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[NATIONAL CITY LOGO] 1994 ANNUAL REPORT
PROUD
OF OUR
PAST
*
PREPARED
FOR OUR
FUTURE
2
CONTENTS
Financial Highlights 1
Letter to Stockholders 2
Financial Review 5
Statistical Data 19
Quarterly Data 22
Financial Statements 24
Notes to Financial Statements 28
Form 10-K 39
Corporate Directory 44
Board of Directors/Officers 46
ANNUAL MEETING
The Annual Meeting of
Stockholders will be on Monday,
April 24, 1995, at 10:00 a.m.:
National City Corporation
1900 East Ninth Street, 4th Floor
Cleveland, Ohio 44114
Although it was National City Bank in Cleveland that was officially
chartered on May 17, 1845, all of National City's member banks and companies
have contributed to the rich history of our Corporation.
NATIONAL CITY FOUNDING DATES
National City Bank - Cleveland May 17, 1845
National City Bank, Columbus September 19, 1929
National City Bank, Northeast - Akron August 1, 1933
National City Bank, Dayton January 20, 1871
National City Bank, Northwest - Toledo March 28, 1932
National City Bank, Ashland January 4, 1864
National City Bank, Kentucky October 22, 1863
National City Bank, Lexington March 15, 1883
National City Bank, Indiana March 9, 1865
National City Bank, Southern Indiana - New Albany April 20, 1904
Madison Bank & Trust Company July 10, 1833
The combined family of banks and financial service companies form our singular,
unified vision:
National City Corporation will be the premier diversified financial services
company in the Midwest by providing our customers with advice, information and
services to meet their financial needs. By doing so, we will achieve superior
levels of financial performance as compared to our peers and will provide
stockholders with an attractive return on their investment over time.
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FINANCIAL HIGHLIGHTS
(Dollars in Thousands Except Per Share Amounts) 1994 1993 Percent Change
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 429,434 $ 403,997 6%
Preferred Dividend Requirements . . . . . . . . . . . . . . . . 15,200 15,966 (5)
Net Income Applicable to Common Stock . . . . . . . . . . . . . 414,234 388,031 7
Net Income Per Common Share . . . . . . . . . . . . . . . . . . 2.70 2.41 12
Dividends Paid Per Common Share . . . . . . . . . . . . . . . . 1.18 1.06 11
Return on Average Common Equity . . . . . . . . . . . . . . . . 17.06% 16.12%
Return on Average Assets . . . . . . . . . . . . . . . . . . . . 1.40 1.40
Net Interest Margin . . . . . . . . . . . . . . . . . . . . . . 4.65% 4.80%
Efficiency Ratio . . . . . . . . . . . . . . . . . . . . . . . . 66.21 66.21
Overhead Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 43.46 44.34
AT YEAR END:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,114,008 $ 31,067,709 3%
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,034,775 21,286,141 8
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,395,055 5,166,226 (15)
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,471,920 23,063,021 6
Common Stockholders' Equity . . . . . . . . . . . . . . . . . . . 2,413,514 2,564,957 (6)
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . 2,601,054 2,763,267 (6)
Equity to Assets Ratio . . . . . . . . . . . . . . . . . . . . . 8.10% 8.89%
Tier 1 Capital Ratio . . . . . . . . . . . . . . . . . . . . . . 8.45 8.94
Total Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . 11.68 11.62
Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 7.82 8.18
Book Value Per Common Share . . . . . . . . . . . . . . . . . . . $ 16.36 $ 16.15 1%
Market Value Per Common Share . . . . . . . . . . . . . . . . . . 25.88 24.50 6
Common Shares Outstanding . . . . . . . . . . . . . . . . . . . . 147,555,632 158,779,611 (7)
Common Stockholders of Record . . . . . . . . . . . . . . . . . . 21,739 20,842 4
Full-Time Equivalent Employees . . . . . . . . . . . . . . . . . 20,306 19,960 2
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE PROFILE
National City Corporation is a $32 billion bank holding company headquartered in Cleveland, Ohio.
The Corporation's principal banking subsidiaries are located in Cleveland, Columbus, Indianapolis, and Louisville.
The Corporation also has a major banking presence 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 banking,
mortgage banking, public finance, venture capital, small business and community investment, and credit life insurance.
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TO OUR STOCKHOLDERS
We are pleased to report that National City once again had record
earnings in 1994. Net income was $429.4 million, or $2.70 per common share in
1994 compared with $404.0 million, or $2.41 per common share in 1993, an
increase of 12 percent per share. Return on average assets was 1.40 percent,
unchanged from 1993, and return on common equity rose to 17.06 percent, compared
with 16.12 percent a year ago. The higher earnings and returns were a direct
result of excellent asset quality, loan growth, active capital management,
proper management of interest rate risk and tight control of overhead expenses.
Pictures from left
EDWARD B. BRANDON
Chairman and Chief
Executive Officer
DAVID A. DABERKO
President and
Chief Operating Officer
WILLIAM R. ROBERTSON
Deputy Chairman
CAPITAL MANAGEMENT
National City is committed to enhancing stockholder value through
effective capital management. The efforts we have made in this regard have been
applauded by the market and have placed National City at the forefront of the
banking industry. This strategy is particularly important in an environment
where internal capital generation exceeds balance sheet growth.
The combination of a solid capital base and strong earnings has enabled
National City to conduct a number of successful stock repurchase programs in
1993 and 1994. These programs have the effect of increasing earnings per share
and returns on equity, as net income is distributed over a smaller number of
shares outstanding. In 1994 alone, 12.4 million common shares were repurchased,
representing almost 8 percent of year-end 1993 outstanding shares.
We have also increased the quarterly dividend, most recently in January
1995, to $.32 per share, following two dividend increases each in 1993 and
1994. The new quarterly dividend indicates an annual rate of $1.28 per share,
over 10 percent higher than a year ago. National City's total return, assuming
reinvestment of dividends, has significantly outperformed the Standard & Poor's
500 Index over the past 20 years - an average of 17.1% per year, versus 14.5%
for the S&P 500.
INTEREST RATE RISK MANAGEMENT
A great deal of attention has been focused recently on rising interest
rates and their impact on profitability. While an in-depth discussion of
interest rate risk management, including derivatives, can be found in the
financial review section of this report, we would like to provide you with a
brief overview of this important issue.
National City operates within conservative parameters on the amount of
interest rate risk taken, with the goal of avoiding volatility in net interest
income and net income. Interest rate risk exposure is centrally managed at
National City and takes into account the inherent interest rate risk assumed in
our customer-oriented lending and deposit-gathering businesses.
The positive results of a conservative management approach are borne out
by the consistency of the company's net interest margin over the past 10 years.
Although the margin will likely experience pressure in 1995 due to higher
funding costs and tighter loan pricing, we have consciously avoided large bets
on the direction of interest rates and will continue to do so.
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OUTLOOK FOR 1995 AND BEYOND
Over the last few years, National City has focused its efforts on internal
improvement, including the standardization and consolidation of back-office
operations, cost redesign, and the assimilation of acquisitions. We have
captured significant savings from streamlining operations and are now able to
fully leverage a more efficient operating base. Going forward, we will build on
and around National City's traditional banking franchise through product
enhancement and improved marketing efforts. We will focus our attention on
cross-selling more effectively across business lines.
We have a number of revenue enhancement initiatives currently underway at
National City, and we would like to discuss their impact on three major
businesses: corporate banking, trust, and retail banking.
CORPORATE BANKING: FOCUS ON ENHANCED PRODUCTS AND CROSS-SELLING
Corporate banking at National City emphasizes lending to small- and
middle-market businesses located in our three-state region. The loan mix among
these customers is diverse and historically has been of high quality. We hold a
leading market share position in this area in each of the major cities where we
operate, the result of excellent and experienced staffs serving these
customers. Corporate banking has been particularly successful at utilizing a
team approach when meeting with current and prospective customers to take full
advantage of cross-selling opportunities. Asset quality is excellent, and we
will not compromise credit standards for the sake of volume.
We expect traditional corporate lending to continue to grow at a
moderate pace, in line with the economic growth of the Midwest. However,
certain product areas within corporate banking should grow significantly faster
due to customer demand and greater marketing emphasis. They include asset-based
lending, commercial leasing, international banking services, and cash
management services. National City consistently ranks among the top five banks
in the U.S. in the quality of its cash management services.
TRUST: PRODUCT IMPROVEMENTS AND CONSISTENT INVESTMENT RETURNS
The trust division was reorganized in 1994 as part of a transition from
traditional fiduciary services to an investment management orientation. We
believe that the reorganization augurs well for future rates of growth and
profitability.
A renewed emphasis on sales, marketing and improved customer service
within the trust division includes linking the customer contact and new
business development activities more closely with the local banks. An effort is
underway to improve the investment product package by diversifying product
offerings and delivering more consistent investment returns through a
centralized group of equity and fixed income teams. The continued development
and enhancement of a more competitive 401(k) employee benefit product for our
corporate customer base is scheduled for implementation in the first half of
1995.
RETAIL BANKING: IMPROVED DISTRIBUTION
National City is well positioned in terms of deposits and branch locations in
the tri-state area of Ohio, Kentucky and Indiana. As consumer banking
preferences change, National City will develop alternatives to the traditional
branch system to meet consumer needs while maintaining the efficiency and
effectiveness of the retail banking operation. Investments in enhanced
telephone banking capabilities, supermarket branches, and marketing programs
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targeted to meeting specific customer needs will be priorities in 1995.
Indirect auto leases, credit cards, and residential mortgages will be marketed
aggressively, primarily to National City's existing customer base.
MANAGEMENT COMMITMENT AND MARKETPLACE STRENGTH
The progress we are making is already apparent in our financial performance.
We will continue to build on these positive results due to the inherent
strength of the markets we serve and management's commitment to the success of
our efforts.
We are fortunate to operate in one of the best regions in the U.S. Ohio,
Kentucky, and Indiana are experiencing steady economic growth, as indicated by
unemployment rates below the national average and ongoing investment in
manufacturing in all three states. A 1993 study ranked Ohio first in the U.S.
in terms of new manufacturing facilities and plant expansion; Kentucky and
Indiana ranked among the top 10.
We expect the Midwest to be a focus for competitive activity when the
interstate banking and branching legislation, enacted earlier this year, allows
banks to branch across state lines. From National City's perspective, this is
an evolutionary as opposed to a revolutionary event, since we already operate
and compete on an interstate basis. More critical to the ongoing success of the
company is the eventual expansion of banking powers that will allow us to offer
other financial services and compete more effectively with non-bank financial
service companies.
We announced in late 1994 the proposed acquisition of Raffensperger,
Hughes & Co., a full-service investment banking/brokerage firm headquartered in
Indianapolis. Once regulatory approval is received, we will merge Raffensperger
with National City Investments Capital, Inc. In addition to retail brokerage
services, the merged company will have the authority to underwrite and make
markets in corporate debt and corporate equity.
In January 1995, we completed the acquisition of Central Indiana Bancorp,
Kokomo, Indiana, and announced a definitive agreement to acquire United Bancorp
of Kentucky, Inc., Lexington. This latter acquisition will increase our share
of the fast-growing Lexington market from 10% to 15%.
Nineteen ninety-five will mark National City's 150th year in business. We
have grown from a small bank in 1845 serving the needs of Cleveland, Ohio, to a
financial services company serving companies and individuals throughout a
tri-state region. Our commitment to the region is a primary focus of our 150th
anniversary celebration. The degree of that commitment is evidenced by the fact
that each of our subsidiary banks has received the highest rating possible
under the Community Reinvestment Act.
We are confident that we can fulfill our mission of being the premier
financial services provider in the Midwest because we have the people,
programs, and policies in place to ensure success. We are especially proud of
the extraordinary efforts our employees have put forward to accomplish
ambitious long-term improvement programs. We are blessed with a management team
that has the level of experience and commitment necessary to create long-term
sustainable value for stockholders. As we celebrate our 150th year, we want to
thank you, our stockholders, for your support. We hope you share our pride in
our past and our belief that we are uniquely prepared for the challenges that
lie ahead.
JANUARY 20, 1995
/s/ EDWARD B. BRANDON
EDWARD B. BRANDON
CHAIRMAN & CHIEF EXECUTIVE OFFICER
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FINANCIAL REVIEW
EARNINGS SUMMARY
National City Corporation's consolidated net income was $429.4 million in
1994, compared with $404.0 million in 1993 and $346.9 million in 1992. Net
income per common share, after dividend requirements on preferred stock,
increased 12% in 1994 to $2.70, compared with $2.41 in 1993 and $2.09 in 1992.
Both net income and per share earnings were record results for the Corporation.
Return on average common equity, a key performance measure, was 17.06% in
1994, compared with 16.12% in 1993 and 15.31% in 1992 (Chart 3). Return on
average assets was 1.40% in 1994 compared with 1.40% in 1993 and 1.21% in 1992
(Chart 4).
The following table reconciles the major changes in net income per share:
1994 1993
VS vs
1993 1992
- ----------------------------------------------------------------
Net income per common share, prior year..... $2.41 $2.09
Increase (decrease) from changes in:
Net interest income....................... .23 .30
Provision for loan losses................. .08 .23
Fee income................................ .33 .47
Noninterest expense....................... (.34) (.23)
Income taxes.............................. (.14) (.34)
After-tax security gains.................. (.01) (.06)
Average shares outstanding................ .14 (.05)
----- -----
Net income per common share................. $2.70 $2.41
===== =====
UNIT PROFITABILITY
The contribution of the Corporation's major units to consolidated results
for the past two years is summarized in Tables 1 and 2.
The units shown are reflective of how management operates and monitors these
businesses internally. Cost allocations for centrally provided services are
included in the reported amounts approximating the pro-rata cost to the units
for the use of those services. Equity has been allocated among the business
units to reflect well-capitalized levels as defined by bank regulatory agencies.
Corporate and retail banking net income results include actual interest earned
and paid on transactions with customers, with adjustments for matched maturity,
internal funds transfer charges and credits for loans and deposits. Income on
investment securities and all gains and losses associated
with maturity mismatches and interest rate risk are
reported in the investment/funding unit.
The corporate and retail banking businesses' earnings improved in 1994 from
1993 due primarily to higher net interest income that resulted from loan growth
and the continuing decline in the provision for loan losses. Also contributing
to the improvement were lower expense levels.
The national credit card unit includes national Mastercard/Visa credit card
outstandings as well as private label volume. This unit earns interest income on
outstanding balances, as well as fees for servicing credit cards and for
processing monthly activity for its customers. The decline in national credit
card net income is due to the settlement of litigation in the second quarter
1994, the loss of a major private label customer in the fourth quarter 1993, and
increased marketing expenses in 1994 directed at replacing the lost business.
The interest rate risk for the Corporation is managed within, and reflected
in the profitability of, the investment/funding group. The decline in the
earnings of the investment/funding group in 1994 was due primarily to the
adverse effect of rising interest rates.
Trust net income declined slightly in 1994 compared with 1993. The
Corporation's banks administered a total of $55 billion in fiduciary assets at
year-end 1994, down from $56 billion in 1993. Assets under management totalled
$28 billion at year-end 1994 versus $29 billion in 1993. Assets in the
Corporation's mutual funds increased 20% through new sales and collective fund
conversions in 1994 to $3 billion. Increased competition from nonbanks in
investment management services and products caused a decline in new business
sales in 1994. In 1995, the Corporation plans to expand its investment products
and services through the introduction of new asset allocation products and
broaden existing products to be more competitively priced.
Chart 1. Net income and dividends per common share
(as originally reported)
74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE .55 .63 .75 .81 .84 .91 .89 .76 .84 .95 1.21 1.52 1.72 1.17 1.92 2.18 1.93 1.81 2.09 2.41 2.70
DIVIDENDS PER SHARE .23 .24 .26 .29 .33 .37 .41 .41 .41 .41 .42 .44 .50 .60 .72 .84 .94 .94 .94 1.06 1.18
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FINANCIAL REVIEW (continued)
Item processing comprises a number of business lines including: merchant
credit card processing, airline ticket processing, check guarantee services, and
receivables and payables processing. The merchant credit card business processes
and clears bankcard deposits for retail merchants and also offers optional
bankcard authorization services to its customer base through a third party
service provider. The airline ticket processing business is responsible for
settling travel agent generated airline ticket sales. This business unit
collects the related funds from travel agents and disburses them to the
appropriate airline. The check guarantee business specializes in the collection
of bad checks for retail merchants. The lower return on equity in the item
processing business relative to the other functional units reflects the premiums
paid for recently acquired businesses which are included in the equity allocated
to this unit. The decline in return on equity in 1994 reflects one-time charges
in the check processing business.
The mortgage banking business originates mortgages through retail offices
and broker networks and services a mortgage portfolio. At December 31, 1994, the
servicing portfolio totalled $12.5 billion. The increase in mortgage banking net
income was due to the sales of mortgage servicing in the second and fourth
quarters of 1994 and lower amortization of purchased mortgage servicing rights
from the unusually high levels recorded in 1993.
The corporate unit reflects holding company expenses not allocated to the
business units, unallocated capital and interest expense on parent company debt.
The decrease in the corporate contribution is due primarily to interest expense
associated with the $250 million subordinated debt issued in the first quarter
1994 and higher interest expense on the Corporation's variable rate long-term
debt.
EARNING ASSETS
Average earning assets for 1994 were $27,261 million compared with $25,745
million in 1993 and $25,681 million in 1992 (Chart 5). Average earning assets in
1994 increased 6% due to higher loan balances and the acquisition of Ohio
Bancorp in the fourth quarter of 1993, offset somewhat by a decline in the
securities portfolio. Average earning assets in 1993 were fairly stable compared
with 1992 due to a combination of growth in loans and securities, offset by a
decline in short-term money market assets.
LOANS: At year-end 1994, loans were $23,035 million, representing an
increase of 8% from year-end 1993. Average loans are shown in Chart 6. Ending
loan balances are summarized in the table below:
(Dollars
in Millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------
Commercial and
industrial........ $ 8,414 $ 8,168 $ 7,801 $ 7,967 $ 8,138
Nontaxable......... 254 262 310 391 486
International...... 52 70 50 52 50
Real estate
construction...... 422 439 533 814 1,157
Leasing............ 216 228 225 240 298
Commercial
mortgage.......... 2,473 2,328 1,928 1,938 1,548
Residential
mortgage.......... 4,165 4,033 2,699 2,543 2,454
Consumer........... 4,782 4,241 3,727 3,733 3,896
Home equity........ 919 798 739 690 568
Credit card........ 1,338 719 726 803 992
------- -------- -------- -------- --------
Total loans........ $23,035 $ 21,286 $ 18,738 $ 19,171 $ 19,587
======= ======== ======== ======== ========
The acquisition of Ohio Bancorp in 1993 added $809 million to year-end 1993
loan balances, including $254 million to commercial, $320 million to residential
mortgage and $200 million to consumer.
