-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ncBW1MrcCzQzZFaN/vFmBtGDpluTAJi9c8A1t93Dawasjdu2bQjq9Tvr4ZdXr2ie WkxtrpxFacv6QCd0e8W9MA== 0000950152-94-000057.txt : 19940201 0000950152-94-000057.hdr.sgml : 19940201 ACCESSION NUMBER: 0000950152-94-000057 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL CITY CORP CENTRAL INDEX KEY: 0000069970 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 341111088 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10074 FILM NUMBER: 94503841 BUSINESS ADDRESS: STREET 1: 1900 E NINTH ST CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2165752000 10-K 1 NATIONAL CITY CORP. 10-K 1 National City Corporation Logo 1993 Annual Report 2 FINANCIAL HIGHLIGHTS
(Dollars in Thousands Except Per Share Amounts) 1993 1992 Percent Change - ------------------------------------------------------------------------------------------ FOR THE YEAR: Net Income $403,997 $346,923 16% Preferred Dividend Requirements 15,966 16,000 -- Net Income Applicable to Common Stock 388,031 330,923 17 Net Income Per Common Share 2.41 2.09 15 Dividends Paid Per Common Share 1.06 .94 13 Return on Average Common Equity 16.12% 15.31% Return on Average Assets 1.40 1.21 Net Interest Margin 4.80% 4.65% Efficiency Ratio 66.21 68.22 Overhead Ratio 44.34 48.93 AT YEAR-END: Assets $31,067,709 $28,963,473 7% Loans 21,286,141 18,737,565 14 Securities 5,166,226 5,498,539 (6) Deposits 23,063,021 22,585,324 2 Common Stockholders' Equity 2,564,957 2,299,886 12 Stockholders' Equity 2,763,267 2,499,886 11 Equity to Assets Ratio 8.89% 8.63% Tier 1 Capital Ratio 8.94 9.90 Total Risk-Based Capital Ratio 11.62 12.23 Leverage Ratio 8.18 8.22 Book Value Per Common Share $16.15 $14.54 11% Market Value Per Common Share 24.50 24.81 (1) Common Shares Outstanding 158,779,611 158,167,180 -- Common Stockholders of Record 20,842 18,318 14% Full-Time Equivalent Employees 19,960 18,766 6 Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
- -------------------------------------------------------------------------------- CONTENTS - -------------------------------------------------------------------------------- Financial Highlights INSIDE FRONT COVER Notes to Financial Statements 26 - -------------------------------------------------------------------------------- Letter to Stockholders 1 Quarterly Data 36 - -------------------------------------------------------------------------------- Financial Review 4 Form 10-K 37 - -------------------------------------------------------------------------------- Statistical Data 19 Corporate Directory 41 - -------------------------------------------------------------------------------- Financial Statements 22 Board of Directors/Officers 43 ================================================================================
CORPORATE PROFILE National City Corporation is a $31 billion bank holding company headquartered in Cleveland, Ohio. The Corporation's principal banking subsidiaries are located in Cleveland, Columbus, Indianapolis, and Louisville. Other member banks are located in Akron, Dayton, Lexington, Toledo, and Youngstown. National City subsidiaries and divisions offer a wide range of other financial services, such as credit card, retail payment and airline ticket processing, brokerage services, trust and investment management, leasing, merchant and mortgage banking, public finance, venture capital, small business and community investment, and credit life insurance. - --------------------------------------------------------------- ANNUAL MEETING The Annual Meeting of Stockholders will be on Monday, April 25, 1994, at 10:00 a.m.: COVER: National City Corporation Major markets 1900 East Ninth Street, 4th floor Cleveland, Ohio 44114 3 TO OUR STOCKHOLDERS We are pleased to report that continued improvements in credit quality and expense control and the successful assimilation of acquisitions resulted in record earnings for 1993. Net income for 1993 was $404.0 million, or $2.41 per common share, compared with $346.9 million or $2.09 per common share in 1992, an increase of 15.3 percent per share. In recognition of this strong performance, the Board of Directors increased the quarterly dividend, payable February 1, 1994, to $.29 per share. This follows two dividend increases in 1993. The new quarterly dividend indicates an annual rate of $1.16 per share, 11.5 percent higher than a year ago. Return on average assets rose to 1.40 percent, compared with 1.21 percent last year, and return on average common equity rose to 16.12 percent, compared with 15.31 percent a year ago. These returns are among the best in the banking industry and are higher than the Corporation's historical returns. The return on common equity is of particular significance, given that National City has one of the strongest capital positions in the industry. To better manage the capital position and assure continued high returns, two stock repurchase programs were authorized in 1993. The ongoing from left: David A. Daberko President & Chief Operating Officer Edward B. Brandon Chairman & Chief Executive Officer William R. Robertson Deputy Chairman
acquisition of shares is tangible evidence of our commitment to stockholder value. National City's provision for loan losses and other credit quality costs continued to decline throughout 1993, with the provision at $93.1 million for the year, compared with $129.4 million in 1992. Nonperforming assets, which have declined steadily over the past three years, totaled $209.2 million at year-end 1993, down 43 percent from a year ago; nonperforming assets at year-end represented less than one percent of total loans and foreclosed real estate. While the banking industry overall has shown "...NATIONAL CITY HAS ONE OF THE STRONGEST CAPITAL POSITIONS IN THE INDUSTRY. TO BETTER MANAGE THIS CAPITAL POSITION ... TWO STOCK REPURCHASE PROGRAMS WERE AUTHORIZED IN 1993. THE ONGOING ACQUISITION OF SHARES IS TANGIBLE EVIDENCE OF OUR COMMITMENT TO STOCKHOLDER VALUE." 4 marked improvement in asset quality, National City's asset quality has improved at a faster pace than that of our peer group. Loan growth was relatively slow in 1993, with the exception of resi- dential mortgages. The reported year-end loan totals were bolstered by the October 1993 purchase of Ohio Bancorp, a $1.6 billion bank holding company headquartered in Youngstown, Ohio. Net interest margins for the year remained robust. In 1994, we expect that an improving economy will generate better loan volume, but at narrower spreads. REDUCING NONINTEREST EXPENSE Last year we successfully completed an internal cost reduction program called "Vision" and Captured additional expense savings associated with the acquisition of National City Bank, Indiana (formerly Merchants National Corporation). Since the Vision program was announced in July 1991, all areas of the Corporation have been studied for potential cost savings. As the result of a superb effort on the part of our employees, we will capture nearly $100 million in permanent annual expense reductions, the majority of which will be realized by the end of 1994. Further, National City Bank, Indiana, reduced its expense base by $30 million in 1993, with additional reductions projected for 1994. Overall, noninterest expenses were up less than three percent in 1993; excluding acquisitions, they were down almost two percent. These achievements reinforce National City's reputation as an efficient, low-cost producer. ASSIMILATING ACQUISITIONS With the completion of the Ohio Bancorp acquisition in October, we are bringing new products, services and community development commitments to the Youngstown area. In April 1994, Ohio Bancorp's five banking units will be merged into National City Bank, Northeast, which will have a major presence in both Youngstown and Akron. This acquisition is consistent with our strategic objective of increasing market share in our primary markets of Ohio, Kentucky and Indiana. FEE-BASED BUSINESSES Fee-based revenue increased 10 percent in 1993, primarily due to acquisition-related growth at the Corporation's item processing subsidiary, National City Processing Company (NPC). Revenues at NPC increased 38 percent from a year ago to $268 million. Although trust revenues were up just under four percent, trust assets under management increased 17 percent to $29 billion as the result of significant new business added in the second half of 1993. In the mortgage business, record-low long- term interest rates stimulated unprecedented demand for residential mortgage loans, in particular the refinancing of higher- rate loans. The resulting early payoffs of existing loans serviced necessitated the more rapid amortization of mortgage servicing assets. Consequently, National City Mortgage Co. reported a loss for 1993, but profits should rebound in 1994. FOCUS ON THE CUSTOMER For the last several years, National City has focused its attention on improving asset quality, reducing expenses, assimilating acquisitions, and completing back-office consolidations. Looking ahead, we must be equally focused and committed to capturing a greater share of our customers' buying power for financial services. We intend to better utilize National City's 600-plus branches and its sales force--the largest in the tri- state area--to market competitive banking, trust and investment services. Local decision-making for lending and credit needs and locally implemented marketing and sales activities will ensure respon- siveness to customer requirements. 5 "WHILE THE CORPORATION'S PERFORMANCE OBJECTIVES FOR THE NEXT SEVERAL YEARS ARE AGGRESSIVE, WE BELIEVE THEY ARE ATTAINABLE AND WILL POSITION NATIONAL CITY AS ONE OF THE PREMIER REGIONAL BANKING COMPANIES IN THE COUNTRY." We will continue to build on our record of solid commitment to our communities, as evidenced by the number of banks in the National City system that consistently earn "outstanding" Community Reinvestment Act ratings. PERFORMANCE OBJECTIVES As we begin the new year, we have in place the performance objectives and personnel necessary to meet the financial goals we have set for ourselves. Our employees are ready to devote the same level of enthusiasm and commitment to customer service and continued performance improvement in 1994 as they brought to the Vision cost reduction program in 1993. The future leadership of National City is in place with the naming of David A. Daberko as president and chief operating officer. Dave, Deputy Chairman Bill Robertson, and I are fortunate to have a management team with the depth and experience necessary to lead this company into the future. While the Corporation's performance objectives for the next several years are aggressive, we believe they are attainable and will position National City as one of the premier regional banking companies in the country. We want to thank our Board of Directors for their guidance during the past year. As 1993 closed, we lost a devoted leader and visionary from our board, retired chairman J. Robert Killpack. Bob instilled in us a vision for the future of the company and the appetite to accomplish difficult J. ROBERT KILLPACK tasks that ensured the future health of National City. His can-do spirit and enthusiasm for our Corporation's success will be missed. January 21, 1994 Edward B. Brandon Chairman & Chief Executive Officer 6 FINANCIAL REVIEW EARNINGS SUMMARY National City Corporation's consolidated net income was $404.0 million in 1993, compared with $346.9 million in 1992 and $236.8 million in 1991. Net income per common share, after dividend requirements on preferred stock, increased 15.3% in 1993 to $2.41, compared with $2.09 in 1992 and $1.46 in 1991. Prior period per share data have been restated to reflect the two-for-one stock split declared and paid in July 1993. Return on average common equity, a key performance measure, was 16.12% in 1993, compared with 15.31% in 1992 and 11.20% in 1991 (Chart 2). Return on average assets was 1.40% in 1993 compared with 1.21% in 1992 and .81% in 1991 (Chart 3). The following table reconciles the major changes in net income per share:
1993 1992 VS VS 1992 1991 - ----------------------------------------------------------------------- Net income per common share, prior year $2.09 $1.46 Increase (decrease) from changes in: Net interest income .30 .14 Provision for loan losses .23 .79 Fee income .47 .49 Noninterest expense (.23) (.45) Income taxes (.34) (.26) After-tax security gains (.06) -- Preferred stock dividends -- (.03) Average shares outstanding (.05) (.05) ----- ----- Net income per common share $2.41 $2.09 ===== =====
UNIT PROFITABILITY The contribution of the Corporation's major units to consolidated results for the past two years is summarized in Table 1 on page 5. The corporate and retail banking businesses' and national credit card earnings improved in 1993 from 1992 due to lower provisions for loan losses, improved net interest margins, and reduced noninterest expense. The decline in the investment/funding group's earnings in 1993 was due primarily to lower gains on the sale of securities and a lower yield on investment assets. Trust net income declined in 1993 due to higher than anticipated expenses, including the settlement of litigation. Item processing net income at National City Processing Company (NPC) increased in 1993 primarily due to growth in merchant credit card processing and acquisitions. The loss in mortgage servicing was due to more rapid amortization of deferred mortgage servicing rights and capitalized excess service fees in 1993. The accelerated amortization was in response to mortgage refinancing activity fueled by low interest rates. Year-to-date write-downs of deferred mortgage servicing assets exceeded the 1992 level by approximately $28 million. Future amortization rates are expected to decline as mortgage refinancing activity subsides. The improvement in the corporate contribution, which includes the parent company, was due to lower costs associated with the cost redesign program and nonrecurring 1992 expenses associated with the acquisition of Merchants National Corporation, as well as gains on miscellaneous asset sales in 1993. EARNING ASSETS Average earning assets for 1993 were $25,745 million compared with $25,681 million in 1992 and $26,279 million in 1991 (Chart 4). Average earning assets in 1993 were fairly stable compared with a year ago due to a combination of growth in loans and securities, offset by a decline in short-term money market assets. The decline in 1992 from 1991 was due to overall sluggish loan demand. CHART DATA FOR 1993 ANNUAL REPORT 12/31/93 CHART 1. NET INCOME AND DIVIDENDS PER COMMON SHARE (as originally reported)
NET INCOME DIVIDENDS PAID PER SHARE PER SHARE 74 0.55 0.23 75 0.63 0.24 76 0.75 0.26 77 0.81 0.29 78 0.84 0.33 79 0.91 0.37 80 0.89 0.41 81 0.76 0.41 82 0.84 0.41 83 0.95 0.41 84 1.21 0.42 85 1.52 0.44 86 1.72 0.50 87 1.17 0.60 88 1.92 0.72 89 2.18 0.84 90 1.93 0.94 91 1.81 0.94 92 2.09 0.94 93 2.41 1.06
7 LOANS: At year-end 1993, loans were $21,286 million, representing an increase of 13.6% from year-end 1992. Average loans are shown in Chart 5. Ending loan balances are summarized in the table below.
(Dollars in Millions) 1993 1992 1991 1990 1989 - -------------------------------------------------------------------- Commercial and industrial $8,168 $7,801 $7,967 $8,138 $7,877 Nontaxable 262 310 391 486 480 International 70 50 52 50 183 Real estate construction 439 533 814 1,157 1,385 Leasing 228 225 240 298 258 Commercial mortgage 2,328 1,928 1,938 1,548 1,445 Residential mortgage 4,033 2,699 2,543 2,454 1,935 Consumer 4,241 3,727 3,733 3,896 3,689 Home equity 798 739 690 568 384 Credit card 719 726 803 992 1,105 ------- ------- ------- ------- ------- Total loans $21,286 $18,738 $19,171 $19,587 $18,741 ======= ======= ======= ======= =======
The acquisition of Ohio Bancorp in 1993 added $809 million to year-end loan balances, including $254 million to commercial, $320 million to residential mortgage and $200 million to consumer. More than 75% of the Corporation's commercial loan portfolio consists of loans made to middle-market customers in the Corporation's market area. The loan mix is diverse, covering a broad range of borrowers characteristic of the Midwest economy. As a matter of policy, concentrations within a particular industry or segment are continually monitored and controlled. The commercial loan portfolio remained fairly stable in 1993, but improving economic conditions led to increases in the second half of the year. An analysis of the maturity and interest rate sensitivity of commercial loans at the end of 1993 follows:
One Year One to Five Over Five (Dollars in Millions) Or Less Years Years Total - --------------------------------------------------------------------- Domestic commercial $7,594 $901 $163 $8,658 Real estate construction 359 56 24 439 International 58 6 6 70 ------ ---- ---- ------ Total $8,011 $963 $193 $9,167 ====== ==== ==== ====== Total fixed rate $1,571 $832 $190 $2,593 Total variable rate 6,440 131 3 6,574
Commercial mortgages included $1,777 million of loans secured by income-producing real estate in 1993, compared with $1,643 million in 1992 and $1,520 million in 1991. The remainder consists of owner-occupied loans and loans to mortgage bankers which experienced significant growth in 1993. Residential mortgage loans increased in 1993 due to greater demand from a favorable interest rate environment and the retention of approximately $675 million of 15-year fixed rate residential mortgages for asset/liability management purposes. Loan originations totaled approximately $5.0 billion in 1993, compared with $3.6 billion in 1992. Of the 1993 originations, $4.0 billion were sold in the secondary market. During 1993, consumer spending patterns improved, leading to growth in the consumer loan portfolio. More than 75% of consumer loans are installment loans. Of the installment portfolio, more than 70% are indirect, with the majority being fixed rate. The remainder of the consumer portfolio is largely student loans. TABLE 1. UNIT PROFITABILITY
1993 1992 RETURN ON RETURN ON Return On Return On (Dollars in Millions) NET INCOME ASSETS (1) EQUITY Net Income Assets (1) Equity - --------------------------------------------------------------------------------------------------------------------- Corporate and retail banking: Akron (2) $22.0 1.31% 25.66% $18.9 1.47% 27.84% Cleveland 86.7 1.58 24.41 84.1 1.59 22.82 Columbus 55.5 1.18 20.68 51.8 1.05 17.91 Dayton 21.8 1.24 16.29 12.8 .68 9.51 Indiana 38.1 .93 12.77 30.8 .70 10.90 Kentucky 55.0 1.21 19.86 26.0 .58 10.29 Toledo 12.8 1.29 22.61 11.7 1.23 22.78 Ashland 2.3 1.66 33.66 2.2 1.60 31.19 ------ ------ Total 294.2 1.28 19.86 238.3 1.03 16.39 National credit card 19.1 2.98 20.13 16.5 2.38 23.17 Investment/funding 40.8 .47 16.97 64.9 .78 26.01 ------ ------ Total banking and funding 354.1 1.17 19.49 319.7 1.09 18.01 Trust 34.1 28.37 27.40 36.9 31.80 30.64 Item processing 17.2 6.32 14.81 16.6 8.34 35.03 Mortgage servicing (13.4) (15.72) (34.20) 8.4 11.32 24.30 ------ ------ Total fee-based businesses 37.9 7.95 13.57 61.9 15.91 30.58 Corporate 12.0 -- -- (34.7) -- -- ------ ------ Consolidated total $404.0 1.40% 16.12% $346.9 1.21% 15.31% ====== ====== (1) Return on revenue in the case of the fee-based businesses. (2) Includes results of Ohio Bancorp in 1993.
