment rate. Nonrecurring expenses totalled $12.8 million in 1995, recorded primarily as third party services and other expense, and $13.2 million in 1994. Amortization of intangibles included the amortization of purchased mortgage servicing rights, which totalled $16.1 million in 1995, $14.5 million in 1994, and $34.5 million in 1993. Full-time equivalent staff, shown in Table 2, increased in 1995 primarily due to acquisitions. The overhead ratio (noninterest expense less fee income as a percentage of fully taxable net interest income) was 43.06% in 1995 compared with 43.46% in 1994 and 44.34% in 1993 (Chart 12). The efficiency ratio (noninterest expense as a percentage of fee income plus fully taxable net interest income) was 65.80% in 1995 - -------------------------------------------------------------------------------- CHART 11. FEE INCOME AS A PERCENTAGE OF TOTAL REVENUE
FEE INCOME AS % OF TOTAL REVENUE 85 29% 86 29% 87 30% 88 31% 89 31% 90 33% 91 35% 92 38% 93 39% 94 40% 95 40%
Fee income as a percentage of total revenue remained at 40% in 1995. Contributing to the growth in fee income were increased item processing, trust and brokerage revenues. 15 18 - ---------------------------- Financial Review (continued) compared with 66.21% in 1994 and 1993. The fee-based businesses have lower gross margins than traditional banking. Therefore, growth in these businesses penalizes the efficiency ratio as shown in Table 2. Conversely, strong fee income benefits the overhead ratio. SECURITY GAINS AND LOSSES Net realized security gains and losses are summarized as follows:
------------------------------------------------------------ (Dollars in Thousands) 1995 1994 1993 - -------------------------------------------------------------- Net gain (loss) on sales of debt securities $(4,014) $ (287) $8,462 Tax expense (benefit) (1,405) (100) 2,962 - -------------------------------------------------------------- After tax $(2,609) $ (187) $5,500 ============================================================== Net gains on sales of equity securities $28,090 $10,817 $3,460 Tax expense 8,506 3,848 1,211 ============================================================== After tax $19,584 $ 6,969 $2,249 ============================================================== Effect on net income $16,975 $ 6,782 $7,749 ============================================================== Effect on earnings per share $ .11 $ .04 $ .05 ==============================================================
INCOME TAXES The consolidated income tax provision was $204.6 million in 1995 compared with $188.3 million in 1994 and $167.0 million in 1993. The effective tax rate of the Corporation was 30.6% in 1995, 30.5% in 1994, and 29.2% in 1993. The increasing effective rate over the past three years reflects the declining levels of tax-exempt income, partially offset by nontaxable cash surrender value increases on life insurance policies. ASSET QUALITY NONPERFORMING ASSETS: A summary of nonaccrual, reduced rate, and renegotiated loans and other nonperforming assets at December 31 follows:
------------------------------------------------------------ (Dollars in Millions) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------- COMMERCIAL: Nonaccrual $ 75.0 $ 58.8 $ 79.4 $135.4 $191.8 Restructured .1 -- 1.1 2.5 5.3 - ----------------------------------------------------------------- TOTAL COMMERCIAL 75.1 58.8 80.5 137.9 197.1 - ----------------------------------------------------------------- REAL ESTATE RELATED: Nonaccrual 50.3 48.8 64.4 81.5 129.7 Restructured 4.1 4.4 6.5 4.3 15.7 - ----------------------------------------------------------------- TOTAL REAL ESTATE RELATED 54.4 53.2 70.9 85.8 145.4 - ----------------------------------------------------------------- TOTAL NONPERFORMING LOANS 129.5 112.0 151.4 223.7 342.5 Other real estate owned (OREO) 9.0 16.5 57.8 143.7 196.8 - ----------------------------------------------------------------- TOTAL NONPERFORMING ASSETS $138.5 $128.5 $209.2 $367.4 $539.3 ================================================================= Loans 90 days past due accruing interest $ 38.6 $ 27.9 $ 42.2 $ 41.5 $ 65.9 - ----------------------------------------------------------------- NONPERFORMING LOANS AND OREO AS A PERCENT OF: Loans and OREO .5% .6% 1.0% 1.9% 2.8% Assets .4 .4 .7 1.3 1.8 Equity 4.7 4.9 7.6 14.7 23.9 Loan loss allowance to nonperforming loans 378.9% 418.8% 292.9% 171.6% 112.7% - -----------------------------------------------------------------
- -------------------------------------------------------------------------------- CHART 12. OVERHEAD RATIO (non-interest expenses less fee income divided by net interest income) 90 46.33 91 49.93 92 48.93 93 44.34 94 43.46 95 43.06
The overhead ratio improved in 1995 for the fourth consecutive year. The improvement was due to the benefits of National City's cost redesign program and the successful integration of acquisitions. TABLE 2 Full-time equivalent staff and overhead performance measures
- ---------------------------------------------------------- Full-Time Overhead Efficiency Equivalent Staff Ratio Ratio - ---------------------------------------------------------- 1995 Corporate and retail banking 11,528 42.17% 52.57% National credit card 657 48.09 57.16 Investment/funding 450 10.08 (135.09) Trust 1,168 --- 71.12 Item processing 5,653 --- 89.09 Mortgage banking 755 --- 91.09 Corporate 556 --- --- - ---------------------------------------------------------- TOTAL 20,767 43.06% 65.80% - ---------------------------------------------------------- 1994 Corporate and retail banking 11,755 47.37% 57.94% National credit card 577 57.25 63.48 Investment/funding 287 (46.44) 48.28 Trust 1,005 --- 65.69 Item processing 5,549 --- 91.93 Mortgage banking 731 --- 83.37 Corporate 402 --- --- - ---------------------------------------------------------- TOTAL 20,306 43.46% 66.21% ==========================================================
16 19 On January 1, 1995, National City adopted SFAS No. 114 "Accounting by Creditors for Impairment of a Loan." A loan is considered to be impaired when it is probable that the lender will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement. At December 31, 1995, impaired loans totalled $27 million, all of which were included in nonperforming assets. Commercial and residential real estate loans and securities are designated as nonperforming when payments are 90 or more days past due, when credit terms are renegotiated below market levels, or when individual analysis of a borrower's creditworthiness indicates that a credit should be placed on nonaccrual status, unless the loan is adequately collateralized and is in the process of collection. Consumer loans are reported as "90 days past due accruing interest" once the 90 day criterion has been met, and are charged off in the month in which the loan becomes 120 days past due. Generally, when loans are classified as nonperforming, or impaired, unpaid accrued interest is written off, and future income may be recorded only as cash payments are received. Nonperforming assets increased by $10 million in 1995 due to higher nonaccrual commercial loans, offset somewhat by a decline in other real estate owned. Although loans may be classified as nonperforming, many continue to pay interest irregularly or at less than original contractual rates. A summary of actual income booked on nonperforming loans versus their full contractual yields for each of the past five years follows:
- ---------------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------- Income potential based on original contract $16.3 $16.5 $16.0 $21.4 $36.3 Actual income 9.8 8.2 5.5 4.6 5.7 ======================================================================
ALLOWANCE FOR LOAN LOSSES: The following table presents the reconciliation of the allowance for loan losses:
- --------------------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------- BALANCE AT BEGINNING OF YEAR $469.0 $443.4 $383.9 $385.9 $327.3 Provision 97.5 79.4 93.1 129.4 251.1 Net acquired allowance 9.2 9.7 50.7 2.5 17.7 LOANS CHARGED OFF: Commercial 39.7 34.6 56.9 78.4 124.9 Real estate mortgage 8.3 11.5 14.9 18.7 21.0 Consumer 39.0 33.0 35.0 45.6 57.5 Revolving credit 58.6 41.1 37.7 43.8 56.5 - --------------------------------------------------------------------------- TOTAL CHARGE-OFFS 145.6 120.2 144.5 186.5 259.9 - --------------------------------------------------------------------------- RECOVERIES: Commercial 17.4 18.6 26.1 15.1 14.5 Real estate mortgage 8.9 4.3 2.3 3.8 2.7 Consumer 22.2 22.8 21.6 23.0 21.3 Revolving credit 12.1 11.0 10.2 10.7 11.2 - --------------------------------------------------------------------------- TOTAL RECOVERIES 60.6 56.7 60.2 52.6 49.7 - --------------------------------------------------------------------------- Net charged-off loans 85.0 63.5 84.3 133.9 210.2 - --------------------------------------------------------------------------- BALANCE AT END OF YEAR $490.7 $469.0 $443.4 $383.9 $385.9 =========================================================================== Ratio of ending allowance to ending loans 1.87% 2.04% 2.08% 2.05% 2.01% ===========================================================================
The commercial category included real estate construction net charge-offs/(recoveries) of $(2.6) million in 1995, $(1.8) million in 1994, and $4.9 million in 1993. Real estate mortgage loans included commercial real estate net charge-offs/(recoveries) of $(1.2) million in 1995, $5.3 million in 1994, and $10.3 million in 1993. - -------------------------------------------------------------------------------- CHART 13. NONPERFORMING ASSETS AND THE ALLOWANCE FOR LOAN LOSSES ($ in millions)
NONPERFORMING ALLOWANCE FOR ASSETS LOAN LOSSES 90 482 327 91 539 386 92 367 384 93 209 443 94 129 469 95 139 491
Nonperforming assets at December 31, 1995 totalled $139 million compared with $129 million a year ago. At December 31, 1995, the allowance for loan losses represented 1.87% of total loans and 354% of nonperforming assets. 17 20 - ---------------------------- Financial Review (continued) Net charge-offs/(recoveries) as a percentage of average loans by portfolio type are shown in the following table:
- ----------------------------------------------------------------- 1995 1994 1993 1992 1991 - ----------------------------------------------------------------- Commercial .22% .18% .35% .71% 1.12% Real estate mortgage (.01) .11 .24 .32 .41 Consumer .33 .23 .34 .61 .97 Revolving credit 2.03 1.68 1.90 2.34 2.94 TOTAL NET CHARGE-OFFS TO AVERAGE LOANS .34% .29% .43% .72% 1.07% =================================================================
Net charge-offs as a percentage of loans increased 5 basis points in 1995 following a 14 basis point decline in 1994 (Chart 14). Consumer and credit card loans are charged off within industry norms, while commercial loans are evaluated individually. The adequacy of the allowance for loan losses is evaluated based on an assessment of the losses inherent in the loan portfolio. This assessment results in an allowance consisting of two components, allocated and unallocated. The allocated component reflects expected losses resulting from the analysis of individual loans, developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on a regular analysis of all loans and commitments over a fixed dollar amount where the internal credit rating is at or below a predetermined classification. The historical loan loss element represents a projection of future credit problems and is determined statistically using a loss migration analysis that examines loss experience and the related internal gradings of loans charged off. The total of these allocations is supplemented by the unallocated component of the allowance. This component includes adjustments to the historical loss experience for the various loan categories to reflect current conditions that could affect losses inherent in the portfolio. It also includes management's determination of the amounts necessary for concentrations, economic uncertainties, change in mix of the portfolio, and other subjective factors. Since banking is a cyclical business, National City's allocation methodology gives consideration to potential losses in the portfolio over a two year period of time. An allocation of the ending allowance for loan losses by major loan type follows: - ----------------------------------------------------------------
(Dollars in Millions) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------- Commercial and commercial mortgage $174.3 $161.5 $174.9 $193.2 $211.4 Consumer and residential mortgage 39.5 32.2 29.7 30.6 53.3 Revolving credit 40.8 42.8 22.1 30.1 28.7 Unallocated 236.1 232.5 216.7 130.0 92.5 - ---------------------------------------------------------------- TOTAL $490.7 $469.0 $443.4 $383.9 $385.9 ================================================================
This allocation is made for analytical purposes. The total allowance is available to absorb losses from any segment of the portfolio. The following table shows the percentage of loans in each category to total loans at year-end:
------------------------------------------------------------ 1995 1994 1993 1992 1991 - ----------------------------------------------------------------- Commercial and commercial mortgage 50.7 % 51.4 % 54.0 % 57.9 % 59.5 % Consumer and residential mortgage 40.6 38.8 38.9 34.3 32.7 Revolving credit 8.7 9.8 7.1 7.8 7.8 - ----------------------------------------------------------------- TOTAL 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % =================================================================
- -------------------------------------------------------------------------------- CHART 14. NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS
NET C/O RATIO 90 1.16% 91 1.07% 92 .72% 93 .43% 94 .29% 95 .34%
Net charge-offs as a percentage of average loans was .34% in 1995 compared with .29% in 1994 and .43% in 1993. The increase in 1995 reflects a change in loan portfolio mix, principally a higher proportion of credit card loans. 18 21 Statistical Data CONSOLIDATED SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
For the Calendar Year - ---------------------------------------------------------------------------------------------------------------------------- (In Millions Except Per Share Amounts and Ratios) 1995 1994 1993 1992 1991 1990 1989 1988 - ---------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $ 2,206 $ 1,766 $ 1,582 $ 1,624 $ 1,974 $ 2,162 $ 2,094 $ 1,750 Securities 293 246 276 341 389 442 407 373 Other interest income 34 30 32 67 112 91 111 77 - ---------------------------------------------------------------------------------------------------------------------------- Total interest income 2,533 2,042 1,890 2,032 2,475 2,695 2,612 2,200 INTEREST EXPENSE Deposits 858 593 542 723 1,093 1,252 1,206 957 Other interest expense 354 212 148 157 251 349 353 276 - ---------------------------------------------------------------------------------------------------------------------------- Total interest expense 1,212 805 690 880 1,344 1,601 1,559 1,233 - ---------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 1,321 1,237 1,200 1,152 1,131 1,094 1,053 967 PROVISION FOR LOAN LOSSES 97 79 93 129 251 231 157 168 - ---------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,224 1,158 1,107 1,023 880 863 896 799 FEES AND OTHER INCOME 893 853 800 726 650 580 493 471 SECURITY GAINS 24 10 12 26 26 3 3 11 - ---------------------------------------------------------------------------------------------------------------------------- Total noninterest income 917 863 812 752 676 583 496 482 NONINTEREST EXPENSE 1,471 1,403 1,348 1,311 1,242 1,115 981 913 - ---------------------------------------------------------------------------------------------------------------------------- Income before income taxes 670 618 571 464 314 331 411 368 Income taxes 205 188 167 117 77 82 106 91 - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 465 $ 430 $ 404 $ 347 $ 237 $ 249 $ 305 $ 277 ============================================================================================================================ NET INCOME PER COMMON SHARE: Primary $ 3.03 $ 2.70 $ 2.41 $ 2.09 $ 1.46 $ 1.62 $ 1.98 $ 1.80 Assuming full dilution 2.95 2.64 2.37 2.06 1.45 1.61 1.98 1.80 Dividends paid per common share 1.30 1.18 1.06 .94 .94 .94 .84 .72 Average shares -- primary 148.85 153.35 161.16 158.01 154.43 153.84 154.04 153.85 Average shares -- fully diluted 157.76 162.38 170.68 168.07 162.98 154.87 154.04 153.85 FINANCIAL RATIOS: Return on average common equity 17.64% 17.06% 16.12% 15.31% 11.20% 12.97% 17.18% 17.47% Return on average assets 1.38 1.40 1.40 1.21 .81 .87 1.16 1.14 Average equity to average assets 8.10 8.55 9.04 8.25 7.35 6.73 6.73 6.55 Dividends paid to net income 42.90 43.70 43.98 44.98 64.38 58.02 42.42 40.00 Net interest margin 4.44 4.65 4.80 4.65 4.51 4.50 4.69 4.73 AT YEAR-END: Assets $36,199 $32,114 $31,068 $28,963 $29,976 $29,561 $28,549 $26,879 Loans 26,222 23,035 21,286 18,738 19,171 19,587 18,741 17,314 Securities 4,950 4,395 5,166 5,499 5,370 5,020 5,045 5,126 Deposits 25,201 24,472 23,063 22,585 22,758 22,730 21,386 20,676 Corporate long-term debt 1,215 744 510 328 330 308 310 264 Common equity 2,736 2,414 2,565 2,300 2,058 1,946 1,877 1,664 Total equity 2,921 2,601 2,763 2,500 2,258 1,946 1,877 1,664 Common shares outstanding 145.55 147.56 158.78 158.17 154.63 153.11 154.20 153.87 ============================================================================================================================ - ------------------------------------------------------------------ (In Millions Except Per Share Amounts and Ratios) 1987 1986 1985 - ------------------------------------------------------------------ INTEREST INCOME Loans $ 1,521 $ 1,410 $ 1,349 Securities 345 318 288 Other interest income 76 99 175 - ------------------------------------------------------------------ Total interest income 1,942 1,827 1,812 INTEREST EXPENSE Deposits 806 821 878 Other interest expense 268 224 252 - ------------------------------------------------------------------ Total interest expense 1,074 1,045 1,130 - ------------------------------------------------------------------ NET INTEREST INCOME 868 782 682 PROVISION FOR LOAN LOSSES 279 108 67 - ------------------------------------------------------------------ Net interest income after provision for loan losses 589 674 615 FEES AND OTHER INCOME 419 364 318 SECURITY GAINS 11 21 9 - ------------------------------------------------------------------ Total noninterest income 430 385 327 NONINTEREST EXPENSE 857 797 709 - ------------------------------------------------------------------ Income before income taxes 162 262 233 Income taxes 18 44 52 - ------------------------------------------------------------------ NET INCOME $ 144 $ 218 $ 181 ================================================================== NET INCOME PER COMMON SHARE: Primary $ .93 $ 1.47 $ 1.39 Assuming full dilution .92 1.40 1.21 Dividends paid per common share .60 .50 .44 Average shares -- primary 154.38 148.00 130.49 Average shares -- fully diluted 156.00 155.88 150.60 FINANCIAL RATIOS: Return on average common equity 9.51% 15.97% 15.87% Return on average assets .63 1.05 .95 Average equity to average assets 6.67 6.68 6.18 Dividends paid to net income 64.52 34.01 31.65 Net interest margin 4.93 4.68 4.43 AT YEAR-END: Assets $24,242 $23,495 $20,637 Loans 15,525 14,362 12,462 Securities 4,620 4,305 3,319 Deposits 18,368 17,350 15,532 Corporate long-term debt 294 277 254 Common equity 1,502 1,468 1,142 Total equity 1,507 1,498 1,265 Common shares outstanding 154.19 154.04 133.39 ==================================================================
19 22 Statistical Data (continued) DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
Daily Average Balance - ----------------------------------------------------------------------------------------------------------------------- (Dollars in Millions) 1995 1994 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Earning assets: Loans: Commercial $10,197 $ 9,133 $ 8,816 $ 8,977 $ 9,885 $10,227 Real estate mortgage 7,188 6,346 5,297 4,607 4,419 3,987 Consumer 5,185 4,441 3,893 3,675 3,738 3,872 Revolving credit 2,288 1,795 1,448 1,412 1,539 1,370 - ----------------------------------------------------------------------------------------------------------------------- Total loans 24,858 21,715 19,454 18,671 19,581 19,456 Securities: Taxable 4,168 3,999 4,637 4,361 3,722 3,813 Tax-exempt 617 758 861 1,024 1,174 1,274 - ----------------------------------------------------------------------------------------------------------------------- Total securities 4,785 4,757 5,498 5,385 4,896 5,087 Federal funds sold 79 65 77 315 296 247 Security resale agreements 404 470 274 706 870 275 Eurodollar time deposits in banks 2 107 278 417 417 298 Other short-term money market investments 105 147 164 187 219 300 - ----------------------------------------------------------------------------------------------------------------------- Total earning assets/ Total interest income/rates 30,233 27,261 25,745 25,681 26,279 25,663 Allowance for loan losses (489) (462) (409) (393) (367) (315) Market value appreciation (depreciation) of securities available for sale 27 (5) -- -- -- -- Cash and demand balances due from banks 2,073 2,052 1,959 1,827 1,855 1,789 Properties and equipment 410 390 367 383 410 414 Customers' acceptance liability 91 69 51 78 75 96 Accrued income and other assets 1,452 1,309 1,121 1,059 1,091 917 - ----------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $33,797 $30,614 $28,834 $28,635 $29,343 $28,564 ======================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Savings and NOW accounts $ 4,368 $ 4,966 $ 4,543 $ 3,981 $ 3,371 $ 3,138 Insured money market accounts 4,847 5,184 5,401 5,236 4,519 3,767 Time deposits of individuals 8,652 6,380 6,268 7,230 8,430 8,112 Other time deposits 509 481 552 936 1,777 2,495 Deposits in overseas offices 1,365 1,026 263 251 367 315 Federal funds borrowed 1,325 1,358 1,439 995 1,056 1,289 Security repurchase agreements 1,538 1,181 1,080 1,183 1,141 1,374 Borrowed funds 2,076 1,415 1,193 1,359 1,706 1,424 Corporate long-term debt 992 712 452 329 318 309 - ----------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities/ Total interest expense/rates 25,672 22,703 21,191 21,500 22,685 22,223 Noninterest bearing deposits 4,731 4,798 4,619 4,333 4,010 3,930 Acceptances outstanding 91 69 51 78 75 96 Accrued expenses and other liabilities 564 425 367 362 417 393 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 31,058 27,995 26,228 26,273 27,187 26,642 Preferred stock 186 191 200 200 141 -- Common stock 2,553 2,428 2,406 2,162 2,015 1,922 - ----------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 2,739 2,619 2,606 2,362 2,156 1,922 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,797 $30,614 $28,834 $28,635 $29,343 $28,564 ======================================================================================================================= Net interest income ======================================================================================================================= Interest spread Contribution of noninterest bearing sources of funds - ----------------------------------------------------------------------------------------------------------------------- Net interest margin =======================================================================================================================
