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National City Corporation Logo 1993 Annual Report
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FINANCIAL HIGHLIGHTS
(Dollars in Thousands Except Per Share Amounts) 1993 1992 Percent Change
- ------------------------------------------------------------------------------------------
FOR THE YEAR:
Net Income $403,997 $346,923 16%
Preferred Dividend Requirements 15,966 16,000 --
Net Income Applicable to Common Stock 388,031 330,923 17
Net Income Per Common Share 2.41 2.09 15
Dividends Paid Per Common Share 1.06 .94 13
Return on Average Common Equity 16.12% 15.31%
Return on Average Assets 1.40 1.21
Net Interest Margin 4.80% 4.65%
Efficiency Ratio 66.21 68.22
Overhead Ratio 44.34 48.93
AT YEAR-END:
Assets $31,067,709 $28,963,473 7%
Loans 21,286,141 18,737,565 14
Securities 5,166,226 5,498,539 (6)
Deposits 23,063,021 22,585,324 2
Common Stockholders' Equity 2,564,957 2,299,886 12
Stockholders' Equity 2,763,267 2,499,886 11
Equity to Assets Ratio 8.89% 8.63%
Tier 1 Capital Ratio 8.94 9.90
Total Risk-Based Capital Ratio 11.62 12.23
Leverage Ratio 8.18 8.22
Book Value Per Common Share $16.15 $14.54 11%
Market Value Per Common Share 24.50 24.81 (1)
Common Shares Outstanding 158,779,611 158,167,180 --
Common Stockholders of Record 20,842 18,318 14%
Full-Time Equivalent Employees 19,960 18,766 6
Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
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CONTENTS
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Financial Highlights INSIDE FRONT COVER Notes to Financial Statements 26
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Letter to Stockholders 1 Quarterly Data 36
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Financial Review 4 Form 10-K 37
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Statistical Data 19 Corporate Directory 41
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Financial Statements 22 Board of Directors/Officers 43
================================================================================
CORPORATE PROFILE
National City Corporation is a $31 billion bank
holding company headquartered in Cleveland, Ohio. The
Corporation's principal banking subsidiaries are located in
Cleveland, Columbus, Indianapolis, and Louisville. Other
member banks are located in Akron, Dayton, Lexington,
Toledo, and Youngstown.
National City subsidiaries and divisions offer a wide
range of other financial services, such as credit card, retail
payment and airline ticket processing, brokerage services,
trust and investment management, leasing, merchant and
mortgage banking, public finance, venture capital, small
business and community investment, and credit life insurance.
- ---------------------------------------------------------------
ANNUAL MEETING
The Annual Meeting of Stockholders will be on
Monday, April 25, 1994, at 10:00 a.m.:
COVER: National City Corporation
Major markets 1900 East Ninth Street, 4th floor
Cleveland, Ohio 44114
3
TO OUR STOCKHOLDERS
We are pleased to report that
continued improvements in credit
quality and expense control and
the successful assimilation of
acquisitions resulted in record
earnings for 1993.
Net income for 1993 was
$404.0 million, or $2.41 per
common share, compared with
$346.9 million or $2.09 per
common share in 1992, an
increase of 15.3 percent per share.
In recognition of this strong
performance, the Board of Directors
increased the quarterly dividend,
payable February 1, 1994, to
$.29 per share. This follows two
dividend increases in 1993. The
new quarterly dividend indicates
an annual rate of $1.16 per share,
11.5 percent higher than a year ago.
Return on average assets rose to
1.40 percent, compared with
1.21 percent last year, and return
on average common equity rose to
16.12 percent, compared with
15.31 percent a year ago. These
returns are among the best in the
banking industry and are higher
than the Corporation's historical
returns. The return on common
equity is of particular significance,
given that National City has one of
the strongest capital positions in
the industry. To better manage the
capital position and assure
continued high returns, two stock
repurchase programs were
authorized in 1993. The ongoing
from left: David A. Daberko
President & Chief Operating Officer
Edward B. Brandon
Chairman & Chief Executive Officer
William R. Robertson
Deputy Chairman
acquisition of shares is tangible
evidence of our commitment to
stockholder value.
National City's provision for loan
losses and other credit quality costs
continued to decline throughout
1993, with the provision at
$93.1 million for the year, compared
with $129.4 million in 1992.
Nonperforming assets, which have
declined steadily over the past three
years, totaled $209.2 million at
year-end 1993, down 43 percent
from a year ago; nonperforming
assets at year-end represented less
than one percent of total loans and
foreclosed real estate. While the
banking industry overall has shown
"...NATIONAL CITY HAS ONE
OF THE STRONGEST CAPITAL
POSITIONS IN THE
INDUSTRY. TO BETTER
MANAGE THIS CAPITAL
POSITION ... TWO STOCK
REPURCHASE PROGRAMS
WERE AUTHORIZED IN
1993. THE ONGOING
ACQUISITION OF SHARES IS
TANGIBLE EVIDENCE OF
OUR COMMITMENT TO
STOCKHOLDER VALUE."
4
marked improvement in asset
quality, National City's asset
quality has improved at a faster
pace than that of our peer group.
Loan growth was relatively slow in
1993, with the exception of resi-
dential mortgages. The reported
year-end loan totals were bolstered
by the October 1993 purchase of
Ohio Bancorp, a $1.6 billion bank
holding company headquartered in
Youngstown, Ohio. Net interest
margins for the year remained
robust. In 1994, we expect that an
improving economy will generate
better loan volume, but at narrower
spreads.
REDUCING NONINTEREST EXPENSE
Last year we successfully completed
an internal cost reduction program
called "Vision" and Captured
additional expense savings
associated with the acquisition of
National City Bank, Indiana
(formerly Merchants National
Corporation). Since the Vision
program was announced in July
1991, all areas of the Corporation
have been studied for potential cost
savings. As the result of a superb
effort on the part of our employees,
we will capture nearly $100 million
in permanent annual expense
reductions, the majority of which
will be realized by the end of 1994.
Further, National City Bank,
Indiana, reduced its expense base
by $30 million in 1993, with
additional reductions projected for
1994. Overall, noninterest expenses
were up less than three percent in
1993; excluding acquisitions, they
were down almost two percent.
These achievements reinforce
National City's reputation as an
efficient, low-cost producer.
ASSIMILATING ACQUISITIONS
With the completion of the Ohio
Bancorp acquisition in October, we
are bringing new products, services
and community development
commitments to the Youngstown
area. In April 1994, Ohio Bancorp's
five banking units will be merged
into National City Bank, Northeast,
which will have a major presence in
both Youngstown and Akron. This
acquisition is consistent with our
strategic objective of increasing
market share in our primary
markets of Ohio, Kentucky and
Indiana.
FEE-BASED BUSINESSES
Fee-based revenue increased
10 percent in 1993, primarily due to
acquisition-related growth at the
Corporation's item processing
subsidiary, National City Processing
Company (NPC). Revenues at NPC
increased 38 percent from a year
ago to $268 million. Although trust
revenues were up just under
four percent, trust assets under
management increased 17 percent
to $29 billion as the result of
significant new business added in
the second half of 1993. In the
mortgage business, record-low long-
term interest rates stimulated
unprecedented demand for
residential mortgage loans, in
particular the refinancing of higher-
rate loans. The resulting early
payoffs of existing loans serviced
necessitated the more rapid
amortization of mortgage servicing
assets. Consequently, National City
Mortgage Co. reported a loss for
1993, but profits should rebound
in 1994.
FOCUS ON THE CUSTOMER
For the last several years, National
City has focused its attention on
improving asset quality, reducing
expenses, assimilating acquisitions,
and completing back-office
consolidations. Looking ahead, we
must be equally focused and
committed to capturing a greater
share of our customers' buying
power for financial services.
We intend to better utilize National
City's 600-plus branches and its
sales force--the largest in the tri-
state area--to market competitive
banking, trust and investment
services. Local decision-making for
lending and credit needs and locally
implemented marketing and sales
activities will ensure respon-
siveness to customer requirements.
5
"WHILE THE
CORPORATION'S
PERFORMANCE
OBJECTIVES FOR THE
NEXT SEVERAL YEARS
ARE AGGRESSIVE,
WE BELIEVE THEY
ARE ATTAINABLE
AND WILL POSITION
NATIONAL CITY AS ONE
OF THE PREMIER
REGIONAL BANKING
COMPANIES IN THE
COUNTRY."
We will continue to build on our
record of solid commitment to our
communities, as evidenced by the
number of banks in the National
City system that consistently earn
"outstanding" Community
Reinvestment Act ratings.
PERFORMANCE OBJECTIVES
As we begin the new year, we have
in place the performance objectives
and personnel necessary to meet
the financial goals we have set for
ourselves. Our employees are ready
to devote the same level of
enthusiasm and commitment to
customer service and continued
performance improvement in 1994
as they brought to the Vision cost
reduction program in 1993.
The future leadership of National
City is in place with the naming of
David A. Daberko as president and
chief operating officer. Dave,
Deputy Chairman Bill Robertson,
and I are fortunate to have a
management team with the depth
and experience necessary to lead
this company into the future. While
the Corporation's performance
objectives for the next several years
are aggressive, we believe they are
attainable and will position
National City as one of the premier
regional banking companies in the
country.
We want to thank our Board of
Directors for their guidance during
the past year. As 1993 closed,
we lost a devoted leader and
visionary from our board, retired
chairman J. Robert Killpack.
Bob
instilled in
us a vision
for the
future of the
company
and the
appetite to
accomplish
difficult J. ROBERT KILLPACK
tasks that ensured the future
health of National City. His can-do
spirit and enthusiasm for our
Corporation's success will be
missed.
January 21, 1994
Edward B. Brandon
Chairman & Chief Executive Officer
6
FINANCIAL REVIEW
EARNINGS SUMMARY
National City Corporation's consolidated net income was
$404.0 million in 1993, compared with $346.9 million in 1992
and $236.8 million in 1991. Net income per common share,
after dividend requirements on preferred stock, increased
15.3% in 1993 to $2.41, compared with $2.09 in 1992 and
$1.46 in 1991.
Prior period per share data have been restated to reflect
the two-for-one stock split declared and paid in July 1993.
Return on average common equity, a key performance
measure, was 16.12% in 1993, compared with 15.31% in 1992
and 11.20% in 1991 (Chart 2). Return on average assets was
1.40% in 1993 compared with 1.21% in 1992 and .81% in 1991
(Chart 3).
The following table reconciles the major changes in net
income per share:
1993 1992
VS VS
1992 1991
- -----------------------------------------------------------------------
Net income per common share, prior year $2.09 $1.46
Increase (decrease) from changes in:
Net interest income .30 .14
Provision for loan losses .23 .79
Fee income .47 .49
Noninterest expense (.23) (.45)
Income taxes (.34) (.26)
After-tax security gains (.06) --
Preferred stock dividends -- (.03)
Average shares outstanding (.05) (.05)
----- -----
Net income per common share $2.41 $2.09
===== =====
UNIT PROFITABILITY
The contribution of the Corporation's major units to
consolidated results for the past two years is summarized in
Table 1 on page 5.
The corporate and retail banking businesses' and
national credit card earnings improved in 1993 from 1992 due
to lower provisions for loan losses, improved net interest
margins, and reduced noninterest expense.
The decline in the investment/funding group's earnings
in 1993 was due primarily to lower gains on the sale of
securities and a lower yield on investment assets.
Trust net income declined in 1993 due to higher than
anticipated expenses, including the settlement of litigation.
Item processing net income at National City Processing
Company (NPC) increased in 1993 primarily due to growth in
merchant credit card processing and acquisitions.
The loss in mortgage servicing was due to more rapid
amortization of deferred mortgage servicing rights and
capitalized excess service fees in 1993. The accelerated
amortization was in response to mortgage refinancing activity
fueled by low interest rates. Year-to-date write-downs of
deferred mortgage servicing assets exceeded the 1992 level by
approximately $28 million. Future amortization rates are
expected to decline as mortgage refinancing activity subsides.
The improvement in the corporate contribution, which
includes the parent company, was due to lower costs associated
with the cost redesign program and nonrecurring 1992
expenses associated with the acquisition of Merchants National
Corporation, as well as gains on miscellaneous asset sales in
1993.
EARNING ASSETS
Average earning assets for 1993 were $25,745 million
compared with $25,681 million in 1992 and $26,279 million in
1991 (Chart 4). Average earning assets in 1993 were fairly
stable compared with a year ago due to a combination of
growth in loans and securities, offset by a decline in short-term
money market assets. The decline in 1992 from 1991 was due
to overall sluggish loan demand.
CHART DATA FOR 1993 ANNUAL REPORT
12/31/93
CHART 1. NET INCOME AND DIVIDENDS PER COMMON SHARE
(as originally reported)
NET INCOME DIVIDENDS PAID
PER SHARE PER SHARE
74 0.55 0.23
75 0.63 0.24
76 0.75 0.26
77 0.81 0.29
78 0.84 0.33
79 0.91 0.37
80 0.89 0.41
81 0.76 0.41
82 0.84 0.41
83 0.95 0.41
84 1.21 0.42
85 1.52 0.44
86 1.72 0.50
87 1.17 0.60
88 1.92 0.72
89 2.18 0.84
90 1.93 0.94
91 1.81 0.94
92 2.09 0.94
93 2.41 1.06
7
LOANS: At year-end 1993, loans were $21,286 million,
representing an increase of 13.6% from year-end 1992. Average
loans are shown in Chart 5. Ending loan balances are
summarized in the table below.
(Dollars in Millions) 1993 1992 1991 1990 1989
- --------------------------------------------------------------------
Commercial and
industrial $8,168 $7,801 $7,967 $8,138 $7,877
Nontaxable 262 310 391 486 480
International 70 50 52 50 183
Real estate construction 439 533 814 1,157 1,385
Leasing 228 225 240 298 258
Commercial mortgage 2,328 1,928 1,938 1,548 1,445
Residential mortgage 4,033 2,699 2,543 2,454 1,935
Consumer 4,241 3,727 3,733 3,896 3,689
Home equity 798 739 690 568 384
Credit card 719 726 803 992 1,105
------- ------- ------- ------- -------
Total loans $21,286 $18,738 $19,171 $19,587 $18,741
======= ======= ======= ======= =======
The acquisition of Ohio Bancorp in 1993 added $809
million to year-end loan balances, including $254 million to
commercial, $320 million to residential mortgage and
$200 million to consumer.
More than 75% of the Corporation's commercial loan
portfolio consists of loans made to middle-market customers in
the Corporation'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 remained fairly stable in
1993, but improving economic conditions led to increases in the
second half of the year.
An analysis of the maturity and interest rate sensitivity
of commercial loans at the end of 1993 follows:
One Year One to Five Over Five
(Dollars in Millions) Or Less Years Years Total
- ---------------------------------------------------------------------
Domestic commercial $7,594 $901 $163 $8,658
Real estate construction 359 56 24 439
International 58 6 6 70
------ ---- ---- ------
Total $8,011 $963 $193 $9,167
====== ==== ==== ======
Total fixed rate $1,571 $832 $190 $2,593
Total variable rate 6,440 131 3 6,574
Commercial mortgages included $1,777 million of loans
secured by income-producing real estate in 1993, compared
with $1,643 million in 1992 and $1,520 million in 1991. The
remainder consists of owner-occupied loans and loans to
mortgage bankers which experienced significant growth
in 1993.
Residential mortgage loans increased in 1993 due to
greater demand from a favorable interest rate environment
and the retention of approximately $675 million of 15-year
fixed rate residential mortgages for asset/liability management
purposes. Loan originations totaled approximately $5.0 billion
in 1993, compared with $3.6 billion in 1992. Of the 1993
originations, $4.0 billion were sold in the secondary market.
During 1993, consumer spending patterns improved,
leading to growth in the consumer loan portfolio. More than
75% of consumer loans are installment loans. Of the
installment portfolio, more than 70% are indirect, with the
majority being fixed rate. The remainder of the consumer
portfolio is largely student loans.
TABLE 1. UNIT PROFITABILITY
1993 1992
RETURN ON RETURN ON Return On Return On
(Dollars in Millions) NET INCOME ASSETS (1) EQUITY Net Income Assets (1) Equity
- ---------------------------------------------------------------------------------------------------------------------
Corporate and retail banking:
Akron (2) $22.0 1.31% 25.66% $18.9 1.47% 27.84%
Cleveland 86.7 1.58 24.41 84.1 1.59 22.82
Columbus 55.5 1.18 20.68 51.8 1.05 17.91
Dayton 21.8 1.24 16.29 12.8 .68 9.51
Indiana 38.1 .93 12.77 30.8 .70 10.90
Kentucky 55.0 1.21 19.86 26.0 .58 10.29
Toledo 12.8 1.29 22.61 11.7 1.23 22.78
Ashland 2.3 1.66 33.66 2.2 1.60 31.19
------ ------
Total 294.2 1.28 19.86 238.3 1.03 16.39
National credit card 19.1 2.98 20.13 16.5 2.38 23.17
Investment/funding 40.8 .47 16.97 64.9 .78 26.01
------ ------
Total banking and funding 354.1 1.17 19.49 319.7 1.09 18.01
Trust 34.1 28.37 27.40 36.9 31.80 30.64
Item processing 17.2 6.32 14.81 16.6 8.34 35.03
Mortgage servicing (13.4) (15.72) (34.20) 8.4 11.32 24.30
------ ------
Total fee-based businesses 37.9 7.95 13.57 61.9 15.91 30.58
Corporate 12.0 -- -- (34.7) -- --
------ ------
Consolidated total $404.0 1.40% 16.12% $346.9 1.21% 15.31%
====== ======
(1) Return on revenue in the case of the fee-based businesses.