COMMERCIAL: 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 for most of 1994, the
result of growth in middle-market commercial and industrial loans offset by a
substantial decline in loans to mortgage bankers. Activity increased
Table 1. Unit Profitability
1994 1993
---------------------------------------- ------------------------------------------
RETURN ON RETURN ON Return On Return On
NET INCOME ASSETS(1) EQUITY Net Income Assets(1) Equity
---------------------------------------- ------------------------------------------
Corporate banking .................... $186.6 1.79% 16.89% $166.6 1.64% 16.80%
Retail banking........................ 174.6 .91 18.22 139.0 .76 16.47
National credit card.................. 9.4 1.50 10.20 17.2 2.78 18.18
Investment/funding.................... 40.1 .46 9.59 55.5 .67 17.65
Trust................................. 31.0 21.32 22.36 32.4 24.22 28.21
Item processing....................... 15.0 4.76 10.96 17.2 6.33 14.81
Mortgage banking...................... 5.7 7.21 20.68 (13.4) (15.72) (34.20)
Corporate............................. (33.0) -- -- (10.5) -- --
------ ------
Consolidated total.................. $429.4 1.40% 17.06% $404.0 1.40% 16.12%
====== ======
(1) Return on revenue in the case of the fee-based businesses.
Table 2. Geographic Unit Performance
1994 1993
-------------------------------------------- ---------------------------------------------------
CORPORATE BANKING RETAIL BANKING Corporate Banking Retail Banking
--------------------- --------------------- ------------------------ -------------------------
NET RETURN ON NET RETURN ON Net Return on Net Return on
(Dollars in Millions) INCOME ASSETS INCOME ASSETS Income Assets Income Assets
- -------------------------------------------------------------------- ---------------------------------------------------
Cleveland............. $ 67.7 1.97% $ 46.3 1.12% $ 58.5 1.79% $ 34.1 .83%
Columbus.............. 34.8 1.97 30.8 .82 30.0 1.74 27.4 .73
Indiana............... 15.1 1.58 38.0 1.06 15.5 1.47 26.7 .73
Kentucky.............. 34.8 1.51 24.0 .79 35.4 1.43 21.1 .77
Akron................. 12.7 1.65 16.4 .64 9.7 1.76 11.0 .69
Dayton................ 11.9 1.73 12.7 .93 10.2 1.56 13.7 .95
Toledo................ 9.6 1.91 6.4 .82 7.3 1.61 5.0 .65
------ ------ ------ ------
Total............... $186.6 1.79% $174.6 .91% $166.6 1.64% $139.0 .76%
====== ====== ====== ======
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during the fourth quarter and the growth is expected to continue in 1995.
An analysis of the maturity and interest rate sensitivity of commercial
loans at the end of 1994 follows:
One One to Over
Year Five Five
(Dollars in Millions) Or Less Years Years Total
- ----------------------------------------------------------------------
Domestic commercial......... $4,850 $2,663 $1,371 $8,884
Real estate construction.... 126 190 106 422
International............... 34 8 10 52
------ ------ ------ ------
Total....................... $5,010 $2,861 $1,487 $9,358
====== ====== ====== ======
Total variable rate......... $3,690 $1,630 $ 852 $6,172
Total fixed rate............ 1,320 1,231 635 3,186
COMMERCIAL REAL ESTATE: Commercial mortgages included $1,912 million of
loans secured by income-producing real estate in 1994, compared with $1,777
million in 1993 and $1,643 million in 1992. The remainder consists of
owner-occupied loans.
Commercial real estate lending includes real estate construction and
permanent loans secured by income-producing investment real estate. The
following table shows outstanding balances and unfunded commitments at year-end:
Total
(Dollars Commercial
in Millions) Construction Permanent Real Estate
- ---------------------------------------------------------------
Outstanding:
1994.......... $ 422 $ 1,912 $2,334
1993.......... 439 1,777 2,216
1992.......... 533 1,643 2,176
Unfunded
commitments:
1994.......... $ 225 $ 117 $ 342
1993.......... 206 137 343
1992.......... 198 90 288
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% of the total loan portfolio
at December 31, 1994, compared with 10% at year-end 1993 and 12% at year-end
1992.
The following table shows commercial real estate loans at year-end 1994 by
state and by project:
(Dollars in Millions)
- -------------------------------------------------------------
By State: By Project:
Ohio........... $1,448 Retail............. $ 566
Kentucky....... 294 Apartments......... 497
Indiana........ 252 Office............. 429
Florida........ 72 Hotel/Motel........ 165
Michigan....... 38 Industrial......... 136
Other.......... 230 Other.............. 541
------ ------
Total.......... $2,334 Total.............. $2,334
====== ======
At year-end, there were no concentrations of real estate loans in any
deteriorating economic areas.
RESIDENTIAL MORTGAGE: Residential mortgage loans increased in 1994 due to
new loan origination activity offset somewhat by a dramatic decline in
refinancing activity. Loan originations totalled approximately $2.4 billion in
1994, compared with $5.0 billion in 1993. Of the 1994 originations, $1.7 billion
were sold in the secondary market.
CONSUMER: During 1994, consumer spending patterns remained robust. Year-end
consumer loans increased 13% from year-end 1993. More than 75% of consumer loans
are installment loans, and of these more than 70% are indirect, with the
majority being fixed rate. The remainder of the consumer portfolio is largely
student loans.
CHART 2. BOOK VALUE AND STOCK PRICE HISTORY
HIGH LOW YEAR-END
BOOK STOCK STOCK STOCK
VALUE PRICE PRICE PRICE
- --------------------------------------------------------------------------------
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
94 16.36 29.00 23.75 25.88
National City's common stock price at December 30, 1994 was $25.88. 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 17.1%,
compared with 14.5% for the S&P 500.
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FINANCIAL REVIEW (continued)
CREDIT CARD AND HOME EQUITY: Year-end credit card and home equity balances
are summarized below:
(Dollars in Millions) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------
Local market credit card... $ 506 $ 331 $ 268 $ 347 $ 410
National market............ 475 258 206 266 305
Private label.............. 357 130 252 190 277
Home equity................ 919 798 739 690 568
------ ------ ------ ------ ------
Total credit card and
home equity............... $2,257 $1,517 $1,465 $1,493 $1,560
====== ====== ====== ====== ======
The growth in credit card and home equity outstandings was due to purchases
of small card portfolios as well as the completion of the amortization of a $350
million credit card securitization back onto the balance sheet. At year-end,
credit card securitizations outstanding were $70 million, compared with $363
million a year ago, and these remaining securitized assets will return to the
balance sheet in 1995.
SECURITIES: On December 31, 1993, the Corporation adopted SFAS 115
"Accounting for Certain Investments in Debt and Equity Securities". The adoption
did not have a material effect on results of operations and prior year
financial statements were not restated. Under these ac-
counting rules, securities available for sale are recorded at market value. At
December 31, 1994, the net unrealized loss of $53 million, net of tax, was
included in stockholders' equity, as compared to a net unrealized gain of $35
million, net of tax, at December 31, 1993.
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 asset allocation, interest rate
sensitivity, liquidity or relative value reasons and, hence, tend to be more
liquid investments.
On a cost basis, the portfolio decreased from $5.1 billion in 1993 to $4.5
billion at December 31, 1994. The reduction in the portfolio was in response to
an anticipated rise in interest rates throughout 1994. The decline was
characterized by mortgage prepayments and maturities of $860 million and $365
million, respectively. Net purchases of securities which totalled $587 million
were about evenly split between adjustable rate mortgage-backed securities and
short-term fixed rate obligations.
Summary information with respect to the securities portfolio at December 31
follows:
1994 COST
----------------------- 1993 1992
(Dollars in HELD TO AVAILABLE 1994 Carrying Carrying
Millions) MATURITY FOR SALE YIELD Value Value
- ----------------------------------------------------------------------------
U.S. Treasury and
Federal agency
debentures:
Under 1 year..... $ -- $ 126 3.82% $ 200 $ 154
1 to 5 years..... 34 1,183 5.66 1,047 1,043
5 to 10 years.... -- 25 5.85 53 --
Over 10 years.... -- -- -- -- 1
------ ------ ------ ------
Total............ 34 1,334 5.49 1,300 1,198
Mortgage-backed
securities:
Under 1 year..... 2 11 6.66 374 391
1 to 5 years..... 539 1,162 6.88 2,226 2,440
5 to 10 years.... 90 443 7.29 273 229
Over 10 years.... -- 84 8.08 2 3
------ ------ ------ ------
Total............ 631 1,700 7.01 2,875 3,063
States and
political
subdivisions:
Under 1 year..... 113 4 10.98 125 120
1 to 5 years..... 186 3 11.16 314 415
5 to 10 years.... 73 5 11.45 92 130
Over 10 years.... 78 19 9.88 106 130
------ ------ ------ ------
Total............ 450 31 10.89 637 795
Other securities:
Under 1 year..... 8 7 5.26 119 183
1 to 5 years..... 17 1 8.38 4 119
5 to 10 years.... -- 22 5.73 -- 1
Over 10 years.... 36 205 6.32 177 140
------ ------ ------ ------
Total............ 61 235 6.41 300 443
------ ------ ------ ------
$1,176 $3,300 6.94% $5,112 $5,499
====== ====== ====== ======
CHART 3. RETURN ON AVERAGE COMMON EQUITY
(net income after preferred dividends, divided by average common equity)
- -------------------------------------------------------------------------------
89 17.18
90 12.97
91 11.20
92 15.31
93 16.12
94 17.06
Return on average common equity rose to 17.06% in 1994 due both to improved net
income and the repurchase of 12.4 million shares during the year. National City
seeks to produce a return which is higher than its peers over time while
maintaining superior capital ratios.
CHART 4. RETURN ON AVERAGE ASSETS
(net income divided by average assets)
- --------------------------------------------------------------------------------
89 1.16
90 0.87
91 0.81
92 1.21
93 1.40
94 1.40
Return on average assets was 1.40% in 1994 and in 1993. Historically high
profitability was maintained on an asset base that grew by 6%.
8
11
The yield at December 31, 1994 was the combined rate for the held to
maturity and available for sale securities portfolios.
Yields on tax-exempt securities are calculated on a fully taxable equivalent
basis using the marginal Federal income tax rate of 35%. Mortgage-backed
securities are assigned to maturity categories based on their estimated average
lives.
Investments in collateralized mortgage obligations totalled $1,074 million
and $1,659 million at December 31, 1994 and 1993, respectively. These
investments are continually monitored and subjected to stress tests. At December
31, 1994, none of these investments were considered "high risk" under regulatory
definitions. The amount of mortgage-backed securities that are either variable
or adjustable rate totalled $1,417 million at December 31, 1994, or 61% of total
mortgage-backed securities.
INTEREST-BEARING LIABILITIES
Average balances in transaction accounts, which include demand deposits,
savings, and interest-bearing checking, increased by 3% in 1994, while time
deposits of individuals increased by 2%. Overall, average core deposits
increased less than earning assets.
On average, use of purchased funds increased by $934 million in 1994.
Purchased funds primarily include domestic certificates of deposit over
$100,000, Eurodollar deposits, and short-term borrowings. The increase in 1994
was due to the Corporation's efforts to obtain cost-effective funding in the
existing interest rate environment to support the growth in assets.
A maturity distribution of certificates of deposit of $100,000 or more
follows:
December 31
--------------------
(Dollars in Millions) 1994 1993
- ---------------------------------------------------------------
Due in:
3 months or less...................... $ 453 $ 463
3 to 6 months......................... 112 83
6 to 12 months........................ 161 63
Over 1 year........................... 641 93
------ -----
$1,367 $ 702
====== =====
Federal funds borrowed and security repurchase agreements represent
borrowings with overnight to 30-day maturities. Information for these borrowings
follows:
(Dollars in Millions) 1994 1993 1992
- ---------------------------------------------------------------
Balance at December 31................ $2,609 $3,083 $1,819
Maximum outstanding at any
month-end............................ 2,689 3,083 2,417
Daily average amount outstanding...... 2,539 2,518 2,178
Weighted daily average interest
rate................................. 3.99% 2.91% 3.27%
Weighted daily interest rate for
amounts outstanding at December 31... 5.18% 2.87% 2.79%
CHART 5. AVERAGE EARNING ASSETS
Money
market
Loans Securities instruments
- --------------------------------------------------------
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
94 21,713 4,757 789
Average earning assets grew by 6% in 1994. The loan portfolio grew by 12% and
was offset slightly by a decline in the securities portfolio. The acquisition
of Ohio Bancorp in the fourth quarter of 1993 contributed to the growth.
9
12
FINANCIAL REVIEW (continued)
CAPITAL
The following table reflects various measures of capital at year-end:
1994 1993
--------------- ---------------
(Dollars in Millions) AMOUNT RATIO Amount Ratio
- -----------------------------------------------------------------
Total equity(1)................ $2,601.1 8.10% $2,763.3 8.89%
Common equity(1)............... 2,413.5 7.52 2,565.0 8.26
Tangible common equity(2)...... 2,026.4 6.39 2,185.2 7.12
Tier 1 capital(3).............. 2,442.2 8.45 2,468.9 8.94
Total risk-based capital(4).... 3,374.8 11.68 3,206.8 11.62
Leverage(5).................... 2,442.2 7.82 2,468.9 8.18
(1) Computed in accordance with generally accepted accounting principles,
including the unrealized market value adjustment of securities available for
sale.
(2) Common equity less all intangible assets; computed as a ratio to total
assets less intangible assets.
(3) Stockholders' equity less certain intangibles and the unrealized market
value adjustment of securities available for sale; computed as a ratio to
risk-adjusted assets, as defined.
(4) Tier 1 capital plus qualifying loan loss allowance and subordinated debt;
computed as a ratio to risk-adjusted assets.
(5) Tier 1 capital; computed as a ratio to average total assets less certain
intangibles.
Total stockholders' equity at year-end 1994 included $187.5 million of 8%
Cumulative Convertible Preferred Stock, compared with $198.3 million at year-end
1993.
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, 1994, 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) 1994 1993 1992
- ------------------------------------------------------------------
Goodwill............................ $246.6 $257.0 $156.6
Core deposit intangibles............ 19.2 25.9 34.8
Purchased mortgage servicing
rights............................. 67.5 63.3 79.9
Purchased credit cards.............. 52.7 31.1 34.1
Other intangibles................... 1.1 2.5 4.3
------ ------ ------
Total intangible assets......... $387.1 $379.8 $309.7
====== ====== ======
National City Corporation's common stock trades on the New York Stock
Exchange under the symbol NCC. As of December 31, 1994, there were 21,739 common
stockholders of record.
Quarterly dividends paid and common stock prices rounded to the nearest cent
follow:
NYSE:NCC First Second Third Fourth Year
- -------------------------------------------------------------------------
1994
Dividends paid.... $ .29 $ .29 $ .30 $ .30 $ 1.18
High.............. 28.38 29.00 28.38 28.13 29.00
Low............... 24.00 25.63 26.00 23.75 23.75
Close............. 26.63 27.38 28.13 25.88 25.88
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
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 44.2% and 46.6%, respectively (Chart 8).
In January 1995, the Board of Directors declared a first quarter dividend of
$.32 per common share, representing a 7% increase from the next preceding
quarterly dividend of $.30 per share. The dividend is payable February 1 to
stockholders of record on January 13, 1995. This follows two dividend increases
in 1994 and two in 1993.
At December 31, 1994, the total market capitalization of the Corporation was
approximately $3.8 billion.
CHART 6. AVERAGE LOANS
CORPORATE BANKING CONSUMER BANKING
COMM'L RESIDENTIAL CREDIT
COMMERCIAL REAL ESTATE INSTALLMENT REAL ESTATE CARD
- --------------------------------------------------------------------------------------------
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
94 9,132 2,432 94 4,441 3,914 1,794
The Corporation's loan portfolio mix is approximately 53% corporate and 47%
consumer loans. The loan mix has become more balanced as the consumer loan
portfolio, which includes residential mortgages, has grown at a faster rate in
recent years.
10
13
Book value per common share at December 31, 1994 was $16.36 compared with
$16.15 at December 31, 1993 (Chart 2). The 1994 book value includes $.34 of
market depreciation in the securities available for sale portfolio compared with
$.22 of market appreciation at year-end 1993.
During the year, 12.4 million common shares were repurchased in the open
market. Of those shares, 4.3 million were purchased under a program announced in
December, 1993. The remaining 8.1 million shares were purchased under programs
announced in March and July, 1994. At December 31, 1994 the Corporation had
remaining authorization to purchase up to 6.9 million common shares.
LIQUIDITY MANAGEMENT
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of the
Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the extensive core deposit base, the ability to acquire large
deposits 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, 1995, $77 million was available within the bank
subsidiaries to pay the parent company in dividends without prior regulatory
approval, compared with $96 million at January 1, 1994. During 1994, subsidiary
banks declared $250 million in dividends to the parent company.
As discussed in Item 1 of Form 10-K (page 40), subsidiary banks are subject
to 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 26
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, 1994 were $379 million, compared with $399 million
at year-end 1993.
The Corporation has a $300 million revolving credit agreement with a group
of unaffiliated banks which serves as a back-up liquidity facility. The
agreement expires June 30, 1997, with a provision to extend the expiration date
under certain circumstances. No borrowings have occurred under this facility.
The parent company also has in place a $500 million shelf registration with
the Securities and Exchange Commission permitting ready access to the public
debt and preferred stock markets.
In March 1994, the Corporation issued $250 million principal amount of
6 5/8% Subordinated Notes due 2004. The notes qualify as Tier 2 capital for
regulatory purposes.
ASSET/LIABILITY MANAGEMENT
The primary goal of the asset/liability management function is to maximize
net interest income within the interest rate risk limits set by the Corporate
Asset/Liability Committee.
Interest rate risk is monitored and controlled through the use of three
different measures: static gap analysis, earnings simulation, and duration
modeling. The most useful of these measures is earnings simulation. The model
forecasts earnings under a variety of scenarios that incorporate changes in the
absolute level of interest rates, the shape of the yield curve, prepayments,
interest rate relationships, and changes in the volumes and rates of various
loan and deposit categories. The model also incorporates all off-balance sheet
commitments, as 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
CHART 7. EQUITY TO ASSETS
Tangible Total
Equity to Equity to
Assets Assets
- --------------------------------------------------------------------------------
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
94 6.98 8.10
Total equity as a percentage of total assets was 8.10% at year-end 1994
compared with 8.89% a year ago. Tangible equity to assets was 6.98% at December
31, 1994, National City ranks among the best of the top 50 U.S. banks in terms
of capital levels.