8 FINANCIAL REVIEW (continued) Year-end credit card and home equity balances are summarized below:
(Dollars in Millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------- Local market credit card $331 $268 $347 $410 $519 National market 258 206 266 305 345 Private label 130 252 190 277 241 Home equity 798 739 690 568 384 ------ ------ ------ ------ ------ Total credit card and home equity $1,517 $1,465 $1,493 $1,560 $1,489 ====== ====== ====== ====== ======
The loss of a large customer in 1993 was responsible for substantially all of the decline in private label outstandings. In addition, on October 1, 1993, a $350 million credit card securitization began to amortize back onto the balance sheet at the rate of $29 million per month. Consequently, credit card servicing fees will decline and net interest income will increase. The net impact to the Corporation's income statement is expected to be minimal. At year-end, credit card securitizations outstanding were $363 million compared with $540 million a year ago. COMMERCIAL REAL ESTATE: Commercial real estate lending includes real estate construction and permanent loans secured by income-producing investment real estate. The following table shows outstanding balances and unfunded commitments at year-end:
Total Commercial (Dollars in Millions) Construction Permanent Real Estate - ------------------------------------------------------------- Outstanding: 1993 $439 $1,777 $2,216 1992 533 1,643 2,176 1991 814 1,520 2,334 Unfunded commitments: 1993 $206 $137 $343 1992 198 90 288 1991 254 57 311
The Corporation's activities in commercial real estate are based primarily on relationships with developers who are active in local markets. More than 85% of outstandings are in the Corporation's primary markets of Ohio, Kentucky and Indiana. The portfolio consists predominantly of relatively small-scale office, retail and apartment buildings. Total commercial real estate loans made up 10.4% of the total loan portfolio at December 31, 1993, compared with 11.6% at year-end 1992 and 12.2% at year-end 1991. The following table shows commercial real estate loans at year-end 1993 by state and by project:
(Dollars In Millions) - ------------------------------------------------------ By State: By Project: Ohio $1,390 Office $474 Kentucky 284 Apartments 506 Indiana 260 Retail 535 Florida 81 Hotel/Motel 160 Michigan 52 Industrial 149 Other 149 Other 392 ------ ------ Total $2,216 Total $2,216 ====== ======
At year-end, there were no concentrations of real estate loans in any deteriorating economic areas. CHART 2. RETURN ON AVERAGE COMMON EQUITY (net income after preferred dividends, divided by average common equity) 88 17.47 89 17.18 90 12.97 91 11.20 92 15.31 93 16.12 Return on average common equity rose to 16.12% in 1993 due to improved net income on a strong capital base. National City seeks to produce a return which is higher than its peers over time while maintaining superior capital ratios.
CHART 3. RETURN ON AVERAGE ASSETS (net income divided by average assets) 88 1.14 89 1.16 90 0.87 91 0.81 92 1.21 93 1.40 Return on average assets increased to 1.40% in 1993, reflecting sharply improved earnings on a relatively stable asset base.
9 SECURITIES: On December 31, 1993, the Corporation adopted SFAS 115 "Accounting For Certain Investments in Debt and Equity Securities." Accordingly, securities available for sale are recorded at market value and the net unrecognized gain of $35 million (net of tax) is included in stockholders' equity. The adoption did not have a material effect on results of operations and prior year financial statements were not restated. In anticipation of adopting SFAS 115, securities netting to $617 million (cost basis) were reclassified between the held to maturity and available for sale portfolios. The portfolio accounting designations were chosen in order to attain most efficiently the objectives of the Corporation's securities portfolio, which include generating substantial interest income; serving as an important liquidity source; and playing an integral role in the management of the Corporation's interest rate sensitivity. Accordingly, securities in the held to maturity portfolio are purchased with the intent and ability to hold them to maturity and are, therefore, carried at amortized cost. Securities in this portfolio tend to be higher yielding and somewhat less liquid. Securities in the available for sale category are those which may be sold prior to their maturity for purposes of bank asset allocation, rate sensitivity, liquidity or relative value reasons and, hence, tend to be more liquid investments. The portfolio decreased from $5.5 billion (cost basis) in 1992 to $5.1 billion (cost basis) at December 31, 1993, influenced significantly by unprecedented paydowns experienced in the year's latter half. In particular, mortgage- backed security prepayments increased over 30% to approximately $1.9 billion, with the majority attributed to fixed rate collateralized mortgage obligations. The majority of these cash flows were reinvested in adjustable rate mortgages, U.S. Treasuries and Federal agency obligations. These securities provide enhanced liquidity and call protection, and should perform well in a flattening yield curve environment, particularly one led by increases in short-term rates. The book yield on the portfolio decreased by 90 basis points from a year ago due primarily to the prepayments, calls and maturities of higher rate securities purchased in prior years, and an increase in the percentage of floating rate assets. Summary information with respect to the securities portfolio at December 31 follows:
1993 COST 1992 1991 HELD TO AVAILABLE 1993 Carrying Carrying (Dollars in Millions) MATURITY FOR SALE YIELD Value Value - ---------------------------------------------------------------------------- U.S. Treasury and Federal agency debentures: Under 1 year $ 200 $-- 5.32% $154 $125 1 to 5 years 5 1,042 5.24 1,043 165 5 to 10 years -- 53 5.23 -- -- Over 10 years -- -- -- 1 5 ------ ------ ------ ------ Total 205 1,095 5.25 1,198 295 Mortgage-backed securities: Under 1 year 239 135 5.70 391 210 1 to 5 years 490 1,736 4.94 2,440 2,698 5 to 10 years 76 197 4.43 229 444 Over 10 years -- 2 8.50 3 122 ------ ------ ------ ------ Total 805 2,070 5.00 3,063 3,474 States and political subdivisions: Under 1 year 112 13 8.82 120 185 1 to 5 years 308 6 13.02 415 499 5 to 10 years 88 4 10.45 130 214 Over 10 years 97 9 10.30 130 139 ------ ------ ------ ------ Total 605 32 11.38 795 1,037 Other securities: Under 1 year 118 1 5.78 183 35 1 to 5 years 1 3 5.33 119 369 5 to 10 years -- -- 5.19 1 5 Over 10 years 29 148 3.50 140 154 ------ ------ ------ ------ Total 148 152 4.43 443 563 ------ ------ ------ ------ $1,763 $3,349 5.82% $5,499 $5,369 ====== ====== ====== ======
The yield at December 31, 1993 was the combined rate for the held to maturity and available for sale securities portfolios. CHART 4. AVERAGE EARNING ASSETS
Money market Loans Securities instruments 88 16,099 4,749 1,016 89 17,801 4,768 1,273 90 19,456 5,087 1,120 91 19,581 4,896 1,802 92 18,671 5,385 1,625 93 19,454 5,498 793 Average earning assets were stable in 1993 as growth in the loan portfolio and securities was offset by a decline in money market instruments.
10 FINANCIAL REVIEW (continued) Yields are calculated on a fully taxable equivalent basis using the marginal Federal income tax rate of 35%. Mortgage- backed securities are assigned to maturity categories based on their estimated average lives. INTEREST-BEARING LIABILITIES Transaction accounts increased by 7.5% in 1993, while time deposits of individuals declined by 13.3%. Overall, average core deposits remained fairly stable and continued to fund more than 100% of average loans. National City's reliance on purchased funds declined slightly in 1993. Purchased funds primarily include domestic certificates of deposit over $100,000, Eurodollar deposits, and short-term borrowings. A maturity distribution of certificates of deposit of $100,000 or more follows:
December 31 --------------- (Dollars in Millions) 1993 1992 - -------------------------------------------------- Due in: 3 months or less $463 $709 3 to 6 months 83 221 6 to 12 months 63 110 Over 1 year 93 106 ---- ------ $702 $1,146 ==== ======
Federal funds borrowed and security repurchase agreements represent borrowings with overnight to 30-day maturities. Information for these borrowings follows:
(Dollars in Millions) 1993 1992 1991 - -------------------------------------------------------------- Balance at December 31 $3,083 $1,819 $2,405 Maximum outstanding at any month-end 3,083 2,417 2,855 Daily average amount outstanding 2,518 2,178 2,197 Weighted daily average interest rate 2.91% 3.27% 5.40% Weighted daily interest rate for amounts outstanding at December 31 2.87% 2.79% 3.90%
CAPITAL The following table reflects various measures of capital at year-end:
(Dollars in Millions) 1993 1992 - ------------------------------------------------------------------ AMOUNT RATIO Amount Ratio ------ ----- ------ ----- Total equity 1 $2,763.3 8.89% $2,499.9 8.63% Common equity 1 2,565.0 8.26 2,299.9 7.94 Tangible common equity 2 2,185.2 7.12 1,990.2 6.95 Tier 1 capital 3 2,468.9 8.94 2,343.3 9.90 Total risk-based capital 4 3,206.8 11.62 2,895.5 12.23 Leverage 5 2,468.9 8.18 2,343.3 8.22
1 Computed in accordance with generally accepted accounting principles, which, at December 31, 1993, includes the market value appreciation of securities available for sale. 2 Common equity less all intangible assets; computed as a ratio to total assets less intangible assets. 3 Stockholders' equity less certain intangibles and the market value appreciation of securities available for sale; computed as a ratio to risk-adjusted assets, as defined. See Note below. 4 Tier 1 capital plus qualifying loan loss allowance and subordinated debt; computed as a ratio to risk-adjusted assets, as defined. See Note below. 5 Tier 1 capital; computed as a ratio to fourth quarter average total assets less certain intangibles. See Note below. NOTE: The 1993 calculations reflect the revised regulatory guidelines, which now require the exclusion of all intangible assets, except for purchased mortgage servicing rights and purchased credit card relationships (subject to limitations), from tier 1 capital and risk-adjusted assets. Also, tier 1 capital excludes the market value appreciation of securities available for sale. CHART 5. AVERAGE LOANS
CORPORATE BANKING CONSUMER BANKING COMM'L RESIDENTIAL CREDIT COMMERCIAL REAL ESTATE INSTALLMENT REAL ESTATE CARD 88 7,921 2,148 88 3,225 1,457 1,348 89 8,352 2,754 89 3,592 1,736 1,367 90 8,884 2,816 90 3,872 2,514 1,370 91 8,819 2,764 91 3,738 2,721 1,539 92 8,352 2,479 92 3,675 2,723 1,412 93 8,314 2,668 93 3,893 3,131 1,448 The Corporation's loan portfolio mix is approximately 56% corporate and 44% consumer loans. The loan mix has become more balanced as the consumer loan portfolio, which includes residential mortgages, has grown at a faster rate in recent years.
11 Total stockholders' equity at year-end 1993 included $198.3 million of 8% Cumulative Convertible Preferred Stock, compared with $200.0 million at year-end 1992. The Corporation's tier 1, total risk-based capital and leverage ratios are well above the required minimum levels of 4.00%, 8.00% and 4.00%, respectively. At December 31, 1993, all of National City's member banks were "well-capitalized" under the capital definitions prescribed in the FDIC Improvement Act of 1991. Intangible asset totals at year-end are summarized in the following table:
(Dollars in Millions) 1993 1992 1991 - ------------------------------------------------------- Goodwill $257.0 $156.6 $149.7 Core deposit intangibles 25.9 34.8 42.5 Purchased servicing rights 63.3 79.9 83.0 Purchased credit cards 31.1 34.1 18.6 Other intangibles 2.5 4.3 6.2 ------ ------ ------ Total intangible assets $379.8 $309.7 $300.0 ====== ====== ======
National City Corporation's common stock trades on the New York Stock Exchange under the symbol NCC. As of December 31, 1993, there were 20,842 common stockholders of record. Quarterly common stock price and dividends paid rounded to the nearest cent follow:
NYSE:NCC First Second Third Fourth Year - ------------------------------------------------------------- 1993 Dividends paid $.26 $.26 $ .27 $ .27 $1.06 High 27.44 28.06 27.25 27.00 28.06 Low 24.31 23.38 24.00 23.13 23.13 Close 26.13 25.19 26.75 24.50 24.50 1992 Dividends paid $.235 $.235 $.235 $.235 $.94 High 21.19 22.88 23.00 24.81 24.81 Low 17.94 19.88 20.75 21.25 17.94 Close 20.44 22.75 22.19 24.81 24.81
At December 31, 1993, the total market capitalization of the Corporation was approximately $3.9 billion. Book value per common share at December 31, 1993 was $16.15 compared with $14.54 at December 31, 1992 (Chart 6). The 1993 book value includes $.22 of market appreciation in the securities available for sale portfolio, which resulted from the adoption of the new accounting requirements for securities on December 31, 1993. During 1993, the Board of Directors authorized two stock repurchase programs. The first program was announced in the first quarter and completed in November, and six million common shares were purchased. The second program, announced December 21, 1993, authorized the purchase of up to five million shares of common stock and up to four million depositary shares of preferred stock, subject to a combined total purchase limit of $200 million. Through December 31, 1993, 724,600 shares of common stock and 33,800 depositary shares of preferred stock had been purchased in the open market. Cash dividend payout is continually reviewed by management and the Board of Directors. For the past three- and five-year periods, the dividend payout has averaged 46.9% and 45.6%, respectively (Chart 8). CHART 6. BOOK VALUE AND STOCK PRICE HISTORY
HIGH LOW YEAR-END BOOK STOCK STOCK STOCK VALUE PRICE PRICE PRICE 73 3.62 4.99 3.41 3.80 74 3.93 4.41 2.45 3.28 75 4.32 4.82 3.23 4.35 76 4.80 6.76 4.26 6.76 77 5.31 6.67 6.08 6.13 78 5.81 7.19 5.71 5.95 79 6.34 6.82 5.89 6.39 80 6.83 6.41 4.41 5.08 81 7.18 5.56 4.26 4.52 82 7.69 5.41 3.45 4.78 83 8.24 6.89 4.49 6.89 84 8.65 8.61 5.78 8.47 85 9.59 11.28 8.39 10.97 86 10.40 16.46 10.95 15.29 87 10.58 19.13 11.94 14.56 88 10.92 16.82 13.88 16.44 89 12.43 20.75 15.38 19.56 90 13.39 19.94 11.32 15.63 91 14.24 21.13 14.07 18.63 92 14.54 24.82 17.94 24.81 93 16.15 28.06 23.13 24.50 National City's common stock price at December 31, 1993 was $24.50. Over the past 20 years, the total return on an annualized basis of an investment in National City common stock, assuming reinvestment of dividends, was 15.7% compared to 12.7% for the S & P 500.
12 FINANCIAL REVIEW (Continued) In January 1994, the Board of Directors declared a first quarter dividend of $.29 per common share, representing a 7.4% increase from the next preceding quarterly dividend of $.27 per share. The dividend is payable February 1 to stockholders of record on January 13, 1994. This follows two dividend increases in 1993. LIQUIDITY MANAGEMENT Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the securities portfolio, the extensive core deposit base, the ability to acquire large deposits in the local and national markets, and the capability to securitize or package loans for sale. The parent company has four major sources of funding to meet its liquidity requirements: dividends from its subsidiaries, the commercial paper market, a revolving credit agreement, and access to the capital markets. The main source for parent company cash requirements has been dividends from its subsidiaries. At January 1, 1994, $96 million was available within the bank subsidiaries to pay the parent company in dividends without prior regulatory approval, compared with $402 million at January 1, 1993. During 1993, subsidiary banks declared $699.6 million and paid $543.4 million in dividends to the parent company. As discussed in Item 1 of Form 10-K (page 38), subsidiary banks are subject to government regulation and, among other things, may be limited in their ability to pay dividends or transfer funds to the holding company. Accordingly, consolidated cash flows as presented in the Consolidated Statements of Cash Flows on page 24 may not represent cash available to the Corporation's stockholders. Funds raised in the commercial paper market through the Corporation's subsidiary, National City Credit Corporation, are primarily used to support the activities of National City Mortgage Co., the Corporation's mortgage banking subsidiary, as well as other occasional short-term cash needs. Commercial paper outstandings at December 31, 1993 were $399 million, compared with $378 million at year-end 1992. The Corporation has a $200 million revolving credit agreement with a group of unaffiliated banks which serves as a back-up liquidity facility. The agreement expires December 31, 1995. No borrowings have occurred under this facility. The parent company also has in place a $500 million "shelf registration" permitting ready access to the public debt markets. In addition, $100 million remains available under a $300 million shelf registration for preferred stock. In April 1993, the Corporation's Cleveland and Columbus bank subsidiaries issued $125 million and $75 million, respectively, of 6 1/2% subordinated notes. The notes qualify as tier 2 capital for regulatory purposes. ASSET/LIABILITY MANAGEMENT The primary goal of the asset/liability management function at National City is to maximize net interest income within the interest rate risk limits set by the Corporate Asset/Liability Committee. Interest rate risk is monitored and controlled through the use of three different measures. These include traditional static gap analysis, earnings simulation and duration modeling. The most useful of these measures is the earnings simulation model. In using this model, management can simulate the Corporation's earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments, interest rate relationships, as well as changes in the volumes and rates of various loan and deposit categories. It is important to note that the model also incorporates all off-balance sheet commitments, as well as assumptions about reinvestment and the repricing characteristics of certain non-contractual assets and liabilities. While each of the interest rate risk measurements has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in CHART 7. EQUITY TO ASSETS
TANGIBLE TOTAL EQUITY TO EQUITY TO ASSETS ASSETS 88 5.74 6.19 89 5.97 6.57 90 5.75 6.58 91 6.60 7.53 92 7.49 8.63 93 7.77 8.89 Total equity as a percentage of total assets was 8.89% at year-end 1993 compared with 8.63% a year ago. Tangible equity to assets was 7.77% at December 31, 1993. National City ranks among the best of the top 50 U.S. banks in terms of capital levels.
13 the Corporation, the distribution of risk along the yield curve, the level of risk through time and the amount of exposure to certain interest rate relationships. At year-end 1993, all of the measures described above indicated that the Corporation was in a modest liability- sensitive position. The Corporation uses a variety of financial instruments to manage its interest rate sensitivity. These include the cash market securities in its investment portfolio, interest rate swaps, interest rate caps and floors, and, to a lesser extent, exchange-traded futures and options contracts. Interest rate swaps, caps and floors, frequently called interest rate derivatives, are an integral part of the Corporation's asset/liability management philosophy. These instruments have similar characteristics to cash market securities but possess the advantages of customization of the risk-reward profile of the instrument, minimization of balance sheet leverage and improvement of the liquidity position of the Corporation. As illustrated in the following table, at year-end the net amount of assets, adjusted for off-balance sheet instruments, less liabilities which reprice within a given period was (12.8)% of adjusted total earning assets within six months, and (10.8)% within one year. The policy limit for the one-year gap is plus or minus 12% of adjusted total earning assets.