(2) Includes results of Ohio Bancorp in 1993.
8
FINANCIAL REVIEW (continued)
Year-end credit card and home equity balances are
summarized below:
(Dollars in Millions) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------
Local market
credit card $331 $268 $347 $410 $519
National market 258 206 266 305 345
Private label 130 252 190 277 241
Home equity 798 739 690 568 384
------ ------ ------ ------ ------
Total credit card and
home equity $1,517 $1,465 $1,493 $1,560 $1,489
====== ====== ====== ====== ======
The loss of a large customer in 1993 was responsible for
substantially all of the decline in private label outstandings. In
addition, on October 1, 1993, a $350 million credit card
securitization began to amortize back onto the balance sheet at
the rate of $29 million per month. Consequently, credit card
servicing fees will decline and net interest income will
increase. The net impact to the Corporation's income statement
is expected to be minimal. At year-end, credit card
securitizations outstanding were $363 million compared with
$540 million a year ago.
COMMERCIAL REAL ESTATE: 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
Commercial
(Dollars in Millions) Construction Permanent Real Estate
- -------------------------------------------------------------
Outstanding:
1993 $439 $1,777 $2,216
1992 533 1,643 2,176
1991 814 1,520 2,334
Unfunded commitments:
1993 $206 $137 $343
1992 198 90 288
1991 254 57 311
The Corporation's 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
the Corporation'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 10.4% of the
total loan portfolio at December 31, 1993, compared with 11.6%
at year-end 1992 and 12.2% at year-end 1991.
The following table shows commercial real estate loans at
year-end 1993 by state and by project:
(Dollars In Millions)
- ------------------------------------------------------
By State: By Project:
Ohio $1,390 Office $474
Kentucky 284 Apartments 506
Indiana 260 Retail 535
Florida 81 Hotel/Motel 160
Michigan 52 Industrial 149
Other 149 Other 392
------ ------
Total $2,216 Total $2,216
====== ======
At year-end, there were no concentrations of real estate
loans in any deteriorating economic areas.
CHART 2. RETURN ON AVERAGE COMMON EQUITY
(net income after preferred dividends, divided by average common equity)
88 17.47
89 17.18
90 12.97
91 11.20
92 15.31
93 16.12
Return on average common equity rose to 16.12% in 1993 due to
improved net income on a strong capital base. National City seeks to
produce a return which is higher than its peers over time while
maintaining superior capital ratios.
CHART 3. RETURN ON AVERAGE ASSETS
(net income divided by average assets)
88 1.14
89 1.16
90 0.87
91 0.81
92 1.21
93 1.40
Return on average assets increased to 1.40% in 1993, reflecting
sharply improved earnings on a relatively stable asset base.
9
SECURITIES: On December 31, 1993, the Corporation
adopted SFAS 115 "Accounting For Certain Investments in
Debt and Equity Securities." Accordingly, securities available
for sale are recorded at market value and the net unrecognized
gain of $35 million (net of tax) is included in stockholders'
equity. The adoption did not have a material effect on results
of operations and prior year financial statements were not
restated. In anticipation of adopting SFAS 115, securities
netting to $617 million (cost basis) were reclassified between
the held to maturity and available for sale portfolios.
The portfolio accounting designations were chosen in
order to attain most efficiently the objectives of the
Corporation's securities portfolio, which include generating
substantial interest income; serving as an important liquidity
source; and playing an integral role in the management of the
Corporation's interest rate sensitivity. Accordingly, securities in
the held to maturity portfolio are purchased with the intent
and ability to hold them to maturity and are, therefore, carried
at amortized cost. Securities in this portfolio tend to be higher
yielding and somewhat less liquid. Securities in the available
for sale category are those which may be sold prior to their
maturity for purposes of bank asset allocation, rate sensitivity,
liquidity or relative value reasons and, hence, tend to be more
liquid investments.
The portfolio decreased from $5.5 billion (cost basis) in
1992 to $5.1 billion (cost basis) at December 31, 1993,
influenced significantly by unprecedented paydowns
experienced in the year's latter half. In particular, mortgage-
backed security prepayments increased over 30% to
approximately $1.9 billion, with the majority attributed to fixed
rate collateralized mortgage obligations. The majority of these
cash flows were reinvested in adjustable rate mortgages, U.S.
Treasuries and Federal agency obligations. These securities
provide enhanced liquidity and call protection, and should
perform well in a flattening yield curve environment,
particularly one led by increases in short-term rates. The book
yield on the portfolio decreased by 90 basis points from a year
ago due primarily to the prepayments, calls and maturities of
higher rate securities purchased in prior years, and an increase
in the percentage of floating rate assets.
Summary information with respect to the securities
portfolio at December 31 follows:
1993 COST 1992 1991
HELD TO AVAILABLE 1993 Carrying Carrying
(Dollars in Millions) MATURITY FOR SALE YIELD Value Value
- ----------------------------------------------------------------------------
U.S. Treasury and
Federal agency
debentures:
Under 1 year $ 200 $-- 5.32% $154 $125
1 to 5 years 5 1,042 5.24 1,043 165
5 to 10 years -- 53 5.23 -- --
Over 10 years -- -- -- 1 5
------ ------ ------ ------
Total 205 1,095 5.25 1,198 295
Mortgage-backed
securities:
Under 1 year 239 135 5.70 391 210
1 to 5 years 490 1,736 4.94 2,440 2,698
5 to 10 years 76 197 4.43 229 444
Over 10 years -- 2 8.50 3 122
------ ------ ------ ------
Total 805 2,070 5.00 3,063 3,474
States and political
subdivisions:
Under 1 year 112 13 8.82 120 185
1 to 5 years 308 6 13.02 415 499
5 to 10 years 88 4 10.45 130 214
Over 10 years 97 9 10.30 130 139
------ ------ ------ ------
Total 605 32 11.38 795 1,037
Other securities:
Under 1 year 118 1 5.78 183 35
1 to 5 years 1 3 5.33 119 369
5 to 10 years -- -- 5.19 1 5
Over 10 years 29 148 3.50 140 154
------ ------ ------ ------
Total 148 152 4.43 443 563
------ ------ ------ ------
$1,763 $3,349 5.82% $5,499 $5,369
====== ====== ====== ======
The yield at December 31, 1993 was the combined rate for
the held to maturity and available for sale securities portfolios.
CHART 4. AVERAGE EARNING ASSETS
Money
market
Loans Securities instruments
88 16,099 4,749 1,016
89 17,801 4,768 1,273
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
Average earning assets were stable in 1993 as growth in the loan portfolio and
securities was offset by a decline in money market instruments.
10
FINANCIAL REVIEW (continued)
Yields 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.
INTEREST-BEARING LIABILITIES
Transaction accounts increased by 7.5% in 1993, while
time deposits of individuals declined by 13.3%. Overall,
average core deposits remained fairly stable and continued to
fund more than 100% of average loans.
National City's reliance on purchased funds declined
slightly in 1993. Purchased funds primarily include domestic
certificates of deposit over $100,000, Eurodollar deposits, and
short-term borrowings.
A maturity distribution of certificates of deposit of
$100,000 or more follows:
December 31
---------------
(Dollars in Millions) 1993 1992
- --------------------------------------------------
Due in:
3 months or less $463 $709
3 to 6 months 83 221
6 to 12 months 63 110
Over 1 year 93 106
---- ------
$702 $1,146
==== ======
Federal funds borrowed and security repurchase
agreements represent borrowings with overnight to 30-day
maturities. Information for these borrowings follows:
(Dollars in Millions) 1993 1992 1991
- --------------------------------------------------------------
Balance at December 31 $3,083 $1,819 $2,405
Maximum outstanding at
any month-end 3,083 2,417 2,855
Daily average amount outstanding 2,518 2,178 2,197
Weighted daily average
interest rate 2.91% 3.27% 5.40%
Weighted daily interest rate
for amounts outstanding
at December 31 2.87% 2.79% 3.90%
CAPITAL
The following table reflects various measures of capital at
year-end:
(Dollars in Millions) 1993 1992
- ------------------------------------------------------------------
AMOUNT RATIO Amount Ratio
------ ----- ------ -----
Total equity 1 $2,763.3 8.89% $2,499.9 8.63%
Common equity 1 2,565.0 8.26 2,299.9 7.94
Tangible common equity 2 2,185.2 7.12 1,990.2 6.95
Tier 1 capital 3 2,468.9 8.94 2,343.3 9.90
Total risk-based capital 4 3,206.8 11.62 2,895.5 12.23
Leverage 5 2,468.9 8.18 2,343.3 8.22
1 Computed in accordance with generally accepted accounting principles, which,
at December 31, 1993, includes the market value appreciation 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 market value
appreciation of securities available for sale; computed as a ratio to
risk-adjusted assets, as defined. See Note below.
4 Tier 1 capital plus qualifying loan loss allowance and subordinated debt;
computed as a ratio to risk-adjusted assets, as defined. See Note below.
5 Tier 1 capital; computed as a ratio to fourth quarter average total assets
less certain intangibles. See Note below.
NOTE: The 1993 calculations reflect the revised regulatory guidelines, which
now require the exclusion of all intangible assets, except for purchased
mortgage servicing rights and purchased credit card relationships (subject to
limitations), from tier 1 capital and risk-adjusted assets. Also, tier 1
capital excludes the market value appreciation of securities available for
sale.
CHART 5. AVERAGE LOANS
CORPORATE BANKING CONSUMER BANKING
COMM'L RESIDENTIAL CREDIT
COMMERCIAL REAL ESTATE INSTALLMENT REAL ESTATE CARD
88 7,921 2,148 88 3,225 1,457 1,348
89 8,352 2,754 89 3,592 1,736 1,367
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
The Corporation's loan portfolio mix is approximately 56% corporate and 44% 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.
11
Total stockholders' equity at year-end 1993 included
$198.3 million of 8% Cumulative Convertible Preferred Stock,
compared with $200.0 million at year-end 1992.
The Corporation'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, 1993, 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 at year-end are summarized in the
following table:
(Dollars in Millions) 1993 1992 1991
- -------------------------------------------------------
Goodwill $257.0 $156.6 $149.7
Core deposit intangibles 25.9 34.8 42.5
Purchased servicing rights 63.3 79.9 83.0
Purchased credit cards 31.1 34.1 18.6
Other intangibles 2.5 4.3 6.2
------ ------ ------
Total intangible assets $379.8 $309.7 $300.0
====== ====== ======
National City Corporation's common stock trades on the
New York Stock Exchange under the symbol NCC. As of
December 31, 1993, there were 20,842 common stockholders of
record.
Quarterly common stock price and dividends paid
rounded to the nearest cent follow:
NYSE:NCC First Second Third Fourth Year
- -------------------------------------------------------------
1993
Dividends paid $.26 $.26 $ .27 $ .27 $1.06
High 27.44 28.06 27.25 27.00 28.06
Low 24.31 23.38 24.00 23.13 23.13
Close 26.13 25.19 26.75 24.50 24.50
1992
Dividends paid $.235 $.235 $.235 $.235 $.94
High 21.19 22.88 23.00 24.81 24.81
Low 17.94 19.88 20.75 21.25 17.94
Close 20.44 22.75 22.19 24.81 24.81
At December 31, 1993, the total market capitalization of
the Corporation was approximately $3.9 billion.
Book value per common share at December 31, 1993 was
$16.15 compared with $14.54 at December 31, 1992 (Chart 6).
The 1993 book value includes $.22 of market appreciation in
the securities available for sale portfolio, which resulted from
the adoption of the new accounting requirements for securities
on December 31, 1993.
During 1993, the Board of Directors authorized two stock
repurchase programs. The first program was announced in the
first quarter and completed in November, and six million
common shares were purchased. The second program,
announced December 21, 1993, authorized the purchase of up
to five million shares of common stock and up to four million
depositary shares of preferred stock, subject to a combined
total purchase limit of $200 million. Through December 31,
1993, 724,600 shares of common stock and 33,800 depositary
shares of preferred stock had been purchased in the open
market.
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 46.9%
and 45.6%, respectively (Chart 8).
CHART 6. BOOK VALUE AND STOCK PRICE HISTORY
HIGH LOW YEAR-END
BOOK STOCK STOCK STOCK
VALUE PRICE PRICE PRICE
73 3.62 4.99 3.41 3.80
74 3.93 4.41 2.45 3.28
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
National City's common stock price at December 31, 1993 was $24.50. Over the past 20
years, the total return on an annualized basis of an investment in National City common
stock, assuming reinvestment of dividends, was 15.7% compared to 12.7% for the S & P 500.
12
FINANCIAL REVIEW (Continued)
In January 1994, the Board of Directors declared a first
quarter dividend of $.29 per common share, representing a
7.4% increase from the next preceding quarterly dividend of
$.27 per share. The dividend is payable February 1 to
stockholders of record on January 13, 1994. This follows two
dividend increases in 1993.
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 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, 1994,
$96 million was available within the bank subsidiaries to pay
the parent company in dividends without prior regulatory
approval, compared with $402 million at January 1, 1993.
During 1993, subsidiary banks declared $699.6 million and
paid $543.4 million in dividends to the parent company.
As discussed in Item 1 of Form 10-K (page 38), subsidiary
banks are subject to government regulation and, among other
things, may be limited in their ability to pay dividends or
transfer funds to the holding company. Accordingly,
consolidated cash flows as presented in the Consolidated
Statements of Cash Flows on page 24 may not represent cash
available to the 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, 1993 were $399 million,
compared with $378 million at year-end 1992.
The Corporation has a $200 million revolving credit
agreement with a group of unaffiliated banks which serves as a
back-up liquidity facility. The agreement expires December 31,
1995. No borrowings have occurred under this facility.
The parent company also has in place a $500 million
"shelf registration" permitting ready access to the public debt
markets. In addition, $100 million remains available under a
$300 million shelf registration for preferred stock.
In April 1993, the Corporation's Cleveland and Columbus
bank subsidiaries issued $125 million and $75 million,
respectively, of 6 1/2% subordinated notes. The notes qualify as
tier 2 capital for regulatory purposes.
ASSET/LIABILITY MANAGEMENT
The primary goal of the asset/liability management
function at National City 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. These include traditional static
gap analysis, earnings simulation and duration modeling. The
most useful of these measures is the earnings simulation
model. In using this model, management can simulate the
Corporation's 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, as well as changes in the volumes and rates of
various loan and deposit categories. It is important to note
that the model also incorporates all off-balance sheet
commitments, as 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
CHART 7. EQUITY TO ASSETS
TANGIBLE TOTAL
EQUITY TO EQUITY TO
ASSETS ASSETS
88 5.74 6.19
89 5.97 6.57
90 5.75 6.58
91 6.60 7.53
92 7.49 8.63
93 7.77 8.89
Total equity as a percentage of total assets was 8.89% at year-end 1993
compared with 8.63% a year ago. Tangible equity to assets was 7.77% at
December 31, 1993. National City ranks among the best of the top 50 U.S.
banks in terms of capital levels.
13
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.
At year-end 1993, all of the measures described above
indicated that the Corporation was in a modest liability-
sensitive position.
The Corporation uses a variety of financial instruments
to manage its interest rate sensitivity. These include the cash
market securities in its investment portfolio, interest rate
swaps, interest rate caps and floors, and, to a lesser extent,
exchange-traded futures and options contracts. Interest rate
swaps, caps and floors, frequently called interest rate
derivatives, are an integral part of the Corporation's
asset/liability management philosophy. These instruments
have similar characteristics to cash market 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 of the
Corporation.
As illustrated in the following table, at year-end the net
amount of assets, adjusted for off-balance sheet instruments,
less liabilities which reprice within a given period was (12.8)%
of adjusted total earning assets within six months, and (10.8)%
within one year. The policy limit for the one-year gap is plus or
minus 12% of adjusted total earning assets.
Within Six to One to Three Over
Six Twelve Three to Five Five
(Dollars in Millions) Months Months Years Years Years
- ------------------------------------------------------------------------
Loans $13,047 $1,641 $3,561 $1,601 $1,435
Securities 2,172 701 896 1,082 316
Money market assets 1,154 67 84 -- --
Nonearning assets 2,680 87 161 127 256
------- ------ ------ ------ ------
Total assets 19,053 2,496 4,702 2,810 2,007
Interest bearing
liabilities and
demand deposits 18,641 2,790 3,584 1,954 888
Noninterest bearing
liabilities and equity 825 -- 1 2 2,383
------- ------ ------ ------ ------
Total liabilities
and equity 19,466 2,790 3,585 1,956 3,271
------- ------ ------ ------ ------
Gap before swaps
and options (413) (294) 1,117 854 (1,264)
Net swaps and options (3,845) 949 2,155 293 448
------- ------ ------ ------ ------
Gap adjusted for
swaps and options $(4,258) $655 $3,272 $1,147 $(816)
======= ======= ====== ====== =====
Cumulative gap adjusted
for swaps and options $(4,258) $(3,603) $(331) $816 $ --
======= ======= ====== ====== =====
As previously noted, core deposits and loans with non-
contractual maturities are distributed or spread among the
various repricing categories based upon historical patterns of
repricing.