11
14
FINANCIAL REVIEW (continued)
comprehensive view of the magnitude of interest rate risk in the Corporation,
the distribution of risk along the yield curve, the level of risk through time
and the amount of exposure to certain interest rate relationships.
The Corporation uses a variety of financial instruments to manage its
interest rate sensitivity. These include the securities in its investment
portfolio, interest rate swaps, interest rate caps and floors, and, to a lesser
extent, exchange-traded futures and options contracts. Interest rate swaps, caps
and floors, frequently called interest rate derivatives, have similar
characteristics to securities but possess the advantages of customization of the
risk-reward profile of the instrument, minimization of balance sheet leverage
and improvement of the liquidity position of the Corporation.
STATIC GAP: As illustrated in the following table, at year-end, the amount
of interest earning assets, adjusted for off-balance sheet instruments, less
interest bearing liabilities which reprice within a given period was (1.4)% of
adjusted total earning assets within six months, and (1.5)% within one year.
However, the ongoing management of the gap incorporates noninterest earning
assets, noninterest bearing liabilities and equity. These items, which include
accounts such as cash, mortgage servicing rights and noninterest bearing demand
deposits, are included in the periods in which they are likely to affect the
Corporation's interest rate sensitivity. At year-end, the amount of total
assets, adjusted for off-balance sheet instruments, less total liabilities which
reprice within a given period was (4.2)% of adjusted total earning assets within
six months, and (7.4)% within one year. The policy limit for the one-year gap is
plus or minus 12% of adjusted total earning assets, including the effect of
noninterest earning assets, noninterest bearing liabilities and equity.
Within Six to One to Three Over
Six Twelve Three to Five Five
(Dollars in Millions) Months Months Years Years Years
- ---------------------------------------------------------------------------
Loans.................. $13,873 $ 2,085 $ 4,031 $ 1,578 $ 1,467
Securities............. 1,621 526 1,490 362 396
Money market assets.... 627 66 84 -- --
------- ------- ------- ------- -------
Total interest
earning assets.... 16,121 2,677 5,605 1,940 1,863
Interest bearing
liabilities........... 14,419 3,654 4,032 739 754
------- ------- ------- ------- -------
Gap between interest
earning assets and
interest bearing
liabilities before
swaps and options..... 1,702 (977) 1,573 1,201 1,109
Net swaps and options.. (2,173) 929 375 529 341
------- ------- ------- ------- -------
Gap between interest
earning assets and
interest bearing
liabilities, adjusted
for swaps and
options............... $ (471) $ (48) $ 1,948 $ 1,730 $ 1,450
======= ======= ======= ======= =======
Cumulative gap between
interest earning
assets and interest
bearing liabilities,
adjusted for swaps and
options............... $ (471) $ (519) $ 1,429 $ 3,159 $ 4,609
======= ======= ======= ======= =======
Gap between interest
earning assets and
interest bearing
liabilities, adjusted
for swaps and
options............... (471) (48) 1,948 1,730 1,450
Nonearning assets...... 3,129 216 158 100 304
Noninterest bearing
liabilities, demand
deposits and equity... 4,066 1,251 501 232 2,466
------- ------- ------- ------- -------
Gap adjusted for swaps,
options, nonearning
assets, noninterest
bearing liabilities,
demand deposits and
equity................ $(1,408) $(1,083) $ 1,605 $ 1,598 $ (712)
======= ======= ======= ======= =======
Cumulative gap adjusted
for swaps, options,
nonearning assets,
noninterest bearing
liabilities, demand
deposits and equity... $(1,408) $(2,491) $ (886) $ 712 $ --
======= ======= ======= ======= =======
Core deposits and loans with non-contractual maturities are distributed or
spread among the various repricing
CHART 8. CASH DIVIDEND PAYOUT
(dividends per share dividend by orginally reported earnings per share)
Dividend 3 yr 5yr
Payout Avg Avg
- ------------------------------------------------------------------------------
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
94 43.7 44.2 46.6
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.
12
15
categories based upon historical patterns of repricing which are reviewed at
least annually. Management constructs rolling portfolios of fixed rate
certificates of deposit whose interest cash flows over historical time periods
most closely replicate the current portfolio of non-contractual assets and
liabilities. It is the maturity or repricing distribution of this replicating
portfolio which appears in the gap table as a surrogate for the particular
non-contractual asset or liability. The gap table presented includes the
following loans and core deposits that reprice on average in the noted time
frames: fixed rate credit card loans (13 months), demand deposits (7 months),
savings accounts (15 months), and money market and NOW accounts (5 months). The
assumptions regarding these repricing characteristics greatly influence
conclusions regarding interest sensitivity. Management believes its assumptions
regarding these assets and liabilities are conservative.
EARNINGS SIMULATION: Management evaluates the effects on income of
alternative interest rate scenarios against earnings in a stable interest rate
environment. The most recent earnings simulation model projects net income would
increase by approximately 1.0% if rates fell gradually by two percentage points
over the next year. It projects an increase of approximately .8% if rates rose
gradually by two percentage points, well within the (5.0)% policy limit.
Management believes this reflects an essentially neutral interest rate
sensitivity position.
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
3.7% reduction in net income over a 12-month period.
DURATION: 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 increase in rates was estimated to cause a reduction in the
present value of these cash flows by an amount equal to 1.0% 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 1.2% of total assets for an immediate
decrease in rates of two percentage points.
Due to borrowers' preferences for floating-rate loans and depositors'
preferences for fixed-rate deposits, the Corporation's balance sheet moves
toward higher levels of asset sensitivity with the passage of time. In fact, if
all prepayments, calls and maturities of the securities and derivative
portfolios were to remain uninvested, then the Corporation's asset sensitivity
in a 200 basis point rising interest rate environment would result in an
increase in net income of 2.5% compared with a stable rate environment.
Purchases of fixed-rate securities or interest rate derivative instruments
were required in 1994 to offset the natural asset-sensitive interest rate risk
position. Using a one-year static gap measure, the Corporation would be 3.1%
asset sensitive without securities and interest rate derivatives.
Management expects interest rates to rise next year with short-term rates
rising significantly more than long-term rates. Management believes the
Corporation's neutral interest sensitivity position is appropriate given the
current level of market interest rates. Management does not at this time expect
to alter, to any significant degree, its interest rate sensitivity position
during 1995.
NET INTEREST INCOME
On a fully taxable equivalent basis, net interest income was $1,266.3
million in 1994 compared with $1,235.8 million in 1993 and $1,195.3 million in
1992 (Chart 10).
CHART 9. AVERAGE FUNDING SOURCES
CORE OTHER PURCHASED
DEPOSITS DEPOSITS FUNDS
- --------------------------------------------------------------------------------
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
94 21,327 1,506 4,666
Core deposits grew at a slower pace than loans. As a result, purchased funds
and other deposit balances increased from a year ago.
13
16
FINANCIAL REVIEW (continued)
The following table reconciles net interest income as shown in the financial
statements to tax equivalent net interest income:
(Dollars in Millions) 1994 1993 1992
- ------------------------------------------------------------------
Net interest income - per
financial statements........... $1,236.8 $1,200.0 $1,152.7
Tax equivalent adjustment........ 29.5 35.8 42.6
-------- -------- --------
Net interest income - tax
equivalent..................... $1,266.3 $1,235.8 $1,195.3
======== ======== ========
Average earning assets........... $ 27,261 $ 25,745 $ 25,681
======== ======== ========
Net interest margin - tax
equivalent..................... 4.65% 4.80% 4.65%
======== ======== ========
To compare non-taxable asset yields to taxable yields on a similar basis,
amounts are adjusted to their pre-tax equivalents, based on the marginal
corporate tax rate of 35% in 1994 and 1993 and 34% in 1992.
The margin decline in 1994 was due mainly to the loss of a large credit card
customer in the fourth quarter 1993. The following table summarizes the
contributions of derivatives to net interest income (Note: Amounts in brackets
represent reductions of the related interest income or expense line, as
applicable):
(Dollars in Millions) 1994 1993 1992
- ----------------------------------------------------------------
INTEREST ADJUSTMENT TO:
Loans.............................. $36.4 $72.1 $43.3
Securities......................... (16.3) (27.2) (26.7)
----- ----- -----
Assets............................. 20.1 44.9 16.6
Deposits........................... (9.6) (21.1) (22.9)
----- ----- -----
Effect on net interest income...... $29.7 $66.0 $39.5
===== ====== =====
The future net interest income contribution of the derivative portfolio is
not significant relative to the Corporation's net earnings at current interest
rates. The effects of changing interest rates on the Corporation are more fully
discussed in the Asset/Liability Management discussion on pages 11 to 13.
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:
1994 VS. 1993 1993 vs. 1992
-------------------------- --------------------------
DUE TO Due to
CHANGE IN Change in
(Dollars in ----------------- NET ---------------- Net
Millions) VOLUME RATE* CHANGE Volume Rate* Change
- -----------------------------------------------------------------------------
Increase (decrease)
in tax equivalent
interest income --
Loans............... $ 183.8 $ -- $183.8 $68.6 $(111.6) $ (43.0)
Securities.......... (40.8) 2.8 (38.0) 7.8 (78.4) (70.6)
Money market
assets............ (.2) (.2) (.4) (34.3 ) (1.0) (35.3)
------- ------- ------ ----- ------- -------
Total............... $ 142.8 $ 2.6 $145.4 $42.1 $(191.0) $(148.9)
======= ======= ====== ===== ======= =======
(Increase) decrease
in interest expense--
Savings and NOW
accounts.......... $ (11.4) $ 5.4 $ (6.0) $(18.1) $ 23.6 $ 5.5
Insured money market
accounts.......... 4.7 (5.4) (.7) (4.6 ) 34.6 30.0
Time deposits....... (5.0) (2.5) (7.5) 53.3 69.9 123.2
Purchased funds..... (30.0) (49.9) (79.9) 7.5 26.8 34.3
Corporate debt...... (16.3) (4.5) (20.8) (9.3 ) 5.7 (3.6)
------- ------- ------ ------ ------- -------
Total............... $ (58.0) $ (56.9) $(114.9) $28.8 $ 160.6 $ 189.4
======= ======= ======= ====== ======= =======
Increase in tax
equivalent net
interest income..... $ 30.5 $ 40.5
======= =======
* Changes in interest income and interest expense not arising solely from rate
or volume variances are included in rate variances.
CHART 10. NET INTEREST INCOME AND NET INTEREST MARGIN
NET INTEREST NET INTEREST
INCOME MARGIN
- --------------------------------------------------------------------------------
89 1,118 4.69
90 1,156 4.50
91 1,185 4.51
92 1,195 4.65
93 1,236 4.80
94 1,266 4.65
Tax equivalent net interest income increased in 1994 due to a larger earning
asset base offset somewhat by a narrower net interest margin.
14
17
FEES AND OTHER INCOME
An analysis of fees and other income for the last three years follows:
(Dollars in Thousands) 1994 1993 1992
- -------------------------------------------------------------------
Item processing revenues......... $312,358 $ 267,962 $ 194,166
Deposit service charges.......... 153,870 152,609 143,909
Trust fees....................... 125,668 122,597 118,350
Credit card fees................. 85,308 92,966 101,898
Mortgage banking revenues........ 67,406 58,678 59,958
Service fees -- other............ 37,897 38,153 38,001
Brokerage revenues............... 18,790 9,013 --
Other real estate owned income... 13,696 12,332 9,820
Trading account profits
(losses)....................... (861) 9,161 6,546
Other............................ 38,706 36,344 53,012
-------- --------- ---------
$852,838 $ 799,815 $ 725,660
======== ========= =========
Fees and other income increased 7% in 1994 from 1993 due primarily to growth
in item processing, mortgage banking and brokerage revenues.
Item processing revenues grew in both 1994 and 1993 due to growth in the
existing airline and bankcard processing businesses, as well as acquisitions.
Credit card fees declined in 1994 due mainly to the loss of a large customer
in the fourth quarter 1993 and the unwinding of a credit card securitization.
The fees associated with the credit card securitization were replaced with net
interest income as the related loan balances were returned to the balance sheet.
Mortgage banking revenues increased due to $14 million of gains on the sale
of mortgage servicing rights. Also contributing to the improved mortgage banking
revenue was lower amortization of capitalized excess service fees, which is
recorded as an adjustment to revenue. The 1994 amortization was lower by $11
million as compared to 1993. Offsetting these increases were reduced loan
origination fees that resulted mainly from the decline in refinancing activity
in 1994.
There was no other significant nonrecurring income in 1994 or 1993.
Nonrecurring pre-tax 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 a $1.2
million gain on miscellaneous asset sales.
NONINTEREST EXPENSE
The following table shows noninterest expenses for the last three years:
(Dollars in Thousands) 1994 1993 1992
- ------------------------------------------------------------------
Salaries.................... $ 517,981 $ 499,879 $ 495,232
Benefits.................... 135,909 123,593 121,783
Equipment................... 93,345 89,005 90,768
Net occupancy............... 89,994 89,729 85,620
Third party services........ 80,604 77,368 87,438
Processing assessments...... 91,598 81,822 68,651
Postage and supplies........ 68,218 67,842 65,859
FDIC assessments............ 48,709 50,157 50,169
Other real estate owned
expense................... 10,403 26,177 46,847
Amortization of
intangibles............... 44,903 61,721 37,459
State and local taxes....... 30,160 30,297 26,610
Marketing and public
relations................. 35,677 28,581 21,319
Transportation.............. 23,200 21,978 18,477
Telephone................... 24,057 21,862 17,562
Other....................... 108,375 77,729 76,654
---------- ---------- ----------
$1,403,133 $1,347,740 $1,310,448
========== ========== ==========
Noninterest expense rose 4% in 1994 compared with 1993. Excluding the impact
of acquired companies, total expenses were unchanged from 1993 levels.
Nonrecurring expenses recorded in 1994 included $8.7 million related to the
settlement of litigation and a $4.5 million write-off in the item processing
subsidiary. Amortization of intangibles included the amortization of purchased
mortgage servicing rights, which totalled $14.5 million in 1994 and $34.5
million in 1993. The increase in processing assessments in 1994 and 1993 was due
to increased volume in the item processing subsidiary.
There were no significant nonrecurring expenses in 1993. 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,
CHART 11. FEE INCOME AS A PERCENTAGE OF TOTAL REVENUE
FEE INCOME AS % OF
TOTAL REVENUE
- --------------------------------------------------------------------------------
84 28%
85 29%
86 29%
87 30%
88 31%
89 31%
90 33%
91 35%
92 38%
93 39%
94 40%
Fee income as a percentage of total revenue increased to 40% in 1994.
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.
15
18
FINANCIAL REVIEW (continued)
there were $12.6 million in one-time merger-related costs and $9.3 million of
costs in the settlement of litigation.
The full-time equivalent (FTE) staff for the Corporation, shown in Table 3,
increased in 1994 due to increases at the item processing subsidiary which were
volume related.
The overhead ratio (noninterest expense less fee income as a percentage of
fully taxable net interest income) was 43.46% in 1994 compared with 44.34% in
1993 and 48.93% in 1992 (Chart 12).
The efficiency ratio (noninterest expense as a percentage of fee income plus
fully taxable net interest income) was 66.21% in 1994 and 1993, down from 68.22%
in 1992. 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 3. By contrast, strong fee income benefits the overhead
ratio.
SECURITY GAINS AND LOSSES
Net realized security gains and losses are summarized as follows:
(Dollars in Thousands) 1994 1993 1992
- -------------------------------------------------------------------
Net gain (loss) on sales of debt
securities.......................... $ (287) $8,462 $ 12,345
Tax expense (benefit)............... (100) 2,962 4,256
------- ------ --------
After tax.......................... $ (187) $5,500 $ 8,089
======= ====== ========
Net gains on sales of equity
securities.......................... $10,817 $3,460 $ 13,352
Tax expense......................... 3,848 1,211 4,541
------- ------ --------
After tax.......................... $ 6,969 $2,249 $ 8,811
======= ====== ========
Effect on net income................. $ 6,782 $7,749 $ 16,900
======= ====== ========
Effect on earnings per share......... $ .04 $ .05 $ .11
======= ====== ========
INCOME TAXES The consolidated income tax provision was $188.3 million in 1994
compared with $167.0 million in 1993 and $117.4 million in 1992. The effective
tax rate of the Corporation was 30.5% in 1994, 29.2% in 1993, and 25.3% in
1992. The increasing effective rate over the past three years reflects the
higher Federal statutory rate, the declining levels of tax-exempt income, and a
greater portion of income subject to state income taxation.
ASSET QUALITY
NONPERFORMING ASSETS: A summary of nonaccrual, reduced rate and renegotiated
loans and other nonperforming assets at December 31 follows:
(Dollars in Millions) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------
Commercial:
Nonaccrual............. $ 58.8 $ 79.4 $135.4 $191.8 $100.7
Restructured........... -- 1.1 2.5 5.3 3.2
------ ------ ------ ------ ------
Total commercial...... 58.8 80.5 137.9 197.1 103.9
Real estate related:
Nonaccrual............. 48.8 64.4 81.5 129.7 205.3
Restructured........... 4.4 6.5 4.3 15.7 14.2
------ ------ ------ ------ ------
Total real estate
related............. 53.2 70.9 85.8 145.4 219.5
------ ------ ------ ------ ------
Total nonperforming
loans............... 112.0 151.4 223.7 342.5 323.4
Other real estate owned
(OREO)................. 16.5 57.8 143.7 196.8 158.8
------ ------ ------ ------ ------
Nonperforming
assets.............. $128.5 $209.2 $367.4 $539.3 $482.2
====== ====== ====== ====== ======
Loans 90 days past due
accruing interest...... $ 27.9 $ 42.2 $ 41.5 $ 65.9 $ 98.7
====== ====== ====== ====== ======
Nonperforming loans and
OREO as a percent of:
Loans and OREO........ .6% 1.0% 1.9% 2.8% 2.4%
Assets................ .4 .7 1.3 1.8 1.6
Equity................ 4.9 7.6 14.7 23.9 24.8
Loan loss allowance to
nonperforming loans.... 418.8% 292.9% 171.6% 112.7% 101.2%
TABLE 3. FULL-TIME EQUIVALENT STAFF AND OVERHEAD PERFORMANCE MEASURES
1994 1993
------------------------------------ ---------------------------------------
FULL-TIME Full-Time
EQUIVALENT OVERHEAD EFFICIENCY Equivalent Overhead Efficiency
STAFF RATIO RATIO Staff Ratio Ratio
Corporate and retail banking . . 11,576 48.06% 58.61% 11,943 50.33% 60.67%
National credit card . . . . . . 577 57.25 63.48 516 51.40 43.97
Investment/funding . . . . . . . 277 (31.47) 46.28 254 (23.66) 31.51
Trust . . . . . . . . . . . . . 975 -- 65.72 951 -- 62.86
Item processing . . . . . . . . 5,549 -- 91.93 4,598 -- 90.52
Mortgage banking . . . . . . . . 731 -- 83.37 889 -- 127.00
Corporate . . . . . . . . . . . 621 -- -- 809 -- --
------ ------
Total . . . . . . . . . . . 20,306 43.46% 66.21% 19,960 44.34% 66.21%
====== ======
CHART 12. OVERHEAD RATIO
(non-interest expenses less fee income divided by net interest income)
- --------------------------------------------------------------------------------
89 43.68
90 46.33
91 49.93
92 48.93
93 44.34
94 43.46
The overhead ratio improved in 1994 for the third 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.