Fully taxable equivalent basis computed at 35% in 1995 through 1993, and 34% in 1992 through 1990. Average loan balances include nonperforming loans. 20 23
Interest Daily Average Rate - ---------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1995 1994 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- $ 868.7 $ 708.5 $ 648.7 $ 679.7 $ 904.8 $1,073.6 8.52% 7.76% 7.36% 7.57% 9.15% 10.50% 591.8 490.5 421.4 409.8 448.0 424.8 8.23 7.73 7.96 8.90 10.14 10.65 447.6 356.8 338.8 358.9 408.7 453.3 8.63 8.03 8.70 9.77 10.93 11.71 305.9 219.8 182.9 186.4 227.5 229.7 13.37 12.25 12.63 13.20 14.78 16.77 - ---------------------------------------------------------------------------------------------------------------------------------- 2,214.0 1,775.6 1,591.8 1,634.8 1,989.0 2,181.4 8.91 8.18 8.18 8.76 10.16 11.21 256.3 204.5 229.0 277.6 308.7 347.7 6.15 5.11 4.94 6.37 8.29 9.12 50.5 59.8 73.3 95.3 119.4 135.8 8.18 7.89 8.51 9.31 10.17 10.66 - ---------------------------------------------------------------------------------------------------------------------------------- 306.8 264.3 302.3 372.9 428.1 483.5 6.41 5.56 5.50 6.92 8.74 9.50 4.8 2.9 4.5 11.1 17.3 20.3 6.08 4.46 5.84 3.52 5.84 8.22 23.9 20.0 8.8 26.9 49.7 22.1 5.92 4.25 3.21 3.81 5.71 8.04 .1 3.0 9.6 16.4 27.3 25.8 5.00 2.80 3.45 3.93 6.55 8.66 4.7 5.5 8.9 12.7 17.4 23.5 4.48 3.74 5.43 6.74 7.95 7.83 - ---------------------------------------------------------------------------------------------------------------------------------- $2,554.3 $2,071.3 $1,925.9 $2,074.8 $2,528.8 $2,756.6 8.45% 7.60% 7.48% 8.08% 9.62% 10.74% $ 117.3 $ 128.8 $ 122.8 $ 128.3 $ 155.0 $ 157.0 2.69% 2.59% 2.70% 3.22% 4.60% 5.00% 136.0 117.0 116.3 146.3 211.3 216.2 2.81 2.26 2.15 2.79 4.68 5.74 498.2 284.6 277.1 400.3 592.2 654.9 5.76 4.46 4.42 5.54 7.02 8.07 27.6 18.4 19.1 39.5 112.2 200.3 5.42 3.83 3.46 4.22 6.31 8.03 79.2 44.1 6.9 8.3 21.6 23.7 5.80 4.30 2.62 3.31 5.89 7.52 82.8 57.5 45.5 34.4 60.2 104.0 6.25 4.23 3.16 3.46 5.70 8.07 81.0 43.7 27.6 36.7 58.5 103.9 5.27 3.70 2.56 3.09 5.13 7.56 120.2 61.7 46.4 60.9 106.8 112.9 5.79 4.36 3.89 4.49 6.26 7.93 69.7 49.2 28.4 24.8 26.0 28.1 7.03 6.92 6.28 7.54 8.18 9.09 - ---------------------------------------------------------------------------------------------------------------------------------- $1,212.0 $ 805.0 $ 690.1 $ 879.5 $1,343.8 $1,601.0 4.72% 3.55% 3.26% 4.09% 5.92% 7.20% ================================================================================================================================== $1,342.3 $1,266.3 $1,235.8 $1,195.3 $1,185.0 $1,155.6 ================================================================================================================================== 3.73% 4.05% 4.22% 3.99% 3.70% 3.54% .71 .60 .58 .66 .81 .96 - ---------------------------------------------------------------------------------------------------------------------------------- 4.44% 4.65% 4.80% 4.65% 4.51% 4.50% ==================================================================================================================================
21 24 Quarterly Data FOURTH QUARTER RESULTS Net income for the fourth quarter of 1995 was $121.5 million, or $.79 per common share, compared with $111.4 million, or $.71 per share, for the same period last year. The increase in earnings was due to higher net interest income that resulted from loan growth, in addition to security gains. Annualized return on average common equity for the fourth quarter of 1995 was 17.40%, compared with 17.64% for the fourth quarter 1994. Annualized return on average assets was 1.38% in 1995 versus 1.40% in 1994. Average earning assets and average deposits for the quarter increased 10% and 4%, respectively, from the fourth quarter last year. Net interest income on a fully-taxable equivalent basis for the quarter was $335.4 million, which reflects a 3% increase over $325.5 million for the same period last year. Net interest margin for the fourth quarter of 1995 was 4.32%. Fees and other income increased to $235.8 million, compared to $230.1 million for the same period last year. This was primarily due to higher item processing revenue as a result of business growth. Noninterest expenses increased to $380.9 million, compared with $370.5 million a year ago. The increase was primarily due to acquisitions. - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL INFORMATION The following is a summary of unaudited quarterly results of operations for the years 1995, 1994, and 1993:
- ------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands Except Per Share Amounts) First Second Third Fourth Full Year - ------------------------------------------------------------------------------------------------------------------ 1995 Interest income $588,433 $633,459 $662,313 $648,908 $2,533,113 Interest expense 267,176 303,479 323,679 317,694 1,212,028 Net interest income 321,257 329,980 338,634 331,214 1,321,085 Provision for loan losses 22,590 23,577 28,160 23,155 97,482 Security gains 1,396 238 9,837 12,605 24,076 Net overhead 139,545 147,328 146,036 145,052 577,961 Income before income taxes 160,518 159,313 174,275 175,612 669,718 Net income 111,031 112,530 120,012 121,536 465,109 Net income applicable to common stock 107,311 108,808 116,291 117,869 450,279 Net income per common share .72 .74 .78 .79 3.03 Fully diluted net income per common share .70 .72 .76 .77 2.95 Dividends paid per common share .32 .32 .33 .33 1.30 - ------------------------------------------------------------------------------------------------------------------ 1994 Interest income $473,873 $494,462 $517,754 $555,775 $2,041,864 Interest expense 171,728 188,275 207,607 237,445 805,055 Net interest income 302,145 306,187 310,147 318,330 1,236,809 Provision for loan losses 20,442 20,071 19,235 19,608 79,356 Security gains 5,893 799 2,772 1,066 10,530 Net overhead 137,130 135,208 137,632 140,325 550,295 Income before income taxes 150,466 151,707 156,052 159,463 617,688 Net income 103,807 105,841 108,411 111,375 429,434 Net income applicable to common stock 99,930 102,055 104,625 107,624 414,234 Net income per common share .63 .67 .69 .71 2.70 Fully diluted net income per common share .62 .66 .67 .69 2.64 Dividends paid per common share .29 .29 .30 .30 1.18 - ------------------------------------------------------------------------------------------------------------------ 1993 Net income $ 95,322 $102,454 $102,676 $103,545 $ 403,997 Net income per common share .57 .61 .61 .62 2.41 Fully diluted net income per common share .56 .60 .60 .61 2.37 Dividends paid per common share .26 .26 .27 .27 1.06 ==================================================================================================================
22 25 Report of Management The management of National City Corporation has prepared the accompanying financial statements and is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and necessarily include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. National City Corporation maintains a system of internal control over financial reporting designed to produce reliable financial statements. The system contains self-monitoring mechanisms, and compliance is tested and evaluated through an extensive program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any internal control system has inherent limitations, including the possibility that controls can be circumvented or overridden. Further, because of changes in conditions, internal control system effectiveness may vary over time. The Audit Committee, consisting entirely of outside directors, meets regularly with management, internal auditors and independent auditors, and reviews audit plans and results as well as management's actions taken in discharging responsibilities for accounting, financial reporting, and internal controls. Ernst & Young LLP, independent auditors, and the internal auditors have direct and dent Auditors confidential access to the Audit Committee at all times to discuss the results of their examinations. National City Corporation assessed its internal control system as of December 31, 1995 in relation to criteria for effective internal control over financial reporting described in "Internal Control -- Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 1995, its system of internal control met those criteria. Cleveland, Ohio January 22, 1996 /s/ David A. Daberko /s/ Robert G. Siefers DAVID A. DABERKO ROBERT G. SIEFERS Chairman and Chief Executive Vice President and Executive Officer Chief Financial Officer Report of Ernst & Young LLP, Independent Auditors The Stockholders National City Corporation Cleveland, Ohio We have audited the accompanying consolidated balance sheets of National City Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of National City's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of National City Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Cleveland, Ohio /s/ Ernst & Young LLP January 22, 1996 --------------------- Ernst & Young LLP 26 Financial Statements CONSOLIDATED STATEMENTS OF INCOME
For the Calendar Year - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands Except Per Share Amounts) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Loans: Taxable $ 2,191,925 $1,749,726 $1,565,636 Exempt from Federal income taxes 14,274 16,172 16,470 Securities: Taxable 256,278 204,463 229,007 Exempt from Federal income taxes 37,091 40,085 47,279 Federal funds sold and security resale agreements 28,665 22,897 13,254 Eurodollar time deposits in banks 104 3,044 9,630 Other short-term investments 4,776 5,477 8,888 - ------------------------------------------------------------------------------------------------------------------------------ Total interest income 2,533,113 2,041,864 1,890,164 INTEREST EXPENSE Deposits 858,418 592,870 542,165 Federal funds borrowed and security repurchase agreements 163,728 101,249 73,151 Borrowed funds 120,187 61,698 46,417 Corporate long-term debt 69,695 49,238 28,377 - ------------------------------------------------------------------------------------------------------------------------------ Total interest expense 1,212,028 805,055 690,110 - ------------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME 1,321,085 1,236,809 1,200,054 PROVISION FOR LOAN LOSSES 97,482 79,356 93,089 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 1,223,603 1,157,453 1,106,965 NONINTEREST INCOME Item processing revenue 327,929 312,358 267,962 Service charges on deposit accounts 157,486 153,870 152,609 Trust fees 138,028 125,668 122,597 Credit card fees 82,226 85,308 92,966 Mortgage banking revenue 69,827 67,406 58,678 Brokerage revenue 28,329 18,790 9,013 Other 88,868 89,438 95,990 - ------------------------------------------------------------------------------------------------------------------------------ Total fees and other income 892,693 852,838 799,815 Security gains 24,076 10,530 11,922 - ------------------------------------------------------------------------------------------------------------------------------ Total noninterest income 916,769 863,368 811,737 NONINTEREST EXPENSE Salaries and employee benefits 685,322 653,890 623,472 Equipment 95,181 93,345 89,005 Net occupancy 93,777 89,994 89,729 Assessments and taxes 71,696 78,869 80,454 Other 524,678 487,035 465,080 - ------------------------------------------------------------------------------------------------------------------------------ Total noninterest expense 1,470,654 1,403,133 1,347,740 - ------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 669,718 617,688 570,962 Income tax expense 204,609 188,254 166,965 - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 465,109 $ 429,434 $ 403,997 ============================================================================================================================== NET INCOME APPLICABLE TO COMMON STOCK $ 450,279 $ 414,234 $ 388,031 ============================================================================================================================== NET INCOME PER COMMON SHARE $3.03 $2.70 $2.41 AVERAGE COMMON SHARES OUTSTANDING 148,851,462 153,353,555 161,163,816 ==============================================================================================================================
See notes to financial statements. 24 27 CONSOLIDATED BALANCE SHEETS
December 31 - -------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- ASSETS Loans: Commercial $ 10,020,008 $ 8,667,539 International 58,285 52,356 Real estate construction 529,273 421,505 Lease financing 271,246 216,499 Real estate mortgage - nonresidential 2,412,937 2,473,329 Real estate mortgage - residential 4,926,766 4,123,084 Mortgage loans held for sale 166,998 42,064 Consumer 5,545,225 4,781,759 Revolving credit 2,291,581 2,256,640 - -------------------------------------------------------------------------------------------------------------------------- Total loans 26,222,319 23,034,775 Allowance for loan losses 490,679 469,019 - -------------------------------------------------------------------------------------------------------------------------- Net loans 25,731,640 22,565,756 Securities held to maturity (market value $1,156,811 in 1994) -- 1,176,115 Securities available for sale, at market 4,949,654 3,218,940 Federal funds sold and security resale agreements 724,564 672,945 Trading account assets 23,715 7,940 Other short-term money market investments 51,207 96,615 Cash and demand balances due from banks 2,637,049 2,401,728 Properties and equipment 424,479 389,980 Customers' acceptance liability 66,169 102,005 Accrued income and other assets 1,590,533 1,481,984 - -------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 36,199,010 $32,114,008 ========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Demand deposits (noninterest bearing) $ 5,563,717 $ 5,331,789 Savings and NOW accounts 4,241,140 4,599,988 Insured money market accounts 5,153,738 4,964,741 Time deposits of individuals 9,039,981 7,298,056 Other time deposits 484,109 472,023 Deposits in overseas offices 717,823 1,805,323 - -------------------------------------------------------------------------------------------------------------------------- Total deposits 25,200,508 24,471,920 Federal funds borrowed and security repurchase agreements 4,010,149 2,608,801 Borrowed funds 2,089,150 1,104,989 Acceptances outstanding 66,169 102,005 Accrued expenses and other liabilities 696,701 481,570 Corporate long-term debt 1,215,356 743,669 - -------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 33,278,033 29,512,954 ========================================================================================================================== Stockholders' Equity: Preferred stock, without par value, authorized 5,000,000 shares, outstanding 741,600 and 750,160 shares (3,708,000 and 3,750,800 depositary shares) of 8% Cumulative Convertible Preferred Stock ($250 liquidation preference per share) in 1995 and 1994 185,400 187,540 Common stock, par value $4 per share, authorized 350,000,000 shares, outstanding 145,545,689 shares in 1995 and 147,555,632 shares in 1994 582,183 590,223 Capital surplus 202,669 100,051 Retained earnings 1,953,466 1,732,258 Unallocated shares held by Employee Stock Ownership Plan (ESOP) trust (2,741) (9,018) - -------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 2,920,977 2,601,054 - -------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,199,010 $32,114,008 ==========================================================================================================================
See notes to financial statements. 25 28 Financial Statements (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Calendar Year - ----------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 465,109 $ 429,434 $ 403,997 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 97,482 79,356 93,089 Depreciation and amortization 59,752 57,390 56,610 Amortization of goodwill and intangibles 49,010 44,903 61,721 Amortization of securities discount and premium 10,384 8,833 6,488 Security gains (24,076) (10,530) (11,922) Other gains, net (8,547) (22,712) -- Net (increase) decrease in trading account securities (6,671) 142,356 (137,252) Originations and purchases of mortgage loans held for sale (924,396) (1,117,702) (3,635,705) Proceeds from sales of mortgage loans held for sale 806,167 1,587,421 3,496,154 Deferred income taxes 1,557 3,104 21,563 (Increase) in interest receivable (79,378) (51,305) (22,698) Increase in interest payable 107,128 41,187 24,319 (Increase) in other assets (104,645) (41,943) (279,286) Increase in other liabilities 94,601 61,115 46,041 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 543,477 1,210,907 123,119 LENDING AND INVESTING ACTIVITIES Net (increase) decrease in short-term investments 27,211 384,860 633,588 Purchases of securities (4,691,646) (2,185,267) (4,036,281) Proceeds from sales of securities 3,685,643 1,598,514 2,594,509 Proceeds from maturities and prepayments of securities 871,618 1,225,333 2,368,065 Net (increase) decrease in loans (2,622,849) (2,272,102) (1,870,528) Proceeds from sales of loans 61,225 -- 207,156 Net (increase) decrease in properties and equipment (70,482) (61,151) (55,348) Acquisitions 30,156 -- (43,490) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by lending and investing activities (2,709,124) (1,309,813) (202,329) DEPOSIT AND FINANCING ACTIVITIES Net increase (decrease) in Federal funds borrowed and security repurchase agreements 1,378,253 (474,020) 1,179,308 Net increase (decrease) in borrowed funds 956,334 (96,022) (217,410) Net increase (decrease) in demand, savings, NOW, insured money market accounts, and deposits in overseas offices (1,553,880) 363,472 212,946 Net increase (decrease) in time deposits 1,553,366 1,045,427 (1,093,817) Repayment of long-term debt (1,024) (15,362) (20,660) Proceeds from issuance of long-term debt 470,630 247,080 197,950 Dividends paid, net of tax benefit of ESOP shares (206,273) (194,425) (184,516) Issuance of common stock 32,421 23,221 28,469 Repurchase of common and preferred stock (235,136) (340,053) (168,920) ESOP trust repayment 6,277 7,428 8,816 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by deposit and financing activities 2,400,968 566,746 (57,834) - ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and demand balances due from banks 235,321 467,840 (137,044) Cash and demand balances due from banks, January 1 2,401,728 1,933,888 2,070,932 - ----------------------------------------------------------------------------------------------------------------------------- Cash and demand balances due from banks, December 31 $ 2,637,049 $ 2,401,728 $ 1,933,888 ============================================================================================================================= SUPPLEMENTAL DISCLOSURES Interest paid $ 1,105,000 $ 764,000 $ 662,000 Income taxes paid 189,000 199,000 147,000 Common stock issued in purchase acquisitions 110,739 -- 140,568 =============================================================================================================================
See notes to financial statements. 26 29 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------- Unallocated Preferred Common Capital Retained Shares Held by (Dollars in Thousands Except Per Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total - --------------------------------------------------------------------------------------------------------------------------------- BALANCE JANUARY 1, 1993 $ 200,000 $316,335 $300,307 $1,708,506 $(25,262) $2,499,886 Net income 403,997 403,997 Common dividends, $1.06 per share (169,391) (169,391) Preferred dividends, $4.00 per depositary share (16,000) (16,000) Issuance of 1,530,479 common shares under corporate stock and dividend reinvestment plans 3,972 24,497 28,469 Purchase of 6,724,600 common shares and 33,800 depositary shares of preferred stock (1,690) (21,469) (23,951) (121,810) (168,920) Issuance of 5,806,552 common shares pursuant to acquisitions 20,174 120,394 140,568 Two-for-one stock split 316,107 (316,107) -- Shares distributed by ESOP trust and tax benefit on dividends 875 8,816 9,691 Accounting change adjustment for unrealized gains on securities available for sale, net of tax 34,967 34,967 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1993 198,310 635,119 105,140 1,841,144 (16,446) 2,763,267 Net income 429,434 429,434 Common dividends paid, $1.18 per share (179,675) (179,675) Preferred dividends paid, $4.00 per depositary share (15,415) (15,415) Issuance of 1,190,121 common shares under corporate stock and dividend reinvestment plans 4,760 18,461 23,221 Purchase of 12,414,100 common shares and 215,400 depositary shares of preferred stock (10,770) (49,656) (23,550) (256,077) (340,053) Shares distributed by ESOP trust and tax benefit on dividends 665 7,428 8,093 Change in unrealized market value adjustment on securities available for sale, net of tax (87,818) (87,818) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1994 187,540 590,223 100,051 1,732,258 (9,018) 2,601,054 Net income 465,109 465,109 Common dividends paid, $1.30 per share (191,907) (191,907) Preferred dividends paid, $4.00 per depositary share (14,910) (14,910) Issuance of 1,610,444 common shares under corporate stock and dividend reinvestment plans 6,441 25,980 32,421 Purchase of 7,918,662 common shares and 30,000 depositary shares of preferred stock (1,500) (31,674) (17,548) (184,414) (235,136) Issuance of 4,267,760 common shares pursuant to acquisitions 17,071 93,668 110,739 Conversion of 12,800 depositary shares of preferred stock to 30,515 common shares (640) 122 518 -- Shares distributed by ESOP trust and tax benefit on dividends 544 6,277 6,821 Change in unrealized market value adjustment on securities available for sale, net of tax 146,786 146,786 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1995 $ 185,400 $582,183 $202,669 $1,953,466 $ (2,741) $2,920,977 =================================================================================================================================