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 increase by an
amount equal to approximately 2.2% if rates fell gradually by
two percentage points over the next year. It projects a decrease
of approximately 2.0% if rates rose by two percentage points,
well within the (5.0)% policy limit. Management believes this
reflects a modest level of interest rate sensitivity.
CHART 8. CASH DIVIDEND PAYOUT
(dividends per share divided by originally reported earnings per share)
DIVIDEND 3 YR 5 YR
PAYOUT AVG AVG
88 37.5 39.3 36.3
89 38.6 42.5 37.0
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
The Corporation'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.
CHART 9. AVERAGE FUNDING SOURCES
CORE OTHER PURCHASED
DEPOSITS DEPOSITS FUNDS
88 15,340 3,115 3,863
89 16,510 3,634 4,005
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
Core deposits remained stable in 1993 as the increase in transaction
account balances offset the decline in time deposits. Core deposits
continue to fund over 100% of the loan portfolio.
14
FINANCIAL REVIEW (Continued)
The Corporation's 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 is currently estimated to cause a 3.9%
reduction in net income over a 12-month period. Management
monitors this relationship closely and should management's
expectation for the relationship fall to a level below which it
can be mitigated in the market, management would seek to
reduce or eliminate this exposure.
The Corporation's duration 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 shock
upward in rates was estimated to cause a reduction in the
value of these cash flows by an amount equal to 1.1% 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 1.3%
of total assets for an immediate shock downward in rates of
two percentage points.
Due to borrowers' preferences for floating-rate loans and
depositors' preferences for fixed-rate deposits, the Corporation's
balance sheet moves toward higher levels of asset sensitivity
with the passage of time. In fact, management estimates that
prepayments, calls and maturities of its securities and
derivative portfolios, would cause the current level of liability
sensitivity to fall to a neutral level in 12 months unless
offsetting actions were taken.
Purchases of fixed-rate securities or interest rate
derivative instruments are required to maintain a liability
sensitive or even a neutral interest rate risk position. Using a
one-year static gap measure, the Corporation would be 4.8%
asset sensitive without securities and interest rate derivatives.
Management expects interest rates will be relatively
stable for the first quarter of 1994 and then rise slightly
throughout the year. Management believes the Corporation's
modest level of liability sensitivity is appropriate in this
environment and does not, at this time, anticipate the level of
liability sensitivity increasing significantly in 1994.
OFF-BALANCE SHEET FINANCIAL AGREEMENTS
The Corporation uses a variety of off-balance sheet
financial instruments such as interest rate swaps, futures,
options, forwards, cap and floor contracts. These financial
agreements, frequently called interest rate derivatives, enable
the Corporation to manage efficiently its exposure to changes
in interest rates. The Corporation also markets derivative
contracts to its customers allowing them to manage their
exposures to changes in interest and foreign exchange rates.
As with any financial instrument, derivatives have
inherent risks. Market risk represents 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 Corporation manages the
credit exposure to counterparties by limiting the 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.
During 1993, the Corporation established bilateral collateral
agreements with its major off-balance sheet counterparties
that provide for exchanges of marketable securities to
collateralize unrealized gains. On December 31, 1993, these
collateral agreements covered 90.3% of the notional amount of
the derivative portfolio and the Corporation held $35.2 million
of securities as collateral. The Corporation has never
experienced, nor does it have any reason to expect, a credit loss
associated with any interest rate derivative.
During 1993, the Corporation increased its use of interest
rate swaps to manage its sensitivity to changes in interest
rates. The total notional amount of the portfolio increased by
$2.5 billion from December 31, 1992. During 1993, the
Corporation entered into $4.8 billion of interest rate swaps
CHART 10. NET INTEREST INCOME AND NET INTEREST MARGIN
NET INTEREST NET INTEREST
INCOME MARGIN
88 1,034.3 4.73
89 1,118.4 4.69
90 1,155.6 4.50
91 1,185.0 4.51
92 1,195.3 4.65
93 1,235.8 4.80
Tax equivalent net interest income increased in 1993 due to a wider net
interest margin on a fairly stable earning asset base.
15
where the Corporation received a fixed rate and paid a variable
rate. The weighted initial expected maturity of these
transactions was 2.1 years. During 1993, $2.6 billion of
interest rate swaps matured or amortized.
The Corporation uses interest rate floors to help protect
its interest margin in periods of low interest rates and a
flattening yield curve. The Corporation's interest rate floor
portfolio on December 31, 1993 was $950 million in notional
amount with an average maturity of 7.6 years and $33.4
million of unrealized gains.
The Corporation enters into various off-balance sheet
interest rate agreements with its corporate customers. These
agreements totaled $936.5 million at year-end 1993 and consist
of offsetting pairs of contracts that reduce or eliminate market
risk.
Summary information with respect to the Corporation's
interest rate derivative portfolio as of December 31 follows:
1993 1992
-------------------------------------------------
AVG. AVG.
NOTIONAL FIXED EXPECTED UNREALIZED Notional
(Dollars in Millions) AMOUNT RATE MATURITY GAIN/(LOSS) Amount
- -------------------------------------------------------------------------
INTEREST RATE SWAPS
Receive fixed
rates $5,634.6 5.14% 1.4 yrs. $34.4 $3,028.4
Pay fixed rates 581.6 7.83 2.0 (26.4) 723.4
CAPS & FLOORS
Caps purchased $147.9 NA 1.8 yrs. $ -- $122.9
Caps sold 337.9 NA 2.7 -- 312.9
Floors purchased 950.0 NA 7.6 33.4 650.0
Floors sold 100.0 NA 2.0 -- --
NA - Not applicable
NET INTEREST INCOME
On a fully taxable equivalent basis, net interest income
was $1,235.8 million in 1993 compared with $1,195.3 million in
1992 and $1,185.0 million in 1991 (Chart 10).
The following table reconciles net interest income as
shown in the financial statements to tax equivalent net
interest income:
(Dollars in Millions) 1993 1992 1991
- ---------------------------------------------------------------
Net interest income - per
financial statements $1,200.0 $1,152.7 $1,131.3
Tax equivalent adjustment 35.8 42.6 53.7
-------- -------- --------
Net interest income - tax
equivalent $1,235.8 $1,195.3 $1,185.0
======== ======== ========
Average earning assets $ 25,745 $25,681 $26,279
======== ======== ========
Net interest margin - tax
equivalent 4.80% 4.65% 4.51%
======== ======== ========
So that non-taxable asset yields can be compared to
taxable yields on a similar basis, amounts are adjusted to their
pre-tax equivalents, based on the marginal corporate tax rate
of 35% in 1993 and 34% in prior years.
The margin improvement in 1993 compared with 1992 is
the result of a wider spread between interest-earning assets
and interest-bearing liabilities. Contributing to the wider
spread was a higher level of net interest income earned from
the interest rate derivative portfolio used to change the
effective interest rate sensitivity of the following balance sheet
items (Note: Amounts in brackets represent reductions of the
related interest income or expense line, as applicable):
(Dollars in Millions) 1993 1992
- ------------------------------------------------------------
Interest adjustment to loans $ 72.1 $43.3
Interest adjustment to securities (27.2) (26.7)
----- -----
Interest adjustment to assets 44.9 16.6
Interest adjustment to deposits (21.1) (22.9)
----- -----
Derivative net interest income $66.0 $39.5
===== =====
CHART 11. FEE INCOME AS A PERCENTAGE OF TOTAL REVENUE
FEE INCOME AS % OF
TOTAL REVENUE
83 29.5%
84 28.0%
85 29.0%
86 28.7%
87 30.4%
88 32.5%
89 31.8%
90 34.6%
91 36.0%
92 37.8%
93 39.3%
Fee income as a percentage of total revenue increased to 39% in 1993.
Contributing to the growth in fee income were increased item processing
revenue and service charges on deposits. Management's goal is to increase the
fee income contribution to total revenue over time.
16
FINANCIAL REVIEW (Continued)
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:
1993 VS. 1992 1992 VS. 1991
-----------------------------------------------------
DUE TO Due to
CHANGE IN NET Change in Net
--------------- ---------------
(Dollars in Millions) VOLUME RATE* CHANGE Volume Rate* Change
- ------------------------------------------------------------------------------
Increase (decrease)
in tax equivalent
interest income -
Loans $68.6 $(111.6) $(43.0) $(92.5) $(261.7) $(354.2)
Securities 7.8 (78.4) (70.6) 42.7 (97.9) (55.2)
Money market
assets (34.3) (1.0) (35.3) (11.0) (33.6) (44.6)
----- ------- ------- ------ ------- -------
Total $42.1 $(191.0) $(148.9) $(60.8) $(393.2) $(454.0)
===== ======= ======= ====== ======= =======
(Increase) decrease
in interest expense -
Savings and
NOW accounts $(18.1) $23.6 $5.5 $(28.1) $54.8 $26.7
Insured money
market
accounts (4.6) 34.6 30.0 (33.6) 98.6 65.0
Time deposits 53.3 69.9 123.2 84.2 107.7 191.9
Purchased funds 7.5 26.8 34.3 78.6 100.9 179.5
Corporate debt (9.3) 5.7 (3.6) (.9) 2.1 1.2
----- ------- ------- ------ ------- -------
Total $28.8 $160.6 $189.4 $100.2 $364.1 $464.3
===== ======= ======= ====== ======= =======
Increase in tax
equivalent net
interest income $40.5 $10.3
===== =====
*Changes in interest income and interest expense not arising solely
from rate or volume variances are included in rate variances.
FEES AND OTHER INCOME
An analysis of fees and other income for the last three
years follows:
(Dollars in Thousands) 1993 1992 1991
- --------------------------------------------------------------------
Item processing fees $267,962 $194,166 $166,934
Deposit service charges 152,609 143,909 133,794
Trust fees 122,597 118,350 111,352
Credit card fees 92,966 101,898 86,871
Mortgage servicing fees 58,678 59,958 43,865
Service fees - other 38,153 38,001 41,067
Miscellaneous asset sales 3,865 11,070 17,072
Other real estate owned income 12,332 9,820 8,233
Trading account profits 9,161 6,546 4,459
Other 41,492 41,942 36,397
-------- -------- --------
$799,815 $725,660 $650,044
======== ======== ========
Fees and other income increased 10.2% in 1993 from
1992 due primarily to higher item processing fees and service
charges on deposits.
Item processing revenues at NPC grew significantly in
both 1993 and 1992 due to growth in the existing bankcard
processing business as well as acquisitions.
Trust fee income increased 3.6% in 1993 and 6.3% in
1992. The Corporation's banks administered a total of
$61 billion in fiduciary assets at year-end 1993 including
managed assets of $29 billion, up from $55 billion and
$24 billion, respectively, at year-end 1992.
Credit card fees declined during 1993 due mainly to
reduced annual charge fee income on national credit cards and
loss of fee income on the credit card balances that were related
to the credit card securitization. This trend will continue as the
$350 million credit card securitization unwinds through October
1994. These fees will be replaced by interest income on the
credit card loans that have been added to the balance sheet.
Fees will likely be under additional pressure in 1994 due to the
loss of a large private label credit card customer in the fourth
quarter 1993.
TABLE 2. FULL-TIME EQUIVALENT STAFFING AND OVERHEAD PERFORMANCE MEASURES
1993 1992
----------------------------------------------------------------------------------
FULL-TIME OVERHEAD EFFICIENCY Full-Time Overhead Efficiency
EQUIVALENT STAFF RATIO RATIO Equivalent Staff Ratio Ratio
- -------------------------------------------------------------------------------------------------------------------
Corporate and retail banking:
Akron 1,431 49.69% 56.52% 509 44.36% 52.53%
Cleveland 1,552 39.25 52.67 1,592 39.88 53.54
Columbus 1,651 58.01 67.06 1,815 60.61 69.74
Dayton 638 52.62 61.33 719 63.09 69.40
Indiana 1,994 56.78 67.93 2,281 63.70 72.52
Kentucky 1,733 52.34 62.18 1,734 67.85 74.94
Toledo 419 52.05 59.69 435 53.38 60.60
Ashland 66 50.01 54.83 71 51.76 56.03
------ ------
Total 9,484 50.73 61.15 9,156 56.11 65.64
National credit card 516 41.82 49.49 611 38.37 47.23
Investment/funding 252 (77.77) 51.52 204 (70.46) 40.83
------ ------
Total banking and funding 10,252 47.76 59.77 9,971 51.40 62.82
Trust 973 -- 61.37 975 -- 59.72
Item processing 4,595 -- 90.26 3,815 -- 86.48
Mortgage servicing 889 -- 127.00 789 -- 82.05
------ ------
Total fee-based businesses 6,457 -- 87.98 5,579 -- 77.00
Corporate 3,251 -- -- 3,216 -- --
------ ------
Consolidated total 19,960 44.34% 66.21% 18,766 48.93% 68.22%
====== ======
17
Mortgage servicing revenues declined as a result of the
accelerated amortization of capitalized excess service fees,
which is recorded as a reduction of revenue. These charges
totaled $13.3 million in 1993 compared with $7.7 million in
1992. The servicing portfolio was $11.7 billion at year-end 1993
compared with $10.4 billion at year-end 1992.
There was no significant nonrecurring income in 1993.
Nonrecurring pretax gains in 1992 included a $5.7 million gain
on the sale of Mexican debt, a $4.2 million gain on the sale of
mortgage loans and student loans, and another $1.2 million
gain on miscellaneous asset sales. Nonrecurring pretax gains in
1991 were $17.1 million.
NONINTEREST EXPENSE
The following table shows noninterest expenses for the
last three years:
(Dollars in Thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
Salaries $ 499,879 $495,232 $471,820
Benefits 123,593 121,783 111,364
Equipment 89,005 90,768 90,690
Net occupancy 89,729 85,620 83,473
Third party services 77,368 87,438 83,140
Processing assessments 81,822 68,651 54,558
Postage and supplies 67,842 65,859 64,706
FDIC assessments 50,157 50,169 46,446
Other real estate owned expense 26,177 46,847 56,942
Amortization of intangibles 61,721 37,459 35,086
State and local taxes 30,297 26,610 25,634
Marketing and public relations 28,581 21,319 23,927
Transportation 21,978 18,477 17,323
Telephone 21,862 17,562 17,659
Other 77,729 76,654 58,948
---------- ---------- ----------
$1,347,740 $1,310,448 $1,241,716
========== ========== ==========
Noninterest expenses rose 2.8% in 1993, compared with
1992, primarily due to acquisitions at NPC and the acquisition
of Ohio Bancorp during the fourth quarter of 1993. Total 1993
expenses related to companies acquired in 1993 were
$60.8 million. Excluding the impact of these acquisitions, total
expenses declined almost 2% from 1992 levels. Amortization of
intangibles included the amortization of purchased mortgage
servicing rights, which totaled $34.5 million in 1993 and
$11.7 million in 1992.
Nonrecurring expenses in 1992 included $16.8 million in
severance costs related to both the Indiana acquisition and the
Corporation's cost redesign program. In addition, there were
$12.6 million in one-time merger-related costs and $9.3 million
of costs in the settlement of litigation. Nonrecurring expenses in
1991 were $13.1 million, all merger-related.
The full-time equivalent (FTE) staff for the Corporation,
shown in Table 2 on page 14, increased in 1993, due to
acquisitions of Ohio Bancorp (926 FTE) and at NPC (420 FTE).
Excluding the acquisitions, total FTE declined by 152 positions.
The remaining staff increases in mortgage servicing and item
processing were volume-related. The increase in corporate is
the result of centralizing back-office functions. This increase is
more than offset by elimination of these functions in each
individual bank.
The overhead ratio (noninterest expenses less fee income
as a percentage of fully taxable net interest income) was 44.34%
in 1993 compared with 48.93% in 1992 and 49.93% in 1991
(Chart 12).
The efficiency ratio (noninterest expense as a percentage
of fee income plus fully taxable net interest income) was 66.21%
in 1993, 68.22% in 1992, and 67.67% in 1991. The fee-based
businesses have lower gross margins than traditional banking,
and, therefore, growth in these businesses penalizes the
efficiency ratio as shown in Table 2. In contrast, strong fee
income benefits the overhead ratio.
CHART 12. OVERHEAD RATIO
(non-interest expenses less fee income divided by fully taxable
net interest income)
88 42.66
89 43.68
90 46.33
91 49.93
92 48.93
93 44.34
The overhead ratio improved in 1993 for the second consecutive year. The
improvement was due to the benefits of the Corporation's cost redesign program, the
successful integration of acquisitions, and reduced expenses related to foreclosed
property.