16
19
Commercial and residential real estate loans and securities are designated
as nonperforming when payments are 90 or more days past due, when credit terms
are renegotiated below market levels, or when individual analysis of a
borrower's creditworthiness indicates that a credit should be placed on
nonaccrual status, unless the loan is adequately collateralized and in the
process of collection. Consumer loans are reported as "90 days past due accruing
interest" once the 90 day criterion has been met, and are charged off when they
become 119 days past due. 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 1994 due to payoffs and recoveries in
nonaccrual commercial and real estate loans, as well as the liquidation 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) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------
Income potential based on
original contract....... $16.5 $16.0 $21.4 $36.3 $32.2
Actual income............ 8.2 5.5 4.6 5.7 6.6
ALLOWANCE FOR LOAN LOSSES: The following table presents the reconciliation
of the allowance for loan losses:
(Dollars in Millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------
Balance at beginning of
year.................... $443.4 $383.9 $385.9 $327.3 $311.2
Provision................ 79.4 93.1 129.4 251.1 231.4
Net acquired allowance... 9.7 50.7 2.5 17.7 9.6
Loans charged off:
Commercial.............. 34.6 55.0 78.4 124.8 111.9
International........... -- 1.9 -- .1 46.1
Real estate mortgage.... 11.5 14.9 18.7 21.0 14.6
Consumer................ 33.0 35.0 45.6 57.5 60.6
Revolving credit........ 41.1 37.7 43.8 56.5 46.2
------ ------ ------ ------ ------
Total charge-offs.... 120.2 144.5 186.5 259.9 279.4
Recoveries:
Commercial.............. 18.6 26.1 14.9 12.5 15.5
International........... -- -- .2 2.0 8.1
Real estate mortgage.... 4.3 2.3 3.8 2.7 .9
Consumer................ 22.8 21.6 23.0 21.3 18.1
Revolving credit........ 11.0 10.2 10.7 11.2 11.9
------ ------ ------ ------ ------
Total recoveries..... 56.7 60.2 52.6 49.7 54.5
------ ------ ------ ------ ------
Net charged-off loans.... 63.5 84.3 133.9 210.2 224.9
------ ------ ------ ------ ------
Balance at end of year... $469.0 $443.4 $383.9 $385.9 $327.3
====== ====== ====== ====== ======
Ratio of ending allowance
to ending loans......... 2.04% 2.08% 2.05% 2.01% 1.67%
CHART 13. NONPERFORMING ASSETS AND THE ALLOWANCE FOR LOAN LOSSES
NONPERFORMING ALLOWANCE FOR
ASSETS LOAN LOSSES
- --------------------------------------------------------------------------------
89 303 311
90 482 327
91 539 386
92 367 384
93 209 443
94 129 469
Nonperforming assets at December 31, 1994 totalled $129 million and represented
a decline of 38% from a year ago. At December 31, 1994, the allowance for loan
losses represented 2.04% of total loans and 364% of nonperforming assets.
17
20
FINANCIAL REVIEW (continued)
The commercial category included real estate construction net
charge-offs/(recoveries) of $(1.8) million in 1994, $4.9 million in 1993, and
$12.3 million in 1992. Real estate mortgage loans included commercial real
estate net charge-offs of $5.3 million in 1994, $10.3 million in 1993, and $11.7
million in 1992.
Net charge-offs (recoveries) as a percentage of average loans by portfolio
type are shown in the following table:
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------
Commercial.............. .18% .33% .71% 1.14% .95%
International........... -- 3.78 (.52) (3.96) 41.20
Real estate mortgage.... .11 .24 .32 .41 .34
Consumer................ .23 .34 .61 .97 1.10
Revolving credit........ 1.68 1.90 2.34 2.94 2.50
Total net charge-offs to
average loans.......... .29% .43% .72% 1.07% 1.16%
Net charge-offs as a percentage of loans declined 14 basis points in 1994
following a 29 basis point decline in 1993 (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) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------
Commercial and
commercial mortgage.... $ 161.2 $174.5 $192.6 $210.9 $179.6
International........... .3 .4 .6 .5 1.4
Consumer and residential
mortgage............... 32.2 29.7 30.6 53.3 50.2
Revolving credit........ 42.8 22.1 30.1 28.7 31.2
Unallocated............. 232.5 216.7 130.0 92.5 64.9
------- ------ ------ ------ ------
$ 469.0 $443.4 $383.9 $385.9 $327.3
======= ====== ====== ====== ======
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 1994 provision for loan losses exceeded net charge-offs for
the year by $15.9 million.
The following table shows the percentage of loans in each category to total
loans at year-end:
1994 1993 1992 1991 1990
- --------------------------------------------------------------------
Commercial and
commercial mortgage.... 51.2 % 53.7% 57.6 % 59.2 % 59.3 %
International........... .2 .3 .3 .3 .3
Consumer and residential
mortgage............... 38.8 38.9 34.3 32.7 32.4
Revolving credit........ 9.8 7.1 7.8 7.8 8.0
------ ------ ------ ------ ------
100.0 % 100.0% 100.0 % 100.0 % 100.0 %
===== ====== ====== ====== ======
The adoption of SFAS 114 "Accounting By Creditors For Impairment of a Loan"
in 1995 will not have a material impact on financial position or results of
operations.
CHART 14. NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS
Net C/O Ratio
- -------------------------------------------------------------------------------
89 .96%
90 1.16%
91 1.07%
92 .72%
93 .43%
94 .29%
Net charge-offs as a percentage of average loans was .29% in 1994 compared with
.43% in 1993 and .72% in 1992. The improvement was due to lower charge-off
rates in both the commercial and consumer loan portfolios.
18
21
STATISTICAL DATA
CONSOLIDATED SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
(In Millions
Except
Per Share FOR THE CALENDAR YEAR
Amounts and ---------------------------------------------------------------------------------------------------------------------
Ratios) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans...................... $ 1,766 $ 1,582 $ 1,624 $ 1,974 $ 2,162 $ 2,094 $ 1,750 $ 1,521 $ 1,410 $ 1,349 $ 957
Securities................. 246 276 341 389 442 407 373 345 318 288 240
Other interest income...... 30 32 67 112 91 111 77 76 99 175 200
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest income.... 2,042 1,890 2,032 2,475 2,695 2,612 2,200 1,942 1,827 1,812 1,397
INTEREST EXPENSE
Deposits.................... 593 542 723 1,093 1,252 1,206 957 806 821 878 689
Other interest expense..... 212 148 157 251 349 353 276 268 224 252 250
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest expense... 805 690 880 1,344 1,601 1,559 1,233 1,074 1,045 1,130 939
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income...... 1,237 1,200 1,152 1,131 1,094 1,053 967 868 782 682 458
PROVISION FOR LOAN LOSSES.... 79 93 129 251 231 157 168 279 108 67 43
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses.. 1,158 1,107 1,023 880 863 896 799 589 674 615 415
Fees and other income....... 853 800 726 650 580 493 471 419 364 318 206
Security gains (losses)..... 10 12 26 26 3 3 11 11 21 9 (2)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total noninterest income.. 863 812 752 676 583 496 482 430 385 327 204
Noninterest expense......... 1,403 1,348 1,311 1,242 1,115 981 913 857 797 709 467
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes.. 618 571 464 314 331 411 368 162 262 233 152
Income taxes................ 188 167 117 77 82 106 91 18 44 52 28
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCOME................... $ 430 $ 404 $ 347 $ 237 $ 249 $ 305 $ 277 $ 144 $ 218 $ 181 $ 124
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
NET INCOME PER COMMON SHARE:
Primary..................... $ 2.70 $ 2.41 $ 2.09 $ 1.46 $ 1.62 $ 1.98 $ 1.80 $ .93 $ 1.47 $ 1.39 $ 1.05
Assuming full dilution...... 2.64 2.37 2.06 1.45 1.61 1.98 1.80 .92 1.40 1.21 1.01
Dividends paid per common
share...................... 1.18 1.06 .94 .94 .94 .84 .72 .60 .50 .44 .42
Average shares outstanding.. 153.35 161.16 158.01 154.43 153.84 154.04 153.85 154.38 148.00 130.49 117.76
FINANCIAL RATIOS:
Return on average common
equity..................... 17.06% 16.12% 15.31% 11.20% 12.97% 17.18% 17.47% 9.51% 15.97% 15.87% 13.87%
Return on average assets.... 1.40 1.40 1.21 .81 .87 1.16 1.14 .63 1.05 .95 .90
Average equity to average
assets..................... 8.55 9.04 8.25 7.35 6.73 6.73 6.55 6.67 6.68 6.18 6.54
Dividends paid to net
income....................... 43.70 43.98 44.98 64.38 58.02 42.42 40.00 64.52 34.01 31.65 40.00
Net interest margin......... 4.65 4.80 4.65 4.51 4.50 4.69 4.73 4.93 4.68 4.43 4.13
Overhead ratio.............. 43.46 44.34 48.93 49.93 46.33 43.68 42.66 45.63 47.95 50.12 49.45
Efficiency ratio............ 66.21 66.21 68.22 67.67 64.27 60.90 60.61 62.14 62.92 64.56 63.60
AT YEAR-END:
Assets...................... $32,114 $31,068 $28,963 $29,976 $29,561 $28,549 $26,879 $24,242 $23,495 $20,637 $19,560
Loans....................... 23,035 21,286 18,738 19,171 19,587 18,741 17,314 15,525 14,362 12,462 11,181
Securities.................. 4,395 5,166 5,499 5,370 5,020 5,045 5,126 4,620 4,305 3,319 3,018
Deposits.................... 24,472 23,063 22,585 22,758 22,730 21,386 20,676 18,368 17,350 15,532 14,626
Corporate long-term debt.... 744 510 328 330 308 310 264 294 277 254 198
Common equity............... 2,414 2,565 2,300 2,058 1,946 1,877 1,664 1,502 1,468 1,142 985
Total equity................ 2,601 2,763 2,500 2,258 1,946 1,877 1,664 1,507 1,498 1,265 1,109
Common shares outstanding... 147.56 158.78 158.17 154.63 153.11 154.20 153.87 154.19 154.04 133.39 127.65
19
22
STATISTICAL DATA (continued)
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
DAILY AVERAGE BALANCE
-------------------------------------------------------------------
(Dollars in Millions) 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Earning Assets:
Loans:
Commercial................................ $ 9,133 $ 8,816 $ 8,977 $ 9,885 $10,227 $ 9,788
Real estate mortgage...................... 6,346 5,297 4,607 4,419 3,987 3,054
Consumer.................................. 4,441 3,893 3,675 3,738 3,872 3,592
Revolving credit.......................... 1,795 1,448 1,412 1,539 1,370 1,367
------- ------- ------- ------- ------- -------
Total loans............................ 21,715 19,454 18,671 19,581 19,456 17,801
Securities:
Taxable................................... 3,999 4,637 4,361 3,722 3,813 3,437
Tax-exempt................................ 758 861 1,024 1,174 1,274 1,329
------- ------- ------- ------- ------- -------
Total securities....................... 4,757 5,498 5,385 4,896 5,087 4,766
Federal funds sold.......................... 65 77 315 296 247 121
Security resale agreements.................. 470 274 706 870 275 127
Eurodollar time deposits in banks........... 107 278 417 417 298 655
Other short-term money market
investments............................... 147 164 187 219 300 372
------- ------- ------- ------- ------- -------
Total earning assets/
Total interest income/Rates............ 27,261 25,745 25,681 26,279 25,663 23,842
Allowance for loan losses..................... (462) (409) (393) (367) (315) (339)
Market value (depreciation) of securities
available for sale.......................... (5) -- -- -- -- --
Cash and demand balances due from banks....... 2,052 1,959 1,827 1,855 1,789 1,675
Properties and equipment...................... 390 367 383 410 414 385
Customers' acceptance liability............... 69 51 78 75 96 62
Accrued income and other assets............... 1,309 1,121 1,059 1,091 917 732
------- ------- ------- ------- ------- -------
Total assets........................... $30,614 $28,834 $28,635 $29,343 $28,564 $26,357
======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings and NOW accounts.................... $ 4,966 $ 4,543 $ 3,981 $ 3,371 $ 3,138 $ 2,796
Insured money market accounts............... 5,184 5,401 5,236 4,519 3,767 3,238
Time deposits of individuals................ 6,380 6,268 7,230 8,430 8,112 6,736
Other time deposits......................... 481 552 936 1,777 2,495 3,000
Deposits in overseas offices................ 1,026 263 251 367 315 629
Federal funds borrowed...................... 1,358 1,439 995 1,056 1,289 1,395
Security repurchase agreements.............. 1,181 1,080 1,183 1,141 1,374 1,383
Borrowed funds.............................. 1,415 1,193 1,359 1,706 1,424 954
Corporate long-term debt.................... 712 452 329 318 309 273
------- ------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/Rates........... 22,703 21,191 21,500 22,685 22,223 20,404
Noninterest bearing deposits................ 4,798 4,619 4,333 4,010 3,930 3,745
Acceptances outstanding..................... 69 51 78 75 96 62
Accrued expenses and other liabilities...... 425 367 362 417 393 372
------- ------- ------- ------- ------- -------
Total liabilities...................... 27,995 26,228 26,273 27,187 26,642 24,583
Preferred stock............................... 191 200 200 141 -- --
Common stock.................................. 2,428 2,406 2,162 2,015 1,922 1,774
------- ------- ------- ------- ------- -------
Total stockholders' equity............. 2,619 2,606 2,362 2,156 1,922 1,774
------- ------- ------- ------- ------- -------
Total liabilities and stockholders'
equity............................... $30,614 $28,834 $28,635 $29,343 $28,564 $26,357
======= ======= ======= ======= ======= =======
Net interest income.........................................................................................
Interest spread.............................................................................................
Contribution of noninterest bearing sources of funds........................................................
Net interest margin.........................................................................................
Fully taxable equivalent basis computed at 35% in 1994 and 1993, and 34% in 1992
through 1989.
Average loan balances include nonperforming loans.
20
23
INTEREST DAILY AVERAGE RATE
- ------------------------------------------------------------------------- -----------------------------------------------------
1994 1993 1992 1991 1990 1989 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------- -----------------------------------------------------
$ 708.5 $ 648.7 $ 679.7 $ 904.8 $1,073.6 $1,102.9 7.76% 7.36% 7.57% 9.15% 10.50% 11.27%
490.5 421.4 409.8 448.0 424.8 331.2 7.73 7.96 8.90 10.14 10.65 10.84
356.8 338.8 358.9 408.7 453.3 436.4 8.03 8.70 9.77 10.93 11.71 12.15
219.8 182.9 186.4 227.5 229.7 241.5 12.25 12.63 13.20 14.78 16.77 17.67
- -------- -------- -------- -------- -------- --------
1,775.6 1,591.8 1,634.8 1,989.0 2,181.4 2,112.0 8.18 8.18 8.76 10.16 11.21 11.86
204.5 229.0 277.6 308.7 347.7 305.3 5.11 4.94 6.37 8.29 9.12 8.88
59.8 73.3 95.3 119.4 135.8 147.6 7.89 8.51 9.31 10.17 10.66 11.11
- -------- -------- -------- -------- -------- --------
264.3 302.3 372.9 428.1 483.5 452.9 5.56 5.50 6.92 8.74 9.50 9.50
2.9 4.5 11.1 17.3 20.3 10.9 4.46 5.84 3.52 5.84 8.22 9.01
20.0 8.8 26.9 49.7 22.1 11.7 4.25 3.21 3.81 5.71 8.04 9.21
3.0 9.6 16.4 27.3 25.8 60.2 2.80 3.45 3.93 6.55 8.66 9.19
5.5 8.9 12.7 17.4 23.5 29.7 3.74 5.43 6.74 7.95 7.83 7.98
- -------- -------- -------- -------- -------- --------
$2,071.3 $1,925.9 $2,074.8 $2,528.8 $2,756.6 $2,677.4 7.60% 7.48% 8.08% 9.62% 10.74% 11.23%
$ 128.8 $ 122.8 $ 128.3 $ 155.0 $ 157.0 $ 136.9 2.59% 2.70% 3.22% 4.60% 5.00% 4.90%
117.0 116.3 146.3 211.3 216.2 180.7 2.26 2.15 2.79 4.68 5.74 5.58
284.6 277.1 400.3 592.2 654.9 557.8 4.46 4.42 5.54 7.02 8.07 8.28
18.4 19.1 39.5 112.2 200.3 273.8 3.83 3.46 4.22 6.31 8.03 9.13
44.1 6.9 8.3 21.6 23.7 56.8 4.30 2.62 3.31 5.89 7.52 9.03
57.5 45.5 34.4 60.2 104.0 127.9 4.23 3.16 3.46 5.70 8.07 9.17
43.7 27.6 36.7 58.5 103.9 118.0 3.70 2.56 3.09 5.13 7.56 8.53
61.7 46.4 60.9 106.8 112.9 80.3 4.36 3.89 4.49 6.26 7.93 8.42
49.2 28.4 24.8 26.0 28.1 26.8 6.92 6.28 7.54 8.18 9.09 9.82
- -------- -------- -------- -------- -------- --------
$ 805.0 $ 690.1 $ 879.5 $1,343.8 $1,601.0 $1,559.0 3.55% 3.26% 4.09% 5.92% 7.20% 7.64%
- -------- -------- -------- -------- -------- --------
$1,266.3 $1,235.8 $1,195.3 $1,185.0 $1,155.6 $1,118.4
======== ======== ======== ======== ======== ========
.................................................................... 4.05% 4.22% 3.99% 3.70% 3.54% 3.59%
.................................................................... .60 .58 .66 .81 .96 1.10
----- ----- ----- ----- ----- -----
.................................................................... 4.65% 4.80% 4.65% 4.51% 4.50% 4.69%
===== ===== ===== ===== ===== =====
21
24
QUARTERLY DATA
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1994 was $111.4 million, or $.71 per
common share, compared with $103.5 million, or $.62 per share, for the same
period last year.
