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