18
FINANCIAL REVIEW (Continued)
SECURITY GAINS AND LOSSES
Net realized security gains and losses are summarized as
follows:
(Dollars in Thousands) 1993 1992 1991
- --------------------------------------------------------------------------
Net gains on sales of
debt securities $8,462 $12,345 $18,617
Tax expense 2,962 4,256 6,343
------ ------- -------
After tax $5,500 $ 8,089 $12,274
====== ======= =======
Net gains on sales of
equity securities $3,460 $13,352 $7,044
Tax expense 1,211 4,541 2,396
------ ------- -------
After tax $2,249 $8,811 $4,648
====== ======= =======
Effect on net income $7,749 $16,900 $16,922
====== ======= =======
Effect on earnings per share $.05 $.11 $.11
====== ======= =======
INCOME TAXES
The consolidated income tax provision was $167.0 million
in 1993 compared with $117.4 million in 1992 and $77.4 million
in 1991. The effective tax rate of the Corporation was 29.2% in
1993, 25.3% in 1992, and 24.6% in 1991. The increase in the
effective rate was due to the higher Federal statutory rate and
lower levels of tax-exempt income in 1993.
In 1992, the Corporation adopted SFAS 109 "Accounting
for Income Taxes". Net deferred tax assets at December 31,
1993 and 1992 were $64.7 million and $85.4 million,
respectively. SFAS 109 requires the Corporation to place a
valuation allowance on its deferred tax assets if it is "more
likely than not" that some portion of the deferred tax asset will
not be realized. Under the regulations provided in SFAS 109,
management found it unnecessary to place a valuation
allowance on its deferred tax assets.
The adoption of SFAS 109 did not have a significant
effect on net income in 1992. Tax expense for 1991 was not
restated.
ASSET QUALITY
NONPERFORMING ASSETS: A summary of nonaccrual,
reduced rate and renegotiated loans and other nonperforming
assets at December 31 follows:
(Dollars in Millions) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
Commercial:
Nonaccrual $ 79.4 $135.4 $191.8 $100.7 $104.3
Restructured 1.1 2.5 5.3 3.2 1.9
------ ------ ------ ------ ------
Total commercial 80.5 137.9 197.1 103.9 106.2
Real estate related:
Nonaccrual 64.4 81.5 129.7 205.3 122.8
Restructured 6.5 4.3 15.7 14.2 3.1
------ ------ ------ ------ ------
Total real estate
related 70.9 85.8 145.4 219.5 125.9
------ ------ ------ ------ ------
Total domestic loans 151.4 223.7 342.5 323.4 232.1
International -- -- -- -- 33.5
------ ------ ------ ------ ------
Total nonperforming
loans 151.4 223.7 342.5 323.4 265.6
Other real estate owned
(OREO) 57.8 143.7 196.8 158.8 37.0
------ ------ ------ ------ ------
Nonperforming assets $209.2 $367.4 $539.3 $482.2 $302.6
====== ====== ====== ====== ======
Loans 90 days past due
accruing interest $42.2 $41.5 $65.9 $98.7 $57.4
====== ====== ====== ====== ======
(cont'd.)
CHART 13. NONPERFORMING ASSETS AND THE ALLOWANCE FOR LOAN LOSSES
NONPERFORMING ALLOWANCE FOR
ASSETS LOAN LOSSES
88 268.6 326.2
89 302.6 311.2
90 482.2 327.3
91 539.3 385.9
92 367.4 383.9
93 209.2 443.4
Nonperforming assets at December 31, 1993 totalled $209 million and
represented a decline of 43% from a year ago. At December 31, 1993, the
allowance for loan losses represented 2.08% of total loans and 212% of
nonperforming assets.
19
NONPERFORMING ASSETS (cont'd.)
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
Nonperforming loans and
OREO as a percent of:
Loans and OREO 1.0% 1.9% 2.8% 2.4% 1.6%
Assets .7 1.3 1.8 1.6 1.1
Equity 7.6 14.7 23.9 24.8 16.1
Loan loss allowance
to nonperforming loans 292.9% 171.6% 112.7% 101.2% 117.2%
The Corporation normally considers commercial loans and
securities to be 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. Generally, when loans are classified as
nonperforming, unpaid accrued interest is written off, and
future income may be recorded only as cash payments are
received.
Nonperforming assets declined in 1993 due to payoffs and
recoveries in nonaccrual commercial and real estate loans, as
well as the disposal of foreclosed real estate.
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) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
Income potential based on
original contract $16.0 $21.4 $36.3 $32.2 $29.0
Actual income 5.5 4.6 5.7 6.6 7.5
ALLOWANCE FOR LOAN LOSSES: The following table
presents the reconciliation of the allowance for loan losses:
(Dollars in Millions) 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------
Balance at beginning
of year $383.9 $385.9 $327.3 $311.2 $326.2
Provision 93.1 129.4 251.1 231.4 157.3
Net acquired (sold)
allowance 50.7 2.5 17.7 9.6 (.7)
Loans charged off:
Commercial 55.0 78.4 124.8 111.9 49.3
International 1.9 -- .1 46.1 55.0
Real estate mortgage 14.9 18.7 21.0 14.6 4.3
Consumer 35.0 45.6 57.5 60.6 49.6
Revolving credit 37.7 43.8 56.5 46.2 56.2
------ ------ ------ ------ ------
Total charge-offs 144.5 186.5 259.9 279.4 214.4
Recoveries:
Commercial 26.1 14.9 12.5 15.5 9.7
International -- .2 2.0 8.1 .5
Real estate mortgage 2.3 3.8 2.7 .9 .5
Consumer 21.6 23.0 21.3 18.1 15.6
Revolving credit 10.2 10.7 11.2 11.9 16.5
------ ------ ------ ------ ------
Total recoveries 60.2 52.6 49.7 54.5 42.8
------ ------ ------ ------ ------
Net charged-off loans 84.3 133.9 210.2 224.9 171.6
------ ------ ------ ------ ------
Balance at end of year $443.4 $383.9 $385.9 $327.3 $311.2
====== ====== ====== ====== ======
Ratio of ending
allowance to ending
loans 2.08% 2.05% 2.01% 1.67% 1.66%
The commercial category included real estate construction
net charge-offs of $4.9 million in 1993, $12.3 million in 1992 and
$14.2 million in 1991. Real estate mortgage loans included
commercial real estate net charge-offs of $10.3 million in 1993,
$11.7 million in 1992 and $14.5 million in 1991.
CHART 14. NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS
NET C/O RATIO
88 1.16%
89 0.96%
90 1.16%
91 1.07%
92 0.72%
93 0.43%
Net charge-offs as a percentage of average loans was .43% in 1993 compared with
.72% in 1992 and 1.07% in 1991. The improvement was broad-based across the
commercial and consumer loan portfolios.
20
FINANCIAL REVIEW (Continued)
Net charge-offs (recoveries) as a percentage of average
loans by portfolio type are shown in the following table:
1993 1992 1991 1990 1989
- ----------------------------------------------------------------------
Commercial .33% .71% 1.14% .95% .41%
International 3.78 (.52) (3.96) 41.20 22.34
Real estate mortgage .24 .32 .41 .34 .12
Consumer .34 .61 .97 1.10 .95
Revolving credit 1.90 2.34 2.94 2.50 2.90
Total net charge-offs
to average loans .43% .72% 1.07% 1.16% .96%
Net charge-offs as a percentage of loans declined 29 basis
points in 1993 from 1992 reflecting decreased commercial,
credit card and consumer charge-offs (Chart 14).
Both the provision and the allowance are based on an
analysis of individual credits, prior and current loss experience,
overall growth in the portfolio, current economic conditions, and
other factors. Consumer and credit card loans are charged off
within industry norms, while commercial loans are evaluated
individually. An allocation of the ending allowance for loan
losses by major loan type follows:
(Dollars in Millions) 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------
Commercial and
commercial mortgage $174.5 $192.6 $210.9 $179.6 $108.4
International .4 .6 .5 1.4 65.3
Consumer and
residential mortgage 29.7 30.6 53.3 50.2 41.9
Revolving credit 22.1 30.1 28.7 31.2 26.6
Unallocated 216.7 130.0 92.5 64.9 69.0
------ ------ ------ ------ ------
$443.4 $383.9 $385.9 $327.3 $311.2
====== ====== ====== ====== ======
This allocation is made for analytical purposes. The total
allowance is available to absorb losses from any segment of the
portfolio. The changes in the allocated and unallocated
categories reflect credit quality that has improved at a rapid
rate. The 1993 provision for loan losses only slightly exceeded
net charge-offs for the year.
The following table shows the percentage of loans in each
category to total loans at year-end:
1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------
Commercial and
commercial mortgage 53.7% 57.6% 59.2% 59.3% 61.1%
International .3 .3 .3 .3 1.0
Consumer and
residential mortgage 38.9 34.3 32.7 32.4 30.0
Revolving credit 7.1 7.8 7.8 8.0 7.9
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
The Corporation plans to adopt SFAS 114 "Accounting By
Creditors For Impairment of a Loan" on January 1, 1995.
Management does not expect the adoption to have a material
impact on financial position or results of operations.
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, independent auditors, and the internal auditors have
direct and 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, 1993 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, 1993, its
system of internal control met those criteria.
Cleveland, Ohio
January 21, 1994
/s/ Edward B. Brandon /s/ Robert G. Siefers
Edward B. Brandon Robert G. Siefers
Chairman and Chief Executive Officer Executive Vice President and Chief Financial Officer
21
STATISTICAL DATA
CONSOLIDATED SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
For the Calendar Year
(In Millions Except Per Share
Amounts and Ratios) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $1,582 $1,624 $1,974 $2,162 $2,094 $1,750 $1,521 $1,410 $1,349 $957 $764
Securities 276 341 389 442 407 373 345 318 288 240 217
Other interest income 32 67 112 91 111 77 76 99 175 200 179
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest income 1,890 2,032 2,475 2,695 2,612 2,200 1,942 1,827 1,812 1,397 1,160
INTEREST EXPENSE
Deposits 542 723 1,093 1,252 1,206 957 806 821 878 689 572
Other interest expense 148 157 251 349 353 276 268 224 252 250 215
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total interest expense 690 880 1,344 1,601 1,559 1,233 1,074 1,045 1,130 939 787
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net interest income 1,200 1,152 1,131 1,094 1,053 967 868 782 682 458 373
PROVISION FOR LOAN LOSSES 93 129 251 231 157 168 279 108 67 43 45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net interest income after
provision for loan losses 1,107 1,023 880 863 896 799 589 674 615 415 328
Fees and other income 800 726 650 580 493 471 419 364 318 206 182
Security gains (losses) 12 26 26 3 3 11 11 21 9 (2) (17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total noninterest income 812 752 676 583 496 482 430 385 327 204 165
Noninterest expense 1,348 1,311 1,242 1,115 981 913 857 797 709 467 390
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income before income taxes 571 464 314 331 411 368 162 262 233 152 103
Income taxes 167 117 77 82 106 91 18 44 52 28 9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET INCOME $404 $347 $237 $249 $305 $277 $144 $218 $181 $124 $94
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== =====
NET INCOME PER SHARE:
Primary $2.41 $2.09 $1.46 $1.62 $1.98 $1.80 $.93 $1.47 $1.39 $1.05 $.82
Assuming full dilution 2.37 2.06 1.45 1.61 1.98 1.80 .92 1.40 1.21 1.01 .80
Dividends paid
per common share 1.06 .94 .94 .94 .84 .72 .60 .50 .44 .42 .41
Average shares outstanding 161.16 158.01 154.43 153.84 154.04 153.85 154.38 148.00 130.49 117.76 115.25
FINANCIAL RATIOS:
Return on average
common equity 16.12% 15.31% 11.20% 12.97% 17.18% 17.47% 9.51% 15.97% 15.87% 13.87% 11.86%
Return on average assets 1.40 1.21 .81 .87 1.16 1.14 .63 1.05 .95 .90 .78
Average equity to
average assets 9.04 8.25 7.35 6.73 6.73 6.55 6.67 6.68 6.18 6.54 6.54
Dividends paid to
net income 43.98 44.98 64.38 58.02 42.42 40.00 64.52 34.01 31.65 40.00 50.00
Net interest margin 4.80 4.65 4.51 4.50 4.69 4.73 4.93 4.68 4.43 4.13 4.20
Overhead ratio 44.34 48.93 49.93 46.33 43.68 42.66 45.63 47.95 50.12 49.45 48.17
Efficiency ratio 66.21 68.22 67.67 64.27 60.90 60.61 62.14 62.92 64.56 63.60 63.47
AT YEAR-END:
Assets $31,068 $28,963 $29,976 $29,561 $28,549 $26,879 $24,242 $23,495 $20,637 $19,560 $13,179
Loans 21,286 18,738 19,171 19,587 18,741 17,314 15,525 14,362 12,462 11,181 6,788
Securities 5,166 5,499 5,370 5,020 5,045 5,126 4,620 4,305 3,319 3,018 2,346
Deposits 23,063 22,585 22,758 22,730 21,386 20,676 18,368 17,350 15,532 14,626 9,428
Corporate long-term debt 510 328 330 308 310 264 294 277 254 198 120
Common equity 2,565 2,300 2,058 1,946 1,877 1,664 1,502 1,468 1,142 985 827
Total equity 2,763 2,500 2,258 1,946 1,877 1,664 1,507 1,498 1,265 1,109 827
Common shares
outstanding 158.78 158.17 154.63 153.11 154.20 153.87 154.19 154.04 133.39 127.65 115.81
Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
22
STATISTICAL DATA (Continued)
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
(Dollars in Millions)
- --------------------------------------------------------------------------------------------------------------------------
Daily Average Balance
1993 1992 1991 1990 1989 1988
ASSETS
Earning Assets:
Loans:
Commercial $8,816 $8,977 $9,885 $10,227 $9,788 $9,068
Real estate mortgage 5,297 4,607 4,419 3,987 3,054 2,458
Consumer 3,893 3,675 3,738 3,872 3,592 3,225
Revolving credit 1,448 1,412 1,539 1,370 1,367 1,348
------- ------- ------- ------- ------- -------
Total loans 19,454 18,671 19,581 19,456 17,801 16,099
Securities:
Taxable 4,637 4,361 3,722 3,813 3,437 3,333
Tax-exempt 861 1,024 1,174 1,274 1,329 1,416
------- ------- ------- ------- ------- -------
Total securities 5,498 5,385 4,896 5,087 4,766 4,749
Federal funds sold 77 315 296 247 121 112
Security resale agreements 274 706 870 275 127 100
Eurodollar time deposits in banks 278 417 417 298 655 500
Other short-term money market investments 164 187 219 300 372 304
------- ------- ------- ------- ------- -------
Total earning assets/Total interest income/Rates 25,745 25,681 26,279 25,663 23,842 21,864
Allowance for loan losses (409) (393) (367) (315) (339) (327)
Cash and demand balances due from banks 1,959 1,827 1,855 1,789 1,675 1,611
Properties and equipment 367 383 410 414 385 375
Customers' acceptance liability 51 78 75 96 62 78
Accrued income and other assets 1,121 1,059 1,091 917 732 659
------- ------- ------- ------- ------- -------
Total assets $28,834 $28,635 $29,343 $28,564 $26,357 $24,260
======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings and NOW accounts $4,543 $3,981 $3,371 $3,138 $2,796 $2,819
Insured money market accounts 5,401 5,236 4,519 3,767 3,238 3,391
Time deposits of individuals 6,268 7,230 8,430 8,112 6,736 5,381
Other time deposits 552 936 1,777 2,495 3,000 2,625
Deposits in overseas offices 263 251 367 315 629 490
Federal funds borrowed 1,439 995 1,056 1,289 1,395 1,233
Security repurchase agreements 1,080 1,183 1,141 1,374 1,383 1,519
Borrowed funds 1,193 1,359 1,706 1,424 954 830
Corporate long-term debt 452 329 318 309 273 281
------- ------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/Rates 21,191 21,500 22,685 22,223 20,404 18,569
Noninterest bearing deposits 4,619 4,333 4,010 3,930 3,745 3,749
Acceptances outstanding 51 78 75 96 62 78
Accrued expenses and other liabilities 367 362 417 393 372 276
------- ------- ------- ------- ------- -------
Total liabilities 26,228 26,273 27,187 26,642 24,583 22,672
Stockholders' equity 2,606 2,362 2,156 1,922 1,774 1,588
------- ------- ------- ------- ------- -------
Total liabilities and stockholders' equity $28,834 $28,635 $29,343 $28,564 $26,357 $24,260
======= ======= ======= ======= ======= =======
Net interest income
Interest spread
Contribution of noninterest bearing
sources of funds
Net interest margin
Fully taxable equivalent basis computed at 35% in 1993 and 34% in 1992 through 1988.
Average loan balances include nonperforming loans.
Amounts for 1993 include Ohio Bancorp from date of purchase.