Within Six to One to Three Over Six Twelve Three to Five Five (Dollars in Millions) Months Months Years Years Years - ------------------------------------------------------------------------ Loans $13,047 $1,641 $3,561 $1,601 $1,435 Securities 2,172 701 896 1,082 316 Money market assets 1,154 67 84 -- -- Nonearning assets 2,680 87 161 127 256 ------- ------ ------ ------ ------ Total assets 19,053 2,496 4,702 2,810 2,007 Interest bearing liabilities and demand deposits 18,641 2,790 3,584 1,954 888 Noninterest bearing liabilities and equity 825 -- 1 2 2,383 ------- ------ ------ ------ ------ Total liabilities and equity 19,466 2,790 3,585 1,956 3,271 ------- ------ ------ ------ ------ Gap before swaps and options (413) (294) 1,117 854 (1,264) Net swaps and options (3,845) 949 2,155 293 448 ------- ------ ------ ------ ------ Gap adjusted for swaps and options $(4,258) $655 $3,272 $1,147 $(816) ======= ======= ====== ====== ===== Cumulative gap adjusted for swaps and options $(4,258) $(3,603) $(331) $816 $ -- ======= ======= ====== ====== =====
As previously noted, core deposits and loans with non- contractual maturities are distributed or spread among the various repricing categories based upon historical patterns of repricing. Management evaluates the effects on income of alternative interest rate scenarios against earnings in a stable interest rate environment. The most recent earnings simulation model projects net income would increase by an amount equal to approximately 2.2% if rates fell gradually by two percentage points over the next year. It projects a decrease of approximately 2.0% if rates rose by two percentage points, well within the (5.0)% policy limit. Management believes this reflects a modest level of interest rate sensitivity. CHART 8. CASH DIVIDEND PAYOUT (dividends per share divided by originally reported earnings per share)
DIVIDEND 3 YR 5 YR PAYOUT AVG AVG 88 37.5 39.3 36.3 89 38.6 42.5 37.0 90 48.7 41.6 41.0 91 51.9 46.4 45.6 92 44.9 48.5 44.3 93 44.0 46.9 45.6 The Corporation's dividend policy is to pay out approximately 40% of earnings over time. Despite a somewhat higher payout ratio in recent years, internal capital generation continues to exceed asset growth.
CHART 9. AVERAGE FUNDING SOURCES
CORE OTHER PURCHASED DEPOSITS DEPOSITS FUNDS 88 15,340 3,115 3,863 89 16,510 3,634 4,005 90 18,839 2,918 4,396 91 20,190 2,284 4,221 92 20,780 1,187 3,866 93 20,831 815 4,164 Core deposits remained stable in 1993 as the increase in transaction account balances offset the decline in time deposits. Core deposits continue to fund over 100% of the loan portfolio.
14 FINANCIAL REVIEW (Continued) The Corporation's earnings are also affected by changes in spread relationships. For example, a 50 basis point contraction in the relationship between the prime rate and Federal funds rate is currently estimated to cause a 3.9% reduction in net income over a 12-month period. Management monitors this relationship closely and should management's expectation for the relationship fall to a level below which it can be mitigated in the market, management would seek to reduce or eliminate this exposure. The Corporation's duration model analyzes the impacts of changes in interest rates on expected asset and liability cash flows, including those maturing in time periods greater than one year. At year end, a two percentage point immediate shock upward in rates was estimated to cause a reduction in the value of these cash flows by an amount equal to 1.1% of total assets. Policy limits restrict this amount to 1.5% of total assets. The value of these cash flows was projected to increase by 1.3% of total assets for an immediate shock downward in rates of two percentage points. Due to borrowers' preferences for floating-rate loans and depositors' preferences for fixed-rate deposits, the Corporation's balance sheet moves toward higher levels of asset sensitivity with the passage of time. In fact, management estimates that prepayments, calls and maturities of its securities and derivative portfolios, would cause the current level of liability sensitivity to fall to a neutral level in 12 months unless offsetting actions were taken. Purchases of fixed-rate securities or interest rate derivative instruments are required to maintain a liability sensitive or even a neutral interest rate risk position. Using a one-year static gap measure, the Corporation would be 4.8% asset sensitive without securities and interest rate derivatives. Management expects interest rates will be relatively stable for the first quarter of 1994 and then rise slightly throughout the year. Management believes the Corporation's modest level of liability sensitivity is appropriate in this environment and does not, at this time, anticipate the level of liability sensitivity increasing significantly in 1994. OFF-BALANCE SHEET FINANCIAL AGREEMENTS The Corporation uses a variety of off-balance sheet financial instruments such as interest rate swaps, futures, options, forwards, cap and floor contracts. These financial agreements, frequently called interest rate derivatives, enable the Corporation to manage efficiently its exposure to changes in interest rates. The Corporation also markets derivative contracts to its customers allowing them to manage their exposures to changes in interest and foreign exchange rates. As with any financial instrument, derivatives have inherent risks. Market risk represents gains and losses that result from changes in interest rates. These gains and losses may be offset by other on- or off-balance sheet transactions. Credit risk is the risk that a counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. Credit risk can be measured as the cost of acquiring a new derivative agreement with cash flows identical to those of a defaulted agreement in the current interest rate environment. The Corporation manages the credit exposure to counterparties by limiting the amount of net unrealized gains in agreements outstanding, monitoring the size and the maturity structure of the derivative portfolio, applying uniform credit standards maintained for all activities with credit risk and by collateralizing unrealized gains. During 1993, the Corporation established bilateral collateral agreements with its major off-balance sheet counterparties that provide for exchanges of marketable securities to collateralize unrealized gains. On December 31, 1993, these collateral agreements covered 90.3% of the notional amount of the derivative portfolio and the Corporation held $35.2 million of securities as collateral. The Corporation has never experienced, nor does it have any reason to expect, a credit loss associated with any interest rate derivative. During 1993, the Corporation increased its use of interest rate swaps to manage its sensitivity to changes in interest rates. The total notional amount of the portfolio increased by $2.5 billion from December 31, 1992. During 1993, the Corporation entered into $4.8 billion of interest rate swaps CHART 10. NET INTEREST INCOME AND NET INTEREST MARGIN
NET INTEREST NET INTEREST INCOME MARGIN 88 1,034.3 4.73 89 1,118.4 4.69 90 1,155.6 4.50 91 1,185.0 4.51 92 1,195.3 4.65 93 1,235.8 4.80 Tax equivalent net interest income increased in 1993 due to a wider net interest margin on a fairly stable earning asset base.
15 where the Corporation received a fixed rate and paid a variable rate. The weighted initial expected maturity of these transactions was 2.1 years. During 1993, $2.6 billion of interest rate swaps matured or amortized. The Corporation uses interest rate floors to help protect its interest margin in periods of low interest rates and a flattening yield curve. The Corporation's interest rate floor portfolio on December 31, 1993 was $950 million in notional amount with an average maturity of 7.6 years and $33.4 million of unrealized gains. The Corporation enters into various off-balance sheet interest rate agreements with its corporate customers. These agreements totaled $936.5 million at year-end 1993 and consist of offsetting pairs of contracts that reduce or eliminate market risk. Summary information with respect to the Corporation's interest rate derivative portfolio as of December 31 follows:
1993 1992 ------------------------------------------------- AVG. AVG. NOTIONAL FIXED EXPECTED UNREALIZED Notional (Dollars in Millions) AMOUNT RATE MATURITY GAIN/(LOSS) Amount - ------------------------------------------------------------------------- INTEREST RATE SWAPS Receive fixed rates $5,634.6 5.14% 1.4 yrs. $34.4 $3,028.4 Pay fixed rates 581.6 7.83 2.0 (26.4) 723.4 CAPS & FLOORS Caps purchased $147.9 NA 1.8 yrs. $ -- $122.9 Caps sold 337.9 NA 2.7 -- 312.9 Floors purchased 950.0 NA 7.6 33.4 650.0 Floors sold 100.0 NA 2.0 -- -- NA - Not applicable
NET INTEREST INCOME On a fully taxable equivalent basis, net interest income was $1,235.8 million in 1993 compared with $1,195.3 million in 1992 and $1,185.0 million in 1991 (Chart 10). The following table reconciles net interest income as shown in the financial statements to tax equivalent net interest income:
(Dollars in Millions) 1993 1992 1991 - --------------------------------------------------------------- Net interest income - per financial statements $1,200.0 $1,152.7 $1,131.3 Tax equivalent adjustment 35.8 42.6 53.7 -------- -------- -------- Net interest income - tax equivalent $1,235.8 $1,195.3 $1,185.0 ======== ======== ======== Average earning assets $ 25,745 $25,681 $26,279 ======== ======== ======== Net interest margin - tax equivalent 4.80% 4.65% 4.51% ======== ======== ========
So that non-taxable asset yields can be compared to taxable yields on a similar basis, amounts are adjusted to their pre-tax equivalents, based on the marginal corporate tax rate of 35% in 1993 and 34% in prior years. The margin improvement in 1993 compared with 1992 is the result of a wider spread between interest-earning assets and interest-bearing liabilities. Contributing to the wider spread was a higher level of net interest income earned from the interest rate derivative portfolio used to change the effective interest rate sensitivity of the following balance sheet items (Note: Amounts in brackets represent reductions of the related interest income or expense line, as applicable):
(Dollars in Millions) 1993 1992 - ------------------------------------------------------------ Interest adjustment to loans $ 72.1 $43.3 Interest adjustment to securities (27.2) (26.7) ----- ----- Interest adjustment to assets 44.9 16.6 Interest adjustment to deposits (21.1) (22.9) ----- ----- Derivative net interest income $66.0 $39.5 ===== =====
CHART 11. FEE INCOME AS A PERCENTAGE OF TOTAL REVENUE
FEE INCOME AS % OF TOTAL REVENUE 83 29.5% 84 28.0% 85 29.0% 86 28.7% 87 30.4% 88 32.5% 89 31.8% 90 34.6% 91 36.0% 92 37.8% 93 39.3% Fee income as a percentage of total revenue increased to 39% in 1993. Contributing to the growth in fee income were increased item processing revenue and service charges on deposits. Management's goal is to increase the fee income contribution to total revenue over time.
16 FINANCIAL REVIEW (Continued) The following table shows changes in interest income, expense and net interest income due to volume and rate variances for major categories of assets and liabilities:
1993 VS. 1992 1992 VS. 1991 ----------------------------------------------------- DUE TO Due to CHANGE IN NET Change in Net --------------- --------------- (Dollars in Millions) VOLUME RATE* CHANGE Volume Rate* Change - ------------------------------------------------------------------------------ Increase (decrease) in tax equivalent interest income - Loans $68.6 $(111.6) $(43.0) $(92.5) $(261.7) $(354.2) Securities 7.8 (78.4) (70.6) 42.7 (97.9) (55.2) Money market assets (34.3) (1.0) (35.3) (11.0) (33.6) (44.6) ----- ------- ------- ------ ------- ------- Total $42.1 $(191.0) $(148.9) $(60.8) $(393.2) $(454.0) ===== ======= ======= ====== ======= ======= (Increase) decrease in interest expense - Savings and NOW accounts $(18.1) $23.6 $5.5 $(28.1) $54.8 $26.7 Insured money market accounts (4.6) 34.6 30.0 (33.6) 98.6 65.0 Time deposits 53.3 69.9 123.2 84.2 107.7 191.9 Purchased funds 7.5 26.8 34.3 78.6 100.9 179.5 Corporate debt (9.3) 5.7 (3.6) (.9) 2.1 1.2 ----- ------- ------- ------ ------- ------- Total $28.8 $160.6 $189.4 $100.2 $364.1 $464.3 ===== ======= ======= ====== ======= ======= Increase in tax equivalent net interest income $40.5 $10.3 ===== ===== *Changes in interest income and interest expense not arising solely from rate or volume variances are included in rate variances.
FEES AND OTHER INCOME An analysis of fees and other income for the last three years follows:
(Dollars in Thousands) 1993 1992 1991 - -------------------------------------------------------------------- Item processing fees $267,962 $194,166 $166,934 Deposit service charges 152,609 143,909 133,794 Trust fees 122,597 118,350 111,352 Credit card fees 92,966 101,898 86,871 Mortgage servicing fees 58,678 59,958 43,865 Service fees - other 38,153 38,001 41,067 Miscellaneous asset sales 3,865 11,070 17,072 Other real estate owned income 12,332 9,820 8,233 Trading account profits 9,161 6,546 4,459 Other 41,492 41,942 36,397 -------- -------- -------- $799,815 $725,660 $650,044 ======== ======== ========
Fees and other income increased 10.2% in 1993 from 1992 due primarily to higher item processing fees and service charges on deposits. Item processing revenues at NPC grew significantly in both 1993 and 1992 due to growth in the existing bankcard processing business as well as acquisitions. Trust fee income increased 3.6% in 1993 and 6.3% in 1992. The Corporation's banks administered a total of $61 billion in fiduciary assets at year-end 1993 including managed assets of $29 billion, up from $55 billion and $24 billion, respectively, at year-end 1992. Credit card fees declined during 1993 due mainly to reduced annual charge fee income on national credit cards and loss of fee income on the credit card balances that were related to the credit card securitization. This trend will continue as the $350 million credit card securitization unwinds through October 1994. These fees will be replaced by interest income on the credit card loans that have been added to the balance sheet. Fees will likely be under additional pressure in 1994 due to the loss of a large private label credit card customer in the fourth quarter 1993.
TABLE 2. FULL-TIME EQUIVALENT STAFFING AND OVERHEAD PERFORMANCE MEASURES 1993 1992 ---------------------------------------------------------------------------------- FULL-TIME OVERHEAD EFFICIENCY Full-Time Overhead Efficiency EQUIVALENT STAFF RATIO RATIO Equivalent Staff Ratio Ratio - ------------------------------------------------------------------------------------------------------------------- Corporate and retail banking: Akron 1,431 49.69% 56.52% 509 44.36% 52.53% Cleveland 1,552 39.25 52.67 1,592 39.88 53.54 Columbus 1,651 58.01 67.06 1,815 60.61 69.74 Dayton 638 52.62 61.33 719 63.09 69.40 Indiana 1,994 56.78 67.93 2,281 63.70 72.52 Kentucky 1,733 52.34 62.18 1,734 67.85 74.94 Toledo 419 52.05 59.69 435 53.38 60.60 Ashland 66 50.01 54.83 71 51.76 56.03 ------ ------ Total 9,484 50.73 61.15 9,156 56.11 65.64 National credit card 516 41.82 49.49 611 38.37 47.23 Investment/funding 252 (77.77) 51.52 204 (70.46) 40.83 ------ ------ Total banking and funding 10,252 47.76 59.77 9,971 51.40 62.82 Trust 973 -- 61.37 975 -- 59.72 Item processing 4,595 -- 90.26 3,815 -- 86.48 Mortgage servicing 889 -- 127.00 789 -- 82.05 ------ ------ Total fee-based businesses 6,457 -- 87.98 5,579 -- 77.00 Corporate 3,251 -- -- 3,216 -- -- ------ ------ Consolidated total 19,960 44.34% 66.21% 18,766 48.93% 68.22% ====== ======
17 Mortgage servicing revenues declined as a result of the accelerated amortization of capitalized excess service fees, which is recorded as a reduction of revenue. These charges totaled $13.3 million in 1993 compared with $7.7 million in 1992. The servicing portfolio was $11.7 billion at year-end 1993 compared with $10.4 billion at year-end 1992. There was no significant nonrecurring income in 1993. Nonrecurring pretax gains in 1992 included a $5.7 million gain on the sale of Mexican debt, a $4.2 million gain on the sale of mortgage loans and student loans, and another $1.2 million gain on miscellaneous asset sales. Nonrecurring pretax gains in 1991 were $17.1 million. NONINTEREST EXPENSE The following table shows noninterest expenses for the last three years:
(Dollars in Thousands) 1993 1992 1991 - ------------------------------------------------------------------------------- Salaries $ 499,879 $495,232 $471,820 Benefits 123,593 121,783 111,364 Equipment 89,005 90,768 90,690 Net occupancy 89,729 85,620 83,473 Third party services 77,368 87,438 83,140 Processing assessments 81,822 68,651 54,558 Postage and supplies 67,842 65,859 64,706 FDIC assessments 50,157 50,169 46,446 Other real estate owned expense 26,177 46,847 56,942 Amortization of intangibles 61,721 37,459 35,086 State and local taxes 30,297 26,610 25,634 Marketing and public relations 28,581 21,319 23,927 Transportation 21,978 18,477 17,323 Telephone 21,862 17,562 17,659 Other 77,729 76,654 58,948 ---------- ---------- ---------- $1,347,740 $1,310,448 $1,241,716 ========== ========== ==========
Noninterest expenses rose 2.8% in 1993, compared with 1992, primarily due to acquisitions at NPC and the acquisition of Ohio Bancorp during the fourth quarter of 1993. Total 1993 expenses related to companies acquired in 1993 were $60.8 million. Excluding the impact of these acquisitions, total expenses declined almost 2% from 1992 levels. Amortization of intangibles included the amortization of purchased mortgage servicing rights, which totaled $34.5 million in 1993 and $11.7 million in 1992. Nonrecurring expenses in 1992 included $16.8 million in severance costs related to both the Indiana acquisition and the Corporation's cost redesign program. In addition, there were $12.6 million in one-time merger-related costs and $9.3 million of costs in the settlement of litigation. Nonrecurring expenses in 1991 were $13.1 million, all merger-related. The full-time equivalent (FTE) staff for the Corporation, shown in Table 2 on page 14, increased in 1993, due to acquisitions of Ohio Bancorp (926 FTE) and at NPC (420 FTE). Excluding the acquisitions, total FTE declined by 152 positions. The remaining staff increases in mortgage servicing and item processing were volume-related. The increase in corporate is the result of centralizing back-office functions. This increase is more than offset by elimination of these functions in each individual bank. The overhead ratio (noninterest expenses less fee income as a percentage of fully taxable net interest income) was 44.34% in 1993 compared with 48.93% in 1992 and 49.93% in 1991 (Chart 12). The efficiency ratio (noninterest expense as a percentage of fee income plus fully taxable net interest income) was 66.21% in 1993, 68.22% in 1992, and 67.67% in 1991. The fee-based businesses have lower gross margins than traditional banking, and, therefore, growth in these businesses penalizes the efficiency ratio as shown in Table 2. In contrast, strong fee income benefits the overhead ratio. CHART 12. OVERHEAD RATIO (non-interest expenses less fee income divided by fully taxable net interest income) 88 42.66 89 43.68 90 46.33 91 49.93 92 48.93 93 44.34 The overhead ratio improved in 1993 for the second consecutive year. The improvement was due to the benefits of the Corporation's cost redesign program, the successful integration of acquisitions, and reduced expenses related to foreclosed property.