The increase in earnings was due predominantly to higher net interest income
that resulted from loan growth.
Annualized return on average common equity for the fourth quarter was
17.64%, compared with 15.74% for the fourth quarter 1993. Annualized return on
average assets was 1.40% in 1994 versus 1.35% in 1993.
Average earning assets and average deposits for the quarter increased 3.0%
and 2.7%, respectively, from the fourth quarter last year, primarily due to
growth in business.
Net interest income on a fully taxable equivalent basis for the quarter was
$325.5 million, which reflects a 3.1% increase over $315.7 million for the same
period last year.
Fees and other income increased 7.4% to $230.1 million over the prior year
fourth quarter due mainly to higher item processing revenue that was the result
of business growth and acquisitions, gains on the sale of mortgage servicing,
and a final income adjustment related to the unwinding of a credit card
securitization.
Noninterest expenses increased to $370.5 million, compared with $359.5
million a year ago. The increase was due to litigation settlements and higher
expenses related to increased volume and acquisitions in the item processing
subsidiary.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly results of operations for the
years 1994, 1993, and 1992:
(Dollars in Thousands
Except Per Share Amounts) First Second Third Fourth Full Year
- ---------------------------------------------------------------------------------------------------------------------------
1994
Interest income................................. $473,873 $494,462 $517,754 $555,775 $2,041,864
Interest expense................................ 171,728 188,275 207,607 237,445 805,055
Net interest income............................. 302,145 306,187 310,147 318,330 1,236,809
Provision for loan losses....................... 20,442 20,071 19,235 19,608 79,356
Security gains.................................. 5,893 799 2,772 1,066 10,530
Net overhead.................................... 137,130 135,208 137,632 140,325 550,295
Income before income taxes...................... 150,466 151,707 156,052 159,463 617,688
Net income...................................... 103,807 105,841 108,411 111,375 429,434
Net income applicable to common stock........... 99,930 102,055 104,625 107,624 414,234
Net income per common share..................... .63 .67 .69 .71 2.70
Fully diluted net income per common share....... .62 .66 .67 .69 2.64
Dividends paid per common share................. .29 .29 .30 .30 1.18
1993
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
Fully diluted net income per common share....... .56 .60 .60 .61 2.37
Dividends paid per common share................. .26 .26 .27 .27 1.06
1992
Net income...................................... $ 82,105 $ 85,145 $ 89,623 $ 90,050 $ 346,923
Net income per common share..................... .50 .51 .54 .54 2.09
Fully diluted net income per common share....... .50 .50 .53 .53 2.06
Dividends paid per common share................. .235 .235 .235 .235 .94
22
25
REPORT OF MANAGEMENT
The management of National City Corporation has prepared the accompanying
financial statements and is responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include amounts that are based on management's best
estimates and judgments. Management also prepared the other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
National City Corporation maintains a system of internal control over
financial reporting designed to produce reliable financial statements. The
system contains self-monitoring mechanisms, and compliance is tested and
evaluated through an extensive program of internal audits. Actions are taken to
correct potential deficiencies as they are identified. Any internal control
system has inherent limitations, including the possibility that controls can be
circumvented or overridden. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Audit Committee, consisting entirely of outside directors, meets
regularly with management, internal auditors and independent auditors, and
reviews audit plans and results as well as management's actions taken in
discharging responsibilities for accounting, financial reporting and internal
controls. Ernst & Young LLP, independent auditors, and the internal auditors
have direct and 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, 1994 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, 1994, its
system of internal control met those criteria.
Cleveland, Ohio
January 20, 1995
/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
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Stockholders
National City Corporation
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of National
City Corporation and subsidiaries as of December 31, 1994 and 1993, 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, 1994.
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, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Cleveland, Ohio
January 20, 1995
23
26
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
FOR THE CALENDAR YEAR
--------------------------------------------
(Dollars in Thousands Except Per Share Amounts) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans:
Taxable............................................................ $1,749,726 $1,565,636 $1,602,508
Exempt from Federal income taxes................................... 16,172 16,470 21,593
Securities:
Taxable............................................................ 204,463 229,007 277,635
Exempt from Federal income taxes................................... 40,085 47,279 63,442
Federal funds sold and security resale agreements.................... 22,897 13,254 37,981
Eurodollar time deposits in banks.................................... 3,044 9,630 16,360
Other short-term investments......................................... 5,477 8,888 12,807
---------- ---------- ----------
Total interest income......................................... 2,041,864 1,890,164 2,032,326
INTEREST EXPENSE
Deposits............................................................. 592,870 542,165 722,657
Federal funds borrowed and security repurchase agreements............ 101,249 73,151 71,146
Borrowed funds....................................................... 61,698 46,417 60,988
Corporate long-term debt............................................. 49,238 28,377 24,790
---------- ---------- ----------
Total interest expense........................................ 805,055 690,110 879,581
---------- ---------- ----------
Net interest income........................................... 1,236,809 1,200,054 1,152,745
PROVISION FOR LOAN LOSSES.............................................. 79,356 93,089 129,361
---------- ---------- ----------
Net interest income after provision for loan losses........... 1,157,453 1,106,965 1,023,384
NONINTEREST INCOME
Item processing revenues............................................. 312,358 267,962 194,166
Service charges on deposit accounts.................................. 153,870 152,609 143,909
Trust fees........................................................... 125,668 122,597 118,350
Credit card fees..................................................... 85,308 92,966 101,898
Mortgage banking revenues............................................ 67,406 58,678 59,958
Other................................................................ 108,228 105,003 107,379
---------- ---------- ----------
Total fees and other income................................... 852,838 799,815 725,660
Security gains....................................................... 10,530 11,922 25,697
---------- ---------- ----------
Total noninterest income...................................... 863,368 811,737 751,357
NONINTEREST EXPENSE
Salaries and employee benefits....................................... 653,890 623,472 617,015
Equipment............................................................ 93,345 89,005 90,768
Net occupancy........................................................ 89,994 89,729 85,620
Assessments and taxes................................................ 78,869 80,454 76,779
Other................................................................ 487,035 465,080 440,266
---------- ---------- ----------
Total noninterest expense..................................... 1,403,133 1,347,740 1,310,448
---------- ---------- ----------
Income before income taxes............................................. 617,688 570,962 464,293
Income tax expense..................................................... 188,254 166,965 117,370
---------- ---------- ----------
NET INCOME............................................................. $ 429,434 $ 403,997 $ 346,923
========= =========== ===========
NET INCOME APPLICABLE TO COMMON STOCK.................................. $ 414,234 $ 388,031 $ 330,923
========= =========== ===========
NET INCOME PER COMMON SHARE............................................ $2.70 $2.41 $2.09
Average Common Shares Outstanding...................................... 153,353,555 161,163,816 158,011,980
See notes to financial statements.
24
27
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
----------------------------
(Dollars in Thousands) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial........................................................................... $ 8,667,539 $ 8,429,119
International........................................................................ 52,356 69,776
Real estate construction............................................................. 421,505 439,406
Lease financing...................................................................... 216,499 228,352
Real estate mortgage - nonresidential................................................ 2,473,329 2,328,228
Real estate mortgage - residential................................................... 4,123,084 3,523,836
Mortgage loans held for sale......................................................... 42,064 509,187
Consumer............................................................................. 4,781,759 4,241,461
Revolving credit..................................................................... 2,256,640 1,516,776
----------- ------------
Total loans........................................................................ 23,034,775 21,286,141
Allowance for loan losses.......................................................... 469,019 443,412
----------- ------------
Net loans.......................................................................... 22,565,756 20,842,729
Securities held to maturity (market value $1,156,811 and $1,824,855, respectively)..... 1,176,115 1,763,025
Securities available for sale.......................................................... 3,218,940 3,403,201
Federal funds sold and security resale agreements...................................... 672,945 611,743
Trading account assets................................................................. 7,940 150,296
Eurodollar time deposits in banks...................................................... -- 457,000
Other short-term money market investments.............................................. 96,615 85,677
Cash and demand balances due from banks................................................ 2,401,728 1,933,888
Properties and equipment............................................................... 389,980 386,219
Customers' acceptance liability........................................................ 102,005 68,148
Accrued income and other assets........................................................ 1,481,984 1,365,783
----------- -----------
TOTAL ASSETS.................................................................... $32,114,008 $31,067,709
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing)................................................ $ 5,331,789 $ 5,214,560
Savings and NOW accounts............................................................. 4,599,988 5,161,593
Insured money market accounts........................................................ 4,964,741 5,489,785
Time deposits of individuals......................................................... 7,298,056 6,224,231
Other time deposits.................................................................. 472,023 500,421
Deposits in overseas offices......................................................... 1,805,323 472,431
----------- ------------
Total deposits.................................................................. 24,471,920 23,063,021
Federal funds borrowed and security repurchase agreements............................ 2,608,801 3,082,821
Borrowed funds....................................................................... 1,104,989 1,201,011
Acceptances outstanding.............................................................. 102,005 68,148
Accrued expenses and other liabilities............................................... 481,570 379,268
Corporate long-term debt............................................................. 743,669 510,173
----------- ------------
TOTAL LIABILITIES............................................................... 29,512,954 28,304,442
Stockholders' Equity:
Preferred stock, without par value, authorized 5,000,000 shares, outstanding 750,160
and 793,240 shares (3,750,800 and 3,966,200 depositary shares) of 8% Cumulative
Convertible Preferred Stock ($250 liquidation preference per share) in 1994 and
1993................................................................................ 187,540 198,310
Common stock, par value $4 per share, authorized 350,000,000 shares,
outstanding 147,555,632 shares in 1994 and 158,779,611 shares in 1993.............. 590,223 635,119
Capital surplus...................................................................... 100,051 105,140
Retained earnings.................................................................... 1,732,258 1,841,144
Unallocated shares held by Employee Stock Ownership Plan (ESOP) trust................ (9,018) (16,446)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY...................................................... 2,601,054 2,763,267
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $32,114,008 $31,067,709
=========== ============
See notes to financial statements.
25
28
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE CALENDAR YEAR
-------------------------------------------
(Dollars in Thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income.............................................................. $ 429,434 $ 403,997 $ 346,923
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses............................................. 79,356 93,089 129,361
Depreciation and amortization......................................... 57,390 56,610 59,314
Amortization of goodwill and intangibles.............................. 44,903 61,721 37,459
Amortization of securities discount and premium....................... 8,833 6,488 (4,643)
Security gains........................................................ (10,530) (11,922) (25,697)
Other gains, net...................................................... (22,712) -- (4,352)
Net decrease (increase) in trading account securities................. 142,356 (137,252) 19,978
Originations and purchases of mortgage loans held for sale............ (1,117,702) (3,635,705) (2,967,585)
Proceeds from sales of mortgage loans held for sale................... 1,587,421 3,496,154 2,756,320
Deferred income taxes (benefit)....................................... 3,104 21,563 (22,089)
(Increase) decrease in interest receivable............................ (51,305) (22,698) 87,037
Increase (decrease) in interest payable............................... 41,187 24,319 (97,418)
(Increase) decrease in other assets................................... (41,943) (279,286) 40,999
Increase (decrease) in other liabilities.............................. 61,115 46,041 (22,416)
---------- ---------- ----------
Net cash provided (used) by operating activities................. 1,210,907 123,119 333,191
LENDING AND INVESTING ACTIVITIES
Net change in short-term investments.................................... 384,860 633,588 375,201
Purchases of securities................................................. (2,185,267) (4,036,281) (3,391,162)
Proceeds from sales of securities....................................... 1,598,514 2,594,509 1,253,787
Proceeds from maturities and prepayments of securities.................. 1,225,333 2,368,065 2,041,828
Net change in loans..................................................... (2,272,102) (1,870,528) 357,484
Proceeds from sales of loans............................................ -- 207,156 160,214
Net increase in properties and equipment................................ (61,151) (55,348) (38,337)
Acquisitions............................................................ -- (43,490) (17,000)
---------- ---------- ----------
Net cash provided (used) by lending and investing activities........ (1,309,813) (202,329) 742,015
DEPOSIT AND FINANCING ACTIVITIES
Net change in Federal funds borrowed and security repurchase
agreements............................................................ (474,020) 1,179,308 (585,919)
Net change in borrowed funds............................................ (96,022) (217,410) (322,283)
Net change in demand, savings, NOW, insured money market accounts, and
deposits in overseas offices.......................................... 363,472 212,946 1,843,412
Net change in time deposits............................................. 1,045,427 (1,093,817) (2,015,913)
Repayment of long-term debt............................................. (15,362) (20,660) (2,812)
Proceeds from issuance of long-term debt................................ 247,080 197,950 --
Dividends paid, net of tax benefit of ESOP shares....................... (194,425) (184,516) (155,718)
Issuance of common stock................................................ 23,221 28,469 47,378
Repurchase of common and preferred stock................................ (340,053) (168,920) (1,118)
ESOP trust repayment.................................................... 7,428 8,816 4,759
---------- ---------- ----------
Net cash provided (used) by deposit and financing activities........ 566,746 (57,834) (1,188,214)
---------- ---------- ----------
Net increase (decrease) in cash and demand balances due from banks...... 467,840 (137,044) (113,008)
Cash and demand balances due from banks, January 1...................... 1,933,888 2,070,932 2,183,940
---------- ---------- ----------
Cash and demand balances due from banks, December 31.................... $2,401,728 $1,933,888 $2,070,932
========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid........................................................... $ 764,000 $ 662,000 $ 977,000
Income taxes paid....................................................... 199,000 147,000 140,000
Common stock issued in purchase acquisitions............................ -- 140,568 --
See notes to financial statements.
26
29
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unallocated
Shares
(Dollars in Thousands Preferred Common Capital Retained Held by
Except Per Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1992..................... $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
Net Income................................ 429,434 429,434
Common dividends paid, $1.18 per share.... (179,675) (179,675)
Preferred dividends paid, $4.00 per
depositary share........................ (15,415) (15,415)
Issuance of 1,190,121 common shares under
corporate stock and dividend
reinvestment plans...................... 4,760 18,461 23,221
Purchase of 12,414,100 common shares and
215,400 depositary shares of preferred
stock................................... (10,770 ) (49,656 ) (23,550) (256,077) (340,053)
Shares distributed by ESOP trust and tax
benefit on dividends.................... 665 7,428 8,093
Change in unrealized market value
adjustment on securities available for
sale, net of tax........................ (87,818) (87,818)
--------- -------- -------- ---------- ----------- ----------
Balance December 31, 1994................... $187,540 $590,223 $100,051 $1,732,258 $ (9,018) $2,601,054
========== ========= ========= =========== ============ ===========
See notes to financial statements.
27
30
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of
National City Corporation (the "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 24 years. Core deposit
intangibles are amortized on a straight-line basis over varying remaining lives
not exceeding 4 years.
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.
Trading account assets are held for resale in anticipation of short-term
market movements and are carried at market value. Gains and losses, both
realized and unrealized, are included in other income.
Debt securities are classified as held to maturity when 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 totalled approximately $1,367,000,000 and
$702,000,000, respectively, at December 31, 1994 and 1993.
OFF-BALANCE SHEET FINANCIAL AGREEMENTS: The Corporation utilizes a variety
of off-balance sheet financial instruments to manage various financial risks.
These instruments include interest rate swaps, interest rate caps and floors,
futures, forwards, and option contracts. Interest rate swaps are used to
synthetically alter the price risk or cash flow characteristics of various
on-balance sheet assets and liabilities. The net interest income or expense on
interest rate swaps is accrued and recognized as an adjustment to the interest
income or expense of the associated on-balance-sheet asset or liability. The
Corporation purchases interest rate caps and floors to reduce the cash flow risk
of various on-balance sheet variable rate assets and liabilities. The cost or
premium paid for purchased interest rate caps and floors is capitalized and
charged to income based on the economic value at the time of purchase. The
unamortized cost of caps or floors purchased is carried in other assets.
Interest payments received on interest rate caps and floors are recorded as an
interest income or expense adjustment to the related assets and liabilities.
Futures, forwards and options are also utilized to manage exposures to changes
in interest rates. Futures, forwards and options that are used for risk
management are carried at cost and realized gains and losses are amortized into
interest income or interest expense over the life of the instrument. Realized
gains and losses on all off-balance sheet transactions used to manage risk that
are terminated prior to maturity are deferred and amortized as a yield
adjustment over the remaining original life of the agreement. Unrealized gains
or losses on interest rate swaps or purchased interest rate caps and floors are
deferred. Deferred gains and losses are recorded in other assets and other
liabilities, as applicable.
Unrealized gains or losses on any interest rate caps or floors sold and
foreign exchange positions are marked to market and included in other income.
PURCHASED MORTGAGE SERVICING RIGHTS: Purchased mortgage servicing rights are
initially recorded at the lower of cost or estimated present value of the future
net servicing income. The capitalized amount is amortized in proportion to, and
over the period of, estimated net positive cash flows. The Corporation evaluates
the recoverability of purchased mortgage servicing rights in relation to the
impact of actual and anticipated loan portfolio prepayment, foreclosure and
delinquency experience.
DEPRECIABLE ASSETS: Properties and equipment are stated at cost less
accumulated depreciation and amortization. Buildings and equipment are
depreciated on a straight-line basis over their useful lives. Leasehold
improvements are amortized over the lives of the leases. Maintenance and repairs
are charged to expense as incurred, while improvements which extend the useful
life are capitalized and depreciated over the remaining life. Upon the sale or
disposal of property, the cost and accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in current income.
INCOME: Interest and other income are recorded as earned. Loans are
classified as nonaccrual, reduced rate or renegotiated based on management's
judgment and requirements established by bank regulatory agencies. Subsequent
receipts on nonaccrual loans are recorded as a
28
31
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
in future years of differences between the tax and financial statement basis of
assets and liabilities.
TREASURY STOCK: Acquisitions of treasury stock are recorded on the par value
method, which requires the cash paid to be allocated to common or preferred
stock, surplus and retained earnings.
RECLASSIFICATION: Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. ACQUISITIONS
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 $67 million and is being
amortized over 20 years.
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 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 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 of the
Corporation's common stock. The Corporation issued approximately 34.2 million
shares 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 $99,887,000
in 1994 and $85,685,000 in 1993.