23
- -------------------------------------------------------------------------- ---------------------------------------------------
Interest Daily Average Rate
1993 1992 1991 1990 1989 1988 1993 1992 1991 1990 1989 1988
$648.7 $679.7 $904.8 $1,073.6 $1,102.9 $909.4 7.36% 7.57% 9.15% 10.50% 11.27% 10.03%
421.4 409.8 448.0 424.8 331.2 263.5 7.96 8.90 10.14 10.65 10.84 10.72
338.8 358.9 408.7 453.3 436.4 357.7 8.70 9.77 10.93 11.71 12.15 11.09
182.9 186.4 227.5 229.7 241.5 237.6 12.63 13.20 14.78 16.77 17.67 17.63
- -------- -------- -------- -------- -------- --------
1,591.8 1,634.8 1,989.0 2,181.4 2,112.0 1,768.2 8.18 8.76 10.16 11.21 11.86 10.98
229.0 277.6 308.7 347.7 305.3 250.6 4.94 6.37 8.29 9.12 8.88 7.52
73.3 95.3 119.4 135.8 147.6 170.8 8.51 9.31 10.17 10.66 11.11 12.06
- -------- -------- -------- -------- -------- --------
302.3 372.9 428.1 483.5 452.9 421.4 5.50 6.92 8.74 9.50 9.50 8.87
4.5 11.1 17.3 20.3 10.9 8.5 5.84 3.52 5.84 8.22 9.01 7.59
8.8 26.9 49.7 22.1 11.7 6.9 3.21 3.81 5.71 8.04 9.21 6.90
9.6 16.4 27.3 25.8 60.2 41.2 3.45 3.93 6.55 8.66 9.19 8.24
8.9 12.7 17.4 23.5 29.7 20.6 5.43 6.74 7.95 7.83 7.98 6.78
- -------- -------- -------- -------- -------- --------
$1,925.9 $2,074.8 $2,528.8 $2,756.6 $2,677.4 $2,266.8 7.48% 8.08% 9.62% 10.74% 11.23% 10.37%
$122.8 $128.3 $155.0 $157.0 $136.9 $138.0 2.70% 3.22% 4.60% 5.00% 4.90% 4.90%
116.3 146.3 211.3 216.2 180.7 176.5 2.15 2.79 4.68 5.74 5.58 5.20
277.1 400.3 592.2 654.9 557.8 403.8 4.42 5.54 7.02 8.07 8.28 7.50
19.1 39.5 112.2 200.3 273.8 201.6 3.46 4.22 6.31 8.03 9.13 7.68
6.9 8.3 21.6 23.7 56.8 36.7 2.62 3.31 5.89 7.52 9.03 7.49
45.5 34.4 60.2 104.0 127.9 94.1 3.16 3.46 5.70 8.07 9.17 7.63
27.6 36.7 58.5 103.9 118.0 104.7 2.56 3.09 5.13 7.56 8.53 6.89
46.4 60.9 106.8 112.9 80.3 50.7 3.89 4.49 6.26 7.93 8.42 6.11
28.4 24.8 26.0 28.1 26.8 26.4 6.28 7.54 8.18 9.09 9.82 9.40
- -------- -------- -------- -------- -------- --------
$690.1 $879.5 $1,343.8 $1,601.0 $1,559.0 $1,232.5 3.26% 4.09% 5.92% 7.20% 7.64% 6.64%
- -------- -------- -------- -------- -------- --------
$1,235.8 $1,195.3 $1,185.0 $1,155.6 $1,118.4 $1,034.3
======== ======== ======== ======== ======== ========
4.22% 3.99% 3.70% 3.54% 3.59% 3.73%
.58 .66 .81 .96 1.10 1.00
----- ----- ----- ----- ----- ------
4.80% 4.65% 4.51% 4.50% 4.69% 4.73%
===== ===== ===== ===== ===== =====
24
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME For the Calendar Year
Loans:
Taxable $1,565,636 $1,602,508 $1,939,934
Exempt from Federal income taxes 16,470 21,593 34,165
Securities:
Taxable 229,007 277,635 308,653
Exempt from Federal income taxes 47,279 63,442 80,780
Federal funds sold and security resale agreements 13,254 37,981 66,927
Eurodollar time deposits in banks 9,630 16,360 27,266
Other short-term investments 8,888 12,807 17,312
---------- ---------- ----------
Total interest income 1,890,164 2,032,326 2,475,037
INTEREST EXPENSE
Deposits 542,165 722,657 1,092,335
Federal funds borrowed and security
repurchase agreements 73,151 71,146 118,660
Borrowed funds 46,417 60,988 106,789
Corporate long-term debt 28,377 24,790 25,984
---------- ---------- ----------
Total interest expense 690,110 879,581 1,343,768
---------- ---------- ----------
Net interest income 1,200,054 1,152,745 1,131,269
PROVISION FOR LOAN LOSSES 93,089 129,361 251,076
---------- ---------- ----------
Net interest income after provision for loan losses 1,106,965 1,023,384 880,193
NONINTEREST INCOME
Item processing revenues 267,962 194,166 166,934
Service charges on deposit accounts 152,609 143,909 133,794
Trust fees 122,597 118,350 111,352
Credit card fees 92,966 101,898 86,871
Mortgage servicing fees 58,678 59,958 43,865
Other 105,003 107,379 107,228
---------- ---------- ----------
Total fees and other income 799,815 725,660 650,044
Security gains 11,922 25,697 25,661
---------- ---------- ----------
Total noninterest income 811,737 751,357 675,705
NONINTEREST EXPENSE
Salaries and employee benefits 623,472 617,015 583,184
Equipment 89,005 90,768 90,690
Net occupancy 89,729 85,620 83,473
Assessments and taxes 80,454 76,779 72,080
Expense of other real estate owned 26,177 46,847 56,942
Other 438,903 393,419 355,347
---------- ---------- ----------
Total noninterest expense 1,347,740 1,310,448 1,241,716
---------- ---------- ----------
Income before income taxes 570,962 464,293 314,182
Income tax expense 166,965 117,370 77,377
---------- ---------- ----------
NET INCOME $403,997 $346,923 $236,805
========== ========== =========
NET INCOME APPLICABLE TO COMMON STOCK $388,031 $330,923 $225,605
========== ========== =========
NET INCOME PER COMMON SHARE $2.41 $2.09 $1.46
Average Common Shares Outstanding 161,163,816 158,011,980 154,430,222
Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
See notes to financial statements.
25
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS December 31
Loans:
Commercial $8,429,118 $8,112,315
International 69,776 49,940
Real estate construction 439,406 532,784
Lease financing 228,352 224,553
Real estate mortgage - nonresidential 2,328,228 1,927,682
Real estate mortgage - residential 3,523,836 2,314,412
Mortgage loans held for sale 509,187 384,486
Consumer 4,241,461 3,726,790
Revolving credit 1,516,776 1,464,603
----------- -----------
Total loans 21,286,141 18,737,565
Allowance for loan losses 443,412 383,849
----------- -----------
Net loans 20,842,729 18,353,716
Securities held to maturity (market value $1,824,855 and $2,442,196, respectively) 1,763,025 2,358,365
Securities available for sale (market value $3,181,599 in 1992) 3,403,201 3,140,174
Federal funds sold and security resale agreements 611,743 363,898
Trading account assets 150,296 13,044
Eurodollar time deposits in banks 457,000 954,100
Other short-term money market investments 85,677 279,390
Cash and demand balances due from banks 1,933,888 2,070,932
Properties and equipment 386,219 369,328
Customers' acceptance liability 68,148 59,131
Accrued income and other assets 1,365,783 1,001,395
----------- -----------
TOTAL ASSETS $31,067,709 $28,963,473
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing) $5,214,560 $4,818,847
Savings and NOW accounts 5,161,593 4,416,534
Insured money market accounts 5,489,785 5,647,269
Time deposits of individuals 6,224,231 6,628,731
Other time deposits 500,421 697,156
Deposits in overseas offices 472,431 376,787
----------- -----------
Total deposits 23,063,021 22,585,324
Federal funds borrowed and security repurchase agreements 3,082,821 1,818,724
Borrowed funds 1,201,011 1,393,220
Acceptances outstanding 68,148 59,131
Accrued expenses and other liabilities 379,268 279,590
Corporate long-term debt 510,173 327,598
----------- -----------
TOTAL LIABILITIES 28,304,442 26,463,587
Stockholders' Equity:
Preferred stock, without par value, authorized 5,000,000 shares, outstanding 793,240
and 800,000 shares (3,966,200 and 4,000,000 depositary shares) of 8% Cumulative
Convertible Preferred Stock ($250 liquidation preference per share) in 1993 and 1992 198,310 200,000
Common stock, par value $4 per share, authorized 350,000,000 shares,
outstanding 158,779,611 shares in 1993 and 158,167,180 shares in 1992 635,119 316,335
Capital surplus 105,140 300,307
Retained earnings 1,841,144 1,708,506
Unallocated shares held by Employee Stock Ownership Plan (ESOP) trust (16,446) (25,262)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,763,267 2,499,886
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,067,709 $28,963,473
=========== ===========
See notes to financial statements.
26
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES For the Calendar Year
Net income $403,997 $346,923 $236,805
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 93,089 129,361 251,076
Depreciation and amortization 56,610 59,314 63,422
Amortization of goodwill and intangibles 61,721 37,459 35,086
Amortization of securities discount and premium 6,488 (4,643) (11,835)
Security gains (11,922) (25,697) (25,661)
Other gains, net -- (4,352) (16,967)
Net decrease (increase) in trading account securities (137,252) 19,978 2,289
Originations and purchases of mortgage loans held for sale (3,635,705) (2,967,585) (1,782,309)
Proceeds from sales of mortgage loans held for sale 3,496,154 2,756,320 1,676,443
Deferred income taxes (benefit) 21,563 (22,089) (9,320)
(Increase) decrease in interest receivable (22,698) 87,037 42,926
Increase (decrease) in interest payable 24,319 (97,418) (31,745)
(Increase) decrease in other assets (279,286) 40,999 (68,138)
Increase (decrease) in other liabilities 46,041 (22,416) 8,110
---------- ---------- -----------
Net cash provided (used) by operating activities 123,119 333,191 370,182
LENDING AND INVESTING ACTIVITIES
Net change in short-term investments 633,588 375,201 (704,905)
Purchases of securities (4,036,281) (3,391,162) (2,968,916)
Proceeds from sales of securities 2,594,509 1,253,787 1,891,382
Proceeds from maturities and prepayments of securities 2,368,065 2,041,828 944,922
Net change in loans (1,870,528) 357,484 409,678
Proceeds from sales of loans 207,156 160,214 454,503
Net increase in properties and equipment (55,348) (38,337) (42,359)
Acquisitions (43,490) (17,000) (4,650)
---------- ---------- -----------
Net cash provided (used) by lending and investing activities (202,329) 742,015 (20,345)
DEPOSIT AND FINANCING ACTIVITIES
Net change in Federal funds borrowed and security
repurchase agreements 1,179,308 (585,919) (89,204)
Net change in borrowed funds (217,410) (322,283) 26,241
Net change in demand, savings, NOW, insured money market accounts,
and deposits in overseas offices 212,946 1,843,412 553,725
Net change in time deposits (1,093,817) (2,015,913) (1,192,870)
Repayment of long-term debt (20,660) (2,812) (2,916)
Issuance of long-term debt 197,950 -- 25,840
Dividends paid, net of tax benefit of ESOP shares (184,516) (155,718) (140,227)
Issuance of common stock 28,469 47,378 10,742
Repurchase of common and preferred stock (168,920) (1,118) (10,518)
Issuance of preferred stock -- -- 195,072
ESOP trust repayment 8,816 4,759 469
---------- ---------- -----------
Net cash (used) provided by deposit and financing activities (57,834) (1,188,214) (623,646)
---------- ---------- -----------
Net (decrease) increase in cash and demand balances due from banks (137,044) (113,008) (273,809)
Cash and demand balances due from banks, January 1 2,070,932 2,183,940 2,457,749
---------- ---------- -----------
Cash and demand balances due from banks, December 31 $1,933,888 $2,070,932 $2,183,940
========== ========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid $662,000 $977,000 $1,350,000
Income taxes paid 147,000 140,000 75,000
Shares issued in purchase acquisitions 140,568 -- --
Unrealized appreciation in securities available for sale:
Securities available for sale 53,804 -- --
Stockholders' equity 34,967 -- --
Deferred taxes 18,837 -- --
See notes to financial statements.
27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unallocated
Shares
Preferred Common Capital Retained Held by
(Dollars in Thousands Except Per Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1991 $306,217 $241,781 $1,428,764 $(30,490) $1,946,272
Net income 236,805 236,805
Common dividends, $.94 per share (114,045) (114,045)
Common dividends of pooled company (17,649) (17,649)
Preferred dividends, $2.133 per depositary share (8,533) (8,533)
Issuance of 867,654 common shares under
corporate stock plans 1,736 9,006 10,742
Issuance of 1,250,124 common shares pursuant to
acquisitions 2,500 16,547 19,047
Purchase of 600,000 common shares (1,200) (1,277) (8,041) (10,518)
Issuance of 800,000 shares (4,000,000 depositary
shares) of 8% Cumulative Convertible
Preferred Stock $200,000 (4,928) 195,072
Shares distributed by ESOP trust 469 469
-------- -------- -------- ---------- -------- ----------
Balance December 31, 1991 200,000 309,253 261,129 1,517,301 (30,021) 2,257,662
Net income 346,923 346,923
Common dividends, $.94 per share (130,881) (130,881)
Common dividends of pooled company (9,155) (9,155)
Preferred dividends, $4.00 per depositary share (16,000) (16,000)
Issuance of 3,621,216 common shares under
corporate stock and dividend
reinvestment plans 7,243 40,135 47,378
Purchase of 80,400 common shares (161) (957) (1,118)
Shares distributed by ESOP trust and tax benefit
on dividends 318 4,759 5,077
-------- -------- -------- ---------- -------- ----------
Balance December 31, 1992 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 34,967 34,967
-------- -------- -------- ---------- -------- ----------
Balance December 31, 1993 $198,310 $635,119 $105,140 $1,841,144 $(16,446) $2,763,267
======== ======== ======== ========== ======== ==========
Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
See notes to financial statements.
28
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements
include the accounts of National City Corporation and all of
its subsidiaries. The Corporation's primary business is
banking.
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 30 years. Core deposit intangibles are
amortized on a straight-line basis over varying remaining
periods not exceeding 10 years. Purchased servicing contract
costs are deferred and amortized over the stream of servicing
income to be received.
CASH FLOWS: The Corporation has defined cash and
cash equivalents 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: As further
discussed in Note 4, the Corporation adopted SFAS 115
"Accounting For Certain Investments in Debt and Equity
Securities" on December 31, 1993. As required by SFAS 115,
management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Trading account assets are held for resale in anticipation
of short-term market movements and are valued at fair value.
Gains and losses, both realized and unrealized, are included in
other income.
Debt securities are classified as held to maturity when
the Corporation has the positive 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 account 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 gain
or loss 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.
OTHER TIME DEPOSITS: Other time deposits include
time certificates of deposit of $100,000 or more and totaled
approximately $702,000,000 and $1,146,000,000, respectively,
at December 31, 1993 and 1992.
OFF-BALANCE SHEET FINANCIAL AGREEMENTS: The
Corporation uses futures, forwards, and option contracts to
hedge assets and liabilities other than in the trading account.
Gains and losses on hedging transactions are deferred and
amortized as a yield adjustment over the remaining life of the
hedged asset or liability.
The Corporation enters into interest rate exchange
agreements ("swaps") to manage its interest rate sensitivity.
Gains and losses on offsetting transactions are deferred and
amortized as a yield adjustment over the remaining life of the
original swaps.
OTHER REAL ESTATE OWNED: Expense of other real
estate owned includes the cost of operating foreclosed
properties, gain or loss on disposal of properties, and write-
downs of carrying value on foreclosed properties.
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 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.
INCOME TAXES: Deferred income taxes reflect the
temporary tax consequences on future years of differences
between the tax and financial statement basis of assets and
liabilities.
FOREIGN EXCHANGE: Foreign exchange positions are
valued at the prevailing rates of exchange and gains or losses
are included in other income.
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.
STOCK SPLIT: On July 1, 1993, the Corporation's Board of
Directors authorized a two-for-one split of the common stock in
the form of a 100% stock dividend. Accordingly, common stock
and per share data have been restated to reflect the stock split.
29
2. ACQUISITIONS
In February 1993, the Corporation acquired JBS
Associates, Inc. (JBS), a check authorization business, and
accounted for the acquisition as a purchase. JBS stockholders
received cash of $24.3 million and were issued approximately
1.5 million shares (adjusted for the stock split) of the
Corporation's common stock. A provision in the purchase
agreement guarantees the total value of the consideration
received by the JBS stockholders to be not less than
$56.6 million as of February 1, 1998. Total goodwill recorded
was $51.5 million and is being amortized over 20 years.
In October 1993, the Corporation acquired Ohio Bancorp,
a $1.6 billion assets bank holding company headquartered in
Youngstown, Ohio. Ohio Bancorp shareholders received
approximately $104 million in cash and were issued
approximately 4.3 million shares of the Corporation's common
stock, for a total transaction value of approximately
$215 million. The transaction was accounted for as a purchase.