18 FINANCIAL REVIEW (Continued) SECURITY GAINS AND LOSSES Net realized security gains and losses are summarized as follows:
(Dollars in Thousands) 1993 1992 1991 - -------------------------------------------------------------------------- Net gains on sales of debt securities $8,462 $12,345 $18,617 Tax expense 2,962 4,256 6,343 ------ ------- ------- After tax $5,500 $ 8,089 $12,274 ====== ======= ======= Net gains on sales of equity securities $3,460 $13,352 $7,044 Tax expense 1,211 4,541 2,396 ------ ------- ------- After tax $2,249 $8,811 $4,648 ====== ======= ======= Effect on net income $7,749 $16,900 $16,922 ====== ======= ======= Effect on earnings per share $.05 $.11 $.11 ====== ======= =======
INCOME TAXES The consolidated income tax provision was $167.0 million in 1993 compared with $117.4 million in 1992 and $77.4 million in 1991. The effective tax rate of the Corporation was 29.2% in 1993, 25.3% in 1992, and 24.6% in 1991. The increase in the effective rate was due to the higher Federal statutory rate and lower levels of tax-exempt income in 1993. In 1992, the Corporation adopted SFAS 109 "Accounting for Income Taxes". Net deferred tax assets at December 31, 1993 and 1992 were $64.7 million and $85.4 million, respectively. SFAS 109 requires the Corporation to place a valuation allowance on its deferred tax assets if it is "more likely than not" that some portion of the deferred tax asset will not be realized. Under the regulations provided in SFAS 109, management found it unnecessary to place a valuation allowance on its deferred tax assets. The adoption of SFAS 109 did not have a significant effect on net income in 1992. Tax expense for 1991 was not restated. ASSET QUALITY NONPERFORMING ASSETS: A summary of nonaccrual, reduced rate and renegotiated loans and other nonperforming assets at December 31 follows:
(Dollars in Millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------- Commercial: Nonaccrual $ 79.4 $135.4 $191.8 $100.7 $104.3 Restructured 1.1 2.5 5.3 3.2 1.9 ------ ------ ------ ------ ------ Total commercial 80.5 137.9 197.1 103.9 106.2 Real estate related: Nonaccrual 64.4 81.5 129.7 205.3 122.8 Restructured 6.5 4.3 15.7 14.2 3.1 ------ ------ ------ ------ ------ Total real estate related 70.9 85.8 145.4 219.5 125.9 ------ ------ ------ ------ ------ Total domestic loans 151.4 223.7 342.5 323.4 232.1 International -- -- -- -- 33.5 ------ ------ ------ ------ ------ Total nonperforming loans 151.4 223.7 342.5 323.4 265.6 Other real estate owned (OREO) 57.8 143.7 196.8 158.8 37.0 ------ ------ ------ ------ ------ Nonperforming assets $209.2 $367.4 $539.3 $482.2 $302.6 ====== ====== ====== ====== ====== Loans 90 days past due accruing interest $42.2 $41.5 $65.9 $98.7 $57.4 ====== ====== ====== ====== ======
(cont'd.) CHART 13. NONPERFORMING ASSETS AND THE ALLOWANCE FOR LOAN LOSSES
NONPERFORMING ALLOWANCE FOR ASSETS LOAN LOSSES 88 268.6 326.2 89 302.6 311.2 90 482.2 327.3 91 539.3 385.9 92 367.4 383.9 93 209.2 443.4 Nonperforming assets at December 31, 1993 totalled $209 million and represented a decline of 43% from a year ago. At December 31, 1993, the allowance for loan losses represented 2.08% of total loans and 212% of nonperforming assets.
19 NONPERFORMING ASSETS (cont'd.)
1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------- Nonperforming loans and OREO as a percent of: Loans and OREO 1.0% 1.9% 2.8% 2.4% 1.6% Assets .7 1.3 1.8 1.6 1.1 Equity 7.6 14.7 23.9 24.8 16.1 Loan loss allowance to nonperforming loans 292.9% 171.6% 112.7% 101.2% 117.2%
The Corporation normally considers commercial loans and securities to be nonperforming when payments are 90 or more days past due, when credit terms are renegotiated below market levels, or when individual analysis of a borrower's creditworthiness indicates that a credit should be placed on nonaccrual status. Generally, when loans are classified as nonperforming, unpaid accrued interest is written off, and future income may be recorded only as cash payments are received. Nonperforming assets declined in 1993 due to payoffs and recoveries in nonaccrual commercial and real estate loans, as well as the disposal of foreclosed real estate. Although loans may be classified as nonperforming, many continue to pay interest irregularly or at less than original contractual rates. A summary of actual income booked on nonperforming loans versus their full contractual yields for each of the past five years follows:
(Dollars in Millions) 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------- Income potential based on original contract $16.0 $21.4 $36.3 $32.2 $29.0 Actual income 5.5 4.6 5.7 6.6 7.5
ALLOWANCE FOR LOAN LOSSES: The following table presents the reconciliation of the allowance for loan losses:
(Dollars in Millions) 1993 1992 1991 1990 1989 - -------------------------------------------------------------------------------------- Balance at beginning of year $383.9 $385.9 $327.3 $311.2 $326.2 Provision 93.1 129.4 251.1 231.4 157.3 Net acquired (sold) allowance 50.7 2.5 17.7 9.6 (.7) Loans charged off: Commercial 55.0 78.4 124.8 111.9 49.3 International 1.9 -- .1 46.1 55.0 Real estate mortgage 14.9 18.7 21.0 14.6 4.3 Consumer 35.0 45.6 57.5 60.6 49.6 Revolving credit 37.7 43.8 56.5 46.2 56.2 ------ ------ ------ ------ ------ Total charge-offs 144.5 186.5 259.9 279.4 214.4 Recoveries: Commercial 26.1 14.9 12.5 15.5 9.7 International -- .2 2.0 8.1 .5 Real estate mortgage 2.3 3.8 2.7 .9 .5 Consumer 21.6 23.0 21.3 18.1 15.6 Revolving credit 10.2 10.7 11.2 11.9 16.5 ------ ------ ------ ------ ------ Total recoveries 60.2 52.6 49.7 54.5 42.8 ------ ------ ------ ------ ------ Net charged-off loans 84.3 133.9 210.2 224.9 171.6 ------ ------ ------ ------ ------ Balance at end of year $443.4 $383.9 $385.9 $327.3 $311.2 ====== ====== ====== ====== ====== Ratio of ending allowance to ending loans 2.08% 2.05% 2.01% 1.67% 1.66%
The commercial category included real estate construction net charge-offs of $4.9 million in 1993, $12.3 million in 1992 and $14.2 million in 1991. Real estate mortgage loans included commercial real estate net charge-offs of $10.3 million in 1993, $11.7 million in 1992 and $14.5 million in 1991. CHART 14. NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS
NET C/O RATIO 88 1.16% 89 0.96% 90 1.16% 91 1.07% 92 0.72% 93 0.43% Net charge-offs as a percentage of average loans was .43% in 1993 compared with .72% in 1992 and 1.07% in 1991. The improvement was broad-based across the commercial and consumer loan portfolios.
20 FINANCIAL REVIEW (Continued) Net charge-offs (recoveries) as a percentage of average loans by portfolio type are shown in the following table:
1993 1992 1991 1990 1989 - ---------------------------------------------------------------------- Commercial .33% .71% 1.14% .95% .41% International 3.78 (.52) (3.96) 41.20 22.34 Real estate mortgage .24 .32 .41 .34 .12 Consumer .34 .61 .97 1.10 .95 Revolving credit 1.90 2.34 2.94 2.50 2.90 Total net charge-offs to average loans .43% .72% 1.07% 1.16% .96%
Net charge-offs as a percentage of loans declined 29 basis points in 1993 from 1992 reflecting decreased commercial, credit card and consumer charge-offs (Chart 14). Both the provision and the allowance are based on an analysis of individual credits, prior and current loss experience, overall growth in the portfolio, current economic conditions, and other factors. Consumer and credit card loans are charged off within industry norms, while commercial loans are evaluated individually. An allocation of the ending allowance for loan losses by major loan type follows:
(Dollars in Millions) 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------- Commercial and commercial mortgage $174.5 $192.6 $210.9 $179.6 $108.4 International .4 .6 .5 1.4 65.3 Consumer and residential mortgage 29.7 30.6 53.3 50.2 41.9 Revolving credit 22.1 30.1 28.7 31.2 26.6 Unallocated 216.7 130.0 92.5 64.9 69.0 ------ ------ ------ ------ ------ $443.4 $383.9 $385.9 $327.3 $311.2 ====== ====== ====== ====== ======
This allocation is made for analytical purposes. The total allowance is available to absorb losses from any segment of the portfolio. The changes in the allocated and unallocated categories reflect credit quality that has improved at a rapid rate. The 1993 provision for loan losses only slightly exceeded net charge-offs for the year. The following table shows the percentage of loans in each category to total loans at year-end:
1993 1992 1991 1990 1989 - --------------------------------------------------------------------------- Commercial and commercial mortgage 53.7% 57.6% 59.2% 59.3% 61.1% International .3 .3 .3 .3 1.0 Consumer and residential mortgage 38.9 34.3 32.7 32.4 30.0 Revolving credit 7.1 7.8 7.8 8.0 7.9 ----- ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
The Corporation plans to adopt SFAS 114 "Accounting By Creditors For Impairment of a Loan" on January 1, 1995. Management does not expect the adoption to have a material impact on financial position or results of operations. REPORT OF MANAGEMENT The management of National City Corporation has prepared the accompanying financial statements and is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and necessarily include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. National City Corporation maintains a system of internal control over financial reporting designed to produce reliable financial statements. The system contains self-monitoring mechanisms, and compliance is tested and evaluated through an extensive program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any internal control system has inherent limitations, including the possibility that controls can be circumvented or overridden. Further, because of changes in conditions, internal control system effectiveness may vary over time. The Audit Committee, consisting entirely of outside directors, meets regularly with management, internal auditors and independent auditors, and reviews audit plans and results as well as management's actions taken in discharging responsibilities for accounting, financial reporting and internal controls. Ernst & Young, independent auditors, and the internal auditors have direct and confidential access to the Audit Committee at all times to discuss the results of their examinations. National City Corporation assessed its internal control system as of December 31, 1993 in relation to criteria for effective internal control over financial reporting described in "Internal Control--Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 1993, its system of internal control met those criteria. Cleveland, Ohio January 21, 1994 /s/ Edward B. Brandon /s/ Robert G. Siefers Edward B. Brandon Robert G. Siefers Chairman and Chief Executive Officer Executive Vice President and Chief Financial Officer
21 STATISTICAL DATA CONSOLIDATED SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------------------------------- For the Calendar Year (In Millions Except Per Share Amounts and Ratios) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 - --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $1,582 $1,624 $1,974 $2,162 $2,094 $1,750 $1,521 $1,410 $1,349 $957 $764 Securities 276 341 389 442 407 373 345 318 288 240 217 Other interest income 32 67 112 91 111 77 76 99 175 200 179 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total interest income 1,890 2,032 2,475 2,695 2,612 2,200 1,942 1,827 1,812 1,397 1,160 INTEREST EXPENSE Deposits 542 723 1,093 1,252 1,206 957 806 821 878 689 572 Other interest expense 148 157 251 349 353 276 268 224 252 250 215 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total interest expense 690 880 1,344 1,601 1,559 1,233 1,074 1,045 1,130 939 787 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Net interest income 1,200 1,152 1,131 1,094 1,053 967 868 782 682 458 373 PROVISION FOR LOAN LOSSES 93 129 251 231 157 168 279 108 67 43 45 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Net interest income after provision for loan losses 1,107 1,023 880 863 896 799 589 674 615 415 328 Fees and other income 800 726 650 580 493 471 419 364 318 206 182 Security gains (losses) 12 26 26 3 3 11 11 21 9 (2) (17) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total noninterest income 812 752 676 583 496 482 430 385 327 204 165 Noninterest expense 1,348 1,311 1,242 1,115 981 913 857 797 709 467 390 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Income before income taxes 571 464 314 331 411 368 162 262 233 152 103 Income taxes 167 117 77 82 106 91 18 44 52 28 9 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- NET INCOME $404 $347 $237 $249 $305 $277 $144 $218 $181 $124 $94 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== NET INCOME PER SHARE: Primary $2.41 $2.09 $1.46 $1.62 $1.98 $1.80 $.93 $1.47 $1.39 $1.05 $.82 Assuming full dilution 2.37 2.06 1.45 1.61 1.98 1.80 .92 1.40 1.21 1.01 .80 Dividends paid per common share 1.06 .94 .94 .94 .84 .72 .60 .50 .44 .42 .41 Average shares outstanding 161.16 158.01 154.43 153.84 154.04 153.85 154.38 148.00 130.49 117.76 115.25 FINANCIAL RATIOS: Return on average common equity 16.12% 15.31% 11.20% 12.97% 17.18% 17.47% 9.51% 15.97% 15.87% 13.87% 11.86% Return on average assets 1.40 1.21 .81 .87 1.16 1.14 .63 1.05 .95 .90 .78 Average equity to average assets 9.04 8.25 7.35 6.73 6.73 6.55 6.67 6.68 6.18 6.54 6.54 Dividends paid to net income 43.98 44.98 64.38 58.02 42.42 40.00 64.52 34.01 31.65 40.00 50.00 Net interest margin 4.80 4.65 4.51 4.50 4.69 4.73 4.93 4.68 4.43 4.13 4.20 Overhead ratio 44.34 48.93 49.93 46.33 43.68 42.66 45.63 47.95 50.12 49.45 48.17 Efficiency ratio 66.21 68.22 67.67 64.27 60.90 60.61 62.14 62.92 64.56 63.60 63.47 AT YEAR-END: Assets $31,068 $28,963 $29,976 $29,561 $28,549 $26,879 $24,242 $23,495 $20,637 $19,560 $13,179 Loans 21,286 18,738 19,171 19,587 18,741 17,314 15,525 14,362 12,462 11,181 6,788 Securities 5,166 5,499 5,370 5,020 5,045 5,126 4,620 4,305 3,319 3,018 2,346 Deposits 23,063 22,585 22,758 22,730 21,386 20,676 18,368 17,350 15,532 14,626 9,428 Corporate long-term debt 510 328 330 308 310 264 294 277 254 198 120 Common equity 2,565 2,300 2,058 1,946 1,877 1,664 1,502 1,468 1,142 985 827 Total equity 2,763 2,500 2,258 1,946 1,877 1,664 1,507 1,498 1,265 1,109 827 Common shares outstanding 158.78 158.17 154.63 153.11 154.20 153.87 154.19 154.04 133.39 127.65 115.81 Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
22 STATISTICAL DATA (Continued) DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES (Dollars in Millions) - --------------------------------------------------------------------------------------------------------------------------
Daily Average Balance 1993 1992 1991 1990 1989 1988 ASSETS Earning Assets: Loans: Commercial $8,816 $8,977 $9,885 $10,227 $9,788 $9,068 Real estate mortgage 5,297 4,607 4,419 3,987 3,054 2,458 Consumer 3,893 3,675 3,738 3,872 3,592 3,225 Revolving credit 1,448 1,412 1,539 1,370 1,367 1,348 ------- ------- ------- ------- ------- ------- Total loans 19,454 18,671 19,581 19,456 17,801 16,099 Securities: Taxable 4,637 4,361 3,722 3,813 3,437 3,333 Tax-exempt 861 1,024 1,174 1,274 1,329 1,416 ------- ------- ------- ------- ------- ------- Total securities 5,498 5,385 4,896 5,087 4,766 4,749 Federal funds sold 77 315 296 247 121 112 Security resale agreements 274 706 870 275 127 100 Eurodollar time deposits in banks 278 417 417 298 655 500 Other short-term money market investments 164 187 219 300 372 304 ------- ------- ------- ------- ------- ------- Total earning assets/Total interest income/Rates 25,745 25,681 26,279 25,663 23,842 21,864 Allowance for loan losses (409) (393) (367) (315) (339) (327) Cash and demand balances due from banks 1,959 1,827 1,855 1,789 1,675 1,611 Properties and equipment 367 383 410 414 385 375 Customers' acceptance liability 51 78 75 96 62 78 Accrued income and other assets 1,121 1,059 1,091 917 732 659 ------- ------- ------- ------- ------- ------- Total assets $28,834 $28,635 $29,343 $28,564 $26,357 $24,260 ======= ======= ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Savings and NOW accounts $4,543 $3,981 $3,371 $3,138 $2,796 $2,819 Insured money market accounts 5,401 5,236 4,519 3,767 3,238 3,391 Time deposits of individuals 6,268 7,230 8,430 8,112 6,736 5,381 Other time deposits 552 936 1,777 2,495 3,000 2,625 Deposits in overseas offices 263 251 367 315 629 490 Federal funds borrowed 1,439 995 1,056 1,289 1,395 1,233 Security repurchase agreements 1,080 1,183 1,141 1,374 1,383 1,519 Borrowed funds 1,193 1,359 1,706 1,424 954 830 Corporate long-term debt 452 329 318 309 273 281 ------- ------- ------- ------- ------- ------- Total interest bearing liabilities/ Total interest expense/Rates 21,191 21,500 22,685 22,223 20,404 18,569 Noninterest bearing deposits 4,619 4,333 4,010 3,930 3,745 3,749 Acceptances outstanding 51 78 75 96 62 78 Accrued expenses and other liabilities 367 362 417 393 372 276 ------- ------- ------- ------- ------- ------- Total liabilities 26,228 26,273 27,187 26,642 24,583 22,672 Stockholders' equity 2,606 2,362 2,156 1,922 1,774 1,588 ------- ------- ------- ------- ------- ------- Total liabilities and stockholders' equity $28,834 $28,635 $29,343 $28,564 $26,357 $24,260 ======= ======= ======= ======= ======= ======= Net interest income Interest spread Contribution of noninterest bearing sources of funds Net interest margin Fully taxable equivalent basis computed at 35% in 1993 and 34% in 1992 through 1988. Average loan balances include nonperforming loans. Amounts for 1993 include Ohio Bancorp from date of purchase.