See notes to financial statements. 27 30 Notes to Financial Statements 1. ACCOUNTING POLICIES NATURE OF OPERATIONS: National City Corporation ("National City" or "the Corporation") is a multi-bank holding company headquartered in Cleveland, Ohio. The Corporation's principal banking subsidiaries are located in Cleveland, Columbus, Indianapolis and Louisville. In addition to general commercial banking, the Corporation or its subsidiaries are engaged in trust and investment management, mortgage banking, merchant banking, leasing, item processing, venture capital, insurance, and other financially related businesses. CONSOLIDATION: The consolidated financial statements include the accounts of the Corporation and all of its subsidiaries. USE OF ESTIMATES: 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. ACQUISITIONS AND AMORTIZATION OF INTANGIBLES: Operations of companies acquired in purchase transactions are included in the statements of income from the respective dates of acquisition. The excess of the purchase price over net identifiable assets acquired (goodwill) is included in other assets and is being amortized over varying remaining lives not exceeding 24 years. Core deposit intangibles are amortized on a straight-line basis over varying remaining lives not exceeding four years. CASH FLOWS: Cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and demand balances due from banks." MORTGAGE LOANS HELD FOR SALE: Mortgage loans held for sale are valued at the lower of cost or market, as calculated on an aggregate loan basis. ALLOWANCE FOR LOAN LOSSES: The provision for loan losses and the adequacy of the allowance for loan losses are based upon a continuing evaluation of the loan portfolio, current economic conditions, prior loss experience, and other pertinent factors. SECURITIES AND TRADING ACCOUNT: Trading account assets are held for resale in anticipation of short-term market movements and are carried at market value. Gains and losses, both realized and unrealized, are included in other income. Debt securities are classified as held to maturity when management has the intent and ability to hold the securities to maturity. Securities held to maturity are carried at amortized cost. Debt securities not classified as held to maturity or trading and marketable equity securities not classified as trading are classified as available for sale. Securities available for sale are carried at fair value with unrealized gains and losses reported separately through retained earnings, net of tax. Amortization of premiums and accretion of discounts are recorded as interest income from investments. Realized gains and losses are recorded as net security gains (losses). The adjusted cost of specific securities sold is used to compute gains or losses on sales. Other income also includes gains and losses and adjustments to market on interest rate futures and forward contracts related to trading account assets and liabilities. TIME DEPOSITS: Certificates of deposit and other time deposits in denominations of $100,000 or more totalled approximately $2,141.7 million and $1,367.0 million at December 31, 1995 and 1994, respectively. OFF-BALANCE SHEET FINANCIAL AGREEMENTS: The Corporation utilizes a variety of off-balance sheet financial instruments to manage various financial risks. These instruments include interest rate swaps, interest rate caps and floors, futures, forwards, and option contracts. Interest rate swaps are used to synthetically alter the price risk or cash flow characteristics of various on-balance sheet assets and liabilities. The net interest income or expense on interest rate swaps is accrued and recognized as an adjustment to the interest income or expense of the associated on-balance sheet asset or liability. The Corporation purchases interest rate caps and floors to reduce the cash flow risk of various on-balance sheet variable rate assets and liabilities. The cost or premium paid for purchased interest rate caps and floors is capitalized and charged to income based on the economic value at the time of purchase. The unamortized cost of caps or floors purchased is carried in other assets. Interest payments received on interest rate caps and floors are recorded as an interest income or expense adjustment to the related assets and liabilities. Futures, forwards, and options are also utilized to manage exposures to changes in interest rates. Futures, forwards, and options that are used for risk management are carried at cost and realized gains and losses are amortized into interest income or interest expense over the life of the instrument. Realized gains and losses on all off-balance sheet transactions used to manage risk that are terminated prior to maturity are deferred and amortized as a yield adjustment over the remaining original life of the agreement. Unrealized gains or losses on interest rate swaps or purchased interest rate caps and floors are deferred. Deferred gains and losses are recorded in other assets and other liabilities, as applicable. Unrealized gains or losses on any interest rate caps or floors sold and foreign exchange positions are marked to market and included in other income. PURCHASED MORTGAGE SERVICING RIGHTS: Purchased mortgage servicing rights are initially recorded at the lower of cost or estimated present value of the future net servicing income. The capitalized amount is amortized in proportion to, and over the period of, estimated net positive cash flows. Management evaluates the recoverability of purchased mortgage servicing rights in relation to the impact of actual and anticipated loan portfolio prepayment, foreclosure, and delinquency experience. DEPRECIABLE ASSETS: Properties and equipment are stated at cost less accumulated depreciation and amortization. Buildings and equipment are depreciated on a straight-line basis over their useful lives. Leasehold improvements are amortized over the lives of the leases. Maintenance and repairs are charged to expense as incurred, while improvements which extend the useful life are capitalized and depreciated over the remaining life. Upon the sale or disposal of property, the cost and accumulated depreciation are removed from the accounts and the resulting gain or loss is included in current income. INCOME: Interest and other income are recorded as earned. Loans are classified as nonaccrual, reduced rate or renegotiated based on management's judgment and requirements established by bank regulatory agencies. Subsequent receipts on nonaccrual loans, including those considered impaired under the provisions of SFAS No. 114, are recorded as a reduction of principal, and interest income is only recorded once principal recovery is reasonably assured. Loan origination fees and other direct costs are amortized into interest or other income using a method which approximates the interest method over the estimated life of the related loan. 28 31 INCOME TAXES: Deferred income taxes reflect the temporary tax consequences in future years of differences between the tax and financial statement basis of assets and liabilities. TREASURY STOCK: Acquisitions of treasury stock are recorded on the par value method, which requires the cash paid to be allocated to common or preferred stock, surplus and retained earnings. RECLASSIFICATION: Certain prior year amounts have been reclassified to conform with the current year presentation. 2. ACCOUNTING CHANGES ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN: Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." These standards address the accounting for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loan will not be collected. Impairment is measured based on either the present value of expected future cash flows using 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. If the recorded investment in the loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. The adoption of these accounting standards did not have a material impact on the overall allowance for loan losses and did not affect the Corporation's charge-off or income recognition policies. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF: In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The impairment is measured based on the present value of expected future cash flows from the use of the asset and its eventual disposition. If the expected future cash flows are less than the carrying amount of the asset, an impairment loss is recognized. Management plans to adopt this standard on January 1, 1996. The adoption is not expected to have a material impact on financial position or results of operations. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS: In May 1995, the Financial Accounting Standards Board issued SFAS No. 122, "Accounting for Mortgage Servicing Rights." This standard requires that entities recognize rights to service mortgage loans for others as separate assets, whether those rights are acquired through loan origination activities or through purchase activities. Additionally, the enterprise must periodically assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. Management plans to adopt this standard on January 1, 1996. The adoption is not expected to have a material impact on financial position or results of operations. ACCOUNTING FOR STOCK-BASED COMPENSATION: In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair value-based method of accounting for stock-based employee compensation plans. Under the fair value-based method, compensation cost is measured at the grant date based upon the value of the award and is recognized over the service period. The standard encourages all entities to adopt this method of accounting for all employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for its plans as prescribed in APB Opinion No. 25 "Accounting for Stock Issued to Employees." If an entity elects to continue to use the accounting in Opinion 25, pro forma disclosures of net income and earnings per share must be made as if the fair value method of accounting, as defined by SFAS No. 123, had been applied. At this time, management expects to continue its accounting in accordance with APB Opinion 25. The disclosure requirements of SFAS No. 123 will be adopted as required for financial statements beginning in 1996. 3. ACQUISITIONS On July 1, 1995, the Corporation acquired United Bancorp of Kentucky, Inc. (UBK), a $662 million asset bank holding company headquartered in Lexington, Kentucky. The Corporation paid approximately $75 million for the common and preferred stock of UBK, consisting of approximately 2.5 million shares of common stock and $10 million in cash. The transaction was accounted for as a purchase. Total goodwill was approximately $39 million and is being amortized over 20 years. On July 13, 1995, the Corporation acquired, for cash, the net assets of Raffensperger, Hughes & Co., Inc., a full-service investment banking/brokerage firm headquartered in Indianapolis, Indiana in a purchase transaction. The pro forma effect of the above transactions was not material to the 1995 and 1994 results of operations. On August 28, 1995, the Corporation announced the signing of a definitive merger agreement with Integra Financial Corporation, a $14 billion asset bank holding company headquartered in Pittsburgh, Pennsylvania. The merger agreement calls for an exchange of two shares of National City common stock for each share of Integra. The transaction will be accounted for as a pooling of interests, and is expected to close in the second quarter of 1996, subject to regulatory and shareholder approvals. 4. LOANS Total loans outstanding were recorded net of unearned income of $140.8 million in 1995 and $99.9 million in 1994. The following table summarizes the activity in the allowance for loan losses:
For the Calendar Year -------------------------------------------------------------- (In Thousands) 1995 1994 1993 - --------------------------------------------------------------- BALANCE AT BEGINNING OF YEAR $ 469,019 $443,412 $383,849 Acquired allowance 9,193 9,729 50,756 Provision 97,482 79,356 93,089 Loans charged-off (145,593) (120,234) (144,490) Recoveries 60,578 56,756 60,208 - --------------------------------------------------------------- Net charge-offs (85,015) (63,478) (84,282) - --------------------------------------------------------------- BALANCE AT END OF YEAR $ 490,679 $469,019 $443,412 ===============================================================
The allowance for loan losses is maintained at a level believed adequate to absorb estimated probable credit losses. Both the provision and allowance for loan losses are based upon an analysis of individual credits, adverse situations that could affect a borrower's ability to repay (including the timing of future payments), prior and current loss experience, overall growth in the portfolio, current economic conditions, and other factors. This evaluation is inherently subjective and it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, that could be susceptible to change. 29 32 Notes to Financial Statements (continued) The financial review section provides detail regarding nonperforming loans. At December 31, 1995, loans that were considered to be impaired under SFAS No. 114 totalled $26.7 million, all of which were included in nonperforming assets. Management does not individually evaluate certain smaller-balance loans for impairment. These loans are evaluated on an aggregate basis using a formula-based approach in accordance with the Corporation's policy. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. The related allowance allocated to impaired loans was $16.4 million. The contractual interest due and actual interest recognized on impaired loans, as well as on total nonperforming assets, for the twelve months ended December 31, 1995 was $16.3 million and $9.8 million, respectively. At December 31, 1995, nonaccrual, reduced-rate, and renegotiated loans were $129.5 million, and other real estate owned was $9.0 million. At December 31, 1994, the corresponding amounts were $112.0 million and $16.5 million, respectively. 5. SECURITIES The following is a summary of securities held to maturity and available for sale:
DECEMBER 31, 1995 - ---------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED MARKET (IN THOUSANDS) COST GAINS LOSSES VALUE - ---------------------------------------------------------------- AVAILABLE FOR SALE: U.S. Treas. and Fed. agency debentures $1,004,832 $ 12,466 $ (3,971) $1,013,327 Mortgage-backed securities 3,192,961 37,600 (8,883) 3,221,678 States and political subdivisions 302,253 18,434 (491) 320,196 Other 304,553 93,127 (3,227) 394,453 - ---------------------------------------------------------------- TOTAL SECURITIES $4,804,599 $161,627 $(16,572) $4,949,654 ================================================================
December 31, 1994 - ---------------------------------------------------------------- Amortized Unrealized Unrealized Market (In Thousands) Cost Gains Losses Value - ---------------------------------------------------------------- HELD TO MATURITY: U.S. Treas. and Fed. agency debentures $ 34,258 $ -- $ (1,474) $ 32,784 Mortgage-backed securities 630,610 749 (37,218) 594,141 States and political subdivisions 450,461 23,562 (4,736) 469,287 Other 60,786 36 (223) 60,599 - ---------------------------------------------------------------- Total held to maturity 1,176,115 24,347 (43,651) 1,156,811 AVAILABLE FOR SALE: U.S. Treas. and Fed. agency debentures 1,333,809 18,438 (53,463) 1,298,784 Mortgage-backed securities 1,700,228 584 (58,252) 1,642,560 States and political subdivisions 30,944 163 (152) 30,955 Other 235,268 26,232 (14,859) 246,641 - ---------------------------------------------------------------- Total available for sale 3,300,249 45,417 (126,726) 3,218,940 - ---------------------------------------------------------------- TOTAL SECURITIES $4,476,364 $69,764 $(170,377) $4,375,751 ================================================================
On November 15, 1995, the FASB staff issued a special report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. In accordance with provisions in that special report, management chose to reclassify all securities classified as held to maturity to available for sale. At December 1, 1995, the date of the transfer, the amortized cost of those securities was $910.5 million and the unrealized gain on those securities was $17.3 million. At December 31, 1995, the unrealized appreciation in securities available for sale included in retained earnings totalled $94.3 million, net of tax, compared to unrealized depreciation of $52.9 million, net of tax, at December 31, 1994. The securities portfolio consists mainly of financial instruments that pay back par value upon maturity. Market value fluctuations occur over the lives of the instruments due to changes in market interest rates. Management has concluded that current declines in value are temporary and accordingly, no valuation adjustments have been included as a charge to income. 30 33 The following table shows the amortized cost and market value (carrying value) of securities at December 31, 1995 by maturity:
- --------------------------------------------------------------- Available for Sale ---------------------------- Market (In Thousands) Amortized Cost Value - --------------------------------------------------------------- Due in 1 year or less $ 240,748 $ 243,942 Due in 1 to 5 years 3,745,211 3,774,152 Due in 5 to 10 years 486,594 506,177 Due after 10 years 332,046 425,383 - --------------------------------------------------------------- TOTAL $ 4,804,599 $4,949,654 ===============================================================
Mortgage-backed securities and other securities which have prepayment provisions are assigned to maturity categories based on estimated average lives. At December 31, 1995, the carrying value of securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totalled $3,703.6 million. At December 31, 1995, there were no securities of a single issuer, other than U.S. Treasury and other U.S. government agency securities, which exceeded 10% of stockholders' equity. The following table represents the segregation of cash flows between securities available for sale and securities held to maturity:
- ----------------------------------------------------------------- Available Held to (In Thousands) for Sale Maturity Total - ----------------------------------------------------------------- 1995: Purchases of securities $ 4,672,360 $ 19,286 $ 4,691,646 Proceeds from sales of securities 3,685,643 -- 3,685,643 Proceeds from maturities and prepayments of securities 582,689 288,929 871,618 1994: Purchases of securities $ 2,068,654 $ 116,613 $ 2,185,267 Proceeds from sales of securities 1,598,514 -- 1,598,514 Proceeds from maturities and prepayments of securities 509,779 715,554 1,225,333 =================================================================
In 1995, 1994, and 1993, gross gains of $42.1 million, $16.6 million, and $16.3 million and gross losses of $18.0 million, $6.1 million, and $4.4 million were realized, respectively. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value disclosures of financial instruments are made to comply with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." The market value of securities is primarily based upon quoted market prices. For substantially all other financial instruments, the fair values are management's estimates of the values at which the instruments could be exchanged in a transaction between willing parties. Fair values are based on estimates using present value and other valuation techniques in instances where quoted market prices are not available. These techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. As such, the derived fair value estimates cannot be substantiated by comparison to independent markets and, further, may not be realizable in an immediate settlement of the instruments. SFAS No. 107 also excludes certain items from its disclosure requirements. These items include non-financial assets, intangibles, and future business growth, as well as certain liabilities such as pension and other post-retirement benefits, deferred compensation arrangements, and leases. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. Portions of the unrealized gains and losses inherent in the valuation are a result of management's program to manage overall interest rate risk and represent a point in time valuation. It is not management's intention to immediately dispose of a significant portion of its financial instruments and, thus, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. The following table presents the estimates of fair value of financial instruments at December 31, 1995 and 1994. Bracketed amounts in the carrying value columns represent either reduction of asset accounts, liabilities, or commitments representing potential cash outflows. Bracketed amounts in the fair value columns represent estimated cash outflows required to settle the obligations at current market rates.