Total goodwill recorded was $65 million and is being amortized
over 20 years.
In May 1992, Merchants National Corporation (MCHN),
a $5.4 billion assets bank holding company located in
Indianapolis, Indiana, was merged into and became a wholly-
owned subsidiary of the Corporation. Each share of MCHN
common stock outstanding on May 2, 1992, was converted into
2.24 shares (adjusted for the stock split) of the Corporation's
common stock. The Corporation issued approximately 34.2
million shares (adjusted for the stock split) of common stock
and cash in lieu of fractional shares for all of the outstanding
shares of MCHN. The acquisition was accounted for as a
pooling-of-interests.
3. LOANS
Total loans outstanding were recorded net of unearned
income of $85,685,000 in 1993 and $85,692,000 in 1992.
Activity in the allowance for loan losses follows:
For the Calendar Year
----------------------------------
(In Thousands) 1993 1992 1991
- -----------------------------------------------------------------
Balance at beginning of year $383,849 $385,866 $327,285
Acquired allowance 50,756 2,479 17,651
Provision 93,089 129,361 251,076
Loans charged off (144,490) (186,528) (259,898)
Recoveries 60,208 52,671 49,752
-------- -------- --------
Net charge-offs (84,282) (133,857) (210,146)
-------- -------- --------
Balance at end of year $443,412 $383,849 $385,866
======== ======== ========
At December 31, 1993, nonaccrual, reduced-rate, and
renegotiated loans were $151,343,000, and other real estate
owned was $57,807,000. At December 31, 1992, the
corresponding amounts were $223,738,000 and $143,693,000,
respectively.
In May 1993, the Financial Accounting Standards Board
issued SFAS No. 114, "Accounting By Creditors For
Impairment of a Loan." The Corporation plans to adopt this
standard on January 1, 1995 and does not expect the adoption
to have a material impact on financial position or results of
operations.
4. SECURITIES
On December 31, 1993, the Corporation adopted the
requirements of SFAS 115. The most significant impact of the
new accounting requirements is that unrealized holding gains
and losses on securities classified as available for sale are
recorded in stockholders' equity. Previously, these securities
were recorded at the lower of amortized cost or market, with
unrealized losses, if any, reported in earnings. The adoption did
not have a material effect on the results of operations for the
year ended December 31, 1993 and prior period financial
statements have not been restated. In accordance with
SFAS 115, stockholders' equity at December 31, 1993 was
increased $35.0 million (net of $18.8 million in deferred income
taxes) to reflect the net unrealized holding gains on securities
classified as available for sale, previously carried at lower of
amortized cost or market. Also at December 31, 1993, certain
securities netting to $617 million (at cost) were reclassified
between held to maturity and available for sale in
contemplation of adopting SFAS 115.
The following is a summary of securities held to maturity
and available for sale:
DECEMBER 31, 1993
-------------------------------------------------
UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
Held to maturity:
U.S. Treas. and Fed.
agency debentures $205,411 $1,682 $-- $207,093
Mortgage-backed
securities 804,830 8,260 4,214 808,876
States and political
subdivisions 604,916 58,770 3,735 659,951
Other 147,868 1,092 25 148,935
---------- -------- -------- ----------
Total held to
maturity 1,763,025 69,804 7,974 1,824,855
Available for sale:
U.S. Treas. and Fed.
agency debentures 1,094,907 24,699 3,771 1,115,835
Mortgage-backed
securities 2,070,502 11,667 2,789 2,079,380
States and political
subdivisions 31,973 854 -- 32,827
Other 152,015 27,693 4,549 175,159
---------- --------- -------- -----------
Total available
for sale 3,349,397 64,913 11,109 3,403,201
---------- -------- ------- ----------
Total securities $5,112,422 $134,717 $19,083 $5,228,056
========== ======== ======= ==========
30
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1992
-------------------------------------------
Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------
Held to maturity:
U.S. Treas. and Fed.
agency debentures $381,571 $4,297 $-- $385,868
Mortgage-backed
securities 822,143 10,122 2,638 829,627
States and political
subdivisions 794,629 74,346 4,120 864,855
Other 360,022 6,446 4,622 361,846
---------- -------- ------- ----------
Total held to maturity 2,358,365 95,211 11,380 2,442,196
Available for sale:
U.S. Treas. and Fed.
agency debentures 816,353 14,123 1,906 828,570
Mortgage-backed
securities 2,241,266 24,211 6,317 2,259,160
Other 82,555 12,963 1,649 93,869
---------- -------- ------- -----------
Total available for sale 3,140,174 51,297 9,872 3,181,599
---------- -------- ------- ----------
Total securities $5,498,539 $146,508 $21,252 $5,623,795
========== ======== ======= ==========
The market values of securities are based on quoted
market prices, where available, and on quoted market prices of
comparable instruments when specific quoted prices are not
available.
The following table shows the carrying value and market
value of securities at December 31, 1993 by maturity:
Available
Held to Maturity for Sale
---------------------- ----------------------
Market Market
(In Thousands) Cost Value Cost Value
- ----------------------------------------------------------------------
Due in 1 year or less $668,611 $673,928 $149,012 $147,075
Due in 1 to 5 years 804,499 844,103 2,787,572 2,819,748
Due in 5 to 10 years 164,150 169,179 254,079 254,306
Due after 10 years 125,765 137,645 158,734 182,072
---------- ---------- ---------- ----------
$1,763,025 $1,824,855 $3,349,397 $3,403,201
========== ========== ========== ==========
Mortgage-backed securities and other securities which
may have prepayment provisions are assigned to a maturity
category based on estimated average lives.
In 1993, 1992 and 1991, gross gains of $16.3 million,
$28.6 million, and $29.0 million and gross losses of
$4.4 million, $2.9 million, and $3.3 million were realized,
respectively. Proceeds from the sale of securities totaled
$2,595 million, $1,254 million, and $1,891 million in 1993,
1992 and 1991, respectively.
At December 31, 1993, the carrying value of securities
pledged to secure public and trust deposits, trading account
liabilities, U.S. Treasury demand notes, and security
repurchase agreements totaled $2,462,449,000.
At December 31, 1993, there were no securities of a
single issuer, other than U.S. Treasury securities and other
U.S. government agencies, which exceeded 10% of stockholders'
equity.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value disclosures of financial instruments are made
to comply with the requirements of SFAS 107 "Disclosures
About Fair Value of Financial Statements". The market value
of securities, as presented in Note 4, is based primarily 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 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, except for securities
which are disclosed in Note 4:
1993 1992
----------------- -------------------
CARRYING FAIR Carrying Fair
(In Millions) VALUE VALUE Value Value
- ---------------------------------------------------------------------
Assets:
Cash and cash equivalents $3,391 $3,391 $3,926 $3,926
Loans held for sale 509 509 384 384
Loans receivable 20,777 20,990 18,354 18,218
Allowance for loan losses (443) -- (384) --
Trading account assets 150 150 13 13
Liabilities:
Demand deposits $5,215 $5,215 $4,819 $4,819
Time deposits 17,848 17,916 17,766 17,919
Short-term borrowings 4,352 4,352 3,271 3,271
Long-term debt 510 538 328 341
Other liabilities 119 119 92 92
Off-Balance Sheet Instruments:
Interest rate swaps:
Receive fixed rates $-- $34 $-- $45
Pay fixed rates -- (23) -- (40)
Interest rate caps and floors 13 46 8 18
Futures, forwards and
options 1 1 5 1
Commitments to extend
credit (9) (9) (6) (6)
Standby letters of credit (1) (1) (1) (1)
31
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 loans are estimated using a
discounted cash flow calculation that applies interest rates
used to price new, similar loans to a schedule of aggregated
expected monthly maturities, adjusted for market and credit
risks.
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, fixed-term 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 the Corporation's
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 the Corporation's 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).
6. 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 amount of
those reserve balances was $317 million for 1993.
7. PROPERTIES AND EQUIPMENT
A summary of properties and equipment follows:
December 31
-----------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------
Land $66,424 $60,719
Buildings and leasehold improvements 370,591 349,220
Equipment 402,749 378,527
-------- --------
839,764 788,466
Less accumulated depreciation
and amortization 453,545 419,138
-------- --------
Net properties and equipment $386,219 $369,328
======== ========
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 commit-
ments under these leases is approximately $41.1 million in
1994, $39.4 million in 1995, $37.8 million in 1996,
$30.4 million in 1997, $26.2 million in 1998, and $90.7 million
thereafter (extending primarily through the year 2007).
Total expense recorded under all operating leases in
1993, 1992 and 1991 was $59,960,000, $57,356,000, and
$49,484,000, respectively.
8. BORROWED FUNDS
The composition of borrowed funds follows:
December 31
-------------------------
(In Thousands) 1993 1992
- -------------------------------------------------------------------
U.S. Treasury demand notes and
Federal funds borrowed - term $ 309,832 $ 307,414
Trading account liabilities - short sales -- 56
Securities sold with recourse 12,805 25,610
Notes payable to Student Loan
Marketing Association 243,400 243,400
Military banking liabilities 185,493 364,757
Other 50,632 71,604
---------- -----------
Bank subsidiaries 802,162 1,012,841
Commercial paper 398,790 377,542
Other 59 2,837
---------- -----------
Other subsidiaries 398,849 380,379
---------- ----------
Total $1,201,011 $1,393,220
========== ==========
Securities sold with recourse represent the proceeds from
the sale of certain securities by a subsidiary bank under a put
option, whereby the buyer may require purchase at a
predetermined price. This arrangement has been accounted
for as a secured borrowing for financial reporting purposes.
32
NOTES TO FINANCIAL STATEMENTS (Continued)
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
$813 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 current
contract extends through September 30, 1994.
The $243,400,000 floating rate notes payable to Student
Loan Marketing Association are due in March 1994. The notes
are secured by and provide funding for student loan
receivables.
9. CORPORATE LONG-TERM DEBT
The composition of corporate long-term debt follows:
December 31
----------------------
(In Thousands) 1993 1992
- -----------------------------------------------------------------
8 3/8% Notes due 1996 $100,000 $100,000
Less discount (174) (255)
Floating Rate Subordinated Notes due 1997 75,000 75,000
Less discount (58) (76)
Floating Rate Notes due 1997 50,000 50,000
Less discount (80) (100)
Floating Rate Notes due 1994 5,000 5,000
9 7/8% Subordinated Notes due 1999 65,000 65,000
Less discount (268) (315)
Medium-Term Notes 6,000 25,000
Less discount (9) (20)
Other 7,609 4,279
-------- --------
Total parent company 308,020 323,513
6 1/2% Subordinated Notes Due 2003 200,000 --
Less discount (699) --
Other 2,852 4,085
-------- --------
Total subsidiaries 202,153 4,085
-------- --------
Total $510,173 $327,598
======== ========
On January 1, 1993, mergers of certain subsidiary
holding companies into the parent company occurred. For
comparative purposes, these obligations are reflected in the
parent company section of the preceding table for all periods
presented.
The 8 3/8% Notes pay interest semiannually and may not
be redeemed prior to maturity.
The $75 million Floating Rate Subordinated Notes bear
quarterly interest payments at a rate of 12.5 basis points over
the three-month Eurodollar deposit rate, subject to a floor of
5.25% (actual rate at December 31, 1993). The interest rate
on the $50 million Floating Rate Notes is 12.5 basis points over
the three-month Eurodollar deposit rate (3.50% at
December 31, 1993), 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 $5 million Floating Rate Notes pay interest
semiannually at an annual rate of 20 basis points over the six-
month Eurodollar deposit rate (3.70% at December 31, 1993).
The notes are redeemable at the option of the Corporation.
The 9 7/8% Subordinated Notes pay interest semiannually.
These notes are not redeemable prior to maturity.
The Medium-Term Notes are due at varying dates
through 1994 and carry interest rates ranging from 7.625% to
9.30% with semiannual payments of interest. These notes are
not redeemable.
In April 1993, the Corporation's Cleveland and Columbus
bank subsidiaries issued $125 million and $75 million,
respectively, of 6 1/2% subordinated notes. Interest on the notes
is payable semiannually. The notes are not redeemable prior to
their maturity in 2003. The notes qualify as tier 2 capital for
regulatory purposes.
A credit agreement with a group of banks allows the
Corporation to borrow up to $200 million until December 31,
1995, with a provision to extend the expiration date for one
year at each anniversary date, under certain circumstances.
The Corporation pays an annual facility fee of 1/4 percent on
the amount of the line. The agreement contains several
financial covenants, including a limitation on future dividends
and other distributions of $1,256,366,000 at December 31,
1993, plus 70% of future consolidated net income. There were
no borrowings outstanding under this agreement at
December 31, 1993.
Corporate long-term debt maturities for the next five
years are as follows: $13,535,000 in 1994; $225,000 in 1995;
$100,224,000 in 1996; $125,242,000 in 1997; and $1,960,000
in 1998.
10. PREFERRED STOCK AND EMPLOYEE STOCK
OWNERSHIP PLAN
At December 31, 1993 and 1992, the Corporation had
outstanding 793,240 and 800,000, respectively, shares of 8%
Cumulative Convertible Preferred Stock in the form of
3,966,200 and 4,000,000 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,
9,455,420 shares of common stock have been reserved 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. The
shares have a liquidation value of $250.00 per share ($50.00
per depositary share), or $198,310,000 in aggregate, plus
accrued and unpaid dividends to date of liquidation.
33
As a consequence of the merger with MCHN, the
Corporation assumed the obligations and benefits of the
MCHN Employee Stock Ownership Plan (ESOP). On July 1,
1992, the ESOP was merged into the National City Savings
and Investment Plan (a contributory benefit plan offered for
substantially all employees). The original ESOP was
established through the purchase of stock on the open market
at a cost of $30,490,000. The funding was made available
through an agreement between MCHN and an independent
trustee whereby MCHN provided a loan to the ESOP Trust for
the purpose of acquiring the shares. The shares presently held
by the ESOP (totalling 2,194,401 of the Corporation's common
shares) will be used to fulfill the Corporation's future
commitment to participants in the Corporation's benefit plans.
During 1993, the Corporation allocated 576,901 shares to the
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 totaled
$8,181,022 and $5,639,171 in 1993 and 1992, respectively.
Dividends earned by the ESOP in 1993 and 1992 were
$2,737,768 and $2,271,292, respectively. The tax benefit for
dividends paid on shares held by the ESOP is recorded directly
to retained earnings.
11. NET INCOME PER COMMON SHARE
Net income per common share is based upon net income
after preferred dividend requirements and the 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 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,
adjusted for the two-for-one stock split, follows:
For the Calendar Year
(Dollars In Thousands Except -------------------------------------
Per Share Amounts) 1993 1992 1991
- ------------------------------------------------------------------
PRIMARY:
Net income $403,997 $346,923 $236,805
Less preferred dividends 15,966 16,000 11,200
----------- ---------- ----------
Net income applicable
to common stock $388,031 $330,923 $225,605
=========== =========== ===========
Average common shares
outstanding 161,163,816 158,011,980 154,430,222
=========== =========== ===========
Net income per common share $2.41 $2.09 $1.46
=========== =========== ===========
ASSUMING FULL DILUTION:
Net income $403,997 $346,923 $236,805
=========== =========== ===========
Pro forma fully diluted
average common shares
outstanding 170,683,512 168,065,372 162,984,912
=========== =========== ===========
Pro forma fully diluted
net income per share $2.37 $2.06 $1.45
=========== =========== ===========
12. PARENT COMPANY AND REGULATORY
RESTRICTIONS
At December 31, 1993, retained earnings of the parent
company included $1,330.1 million of equity in undistributed
earnings of subsidiaries.
Dividends paid by the parent company's subsidiary banks
are subject to various legal and regulatory restrictions. In
1993, subsidiary banks declared and paid $699.6 million and
$543.4 million, respectively, in dividends to the parent
company. In 1994, bank subsidiaries may pay the parent
company, without prior regulatory approval, approximately
$96.0 million of dividends.
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 $398.8 million outstanding at
December 31, 1993 is guaranteed by the parent company.