Activity in the allowance for loan losses follows:
FOR THE CALENDAR YEAR
--------------------------------
(In Thousands) 1994 1993 1992
- ------------------------------------------------------------------
Balance at beginning
of year....................... $443,412 $383,849 $385,866
Acquired allowance............ 9,729 50,756 2,479
Provision..................... 79,356 93,089 129,361
Loans charged-off............. (120,234) (144,490) (186,528)
Recoveries.................... 56,756 60,208 52,671
-------- -------- --------
Net charge-offs............. (63,478) (84,282) (133,857)
-------- -------- --------
Balance at end of year.......... $469,019 $443,412 $383,849
======== ======== ========
At December 31, 1994, nonaccrual, reduced-rate, and renegotiated loans were
$111,981,000, and other real estate owned was $16,547,000. At December 31, 1993,
the corresponding amounts were $151,343,000 and $57,807,000, respectively.
The Corporation plans to adopt SFAS No. 114 "Accounting By Creditors For
Impairment of a Loan," and SFAS No. 118 "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," 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 adoption did not have a material effect on financial position or results of
operations.
The following is a summary of securities held to maturity and available for
sale:
DECEMBER 31, 1994
-----------------------------------------------
UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------
Held to maturity:
U.S. Treas. and
Fed. agency
debentures...... $ 34,258 $ -- $ (1,474) $ 32,784
Mortgage-backed
securities...... 630,610 749 (37,218) 594,141
States and
political
subdivisions.... 450,461 23,562 (4,736) 469,287
Other............. 60,786 36 (223) 60,599
--------- -------- --------- ----------
Total held to
maturity....... 1,176,115 24,347 (43,651) 1,156,811
Available for sale:
U.S. Treas. and
Fed. agency
debentures...... 1,333,809 18,438 (53,463) 1,298,784
Mortgage-backed
securities...... 1,700,228 584 (58,252) 1,642,560
States and
political
subdivisions.... 30,944 163 (152) 30,955
Other............. 235,268 26,232 (14,859) 246,641
--------- -------- --------- ----------
Total available
for sale....... 3,300,249 45,417 (126,726) 3,218,940
--------- -------- --------- ----------
Total
securities..... $4,476,364 $69,764 $(170,377) $4,375,751
========== ======= ========= ==========
29
32
NOTES TO FINANCIAL STATEMENTS (continued)
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
========== ======== ======== ==========
At December 31, 1994, the unrealized losses in securities available for sale
included in retained earnings totalled $53 million, net of tax. The
Corporation's securities portfolio consists mainly of financial instruments that
pay back par value upon maturity. Market value fluctuations occur over the lives
of the instruments due to changes in market interest rates. Management has
concluded that current declines in value are temporary and accordingly, no
valuation adjustments have been included as a charge to income.
The following table shows the carrying value and market value of securities
at December 31, 1994 by maturity:
Available
Held to Maturity for Sale
----------------------- -----------------------
Market Market
(In Thousands) Cost value Cost Value
- -------------------------------------------------------------------
Due in 1 year or
less.......... $ 122,852 $ 123,657 $ 148,422 $ 145,457
Due in 1 to 5
years......... 775,620 756,197 2,349,056 2,272,225
Due in 5 to 10
years......... 163,064 158,680 493,723 480,954
Due after 10
years......... 114,579 118,277 309,048 320,304
---------- ---------- ---------- ----------
$1,176,115 $1,156,811 $3,300,249 $3,218,940
========== ========== ========== ==========
Mortgage-backed securities and other securities which may have prepayment
provisions are assigned to a maturity category based on estimated average lives.
At December 31, 1994, the carrying value of securities pledged to secure
public and trust deposits, trading account liabilities, U.S. Treasury demand
notes, and security repurchase agreements totalled $3,044,058,000.
At December 31, 1994, 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.
For the year ended December 31, 1994, the following represents the
segregation of cash flows between securities available for sale and securities
held to maturity:
Available Held to
(In Thousands) for Sale Maturity Total
- ------------------------------------------------------------------
Purchases of securities...... $2,068,654 $116,613 $2,185,267
Proceeds from sales of
securities................. 1,598,514 -- 1,598,514
Proceeds from maturities and
prepayments of
securities................. 509,779 715,554 1,225,333
In 1994, 1993, and 1992, gross gains of $16.6 million, $16.3 million, and
$28.6 million and gross losses of $6.1 million, $4.4 million, and $2.9 million
were realized, respectively.
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
Instruments". The market value of securities 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, 1994 and 1993. Bracketed amounts in the carrying
value columns represent either reduction of asset accounts, liabilities, or
commitments representing potential cash outflows. Bracketed amounts in the fair
value columns represent estimated cash outflows required to currently settle the
obligations at current market rates.
30
33
1994 1993
---------------- ----------------
CARRYING FAIR Carrying Fair
(In Millions) VALUE VALUE Value Value
- -----------------------------------------------------------------
Assets:
Cash and cash
equivalents.............. $ 3,559 $ 3,559 $ 3,391 $ 3,391
Loans held for sale........ 42 42 509 509
Loans receivable........... 22,993 22,822 20,777 20,990
Allowance for loan
losses................... (469) -- (443) --
Securities................. 4,395 4,376 5,112 5,228
Trading account assets..... 8 8 150 150
Liabilities:
Demand deposits............ $(5,332) $(5,332) $(5,215) $(5,215)
Time deposits.............. (19,140) (19,157) (17,848) (17,916)
Short-term borrowings...... (3,816) (3,816) (4,352) (4,352)
Long-term debt............. (744) (720) (510) (538)
Other liabilities.......... (161) (161) (119) (119)
Off-Balance Sheet
Instruments:
Interest rate swaps:
Receive fixed rates...... $ -- $(212) $ -- $ 34
Pay fixed rates.......... -- 16 -- (23)
Basis swaps.............. -- (1) -- --
Interest rate caps
and floors............... 23 22 13 46
Futures, forwards and
options.................. -- -- 1 1
Commitments to extend
credit................... (10) (10) (9) (9)
Standby letters of
credit................... (1) (1) (1) (1)
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values. For
purposes of this disclosure only, cash equivalents include Federal funds sold,
security resale agreements, Eurodollar time deposits, customers' acceptance
liability, accrued interest receivable, and other short-term money market
investments.
LOANS RECEIVABLE AND LOANS HELD FOR SALE: For performing variable rate loans
that reprice frequently and loans held for sale, estimated fair values are based
on carrying values. The fair values for 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.
SECURITIES: The market values of securities are based upon quoted market
prices, where available, and on quoted market prices of comparable instruments
when specific quoted prices are not available.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amounts payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, 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
reserve balance was $339 million for 1994.
7. PROPERTIES AND EQUIPMENT
A summary of properties and equipment follows:
DECEMBER 31
-------------------------
(In Thousands) 1994 1993
- -------------------------------------------------------------------
Land................................... $ 64,036 $ 66,424
Buildings and leasehold improvements... 383,906 370,591
Equipment.............................. 428,685 402,749
--------- ---------
876,627 839,764
Less accumulated depreciation and
amortization......................... 486,647 453,545
--------- ---------
Net properties and equipment........... $389,980 $ 386,219
======= ========
The Corporation and certain of its subsidiary banks occupy their respective
headquarters offices under long-term operating leases and, in addition, lease
certain data processing equipment. The aggregate minimum annual rental
commitments under these leases is approximately $39.1 million in 1995, $38.1
million in 1996, $34.5 million in 1997, $33.1 million in 1998, $30.8 million in
1999, and $209.8 million thereafter.
Total expense recorded under all operating leases in 1994, 1993 and 1992 was
$61,757,000, $59,960,000, and $57,356,000, respectively.
31
34
NOTES TO FINANCIAL STATEMENTS (continued)
8. BORROWED FUNDS
The composition of borrowed funds follows:
DECEMBER 31
--------------------------
(In Thousands) 1994 1993
- -----------------------------------------------------------------
U.S. Treasury demand notes and
Federal funds borrowed-term....... $ 159,949 $ 309,832
Notes payable to Student Loan
Marketing Association............. 300,000 243,400
Military banking liabilities........ 215,951 185,493
Other............................... 49,754 63,437
---------- ----------
Bank subsidiaries............... 725,654 802,162
Commercial paper.................... 379,276 398,790
Other............................... 59 59
---------- ----------
Other subsidiaries.............. 379,335 398,849
---------- ----------
Total........................... $1,104,989 $1,201,011
========== ==========
The $300,000,000 floating rate notes payable to Student Loan Marketing
Association are due in June 1996. The notes are secured by and provide funding
for student loan receivables.
Pursuant to the terms of a contract with the U.S. Department of Defense,
National City Bank, Indiana, a principal banking subsidiary of the Corporation,
manages a military banking network which provides retail banking services to
U.S. military personnel and certain related parties. Total assets under
fiduciary management approximated $832 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 March 31, 1995.
9. CORPORATE LONG-TERM DEBT
The composition of corporate long-term debt follows:
DECEMBER 31
------------------------
(In Thousands) 1994 1993
- -------------------------------------------------------------------
6 5/8% Subordinated Notes due 2004...... $250,000 $ --
Less discount......................... (1,187) --
8 3/8% Notes due 1996................... 100,000 100,000
Less discount......................... (94) (174)
Floating Rate Subordinated Notes
due 1997.............................. 75,000 75,000
Less discount......................... (39) (58)
9 7/8% Subordinated Notes due 1999...... 65,000 65,000
Less discount......................... (222) (268)
Floating Rate Notes due 1997............ 50,000 50,000
Less discount......................... (59) (80)
Floating Rate Notes due 1994............ -- 5,000
Medium-Term Notes....................... -- 6,000
Less discount......................... -- (9)
Other................................... 3,377 7,609
--------- ---------
Total parent company................ 541,776 308,020
6 1/2% Subordinated Notes due 2003...... 200,000 200,000
Less discount......................... (624) (699)
Other................................... 2,517 2,852
--------- ---------
Total subsidiaries.................. 201,893 202,153
--------- ---------
Total............................... $743,669 $ 510,173
========= =========
In March 1994, the Corporation issued $250 million principal amount of
6 5/8% Subordinated Notes due 2004. Interest on the notes is payable
semiannually. The notes are not redeemable prior to their maturity and qualify
as Tier 2 capital for regulatory purposes.
The 8 3/8% Notes pay interest semiannually and may not be redeemed prior to
maturity.
The $75 million Floating Rate Subordinated Notes 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%. The actual borrowing rate at December 31,
1994, was 5.81%. The interest rate on the $50 million Floating Rate Notes is
12.5 basis points over the three-month Eurodollar deposit rate (5.75% at
December 31, 1994), adjusted quarterly. Both floating rate note issues may be
redeemed at the option of the Corporation, in whole or in part, at their
principal amount.
The 9 7/8% Subordinated Notes pay interest semiannually and may not be
redeemed prior to maturity.
The 6 1/2% Subordinated Notes pay interest semiannually and may not be
redeemed prior to maturity.
A credit agreement with a group of banks allows the Corporation to borrow up
to $300 million until June 30, 1997, with a provision to extend the expiration
date under certain circumstances. The Corporation pays an annual facility fee of
1/8 percent on the amount of the line. There were no borrowings outstanding
under this agreement at December 31, 1994.
Corporate long-term debt maturities for the next five years are as follows:
$227,000 in 1995; $100,228,000 in 1996; $125,245,000 in 1997; $2,255,000 in
1998; and $65,260,000 in 1999.
10. PREFERRED STOCK
At December 31, 1994 and 1993, the Corporation had outstanding 750,160 and
793,240 shares, respectively, of 8% Cumulative Convertible Preferred Stock in
the form of 3,750,800 and 3,966,200 depositary shares, respectively, at a stated
value of $50.00 per depositary share. Each depositary share represents a
one-fifth interest in a preferred share. The preferred stock is convertible at
the option of the holder into 2.384 common shares per depositary share.
Accordingly, 8,941,907 shares of common stock were reserved at December 31, 1994
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 $187,540,000 in aggregate, plus accrued and
unpaid dividends to date of liquidation.
32
35
11. EMPLOYEE STOCK OWNERSHIP PLAN
As a result of a past merger, the Corporation assumed the obligations and
benefits of an 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 to substantially all employees). The original ESOP was
established through the purchase of stock on the open market. The Corporation
provided a loan to the ESOP Trust for the purpose of acquiring the shares. The
shares presently held by the ESOP (totalling 1,504,560 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 1994, the Corporation
allocated 688,811 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 $8,529,977 and $8,181,022 in 1994 and 1993,
respectively. Dividends earned by the ESOP in 1994 and 1993 were $2,219,654 and
$2,737,768, respectively. The tax benefit for dividends paid on shares held by
the ESOP is recorded directly to retained earnings.
12. 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 follows:
FOR THE CALENDAR YEAR
(In Thousands Except ---------------------------------------
Per Share Amounts) 1994 1993 1992
- -----------------------------------------------------------------
PRIMARY:
Net income............ $429,434 $403,997 $346,923
Less preferred
dividends........... 15,200 15,966 16,000
----------- ----------- -----------
Net income applicable
to common stock..... $414,234 $388,031 $330,923
=========== =========== ===========
Average common shares
outstanding......... 153,353,555 161,163,816 158,011,980
=========== =========== ===========
Net income per common
share............... $2.70 $2.41 $2.09
=========== =========== ===========
ASSUMING FULL DILUTION:
Net income............ $429,434 $403,997 $346,923
=========== =========== ===========
Pro forma fully
diluted average
common shares
outstanding......... 162,375,500 170,683,512 168,065,372
=========== =========== ===========
Pro forma fully
diluted net income
per share........... $2.64 $2.37 $2.06
=========== =========== ===========
13. PARENT COMPANY AND REGULATORY RESTRICTIONS
At December 31, 1994, retained earnings of the parent company included
$1,548 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 1994, subsidiary banks declared
$250 million in dividends to the parent company. In 1995, bank subsidiaries may
pay the parent company, without prior regulatory approval, approximately $77
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 $379 million outstanding at December 31, 1994 is
guaranteed by the parent company.
Condensed parent company financial statements, which include transactions
with subsidiaries, follow:
BALANCE SHEETS
DECEMBER 31
-------------------------
(In Thousands) 1994 1993
- ----------------------------------------------------------------
ASSETS
Cash and demand balances due from
banks.............................. $ 8,229 $ 2,733
Loans to and accounts receivable from
subsidiaries....................... 356,420 301,211
Securities........................... 154,127 116,404
Investments in:
Subsidiary banks................... 2,355,857 2,407,320
Nonbank subsidiaries............... 237,797 206,902
Goodwill, net of accumulated
amortization of $29,857 and
$27,559, respectively.............. 52,420 52,116
Other assets......................... 54,629 56,465
---------- ----------
Total assets....................... $3,219,479 $3,143,151
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Corporate long-term debt............. $ 541,776 $ 308,020
Accrued expenses and other
liabilities........................ 76,649 71,864
---------- ----------
Total liabilities.................. 618,425 379,884
Stockholders' equity................. 2,601,054 2,763,267
---------- ----------
Total liabilities and stockholders'
equity........................... $3,219,479 $3,143,151
========== ==========
33
36
NOTES TO FINANCIAL STATEMENTS (continued)
STATEMENTS OF INCOME
FOR THE CALENDAR YEAR
------------------------------------
(In Thousands) 1994 1993 1992
- ---------------------------------------------------------------------
INCOME
Dividends from:
Subsidiary banks............ $230,378 $ 715,869 $ 100,000
Nonbank subsidiaries........ 14,129 4,448 1,000
Interest on loans to
subsidiaries............... 5,250 4,431 2,788
Interest and dividends on
securities.................. 3,774 2,396 2,986
Security gains............... 1,995 970 5,657
Other income................. 3,462 7,969 --
--------- --------- ---------
Total income............... 258,988 736,083 112,431
EXPENSE
Interest on corporate long-
term debt................... 37,217 23,821 13,241
Goodwill amortization........ 2,298 2,138 2,081
Other expense................ 52,381 43,197 52,434
--------- --------- ---------
Total expense.............. 91,896 69,156 67,756
--------- --------- ---------
Income before taxes and
equity in undistributed
income of subsidiaries...... 167,092 666,927 44,675
Income tax (benefit)......... (44,513) (32,148) (20,207)
--------- --------- ---------
Income before equity in
undistributed net income of
subsidiaries................ 211,605 699,075 64,882
Equity in undistributed
(distributed) net income of
subsidiaries................ 217,829 (295,078) 282,041
--------- --------- ---------
Net income................. $429,434 $ 403,997 $ 346,923
========= ========= =========
STATEMENTS OF CASH FLOWS
FOR THE CALENDAR YEAR
------------------------------------
(In Thousands) 1994 1993 1992
- ---------------------------------------------------------------------
OPERATING ACTIVITIES
Net income................... $ 429,434 $ 403,997 $ 346,923
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed net
income of subsidiaries...... (217,829) 295,078 (282,041)
Amortization of goodwill..... 2,298 2,138 2,081
Decrease (increase) in
dividends receivable from
subsidiaries................ 55,669 (126,169) 45,500
Security gains............... (1,995) (970) (5,657)
Other, net................... (117,529) (13,294) 19,709
--------- --------- ---------
Net cash provided (used) by
operating activities...... 150,048 560,780 126,515
INVESTING ACTIVITIES
Net change in short-term
money market investments.... (26,750) (27,900) 70,000
Purchases of securities...... (65,508) (126,641) (41,983)
Sales and maturities of
securities.................. 39,518 69,833 41,164
Principal collected on loans
to subsidiaries............. 50,850 283,107 16,275
Loans to subsidiaries........ (25,805) (306,507) (21,925)
Investment in subsidiaries... (14,784) (119,006) (78,836)
Return of investment from
subsidiaries................ 168,000 -- --
--------- --------- ---------
Net cash provided (used) by
investing activities...... 125,521 (227,114) (15,305)
FINANCING ACTIVITIES
Repayment of corporate long-
term debt................... (13,324) (19,236) (513)
Proceeds from issuance of
long-term debt.............. 247,080 -- --
Common and preferred
dividends................... (195,090) (185,391) (146,881)
Issuance of common stock..... 23,221 28,469 36,211
Repurchase of stock.......... (340,053) (168,920) (1,118)
Shares distributed by ESOP... 8,093 9,691 4,835
--------- --------- ---------
Net cash provided (used) by
financing activities...... (270,073) (335,387) (107,466)
--------- --------- ---------
Increase (decrease) in cash
and demand balances due from
banks....................... 5,496 (1,721) 3,744
Cash and demand balances due
from banks, January 1....... 2,733 4,454 710
--------- --------- ---------
Cash and demand
balances due from banks,
December 31................. $ 8,229 $ 2,733 $ 4,454
========= ========= =========
SUPPLEMENTAL CASH FLOW
INFORMATION
Interest paid................. $ 30,000 $ 24,000 $ 13,000
Long-term debt assumed in
merger of subsidiaries...... -- 151,000 --
Shares issued in purchase
acquisitions and additional
investment in
subsidiaries................ -- 141,000 --
34
37
14. STOCK OPTIONS AND AWARDS
The Corporation was authorized in 1993 to grant options up to 10,000,000
shares of common stock under an employee stock option plan. The 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 generally become exercisable to the extent of either 25% or 50%
annually beginning one year from the date of grant.