- -------------------------------------------------------------- 1995 1994 ------------------ ------------------ CARRYING FAIR Carrying Fair (In Millions) VALUE VALUE Value Value - -------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 3,844 $ 3,844 $ 3,559 $ 3,559 Loans held for sale 167 167 42 42 Loans receivable 26,055 26,110 22,993 22,822 Allowance for loan losses (491) -- (469) -- Securities 4,950 4,950 4,395 4,376 Trading account assets 24 24 8 8 - -------------------------------------------------------------- LIABILITIES: Demand deposits $ (5,564) $ (5,564) $ (5,332) $ (5,332) Savings and time deposits (19,637) (19,772) (19,140) (19,157) Short-term borrowings (6,099) (6,099) (3,714) (3,714) Long-term debt (1,215) (1,267) (744) (720) Other liabilities (334) (334) (263) (263) - -------------------------------------------------------------- OFF-BALANCE SHEET INSTRUMENTS: Interest rate swaps: Receive fixed rates $ -- $ 106 $ -- $ (212) Pay fixed rates -- (9) -- 16 Basis swaps -- (1) -- (1) Interest rate caps, floors and corridors 28 47 23 22 Commitments to extend credit (10) (10) (10) (10) Standby letters of credit (1) (1) (1) (1) ==============================================================
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. For purposes of this disclosure only, cash equivalents include Federal funds sold, security resale agreements, Eurodollar time deposits, customers' acceptance liability, accrued interest receivable, and other short-term money market investments. LOANS RECEIVABLE AND LOANS HELD FOR SALE: For performing variable rate loans that reprice frequently and loans held for sale, estimated fair values are based on carrying values. The fair values for all other loans are estimated using a discounted cash flow calculation that applies 31 34 Notes to Financial Statements (continued) interest rates used to price new, similar loans to a schedule of aggregated expected monthly maturities, adjusted for market and credit risks. SECURITIES: The market values of securities are based upon quoted market prices, where available, and on quoted market prices of comparable instruments when specific quoted prices are not available. DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. SHORT-TERM BORROWINGS: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements, commercial paper, and other short-term borrowings approximate their fair values. LONG-TERM DEBT: The fair values of long-term borrowings (other than deposits) and certain other borrowings are estimated using discounted cash flow analyses based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. OFF-BALANCE SHEET INSTRUMENTS: The amounts shown under carrying value represent accruals or deferred income (fees) arising from the related unrecognized financial instruments. Fair values for off-balance sheet instruments (futures, swaps, forwards, options, guarantees, and lending commitments) are based on quoted market prices (futures); current settlement values (financial forwards); quoted market prices of comparable instruments; fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing (guarantees, loan commitments); or, if there are no relevant comparables, on pricing models or formulas using current assumptions (interest rate swaps and options). 7. CASH AND DEMAND BALANCES DUE FROM BANKS The Corporation's subsidiary banks are required to maintain noninterest bearing reserve balances with the Federal Reserve Bank. The consolidated average reserve balance was $332 million for 1995. 8. PROPERTIES AND EQUIPMENT A summary of properties and equipment follows:
December 31 - ------------------------------------------------------------- (In Thousands) 1995 1994 - ------------------------------------------------------------- Land $ 69,045 $ 64,036 Buildings and leasehold improvements 423,917 383,906 Equipment 470,506 428,685 - ------------------------------------------------------------- 963,468 876,627 Less accumulated depreciation and amortization 538,989 486,647 - ------------------------------------------------------------- NET PROPERTIES AND EQUIPMENT $424,479 $389,980 =============================================================
The Corporation and certain of its subsidiary banks occupy their respective headquarters offices under long-term operating leases and, in addition, lease certain data processing equipment. The aggregate minimum annual rental commitments under these leases is approximately $42.7 million in 1996, $38.5 million in 1997, $36.3 million in 1998, $35.0 million in 1999, $33.8 million in 2000, and $204.9 million thereafter. Total expense recorded under all operating leases in 1995, 1994, and 1993 was $64.4 million, $61.8 million, and $60 million, respectively. 9. BORROWED FUNDS The composition of borrowed funds follows:
December 31 - ------------------------------------------------------------- (In Thousands) 1995 1994 - ------------------------------------------------------------- U.S. Treasury demand notes and Federal funds borrowed-term $ 254,706 $ 159,949 Notes payable to Student Loan Marketing Association 600,000 300,000 Bank notes 554,547 -- Military banking liabilities 109,401 215,951 Other 230,753 49,754 - ------------------------------------------------------------- Bank subsidiaries 1,749,407 725,654 Commercial paper 339,698 379,276 Other 45 59 - ------------------------------------------------------------- Other subsidiaries 339,743 379,335 - ------------------------------------------------------------- TOTAL $2,089,150 $1,104,989 =============================================================
The $600 million floating rate notes payable to Student Loan Marketing Association are due $300 million each in June 1996 and 1998, respectively. The notes are secured by and provide funding for student loan receivables. Pursuant to the terms of a contract with the U.S. Department of Defense, National City Bank, Indiana, a principal banking subsidiary of the Corporation, manages a military banking network which provides retail banking services to U.S. military personnel and certain related parties. Total assets under fiduciary management approximated $795 million at year-end. In conjunction with the contract, certain funds relating to the military banking network are placed with National City Bank, Indiana and are included in borrowed funds as military banking liabilities. The contract will expire March 31, 1996. 32 35 10. CORPORATE LONG-TERM DEBT The composition of corporate long-term debt follows:
December 31 - -------------------------------------------------------------- (In Thousands) 1995 1994 - -------------------------------------------------------------- 7.20% Subordinated Notes due 2005 $ 250,000 $ -- Less discount (273) -- 6 5/8% Subordinated Notes due 2004 250,000 250,000 Less discount (1,058) (1,187) 8 3/8% Notes due 1996 100,000 100,000 Less discount (13) (94) Floating Rate Subordinated Notes due 1997 75,000 75,000 Less discount (20) (39) 9 7/8% Subordinated Notes due 1999 65,000 65,000 Less discount (175) (222) Floating Rate Notes due 1997 50,000 50,000 Less discount (38) (59) Other 2,561 3,377 - -------------------------------------------------------------- TOTAL PARENT COMPANY 790,984 541,776 7.25% Subordinated Notes due 2010 225,000 -- Less discount (2,388) -- 6 1/2% Subordinated Notes due 2003 200,000 200,000 Less discount (549) (624) Other 2,309 2,517 - -------------------------------------------------------------- TOTAL SUBSIDIARIES 424,372 201,893 - -------------------------------------------------------------- TOTAL $1,215,356 $743,669 ==============================================================
In May 1995, the Corporation issued $250 million principal amount of 7.20% Subordinated Notes due 2005. These notes and the 6 5/8% Subordinated Notes due 2004 both pay interest semiannually, are not redeemable prior to maturity, and qualify as Tier 2 capital for regulatory purposes. In July 1995, five subsidiary banks issued a combined $225 million principal amount of 7.25% Subordinated Notes due 2010. These notes and the 6 1/2% Subordinated Notes due 2003 both pay interest semiannually, may not be redeemed prior to maturity and qualify as Tier 2 capital for regulatory purposes. The 8 3/8% Notes pay interest semiannually and may not be redeemed prior to maturity. The $75 million Floating Rate Subordinated Notes pay interest quarterly at a rate of 12.5 basis points over the three-month Eurodollar deposit rate, subject to a floor of 5.25%. The actual borrowing rate at December 31, 1995, was 6.06%. The interest rate on the $50 million Floating Rate Notes is 12.5 basis points over the three-month Eurodollar deposit rate (6.06% at December 31, 1995), adjusted quarterly. Both floating rate note issues may be redeemed at the option of the Corporation, in whole or in part, at their principal amount. The 9 7/8% Subordinated Notes pay interest semiannually and may not be redeemed prior to maturity. A credit agreement dated June 30, 1994, with a group of banks allows the Corporation to borrow up to $300 million until June 30, 1998, with a provision to extend the expiration date under certain circumstances. The Corporation pays an annual facility fee of 1/8 percent on the amount of the line. There were no borrowings outstanding under this agreement at December 31, 1995. Corporate long-term debt maturities for the next five years are as follows: $100.2 million in 1996; $125.2 million in 1997; $1.6 million in 1998; $65.3 million in 1999; and $.3 million in 2000. 11. PREFERRED STOCK At December 31, 1995 and 1994, the Corporation had outstanding 741,600 and 750,160 shares, respectively, of 8% Cumulative Convertible Preferred Stock in the form of 3,708,000 and 3,750,800 depositary shares, respectively, at a stated value of $50.00 per depositary share. Each depositary share represents a one-fifth interest in a preferred share. The preferred stock is convertible at the option of the holder into 2.384 common shares per depositary share. Accordingly, 8,839,872 shares of common stock were reserved at December 31, 1995 for conversion of the preferred stock. The preferred stock is redeemable at the option of the Corporation, in whole or in part, on or after May 1, 1996 and for each 12-month period thereafter through the year 2000, at redemption prices of $52.00, $51.60, $51.20, $50.80 and $50.40, respectively, and thereafter, at $50.00 per depositary share plus, in each case, dividends accrued and unpaid to the redemption date. Management anticipates exercising this option at the earliest practical date in 1996. Based on current market prices, it is expected that this action would result in the conversion into common stock of substantially all of the outstanding preferred stock. The shares have a liquidation value of $250.00 per share ($50.00 per depositary share), or $185.4 million in aggregate, plus accrued and unpaid dividends to date of liquidation. 12. EMPLOYEE STOCK OWNERSHIP PLAN As a result of a past merger, National City assumed the obligations and benefits of an Employee Stock Ownership Plan (ESOP) which was merged into the National City Savings and Investment Plan (a contributory benefit plan offered to substantially all employees). The original ESOP was established through the purchase of stock on the open market. National City provided a loan to the ESOP Trust for the purpose of acquiring the shares. The shares presently held by the ESOP (totalling 612,669 shares of National City common stock) will be used to fulfill the Corporation's future commitment to participants in the Corporation's benefit plans. During 1995, 890,874 shares were allocated to benefit plan participants. Company contributions plus dividends earned on the unallocated shares are used to service the loan and acquire additional shares, which are allocated to benefit plan participants. Company contributions totalled $6.8 million and $8.5 million in 1995 and 1994, respectively. Dividends earned by the ESOP in 1995 and 1994 were $1.4 million and $2.2 million, respectively. The tax benefit for dividends paid on shares held by the ESOP is recorded directly to retained earnings. 33 36 Notes to Financial Statements (continued) 13. NET INCOME PER COMMON SHARE Net income per common share is based upon net income after preferred dividend requirements and the weighted average number of common shares outstanding, adjusted for the dilutive effect of outstanding stock options. Fully diluted earnings per share is based upon net income and the weighted average number of shares outstanding, adjusted for the dilutive effect of outstanding stock options and the assumed conversion of preferred stock. The calculation of net income per common share follows:
For the Calendar Year - --------------------------------------------------------------- (In Thousands Except Per Share Amounts) 1995 1994 1993 - --------------------------------------------------------------- PRIMARY: Net income $465,109 $429,434 $403,997 Less preferred dividends 14,830 15,200 15,966 - --------------------------------------------------------------- Net income applicable to common stock $450,279 $414,234 $388,031 =============================================================== Average common shares outstanding 148,851,462 153,353,555 161,163,816 =============================================================== Net income per common share $3.03 $2.70 $2.41 =============================================================== ASSUMING FULL DILUTION: Net income $465,109 $429,434 $403,997 =============================================================== Pro forma fully diluted average common shares outstanding 157,758,825 162,375,500 170,683,512 =============================================================== Pro forma fully diluted net income per share $2.95 $2.64 $2.37 ===============================================================
14. PARENT COMPANY AND REGULATORY RESTRICTIONS At December 31, 1995, retained earnings of the parent company included $1,814.4 million of equity in undistributed earnings of subsidiaries. Dividends paid by the Corporation's subsidiary banks are subject to various legal and regulatory restrictions. In 1995, subsidiary banks declared $221.4 million in dividends to the parent company. The subsidiary banks can initiate dividend payments in 1996, without prior regulatory approval, of $432.0 million, plus an additional amount equal to their net profits for 1996, as defined by statute, up to the date of any such dividend declaration. Under Section 23A of the Federal Reserve Act, as amended, loans from subsidiary banks to nonbank affiliates, including the parent company, are required to be collateralized. Commercial paper of $339.7 million outstanding at December 31, 1995 is guaranteed by the parent company. Condensed parent company financial statements, which include transactions with subsidiaries, follow: BALANCE SHEETS
December 31 - ------------------------------------------------------------ (In Thousands) 1995 1994 - ------------------------------------------------------------ ASSETS Cash and demand balances due from banks $ 12,655 $ 8,229 Loans to and accounts receivable from subsidiaries 585,897 356,420 Securities 252,686 154,127 Investments in: Subsidiary banks 2,545,099 2,355,857 Nonbank subsidiaries 311,467 237,797 Goodwill, net of accumulated amortization of $32,170 and $29,857, respectively 50,106 52,420 Other assets 40,146 54,629 - ------------------------------------------------------------ TOTAL ASSETS $3,798,056 $3,219,479 ============================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Corporate long-term debt $ 790,984 $ 541,776 Accrued expenses and other liabilities 86,095 76,649 - ------------------------------------------------------------ Total liabilities 877,079 618,425 Stockholders' equity 2,920,977 2,601,054 - ------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,798,056 $3,219,479 ============================================================
STATEMENTS OF INCOME
For the Calendar Year - --------------------------------------------------------------- (In Thousands) 1995 1994 1993 - --------------------------------------------------------------- INCOME Dividends from: Subsidiary banks $221,371 $230,378 $715,869 Nonbank subsidiaries 10,000 14,129 4,448 Interest on loans to subsidiaries 11,686 5,250 4,431 Interest and dividends on securities 5,454 3,774 2,396 Security gains 19,483 1,995 970 Other income 1,151 3,462 7,969 - --------------------------------------------------------------- TOTAL INCOME 269,145 258,988 736,083 - --------------------------------------------------------------- EXPENSE Interest on corporate long-term debt 51,202 37,217 23,821 Goodwill amortization 2,313 2,298 2,138 Other expense 74,891 52,381 43,197 - --------------------------------------------------------------- TOTAL EXPENSE 128,406 91,896 69,156 - --------------------------------------------------------------- Income before taxes and equity in undistributed income of subsidiaries 140,739 167,092 666,927 Income tax (benefit) (57,978) (44,513) (32,148) - --------------------------------------------------------------- Income before equity in undistributed net income of subsidiaries 198,717 211,605 699,075 Equity in undistributed (distributed) net income of subsidiaries 266,392 217,829 (295,078) - --------------------------------------------------------------- NET INCOME $465,109 $429,434 $403,997 ===============================================================
34 37 STATEMENTS OF CASH FLOWS
For the Calendar Year - --------------------------------------------------------------- (In Thousands) 1995 1994 1993 - --------------------------------------------------------------- OPERATING ACTIVITIES Net income $465,109 $429,434 $403,997 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (266,392) (217,829) 295,078 Amortization of goodwill 2,313 2,298 2,138 Decrease (increase) in dividends receivable from subsidiaries (89,500) 55,669 (126,169) Security gains (19,483) (1,995) (970) Other, net (83,113) (117,529) (13,294) - --------------------------------------------------------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 8,934 150,048 560,780 - --------------------------------------------------------------- INVESTING ACTIVITIES Net change in short-term money market investments (32,285) (26,750) (27,900) Purchases of securities (90,047) (65,508) (126,641) Sales and maturities of securities 74,962 39,518 69,833 Principal collected on loans to subsidiaries 7,800 50,850 283,107 Loans to subsidiaries (24,975) (25,805) (306,507) Investment in subsidiaries (72,461) (14,784) (119,006) Return of investment from subsidiaries 286,000 168,000 -- - --------------------------------------------------------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 148,994 125,521 (227,114) - --------------------------------------------------------------- FINANCING ACTIVITIES Repayment of corporate long-term debt (501) (13,324) (19,236) Proceeds from issuance of long-term debt 249,710 247,080 -- Common and preferred dividends (206,817) (195,090) (185,391) Issuance of common stock 32,421 23,221 28,469 Repurchase of stock (235,136) (340,053) (168,920) Shares distributed by ESOP 6,821 8,093 9,691 - --------------------------------------------------------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (153,502) (270,073) (335,387) - --------------------------------------------------------------- Increase (decrease) in cash and demand balances due from banks 4,426 5,496 (1,721) Cash and demand balances due from banks, January 1 8,229 2,733 4,454 - --------------------------------------------------------------- Cash and demand balances due from banks, December 31 $ 12,655 $ 8,229 $ 2,733 =============================================================== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 47,906 $ 30,000 $ 24,000 Long-term debt assumed in merger of subsidiaries -- -- 151,000 Shares issued in purchase acquisitions and additional investment in subsidiaries 110,739 -- 141,000 ===============================================================
15. STOCK OPTIONS AND AWARDS The Corporation was authorized in 1993 to grant options up to 10,000,000 shares of common stock under an employee stock option plan. The stock option plans authorize the issuance of options to purchase common stock to officers and key employees at the market price of the shares at the date of grant. Options generally become exercisable to the extent of either 25% or 50% annually beginning one year from the date of grant. The Corporation was authorized in 1991 to grant 1,000,000 shares of common stock under a Restricted Stock Plan. These shares are issued to key employees and directors. In general, the restrictions on directors' shares granted after 1992 expire after nine months and restrictions on grants to key employees expire over a four-year period. The Corporation generally recognizes additional compensation expense over the restricted period. The Corporation was authorized in 1995 to grant options up to 3,500,000 shares of common stock to virtually all employees in commemoration of National City's 150th Anniversary. One-third of these options become exercisable in each of the years 1998, 1999, and 2000. A summary of the stock options and award activity follows:
- ------------------------------------------------------------------------------ Shares -------------------------------------- Available for Grant ---------- Outstanding Range of Awards & ----------------------- Option Price Options Awards Options per Share - ------------------------------------------------------------------------------ January 1, 1993 1,924,116 170,400 6,831,204 $6.08-$22.00 Authorized 10,000,000 Cancelled 75,642 (4,008) (71,634) Exercised (25,992) (1,017,321) 6.08-22.00 Granted (1,685,950) 103,350 1,582,600 24.88 - ------------------------------------------------------------------------------ December 31, 1993 10,313,808 243,750 7,324,849 6.31-24.88 Cancelled 97,800 (4,350) (93,450) Exercised (4,400) (846,648) 6.31-24.88 Granted (1,791,600) 92,800 1,698,800 26.50-26.88 - ------------------------------------------------------------------------------ December 31, 1994 8,620,008 327,800 8,083,551 7.55-26.88 Authorized 3,500,000 Cancelled 83,901 (8,950) (782,091) 17.19-29.88 Acquired 88,418 6.94-23.61 Exercised (139,250) (1,282,293) 6.94-26.50 Granted (5,385,208) 93,658 5,291,550 29.63-33.63 - ----------------------------------------------------------------------------- DECEMBER 31, 1995 6,818,701 273,258 11,399,135 $6.94-$33.63 =============================================================================
At December 31, 1995 and 1994, options for 6,160,826 and 5,669,645 shares, respectively, were exercisable at a price range of $6.94 to $29.88 and $7.55 to $24.88 per share, respectively. 16. PENSION PLANS National City has a noncontributory, defined benefit retirement plan covering substantially all employees. Retirement benefits are based upon the employees' length of service and salary levels. Actuarially determined pension costs are charged to current operations. The funding policy is to pay at least the minimum amount required by the Employee Retirement Income Security Act of 1974. 35 38 Notes to Financial Statements (continued) The defined benefit pension plan's funded status (at its year-end September 30) follows:
- ------------------------------------------------------------ (In Thousands) 1995 1994 - ------------------------------------------------------------ Projected benefit obligation: Vested benefits $291,955 $242,374 Nonvested benefits 13,789 10,983 - ------------------------------------------------------------ Accumulated benefit obligation 305,744 253,357 Effect of projected future compensation levels 74,111 63,390 - ------------------------------------------------------------ Projected benefit obligation 379,855 316,747 Plan's assets at fair value, primarily stocks and bonds, including $16.7 million and $15.2 million in the common stock of the Corporation for 1995 and 1994, respectively 359,756 302,071 - ------------------------------------------------------------ Funded status - plan assets (less than) projected benefit obligation $(20,099) $(14,676) ============================================================ Comprised of: Unrecognized net (losses) $(21,331) $(11,433) Unrecognized net assets being recognized over 15 years 18,626 21,480 Less accrued pension liability on balance sheet 17,394 24,723 - ------------------------------------------------------------ $(20,099) $(14,676) ============================================================