Condensed parent company-only financial statements,
which include transactions with subsidiaries, follow:
BALANCE SHEETS
December 31
----------------------
(In Thousands) 1993 1992
- -----------------------------------------------------------------
ASSETS
Cash and demand balances due
from banks $ 2,733 $ 4,454
Loans to and accounts receivable
from subsidiaries 301,211 124,637
Securities 116,404 44,884
Investments in:
Subsidiary bank holding
companies and banks 2,407,320 2,403,388
Nonbank subsidiaries 206,902 69,578
Goodwill, net of accumulated
amortization of $27,559 and
$25,421, respectively 52,116 54,254
Other assets 56,465 23,492
---------- ----------
Total assets $3,143,151 $2,724,687
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Corporate long-term debt $ 308,020 $ 176,621
Accrued expenses and other liabilities 71,864 48,180
---------- ----------
Total liabilities 379,884 224,801
Stockholders' equity 2,763,267 2,499,886
----------- ----------
Total liabilities and
stockholders' equity $3,143,151 $2,724,687
========== ==========
34
NOTES TO FINANCIAL STATEMENTS (Continued)
STATEMENTS OF INCOME
For the Calendar Year
------------------------------
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------
INCOME
Dividends from:
Subsidiary bank holding
companies and banks $715,869 $100,000 $152,000
Nonbank subsidiaries 4,448 1,000 8,196
Interest on loans to
subsidiaries 4,431 2,788 5,550
Interest and dividends on
securities 2,396 2,986 3,740
Security gains 970 5,657 4,366
Other income 7,969 -- --
-------- -------- --------
Total income 736,083 112,431 173,852
EXPENSE
Interest on corporate
long-term debt 23,821 13,241 14,083
Goodwill amortization 2,138 2,081 2,030
Other expense 43,197 52,434 34,486
-------- -------- --------
Total expense 69,156 67,756 50,599
-------- -------- --------
Income before taxes and
equity in undistributed
income of subsidiaries 666,927 44,675 123,253
Income tax (benefit) (32,148) (20,207) (15,382)
-------- -------- --------
Income before equity in
undistributed net income
of subsidiaries 699,075 64,882 138,635
Equity in undistributed
(distributed) net income of
subsidiaries (295,078) 282,041 98,170
-------- -------- --------
Net income $403,997 $346,923 $236,805
======== ======== ========
The following table presents supplemental cash flow
information:
For the Calendar Year
(In Millions) 1993 1992 1991
- ----------------------------------------------------------------
Interest paid $ 24 $13 $14
Long-term debt assumed in merger
of subsidiaries 151 -- --
Shares issued in purchase
acquisitions and additional
investment in subsidiaries 141 -- --
Unrealized appreciation in
securities:
Securities 14 -- --
Stockholders' equity 9 -- --
Deferred taxes 5 -- --
STATEMENTS OF CASH FLOWS
For the Calendar Year
-------------------------------
(In Thousands) 1993 1992 1991
- --------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 403,997 $ 346,923 $ 236,805
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Equity in undistributed net
income of subsidiaries 295,078 (282,041) (98,170)
Amortization of goodwill 2,138 2,081 2,030
Decrease (increase) in dividends
receivable from subsidiaries (126,169) 45,500 (93,200)
Noncash dividends from
subsidiaries -- -- (296)
Security gains (970) (5,657) (4,366)
Other, net (13,294) 19,709 292
--------- --------- ---------
Net cash provided by
operating activities 560,780 126,515 43,095
Investing Activities:
Net change in short-term
money market investments (27,900) 70,000 (97,300)
Purchases of securities (126,641) (41,983) (132,122)
Sales and maturities of
securities 69,833 41,164 130,715
Principal collected on loans
to subsidiaries 283,107 16,275 1,750
Loans to subsidiaries (306,507) (21,925) (4,988)
Investment in subsidiaries (119,006) (78,836) (11,542)
--------- --------- ---------
Net cash (used)
by investing activities (227,114) (15,305) (113,487)
FINANCING ACTIVITIES:
Repayment of corporate
long-term debt (19,236) (513) (999)
Common and preferred
dividends (185,391) (146,881) (122,578)
Issuance of common stock 28,469 36,211 7,841
Issuance of preferred stock -- -- 195,072
Repurchase of stock (168,920) (1,118) (10,518)
Shares distributed by ESOP 9,691 4,835 --
--------- --------- ---------
Net cash (used) by
financing activities (335,387) (107,466) 68,818
--------- --------- ---------
Increase (decrease) in cash
and demand balances due
from banks (1,721) 3,744 (1,574)
Cash and demand balances
due from banks, January 1 4,454 710 2,284
--------- --------- ---------
Cash and demand balances
due from banks, December 31 $ 2,733 $ 4,454 $ 710
========= ========= =========
35
13. STOCK OPTIONS AND AWARDS
The Corporation was authorized in 1993 to grant
10,000,000 shares of common stock (adjusted for the stock
split) under a stock option plan. The Corporation's 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 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 (adjusted for the stock split)
under a Restricted Stock Plan. These shares are issued to
officers and directors of the Corporation. In general, the
restrictions on directors' shares granted after 1992 expire after
nine months and grants to officers expire over a four-year
period. The Corporation generally recognizes additional
compensation expense over the restricted period.
A summary of the stock options and award activity is as
follows:
Shares
------------------------------------------
Available for Grant Outstanding Range of
------------------------------------------ Option Price
Awards & Options Awards Options per Share
- ----------------------------------------------------------------------
December 31, 1990 4,436,678 7,542,298 $3.69 - 18.06
Authorized 1,000,000
Cancelled 1,000 (1,000)
Expired 92,298 (99,856)
Exercised (719,130) 3.69 - 18.06
Granted (1,885,320) 169,900 1,715,420 7.55 - 17.19
---------- -------- ---------
December 31, 1991 3,644,656 168,900 8,438,732 3.69 - 18.06
Cancelled 41,200 (2,800) (41,174)
MCHN
shares expired (282,240)
Exercised (4,600) (3,036,954) 3.69 - 18.06
Granted (1,479,500) 8,900 1,470,600 22.00
---------- ------- ---------
December 31, 1992 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
========== ======= =========
At December 31, 1993 and 1992, options for 5,033,577
and 4,624,242 shares, respectively, were exercisable at a price
range of $6.31 to $24.88 and $6.08 to $22.00 per share,
respectively.
14. PENSION PLANS
The Corporation 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. The Corporation also
sponsors supplemental retirement plans for certain key
employees.
The defined benefit pension plan's funded status (at its
year-end September 30) and the status of the supplemental
retirement plans follow:
(In Thousands) 1993 1992
- -------------------------------------------------------------------------
Projected benefit obligation:
Vested benefits $260,779 $200,200
Nonvested benefits 14,237 10,643
-------- --------
Accumulated benefit obligation 275,016 210,843
Effect of projected future compensation levels 73,199 55,857
-------- --------
Projected benefit obligation 348,215 266,700
Plan's assets at fair value, primarily stocks
and bonds, including $14.4 million and
$12.1 million in the common stock of the
Corporation for 1993 and 1992, respectively 305,216 265,380
-------- --------
Funded status - plan assets less than
projected benefit obligation $(42,999) $ (1,320)
======== ========
Comprised of:
Unrecognized net gains (losses) $(28,327) $ 12,256
Unrecognized net assets being recognized
over 15 years 25,792 27,063
Less accrued pension liability on
balance sheet 40,464 40,639
-------- --------
$(42,999) $ (1,320)
========= ========
Assumptions used in the valuation of the defined benefit
pension plan at its year end (September 30) and the
supplemental retirement plans follow:
1993 1992 1991
- ---------------------------------------------------------------------
Weighted average discount rate 7.25% 8.25% 7.25- 8.00%
Average assumed rate of
compensation increase 5.00 5.25 5.00- 5.50
Long-term rate of return on assets 10.00 9.50 9.00-10.00
Net defined benefit pension plan costs include the
following components:
For the Calendar Year
---------------------------------
(In Thousands) 1993 1992 1991
- --------------------------------------------------------------------
Service cost - benefits earned
during year $15,066 $14,344 $11,997
Interest cost on projected
benefit obligation 23,966 20,656 18,777
Actual (return) loss on
plan assets (25,072) (33,950) (50,471)
Net amortization and deferral (2,128) 9,417 27,895
------- ------- -------
Net periodic pension cost $11,832 $10,467 $ 8,198
======= ======= =======
The Corporation also sponsors a defined contribution
plan for substantially all employees. The Corporation may
make contributions to the plan in varying amounts depending
on the level of employee contributions. For the years ended
1993, 1992, and 1991, the expenses related to this plan were
$8,347,000, $3,275,000, and $11,891,000, respectively.
15. OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation has a benefit plan which provides
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
36
NOTES TO FINANCIAL STATEMENTS (Continued)
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
postretirement benefit plan. The following table presents the
plan's status at December 31, reconciled with amounts
recognized in the Corporation's balance sheet:
(In Thousands) 1993 1992
- ---------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $31,221 $26,476
Fully eligible active plan participants 8,401 6,940
Other active plan participants 12,873 9,898
------- ------
Accumulated postretirement benefit obligation 52,495 43,314
Unrecognized net loss (7,072) (3,329)
Unrecognized transition obligation (32,980) (34,706)
------- ------
Accrued postretirement benefit cost $12,443 $5,279
======= ======
Net periodic postretirement benefit costs include the
following components:
For the Calendar Year
----------------------------
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------
Service cost $1,067 $ 969 $ 978
Interest cost 3,622 3,534 3,183
Amortization of transition
obligation over 20 years 1,981 1,923 1,642
------ ------ ------
Net periodic postretirement
benefit cost $6,670 $6,426 $5,803
====== ====== ======
Assumptions used in the valuation of the accumulated
postretirement benefit obligation follow:
1993 1992 1991
- --------------------------------------------------------------
Weighted average discount rate 7.50% 8.50% 9.00%
Average salary scale 5.00 5.25 5.50
The health care trend rate assumption only affects those
participants retired under the plan prior to April 1, 1989. The
1994 health care trend rate is projected to be 12.5 percent for
participants under 65 and 10.0 percent for participants over
65. These rates are assumed to decrease incrementally by .5
percent 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 percent change in the trend rate is not material in the
determination of the accumulated postretirement benefit
obligation or the ongoing expense.
The Corporation will adopt SFAS 112, "Employers
Accounting for Postemployment Benefits," in 1994. The
adoption will not have a material impact on the Corporation's
financial position or results of operations.
16. INCOME TAXES
In 1992, the Corporation adopted SFAS 109, "Accounting
for Income Taxes. The cumulative effect of adopting SFAS 109
did not have a significant effect on net income in 1992. Income
tax expense for 1991 was not restated.
The composition of income tax expense (benefit) follows:
For the Calendar Year
-------------------------------
(In Thousands) 1993 1992 1991
- --------------------------------------------------------------
Current:
Federal $135,598 $137,603 $84,987
State 9,804 1,856 1,710
-------- -------- -------
Total current 145,402 139,459 86,697
-------- -------- -------
Deferred:
Federal 23,140 (13,571) (9,320)
State (1,577) (8,518) --
------- -------- -------
Total deferred 21,563 (22,089) (9,320)
-------- -------- -------
Tax expense $166,965 $117,370 $77,377
======== ======== =======
Tax expense applicable
to security transactions $4,173 $ 8,797 $8,739
======== ======== ======
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
------------------------------
1993 1992 1991
- -----------------------------------------------------------
Statutory rate 35.0% 34.0% 34.0%
Tax-exempt income (3.8) (5.5) (12.0)
Officers' life insurance (2.6) (2.1) (1.5)
Other .6 (1.1) 4.1
---- ---- ----
Effective tax rate 29.2% 25.3% 24.6%
==== ==== ====
Significant components of the Corporation's deferred tax
liabilities and assets as of December 31 are as follows:
(In Thousands) 1993 1992
- -----------------------------------------------------------
Deferred tax liabilities:
Lease accounting $68,984 $71,232
Mark to market adjustments 27,054 --
Depreciation 17,109 12,733
Other - net 35,649 37,829
------- -------
Total deferred tax liabilities 148,796 121,794
Deferred tax assets:
Provision for losses 155,697 138,549
Employee benefits accounting 23,520 15,469
Other - net 34,273 53,147
------- -------
Total deferred tax assets 213,490 207,165
------- -------
Net deferred tax assets $64,694 $85,371
======= =======
37
17. OFF-BALANCE SHEET FINANCIAL AGREEMENTS
The following table summarizes the gross contract or
notional amounts of off-balance sheet financial instruments:
December 31
-------------------------
(In Millions) 1993 1992
- -----------------------------------------------------------------------
Futures and forward contracts:
Commitments to purchase $-- $25.0
Commitments to sell 836.8 510.8
Notional amount of futures:
Receive fixed rate -- 50.0
Pay fixed rate 40.0 619.0
Notional amount of interest rate swaps:
Receive fixed rate 5,634.6 3,028.4
Pay fixed rate 581.6 723.4
Notional amount of caps, floors, and options:
Caps or floors written 437.9 312.9
Caps or floors purchased 1,097.9 772.9
Options contracts purchased 325.0 273.6
Forward foreign exchange contracts:
Commitments to purchase 110.1 200.9
Commitments to sell 117.6 207.1
The Corporation utilizes off-balance sheet financial
instruments to manage exposure to changes in interest rates.
Market risk is managed to minimize exposure to interest rate
changes through the monitoring of cash flows of on- and off-
balance sheet financial instruments. Counterparty credit risk
related to off-balance sheet instruments is managed by
applying the same business and credit standards that are used
for on-balance sheet transactions. There are no concentrations
of credit risk. The Corporation may require collateral for
certain of these instruments. The Corporation has never
experienced, nor does it have any reason to expect, a credit loss
associated with any off-balance sheet financial agreement.
18. CREDIT COMMITMENTS AND CONTINGENT
LIABILITIES
In the normal course of business, the Corporation makes
various commitments to extend credit and incurs contingent
liabilities which are not reflected in the balance sheet. A
summary of these commitments and contingent liabilities
follows:
December 31
---------------------
(In Millions) 1993 1992
- ------------------------------------------------------------
Commitments to extend credit $6,567.4 $5,634.6
standby letters of credit 1,242.3 1,309.2
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 the
Corporation's normal credit policies. Collateral is obtained
based on management's credit assessment of the customer.
In addition, the Corporation's subsidiaries are involved in
legal proceedings arising out of their businesses. In
management's opinion, the financial statements would not be
materially by the outcome of any legal proceedings or
commitments and contingent liabilities.
19. QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
Quarterly financial information is contained on page 36.
REPORT OF ERNST & YOUNG, 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, 1993 and 1992, 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, 1993. These financial statements are the
responsibility of the Corporation'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, 1993 and 1992, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
Cleveland, Ohio Ernst & Young
January 21, 1994
38
QUARTERLY DATA
FOURTH QUARTER RESULTS
- ------------------------------------------------------------------------
Net income for the fourth quarter of 1993 was $103.5
million, or $.62 per common share, compared with $90.1
million, or $.54 per share, for the same period last year.
The increase in earnings was due predominantly to
higher net interest income and fee income.
Annualized return on average common equity for the
fourth quarter was 15.74%, compared with 15.23% for the
fourth quarter 1992. Annualized return on average assets was
1.35% in 1993 versus 1.25% in 1992.
Average earning assets and average deposits for the
quarter increased 5.6% and 3.5%, respectively, from the fourth
quarter last year, primarily due to the acquisition of Ohio
Bancorp.
Net interest income on a fully taxable equivalent basis for
the quarter was $315.7 million, which reflects a 4.5% increase
over $302.1 million for the same period last year.
Fees and other income increased 15.8% to $214.3 million
over the prior year fourth quarter due mainly to higher item
processing revenue that was the result of acquisitions.
Noninterest expenses increased slightly to $359.5 million,
compared to $344.3 million a year ago. The net increase was
due entirely to 1993 acquisitions. Excluding acquisitions,
noninterest expenses declined by 4%.
QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly results of operations for
the years 1993, 1992, and 1991:
(Dollars in Thousands Except Per Share Amounts)
First Second Third Fourth Full Year
- -------------------------------------------------------------------------------------------------------------
1993
Interest income $467,716 $467,138 $469,156 $486,154 $1,890,164
Interest expense 173,716 170,095 167,652 178,647 690,110
Net interest income 294,000 297,043 301,504 307,507 1,200,054
Provision for loan losses 25,382 23,896 23,861 19,950 93,089
Security gains 2,509 3,195 2,851 3,367 11,922
Net overhead 136,841 131,905 133,925 145,254 547,925
Income before income taxes 134,286 144,437 146,569 145,670 570,962
Net income 95,322 102,454 102,676 103,545 403,997
Net income applicable to common stock 91,322 98,454 98,676 99,579 388,031
Net income per common share .57 .61 .61 .62 2.41
Dividends paid per common share .26 .26 .27 .27 1.06
1992
Interest income $538,481 $516,171 $494,143 $483,531 $2,032,326
Interest expense 254,719 228,376 205,277 191,209 879,581
Net interest income 283,762 287,795 288,866 292,322 1,152,745
Provision for loan losses 41,816 38,582 27,791 21,172 129,361
Security gains 7,546 4,364 3,953 9,834 25,697
Net overhead 135,994 142,820 146,651 159,323 584,788
Income before income taxes 113,498 110,757 118,377 121,661 464,293
Net income 82,105 85,145 89,623 90,050 346,923
Net income applicable to common stock 78,105 81,145 85,623 86,050 330,923
Net income per common share .50 .51 .54 .54 2.09
Dividends paid per common share .235 .235 .235 .235 .94
1991
Net income $60,783 $65,545 $69,884 $40,593 $236,805
Net income per common share .39 .41 .42 .24 1.46
Common stack and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
39
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 1993 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
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, 1993 Commission file number 1-10074
NATIONAL CITY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization)
34-1111088 (I.R.S. Employer Identification No.)