The Corporation was authorized in 1991 to grant 1,000,000 shares of common
stock under a Restricted Stock Plan. These shares are issued to key employees
and directors of the Corporation. In general, the restrictions on directors'
shares granted after 1992 expire after nine months and restrictions on grants to
key employees expire over a four-year period. The Corporation generally
recognizes additional compensation expense over the restricted period.
A summary of the stock options and award activity follows:
Shares
--------------------------------------
Available
for Grant
---------- Outstanding Range of
Awards & ----------------------- Option Price
Options Awards Options per Share
- --------------------------------------------------------------------------------
January 1, 1992.... 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
Cancelled........ 97,800 (4,350) (93,450)
Exercised........ (4,400) (846,648) 6.31 - 24.88
Granted.......... (1,791,600) 92,800 1,698,800 26.50 - 26.88
---------- -------- ----------
December 31, 1994.. 8,620,008 327,800 8,083,551 $7.55 - $26.88
========== ======= ==========
At December 31, 1994 and 1993, options for 5,669,645 and 5,033,577 shares,
respectively, were exercisable at a price range of $7.55 to $24.88 and $6.31 to
$24.88 per share, respectively.
15. 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) 1994 1993
- ------------------------------------------------------------------
Projected benefit obligation:
Vested benefits.................... $ 263,515 $260,779
Nonvested benefits................. 10,983 14,237
---------- ---------
Accumulated benefit obligation..... 274,498 275,016
Effect of projected future
compensation levels.............. 68,910 73,199
---------- ---------
Projected benefit obligation......... 343,408 348,215
Plan's assets at fair value,
primarily stocks and bonds,
including $15.2 million and $14.4
million in the common stock of the
Corporation for 1994 and 1993,
respectively....................... 302,071 305,216
---------- ---------
Funded status - plan assets (less
than) projected benefit
obligation......................... $ (41,337) $(42,999)
========== ========
Comprised of:
Unrecognized net (losses).......... $ (24,803) $(28,327)
Unrecognized net assets being
recognized over 15 years......... 20,180 25,792
Less accrued pension liability on
balance sheet.................... 36,714 40,464
---------- ---------
$ (41,337) $(42,999)
========== =========
Assumptions used in the valuation of the defined benefit pension plan at its
year end (September 30) and the supplemental retirement plans follow:
1994 1993 1992
- --------------------------------------------------------------------
Weighted average discount rate...... 8.25% 7.25% 8.25%
Average assumed rate of compensation
increase.......................... 5.50 5.00 5.25
Long-term rate of return on
assets............................ 9.50 10.00 9.50
Net defined benefit pension plan costs include the following components:
FOR THE CALENDAR YEAR
--------------------------------
(In Thousands) 1994 1993 1992
- ---------------------------------------------------------------------
Service cost - benefits earned
during year...................... $ 17,681 $ 15,066 $ 14,344
Interest cost on projected benefit
obligation....................... 27,457 23,966 20,656
Actual (return) on plan assets..... (7,746) (25,072) (33,950)
Net amortization and deferral...... (23,209) (2,128) 9,417
-------- -------- --------
Net periodic pension cost.......... $ 14,183 $ 11,832 $ 10,467
======== ======== ========
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
1994, 1993, and 1992, the expenses related to this plan were $8,613,000,
$8,347,000, and $3,275,000, respectively.
35
38
NOTES TO FINANCIAL STATEMENTS (continued)
16. OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation has a benefit plan which offers postretirement medical and
life insurance benefits to all employees who have attained the age of 55 and
have at least 10 years of service (five years of service if age 65 or older.)
The medical portion is contributory and the life insurance coverage is
noncontributory to the participants. For any employee who retired on or after
April 1, 1989, the Corporation's medical contribution is fixed, based on years
of service and age at retirement. The accounting for the medical portion
anticipates contributions for retirees prior to April 1, 1989, to continue to
increase as a proportion of the total costs of the plan. The Corporation
reserves the right to terminate or make plan changes at any time.
The Corporation has no plan assets attributable to the 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) 1994 1993
- -------------------------------------------------------------------
Accumulated postretirement benefit
obligation:
Retirees............................... $ 29,406 $ 31,221
Fully eligible active plan
participants......................... 6,938 8,401
Other active plan participants......... 10,153 12,873
-------- --------
Accumulated postretirement benefit
obligation............................. 46,497 52,495
Unrecognized net gain (loss)............. 1,018 (7,072)
Unrecognized transition obligation....... (31,057) (32,980)
-------- --------
Accrued postretirement benefit cost...... $ 16,458 $ 12,443
======== ========
Net periodic postretirement benefit costs include the following components:
FOR THE CALENDAR YEAR
--------------------------------
(In Thousands) 1994 1993 1992
- --------------------------------------------------------------------
Service cost..................... $ 1,194 $1,067 $ 969
Interest cost.................... 3,933 3,622 3,534
Net amortization and deferral.... 2,172 1,981 1,923
------- ------ ------
Net periodic postretirement
benefit cost................... $ 7,299 $6,670 $6,426
======= ====== ======
Assumptions used in the valuation of the accumulated postretirement benefit
obligation at December 31 follow:
1994 1993 1992
- --------------------------------------------------------------------
Weighted average discount rate..... 8.50% 7.50% 8.50%
Average salary scale............... 5.50 5.00 5.25
The health care trend rate assumption only affects those participants
retired under the plan prior to April 1, 1989. The 1995 health care trend rate
is projected to be 12.0 percent for participants under 65 and 9.5 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.
17. 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.
The composition of income tax expense (benefit) follows:
FOR THE CALENDAR YEAR
-------------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------
Current:
Federal.............. $ 172,394 $ 135,598 $ 137,603
State................ 12,756 9,804 1,856
--------- --------- ---------
Total current....... 185,150 145,402 139,459
--------- --------- ---------
Deferred:
Federal.............. 1,343 23,140 (13,571)
State................ 1,761 (1,577) (8,518)
--------- --------- ---------
Total deferred...... 3,104 21,563 (22,089)
--------- --------- ---------
Tax expense........... $ 188,254 $ 166,965 $ 117,370
========= ========= =========
Tax expense applicable
to security
transactions......... $ 3,748 $ 4,173 $ 8,797
========= ========= =========
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
-----------------------
1994 1993 1992
- ------------------------------------------------------
Statutory rate.............. 35.0% 35.0% 34.0%
Life insurance.............. (3.0) (2.6) (2.1)
Tax-exempt income........... (2.9) (3.8) (5.5)
Other....................... 1.4 .6 (1.1)
----- ---- ----
Effective tax rate......... 30.5% 29.2% 25.3%
===== ==== =====
Significant components of the Corporation's deferred tax liabilities and
assets as of December 31 are as follows:
(In Thousands) 1994 1993
- ---------------------------------------------------------------
Deferred tax liabilities:
Lease accounting.................... $ 74,232 $ 68,984
Depreciation........................ 18,145 17,109
Other - net......................... 50,071 35,649
--------- --------
Total deferred tax liabilities..... 142,448 121,742
Deferred tax assets (liabilities):
Provision for losses................ 164,157 155,697
Mark to market adjustments.......... 28,458 (27,054)
Pension............................. 12,708 23,520
Other - net......................... 46,002 34,273
--------- --------
Total deferred tax assets.......... 251,325 186,436
--------- --------
Net deferred tax assets.............. $ 108,877 $ 64,694
========= ========
36
39
18. OFF-BALANCE SHEET FINANCIAL AGREEMENTS
The Corporation uses a variety of off-balance sheet financial instruments
such as interest rate swaps, futures, options, forwards, and cap and floor
contracts. These financial agreements, frequently called interest rate
derivatives, enable the Corporation to efficiently manage its exposure to
changes in interest rates. The Corporation also enters into derivative contracts
on behalf of customers, however, such activity was not significant in 1994 and
1993.
As with any financial instrument, derivatives have inherent risks. Market
risk represents the risk of gains and losses that result from changes in
interest rates. These gains and losses may be offset by other on- or off-balance
sheet transactions. Credit risk is the risk that a counterparty to a derivative
contract with an unrealized gain fails to perform according to the terms of the
agreement. Credit risk can be measured as the cost of acquiring a new
derivative agreement with cash flows identical to those of a defaulted
agreement in the current interest rate environment. The 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. The
Corporation has established bilateral collateral agreements with its major
off-balance sheet counterparties that provide for exchanges of marketable
securities to collateralize either party's unrealized gains. On December 31,
1994, these collateral agreements covered 93% of the notional amount of the
derivative portfolio and the Corporation had delivered U.S. government and
agency securities with market value of $141 million to various counterparties
to collateralize unrealized losses. The Corporation has never experienced, nor
does it have any reason to expect, a credit loss associated with any interest
rate derivative.
On December 31, 1994 the total notional amount of the Corporation's interest
rate swap portfolio used to manage its interest rate sensitivity was $6.2
billion, which is an increase of $406.5 million from December 31, 1993. The
Corporation uses receive fixed interest rate swaps to convert variable rate
loans and securities into synthetic fixed rate instruments and to convert fixed
rate funding sources into synthetic variable rate funding instruments. The
Corporation decreased its use of receive fixed rate interest rate swaps during
the year in anticipation of higher interest rates across the entire yield curve.
During 1994, the Corporation entered into $1.5 billion of receive fixed interest
rate swaps with a weighted initial expected maturity of 2.1 years. During 1994,
$2.3 billion of receive fixed interest rate swaps matured or amortized.
The Corporation uses pay fixed interest rate swaps to convert fixed rate
loans and securities into synthetic variable rate instruments and to convert
variable rate funding sources into synthetic fixed rate funding instruments. The
Corporation increased its use of these swaps during the year in anticipation of
higher interest rates across the entire yield curve. During 1994, the
Corporation entered into $873 million of pay fixed interest rate swaps, with
weighted initial expected maturity of 2.5 years. During 1994, $201 million of
pay fixed interest rate swaps matured and $250 million of pay fixed interest
rate swaps were terminated prior to maturity. These terminations generated
pre-tax gains of $2.2 million which have been deferred and will be amortized
into income over the next 26 months.
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, 1994 was $1.3
billion in notional amount with an average maturity of 5.4 years and $3.3
million of net unrealized losses.
During 1994, the Corporation purchased $2 billion of interest rate cap
corridors to help protect its net interest margin in the event of an increase in
short term interest rates. These cap contracts will pay the Corporation 1.0% per
annum over their life when three month Eurodollar rates are between 6.13% and
7.50%. As of December 31, 1994, these interest rate cap corridors had an average
maturity of 1.6 years and $1.9 million in net unrealized gains.
As of December 31, 1994 the Corporation had no derivative contracts
outstanding that were hedging anticipated transactions.
Summary information with respect to the Corporation's interest rate
derivative portfolio used for risk management purposes follows:
37
40
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1994
------------------------------------------------------------------------------------------------ DECEMBER 31,
WEIGHTED AVERAGE 1993
---------------------------------------------------- -------------
NOTIONAL UNREALIZED UNREALIZED RECEIVE PAY STRIKE LIFE NOTIONAL
(In Thousands) AMOUNT GROSS GAINS GROSS LOSSES RATE RATE RATE (YEARS) AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE
SWAPS:
Receive fixed
indexed
amortizing
swaps......... $2,879,798 $ -- $(172,435) 5.23% 5.75% N/A 2.1 $ 4,304,800
Receive fixed
swaps......... 1,515,000 2,409 (42,309) 7.06 6.25 N/A 2.7 905,027
Pay fixed
swaps......... 787,200 18,430 (2,236) 6.15 7.00 N/A 1.8 365,700
Basis swaps..... 1,000,000 215 (1,669) 6.35 5.76 N/A 1.3 200,000
---------- ------------ ------------- -------------
Total interest
rate
swaps....... 6,181,998 21,054 (218,649) 5.98 6.03 5,775,527
INTEREST RATE CAPS
AND FLOORS:
Interest rate
floors
purchased..... 1,281,253 60 (3,323) N/A N/A 5.68% 5.4 850,000
Interest rate
cap corridors
purchased..... 2,000,000 2,127 (256) N/A N/A 6.13% to 7.50% 1.6 --
Forward interest
rate cap
corridors
purchased..... 300,000 -- (62) N/A N/A 8.50% to 9.75% 1.3 --
Interest rate
caps sold..... 171,000 -- (43) N/A N/A 12.00% 2.3 190,000
---------- ------------ ------------- -------------
Total interest
rate caps &
floors...... 3,752,253 2,187 (3,684) 1,040,000
---------- ------------ ------------- -------------
Total interest
rate swaps,
caps &
floors...... $9,934,251 $ 23,241 $(222,333) $ 6,815,527
========== ============ ============= ===============
The variable rates in the Corporation's interest rate swap contracts are
primarily based on the three month Eurodollar rate. The average variable rates
included in the table above are those in effect in the specific contracts at
December 31, 1994.
The following table details the expected notional maturities of the
Corporation's portfolio of off-balance sheet instruments at December 31, 1994:
GREATER
LESS THAN 1 TO 3 3 TO 5 THAN 5
(In Thousands) 1 YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------------------------------------------------------------
Receive fixed indexed amortizing swaps.............................. $ 411,311 $1,269,222 $1,199,265 $ --
Receive fixed swaps................................................. 590,000 540,000 145,000 240,000
Pay fixed swaps..................................................... 82,200 682,000 23,000 --
Basis swaps......................................................... -- 1,000,000 -- --
Interest rate floors purchased...................................... -- 250,000 231,253 800,000
Interest rate cap corridors purchased............................... -- 2,000,000 -- --
Forward interest rate cap corridors purchased....................... -- 300,000 -- --
Interest rate caps sold............................................. -- 171,000 -- --
---------- ---------- ---------- ----------
Total............................................................. $1,083,511 $6,212,222 $1,598,518 $1,040,000
=========== ========== ========== ==========
The Corporation also enters into forward contracts related to its mortgage
banking business. At December 31, 1994 and 1993, the Corporation had commitments
to sell mortgages totalling $42.4 million and $836.8 million, respectively.
These contracts mature in less than one year.
In the normal course of business, the Corporation makes various commitments
to extend credit which are not reflected in the balance sheet. A summary of
these commitments follows:
DECEMBER 31
--------------------
(In Millions) 1994 1993
- ---------------------------------------------------------
Commitments to extend credit..... $ 7,411 $ 6,567
Standby letters of credit........ 861 1,242
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.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information is contained on page 22.
38
41
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 1994 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, 1994 Commission file number 1-10074
NATIONAL CITY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization)
34-1111088 (I.R.S. Employer Identification No.)
1900 East Ninth Street, Cleveland, Ohio
(Address of principal executive offices)
44114-3484 (Zip Code)
Registrant's telephone number, including area code, 216-575-2000
Securities registered pursuant to Section 12(b) of the Act:
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 Common Stock, $4.00 Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
State the aggregate market value of the voting stocks held by nonaffiliates
of the registrant as of December 31, 1994-$3,750,882,000
Indicate the number of shares outstanding of each of the registrant's classes of
common stock,
as of December 31, 1994.
Common Stock, $4.00 Per Share -- 147,555,632
Documents Incorporated By Reference:
Portions of the registrant's Proxy Statement (to be dated approximately March 6,
1995) 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.
39
42
FORM 10-K (continued)
FORM 10-K CROSS REFERENCE INDEX
Pages
---------
PART I
Item 1 -- Business
Description of Business................... 40
Average Balance Sheets/Interest/Rates..... 20-21
Volume and Rate Variance Analysis......... 14
Securities................................ 8-9
Loans..................................... 6-8
Risk Elements of Loan Portfolio........... 16-18
Loan Loss Experience...................... 16-18
Allocation of Allowance for Loan Losses... 16-18
Deposits.................................. 9, 20-21
Financial Ratios.......................... 19
Short-Term Borrowings..................... 9, 32
Item 2 -- Properties....................... 41
Item 3 -- Legal Proceedings................ 41
Item 4 -- Submission of Matters to a Vote
of Security Holders - None
PART II
Item 5 -- Market for the Registrant's
Common Equity and Related
Stockholder Matters............ 10
Item 6 -- Selected Financial Data.......... 19
Item 7 -- Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 5-18
Item 8 -- Financial Statements and
Supplementary Data............. 24-38
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............... 41
Compliance with Section 16(a) of
the Securities Exchange Act -
Note (1)
Item 11 -- Executive Compensation - Note (1)
Item 12 -- Security Ownership of Certain
Beneficial Owners and
Management - Note (1)
Item 13 -- Certain Relationships and Related
Transactions - Note (1)
PART IV
Item 14 -- Exhibits, Financial Statement
Schedules and Reports on Form
8-K
Report of Ernst & Young LLP,
Independent Auditors........... 23
Financial Statements:
Consolidated Statements of Income
- Calendar Years 1994, 1993 and
1992........................... 24
Consolidated Balance Sheets -
December 31, 1994 and 1993..... 25
Consolidated Statements of Cash
Flows - Calendar Years 1994,
1993 and 1992.................. 26
Consolidated Statements of
Changes in Stockholders' Equity
- Calendar Years 1994, 1993,
and 1992....................... 27
Notes to Financial Statements................. 28-38
Signatures.................................... 42
Reports on Form 8-K filed in the fourth quarter of 1994: Form 8-K dated December
29, 1994 announcing the acquisition of Central Indiana Bancorp effective
January 1, 1995.
Exhibits -- The index of exhibits has been filed as separate pages of the 1994
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 6, 1995.
- -------------------------------------------------------------------------------
BUSINESS
At December 31, 1994, National City Corporation ("National City" or "the
Corporation") was the third largest bank holding company headquartered in the
State of Ohio and approximately the 28th largest in the United States on the
basis of total assets. National City owns and operates 10 commercial banks
having a total of 614 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 44 and 45) 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 20,306 full-time
equivalent employees at December 31, 1994.
COMPETITION
The banking business is highly competitive. The banking subsidiaries of
National City compete actively with national and state banks, savings and loan
associations, securities dealers, mortgage bankers, finance companies, insurance
companies and other financial service entities.