Assumptions used in the valuation of the defined benefit pension plan at its year end (September 30) follow:
- ---------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------- Weighted average discount rate 7.50% 8.25% 7.25% Average assumed rate of compensation increase 5.00 5.50 5.00 Long-term rate of return on assets 10.00 9.50 10.00 ================================================================
Net defined benefit pension plan costs include the following components:
For the Calendar Year - --------------------------------------------------------------- (In Thousands) 1995 1994 1993 - --------------------------------------------------------------- Service cost - benefits earned during year $15,161 $17,330 $14,862 Interest cost on projected benefit obligation 26,866 25,424 22,108 Actual return on plan assets (56,778) (7,746) (25,072) Net amortization and deferral 23,303 (25,011) (3,605) - --------------------------------------------------------------- Net periodic pension cost $ 8,552 $ 9,997 $ 8,293 ===============================================================
The Corporation also maintains nonqualified supplemental retirement plans for certain key employees. All benefits provided under these plans are unfunded and any payments to plan participants are made by the Corporation. As of December 31, 1995 and 1994, approximately $13.1 million and $12.0 million were included in accrued expenses and other liabilities for these plans. For the years ended December 31, 1995, 1994, and 1993, expense related to these plans was $4.0 million, $4.2 million, and $3.5 million, respectively. Substantially all employees with one or more years of service are eligible to contribute a portion of their pre-tax salary to a defined contribution plan. The Corporation may make contributions to the plan in varying amounts depending on the level of employee contributions. For the years ended 1995, 1994, and 1993, the expense related to this plan was $4.3 million, $8.6 million, and $8.3 million, respectively. 17. OTHER POSTRETIREMENT BENEFIT PLANS The Corporation has a benefit plan which offers postretirement medical and life insurance benefits to all employees who have attained the age of 55 and have at least 10 years of service (five years of service if age 65 or older.) The medical portion is contributory and the life insurance coverage is noncontributory to the participants. For any employee who retired on or after April 1, 1989, the Corporation's medical contribution is fixed, based on years of service and age at retirement. The accounting for the medical portion anticipates contributions for retirees prior to April 1, 1989, to continue to increase as a proportion of the total costs of the plan. The Corporation reserves the right to terminate or make plan changes at any time. The Corporation has no plan assets attributable to the plan and funds the benefits as the claims are paid. Postretirement benefit costs are recognized during the periods in which employees provide service for such benefits. The following table presents the plan's status at December 31, reconciled with amounts recognized in the consolidated balance sheet:
- ------------------------------------------------------------ (In Thousands) 1995 1994 - ------------------------------------------------------------ Accumulated postretirement benefit obligation: Retirees $32,739 $29,406 Fully eligible active plan participants 8,463 6,938 Other active plan participants 13,593 10,153 - ------------------------------------------------------------ Accumulated postretirement benefit obligation 54,795 46,497 Unrecognized net gain (loss) (6,846) 1,018 Unrecognized transition obligation (29,133) (31,057) - ------------------------------------------------------------ Accrued postretirement benefit cost $18,816 $16,458 ============================================================
Net periodic postretirement benefit costs include the following components:
For the Calendar Year - --------------------------------------------------------------- (In Thousands) 1995 1994 1993 - --------------------------------------------------------------- Service cost $ 983 $1,194 $1,067 Interest cost 3,906 3,933 3,622 Net amortization and deferral 1,822 2,172 1,981 - --------------------------------------------------------------- Net periodic postretirement benefit cost $6,711 $7,299 $6,670 ===============================================================
Assumptions used in the valuation of the accumulated postretirement benefit obligation at December 31 follow:
- --------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------- Weighted average discount rate 7.75% 8.50% 7.50% Average salary scale 5.00 5.50 5.00 ===============================================================
The health care trend rate assumption only affects those participants retired under the plan prior to April 1, 1989. The 1996 health care trend rate is projected to be 11.5 percent for participants under 65 and 9.0 percent for participants over 65. These rates are assumed to decrease incrementally by .5 percentage point per year until they reach 6 percent and remain at that level thereafter. The health care trend rate assumption does not have a significant effect on the medical plan, therefore, a 1 percentage point change in the trend rate is not material in the determination of the accumulated postretirement benefit obligation or the ongoing expense. 36 39 18. INCOME TAXES The composition of income tax expense (benefit) follows:
For the Calendar Year - -------------------------------------------------------- (In Thousands) 1995 1994 1993 - -------------------------------------------------------- Current: Federal $186,848 $172,394 $135,598 State 16,204 12,756 9,804 - -------------------------------------------------------- Total current 203,052 185,150 145,402 Deferred: Federal 618 1,343 23,140 State 939 1,761 (1,577) - -------------------------------------------------------- Total deferred 1,557 3,104 21,563 - -------------------------------------------------------- Tax expense $204,609 $188,254 $166,965 ======================================================== Tax expense applicable to security transactions $ 7,101 $ 3,748 $ 4,173 ========================================================
The effective tax rate differs from the statutory rate applicable to corporations as a result of permanent differences between accounting and taxable income as shown below:
For the Calendar Year - ---------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------- Statutory rate 35.0% 35.0% 35.0% Life insurance (3.7) (3.0) (2.6) Tax-exempt income (2.1) (2.9) (3.8) Other 1.4 1.4 .6 - ---------------------------------------------------- EFFECTIVE TAX RATE 30.6% 30.5% 29.2% ====================================================
Significant components of deferred tax liabilities and assets as of December 31 are as follows:
- ------------------------------------------------------------ (In Thousands) 1995 1994 - ------------------------------------------------------------ Deferred tax liabilities: Lease accounting $ 69,187 $ 74,232 Depreciation 22,184 18,145 Other - net 67,894 50,071 - ------------------------------------------------------------ Total deferred tax liabilities 159,265 142,448 Deferred tax assets (liabilities): Provision for losses 171,738 164,157 Mark to market adjustments (68,187) 28,458 Pension 9,822 12,708 Other - net 74,195 46,002 - ------------------------------------------------------------ Total deferred tax assets 187,568 251,325 - ------------------------------------------------------------ Net deferred tax assets $ 28,303 $108,877 ============================================================
19. OFF-BALANCE SHEET FINANCIAL AGREEMENTS The Corporation uses a variety of off-balance sheet financial instruments such as interest rate swaps, futures, options, forwards, and cap and floor contracts. These financial instruments, frequently called interest rate derivatives, enable management to efficiently manage its exposure to changes in interest rates. The Corporation also enters into derivative contracts on behalf of customers, however, such activity was not significant in 1995 and 1994. As with any financial instrument, derivatives have inherent risks. Market risk represents the risk of gains and losses that result from changes in interest rates. These gains and losses may be offset by other on- or off-balance sheet transactions. Credit risk is the risk that a counterparty to a derivative 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 derivative portfolio, applying uniform credit standards maintained for all activities with credit risk and by collateralizing unrealized gains. The Corporation has established bilateral collateral agreements with its major off-balance sheet counterparties that provide for exchanges of marketable securities to collateralize either party's unrealized gains. On December 31, 1995, these collateral agreements covered 95% of the notional amount of the derivative portfolio and the Corporation was holding U.S. government and agency securities with a market value of $111 million from various counterparties to collateralize unrealized gains. The Corporation has never experienced, nor does it have any reason to expect, a credit loss associated with any interest rate derivative. On December 31, 1995, the total notional amount of the interest rate swap portfolio used to manage interest rate sensitivity was $6.7 billion, which is an increase of $517 million from December 31, 1994. Management uses both receive fixed interest rate swaps and receive fixed indexed amortizing interest rate swaps to convert variable rate loans and securities into synthetic fixed rate instruments and to convert fixed rate funding sources into synthetic variable rate funding instruments. Management increased its use of receive fixed interest rate swaps during the year primarily to facilitate its funding activities. During 1995, the Corporation entered into $1.3 billion of receive fixed interest rate swaps in association with the issuance of fixed rate term funding products. As of December 31, 1995, these swaps had a weighted maturity of 5.5 years. During 1995, the Corporation entered into $1.4 billion of receive fixed indexed amortizing interest rate swaps. These swaps were used primarily to convert portions of variable rate loan portfolios into synthetic fixed rate loans. During 1995, $625 million of receive fixed interest rate swaps matured and $1.8 billion of receive fixed indexed amortizing interest rate swaps matured or amortized. Management uses pay fixed interest rate swaps to convert fixed rate loans and securities into synthetic variable rate instruments and to convert variable rate funding sources into synthetic fixed rate funding instruments. During 1995, the Corporation entered into $419 million of pay fixed interest rate swaps, with a weighted initial expected maturity of 2.0 years. During 1995, $282 million of pay fixed interest rate swaps matured and $342 million were terminated prior to maturity. These terminations generated pre-tax net losses of $2.1 million, recognized as an adjustment to carrying value of the securities portfolio. 37 40 Notes to Financial Statements (continued) Management uses interest rate floors to help protect interest margin in periods of low interest rates and a flattening yield curve. During 1995, the Corporation purchased $435 million three-month Eurodollar floors. On December 31, 1995, these floors had an average maturity of 2.9 years with average strike rates of 5.5%. The total three-month Eurodollar floor portfolio on December 31, 1995 was $1.4 billion in notional amount with an average maturity of 3.9 years and $21.7 million of net unrealized gains. The Corporation has purchased $3.3 billion of interest rate corridors to help protect its net interest margin in various interest rate environments. These interest rate corridors pay 1.0% of the notional amount per annum over their lives when the three-month Eurodollar rate is between the corridor strike rates. There are no payments due to the Corporation when three-month Eurodollar rates are outside of the corridor strike rates. As of December 31, 1995, these interest rate corridors had an average maturity of 1.2 years and $5.8 million in net unrealized losses. During 1995, the Corporation entered into interest rate derivative contracts to hedge the market value of a portion of its purchased mortgage servicing rights. The Corporation purchased $700 million of interest rate floors with payoffs based on ten-year U.S. Treasury note yields. As of December 31, 1995, these floors had an average strike rate of 5.5% and an average maturity of 3.4 years. The Corporation also entered into $315 million of receive fixed interest rate swaps. As of December 31, 1995, these swaps had an average fixed rate of 6.2% and average maturity of 4.5 years. On December 31, 1995, the interest rate derivative contracts had unrealized gains of $9.2 million. As of December 31, 1995, there were $9.1 million of net deferred gains on terminated derivative contracts and there were no derivative contracts outstanding that were hedging anticipated transactions. Summary information with respect to the interest rate derivative portfolio used for risk management purposes follows:
DECEMBER 31, 1995 ---------------------------------------------------------------------------------- WEIGHTED AVERAGE ----------------------------------------- December 31, 1994 NOTIONAL UNREALIZED UNREALIZED RECEIVE PAY STRIKE LIFE ------------------ (In Thousands) AMOUNT GAINS LOSSES RATE RATE RATE (YEARS) Notional Amount - --------------------------------------------------------------------------------------------------------------------------------- INTEREST RATE SWAPS: Receive fixed indexed amortizing swaps $ 2,290,970 $ 8,870 $ (4,062) 5.99% 5.87% N/A .7 $2,879,798 Receive fixed callable swaps 105,000 3,514 -- 7.31 6.04 N/A 4.7 -- Receive fixed swaps 2,671,370 99,423 (1,948) 6.77 5.79 N/A 4.1 1,515,000 Pay fixed swaps 582,000 -- (9,444) 5.89 7.05 N/A 1.1 787,200 Basis swaps 1,050,000 518 (602) 5.41 5.82 N/A .5 1,000,000 - --------------------------------------------------------------------------------------------------------------------------------- Total interest rate swaps 6,699,340 112,325 (16,056) 6,181,998 INTEREST RATE CAPS AND FLOORS: Three-month Eurodollar floors purchased 1,435,000 23,700 (2,013) N/A N/A 5.60 % 3.9 1,000,000 Five-year U.S. Treasury floors purchased 50,000 88 -- N/A N/A 6.00 % 1.0 50,000 Ten-year U.S. Treasury floors purchased 906,820 2,932 (152) N/A N/A 5.56 % 3.3 231,253 One-month Eurodollar caps sold 95,000 -- -- N/A N/A 12.00 % 1.3 171,000 - --------------------------------------------------------------------------------------------------------------------------------- Total interest rate caps and floors 2,486,820 26,720 (2,165) 1,452,253 INTEREST RATE CORRIDORS PURCHASED: 4.50 % TO 1% Payout corridors 200,000 266 -- N/A N/A 5.50 % 1.5 -- 6.00 % TO 1% Payout corridors 250,000 -- (623) N/A N/A 7.50 % 2.5 -- 6.13 % TO 1% Payout corridors 2,000,000 -- (3,883) N/A N/A 7.50 % .6 2,000,000 6.50 % TO 1% Payout corridors 500,000 -- (657) N/A N/A 7.50 % 2.7 -- 8.50 % TO 1% Payout corridors 300,000 -- (877) N/A N/A 9.75 % 1.2 300,000 - --------------------------------------------------------------------------------------------------------------------------------- Total interest rate corridors 3,250,000 266 (6,040) 2,300,000 - --------------------------------------------------------------------------------------------------------------------------------- Total interest rate swaps, caps, floors & corridors $12,436,160 $139,311 $ (24,261) $9,934,251 =================================================================================================================================
The variable rates in the interest rate swap contracts are primarily based on the three-month Eurodollar rate. The average variable rates included in the table above are those in effect in the specific contracts at December 31, 1995. 38 41 The following table details the expected notional maturities of off-balance sheet instruments at December 31, 1995: - --------------------------------------------------------------------------------
Less than 1 to 3 3 to 5 5 to 10 Greater (In Thousands) 1 Year Years Years Years than 10 Years - --------------------------------------------------------------------------------------------------------------------------------- Receive fixed indexed amortizing swaps $2,290,970 $ -- $ -- $ -- $ -- Receive fixed callable swaps -- -- 105,000 -- -- Receive fixed swaps 375,000 986,370 665,000 420,000 225,000 Pay fixed swaps 32,000 550,000 -- -- -- Basis swaps 1,000,000 -- 50,000 -- -- Three-month Eurodollar floors purchased 200,000 435,000 300,000 500,000 -- Five-year U.S. Treasury floors purchased 50,000 -- -- -- -- Ten-year U.S. Treasury floors purchased -- 225,000 681,820 -- -- One-month Eurodollar caps sold -- 95,000 -- -- -- Interest rate corridors purchased 2,000,000 1,250,000 -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- TOTAL $5,947,970 $3,541,370 $1,801,820 $ 920,000 $ 225,000 =================================================================================================================================
Indexed amortizing interest rate swaps are contracts where the notional amount amortizes after a predetermined lock-out period. The rate of amortization is determined by formula and is based upon movements of short-term interest rates, usually three-month Eurodollar rates. The indexed amortizing interest rate swap portfolio contains no imbedded options that have multiplicative impacts affecting valuations or expected notional maturities. The following table shows the estimated impact on valuation, average life, and the expected notional amortization schedule of the indexed amortizing swap portfolio if interest rates immediately increase or decrease 100 basis points (bp) from December 31, 1995 levels:
- -------------------------------------------------------------------------- (unaudited) Expected Notional Net Amortization Unrealized Average Less than 1 to 2 2 to 3 (In Millions) Gain/(Loss) Life(Years) 1 Year Years Years - ------------------------------------------------------------------------- Interest rates at year end $ 5 .7 $ 2,291 $ -- $ -- Interest rates +100bp (17) 1.2 974 1,317 -- Interest rates -100bp 14 .5 2,291 -- -- =========================================================================
All contracts in the preceding tables are valued using cash flow projection models either acquired from third parties or developed in-house. Pricing models used for valuing derivative instruments are regularly validated by testing through comparison with other third parties. Valuations and notional maturities presented above are based on yield curves, forward yield curves, and implied volatilities that were observable in the cash and derivatives markets on December 31, 1995. The Corporation also enters into forward contracts related to its mortgage banking business. At December 31, 1995 and 1994, the Corporation had commitments to sell mortgages totalling $293.8 million and $42.4 million, respectively. These contracts mature in less than one year. In the normal course of business, the Corporation makes various commitments to extend credit which are not reflected in the balance sheet. A summary of these commitments follows:
December 31 - ---------------------------------------------------------- (In Millions) 1995 1994 - ---------------------------------------------------------- Commitments to extend credit $7,458 $ 7,411 Standby letters of credit 1,974 861 ==========================================================
The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Collateral is obtained based on management's credit assessment of the customer. 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information is contained on page 22. 39 42 - ------------------ Form 10-K The Annual Report includes the materials required in Form 10-K filed with the Securities and Exchange Commission. The integration of the two documents gives stockholders and other interested parties timely, efficient and comprehensive information on 1995 results. Portions of the Annual Report are not required by the Form 10-K report and are not filed as part of the Corporation's Form 10-K. Only those portions of the Annual Report referenced in the cross-reference index are incorporated in the Form 10-K. The report has not been approved or disapproved by the Securities and Exchange Commission, nor has the Commission passed upon its accuracy or adequacy. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995. / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]. For the transition period from to . Commission File Number 1-10074. NATIONAL CITY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware --------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 34-1111088 --------------------------------------------------------- (I.R.S. Employer Identification No.) 1900 East Ninth Street, Cleveland, Ohio --------------------------------------------------------- (Address of principal executive offices) 44114-3484 --------------------------------------------------------- (Zip Code) Registrant's telephone number, including area code, 216-575-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Depositary Shares each representing a one-fifth interest in a share of National City Corporation 8% Cumulative Convertible Preferred Stock, without par value Name of each exchange on which registered: New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: National City Corporation Common Stock, $4.00 Per Share - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stocks held by nonaffiliates of the registrant as of December 31, 1995 - $4,750,189,000. The number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1995. Common Stock, $4.00 Per Share -- 145,545,689 Documents Incorporated By Reference: Portions of the registrant's Proxy Statement (to be dated approximately March 4, 1996) are incorporated by reference into Item 10. Directors and Executive Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13. Certain Relationships and Related Transactions, of Part III. 40 43 FORM 10-K CROSS REFERENCE INDEX
Pages - ------------------------------------------------------------ PART I Item 1 -- Business Description of Business 41 Average Balance Sheets/Interest/Rates 20-21 Volume and Rate Variance Analysis 14 Securities 8-9 Loans 6-8 Risk Elements of Loan Portfolio 16-18 Loan Loss Experience 16-18 Allocation of Allowance for Loan Losses 16-18 Deposits 9, 20-21 Financial Ratios 19 Short-Term Borrowings 9, 32 Item 2 -- Properties 42 Item 3 -- Legal Proceedings 42 Item 4 -- Submission of Matters to a Vote of Security Holders - None - ------------------------------------------------------------ PART II Item 5 -- Market for the Registrant's Common Equity and Related Stockholder Matters 10 Item 6 -- Selected Financial Data 19 Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 5-18 Item 8 -- Financial Statements and Supplementary Data 23-39 Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None - ------------------------------------------------------------ PART III Item 10 -- Directors and Executive Officers of the Registrant - Note (1) Executive Officers 42 Compliance with Section 16(a) of the Securities Exchange Act - Note (1) Item 11 -- Executive Compensation - Note (1) Item 12 -- Security Ownership of Certain Beneficial Owners and Management - Note (1) Item 13 -- Certain Relationships and Related Transactions - Note (1) - ------------------------------------------------------------ PART IV Item 14 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K Report of Ernst & Young LLP, Independent Auditors 23 Financial Statements: Consolidated Statements of Income - Calendar Years 1995, 1994 and 1993 24 Consolidated Balance Sheets - December 31, 1995 and 1994 25 Consolidated Statements of Cash Flows - Calendar Years 1995, 1994 and 1993 26 Consolidated Statements of Changes in Stockholders' Equity - Calendar Years 1995, 1994, and 1993 27 Notes to Financial Statements 28-39 Signatures 43