1900 East Ninth Street, Cleveland, Ohio 44114
(Address of principal executive 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:
Depositary Shares each representing a one-fifth interest in a share of
National City Corporation 8% Cumulative Convertible Preferred Stock, without
par value,
registered on New York Stock Exchange
(Title of Class and name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
National City Corporation $4.00 Par Value Common Stock
(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. X
-----
State the aggregate market value of the voting stocks held by nonaffiliates
of the registrant as of December 31, 1993-$3,803,211,000
Indicate the number of shares outstanding of each of the registrant's classes
of common stock,
as of December 31, 1993.
Common Stock, $4.00 Par Value - 158,779,611
Documents Incorporated By Reference:
Portions of the registrant's Proxy Statement (to be dated approximately March
4, 1994) 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
FORM 10-K (Continued)
FORM 10-K CROSS REFERENCE INDEX
PART I Pages
-----
Item 1 - Business
Description of Business 38-39
Average Balance Sheets/Interest/Rates 20-21
Volume and Rate Variance Analysis 14
Securities 7-8
Loans 5-6
Risk Elements of Loan Portfolio 16-18
Loan Loss Experience 16-18
Allocation of Allowance for Loan Losses 16-18
Deposits 8, 20-21
Financial Ratios 19
Short-Term Borrowings 8, 29-30
Item 2 -- Properties 39
Item 3 -- Legal Proceedings 39
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 9
Item 6 - Selected Financial Data 19
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations 4-18
Item 8 - Financial Statements and
Supplementary Data 22-36
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 39
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,
Independent Auditors 35
Financial Statements:
Consolidated Statements of Income -
Calendar Years 1993, 1992 and 1991 22
Consolidated Balance Sheets -
December 31, 1993 and 1992 23
Consolidated Statements of Cash Flows -
Calendar Years 1993, 1992 and 1991 24
Consolidated Statements of Changes in
Stockholders' Equity -
Calendar Years 1993, 1992, and 1991 25
Notes to Financial Statements 26-35
Signatures 40
Reports on Form 8-K filed in the fourth quarter of 1993:
Form 8-K dated October 12, 1993, Item 5. Announcement of
the completion of the acquisition of Ohio Bancorp.
Form 8-K dated October 27, 1993, Item 5. Announcement of
Board of Directors' action electing David A. Daberko
President and Chief Operating Officer of the Registrant.
Form 8-K dated December 22, 1993, Item 5. Board of
Directors authorized the purchase of up to 5 million
additional shares of the Corporation's issued and outstanding
common stock, and up to 4 million depositary shares of its 8%
Cumulative Convertible Preferred Stock, subject to a
combined purchase limit of $200 million.
Exhibits - The index of exhibits has been filed as separate
pages of the 1993 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, 1994.
__________________________________________________________________
BUSINESS
At December 31, 1993, National City Corporation
("National City" or "the Corporation") was the second
largest bank holding company headquartered in the State of
Ohio and approximately the 26th largest in the United
States on the basis of total assets. National City owns and
operates 19 commercial banks having a total of 617 banking
offices in Ohio, Kentucky and Indiana. The four largest such
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 41 and 42) conduct 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 19,960 full-time
equivalent employees at December 31, 1993.
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.
41
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.
The Act restricts National City's nonbanking activities to
those which are determined by the Federal Reserve Board to
be closely related to banking. 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 intercompany loans and investments.
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 12 on page 31.
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 a 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. Regulations have been proposed
to implement this Act, but the full effects of the FDIC
Improvement Act generally on the financial services
industry, and specifically on the Corporation, cannot now be
measured.
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 21, 1994) are as follows:
Name Age Position
- ---- --- --------
Edward B. Brandon 62 Chairman and Chief
Executive Officer
David A. Daberko 48 President and
Chief Operating Officer
William R. Robertson 52 Deputy Chairman
Morton Boyd 57 Executive Vice President
Vincent A. DiGirolamo 56 Executive Vice President
Gary A. Glaser 49 Executive Vice President
Jon L. Gorney 44 Executive Vice President
Charles W. Hall 49 Executive Vice President
William E. MacDonald III 47 Executive Vice President
Robert G. Siefers 48 Executive Vice President
and Chief Financial
Officer
Harold B. Todd, Jr. 52 Executive Vice President
Thomas W. Owen 62 Senior Vice President and
General Auditor
Thomas A. Richlovsky 42 Senior Vice President and
Treasurer
David L. Zoeller 44 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. Gorney was appointed an executive vice president of
the Corporation in 1993. Prior to that time he was a senior
vice president of the Corporation since 1991 and senior vice
president of National City Bank (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
FORM 10-K (Continued)
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 under-
signed, thereunto duly authorized, on January 21, 1994.
NATIONAL CITY CORPORATION
/s/ EDWARD B. BRANDON
____________________________________
EDWARD B. BRANDON
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 21, 1994.
/s/ EDWARD B. BRANDON
____________________________________
Edward B. Brandon
Chairman and Chief Executive Officer
/s/ David A. Daberko /s/ William R. Robertson
______________________ _________________________
David A. Daberko William R. Robertson
President and Chief Deputy Chairman
Operating Officer
/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 Joseph H. Lemieux
Edward B. Brandon A. Stevens Miles
John G. Breen Adolph Posnick
David A. Daberko Burnell R. Roberts
Richard E. Disbrow William R. Robertson
Daniel E. Evans Morry Weiss
/s/ David L. Zoeller
_________________________________
By David L. Zoeller
Attorney-in-fact
43
CORPORATE DIRECTORY
MEMBER BANKS (Number of Banking Offices)
OHIO
NATIONAL CITY BANKS
Cleveland (94)
National City Bank
William E. MacDonald III
President
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
Columbus (124)
National City Bank, Columbus
Gary A. Glaser
President & CEO
155 East Broad Street
Columbus, Ohio 43251
(614) 463-7100
Akron (40)
National City Bank, Northeast
J. Christopher Graffeo
President & CEO
One Cascade Plaza
Akron, Ohio 44308-1198
(216) 375-8300
Dayton (39)
National City Bank, Dayton
Frederick W. Schantz
President & CEO
6 North Main Street
Dayton, Ohio 45412-2790
(513) 226-2000
Toledo (30)
National City Bank, Northwest
Robert E. Showalter
President & CEO
405 Madison Avenue
Toledo, Ohio 43603-1263
(419) 259-7700
Ashland (8)
National City Bank, Ashland
Harvey N. Young
Chairman, President & CEO
10 West Second Street
Ashland, Ohio 44805-0218
(419) 289-2112
Youngstown (29)*
The Dollar Savings and Trust Company
Thomas R. Hollern
President & CEO
20 Federal Plaza
Youngstown, Ohio 44503
(216) 744-9000
East Liverpool (5)*
The Potters Bank and Trust Company
Edward A. Coukart
President & CEO
200 East Fifth Street
East Liverpool, Ohio 43920
(216) 385-0450
Martins Ferry (7)*
Peoples Banking Company
Paul W. Soupart, Jr.
President & CEO
30 South Fourth Street
Martins Ferry, Ohio 43935
(614) 633-3151
Minerva (3)*
Bank 2000
Homer Ransdell
President & CEO
108 North Main Street
P.O. Box 150
Minerva, Ohio 44657
(216) 868-4157
Steubenville (5)*
The Miners and Mechanics Savings
and Trust Company
Andrew M. Mihalyo
Interim President & CEO
124 North Fourth Street
P.O. Box 100
Steubenville, Ohio 43952
(614) 284-5600
KENTUCKY
NATIONAL CITY BANK, KENTUCKY
Louisville (55)
Morton Boyd
Chairman & CEO
Leonard V. Hardin
President
101 South Fifth Street
Louisville, Kentucky 40202-3101
(502) 581-4200
Lexington (14)
Roger M. Dalton
President & CEO
301 East Main Street
Lexington, Kentucky 40507-4400
(606) 281-5100
Ashland (6)**
National City Bank, Ashland, Kentucky
David E. Jones
President & CEO
1000 Carter Avenue
Ashland, Kentucky 41101-7422
(606) 329-2900
Bowling Green (6)**
National City Bank, Bowling Green
Robert E. Aldridge
President & CEO
922 State Street
Bowling Green, Kentucky 42102-9016
(502) 781-6111
Crestwood (3)**
Crestwood State Bank
James E. Barber
President & CEO
6518 West Highway 146
P.O. Box 68
Crestwood, Kentucky 40014-0068
(502) 241-9425
Owensboro (7)**
Central Bank and Trust Company
Larry R. Mayfield
President & CEO
100 West Third Street
Owensboro, Kentucky 42301-0804
(502) 686-3500
INDIANA
NATIONAL CITY BANK, INDIANA
Indianapolis (126)
Vincent A. DiGirolamo
President & CEO
101 West Washington Street,
Suite 400E
Indianapolis, Indiana 46255
(317) 267-7000
NATIONAL CITY BANK, SOUTHERN
INDIANA
New Albany (11)
Richard B. Hobart
Chairman, President & CEO
320 Pearl Street
P.O. Box 1247
New Albany, Indiana 47150-1247
(812) 948-4400
MADISON BANK & TRUST COMPANY
Madison (5)
Raymond J. Bartnick
President & CEO
213-215 East Main Street
Madison, Indiana 47250
(812) 265-5121
* To be merged into National City Bank,
Northeast in April 1994.
** To be merged into National City Bank,
Kentucky in March 1994.
44
CORPORATE DIRECTORY (continued)
OTHER UNITS
BROKERAGE AND INVESTMENT
SERVICES
National City Investments
Corporation
William H. Schecter
Chairman
1965 East Sixth Street
Cleveland, Ohio 44114-2214
(216) 575-3495 1-800-624-6450
Offices: Akron, Cleveland, Columbus,
Dayton, Indianapolis,
Louisville, Toledo
National City Capital Corporation
National City Venture Corporation
William H. Schecter
President
1965 East Sixth Street
Cleveland, Ohio 44114-2214
(216) 575-3340
National Asset Management
Corporation
William F. Chandler, Jr.
Principal & Managing Director
Irvin W. Quesenberry, Jr.
Principal & Managing Director
P.O. Box 36010
Louisville, Kentucky 40232
(502) 581-7668
Merchants Capital Management
Incorporated
William H. Olds
Chairman
101 West Washington Street,
Suite 635E
Indianapolis, Indiana 46255
(317) 267-3880
COMMUNITY DEVELOPMENT
National City Community
Development Corporation
Danny H. Cameron
President
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2293
Offices: Akron, Cleveland, Columbus,
Dayton, Indianapolis,
Lexington, Louisville, Toledo
CREDIT CARD SERVICES
National City Card Services
G. Brent Bostick
President
4661 East Main Street
Columbus, Ohio 43213
(614) 863-8370
FUNDING
National City Credit Corporation
Jeffrey D. Kelly
Senior Vice President
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2268
INSURANCE
National City Life Insurance
Company
Anthony N. McEwen
President
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2946
National City Insurance Agency, Inc.
Anne E. Lazarz
President
101 West Washington, Suite 305E
Indianapolis, Indiana 46255
(317) 267-7033
ITEM PROCESSING
National City Processing Company
Delroy R. Hayunga
President & CEO
1231 Durrett Lane
Louisville, Kentucky 40285-0001
(502) 364-2000
MORTGAGE BANKING
National City Mortgage Co.
Leo E. Knight, Jr.
President & CEO
3232 Newmark Drive
Miamisburg, Ohio 45342
(513) 436-3025
Offices: Agawam (MA), Akron,
Annapolis, Atlanta, Cary
(NC), Charlotte, Cincinnati,
Columbia (SC), Columbus,
Dayton, Detroit, Falls Church
(MD), Frederick (MD),
Greensboro (NC), Greenwood
(IN), Indianapolis, Peachtree
(GA), Raleigh, Richmond,
Toledo, Towson (MD), Troy
(OH), Virginia Beach, Wethers-
field (CT), Wheaton (MD),
Wilmington (NC), York (PA)
Merchants Mortgage Corporation
David H. Mills
President
201 South Capitol, Suite 800
Indianapolis, Indiana 46255
(317) 237-5415
Mortgage Company of Indiana
R. Thomas Gracey
President
201 South Capitol, Suite 900
Indianapolis, Indiana 46225
(317) 237-5378
TRUST SERVICES
Charles W. Hall
Executive Vice President
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2262
Offices: All National City Banks
National City Trust Company
(Florida)
Ellen J. Abrams
President
1401 Forum Way, Suite 503
West Palm Beach, Florida 33401-2324
(407) 697-2424 1-800-826-9095
Offices: Naples, Vero Beach, West
Palm Beach
45
BOARD OF DIRECTORS/OFFICERS
BOARD OF DIRECTORS
Edward B. Brandon (2, 3, 4)
Chairman & CEO
National City Corporation
David A. Daberko
President & COO
National City Corporation
William R. Robertson
Deputy Chairman
National City Corporation
Sandra H. Austin (4, 6)
President
Headquarters Operations
Healthcare Services Division
Caremark International
Northbrook, Illinois
James M. Biggar (1, 2, 3)
Chairman & CEO
Glencairn Corporation
Beachwood, Ohio
John G. Breen (3, 4, 5)
Chairman & CEO
The Sherwin-Williams Company
Cleveland, Ohio
Richard E. Disbrow (1, 6)
Retired Chairman & CEO
American Electric Power
Service Corporation
Columbus, Ohio
Daniel E. Evans (6)
Chairman & CEO
Bob Evans Farms, Inc.
Columbus, Ohio
Otto N. Frenzel III
Chairman
National City Bank, Indiana
Indianapolis, Indiana
Joseph H. Lemieux (3, 5)
Chairman & CEO
Owens-Illinois, Inc.
Toledo, Ohio
A. Stevens Miles (4)
Retired President
National City Corporation
COMMITTEES
(1) Audit Committee
(2) Dividend Committee
(3) Executive Committee
(4) Nominating Committee
(5) Organization & Compensation Committee
(6) Public Policy Committee
Adolph Posnick (1, 2, 3, 4)
Retired Chairman & CEO
Ferro Corporation
Cleveland, Ohio
Burnell R. Roberts (3, 5)
Retired Chairman & CEO
The Mead Corporation
Dayton, Ohio
Stephen A. Stitle (4, 5)
Vice President
Eli Lilly and Company
Indianapolis, Indiana
Morry Weiss (1)
Chairman & CEO
American Greetings Corporation
Cleveland, Ohio
HONORARY DIRECTORS
Claude M. Blair
Retired Chairman
National City Corporation
Julien L. McCall
Retired Chairman
National City Corporation
OFFICERS
OFFICE OF THE CHAIRMAN
Edward B. Brandon
Chairman & CEO
David A. Daberko
President & COO
William R. Robertson
Deputy Chairman
EXECUTIVE VICE PRESIDENTS
Morton Boyd
Kentucky Banking
Vincent A. DiGirolamo
Indiana Banking
Gary A. Glaser
Columbus Banking
Jon L. Gorney
Information Services & Operations
Charles W. Hall
Trust
William E. MacDonald III
Cleveland Banking
Robert G. Siefers
Chief Financial Officer
Harold B. Todd, Jr.
Administration
SENIOR VICE PRESIDENTS
W. Douglas Bannerman
Corporate Banking
Jeffrey M. Biggar
Trust
Mary H. Griffith
Marketing Communications
Joseph J. Herr
Loan Review
Karl A. Johns
Human Resources
Jeffrey D. Kelly
Investments
Anthony N. McEwen
Retail Product Development
Gary P. Obers
Corporate Services
Robert J. Ondercik
Credit Administration
Thomas W. Owen
General Auditor
Donna M. Pacchioni
Corporate Accounting
A. Joseph Parker
Strategic Planning
Thomas A. Richlovsky
Treasurer
William H. Schecter
Investment Banking
Theodore H. Tung
Economist
Allen C. Waddle
Public Affairs
Patrick D. Walsh
Information Systems
David L. Zoeller
General Counsel & Secretary
46
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Debt Ratings
Standard Duff & Thomson
Moody's & Poor's Phelps Bankwatch
- -----------------------------------------------------------------------------------
National City Corporation A/B
Commercial paper (short-term debt) P-1 A-1 Duff 1+ TBW1
Senior debt A1 A AA-
Subordinated debt A2 A- A+
Preferred stock "a1" BBB+ A
Certificates of Deposit:
National City Bank (Cleveland) Aa3 A+ AA
National City Bank, Columbus Aa3 A+ AA
National City Bank, Kentucky Aa3 A+ AA
National City Bank, Indiana -- A+ AA
Subordinated Bank Notes:
National City Bank (Cleveland) A1 A AA-
National City Bank, Columbus A1 A AA-
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CORPORATE INVESTOR
INFORMATION
Corporate Headquarters
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
Transfer Agent and Registrar
National City Bank
Corporate Trust Department
1900 East Ninth Street
Cleveland, Ohio 44114-3484
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
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.
Preferred Stock Listing
National City Corporation 8%
Cumulative Convertible Preferred
Stock depositary shares are traded on
the New York Stock Exchange under
the symbol NCC PR. The preferred
stock is abbreviated as NtlCity pf in
financial publications.
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.
47
National City Corporation Logo 1900 East Ninth Street
Cleveland, Ohio 44114-3484