23
- -------------------------------------------------------------------------- --------------------------------------------------- Interest Daily Average Rate 1993 1992 1991 1990 1989 1988 1993 1992 1991 1990 1989 1988 $648.7 $679.7 $904.8 $1,073.6 $1,102.9 $909.4 7.36% 7.57% 9.15% 10.50% 11.27% 10.03% 421.4 409.8 448.0 424.8 331.2 263.5 7.96 8.90 10.14 10.65 10.84 10.72 338.8 358.9 408.7 453.3 436.4 357.7 8.70 9.77 10.93 11.71 12.15 11.09 182.9 186.4 227.5 229.7 241.5 237.6 12.63 13.20 14.78 16.77 17.67 17.63 - -------- -------- -------- -------- -------- -------- 1,591.8 1,634.8 1,989.0 2,181.4 2,112.0 1,768.2 8.18 8.76 10.16 11.21 11.86 10.98 229.0 277.6 308.7 347.7 305.3 250.6 4.94 6.37 8.29 9.12 8.88 7.52 73.3 95.3 119.4 135.8 147.6 170.8 8.51 9.31 10.17 10.66 11.11 12.06 - -------- -------- -------- -------- -------- -------- 302.3 372.9 428.1 483.5 452.9 421.4 5.50 6.92 8.74 9.50 9.50 8.87 4.5 11.1 17.3 20.3 10.9 8.5 5.84 3.52 5.84 8.22 9.01 7.59 8.8 26.9 49.7 22.1 11.7 6.9 3.21 3.81 5.71 8.04 9.21 6.90 9.6 16.4 27.3 25.8 60.2 41.2 3.45 3.93 6.55 8.66 9.19 8.24 8.9 12.7 17.4 23.5 29.7 20.6 5.43 6.74 7.95 7.83 7.98 6.78 - -------- -------- -------- -------- -------- -------- $1,925.9 $2,074.8 $2,528.8 $2,756.6 $2,677.4 $2,266.8 7.48% 8.08% 9.62% 10.74% 11.23% 10.37% $122.8 $128.3 $155.0 $157.0 $136.9 $138.0 2.70% 3.22% 4.60% 5.00% 4.90% 4.90% 116.3 146.3 211.3 216.2 180.7 176.5 2.15 2.79 4.68 5.74 5.58 5.20 277.1 400.3 592.2 654.9 557.8 403.8 4.42 5.54 7.02 8.07 8.28 7.50 19.1 39.5 112.2 200.3 273.8 201.6 3.46 4.22 6.31 8.03 9.13 7.68 6.9 8.3 21.6 23.7 56.8 36.7 2.62 3.31 5.89 7.52 9.03 7.49 45.5 34.4 60.2 104.0 127.9 94.1 3.16 3.46 5.70 8.07 9.17 7.63 27.6 36.7 58.5 103.9 118.0 104.7 2.56 3.09 5.13 7.56 8.53 6.89 46.4 60.9 106.8 112.9 80.3 50.7 3.89 4.49 6.26 7.93 8.42 6.11 28.4 24.8 26.0 28.1 26.8 26.4 6.28 7.54 8.18 9.09 9.82 9.40 - -------- -------- -------- -------- -------- -------- $690.1 $879.5 $1,343.8 $1,601.0 $1,559.0 $1,232.5 3.26% 4.09% 5.92% 7.20% 7.64% 6.64% - -------- -------- -------- -------- -------- -------- $1,235.8 $1,195.3 $1,185.0 $1,155.6 $1,118.4 $1,034.3 ======== ======== ======== ======== ======== ======== 4.22% 3.99% 3.70% 3.54% 3.59% 3.73% .58 .66 .81 .96 1.10 1.00 ----- ----- ----- ----- ----- ------ 4.80% 4.65% 4.51% 4.50% 4.69% 4.73% ===== ===== ===== ===== ===== =====
24 FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts) 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME For the Calendar Year Loans: Taxable $1,565,636 $1,602,508 $1,939,934 Exempt from Federal income taxes 16,470 21,593 34,165 Securities: Taxable 229,007 277,635 308,653 Exempt from Federal income taxes 47,279 63,442 80,780 Federal funds sold and security resale agreements 13,254 37,981 66,927 Eurodollar time deposits in banks 9,630 16,360 27,266 Other short-term investments 8,888 12,807 17,312 ---------- ---------- ---------- Total interest income 1,890,164 2,032,326 2,475,037 INTEREST EXPENSE Deposits 542,165 722,657 1,092,335 Federal funds borrowed and security repurchase agreements 73,151 71,146 118,660 Borrowed funds 46,417 60,988 106,789 Corporate long-term debt 28,377 24,790 25,984 ---------- ---------- ---------- Total interest expense 690,110 879,581 1,343,768 ---------- ---------- ---------- Net interest income 1,200,054 1,152,745 1,131,269 PROVISION FOR LOAN LOSSES 93,089 129,361 251,076 ---------- ---------- ---------- Net interest income after provision for loan losses 1,106,965 1,023,384 880,193 NONINTEREST INCOME Item processing revenues 267,962 194,166 166,934 Service charges on deposit accounts 152,609 143,909 133,794 Trust fees 122,597 118,350 111,352 Credit card fees 92,966 101,898 86,871 Mortgage servicing fees 58,678 59,958 43,865 Other 105,003 107,379 107,228 ---------- ---------- ---------- Total fees and other income 799,815 725,660 650,044 Security gains 11,922 25,697 25,661 ---------- ---------- ---------- Total noninterest income 811,737 751,357 675,705 NONINTEREST EXPENSE Salaries and employee benefits 623,472 617,015 583,184 Equipment 89,005 90,768 90,690 Net occupancy 89,729 85,620 83,473 Assessments and taxes 80,454 76,779 72,080 Expense of other real estate owned 26,177 46,847 56,942 Other 438,903 393,419 355,347 ---------- ---------- ---------- Total noninterest expense 1,347,740 1,310,448 1,241,716 ---------- ---------- ---------- Income before income taxes 570,962 464,293 314,182 Income tax expense 166,965 117,370 77,377 ---------- ---------- ---------- NET INCOME $403,997 $346,923 $236,805 ========== ========== ========= NET INCOME APPLICABLE TO COMMON STOCK $388,031 $330,923 $225,605 ========== ========== ========= NET INCOME PER COMMON SHARE $2.41 $2.09 $1.46 Average Common Shares Outstanding 161,163,816 158,011,980 154,430,222 Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993. See notes to financial statements.
25 CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands) 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- ASSETS December 31 Loans: Commercial $8,429,118 $8,112,315 International 69,776 49,940 Real estate construction 439,406 532,784 Lease financing 228,352 224,553 Real estate mortgage - nonresidential 2,328,228 1,927,682 Real estate mortgage - residential 3,523,836 2,314,412 Mortgage loans held for sale 509,187 384,486 Consumer 4,241,461 3,726,790 Revolving credit 1,516,776 1,464,603 ----------- ----------- Total loans 21,286,141 18,737,565 Allowance for loan losses 443,412 383,849 ----------- ----------- Net loans 20,842,729 18,353,716 Securities held to maturity (market value $1,824,855 and $2,442,196, respectively) 1,763,025 2,358,365 Securities available for sale (market value $3,181,599 in 1992) 3,403,201 3,140,174 Federal funds sold and security resale agreements 611,743 363,898 Trading account assets 150,296 13,044 Eurodollar time deposits in banks 457,000 954,100 Other short-term money market investments 85,677 279,390 Cash and demand balances due from banks 1,933,888 2,070,932 Properties and equipment 386,219 369,328 Customers' acceptance liability 68,148 59,131 Accrued income and other assets 1,365,783 1,001,395 ----------- ----------- TOTAL ASSETS $31,067,709 $28,963,473 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Demand deposits (noninterest bearing) $5,214,560 $4,818,847 Savings and NOW accounts 5,161,593 4,416,534 Insured money market accounts 5,489,785 5,647,269 Time deposits of individuals 6,224,231 6,628,731 Other time deposits 500,421 697,156 Deposits in overseas offices 472,431 376,787 ----------- ----------- Total deposits 23,063,021 22,585,324 Federal funds borrowed and security repurchase agreements 3,082,821 1,818,724 Borrowed funds 1,201,011 1,393,220 Acceptances outstanding 68,148 59,131 Accrued expenses and other liabilities 379,268 279,590 Corporate long-term debt 510,173 327,598 ----------- ----------- TOTAL LIABILITIES 28,304,442 26,463,587 Stockholders' Equity: Preferred stock, without par value, authorized 5,000,000 shares, outstanding 793,240 and 800,000 shares (3,966,200 and 4,000,000 depositary shares) of 8% Cumulative Convertible Preferred Stock ($250 liquidation preference per share) in 1993 and 1992 198,310 200,000 Common stock, par value $4 per share, authorized 350,000,000 shares, outstanding 158,779,611 shares in 1993 and 158,167,180 shares in 1992 635,119 316,335 Capital surplus 105,140 300,307 Retained earnings 1,841,144 1,708,506 Unallocated shares held by Employee Stock Ownership Plan (ESOP) trust (16,446) (25,262) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 2,763,267 2,499,886 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,067,709 $28,963,473 =========== =========== See notes to financial statements.
26 FINANCIAL STATEMENTS (Continued) CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES For the Calendar Year Net income $403,997 $346,923 $236,805 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 93,089 129,361 251,076 Depreciation and amortization 56,610 59,314 63,422 Amortization of goodwill and intangibles 61,721 37,459 35,086 Amortization of securities discount and premium 6,488 (4,643) (11,835) Security gains (11,922) (25,697) (25,661) Other gains, net -- (4,352) (16,967) Net decrease (increase) in trading account securities (137,252) 19,978 2,289 Originations and purchases of mortgage loans held for sale (3,635,705) (2,967,585) (1,782,309) Proceeds from sales of mortgage loans held for sale 3,496,154 2,756,320 1,676,443 Deferred income taxes (benefit) 21,563 (22,089) (9,320) (Increase) decrease in interest receivable (22,698) 87,037 42,926 Increase (decrease) in interest payable 24,319 (97,418) (31,745) (Increase) decrease in other assets (279,286) 40,999 (68,138) Increase (decrease) in other liabilities 46,041 (22,416) 8,110 ---------- ---------- ----------- Net cash provided (used) by operating activities 123,119 333,191 370,182 LENDING AND INVESTING ACTIVITIES Net change in short-term investments 633,588 375,201 (704,905) Purchases of securities (4,036,281) (3,391,162) (2,968,916) Proceeds from sales of securities 2,594,509 1,253,787 1,891,382 Proceeds from maturities and prepayments of securities 2,368,065 2,041,828 944,922 Net change in loans (1,870,528) 357,484 409,678 Proceeds from sales of loans 207,156 160,214 454,503 Net increase in properties and equipment (55,348) (38,337) (42,359) Acquisitions (43,490) (17,000) (4,650) ---------- ---------- ----------- Net cash provided (used) by lending and investing activities (202,329) 742,015 (20,345) DEPOSIT AND FINANCING ACTIVITIES Net change in Federal funds borrowed and security repurchase agreements 1,179,308 (585,919) (89,204) Net change in borrowed funds (217,410) (322,283) 26,241 Net change in demand, savings, NOW, insured money market accounts, and deposits in overseas offices 212,946 1,843,412 553,725 Net change in time deposits (1,093,817) (2,015,913) (1,192,870) Repayment of long-term debt (20,660) (2,812) (2,916) Issuance of long-term debt 197,950 -- 25,840 Dividends paid, net of tax benefit of ESOP shares (184,516) (155,718) (140,227) Issuance of common stock 28,469 47,378 10,742 Repurchase of common and preferred stock (168,920) (1,118) (10,518) Issuance of preferred stock -- -- 195,072 ESOP trust repayment 8,816 4,759 469 ---------- ---------- ----------- Net cash (used) provided by deposit and financing activities (57,834) (1,188,214) (623,646) ---------- ---------- ----------- Net (decrease) increase in cash and demand balances due from banks (137,044) (113,008) (273,809) Cash and demand balances due from banks, January 1 2,070,932 2,183,940 2,457,749 ---------- ---------- ----------- Cash and demand balances due from banks, December 31 $1,933,888 $2,070,932 $2,183,940 ========== ========== ========== SUPPLEMENTAL DISCLOSURES Interest paid $662,000 $977,000 $1,350,000 Income taxes paid 147,000 140,000 75,000 Shares issued in purchase acquisitions 140,568 -- -- Unrealized appreciation in securities available for sale: Securities available for sale 53,804 -- -- Stockholders' equity 34,967 -- -- Deferred taxes 18,837 -- -- See notes to financial statements.
27 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unallocated Shares Preferred Common Capital Retained Held by (Dollars in Thousands Except Per Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1991 $306,217 $241,781 $1,428,764 $(30,490) $1,946,272 Net income 236,805 236,805 Common dividends, $.94 per share (114,045) (114,045) Common dividends of pooled company (17,649) (17,649) Preferred dividends, $2.133 per depositary share (8,533) (8,533) Issuance of 867,654 common shares under corporate stock plans 1,736 9,006 10,742 Issuance of 1,250,124 common shares pursuant to acquisitions 2,500 16,547 19,047 Purchase of 600,000 common shares (1,200) (1,277) (8,041) (10,518) Issuance of 800,000 shares (4,000,000 depositary shares) of 8% Cumulative Convertible Preferred Stock $200,000 (4,928) 195,072 Shares distributed by ESOP trust 469 469 -------- -------- -------- ---------- -------- ---------- Balance December 31, 1991 200,000 309,253 261,129 1,517,301 (30,021) 2,257,662 Net income 346,923 346,923 Common dividends, $.94 per share (130,881) (130,881) Common dividends of pooled company (9,155) (9,155) Preferred dividends, $4.00 per depositary share (16,000) (16,000) Issuance of 3,621,216 common shares under corporate stock and dividend reinvestment plans 7,243 40,135 47,378 Purchase of 80,400 common shares (161) (957) (1,118) Shares distributed by ESOP trust and tax benefit on dividends 318 4,759 5,077 -------- -------- -------- ---------- -------- ---------- Balance December 31, 1992 200,000 316,335 300,307 1,708,506 (25,262) 2,499,886 Net income 403,997 403,997 Common dividends, $1.06 per share (169,391) (169,391) Preferred dividends, $4.00 per depositary share (16,000) (16,000) Issuance of 1,530,479 common shares under corporate stock and dividend reinvestment plans 3,972 24,497 28,469 Purchase of 6,724,600 common shares and 33,800 depositary shares of preferred stock (1,690) (21,469) (23,951) (121,810) (168,920) Issuance of 5,806,552 common shares pursuant to acquisitions 20,174 120,394 140,568 Two-for-one stock split 316,107 (316,107) -- Shares distributed by ESOP trust and tax benefit on dividends 875 8,816 9,691 Accounting change adjustment for unrealized gains on securities available for sale 34,967 34,967 -------- -------- -------- ---------- -------- ---------- Balance December 31, 1993 $198,310 $635,119 $105,140 $1,841,144 $(16,446) $2,763,267 ======== ======== ======== ========== ======== ========== Common stock and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993. See notes to financial statements.