Reports on Form 8-K filed in the fourth quarter of 1995: Form 8-K dated October 26, 1995 announcing the appointment of William R. Robertson president and Vincent A. DiGirolamo, vice chairman of National City Corporation. Exhibits -- The index of exhibits has been filed as separate pages of the 1995 Form 10-K and is available to stockholders on request from the Secretary of the Corporation at the principal executive offices. Copies of exhibits may be obtained at a cost of 30 cents per page. Financial Statement Schedules -- Omitted due to inapplicability or because required information is shown in the Financial Statements or the Notes thereto. - ------------------------------------------------------------ Note (1) -- Incorporated by reference from the Corporation's Proxy Statement to be dated approximately March 4, 1996. - ------------------------------------------------------------ BUSINESS At December 31, 1995, National City Corporation ("National City" or "the Corporation") was the third largest bank holding company headquartered in the State of Ohio and approximately the 25th largest in the United States on the basis of total assets. National City owns and operates 10 commercial banks with a total of 645 banking offices in Ohio, Kentucky and Indiana. The four largest subsidiary banks (and only significant subsidiaries) are National City Bank (Cleveland), National City Bank, Columbus; National City Bank, Indiana; and National City Bank, Kentucky. The banks and other subsidiaries and divisions (listed on pages 44 and 45) are engaged in a variety of financial services businesses. In addition to a general commercial banking business, National City or its subsidiaries are engaged in trust, mortgage banking, merchant banking, leasing, item processing, venture capital, insurance, and other financially related businesses. National City and its subsidiaries had 20,767 full-time equivalent employees at December 31, 1995. COMPETITION The banking business is highly competitive. The banking subsidiaries of National City compete actively with national and state banks, savings and loan associations, securities dealers, mortgage bankers, finance companies, insurance companies and other financial service entities. SUPERVISION AND REGULATION National City is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "Act"). The Act requires the prior approval of the Federal Reserve Board for a bank holding company to acquire or hold more than a 5% voting interest in any bank, and restricts interstate banking activities. On September 29, 1994, the Act was amended by The Interstate Banking and Branch Efficiency Act of 1994 which authorizes interstate bank acquisitions anywhere in the country, effective one year after the date of enactment and interstate branching by acquisition and consolidation, effective June 1, 1997 in those states that have not opted out by that date. The impact of this amendment on the Corporation cannot be measured at this time. The Act restricts National City's nonbanking activities to those which are determined by the Federal Reserve Board to be closely related to banking and a proper incident thereto. The Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies. National City's banking subsidiaries are subject to limitations with respect to transactions with affiliates. 41 44 - ------------------ Form 10-K (continued) A substantial portion of National City's cash revenues is derived from dividends paid by its subsidiary banks. These dividends are subject to various legal and regulatory restrictions as summarized in Note 14. The subsidiary banks are subject to the provisions of the National Bank Act or the banking laws of their respective states, are under the supervision of, and are subject to periodic examination by, the Comptroller of the Currency or the respective state banking department, and are subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). National City's subsidiary banks are also subject to certain state laws of each state in which such bank is located. Such state laws may restrict branching of banks within the state and acquisition or merger involving banks and bank holding companies located in other states. Ohio, Kentucky and Indiana have all adopted nationwide reciprocal interstate banking. The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company's controlled insured depository institutions are liable for any loss incurred by the Federal Deposit Insurance Corporation in connection with the default of or any FDIC-assisted transaction involving an affiliated insured bank or savings association. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act") covers a wide expanse of banking regulatory issues. The FDIC Improvement Act deals with the recapitalization of the Bank Insurance Fund, with deposit insurance reform, including requiring the FDIC to establish a risk-based premium assessment system, and with a number of other regulatory and supervisory matters. The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of National City and its subsidiary banks cannot be predicted. PROPERTIES National City and its significant subsidiaries occupy their headquarters offices under long-term leases, and also own freestanding operations centers in Columbus and Cleveland. Branch office locations are variously owned or leased. LEGAL PROCEEDINGS National City and its subsidiaries are parties (either as plaintiff or defendant) to a number of lawsuits incidental to their businesses and, in certain lawsuits, claims or counterclaims have been asserted. Although litigation is subject to many uncertainties and the ultimate exposure with respect to many of these matters cannot be ascertained, management does not believe the ultimate outcome of these matters will have a material adverse effect on the financial condition or results of operations of the Corporation. EXECUTIVE OFFICERS The Executive Officers of National City (as of January 22, 1996) are as follows:
Name Age Position - ------------------------------------------------------------ David A. Daberko 50 Chairman and Chief Executive Officer William R. Robertson 54 President Vincent A. DiGirolamo 58 Vice Chairman Morton Boyd 59 Executive Vice President Gary A. Glaser 51 Executive Vice President Jon L. Gorney 45 Executive Vice President Christopher Graffeo 48 Executive Vice President Jeffrey D. Kelly 42 Executive Vice President William E. MacDonald III 49 Executive Vice President Robert J. Ondercik 49 Executive Vice President Robert G. Siefers 50 Executive Vice President and Chief Financial Officer Harold B. Todd, Jr. 54 Executive Vice President James P. Gulick 37 Senior Vice President and General Auditor Thomas A. Richlovsky 44 Senior Vice President and Treasurer David L. Zoeller 46 Senior Vice President, General Counsel and Secretary
The term of office for executive officers is one year. There is no family relationship between any of the above executive officers. Mr. Graffeo was appointed an executive vice president in 1995. Prior to that time he was president and chief executive officer of National City Bank, Northeast since 1992 and an executive vice president of that Bank from 1991 to 1992. Mr. Gulick was appointed a senior vice president in 1995. Prior to that time he was a vice president since 1992 and an audit manager with Coopers & Lybrand LLP from 1987 to 1992. Mr. Kelly was appointed an executive vice president in 1994. Prior to that time he was a senior vice president since 1990 and a senior vice president of National City Bank in Cleveland from 1987 to 1990. Mr. Ondercik was appointed an executive vice president in 1994. Prior to that time he was a senior vice president since 1991 and a senior vice president of National City Bank in Cleveland from 1989-1991. Mr. Gorney was appointed an executive vice president in 1993. Prior to that time he was a senior vice president since 1991 and senior vice president of National City Bank in Cleveland from 1988 to 1991. Each of the remaining officers listed above has been an executive officer of the Corporation or one of its subsidiaries during the past five years. 42 45 SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 22, 1996. National City Corporation /s/David A. Daberko - --------------------------------------- David A. Daberko Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on January 22, 1996. /s/David A. Daberko - --------------------------------------- David A. Daberko Chairman and Chief Executive Officer /s/William R. Robertson /s/Vincent A. DiGirolamo - ---------------------------- -------------------------- William R. Robertson Vincent A. DiGirolamo President Vice Chairman /s/Robert G. Siefers /s/Thomas A. Richlovsky - ---------------------------- -------------------------- Robert G. Siefers Thomas A. Richlovsky Executive Vice President Senior Vice President and Chief Financial Officer and Treasurer
The Directors of National City Corporation (listed below) executed a power of attorney appointing David L. Zoeller their attorney-in-fact, empowering him to sign this report on their behalf. Sandra H. Austin Otto N. Frenzel III James M. Biggar Bernadine P. Healy, M.D. Charles H. Bowman Joseph H. Lemieux Edward B. Brandon W. Bruce Lunsford John G. Breen A. Stevens Miles Duane E. Collins William R. Robertson David A. Daberko Stephen A. Stitle Daniel E. Evans Morry Weiss
/s/David L. Zoeller ------------------------------------------------------------ By David L. Zoeller Attorney-in-fact 43 46 Corporate Directory Member Banks (Number of Banking Offices) Ohio Toledo (30) Indiana Cleveland (97) National City Bank, Northwest Indianapolis (125) National City Bank Salvatore F. Gianino National City Bank, Indiana William E. MacDonald III President & CEO Christopher Graffeo Chairman, President & CEO President & CEO 405 Madison Avenue 1900 East Ninth Street Toledo, Ohio 43603-1263 One National City Center, Suite 400E Cleveland, Ohio 44114-3484 (419) 259-7700 Indianapolis, Indiana 46255 (216) 575-2000 (317) 267-7000 Ashland (8) Columbus (121) National City Bank, Ashland New Albany (14) National City Bank, Columbus Harvey N. Young National City Bank, Southern Indiana Gary A. Glaser Chairman & CEO David W. Fennell President & CEO Chairman, President & CEO 10 West Second Street 155 East Broad Street Ashland, Ohio 44805-0218 320 Pearl Street Columbus, Ohio 43251 (419) 289-2112 P.O. Box 1247 (614) 463-7100 New Albany, Indiana 47150-1247 Kentucky (812) 948-4400 Akron/Youngstown (82) National City Bank, Kentucky National City Bank, Northeast Louisville (84) Madison (5) Robert E. Showalter Morton Boyd Madison Bank and Trust Company President & CEO Chairman & CEO Raymond J. Bartnick President & CEO One Cascade Plaza 101 South Fifth Street Akron, Ohio 44308-1198 Louisville, Kentucky 213-215 East Main Street (216) 375-8450 40202-3101 Madison, Indiana 47250 (502) 581-4200 (812) 265-5121 Dayton (38) National City Bank, Dayton Lexington (41) Frederick W. Schantz Roger M. Dalton President & CEO President 6 North Main Street 301 East Main Street Dayton, Ohio 45412-2790 Lexington, Kentucky 40507-4400 (512) 226-2000 (606) 281-5100
44 47 Other Units Asset-Based Lending National Asset Leasing National City Commercial Management Company National City Leasing Corporation Finance, Inc. William F. Chandler, Jr. J. Edward Vittitow Thomas R. Poe Managing Director & Principal Senior Vice President President Carl W. Hafele 101 South Fifth Street 1965 East Sixth Street, Managing Director & Principal Louisville, Kentucky Suite 400 40202-3101 Cleveland, Ohio 44114-2214 P.O. Box 36010 (502) 581-7679 (216) 575-3274 Louisville, Kentucky 40233 (501) 581-7668 Mortgage Banking Brokerage and National City Mortgage Co. Investment Services Community Development Leo E. Knight, Jr. NatCity Investments, Inc. National City Community President & CEO Herbert R. Martens, Jr. Development Corporation Chairman & CEO Danny H. Cameron 3232 Newmark Drive President Miamisburg, Ohio 45342 20 North Meridian Street (513) 436-3025 Indianapolis, Indiana 46204 1900 East Ninth Street 1-800-382-1126 Cleveland, Ohio 44114-3484 (216) 575-2293 Trust and Investment Services National City Capital Corporation Harold B. Todd, Jr. National City Venture Corporation Offices: Senior Trust Executive William R. Schecter Akron, Cleveland, Columbus, Dayton, President Indianapolis, Lexington, Louisville, 1900 East Ninth Street Toledo, Youngstown Cleveland, Ohio 44114 1965 East Sixth Street (216) 575-2863 Cleveland, Ohio 44114 Credit Card Services (216) 575-3340 National City Card Services Offices: James H. Gilmour All National City Banks National City Investments Chairman Corporation Michael S. Caraboolad 4661 East Main Street National City Trust Company Managing Director Columbus, Ohio 43213 (Florida) (614) 863-8046 Ellen J. Abrams 1900 East Ninth Street President & CEO Cleveland, Ohio 44114 Item Processing (216) 575-3495 National City 1401 Forum Way, Suite 503 1-800-624-6450 Processing Company West Palm Beach, Florida 33401-2324 Tony G. Holcombe (407) 697-2424 President & CEO 1-800-826-9095 1231 Durrett Lane Offices: Louisville, Kentucky Naples, West Palm Beach 40285-0001 (502) 364-2000
45 48 Board of Directors/Officers Board of Directors David A. Daberko (2,3,4) Chairman & CEO National City Corporation John G. Breen (3,4,5) Chairman & CEO The Sherwin-Williams Company William R. Robertson President National City Corporation Duane E. Collins (1,5) President & CEO Parker Hannifin Corporation Richard E. Disbrow (1,3,6) Retired Chairman & CEO American Electric Power Services Corporation Sandra H. Austin (4,6) President Physicians Services Caremark International James M. Biggar (1,2,3) Chairman & CEO Glencairn Corporation Daniel E. Evans (1,5,6) Chairman & CEO Bob Evans Farms, Inc. Charles H. Bowman (3,6) Chairman & CEO BP America Inc. Otto N. Frenzel III Retired Chairman National City Bank, Indiana Edward B. Brandon (2,3,4) Retired Chairman National City Corporation Committees: (1) Audit Committee (2) Dividend Committee (3) Executive Committee (4) Nominating Committee (5) Organization & Compensation Committee (6) Public Policy Committee 46 49 Officers Bernadine P. Healy, M.D. Office of the Chairman Mary H. Griffith Dean David A. Daberko Marketing Communications Ohio State University Chairman & CEO College of Medicine James P. Gulick William R. Robertson General Auditor President Joseph J. Herr Vincent A. DiGirolamo Loan Review Vice Chairman Joseph H. Lemieux (2,3,5) Anthony N. McEwen Chairman & CEO Executive Vice Presidents Retail Product Management Owens-Illinois, Inc. Morton Boyd Kentucky Banking Gary P. Obers Corporate Services Gary A. Glaser Columbus Banking Thomas W. Owen Jon L. Gorney Donna M. Pacchioni Information Services & Operations Corporate Accounting W. Bruce Lunsford Chairman, President & CEO Christopher Graffeo A. Joseph Parker Vencor, Inc. Indiana Banking Retail Business Line Management Jeffrey D. Kelly Investments J. Armando Ramirez Strategic Planning and William E. MacDonald III Mergers & Acquisitions Cleveland Banking A. Stevens Miles (4) Thomas A. Richlovsky Retired President Robert J. Ondercik Treasurer National City Corporation Credit Administration William H. Schecter Robert G. Siefers Merchant Banking Chief Financial Officer Shelley J. Seifert Harold B. Todd, Jr. Human Resources Institutional Trust & Asset Management Theodore H. Tung Stephen A. Stitle (3,4) Economist Chairman Senior Vice Presidents National City Bank, Indiana W. Douglas Bannerman Allen C. Waddle Corporate Banking Public Affairs Jeffrey M. Biggar David L. Zoeller Personal Trust & General Counsel & Secretary Private Banking Morry Weiss (1,3,4) Chairman & CEO Honorary Directors American Greetings Corporation Claude M. Blair Julien L. McCall Retired Chairman Retired Chairman National City Corporation National City Corporation 47
50 Investor Information Common Stock Listing National City Corporation common stock is traded on the New York Stock Exchange under the symbol NCC. The stock is abbreviated in financial publications as NtlCity. Dividend Reinvestment and Stock Purchase Plan Common stockholders participating in the Plan receive a three percent discount from market price when they reinvest their National City dividends in additional shares. Participants may also make optional cash purchases of common stock at a three percent discount from market price and pay no brokerage commissions. To obtain our Plan prospectus and authorization card, call 1-800-622-6757. Direct Deposit of Dividends The direct deposit program, which is offered at no charge, provides for the deposit of quarterly dividends directly to a checking or savings account. For information regarding this program, call 1-800-622-6757. [LOGO: OWN YOUR SHARE OF AMERICA] National City Corporation is a proud sponsor of the National Association of Investors Corporation's (NAIC) "Own Your Share of America" campaign, which encourages individual investors to invest in common stock. NAIC is a not-for-profit association dedicated to teaching investment principles to individual investors. DEBT RATINGS
Moody's Standard Duff Thomson Investors Service & Poor's & Phelps Bankwatch National City Corporation A/B Commercial paper (short-term debt) P-1 A-1 D-1+ TBW1 Senior debt A1 A AA- Subordinated debt A2 A- A+ Preferred stock "a1" BBB+ A Bank Subsidiaries: Certificates of deposit Aa3 A+ AA Subordinated bank notes A1 A AA-
Corporate Headquarters National City Center 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2000 Transfer Agent and Registrar National City Bank Corporate Trust Operations Department 5352 P.O. Box 92301 Cleveland, Ohio 44193-0900 1-800-622-6757 Investor Information Janis E. Lyons, Vice President Investor Relations Department 2145 P.O. Box 5756 Cleveland, Ohio 44101-0756 1-800-622-4204 FIVE-YEAR DIVIDEND HISTORY 1991 1992 1993 1994 1995 .94 .94 1.06 1.18 1.30 TOTAL RETURNS: NATIONAL CITY VS. S&P 500 Years National City S&P 500 20 16.7 14.5 15 19.6 14.7 10 16.9 14.8 5 21.6 16.5 48 51 NATIONAL CITY First Class Corporation U.S. Postage 1900 East Ninth Street PAID Cleveland, Ohio 44114-3484 National City Corporation 52 National City Corporation Part IV, Item 14: EXHIBIT INDEX
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY ---------- ----------------------------------------------------------------- ----------------- 2.1 Agreement and Plan of Merger dated as of August 27, 1995 by and between National City Corporation and Integra Financial Corporation (filed as Exhibit 2.1 to Form 8-K dated August 30, 1995, and incorporated herein by reference). 3.1 Restated Certificate of Incorporation of NCC, as amended (filed as Exhibit 3.1 to Registration Statement No. 33-49823 and incorporated herein by reference). 3.2 National City Corporation First Restatement of By-laws adopted April 27, 1987 (As Amended though October 24, 1994) (filed as Exhibit 3.2 to Registrant's Form S-4 Registration Statement No. 33-56539 dated November 18, 1994 and incorporated herein by reference.) 4.1 Instruments defining the rights of holders of certain long-term debt of NCC and its consolidated subsidiaries are not filed as exhibits because the amount of debt under such instruments is less than 10% of the total consolidated assets of NCC. NCC undertakes to file these instruments with the Commission upon request. 4.2 Credit Agreement dated as of December 31, 1988, by and between NCC and the banks named therein (incorporated herein by reference to Exhibit 4.1 to NCC's Annual Report on Form 10-K for the year ended December 31, 1988). 4.3 Certificate of Stock Designation dated April 18, 1991, designating NCC's 8% Cumulative Convertible Preferred Stock, without par value, and fixing the powers, preferences, rights, and qualifications, limitations and restrictions thereof in addition to those set forth in NCC's Restated Certificate of Incorporation, as amended (incorporated herein by reference to Exhibit 4.4 to NCC's Annual Report on Form 10-K for the year ended December 31, 1991). 10.1 National City Corporation Short Term Incentive Compensation Plan for Senior Officers As Amended and Restated Effective January 1, 1995. (filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.2 National City Corporation Long Term Incentive Compensation Plan for Senior Officers as Amended and Restated Effective January 1, 1995. (filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.3 National City Corporation Annual Corporate Performance Incentive Plan Effective January 1, 1995. (filed as Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.4 National City Savings and Investment Plan, As Amended and Restated Effective July 1, 1992. (filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.5 The National City Savings and Investment Plan No. 2, As Amended and Restated Effective January 1, 1992 (filed as Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.6 National City Corporation's Amended and Restated 1973 Stock Option Plan, as amended (filed as Exhibit 10.4 to Registration Statement No. 2-91434) and amended 1984 Stock Option Plan (filed as Exhibit 10.2 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1987); both incorporated herein by reference.
II-1 53 EXHIBIT INDEX -- CONTINUED
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY ---------- ------------------------------------------------------------------ ---------------- 10.7 National City Corporation 1989 Stock Option Plan (filed as Exhibit 10.7 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by reference). 10.8 National City Corporation's 1993 Stock Option Plan (filed as Exhibit 10.5 to Registration Statement No. 33-49823 and incorporated herein by reference). 10.9 National City Corporation 150th Anniversary Stock Option Plan. (Filed as Exhibit 10.9 to Registration Statement No. 33-59487 and incorporated herein by reference). 10.10 National City Corporation Plan for Deferred Payment of Directors' Fees, as amended (filed as Exhibit 10.5 to Registration Statement No. 2-914334 and incorporated herein by reference). 10.11 National City Corporation Supplemental Executive Retirement Plan, as Amended and Restated effective January 1, 1995 (filed as Exhibit 10.5 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference). 10.12 National City Corporation Executive Savings Plan As Amended and Restated Effective January 1, 1995 (filed as Exhibit 10.9 to NCC's Annual Report on Form 10-K for its fiscal year ended December 31, 1994, and incorporated herein by reference). 10.13 National City Corporation Amended and Second Restated 1991 Restricted Stock Plan (filed as Exhibit 10.9 to Registration Statement No. 33-49823 and incorporated herein by reference). 10.14 First Kentucky National Corporation 1985 Stock Option Plan (filed as Exhibit 10.2 to First Kentucky National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.15 First Kentucky National Corporation 1982 Stock Option Plan (filed as Exhibit 10.3 to First Kentucky National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.16 Form of grant made under National City Corporation 1991 Restricted Stock Plan made in connection with National City Corporation Supplemental Executive Retirement Plan as amended (filed as Exhibit 10.10 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by reference). 10.17 Amended Employment Agreement dated July 21, 1989 by and between Merchants National Corporation or a subsidiary and Otto N. Frenzel, III (filed as Exhibit 10(21) to Merchants National Corporation Annual Report of Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference). 10.18 Split Dollar Insurance Agreement dated January 4, 1988 between Merchants National Corporation and Otto N. Frenzel, III Irrevocable Trust II (filed as Exhibit 10(26) to Merchants National Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference). 10.19 Merchants National Corporation Director's Deferred Compensation Plan, as amended and restated August 16, 1983 (filed as Exhibit 10(3) to Merchants National Corporation Registration Statement as Form S-2 filed June 28, 1985, incorporated herein by reference).