SUPERVISION AND REGULATION
National City is subject to regulation under the Bank Holding Company Act of
1956, as amended (the "Act"). The Act requires the prior approval of the Federal
Reserve Board for a bank holding company to acquire or hold more than a 5%
voting interest in any bank, and restricts interstate banking activities. On
September 29, 1994, the Act was amended by The Interstate Banking and Branch
Efficiency Act of 1994 which authorizes interstate bank acquisitions anywhere in
the country, effective one year after the date of enactment and interstate
branching by acquisition and consolidation, effective June 1, 1997 in those
states that have not opted out by that date. The impact of this amendment on the
Corporation cannot be measured at this time.
The Act restricts National City's nonbanking activities to those which are
determined by the Federal Reserve
40
43
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 13 on page 33.
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 20, 1995) are as
follows:
Name Age Position
- ----------------------------------------------------------
Edward B. Brandon 63 Chairman and Chief
Executive Officer
David A. Daberko 49 President and Chief
Operating Officer
William R. Robertson 53 Deputy Chairman
Morton Boyd 58 Executive Vice President
Vincent A. DiGirolamo 57 Executive Vice President
Gary A. Glaser 50 Executive Vice President
Jon L. Gorney 44 Executive Vice President
Charles W. Hall 50 Executive Vice President
Jeffrey D. Kelly 41 Executive Vice President
William E. MacDonald III 48 Executive Vice President
Robert J. Ondercik 48 Executive Vice President
Robert G. Siefers 49 Executive Vice President
and Chief Financial
Officer
Harold B. Todd, Jr. 53 Executive Vice President
Thomas W. Owen 63 Senior Vice President
and General Auditor
Thomas A. Richlovsky 43 Senior Vice President
and Treasurer
David L. Zoeller 45 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. Kelly was appointed an executive vice president of the Corporation in
1994. Prior to that time he was a senior vice president of the Corporation since
1990 and a senior vice president of National City Bank in Cleveland from 1987 to
1990.
Mr. Ondercik was appointed an executive vice president of the Corporation in
1994. Prior to that time he was a senior vice president of the Corporation since
1991 and a senior vice president of National City Bank in Cleveland from
1989-1991.
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 in Cleveland from 1988 to
1991.
Each of the remaining officers listed above has been an executive officer of
the Corporation or one of its subsidiaries during the past five years.
41
44
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on January 20, 1995.
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 20, 1995.
/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 and Treasurer
Officer
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
Charles H. Bowman Joseph H. Lemieux
Edward B. Brandon A. Stevens Miles
John G. Breen Burnell R. Roberts
David A. Daberko William R. Robertson
Daniel E. Evans Morry Weiss
/S/ David L. Zoeller
--------------------------------------
By David L. Zoeller
Attorney-in-fact
42
45
MAJOR BANKING MARKETS
[MAP]
TOLEDO
CLEVELAND
AKRON
YOUNGSTOWN
INDIANAPOLIS
COLUMBUS
DAYTON
LOUISVILLE
LEXINGTON
43
46
CORPORATE DIRECTORY
MEMBER BANKS
(Number of Banking Offices)
OHIO
National City Banks
CLEVELAND (97)
National City Bank
William E. MacDonald, III
President & CEO
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
COLUMBUS (125)
National City Bank, Columbus
Gary A. Glaser
President & CEO
155 East Broad Street
Columbus, Ohio 43251
(614) 463-7100
AKRON/YOUNGSTOWN (82)
National City Bank, Northeast
J. Christopher Graffeo
President & CEO
One Cascade Plaza
Akron, Ohio 44308-1198
(216) 375-8450
DAYTON (38)
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 & CEO
10 West Second Street
Ashland, Ohio 44805-0218
(419) 289-2112
KENTUCKY
National City Bank, Kentucky
LOUISVILLE (76)
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
301 East Main Street
Lexington, Kentucky 40507-4400
(606) 281-5100
INDIANA
National City Bank, Indiana
INDIANAPOLIS (125)
Vincent A. DiGirolamo
President & CEO
101 West Washington Street, Suite 400E
Indianapolis, Indiana 46255
(317) 267-7000
NATIONAL CITY BANK, SOUTHERN INDIANA
NEW ALBANY (14)
David W. Fennell
Chairman, President & CEO
320 Pearl Street
P.O. Box 1247
New Albany, Indiana 47150-1247
(812) 948-4400
MADISON BANK AND TRUST COMPANY
MADISON (5)
Madison Bank and Trust Company
Raymond J. Bartnick
President & CEO
213-215 East Main Street
Madison, Indiana 47250
(812) 265-5121
OTHER UNITS
BROKERAGE AND INVESTMENT SERVICES
NATIONAL CITY
INVESTMENTS CAPITAL, INC.
William H. Schecter
Chairman
1965 East Sixth Street
Cleveland, Ohio 44114
(216) 575-9590
OFFICES: Cleveland, Columbus,
Indianapolis,
Louisville
NATIONAL CITY CAPITAL CORPORATION
NATIONAL CITY VENTURE CORPORATION
William H. Schecter
President
1965 East Sixth Street
Cleveland, Ohio 44114
(216) 575-3340
NATIONAL CITY
INVESTMENTS CORPORATION
David W. Dunning
Managing Director
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-3495
1-800-624-6450
OFFICES: Akron, Cleveland,
Columbus, Dayton,
Indianapolis,
Louisville, Toledo
44
47
OTHER UNITS
(Continued)
NATIONAL ASSET MANAGEMENT CORPORATION
Irvin W. Quesenberry, Jr.
Managing Director & Principal
WILLIAM F. CHANDLER, JR.
Managing Director & Principal
P.O. Box 36010
Louisville, Kentucky 40233
(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, Youngstown
CREDIT CARD SERVICES
NATIONAL CITY CARD SERVICES
G. Brent Bostick
President
4661 East Main Street
Columbus, Ohio 43213
(614) 863-8046
FUNDING
NATIONAL CITY CREDIT CORPORATION
Jeffrey D. Kelly
Executive 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
Chairman & CEO
Tony G. Holcombe
President
1231 Durrett Lane
Louisville, Kentucky
40285-0001
(502) 364-2000
LEASING
NATIONAL CITY LEASING CORPORATION
J. Edward Vittitow
Senior Vice President
101 South Fifth Street
Louisville, Kentucky
40202-3101
(502) 581-7679
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, Birmingham,
Cary (NC), Charlotte,
Cincinnati, Columbia
(SC), Columbus,
Dayton, Detroit,
Falls Church (MD),
Frederick (MD),
Greensboro (NC),
Greenville (SC),
Greenwood (IN),
Indianapolis,
Knoxville (TN),
Lexington, Raleigh,
Richmond, Roanoke,
Springfield (OH),
Toledo, Towson (MD),
Troy (OH), Virginia
Beach, Wethersfield
(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
Senior Trust Executive
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2262
Offices: All National City
Banks
NATIONAL CITY TRUST COMPANY (FLORIDA)
Ellen J. Abrams
President & CEO
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
48
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
Healthcare Services Division
Caremark Inc.
JAMES M. BIGGAR (1, 2, 3)
Chairman & CEO
Glencairn Corporation
CHARLES H. BOWMAN (6)
Chief Executive Officer
BP America Inc.
JOHN G. BREEN (3, 4, 5)
Chairman & CEO
The Sherwin-Williams Company
RICHARD E. DISBROW (1, 3, 6)
Retired Chairman & CEO
American Electric Power
Service Corporation
DANIEL E. EVANS (1, 6)
Chairman & CEO
Bob Evans Farms, Inc.
OTTO N. FRENZEL III
Chairman
National City Bank, Indiana
COMMITTEES
(1) Audit Committee
(2) Dividend Committee
(3) Executive Committee
(4) Nominating Committee
(5) Organization & Compensation Committee
(6) Public Policy Committee
46
49
JOSEPH H. LEMIEUX (3,5)
Chairman & CEO
Owens-Illinois, Inc.
A. STEVENS MILES (4)
Retired President
National City Corporation
BURNELL R. ROBERTS (2,3,5)
Retired Chairman & CEO
The Mead Corporation
STEPHEN A. STITLE (3,4,5)
Vice President
Eli Lilly and Company
MORRY WEISS (1,4)
Chairman & CEO
American Greetings Corporation
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
JOHN L. GORNEY
Information Services
& Operations
CHARLES W. HALL
Trust
JEFFREY D. KELLY
Investments
WILLIAM E. MACDONALD III
Cleveland Banking
ROBERT J. ONDERCIK
Credit Administration
ROBERT G. SIEFERS
Chief Financial Officer
HAROLD B. TODD, JR.
Administration
SENIOR VICE PRESIDENTS
W. DOUGLAS BANNERMAN
Corporate Banking
MARY H. GRIFFITH
Marketing Communications
JOSEPH J. HERR
Loan Review
ANTHONY N. MCEWEN
Retail Product Management
GARY P. OBERS
Corporate Services
THOMAS W. OWEN
General Auditor
DONNA M. PACCHIONI
Corporate Accounting
A. JOSEPH PARKER
Retail Business Line
Management
J. ARMANDO RAMIREZ
Mergers & Acquisitions
PHILIP L. RICE
Strategic Planning
THOMAS A. RICHLOVSKY
Treasurer
WILLIAM H. SCHECTER
Investment Banking
SHELLEY J. SEIFERT
Human Resources
THEODORE H. TUNG
Economist
ALLEN C. WADDLE
Public Affairs
PATRICK D. WALSH
Information Systems
DAVID L. ZOELLER
General Counsel & Secretary
47
50
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
NATIONAL CITY CENTER
1900 EAST NINTH STREET
CLEVELAND, OHIO 44114-3484
(216) 575-2000
TRANSFER AGENT AND REGISTRAR
NATIONAL CITY BANK
CORPORATE TRUST OPERATIONS
DEPARTMENT 5352
4100 WEST 150TH STREET
CLEVELAND, OHIO 44135-1385
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.
PREFERRRED 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.
DIRECT DEPOSIT OF DIVIDENDS
A program for direct deposit of dividends is available to stockholders of
the Corporation. This program which is offered at no charge, provides for the
deposit of quarterly dividends directly to a checking or savings account. For
information regarding this program, call 1-800-622-6757.
DEBT RATINGS
MOODY'S STANDARD & POOR'S DUFF & PHELPS THOMSON BANKWATCH
National City Corporation A/B
Commercial paper (short-term debt) P-1 A-1 D-1+ TBW1
Senior debt A1 A AA-
Subordinated debt A2 A- A+
Preferred stock "a1" BBB+ A
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 Aa3 A+ AA
Subordinated Bank Notes:
National City Bank - Cleveland A1 A AA-
National City Bank, Columbus A1 A AA-
51
[Back Cover Blank]
52
NATIONAL CITY Corporation First Class
1900 East Ninth Street U.S. Postage
Cleveland, Ohio 44114-3484 P A I D
National City
Corporation
53
NATIONAL CITY CORPORATION
PART IV, ITEM 14: EXHIBIT INDEX
(2.1) Agreement and Plan of Merger dated as of July 25, 1994 by and
between Registrant and Central Indiana Bancorp (filed as Appendix
A to the Prospectus and Proxy Statement filed as a part of
Registration Statement No. 33-56539 dated November 18, 1994 and
incorporated herein by reference).
(3.1) The Restated Certificate of Incorporation of the Registrant as
amended (filed as Exhibit 3.1 to Registration Statement No.
33-49823 and incorporated herein by reference).
(3.2) Registrant's First Restatement of By-laws adopted April 27, 1987
As Amended through October 24, 1994 (filed as Exhibit 3.2 to
Registrant's Form S-4 Registration Statement #33-56539 dated
November 18, 1994 and incorporated herein by reference).
(4.1) Credit Agreement, dated as of December 31, 1988, between
Registrant and the banks named therein (filed as Exhibit 4.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, and incorporated herein by reference).
(4.2) Instruments defining the rights of holders of certain long-term
debt of the Registrant and its consolidated subsidiaries are not
filed as exhibits because the amount of debt under such
instruments is less than 10% of the consolidated total assets of
the Registrant. Registrant undertakes to file these instruments
with the Commission upon request.
(4.3) Certificate of Stock Designation, dated April 18, 1991,
designating the Corporation's 8% Cumulative Convertible Preferred
Stock, without par value, and fixing the powers, preferences,
rights, qualifications, limitations and restrictions thereof in
addition to those set forth in the Corporation's Restated
Certificate of Incorporation, as amended, (filed as Exhibit 4.4
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference).
(10.1) National City Corporation Short-Term Incentive Compensation Plan
for Senior Officers, As Amended and Restated Effective January 1,
1995.
(10.2) National City Corporation Long-Term Incentive Compensation Plan
for Senior Officers, As Amended and Restated Effective January 1,
1995.
(10.3) National City Corporation's Amended and Restated 1973 Stock
Option Plan, as amended (filed as Exhibit 10.4 to Registration
Statement No. 2-91434) and amended 1984 Stock Option Plan (filed
as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987; both incorporated herein
by reference).
54
(10.4) National City Corporation Plan for Deferred Payment of Directors'
Fees, as amended (filed as Exhibit 10.5 to Registration Statement
No. 2-914334 and incorporated herein by reference).
(10.5) National City Corporation Supplemental Executive Retirement Plan,
As Amended and Restated Effective January 1, 1995.
(10.6) National City Corporation 1989 Stock Option Plan (filed as
Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, and incorporated herein by
reference).
(10.7) National City Corporation 1993 Stock Option Plan (filed as
Exhibit 10.5 to Registration Statement No. 33-49823 and
incorporated herein by reference).
(10.8) First Kentucky National Corporation 1985 Stock Option Plan (filed
as Exhibit 10.2 to First Kentucky National Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,
and incorporated herein by reference).
(10.9) National City Corporation Executive Savings Plan, As Amended and
Restated Effective January 1, 1995.
(10.10) First Kentucky National Corporation 1982 Stock Option Plan (filed
as Exhibit 10.3 to First Kentucky National Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,
and incorporated herein by reference).
(10.11) National City Corporation Amended and Restated 1991 Restricted
Stock Plan (filed as Exhibit 10.5 to Registration Statement No.
33-49823 and incorporated herein by reference).
(10.12) Form of grant made under National City Corporation 1991
Restricted Stock Plan made in connection with National City
Corporation Supplemental Executive Retirement Plan as amended
(filed as Exhibit 10.10 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
(10.13) Amended Employment Agreement dated July 21, 1989 by and between
Merchants National Corporation or a subsidiary and Otto N.
Frenzel, III (filed as Exhibit 10(21) to Merchants National
Corporation Annual Report of Form 10-K for the fiscal year ended
December 31, 1987 and incorporated herein by reference).
-2-
55
(10.14) Split Dollar Insurance Agreement dated January 4, 1988 between
Merchants National Corporation and Otto N. Frenzel, III
Irrevocable Trust II (filed as Exhibit 10(26) to Merchants
National Corporation Annual Report on Form 10-K the fiscal year
ended December 31, 1989 and incorporated herein by reference).
(10.15) Merchants National Corporation Director's Deferred Compensation
Plan, as amended and restated August 16, 1983 (filed as Exhibit
10(3) to Merchants National Corporation Registration Statement as
Form S-2 filed June 28, 1985 and incorporated herein by
reference).
(10.16) Merchants National Corporation Supplemental Pension Plan dated
November 20, 1984; First Amendment to the Supplemental Pension
Plans dated January 21, 1986; Second Amendment to the
Supplemental Pension Plans dated July 3, 1989; and Third
Amendment to the Supplemental Pension Plans dated November 21,
1990 (filed respectively as Exhibit 10(n) to Merchants National
Corporation Annual Report on Form 10-K for the year ended
December 31, 1984; as Exhibit 10(q) to the Merchants National
Corporation Annual Report on Form 10-K for the year ended
December 31, 1985; as Exhibit 10(49) to Merchants National
Corporation Annual Report on Form 10-K for the year ended
December 31, 1990; and as Exhibit 10(50) to the Merchants
National Corporation Annual Report on Form 10-K for the year
ended December 31, 1990; all incorporated herein by reference).
(10.17) Merchants National Corporation Employee Benefit Trust Agreement,
effective July 1, 1987 (filed as Exhibit 10(27) to Merchants
National Corporation Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by reference).
(10.18) Merchants National Corporation Non-qualified Stock Option Plan
effective January 20, 1987, and the first Amendment to that
Merchants National Non-qualified Stock Option Plan, effective
October 16, 1990 (filed respectively as Exhibit 10(23) to
Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1986, and as Exhibit 10(55) to Merchants
National Corporation Annual Report on Form 10-K for the year
ended December 31, 1990, both of which are incorporated herein by
reference).
(10.19) Merchants National Corporation 1987 Non-qualified Stock Option
Plan, effective November 17, 1987, and the First Amendment to
Merchants National Corporation 1987 Non-qualified Stock Option
Plan, effective October 16, 1990, (filed respectively as Exhibit
10(30) to Merchants National Corporation Annual Report on Form
10-K for the year ended December 31, 1987 and as Exhibit 10(61)
to Merchants National Corporation Annual
-3-
56
Report on Form 10-K for the year ended December 31, 1990, both of
which are incorporated herein by reference).
(10.20) Merchants National Corporation Directors Non-qualified Stock
Option Plan and the First Amendment to Merchants National
Corporation Directors Non-qualified Stock Option Plan effective
October 16, 1990 (filed respectively as Exhibit 10(44) to
Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1988 and as Exhibit 10(68) to Merchants
National Corporation Annual Report on Form 10-K for the year
ended December 31, 1990, both of which are incorporated herein by
reference).
(10.21) National City Corporation Annual Corporate Performance Incentive
Plan, Effective January 1, 1995.
(10.22) Contracts with Edward B. Brandon, David A. Daberko, William R.
Robertson, William E. MacDonald III, Charles W. Hall, Jon L.
Gorney, Harold B. Todd, Jr., Robert G. Siefers, Robert J.
Ondercik, Jeffrey D. Kelly, David L. Zoeller, Thomas A.
Richlovsky, Thomas W. Owen, Gary A. Glaser, Vincent A. DiGirolamo
and Morton Boyd in the form set forth in Exhibit 10.22.
(10.23) Contracts with 31 key employees in the form set forth in
Exhibit 10.23.
(10.24) The National City Savings and Investment Plan, As Amended and
Restated Effective July 1, 1992.
(10.25) The National City Savings and Investment Plan No. 2, As Amended
and Restated Effective January 1, 1992.
(10.26) Central Indiana Bancorp Stock Option Plan effective March 15,
1991.
(10.27) Central Indian Bancorp 1993 Stock Option Plan effective October
12, 1993.
(10.28) Split Dollar Insurance Agreement effective January 1, 1994
between National City Corporation and those individuals listed
in Exhibit 10.22 and other key employees.
(11) Computation of Earnings Per Share.
(21) Subsidiaries
(23) Consent of Ernst & Young LLP Independent Auditors
(24) Powers of Attorney
(27.1) Financial Data Schedule
-4-