28 NOTES TO FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES CONSOLIDATION: The consolidated financial statements include the accounts of National City Corporation and all of its subsidiaries. The Corporation's primary business is banking. ACQUISITIONS AND AMORTIZATION OF INTANGIBLES: Operations of companies acquired in purchase transactions are included in the statements of income from the respective dates of acquisition. The excess of the purchase price over net identifiable assets acquired (goodwill) is included in other assets and is being amortized over varying remaining lives not exceeding 30 years. Core deposit intangibles are amortized on a straight-line basis over varying remaining periods not exceeding 10 years. Purchased servicing contract costs are deferred and amortized over the stream of servicing income to be received. CASH FLOWS: The Corporation has defined cash and cash equivalents as those amounts included in the balance sheet caption "Cash and demand balances due from banks." MORTGAGE LOANS HELD FOR SALE: Mortgage loans held for sale are valued at the lower of cost or market, as calculated on an aggregate loan basis. ALLOWANCE FOR LOAN LOSSES: The provision for loan losses and the adequacy of the allowance for loan losses are based upon a continuing evaluation of the loan portfolio, current economic conditions, prior loss experience, and other pertinent factors. SECURITIES AND TRADING ACCOUNT: As further discussed in Note 4, the Corporation adopted SFAS 115 "Accounting For Certain Investments in Debt and Equity Securities" on December 31, 1993. As required by SFAS 115, management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Trading account assets are held for resale in anticipation of short-term market movements and are valued at fair value. Gains and losses, both realized and unrealized, are included in other income. Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Securities held to maturity are carried at amortized cost. Debt securities not classified as held to maturity or trading account and marketable equity securities not classified as trading are classified as available for sale. Securities available for sale are carried at fair value with unrealized gains and losses reported separately through retained earnings, net of tax. Amortization of premiums and accretion of discounts are recorded as interest income from investments. Realized gains and losses are recorded as net security gains (losses). The adjusted cost of specific securities sold is used to compute gain or loss on sales. Other income also includes gains and losses and adjustments to market on interest rate futures and forward contracts related to trading account assets and liabilities. OTHER TIME DEPOSITS: Other time deposits include time certificates of deposit of $100,000 or more and totaled approximately $702,000,000 and $1,146,000,000, respectively, at December 31, 1993 and 1992. OFF-BALANCE SHEET FINANCIAL AGREEMENTS: The Corporation uses futures, forwards, and option contracts to hedge assets and liabilities other than in the trading account. Gains and losses on hedging transactions are deferred and amortized as a yield adjustment over the remaining life of the hedged asset or liability. The Corporation enters into interest rate exchange agreements ("swaps") to manage its interest rate sensitivity. Gains and losses on offsetting transactions are deferred and amortized as a yield adjustment over the remaining life of the original swaps. OTHER REAL ESTATE OWNED: Expense of other real estate owned includes the cost of operating foreclosed properties, gain or loss on disposal of properties, and write- downs of carrying value on foreclosed properties. DEPRECIABLE ASSETS: Properties and equipment are stated at cost less accumulated depreciation and amortization. Buildings and equipment are depreciated on a straight-line basis over their useful lives. Leasehold improvements are amortized over the lives of the leases. Maintenance and repairs are charged to expense as incurred, while improvements which extend the useful life are capitalized and depreciated over the remaining life. Upon the sale or disposal of property, the cost and accumulated depreciation are removed from the accounts and the resulting gain or loss is included in current income. INCOME: Interest and other income are recorded as earned. Loans are classified as nonaccrual, reduced rate or renegotiated based on management's judgment and requirements established by bank regulatory agencies. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest income is only recorded once principal recovery is reasonably assured. Loan origination fees and other direct costs are amortized into interest or other income using a method which approximates the interest method over the estimated life of the related loan. INCOME TAXES: Deferred income taxes reflect the temporary tax consequences on future years of differences between the tax and financial statement basis of assets and liabilities. FOREIGN EXCHANGE: Foreign exchange positions are valued at the prevailing rates of exchange and gains or losses are included in other income. TREASURY STOCK: Acquisitions of treasury stock are recorded on the par value method, which requires the cash paid to be allocated to common or preferred stock, surplus and retained earnings. RECLASSIFICATION: Certain prior year amounts have been reclassified to conform with the current year presentation. STOCK SPLIT: On July 1, 1993, the Corporation's Board of Directors authorized a two-for-one split of the common stock in the form of a 100% stock dividend. Accordingly, common stock and per share data have been restated to reflect the stock split. 29 2. ACQUISITIONS In February 1993, the Corporation acquired JBS Associates, Inc. (JBS), a check authorization business, and accounted for the acquisition as a purchase. JBS stockholders received cash of $24.3 million and were issued approximately 1.5 million shares (adjusted for the stock split) of the Corporation's common stock. A provision in the purchase agreement guarantees the total value of the consideration received by the JBS stockholders to be not less than $56.6 million as of February 1, 1998. Total goodwill recorded was $51.5 million and is being amortized over 20 years. In October 1993, the Corporation acquired Ohio Bancorp, a $1.6 billion assets bank holding company headquartered in Youngstown, Ohio. Ohio Bancorp shareholders received approximately $104 million in cash and were issued approximately 4.3 million shares of the Corporation's common stock, for a total transaction value of approximately $215 million. The transaction was accounted for as a purchase. Total goodwill recorded was $65 million and is being amortized over 20 years. In May 1992, Merchants National Corporation (MCHN), a $5.4 billion assets bank holding company located in Indianapolis, Indiana, was merged into and became a wholly- owned subsidiary of the Corporation. Each share of MCHN common stock outstanding on May 2, 1992, was converted into 2.24 shares (adjusted for the stock split) of the Corporation's common stock. The Corporation issued approximately 34.2 million shares (adjusted for the stock split) of common stock and cash in lieu of fractional shares for all of the outstanding shares of MCHN. The acquisition was accounted for as a pooling-of-interests. 3. LOANS Total loans outstanding were recorded net of unearned income of $85,685,000 in 1993 and $85,692,000 in 1992. Activity in the allowance for loan losses follows:
For the Calendar Year ---------------------------------- (In Thousands) 1993 1992 1991 - ----------------------------------------------------------------- Balance at beginning of year $383,849 $385,866 $327,285 Acquired allowance 50,756 2,479 17,651 Provision 93,089 129,361 251,076 Loans charged off (144,490) (186,528) (259,898) Recoveries 60,208 52,671 49,752 -------- -------- -------- Net charge-offs (84,282) (133,857) (210,146) -------- -------- -------- Balance at end of year $443,412 $383,849 $385,866 ======== ======== ========
At December 31, 1993, nonaccrual, reduced-rate, and renegotiated loans were $151,343,000, and other real estate owned was $57,807,000. At December 31, 1992, the corresponding amounts were $223,738,000 and $143,693,000, respectively. In May 1993, the Financial Accounting Standards Board issued SFAS No. 114, "Accounting By Creditors For Impairment of a Loan." The Corporation plans to adopt this standard on January 1, 1995 and does not expect the adoption to have a material impact on financial position or results of operations. 4. SECURITIES On December 31, 1993, the Corporation adopted the requirements of SFAS 115. The most significant impact of the new accounting requirements is that unrealized holding gains and losses on securities classified as available for sale are recorded in stockholders' equity. Previously, these securities were recorded at the lower of amortized cost or market, with unrealized losses, if any, reported in earnings. The adoption did not have a material effect on the results of operations for the year ended December 31, 1993 and prior period financial statements have not been restated. In accordance with SFAS 115, stockholders' equity at December 31, 1993 was increased $35.0 million (net of $18.8 million in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available for sale, previously carried at lower of amortized cost or market. Also at December 31, 1993, certain securities netting to $617 million (at cost) were reclassified between held to maturity and available for sale in contemplation of adopting SFAS 115. The following is a summary of securities held to maturity and available for sale:
DECEMBER 31, 1993 ------------------------------------------------- UNREALIZED UNREALIZED MARKET (In Thousands) COST GAINS LOSSES VALUE - --------------------------------------------------------------------------- Held to maturity: U.S. Treas. and Fed. agency debentures $205,411 $1,682 $-- $207,093 Mortgage-backed securities 804,830 8,260 4,214 808,876 States and political subdivisions 604,916 58,770 3,735 659,951 Other 147,868 1,092 25 148,935 ---------- -------- -------- ---------- Total held to maturity 1,763,025 69,804 7,974 1,824,855 Available for sale: U.S. Treas. and Fed. agency debentures 1,094,907 24,699 3,771 1,115,835 Mortgage-backed securities 2,070,502 11,667 2,789 2,079,380 States and political subdivisions 31,973 854 -- 32,827 Other 152,015 27,693 4,549 175,159 ---------- --------- -------- ----------- Total available for sale 3,349,397 64,913 11,109 3,403,201 ---------- -------- ------- ---------- Total securities $5,112,422 $134,717 $19,083 $5,228,056 ========== ======== ======= ==========
30 NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1992 ------------------------------------------- Unrealized Unrealized Market (In Thousands) Cost Gains Losses Value - -------------------------------------------------------------------------- Held to maturity: U.S. Treas. and Fed. agency debentures $381,571 $4,297 $-- $385,868 Mortgage-backed securities 822,143 10,122 2,638 829,627 States and political subdivisions 794,629 74,346 4,120 864,855 Other 360,022 6,446 4,622 361,846 ---------- -------- ------- ---------- Total held to maturity 2,358,365 95,211 11,380 2,442,196 Available for sale: U.S. Treas. and Fed. agency debentures 816,353 14,123 1,906 828,570 Mortgage-backed securities 2,241,266 24,211 6,317 2,259,160 Other 82,555 12,963 1,649 93,869 ---------- -------- ------- ----------- Total available for sale 3,140,174 51,297 9,872 3,181,599 ---------- -------- ------- ---------- Total securities $5,498,539 $146,508 $21,252 $5,623,795
========== ======== ======= ========== The market values of securities are based on quoted market prices, where available, and on quoted market prices of comparable instruments when specific quoted prices are not available. The following table shows the carrying value and market value of securities at December 31, 1993 by maturity:
Available Held to Maturity for Sale ---------------------- ---------------------- Market Market (In Thousands) Cost Value Cost Value - ---------------------------------------------------------------------- Due in 1 year or less $668,611 $673,928 $149,012 $147,075 Due in 1 to 5 years 804,499 844,103 2,787,572 2,819,748 Due in 5 to 10 years 164,150 169,179 254,079 254,306 Due after 10 years 125,765 137,645 158,734 182,072 ---------- ---------- ---------- ---------- $1,763,025 $1,824,855 $3,349,397 $3,403,201 ========== ========== ========== ==========
Mortgage-backed securities and other securities which may have prepayment provisions are assigned to a maturity category based on estimated average lives. In 1993, 1992 and 1991, gross gains of $16.3 million, $28.6 million, and $29.0 million and gross losses of $4.4 million, $2.9 million, and $3.3 million were realized, respectively. Proceeds from the sale of securities totaled $2,595 million, $1,254 million, and $1,891 million in 1993, 1992 and 1991, respectively. At December 31, 1993, the carrying value of securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $2,462,449,000. At December 31, 1993, there were no securities of a single issuer, other than U.S. Treasury securities and other U.S. government agencies, which exceeded 10% of stockholders' equity. 5. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value disclosures of financial instruments are made to comply with the requirements of SFAS 107 "Disclosures About Fair Value of Financial Statements". The market value of securities, as presented in Note 4, is based primarily upon quoted market prices. For substantially all other financial instruments, the fair values are management's estimates of the values at which the instruments could be exchanged in a transaction between willing parties. Fair values are based on estimates using present value and other valuation techniques in instances where quoted market prices are not available. These techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. As such, the derived fair value estimates cannot be substantiated by comparison to independent markets and, further, may not be realizable in an immediate settlement of the instruments. SFAS 107 also excludes certain items from its disclosure requirements. These items include non-financial assets, intangibles and future business growth, as well as certain liabilities such as pension and other post-retirement benefits, deferred compensation arrangements and leases. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. Portions of the unrealized gains and losses inherent in the valuation are a result of management's program to manage overall interest rate risk and represent a point-in-time valuation. It is not management's intention to immediately dispose of a significant portion of its financial instruments and, thus, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. The following table presents the estimates of fair value of financial instruments at December 31, except for securities which are disclosed in Note 4:
1993 1992 ----------------- ------------------- CARRYING FAIR Carrying Fair (In Millions) VALUE VALUE Value Value - --------------------------------------------------------------------- Assets: Cash and cash equivalents $3,391 $3,391 $3,926 $3,926 Loans held for sale 509 509 384 384 Loans receivable 20,777 20,990 18,354 18,218 Allowance for loan losses (443) -- (384) -- Trading account assets 150 150 13 13 Liabilities: Demand deposits $5,215 $5,215 $4,819 $4,819 Time deposits 17,848 17,916 17,766 17,919 Short-term borrowings 4,352 4,352 3,271 3,271 Long-term debt 510 538 328 341 Other liabilities 119 119 92 92 Off-Balance Sheet Instruments: Interest rate swaps: Receive fixed rates $-- $34 $-- $45 Pay fixed rates -- (23) -- (40) Interest rate caps and floors 13 46 8 18 Futures, forwards and options 1 1 5 1 Commitments to extend credit (9) (9) (6) (6) Standby letters of credit (1) (1) (1) (1)
31 The following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. For purposes of this disclosure only, cash equivalents include Federal funds sold, security resale agreements, Eurodollar time deposits, customers' acceptance liability, accrued interest receivable, and other short-term money market investments. LOANS RECEIVABLE AND LOANS HELD FOR SALE: For performing variable-rate loans that reprice frequently and loans held for sale, estimated fair values are based on carrying values. The fair values for loans are estimated using a discounted cash flow calculation that applies interest rates used to price new, similar loans to a schedule of aggregated expected monthly maturities, adjusted for market and credit risks. DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. SHORT-TERM BORROWINGS: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements, commercial paper, and other short-term borrowings approximate their fair values. LONG-TERM DEBT: The fair values of the Corporation's long-term borrowings (other than deposits) and certain other borrowings are estimated using discounted cash flow analyses based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. OFF-BALANCE SHEET INSTRUMENTS: The amounts shown under carrying value represent accruals or deferred income (fees) arising from the related unrecognized financial instruments. Fair values for the Corporation's off-balance sheet instruments (futures, swaps, forwards, options, guarantees, and lending commitments) are based on quoted market prices (futures); current settlement values (financial forwards); quoted market prices of comparable instruments; fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing (guarantees, loan commitments); or, if there are no relevant comparables, on pricing models or formulas using current assumptions (interest rate swaps and options). 6. CASH AND DEMAND BALANCES DUE FROM BANKS The Corporation's subsidiary banks are required to maintain noninterest bearing reserve balances with the Federal Reserve Bank. The consolidated average amount of those reserve balances was $317 million for 1993. 7. PROPERTIES AND EQUIPMENT A summary of properties and equipment follows:
December 31 ----------------------- (In Thousands) 1993 1992 - ------------------------------------------------------------------- Land $66,424 $60,719 Buildings and leasehold improvements 370,591 349,220 Equipment 402,749 378,527 -------- -------- 839,764 788,466 Less accumulated depreciation and amortization 453,545 419,138 -------- -------- Net properties and equipment $386,219 $369,328 ======== ========
The Corporation and certain of its subsidiary banks occupy their respective headquarters offices under long-term operating leases and, in addition, lease certain data processing equipment. The aggregate minimum annual rental commit- ments under these leases is approximately $41.1 million in 1994, $39.4 million in 1995, $37.8 million in 1996, $30.4 million in 1997, $26.2 million in 1998, and $90.7 million thereafter (extending primarily through the year 2007). Total expense recorded under all operating leases in 1993, 1992 and 1991 was $59,960,000, $57,356,000, and $49,484,000, respectively. 8. BORROWED FUNDS The composition of borrowed funds follows:
December 31 ------------------------- (In Thousands) 1993 1992 - ------------------------------------------------------------------- U.S. Treasury demand notes and Federal funds borrowed - term $ 309,832 $ 307,414 Trading account liabilities - short sales -- 56 Securities sold with recourse 12,805 25,610 Notes payable to Student Loan Marketing Association 243,400 243,400 Military banking liabilities 185,493 364,757 Other 50,632 71,604 ---------- ----------- Bank subsidiaries 802,162 1,012,841 Commercial paper 398,790 377,542 Other 59 2,837 ---------- ----------- Other subsidiaries 398,849 380,379 ---------- ---------- Total $1,201,011 $1,393,220 ========== ==========
Securities sold with recourse represent the proceeds from the sale of certain securities by a subsidiary bank under a put option, whereby the buyer may require purchase at a predetermined price. This arrangement has been accounted for as a secured borrowing for financial reporting purposes. 32 NOTES TO FINANCIAL STATEMENTS (Continued) Pursuant to the terms of a contract with the U.S. Department of Defense, National City Bank, Indiana, a principal banking subsidiary of the Corporation, manages a military banking network which provides retail banking services to U.S. military personnel and certain related parties. Total assets under fiduciary management approximated $813 million at year-end. In conjunction with the contract, certain funds relating to the military banking network are placed with National City Bank, Indiana and are included in Borrowed Funds as military banking liabilities. The current contract extends through September 30, 1994. The $243,400,000 floating rate notes payable to Student Loan Marketing Association are due in March 1994. The notes are secured by and provide funding for student loan receivables. 9. CORPORATE LONG-TERM DEBT The composition of corporate long-term debt follows:
December 31 ---------------------- (In Thousands) 1993 1992 - ----------------------------------------------------------------- 8 3/8% Notes due 1996 $100,000 $100,000 Less discount (174) (255) Floating Rate Subordinated Notes due 1997 75,000 75,000 Less discount (58) (76) Floating Rate Notes due 1997 50,000 50,000 Less discount (80) (100) Floating Rate Notes due 1994 5,000 5,000 9 7/8% Subordinated Notes due 1999 65,000 65,000 Less discount (268) (315) Medium-Term Notes 6,000 25,000 Less discount (9) (20) Other 7,609 4,279 -------- -------- Total parent company 308,020 323,513 6 1/2% Subordinated Notes Due 2003 200,000 -- Less discount (699) -- Other 2,852 4,085 -------- -------- Total subsidiaries 202,153 4,085 -------- -------- Total $510,173 $327,598 ======== ========
On January 1, 1993, mergers of certain subsidiary holding companies into the parent company occurred. For comparative purposes, these obligations are reflected in the parent company section of the preceding table for all periods presented. The 8 3/8% Notes pay interest semiannually and may not be redeemed prior to maturity. The $75 million Floating Rate Subordinated Notes bear quarterly interest payments at a rate of 12.5 basis points over the three-month Eurodollar deposit rate, subject to a floor of 5.25% (actual rate at December 31, 1993). The interest rate on the $50 million Floating Rate Notes is 12.5 basis points over the three-month Eurodollar deposit rate (3.50% at December 31, 1993), adjusted quarterly. Both floating rate note issues may be redeemed at the option of the Corporation, in whole or in part, at their principal amount. The $5 million Floating Rate Notes pay interest semiannually at an annual rate of 20 basis points over the six- month Eurodollar deposit rate (3.70% at December 31, 1993). The notes are redeemable at the option of the Corporation. The 9 7/8% Subordinated Notes pay interest semiannually. These notes are not redeemable prior to maturity. The Medium-Term Notes are due at varying dates through 1994 and carry interest rates ranging from 7.625% to 9.30% with semiannual payments of interest. These notes are not redeemable. In April 1993, the Corporation's Cleveland and Columbus bank subsidiaries issued $125 million and $75 million, respectively, of 6 1/2% subordinated notes. Interest on the notes is payable semiannually. The notes are not redeemable prior to their maturity in 2003. The notes qualify as tier 2 capital for regulatory purposes. A credit agreement with a group of banks allows the Corporation to borrow up to $200 million until December 31, 1995, with a provision to extend the expiration date for one year at each anniversary date, under certain circumstances. The Corporation pays an annual facility fee of 1/4 percent on the amount of the line. The agreement contains several financial covenants, including a limitation on future dividends and other distributions of $1,256,366,000 at December 31, 1993, plus 70% of future consolidated net income. There were no borrowings outstanding under this agreement at December 31, 1993. Corporate long-term debt maturities for the next five years are as follows: $13,535,000 in 1994; $225,000 in 1995; $100,224,000 in 1996; $125,242,000 in 1997; and $1,960,000 in 1998. 10. PREFERRED STOCK AND EMPLOYEE STOCK OWNERSHIP PLAN At December 31, 1993 and 1992, the Corporation had outstanding 793,240 and 800,000, respectively, shares of 8% Cumulative Convertible Preferred Stock in the form of 3,966,200 and 4,000,000 depositary shares, respectively, at a stated value of $50.00 per depositary share. Each depositary share represents a one-fifth interest in a preferred share. The preferred stock is convertible at the option of the holder into 2.384 common shares per depositary share. Accordingly, 9,455,420 shares of common stock have been reserved for conversion of the preferred stock. The preferred stock is redeemable at the option of the Corporation, in whole or in part, on or after May 1, 1996 and for each 12-month period thereafter through the year 2000, at redemption prices of $52.00, $51.60, $51.20, $50.80 and $50.40, respectively, and thereafter, at $50.00 per depositary share plus, in each case, dividends accrued and unpaid to the redemption date. The shares have a liquidation value of $250.00 per share ($50.00 per depositary share), or $198,310,000 in aggregate, plus accrued and unpaid dividends to date of liquidation. 33 As a consequence of the merger with MCHN, the Corporation assumed the obligations and benefits of the MCHN Employee Stock Ownership Plan (ESOP). On July 1, 1992, the ESOP was merged into the National City Savings and Investment Plan (a contributory benefit plan offered for substantially all employees). The original ESOP was established through the purchase of stock on the open market at a cost of $30,490,000. The funding was made available through an agreement between MCHN and an independent trustee whereby MCHN provided a loan to the ESOP Trust for the purpose of acquiring the shares. The shares presently held by the ESOP (totalling 2,194,401 of the Corporation's common shares) will be used to fulfill the Corporation's future commitment to participants in the Corporation's benefit plans. During 1993, the Corporation allocated 576,901 shares to the benefit plan participants. Company contributions plus dividends earned on the unallocated shares are used to service the loan and acquire additional shares, which are allocated to benefit plan participants. Company contributions totaled $8,181,022 and $5,639,171 in 1993 and 1992, respectively. Dividends earned by the ESOP in 1993 and 1992 were $2,737,768 and $2,271,292, respectively. The tax benefit for dividends paid on shares held by the ESOP is recorded directly to retained earnings. 11. NET INCOME PER COMMON SHARE Net income per common share is based upon net income after preferred dividend requirements and the average number of common shares outstanding, adjusted for the dilutive effect of outstanding stock options. Fully diluted earnings per share is based upon net income and the average number of shares outstanding, adjusted for the dilutive effect of outstanding stock options and the assumed conversion of preferred stock. The calculation of net income per common share, adjusted for the two-for-one stock split, follows:
For the Calendar Year (Dollars In Thousands Except ------------------------------------- Per Share Amounts) 1993 1992 1991 - ------------------------------------------------------------------ PRIMARY: Net income $403,997 $346,923 $236,805 Less preferred dividends 15,966 16,000 11,200 ----------- ---------- ---------- Net income applicable to common stock $388,031 $330,923 $225,605 =========== =========== =========== Average common shares outstanding 161,163,816 158,011,980 154,430,222 =========== =========== =========== Net income per common share $2.41 $2.09 $1.46 =========== =========== =========== ASSUMING FULL DILUTION: Net income $403,997 $346,923 $236,805 =========== =========== =========== Pro forma fully diluted average common shares outstanding 170,683,512 168,065,372 162,984,912 =========== =========== =========== Pro forma fully diluted net income per share $2.37 $2.06 $1.45 =========== =========== ===========
12. PARENT COMPANY AND REGULATORY RESTRICTIONS At December 31, 1993, retained earnings of the parent company included $1,330.1 million of equity in undistributed earnings of subsidiaries. Dividends paid by the parent company's subsidiary banks are subject to various legal and regulatory restrictions. In 1993, subsidiary banks declared and paid $699.6 million and $543.4 million, respectively, in dividends to the parent company. In 1994, bank subsidiaries may pay the parent company, without prior regulatory approval, approximately $96.0 million of dividends. Under Section 23A of the Federal Reserve Act, as amended, loans from subsidiary banks to nonbank affiliates, including the parent company, are required to be collateralized. Commercial paper of $398.8 million outstanding at December 31, 1993 is guaranteed by the parent company. Condensed parent company-only financial statements, which include transactions with subsidiaries, follow:
BALANCE SHEETS December 31 ---------------------- (In Thousands) 1993 1992 - ----------------------------------------------------------------- ASSETS Cash and demand balances due from banks $ 2,733 $ 4,454 Loans to and accounts receivable from subsidiaries 301,211 124,637 Securities 116,404 44,884 Investments in: Subsidiary bank holding companies and banks 2,407,320 2,403,388 Nonbank subsidiaries 206,902 69,578 Goodwill, net of accumulated amortization of $27,559 and $25,421, respectively 52,116 54,254 Other assets 56,465 23,492 ---------- ---------- Total assets $3,143,151 $2,724,687 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Corporate long-term debt $ 308,020 $ 176,621 Accrued expenses and other liabilities 71,864 48,180 ---------- ---------- Total liabilities 379,884 224,801 Stockholders' equity 2,763,267 2,499,886 ----------- ---------- Total liabilities and stockholders' equity $3,143,151 $2,724,687 ========== ==========
34 NOTES TO FINANCIAL STATEMENTS (Continued)
STATEMENTS OF INCOME For the Calendar Year ------------------------------ (In Thousands) 1993 1992 1991 - ------------------------------------------------------------------ INCOME Dividends from: Subsidiary bank holding companies and banks $715,869 $100,000 $152,000 Nonbank subsidiaries 4,448 1,000 8,196 Interest on loans to subsidiaries 4,431 2,788 5,550 Interest and dividends on securities 2,396 2,986 3,740 Security gains 970 5,657 4,366 Other income 7,969 -- -- -------- -------- -------- Total income 736,083 112,431 173,852 EXPENSE Interest on corporate long-term debt 23,821 13,241 14,083 Goodwill amortization 2,138 2,081 2,030 Other expense 43,197 52,434 34,486 -------- -------- -------- Total expense 69,156 67,756 50,599 -------- -------- -------- Income before taxes and equity in undistributed income of subsidiaries 666,927 44,675 123,253 Income tax (benefit) (32,148) (20,207) (15,382) -------- -------- -------- Income before equity in undistributed net income of subsidiaries 699,075 64,882 138,635 Equity in undistributed (distributed) net income of subsidiaries (295,078) 282,041 98,170 -------- -------- -------- Net income $403,997 $346,923 $236,805 ======== ======== ========
The following table presents supplemental cash flow information:
For the Calendar Year (In Millions) 1993 1992 1991 - ---------------------------------------------------------------- Interest paid $ 24 $13 $14 Long-term debt assumed in merger of subsidiaries 151 -- -- Shares issued in purchase acquisitions and additional investment in subsidiaries 141 -- -- Unrealized appreciation in securities: Securities 14 -- -- Stockholders' equity 9 -- -- Deferred taxes 5 -- --
STATEMENTS OF CASH FLOWS For the Calendar Year ------------------------------- (In Thousands) 1993 1992 1991 - -------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 403,997 $ 346,923 $ 236,805 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries 295,078 (282,041) (98,170) Amortization of goodwill 2,138 2,081 2,030 Decrease (increase) in dividends receivable from subsidiaries (126,169) 45,500 (93,200) Noncash dividends from subsidiaries -- -- (296) Security gains (970) (5,657) (4,366) Other, net (13,294) 19,709 292 --------- --------- --------- Net cash provided by operating activities 560,780 126,515 43,095 Investing Activities: Net change in short-term money market investments (27,900) 70,000 (97,300) Purchases of securities (126,641) (41,983) (132,122) Sales and maturities of securities 69,833 41,164 130,715 Principal collected on loans to subsidiaries 283,107 16,275 1,750 Loans to subsidiaries (306,507) (21,925) (4,988) Investment in subsidiaries (119,006) (78,836) (11,542) --------- --------- --------- Net cash (used) by investing activities (227,114) (15,305) (113,487) FINANCING ACTIVITIES: Repayment of corporate long-term debt (19,236) (513) (999) Common and preferred dividends (185,391) (146,881) (122,578) Issuance of common stock 28,469 36,211 7,841 Issuance of preferred stock -- -- 195,072 Repurchase of stock (168,920) (1,118) (10,518) Shares distributed by ESOP 9,691 4,835 -- --------- --------- --------- Net cash (used) by financing activities (335,387) (107,466) 68,818 --------- --------- --------- Increase (decrease) in cash and demand balances due from banks (1,721) 3,744 (1,574) Cash and demand balances due from banks, January 1 4,454 710 2,284 --------- --------- --------- Cash and demand balances due from banks, December 31 $ 2,733 $ 4,454 $ 710 ========= ========= =========
35 13. STOCK OPTIONS AND AWARDS The Corporation was authorized in 1993 to grant 10,000,000 shares of common stock (adjusted for the stock split) under a stock option plan. The Corporation's stock option plans authorize the issuance of options to purchase common stock to officers and key employees at the market price of the shares at the date of grant. Options become exercisable to the extent of either 25% or 50% annually beginning one year from the date of grant. The Corporation was authorized in 1991 to grant 1,000,000 shares of common stock (adjusted for the stock split) under a Restricted Stock Plan. These shares are issued to officers and directors of the Corporation. In general, the restrictions on directors' shares granted after 1992 expire after nine months and grants to officers expire over a four-year period. The Corporation generally recognizes additional compensation expense over the restricted period. A summary of the stock options and award activity is as follows:
Shares ------------------------------------------ Available for Grant Outstanding Range of ------------------------------------------ Option Price Awards & Options Awards Options per Share - ---------------------------------------------------------------------- December 31, 1990 4,436,678 7,542,298 $3.69 - 18.06 Authorized 1,000,000 Cancelled 1,000 (1,000) Expired 92,298 (99,856) Exercised (719,130) 3.69 - 18.06 Granted (1,885,320) 169,900 1,715,420 7.55 - 17.19 ---------- -------- --------- December 31, 1991 3,644,656 168,900 8,438,732 3.69 - 18.06 Cancelled 41,200 (2,800) (41,174) MCHN shares expired (282,240) Exercised (4,600) (3,036,954) 3.69 - 18.06 Granted (1,479,500) 8,900 1,470,600 22.00 ---------- ------- --------- December 31, 1992 1,924,116 170,400 6,831,204 6.08 - 22.00 Authorized 10,000,000 Cancelled 75,642 (4,008) (71,634) Exercised (25,992) (1,017,321) 6.08 - 22.00 Granted (1,685,950) 103,350 1,582,600 24.88 ---------- ------- --------- December 31, 1993 10,313,808 243,750 7,324,849 $6.31 - 24.88 ========== ======= =========
At December 31, 1993 and 1992, options for 5,033,577 and 4,624,242 shares, respectively, were exercisable at a price range of $6.31 to $24.88 and $6.08 to $22.00 per share, respectively. 14. PENSION PLANS The Corporation has a noncontributory, defined benefit retirement plan covering substantially all employees. Retirement benefits are based upon the employees' length of service and salary levels. Actuarially determined pension costs are charged to current operations. The funding policy is to pay at least the minimum amount required by the Employee Retirement Income Security Act of 1974. The Corporation also sponsors supplemental retirement plans for certain key employees. The defined benefit pension plan's funded status (at its year-end September 30) and the status of the supplemental retirement plans follow:
(In Thousands) 1993 1992 - ------------------------------------------------------------------------- Projected benefit obligation: Vested benefits $260,779 $200,200 Nonvested benefits 14,237 10,643 -------- -------- Accumulated benefit obligation 275,016 210,843 Effect of projected future compensation levels 73,199 55,857 -------- -------- Projected benefit obligation 348,215 266,700 Plan's assets at fair value, primarily stocks and bonds, including $14.4 million and $12.1 million in the common stock of the Corporation for 1993 and 1992, respectively 305,216 265,380 -------- -------- Funded status - plan assets less than projected benefit obligation $(42,999) $ (1,320) ======== ======== Comprised of: Unrecognized net gains (losses) $(28,327) $ 12,256 Unrecognized net assets being recognized over 15 years 25,792 27,063 Less accrued pension liability on balance sheet 40,464 40,639 -------- -------- $(42,999) $ (1,320) ========= ========
Assumptions used in the valuation of the defined benefit pension plan at its year end (September 30) and the supplemental retirement plans follow:
1993 1992 1991 - --------------------------------------------------------------------- Weighted average discount rate 7.25% 8.25% 7.25- 8.00% Average assumed rate of compensation increase 5.00 5.25 5.00- 5.50 Long-term rate of return on assets 10.00 9.50 9.00-10.00
Net defined benefit pension plan costs include the following components:
For the Calendar Year --------------------------------- (In Thousands) 1993 1992 1991 - -------------------------------------------------------------------- Service cost - benefits earned during year $15,066 $14,344 $11,997 Interest cost on projected benefit obligation 23,966 20,656 18,777 Actual (return) loss on plan assets (25,072) (33,950) (50,471) Net amortization and deferral (2,128) 9,417 27,895 ------- ------- ------- Net periodic pension cost $11,832 $10,467 $ 8,198 ======= ======= =======
The Corporation also sponsors a defined contribution plan for substantially all employees. The Corporation may make contributions to the plan in varying amounts depending on the level of employee contributions. For the years ended 1993, 1992, and 1991, the expenses related to this plan were $8,347,000, $3,275,000, and $11,891,000, respectively. 15. OTHER POSTRETIREMENT BENEFIT PLANS The Corporation has a benefit plan which provides postretirement medical and life insurance benefits to all employees who have attained the age of 55 and have at least 10 years of service (five years of service if age 65 or older.) The medical portion is contributory and the life insurance coverage 36 NOTES TO FINANCIAL STATEMENTS (Continued) is noncontributory to the participants. For any employee who retired on or after April 1, 1989, the Corporation's medical contribution is fixed, based on years of service and age at retirement. The accounting for the medical portion anticipates contributions for retirees prior to April 1, 1989, to continue to increase as a proportion of the total costs of the plan. The Corporation reserves the right to terminate or make plan changes at any time. The Corporation has no plan assets attributable to the postretirement benefit plan. The following table presents the plan's status at December 31, reconciled with amounts recognized in the Corporation's balance sheet:
(In Thousands) 1993 1992 - --------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $31,221 $26,476 Fully eligible active plan participants 8,401 6,940 Other active plan participants 12,873 9,898 ------- ------ Accumulated postretirement benefit obligation 52,495 43,314 Unrecognized net loss (7,072) (3,329) Unrecognized transition obligation (32,980) (34,706) ------- ------ Accrued postretirement benefit cost $12,443 $5,279 ======= ======
Net periodic postretirement benefit costs include the following components:
For the Calendar Year ---------------------------- (In Thousands) 1993 1992 1991 - ------------------------------------------------------------ Service cost $1,067 $ 969 $ 978 Interest cost 3,622 3,534 3,183 Amortization of transition obligation over 20 years 1,981 1,923 1,642 ------ ------ ------ Net periodic postretirement benefit cost $6,670 $6,426 $5,803 ====== ====== ======
Assumptions used in the valuation of the accumulated postretirement benefit obligation follow:
1993 1992 1991 - -------------------------------------------------------------- Weighted average discount rate 7.50% 8.50% 9.00% Average salary scale 5.00 5.25 5.50
The health care trend rate assumption only affects those participants retired under the plan prior to April 1, 1989. The 1994 health care trend rate is projected to be 12.5 percent for participants under 65 and 10.0 percent for participants over 65. These rates are assumed to decrease incrementally by .5 percent per year until they reach 6 percent and remain at that level thereafter. The health care trend rate assumption does not have a significant effect on the medical plan, therefore, a 1 percent change in the trend rate is not material in the determination of the accumulated postretirement benefit obligation or the ongoing expense. The Corporation will adopt SFAS 112, "Employers Accounting for Postemployment Benefits," in 1994. The adoption will not have a material impact on the Corporation's financial position or results of operations. 16. INCOME TAXES In 1992, the Corporation adopted SFAS 109, "Accounting for Income Taxes. The cumulative effect of adopting SFAS 109 did not have a significant effect on net income in 1992. Income tax expense for 1991 was not restated. The composition of income tax expense (benefit) follows:
For the Calendar Year ------------------------------- (In Thousands) 1993 1992 1991 - -------------------------------------------------------------- Current: Federal $135,598 $137,603 $84,987 State 9,804 1,856 1,710 -------- -------- ------- Total current 145,402 139,459 86,697 -------- -------- ------- Deferred: Federal 23,140 (13,571) (9,320) State (1,577) (8,518) -- ------- -------- ------- Total deferred 21,563 (22,089) (9,320) -------- -------- ------- Tax expense $166,965 $117,370 $77,377 ======== ======== ======= Tax expense applicable to security transactions $4,173 $ 8,797 $8,739 ======== ======== ======
The effective tax rate differs from the statutory rate applicable to corporations as a result of permanent differences between accounting and taxable income as shown below:
For the Calendar Year ------------------------------ 1993 1992 1991 - ----------------------------------------------------------- Statutory rate 35.0% 34.0% 34.0% Tax-exempt income (3.8) (5.5) (12.0) Officers' life insurance (2.6) (2.1) (1.5) Other .6 (1.1) 4.1 ---- ---- ---- Effective tax rate 29.2% 25.3% 24.6% ==== ==== ====
Significant components of the Corporation's deferred tax liabilities and assets as of December 31 are as follows:
(In Thousands) 1993 1992 - ----------------------------------------------------------- Deferred tax liabilities: Lease accounting $68,984 $71,232 Mark to market adjustments 27,054 -- Depreciation 17,109 12,733 Other - net 35,649 37,829 ------- ------- Total deferred tax liabilities 148,796 121,794 Deferred tax assets: Provision for losses 155,697 138,549 Employee benefits accounting 23,520 15,469 Other - net 34,273 53,147 ------- ------- Total deferred tax assets 213,490 207,165 ------- ------- Net deferred tax assets $64,694 $85,371 ======= =======
37 17. OFF-BALANCE SHEET FINANCIAL AGREEMENTS The following table summarizes the gross contract or notional amounts of off-balance sheet financial instruments:
December 31 ------------------------- (In Millions) 1993 1992 - ----------------------------------------------------------------------- Futures and forward contracts: Commitments to purchase $-- $25.0 Commitments to sell 836.8 510.8 Notional amount of futures: Receive fixed rate -- 50.0 Pay fixed rate 40.0 619.0 Notional amount of interest rate swaps: Receive fixed rate 5,634.6 3,028.4 Pay fixed rate 581.6 723.4 Notional amount of caps, floors, and options: Caps or floors written 437.9 312.9 Caps or floors purchased 1,097.9 772.9 Options contracts purchased 325.0 273.6 Forward foreign exchange contracts: Commitments to purchase 110.1 200.9 Commitments to sell 117.6 207.1
The Corporation utilizes off-balance sheet financial instruments to manage exposure to changes in interest rates. Market risk is managed to minimize exposure to interest rate changes through the monitoring of cash flows of on- and off- balance sheet financial instruments. Counterparty credit risk related to off-balance sheet instruments is managed by applying the same business and credit standards that are used for on-balance sheet transactions. There are no concentrations of credit risk. The Corporation may require collateral for certain of these instruments. The Corporation has never experienced, nor does it have any reason to expect, a credit loss associated with any off-balance sheet financial agreement. 18. CREDIT COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, the Corporation makes various commitments to extend credit and incurs contingent liabilities which are not reflected in the balance sheet. A summary of these commitments and contingent liabilities follows:
December 31 --------------------- (In Millions) 1993 1992 - ------------------------------------------------------------ Commitments to extend credit $6,567.4 $5,634.6 standby letters of credit 1,242.3 1,309.2
The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to the Corporation's normal credit policies. Collateral is obtained based on management's credit assessment of the customer. In addition, the Corporation's subsidiaries are involved in legal proceedings arising out of their businesses. In management's opinion, the financial statements would not be materially by the outcome of any legal proceedings or commitments and contingent liabilities. 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information is contained on page 36. REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Stockholders National City Corporation Cleveland, Ohio We have audited the accompanying consolidated balance sheets of National City Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of National City Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Cleveland, Ohio Ernst & Young January 21, 1994 38 QUARTERLY DATA FOURTH QUARTER RESULTS - ------------------------------------------------------------------------ Net income for the fourth quarter of 1993 was $103.5 million, or $.62 per common share, compared with $90.1 million, or $.54 per share, for the same period last year. The increase in earnings was due predominantly to higher net interest income and fee income. Annualized return on average common equity for the fourth quarter was 15.74%, compared with 15.23% for the fourth quarter 1992. Annualized return on average assets was 1.35% in 1993 versus 1.25% in 1992. Average earning assets and average deposits for the quarter increased 5.6% and 3.5%, respectively, from the fourth quarter last year, primarily due to the acquisition of Ohio Bancorp. Net interest income on a fully taxable equivalent basis for the quarter was $315.7 million, which reflects a 4.5% increase over $302.1 million for the same period last year. Fees and other income increased 15.8% to $214.3 million over the prior year fourth quarter due mainly to higher item processing revenue that was the result of acquisitions. Noninterest expenses increased slightly to $359.5 million, compared to $344.3 million a year ago. The net increase was due entirely to 1993 acquisitions. Excluding acquisitions, noninterest expenses declined by 4%. QUARTERLY FINANCIAL INFORMATION The following is a summary of unaudited quarterly results of operations for the years 1993, 1992, and 1991:
(Dollars in Thousands Except Per Share Amounts) First Second Third Fourth Full Year - ------------------------------------------------------------------------------------------------------------- 1993 Interest income $467,716 $467,138 $469,156 $486,154 $1,890,164 Interest expense 173,716 170,095 167,652 178,647 690,110 Net interest income 294,000 297,043 301,504 307,507 1,200,054 Provision for loan losses 25,382 23,896 23,861 19,950 93,089 Security gains 2,509 3,195 2,851 3,367 11,922 Net overhead 136,841 131,905 133,925 145,254 547,925 Income before income taxes 134,286 144,437 146,569 145,670 570,962 Net income 95,322 102,454 102,676 103,545 403,997 Net income applicable to common stock 91,322 98,454 98,676 99,579 388,031 Net income per common share .57 .61 .61 .62 2.41 Dividends paid per common share .26 .26 .27 .27 1.06 1992 Interest income $538,481 $516,171 $494,143 $483,531 $2,032,326 Interest expense 254,719 228,376 205,277 191,209 879,581 Net interest income 283,762 287,795 288,866 292,322 1,152,745 Provision for loan losses 41,816 38,582 27,791 21,172 129,361 Security gains 7,546 4,364 3,953 9,834 25,697 Net overhead 135,994 142,820 146,651 159,323 584,788 Income before income taxes 113,498 110,757 118,377 121,661 464,293 Net income 82,105 85,145 89,623 90,050 346,923 Net income applicable to common stock 78,105 81,145 85,623 86,050 330,923 Net income per common share .50 .51 .54 .54 2.09 Dividends paid per common share .235 .235 .235 .235 .94 1991 Net income $60,783 $65,545 $69,884 $40,593 $236,805 Net income per common share .39 .41 .42 .24 1.46 Common stack and per share data have been adjusted for the two-for-one stock split declared and paid in July 1993.