II-2 54 EXHIBIT INDEX -- CONTINUED
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY ---------- ------------------------------------------------------------------ ---------------- 10.20 Merchants National Corporation Supplemental Pension Plan dated November 20, 1984; First Amendment to the Supplemental Pension Plans dated January 21, 1986; Second Amendment to the Supplemental Pension Plans dated July 3, 1989; and Third Amendment to the Supplemental Pension Plans dated November 21, 1990 (filed respectively as Exhibit 10(n) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1984; as Exhibit 10(q) to the Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1985; as Exhibit 10(49) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990; and as Exhibit 10(50) to the Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990; all incorporated herein by reference). 10.21 Merchants National Corporation Employee Benefit Trust Agreement, effective July 1, 1987 (filed as Exhibit 10(27) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1987, incorporated herein by reference). 10.22 Merchants National Corporation Non-qualified Stock Option Plan effective January 20, 1987, and the First Amendment to that Merchants National Non-qualified Stock Option Plan, effective October 16, 1990 (filed respectively as Exhibit 10(23) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1986, and as Exhibit 10(55) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both of which are incorporated herein by reference). 10.23 Merchants National Corporation 1987 Non-qualified Stock Option Plan, effective November 17, 1987, and the First Amendment to Merchants National Corporation 1987 Non-qualified Stock Option Plan, effective October 16, 1990, (filed respectively as Exhibit 10(30) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1987, and as Exhibit 10(61) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both of which are incorporated herein by reference). 10.24 Merchants National Corporation Directors Non-qualified Stock Option Plan and the First Amendment to Merchants National Corporation Directors Non-qualified Stock Option Plan effective October 16, 1990 (filed respectively as Exhibit 10(44) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1988, and as Exhibit 10(68) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both of which are incorporated herein by reference). 10.25 Central Indiana Bancorp Option Plan effective March 15, 1991 (filed as Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.26 Central Indiana Bancorp 1993 Option Plan effective October 12, 1993 (filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference).
II-3 55 EXHIBIT INDEX -- CONTINUED
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY ---------- ------------------------------------------------------------------- --------------- 10.27 Forms of contracts with David A. Daberko, William R. Robertson, Vincent A. DiGirolamo, William E. MacDonald III, Jon L. Gorney, Harold B. Todd, Jr., Robert G. Siefers, Robert J. Ondercik, Jeffrey D. Kelly, David L. Zoeller, Thomas A. Richlovsky, James P. Gulick, Gary A. Glaser, J. Christopher Graffeo and Morton Boyd (filed as Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.28 Split Dollar Insurance Agreement effective January 1, 1994 between National City Corporation and those individuals listed in Exhibit 10.27 and other key employees. (filed as exhibit 10.28 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.29 Stock Option Agreement, dated as of August 27, 1995 by and between National City Corporation and Integra Financial Corporation (filed as Exhibit 2.2 to Form 8-K dated August 30, 1995 and incorporated herein by reference). 10.30 Stock Option Agreement, dated as of August 27, 1995 by and between National City Corporation and Integra Financial Corporation (filed as Exhibit 2.3 to Form 8-K dated August 30, 1995 and incorporation herein by reference). 10.31 National City Corporation Short-Term Incentive Compensation Plan for Senior Officers--Corporate Results As Amended and Restated Effective January 1, 1996. 11.1 Computation of Earnings per share. (Filed as Exhibit 11.1) 21.1 Subsidiaries. (Filed as Exhibit 21.1) 23.1 Consent of Ernst & Young LLP, Independent Auditors for NCC. (Filed as Exhibit 23.1) 24.1 Powers of Attorney. (Filed as Exhibit 24.1) 27.1 Financial Data Schedule (Filed as Exhibit 27.1).
II-4 EX-10.31 2 NATIONAL CITY EXHIBIT 10.31 1 EXHIBIT 10.31 Exhibit Index NATIONAL CITY CORPORATION SHORT-TERM INCENTIVE COMPENSATION PLAN FOR SENIOR OFFICERS -- CORPORATE RESULTS AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996 ARTICLE 1. THE PLAN AND ITS PURPOSE 1.1 AMENDMENT, RESTATEMENT AND DIVISION OF THE PREDECESSOR PLAN. This National City Corporation Short-Term Incentive Compensation Plan for Senior Officers -- Corporate Results (herein referred to as the "Plan) is hereby adopted, effective January 1, 1995. to provide for the operation of the Plan on and after such date and to govern the treatment, of deferrals made under this Plan. 1.2 PURPOSE. The purpose of the Plan is to maximize the Corporation's profitability and operating success by providing an incentive to Senior Officers to achieve superior results. The Plan is designed to promote teamwork to achieve overall corporate success and to motivate individual excellence. 1.3 OPERATION OF THE PLAN. The Plan shall be administered by the Compensation and Organization Committee of the Board of Directors of the Corporation. The Plan operates on a calendar year basis and is subject to the review, interpretation, and administration by such Committee. The Plan governs the eligibility for and amounts of incentive compensation to be awarded under the Plan. With respect to any award made under the Plan, however, the Plan shall serve as a non-qualified plan providing for and governing the treatment of deferred compensation at the election of the Participant and/or the Committee, as provided herein. 2 ARTICLE 2. DEFINITIONS 2.1 DEFINITIONS. Whenever used herein, the following terms shall have the meanings set forth below, unless otherwise expressly provided. When the defined meaning is intended, the term is capitalized. (a) "Award" shall mean the payment earned by a Participant based on an evaluation of the Corporation's actual results measured against the performance of a peer group of companies. (b) "Base Salary" shall mean the annual salary as of the day prior to the commencement of a Plan Cycle, exclusive of any bonuses, incentive pay, special awards, or stock options. (c) "Board" shall mean the Board of Directors of the Corporation. (d) "Committee" shall mean the Compensation and Organization Committee of the Board, or another committee appointed by the Board to serve as the administering committee of the Plan. (e) "Corporation" shall mean National City Corporation, a Delaware corporation. (f) "Disability" shall mean permanent disability as defined in the provisions of the National City Corporation Long Term Disability Plan. (g) "Early Retirement" shall mean early retirement as defined in the provisions of the National City Corporation Non-Contributory Retirement Plan. (h) "Eligible Employee" shall mean a regular, active, full-time salaried employee of the Corporation or any of its subsidiaries who is employed in a position meeting the defined eligibility criteria for participation in the Plan, as set forth in Article 3. (i) "Employee" shall mean an individual employed by the Corporation or any corporation, organization or entity controlled by the Corporation. (j) "Fund" shall mean one of the Funds provided for in Article 9 hereof. (k) "Key Financial Ratios" shall mean those ratios frequently used by financial corporations to measure profitability and overall operating success. Such ratios may include but -2- 3 are not limited to: return on equity; return on assets; overhead ratio; and growth in earnings per share. With respect to any Plan Cycle the Committee shall determine, prior to the Plan Cycle, which ratios are the Key Financial Ratios to be used; thereafter, such Key Financial Ratio for such Plan Cycle shall not be changed. (l) "Normal Retirement" shall mean normal retirement as defined in the provisions of the National City Non-Contributory Retirement Plan, in other words, retirement by an Employee at or after age 65 if such Employee has completed 5 or more years of service at such age, or if he or she has not completed such service, at or after such later age when such Employee has completed such five years of service. (m) "Participant" shall mean an Eligible Employee who is approved by the Committee for participation in the Plan. Such approval shall be on a Plan Cycle basis and shall be reviewed with respect to each new Plan Cycle. (n) "Peer Group" shall mean a group of comparable corporations used to measure relative performance. Such Peer Group shall be established by the Committee prior to the commencement of each Plan Cycle; thereafter, such Peer Group for such Plan Cycle shall not be changed, provided however, that one or more members of a Peer Group shall be dropped therefrom in the event of a substantial change in circumstances relating to such member, such as a major merger or acquisition. (o) "Plan" shall mean this National City Corporation Short-Term Incentive Compensation Plan for Senior Officers -- Corporate Results Effective January 1, 1995. (p) "Plan Cycle" shall mean a period of a calendar year. 2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, any masculine terminology used herein also shall include the feminine, and the definition of any term in the singular shall include the plural. -3- 4 ARTICLE 3. ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY. Eligibility for participation in the Plan will be limited to those officers of the Corporation and its subsidiaries who, by the nature and scope of their position, play a key role in the management, growth and success of the Corporation, as determined by the Committee. 3.2 PARTICIPATION. Participation in the Plan (including a Participant's Category) shall be determined by the Committee with respect to each Plan Cycle prior to the commencement of the Plan Cycle, and shall not thereafter be changed with respect to such Plan Cycle. The Committee may base its decision upon the recommendation of the Chief Executive Officer of National City Corporation. The Committee shall classify Senior Officers for the purposes of the Plan into the following categories:
CATEGORY PERSONS INCLUDED -------- ---------------- Category I Chief Executive Officer of the Corporation Category II President and Deputy Chairmen of the Corporation, and similar officers Category III Executive Vice Presidents of the Corporation and the Chief Executive Officers of major subsidiaries of the Corporation, and similar officers Category IV Senior Officers of the Corporation and Executive Officers of major subsidiaries, and similar officers Categories V & VI All other officers of the Corporation or its subsidiaries who are approved for participation in the Plan by the Committee
The Committee shall from time to time designate, for purposes of this Plan, which subsidiaries of the Corporation are the major subsidiaries, which Senior Officers of the Corporation, which Executive Officers of the major subsidiaries and which other officers of the Corporation or of its subsidiaries are Senior Officers hereunder and are thus eligible to participate ("Eligible Employees"). -4- 5 Each Eligible Employee approved for participation shall be notified of the selection as soon after approval as is practicable and shall become a Participant upon acceptance by him or her of such selection. 3.3 PARTICIPATION FOR PART OF A PLAN CYCLE; CATEGORY CHANGES DURING A PLAN CYCLE. No Participant shall participate in this Plan for a portion of a Plan Cycle and changes in a Participant's category in mid-Plan Cycle shall not serve to change his or her participation in the Plan for the Plan Cycle which shall continue in the category he or she was in when the Plan Cycle started. 3.4 NO RIGHT TO PARTICIPATE. No Participant or Employee shall have a right at any time to be selected for current or future participation in the Plan. ARTICLE 4. PERFORMANCE MEASUREMENT 4.1 PERFORMANCE CRITERIA. Performance, for purposes of this Plan, will be measured by Corporate Results. Corporate Results will be measured by comparing corporate performance with respect to Key Financial Ratios to that of the Peer Group. Prior to the beginning of each Plan Cycle, the Committee shall establish the Peer Group, the Key Financial Ratios, and the levels of comparative performance at which the presumed Threshhold, Target and Maximum Awards will be provided under the Plan. The portion of a Participant's Base Salary to which the Corporate Results will apply will vary based on the corporate position of the Participant as follows:
PERCENT OF BASE SALARY CATEGORY(IES) CORPORATE ------------- ---------------------- I 90% II 80% III 60% IV 40% V & VI 20%
-5- 6 4.2 AWARD POTENTIAL. The amount of incentive compensation that shall be awarded to a Senior Officer under this Plan shall be expressed as a percentage of Base Salary. Such percentage shall equal the percentage set forth below depending upon the attainment of Target or Maximum results: PERCENT OF BASE COMPENSATION
Category Threshold Target Maximum -------- --------- ------ ------- I 0% 15.5% II 0% 15% III 0% 18% IV - Revenue Producing 0% 21% 48% IV - Non-Revenue Producing 15% 21% V - Revenue Producing 0% 20% 42% V - Non-Revenue Producing 10% 20% 32% VI 0% 12.5% 25%
4.3 AWARD CALCULATION AND APPROVAL. The amount of the Award for each Participant for each Plan Cycle will be calculated as of the December 31 on which the Plan Cycle ends by applying the foregoing provisions of this Article 4 to the Corporate Results for such Plan Cycle. All such Awards may, for convenience purposes, be normally expressed as a percentage of Base Salary. Upon the close of the Plan Cycle the amounts of Awards hereunder for such Plan Cycle shall be final. ARTICLE 5. PAYMENT OF AWARDS 5.1 FORM AND TIMING OF PAYMENT OF FINAL AWARDS. Within 90 days after the end of the Plan Cycle, the Participant shall be entitled to receive a cash payment equal to the entire amount of the Award, if any. Unless otherwise provided for in Paragraph 5.2, a Participant, to receive an Award hereunder, must be an Employee on the December 31 on which the Plan Cycle ends. The Committee may terminate any Participant's Award up to the time of payment if such -6- 7 Participant fails to continue to be an Employee for reasons other than death, disability or retirement. 5.2 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT, DISABILITY OR DEATH. In the event a Participant's employment is terminated by reason of Normal Retirement, Disability or Death during a Plan Cycle, the Participant shall be eligible to receive a prorated Award based on performance while employed, provided however, that the Participant must have been a Participant in the Plan for at least three months of the Plan Cycle to be eligible to receive any Award hereunder. Such Awards will be paid within ninety (90) days following the end of the Plan Cycle. In the event of death, the Award will be paid to the Participant's estate. 5.3 REQUEST TO DEFER PAYMENT; DEFERRED PAYMENTS. A Participant may elect to request to have a portion or all of his or her Award for such Plan Cycle deferred and paid out at a future date. Such request shall be considered by the Committee. The Committee may determine that some, all or none of the Awards, or parts thereof, shall be deferred. Deterred amounts are subject to the provisions of Article 9. ARTICLE 6. RIGHTS OF PARTICIPANTS 6.1 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any way the right of the Corporation to terminate a Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation or any subsidiary of the Corporation. 6.2 RESTRICTIONS ON ASSIGNMENTS. The interest of a Participant or his or her beneficiary under this Plan may not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are payable, nor shall they be subject to garnishment, attachment, or other legal or equitable process, nor shall they be an asset in bankruptcy. -7- 8 ARTICLE 7. ADMINISTRATION 7.1 ADMINISTRATION. The Plan shall be administered by the Committee in accordance with any administrative guidelines and any rules that may be established from time to time by the Committee. The Committee shall have full power and authority to interpret, construe and administer the Plan and its interpretations and construction hereof, and actions hereunder, including the timing, form, amount or recipient of any payment to be made hereunder, and its decisions shall be binding and conclusive on all persons for all purposes. The Committee may name assistants who may be, but need not be, members of the Committee. Such assistants shall serve at the pleasure of the Committee, and shall perform such functions as may be assigned by the Committee. No member of the Committee or any assistant shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own willful misconduct or lack of good faith. ARTICLE 8. REQUIREMENTS OF LAW 8.1 LAWS GOVERNING. This Plan shall be construed in accordance with and governed by the laws of the State of Ohio. 8.2 WITHHOLDING TAXES. The Corporation shall have the right to deduct from all payments under this Plan any federal or state taxes required by the law to be withheld with respect to such payments. 8.3 PLAN BINDING ON CORPORATION, EMPLOYEES AND THEIR SUCCESSORS. This Plan shall be binding upon and inure to the benefit of the Corporation, its successors and assigns and each Participant and his or her beneficiaries, heirs, executors, administrators and legal representatives. ARTICLE 9. DEFERRAL OF AWARDS 9.1 ELECTION TO REQUEST DEFERRAL OF AWARD; DEFERRAL PERCENTAGE. Prior to each Plan Cycle, the Committee shall determine which Participants, if any, shall be eligible to make deferral elections under this Plan. Each Participant who is therefore eligible to elect to request -8- 9 deferral of a portion or all of his or her Award for such Plan Cycle shall be given the opportunity prior to such Plan Cycle to make such request. Such election and the percentage of Award requested to be deferred shall be irrevocable and fixed with respect to such Participant and such Plan Cycle from and after the December 31 of the year prior to the Plan Cycle. The request and determination of the portion of the Award to be deferred shall be made in terms of 10% increments of the Award. Promotion or demotion during a Plan Cycle shall not affect the fixed and irrevocable nature of a deferral request made prior to such Plan Cycle for such Plan Cycle. 9.2 DEFERRAL OF AWARDS; COMMITTEE'S DECISION. Notwithstanding any request to defer none, a portion, or all of an Award hereunder submitted by a Participant pursuant to Section 9.1 above, the Committee shall make the decision, in each case, whether or not to defer any portion or all of any Participant's Award with respect to any Plan Cycle. Such decision shall be made in the discretion of the Committee. The Committee's discretion extends to the percentage of any Award to be deferred. The Committee's decision shall be final and binding on all parties. Any amount to be deferred shall not be paid to the Participant but shall be deferred as provided in this Article 9. 9.3 ACCOUNTS. An account shall be established and maintained by the Corporation in the name of each Participant who has deferred compensation hereunder. Such accounts shall remain a part of the general liabilities of the Corporation and nothing in this Plan shall be deemed to create a trust or fund of any kind or any fiduciary relationship. Each Account shall be comprised of six sub-accounts: (a) the "Savings Account Fund; (b) the "NCC Stock Fund"; (c) the "Equity Fund"; (d) the "Fixed Income Fund"; (e) the "Money Market Fund"; and (f) the "Capital Preservation Fund"; such sub-accounts jointly are herein called the "Funds"." 9.4 CREDITING TO ACCOUNTS. As of the dates of payment of cash Awards made under this Plan the amount of the Award to be deferred for each Participant under this Section 9 shall be credited to such Participant's Account, and shall correspondingly be credited to the Fund or Funds selected by the Participant. -9- 10 9.5 FUNDS. The five Funds hereunder other than the Savings Account Fund (such five Funds being herein called "Parallel Funds") are designed to reflect the five investment funds currently maintained in the National City Savings and Investment Plan (the "SIP"). Accordingly, each such Parallel Fund and each Participant's Account therein shall be adjusted hereunder as of the end of each month to reflect the income, gain or loss of the corresponding SIP investment fund for such month, as calculated and published on a monthly basis by the Trustee of the SIP. In the event the SIP no longer offers a fund corresponding to one of the Parallel Funds, the amounts which would have been deemed invested in such Parallel Fund except for this provision shall be deemed to be invested in the Savings Account Fund. 9.6 SAVINGS ACCOUNT FUND. Amounts deferred to the Savings Account Fund shall be credited to the Participant's Account in such Fund as of the date that other Awards for such Plan Cycle are paid or would be paid, and interest shall be credited on amounts in the Participant's Account in such Fund at the end of each calendar quarter in amount equal to interest on the average credit balance in such Account during such calendar quarter, at the highest published rate being paid by National City Bank on savings or time deposits of less than $100,000 on the last day of such quarter, regardless of maturity. 9.7 SELECTION OF FUNDS. Each Participant (and each Beneficiary of a deceased Participant) may select the Investment Fund or Funds he or she wishes to be used hereunder for his or her account. The selection of Funds shall be made in portions of the amount deferred equal to 5% of the total of such amounts. In the event no election is made by a Participant (or Beneficiary) his or her account shall be deemed invested in and credited to the Savings Account Fund. Selection of Funds by Participants shall be made no later than the December 1 of the Plan Cycle for which the Award is to be made in advance of the deferral or payment of the Award; provided however, that in the event a Participant who has not requested a deferral of any part of his or her Award nevertheless has a portion thereof deferred by decision of the Committee, then in such event, such Participant shall be given an election period of 10 days to -10- 11 determine appropriate investments, such period running from the date of his or her notification of the Committee's action. 9.8 NO CHANGE OF INVESTMENT FUND SELECTION PERMITTED EXCEPT WITH COMMITTEE APPROVAL. Each selection of a Fund hereunder shall be final and shall not thereafter be revised or changed, provided, however, that each Participant (or Beneficiary if the Participant is deceased) may request a change in his or her Investment Fund choice by filing such request with the Committee. Notwithstanding the foregoing, the consent of the Committee shall be necessary for any such change in investment fund choices; such consent is discretionary in the Committee and the Committee shall act upon such requests as are filed with it at the Committee's next regularly scheduled meeting. 9.9 VESTING OF DEFERRED AMOUNTS. Amounts of Awards made and deferred under the Plan, and earnings and gains thereon, are always 100% vested. 9.10 MANNER OF DISTRIBUTION. Except as otherwise provided herein, distributions hereunder shall take place over a period of ten years commencing on the retirement, death or other termination of employment of the Participant. The first distribution shall take place on the February 1 of the calendar year following the calendar year in which such retirement, death or other termination occurs. Succeeding payments shall be made on succeeding February 1sts. The amount to be distributed shall be determined by multiplying (i) the dollar value of the Participant's entire interest hereunder on the date of such installment, by (ii) a fraction, the numerator of which is one, and the denominator of which is the number of distributions remaining unpaid at such time, or by such other method as may be adopted by the Committee. The balances of each Account and each Investment Fund shall be appropriately reduced to reflect the distribution payments made. Amounts held pending distribution pursuant to this Paragraph 9.10 shall continue to be credited with appropriate income, gains and losses as herein otherwise provided and shall be subject to investment changes as herein provided. -11- 12 Balances in more than one Fund shall be reduced pro-rata to reflect distributions on a pro-rata basis from each Fund. 9.11 ACCELERATED PAYMENTS; REVISED DISTRIBUTIONS. Notwithstanding the foregoing, the Committee may determine that a Participant's interest hereunder which equals $100,000 or less shall be paid out in a lump sum. Furthermore, the Committee may determine that a lump sum distribution should be made to a Participant who has terminated employment by means other than death, disability or retirement. In the event such determination is made, such lump sum distribution shall be made as of the next succeeding February 1, or at such other time as may be determined by the Committee. In the case of the first distribution after the death of a Participant, the Committee may, in its discretion, provide for payment of a portion or all of the distribution prior to the February 1 after such death. Notwithstanding any other provision hereof, the Committee, in its discretion, may provide that distributions may be made in a lesser number of installments, but not less than 5. 9.12 BENEFICIARY DESIGNATIONS. Each Participant, and each Beneficiary of a deceased Participant or Beneficiary hereunder, may designate, on a Beneficiary Designation form supplied by the Committee, any person or persons to whom payments are to be made if the Participant (or Beneficiary) dies before receiving payment of all amounts due hereunder. A beneficiary designation will be effective only after the signed Beneficiary Designation form is filed with an officer of the Corporation designated by the Committee for such purpose while the Participant (or Beneficiary) is alive, and will cancel all beneficiary designations signed and filed earlier. If the Participant (or Beneficiary) fails to designate a beneficiary as provided above, or if all designated beneficiaries die before the Participant or before complete payment of all amounts due hereunder, remaining unpaid distribution amounts shall be paid to the then surviving spouse of the Participant, if any, or, if there be none, in one lump sum to the estate of the last to die of the Participant or his or her designated beneficiaries, if any. -12- 13 In the event a Participant (or a Beneficiary of a deceased Participant) designates as a Beneficiary any so called "marital deduction trust" or any so called "qualified income trust", the Participant (or Beneficiary) may additionally indicate whether the dollar equivalent of the current income, during the distribution of an interest hereunder, should be distributed yearly to such Beneficiary. In the event of such an indication, such income shall be distributed at least annually. 9.13 PARTICIPANTS RIGHTS; BENEFICIARIES RIGHTS. Except as otherwise specifically provided, neither a Participant nor any of his or her Beneficiaries has rights under this Plan. The payment of deferred compensation shall be a general, unsecured obligation of the Corporation to be paid by the Corporation from its own funds, and such payments shall not impose any obligation upon any trust fund for any tax qualified plan, be paid from any such trust fund, or have any effect whatsoever upon the SIP or the payment of benefits from the Trust Fund under the SIP. No Participant or beneficiary shall have any title to or beneficial ownership in any assets which the Corporation may earmark to pay benefits hereunder. 9.14 NATURE OF DEFERRED COMPENSATION. The election of deferred compensation under this Plan and any setting aside by the Corporation of amounts with which to discharge its deferred obligations hereunder in a trust fund, an insurance policy, or otherwise, shall not be deemed to create a right in any person; equitable title to any funds so set aside in a trust, an insurance policy, or otherwise shall remain in the Corporation, and any recipient of benefits hereunder shall have no security or other interest in such trust, policies or funds. Any and all funds so set aside in a trust, an insurance policy or otherwise shall remain subject to the claims of the general creditors of the Corporation, present and future. This provision shall not require the Corporation to set aside any funds, but the Corporation may set aside such funds if it chooses to do so. Any amount so set aside for this Plan shall be accounted for separately and apart from any other plan of the Corporation. This Plan is intended to constitute an unfunded plan of deferred compensation described in Section 201(2) of the Employee Retirement Income Security Act of 1974. -13- 14 9.15 DISTRIBUTIONS IN CASH. Notwithstanding any other provision of this Plan, distributions hereunder shall be made only in cash and shall be subject to withholding of applicable taxes. 9.16 NATURE OF DEFERRED COMPENSATION PLAN. The Plan relating to deferred compensation, unlike the provisions of this Plan relating to determinations of Awards, etc. which serve only as a guide, is fixed and final in its provisions unless and until amended, revised or terminated as herein provided. ARTICLE 10. FORFEITURES Notwithstanding any provision in this Plan to the contrary, in the event the Committee finds (a) that an Employee or former Employee who has an interest under this Plan has been discharged by his or her employer (such employer being National City Corporation or any corporation, organization or entity controlled by National City Corporation) in the reasonable belief (and such reasonable belief is the reason or one of the reasons for such discharge) that the Employee or former Employee did engage in fraud against National City Corporation or anyone else, or (b) that an Employee or former Employee who has an interest under this Plan has been convicted of a crime as a result of which it becomes illegal for his Employer to employ him or her, then any amounts held under this Plan for the benefit of such Employee or former Employee or his or her beneficiaries shall be forfeited and no longer payable to such Employee or former Employee or to any person claiming by or through such Employee or former Employee. ARTICLE 11. MISCELLANEOUS In the event of the liquidation of the Corporation, the Committee may make any alterations for holding, handling and distributing the amounts standing to the credit of the Participants or beneficiaries hereunder which, in the discretion of the Committee, are appropriate -14- 15 and equitable under all circumstances and which are consistent with the spirit and purposes of these provisions. ARTICLE 12. AMENDMENT AND DISCONTINUANCE The Corporation expects to continue this Plan indefinitely, but reserves the right, by action of its shareholders, to amend it from time to time, or to discontinue it. However, if the Corporation should amend or discontinue this Plan, the Corporation shall remain obligated under the Plan with respect to Awards made final (and thus payable) by decision by the Committee prior to the date of such amendment or discontinuance, and with respect to amounts deferred prior to such date. ARTICLE 13. CHANGE OF CONTROL 13.1 TREATMENT OF AWARDS. In the event of a Change in Control, as defined below, the Corporation shall pay to each Participant who is an Active Participant in a Plan Cycle on the effective date of such Change in Control, a lump sum cash payment equal to the amount hereinafter determined. Such payment shall be payable in cash to the Participant prior to or after the effective date of such Change in Control and shall be payment in full to each such Participant for each such Plan Cycle, each of which shall be deemed terminated by operation of this Article 13. No further Plan Cycles shall commence thereafter under this Plan. Such cash payment shall be made without regard to any request to defer made with respect to any such Plan Cycle (which shall be inoperative) and without regard to any action by the Committee. Amounts deferred under this Plan (by request, Award, and deferral as decided by the Committee) shall continue to be payable from time to time under this Plan as deferred payments hereunder. 13.2 AMOUNT OF PAYMENT. The Amount of the payment to be made as a consequence of a Change in Control shall, with respect to each Plan Cycle, be equal to the maximum Award which could be paid hereunder for each Participant. -15- 16 13.3 DEFINITION OF CHANGE IN CONTROL. Change in Control means the occurrence of any of the following events: (a) The Corporation is merged, consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than seventy percent of the combined voting power of the then- outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (b) The Corporation sells or otherwise transfers all or substantially all of its assets to another corporation or other legal person, and as a result of such sale or transfer less than seventy percent of the combined voting power of the then- outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock of the Corporation immediately prior to such sale or transfer; (c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 15% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Corporation ("Voting Stock"); (d) The Corporation files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Corporation has occurred or will occur in the future pursuant to any then-existing contract or transaction; or -16- 17 (e) If, during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Corporation cease for any reason to constitute at least a majority thereof; provided, however, that for purposes of this clause (e) each Director who is first elected, or first nominated for election by the Corporation's stockholders, by a vote of at least two-thirds of the Directors of the Corporation (or a committee thereof) then still in office who were Directors of the Corporation at the beginning of any such period will be deemed to have been a Director of the Corporation at the beginning of such period. Notwithstanding the foregoing provision of Sections (c) or (d) above unless otherwise determined in a specific case by majority vote of the Board, a "Change in Control" shall not be deemed to have occurred for purposes of Sections (c) or (d) above, solely because (1) the Corporation, (2) an entity in which the Corporation directly or indirectly beneficially owns 50% or more of the voting equity securities (a "Subsidiary"), or (3) any employee stock ownership plan or any other employee benefit plan of the Corporation or any Subsidiary either files or becomes obligated to file a report or proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 15% or otherwise, or because the Corporation reports that a change in control of the Corporation has occurred or will occur in the future by reason of such beneficial ownership. Executed this ____ day of _____________, 1994 at Cleveland, Ohio. NATIONAL CITY CORPORATION By: _____________________________ Chairman -17- EX-11.1 3 NATIONAL CITY EXHIBIT 11.1 1 EXHIBIT (11.1) -- COMPUTATION OF EARNINGS PER SHARE NATIONAL CITY CORPORATION (Dollars in Thousands, Except Per Share Amounts)
FOR THE CALENDAR YEAR ================================================== 1995 1994 1993 ============ ============= ============== PRIMARY: ================== Net Income $465,109 $429,434 $403,997 Less Preferred Dividend Requirements 14,830 15,200 15,966 ----------- ------------- -------------- Net Income Applicable to Common Stock $450,279 $414,234 $388,031 ============ ============= ============== Average Common Shares Outstanding 148,851,462 153,353,555 161,163,816 ============ ============= ============== Net Income Per Share - Primary $3.03 $2.70 $2.41 ============ ============= ============== ASSUMING FULL DILUTION: ==================================== Net income $465,109 $429,434 $403,997 ============ ============= ============== Average Common Shares Outstanding 148,851,462 153,353,555 161,163,816 Pro Forma Effect of Assumed Conversion of 8% Cumulative Convertible Preferred Stock 8,839,872 8,941,907 9,455,420 Pro Forma Average Fully Diluted Common Shares Outstanding Assuming Exercise of all Outstanding Stock Options as of the Beginning of Year or Date of Grant, if Later 67,491 80,038 64,276 Pro Forma Fully Diluted Common ------------ ------------- -------------- Shares Outstanding 157,758,825 162,375,500 170,683,512 ============ ============= ============== Pro Forma Fully Diluted Net Income Per Share $2.95 $2.64 $2.37 ============ ============= ==============
EX-21.1 4 NATIONAL CITY EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES The following table sets forth all of National City Corporation's direct or indirect subsidiaries, as of December 31, 1995.
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ----------- SUBSIDIARIES OF NATIONAL CITY CORPORATION: American Fidelity Bank, FSB 100% Kentucky American Fidelity Bank and Trust Company 100% Kentucky Bank of Danville and Trust Company 100% Kentucky Buckeye Service Corporation 100% Ohio Circle Equity Leasing Corporation of Michigan 100% Michigan Circle Leasing Corporation 100% Indiana Cortland Bancorp 7.15% Ohio The First National Bank and Trust Company 100% Kentucky First National Bank & Trust Co. of Woodford 100% Kentucky County The First State Bank & Trust Company of 100% Kentucky Manchester, Kentucky Gem America Realty and Investment Corp. 100% Ohio The London Bank & Trust Co. 100% Kentucky Madison Bank & Trust Company 100% Indiana Merchants Capital Management, Inc. 100% Indiana
2
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ----------- SUBSIDIARIES OF NATIONAL CITY CORPORATION: Merchants Mortgage Corporation 100% Indiana Merchants Service Corporation 100% Indiana Money Station, Inc. 100% Ohio Mortgage Company of Indiana, Inc.-- 100% Indiana Name changed to Commercial Servicing National Asset Management Corporation 100% Kentucky National City Bank 100% United States National City Bank, Ashland 99.5% United States National City Bank, Columbus 100% United States National City Bank, Dayton 100% United States National City Bank, Indiana 100% United States National City Bank, Kentucky 100% United States National City Bank, Northeast 100% United States National City Bank, Northwest 100% United States National City Bank, Southern Indiana 100% United States National City Capital Corporation 100% Delaware National City Community Development Corporation 100% Ohio National City Credit Corporation 100% Ohio National City Financial Corporation 100% Ohio National City Holding Company 100% Delaware National City Investments Capital, Inc. 100% Indiana National City Life Insurance Co. 100% Arizona National City Mortgage Company 100% Ohio National City Processing Company 100% Kentucky National City Trust Company 100% United States National City Venture Corporation 100% Delaware NC Acquisition, Inc. (inactive) 100% Delaware Ohio National Corporation Of Columbus 100% Ohio Richmond Bank and Trust Company 100% Kentucky Second Premises Corporation 100% Kentucky
2 3
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ----------- SUBSIDIARIES OF NATIONAL CITY BANK: Capstone Realty, Inc. 100% Ohio National City Investments Corporation 100% Kentucky SUBSIDIARY OF NATIONAL CITY BANK, NORTHEAST: AKREO Service Corporation 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK, COLUMBUS: Scott Street Properties, Inc. 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK, KENTUCKY: Churchill Insurance Agency, Inc. 100% Kentucky First National Broadway Corp. 100% Kentucky First Premises Corporation 100% Kentucky FNB Service Corporation 100% Kentucky National Capital Properties, Inc. 100% Kentucky National City Leasing Corporation 100% Kentucky NCBK Holdings, Inc. 100% Delaware SUBSIDIARIES OF NATIONAL CITY PROCESSING COMPANY: B&L Consultants, Inc. 100% Massachusetts NPC Check Cashing, Inc. 100% Delaware NPC Internacional, S.A. de C.V. 99.6% Mexico SUBSIDIARY OF GEM AMERICA REALTY & INVESTMENT CORP.: Gem Financial Insurance Agency, Inc. 100% Ohio
3 4
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ----------- SUBSIDIARIES OF NATIONAL CITY BANK, INDIANA: Ash Realty Company, Inc. 100% Indiana Bank Service Corporation of Indiana 33 1/3% Indiana MNB Financial Corporation 100% Indiana MNB Trustee Co., (UK) Ltd. 50%(1) United Kingdom SUBSIDIARY OF MADISON BANK & TRUST COMPANY: National City Insurance Agency, Inc. 100% Indiana SUBSIDIARY OF MNB FINANCIAL CORPORATION: Indiana Plaza Leasing, Inc. 100% New York SUBSIDIARY OF ASH REALTY COMPANY, INC.: Sterling Equities Corp. 100% Indiana
- -------- (1) Additional 50% Owned by National City Bank. 4 EX-23.1 5 NATIONAL CITY EXHIBIT 23.1 1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in Registration Statement No. 33-39479 on Form S-3, Registration Statement No. 33-39480 on Form S-3, Registration No. 33-44209 on Form S-3, Post-Effective Amendment No.1 (on Form S-8) to Registration Statement No. 33-20267 on Form S-4, Registration Statement No. 33-52271 on Form S-8, Registration Statement No, 33-45363 on Form S-8, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-45980 on Form S-4, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-56539, Registration Statement No. 33-57045 on Form S-8, Registration Statement No. 33-54323 on Form S-3, and Registration Statement No. 33-58815 on Form S-8 of our report date January 22, 1996, with respect to the consolidated financial statements of National City Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1995. Ernst & Young LLP Cleveland, Ohio January 30, 1996 EX-24.1 6 NATIONAL CITY EXHIBIT 24.1 1 EXHIBIT 24.1 POWER OF ATTORNEY The undersigned Directors and Officers of National City Corporation, a Delaware corporation (the "Corporation"), which anticipate filing a Form 10-K annual report pursuant to Section 12(g) Securities and Exchange Commission Act of 1934 for the Corporation's fiscal year ended December 31, 1995, with the Securities and Exchange Commission hereby constitute and appoint David L. Zoeller, Carlton E. Langer and Thomas A. Richlovsky, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for us and in our names, in the capacities indicated below, said Form 10-K, and any and all amendments and exhibits thereto, or other documents to be filed with the Securities and Exchange Commission pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as we could do if personally present, hereby ratifying and approving the acts of said attorneys, and any of them, and any such substitute. EXECUTED this 18th day of December, 1995. /s/ Sandra H. Austin Director - -------------------- Sandra H. Austin /s/ James M. Biggar Director - ------------------- James M. Biggar /s/ Charles H. Bowman Director - --------------------- Charles H. Bowman /s/ Edward B. Brandon Director - --------------------- Edward B. Brandon /s/ John G. Breen Director - ----------------- John G. Breen
2 /s/ Duane E. Collins Director - -------------------- Duane E. Collins /s/ David A. Daberko - -------------------- Chairman of the Board and Chief David A. Daberko Executive Officer (Principal Executive Officer) - --------------------------- Director Richard E. Disbrow /s/ Daniel E. Evans Director - -------------------- Daniel E. Evans /s/ Otto N. Frenzel III Director - ----------------------- Otto N. Frenzel III /s/ Bernadine P. Healy, M.D. Director - ---------------------------- Bernadine P. Healy, M.D. /s/ Joseph H. Lemieux Director - --------------------- Joseph H. Lemieux /s/ W. Bruce Lunsford Director - --------------------- W. Bruce Lunsford /s/ A.Steven Miles Director - ------------------ A. Steven Miles
2 3 /s/ William R. Robertson Director and President - ------------------------ William R. Robertson /s/ Stephen A. Stitle Director - --------------------- Stephen A. Stitle /s/ Morry Weiss Director - --------------- Morry Weiss
3 EX-27.1 7 NATIONAL CITY EXHIBIT 27.1
9 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 2,637,049 51,207 724,564 23,715 4,949,654 0 0 26,222,819 490,679 36,199,010 25,200,508 6,099,299 762,870 1,215,356 582,183 0 185,400 2,153,394 36,199,010 2,206,199 293,369 33,545 2,533,113 858,418 1,212,028 1,321,085 97,482 24,076 1,470,654 669,718 669,718 0 0 465,109 3.03 2.95 4.44 125,300 38,600 0 0 469,019 145,593 60,578 490,679 254,323 256 236,100
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