39 FORM 10-K The Annual Report includes the materials required in Form 10-K filed with the Securities and Exchange Commission. The integration of the two documents gives stockholders and other interested parties timely, efficient and comprehensive information on 1993 results. Portions of the Annual Report are not required by the Form 10-K report and are not filed as part of the Corporation's Form 10-K. Only those portions of the Annual Report referenced in the cross-reference index are incorporated in the Form 10-K. The report has not been approved or disapproved by the Securities and Exchange Commission, nor has the Commission passed upon its accuracy or adequacy. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1993 Commission file number 1-10074 NATIONAL CITY CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 34-1111088 (I.R.S. Employer Identification No.) 1900 East Ninth Street, Cleveland, Ohio 44114 (Address of principal executive offices) 44114-3484 (Zip Code) Registrant's telephone number, including area code, 216-575-2000 Securities registered pursuant to Section 12(b) of the Act: Depositary Shares each representing a one-fifth interest in a share of National City Corporation 8% Cumulative Convertible Preferred Stock, without par value, registered on New York Stock Exchange (Title of Class and name of Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: National City Corporation $4.00 Par Value Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- State the aggregate market value of the voting stocks held by nonaffiliates of the registrant as of December 31, 1993-$3,803,211,000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1993. Common Stock, $4.00 Par Value - 158,779,611 Documents Incorporated By Reference: Portions of the registrant's Proxy Statement (to be dated approximately March 4, 1994) are incorporated by reference into Item 10. Directors and Executive Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13. Certain Relationships and Related Transactions, of Part III. 40 FORM 10-K (Continued) FORM 10-K CROSS REFERENCE INDEX
PART I Pages ----- Item 1 - Business Description of Business 38-39 Average Balance Sheets/Interest/Rates 20-21 Volume and Rate Variance Analysis 14 Securities 7-8 Loans 5-6 Risk Elements of Loan Portfolio 16-18 Loan Loss Experience 16-18 Allocation of Allowance for Loan Losses 16-18 Deposits 8, 20-21 Financial Ratios 19 Short-Term Borrowings 8, 29-30 Item 2 -- Properties 39 Item 3 -- Legal Proceedings 39 Item 4 -- Submission of Matters to a Vote of Security Holders - None PART II Item 5 -- Market for the Registrant's Common Equity and Related Stockholder Matters 9 Item 6 - Selected Financial Data 19 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 4-18 Item 8 - Financial Statements and Supplementary Data 22-36 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None PART III Item 10 -- Directors and Executive Officers of the Registrant - Note (1) Executive Officers 39 Compliance with Section 16(a) of the Securities Exchange Act - Note (1) Item 11 -- Executive Compensation - Note (1) Item 12 -- Security Ownership of Certain Beneficial Owners and Management - Note (1) Item 13 -- Certain Relationships and Related Transactions - Note (1) PART IV Item 14 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K Report of Ernst & Young, Independent Auditors 35 Financial Statements: Consolidated Statements of Income - Calendar Years 1993, 1992 and 1991 22 Consolidated Balance Sheets - December 31, 1993 and 1992 23 Consolidated Statements of Cash Flows - Calendar Years 1993, 1992 and 1991 24 Consolidated Statements of Changes in Stockholders' Equity - Calendar Years 1993, 1992, and 1991 25 Notes to Financial Statements 26-35 Signatures 40
Reports on Form 8-K filed in the fourth quarter of 1993: Form 8-K dated October 12, 1993, Item 5. Announcement of the completion of the acquisition of Ohio Bancorp. Form 8-K dated October 27, 1993, Item 5. Announcement of Board of Directors' action electing David A. Daberko President and Chief Operating Officer of the Registrant. Form 8-K dated December 22, 1993, Item 5. Board of Directors authorized the purchase of up to 5 million additional shares of the Corporation's issued and outstanding common stock, and up to 4 million depositary shares of its 8% Cumulative Convertible Preferred Stock, subject to a combined purchase limit of $200 million. Exhibits - The index of exhibits has been filed as separate pages of the 1993 Form 10-K and is available to stockholders on request from the Secretary of the Corporation at the principal executive offices. Copies of exhibits may be obtained at a cost of 30 cents per page. Financial Statement Schedules - Omitted due to inapplicability or because required information is shown in the Financial Statements or the Notes thereto. __________________________________________________________________ Note (1) - Incorporated by reference from the Corporation's Proxy Statement to be dated approximately March 4, 1994. __________________________________________________________________ BUSINESS At December 31, 1993, National City Corporation ("National City" or "the Corporation") was the second largest bank holding company headquartered in the State of Ohio and approximately the 26th largest in the United States on the basis of total assets. National City owns and operates 19 commercial banks having a total of 617 banking offices in Ohio, Kentucky and Indiana. The four largest such subsidiary banks (and only significant subsidiaries) are National City Bank (Cleveland), National City Bank, Columbus; National City Bank, Indiana; and National City Bank, Kentucky. The banks and other subsidiaries and divisions (listed on pages 41 and 42) conduct a variety of financial services businesses. In addition to a general commercial banking business, National City or its subsidiaries are engaged in trust, mortgage banking, merchant banking, leasing, item processing, venture capital, insurance, and other financially related businesses. National City and its subsidiaries had 19,960 full-time equivalent employees at December 31, 1993. COMPETITION The banking business is highly competitive. The banking subsidiaries of National City compete actively with national and state banks, savings and loan associations, securities dealers, mortgage bankers, finance companies, insurance companies and other financial service entities. 41 SUPERVISION AND REGULATION National City is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "Act"). The Act requires the prior approval of the Federal Reserve Board for a bank holding company to acquire or hold more than a 5% voting interest in any bank, and restricts interstate banking activities. The Act restricts National City's nonbanking activities to those which are determined by the Federal Reserve Board to be closely related to banking. The Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies. National City's banking subsidiaries are subject to limitations with respect to intercompany loans and investments. A substantial portion of National City's cash revenues is derived from dividends paid by its subsidiary banks. These dividends are subject to various legal and regulatory restrictions as summarized in Note 12 on page 31. The subsidiary banks are subject to the provisions of the National Bank Act or the banking laws of their respective states, are under the supervision of, and are subject to periodic examination by, the Comptroller of the Currency or the respective state banking department, and are subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). National City's subsidiary banks are also subject to certain state laws of each state in which such a bank is located. Such state laws may restrict branching of banks within the state and acquisition or merger involving banks and bank holding companies located in other states. Ohio, Kentucky and Indiana have all adopted nationwide reciprocal interstate banking. The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company's controlled insured depository institutions are liable for any loss incurred by the Federal Deposit Insurance Corporation in connection with the default of or any FDIC-assisted transaction involving an affiliated insured bank or savings association. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act") covers a wide expanse of banking regulatory issues. The FDIC Improvement Act deals with the recapitalization of the Bank Insurance Fund, with deposit insurance reform, including requiring the FDIC to establish a risk-based premium assessment system, and with a number of other regulatory and supervisory matters. Regulations have been proposed to implement this Act, but the full effects of the FDIC Improvement Act generally on the financial services industry, and specifically on the Corporation, cannot now be measured. The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of National City and its subsidiary banks cannot be predicted. PROPERTIES National City and its significant subsidiaries occupy their headquarters' offices under long-term leases, and also own freestanding operations centers in Columbus and Cleveland. Branch office locations are variously owned or leased. LEGAL PROCEEDINGS National City and its subsidiaries are parties (either as plaintiff or defendant) to a number of lawsuits incidental to their businesses and, in certain lawsuits, claims or counterclaims have been asserted. Although litigation is subject to many uncertainties and the ultimate exposure with respect to many of these matters cannot be ascertained, management does not believe the ultimate outcome of these matters will have a material adverse effect on the financial condition or results of operations of the Corporation. EXECUTIVE OFFICERS The Executive Officers of National City (as of January 21, 1994) are as follows:
Name Age Position - ---- --- -------- Edward B. Brandon 62 Chairman and Chief Executive Officer David A. Daberko 48 President and Chief Operating Officer William R. Robertson 52 Deputy Chairman Morton Boyd 57 Executive Vice President Vincent A. DiGirolamo 56 Executive Vice President Gary A. Glaser 49 Executive Vice President Jon L. Gorney 44 Executive Vice President Charles W. Hall 49 Executive Vice President William E. MacDonald III 47 Executive Vice President Robert G. Siefers 48 Executive Vice President and Chief Financial Officer Harold B. Todd, Jr. 52 Executive Vice President Thomas W. Owen 62 Senior Vice President and General Auditor Thomas A. Richlovsky 42 Senior Vice President and Treasurer David L. Zoeller 44 Senior Vice President, General Counsel and Secretary
The term of office for executive officers is one year. There is no family relationship between any of the above executive officers. Mr. Gorney was appointed an executive vice president of the Corporation in 1993. Prior to that time he was a senior vice president of the Corporation since 1991 and senior vice president of National City Bank (Cleveland) from 1988 to 1991. Each of the remaining officers listed above has been an executive officer of the Corporation or one of its subsidiaries during the past five years. 42 FORM 10-K (Continued) SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the under- signed, thereunto duly authorized, on January 21, 1994. NATIONAL CITY CORPORATION /s/ EDWARD B. BRANDON ____________________________________ EDWARD B. BRANDON Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on January 21, 1994. /s/ EDWARD B. BRANDON ____________________________________ Edward B. Brandon Chairman and Chief Executive Officer /s/ David A. Daberko /s/ William R. Robertson ______________________ _________________________ David A. Daberko William R. Robertson President and Chief Deputy Chairman Operating Officer /s/ Robert G. Siefers /s/ Thomas A. Richlovsky ______________________ _________________________ Robert G. Siefers Thomas A. Richlovsky Executive Vice President Senior Vice President and Chief Financial Officer and Treasurer
The Directors of National City Corporation (listed below) executed a power of attorney appointing David L. Zoeller their attorney-in-fact, empowering him to sign this report on their behalf. Sandra H. Austin Otto N. Frenzel III James M. Biggar Joseph H. Lemieux Edward B. Brandon A. Stevens Miles John G. Breen Adolph Posnick David A. Daberko Burnell R. Roberts Richard E. Disbrow William R. Robertson Daniel E. Evans Morry Weiss
/s/ David L. Zoeller _________________________________ By David L. Zoeller Attorney-in-fact 43 CORPORATE DIRECTORY MEMBER BANKS (Number of Banking Offices) OHIO NATIONAL CITY BANKS Cleveland (94) National City Bank William E. MacDonald III President 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2000 Columbus (124) National City Bank, Columbus Gary A. Glaser President & CEO 155 East Broad Street Columbus, Ohio 43251 (614) 463-7100 Akron (40) National City Bank, Northeast J. Christopher Graffeo President & CEO One Cascade Plaza Akron, Ohio 44308-1198 (216) 375-8300 Dayton (39) National City Bank, Dayton Frederick W. Schantz President & CEO 6 North Main Street Dayton, Ohio 45412-2790 (513) 226-2000 Toledo (30) National City Bank, Northwest Robert E. Showalter President & CEO 405 Madison Avenue Toledo, Ohio 43603-1263 (419) 259-7700 Ashland (8) National City Bank, Ashland Harvey N. Young Chairman, President & CEO 10 West Second Street Ashland, Ohio 44805-0218 (419) 289-2112 Youngstown (29)* The Dollar Savings and Trust Company Thomas R. Hollern President & CEO 20 Federal Plaza Youngstown, Ohio 44503 (216) 744-9000 East Liverpool (5)* The Potters Bank and Trust Company Edward A. Coukart President & CEO 200 East Fifth Street East Liverpool, Ohio 43920 (216) 385-0450 Martins Ferry (7)* Peoples Banking Company Paul W. Soupart, Jr. President & CEO 30 South Fourth Street Martins Ferry, Ohio 43935 (614) 633-3151 Minerva (3)* Bank 2000 Homer Ransdell President & CEO 108 North Main Street P.O. Box 150 Minerva, Ohio 44657 (216) 868-4157 Steubenville (5)* The Miners and Mechanics Savings and Trust Company Andrew M. Mihalyo Interim President & CEO 124 North Fourth Street P.O. Box 100 Steubenville, Ohio 43952 (614) 284-5600 KENTUCKY NATIONAL CITY BANK, KENTUCKY Louisville (55) Morton Boyd Chairman & CEO Leonard V. Hardin President 101 South Fifth Street Louisville, Kentucky 40202-3101 (502) 581-4200 Lexington (14) Roger M. Dalton President & CEO 301 East Main Street Lexington, Kentucky 40507-4400 (606) 281-5100 Ashland (6)** National City Bank, Ashland, Kentucky David E. Jones President & CEO 1000 Carter Avenue Ashland, Kentucky 41101-7422 (606) 329-2900 Bowling Green (6)** National City Bank, Bowling Green Robert E. Aldridge President & CEO 922 State Street Bowling Green, Kentucky 42102-9016 (502) 781-6111 Crestwood (3)** Crestwood State Bank James E. Barber President & CEO 6518 West Highway 146 P.O. Box 68 Crestwood, Kentucky 40014-0068 (502) 241-9425 Owensboro (7)** Central Bank and Trust Company Larry R. Mayfield President & CEO 100 West Third Street Owensboro, Kentucky 42301-0804 (502) 686-3500 INDIANA NATIONAL CITY BANK, INDIANA Indianapolis (126) Vincent A. DiGirolamo President & CEO 101 West Washington Street, Suite 400E Indianapolis, Indiana 46255 (317) 267-7000 NATIONAL CITY BANK, SOUTHERN INDIANA New Albany (11) Richard B. Hobart Chairman, President & CEO 320 Pearl Street P.O. Box 1247 New Albany, Indiana 47150-1247 (812) 948-4400 MADISON BANK & TRUST COMPANY Madison (5) Raymond J. Bartnick President & CEO 213-215 East Main Street Madison, Indiana 47250 (812) 265-5121 * To be merged into National City Bank, Northeast in April 1994. ** To be merged into National City Bank, Kentucky in March 1994. 44 CORPORATE DIRECTORY (continued) OTHER UNITS BROKERAGE AND INVESTMENT SERVICES National City Investments Corporation William H. Schecter Chairman 1965 East Sixth Street Cleveland, Ohio 44114-2214 (216) 575-3495 1-800-624-6450 Offices: Akron, Cleveland, Columbus, Dayton, Indianapolis, Louisville, Toledo National City Capital Corporation National City Venture Corporation William H. Schecter President 1965 East Sixth Street Cleveland, Ohio 44114-2214 (216) 575-3340 National Asset Management Corporation William F. Chandler, Jr. Principal & Managing Director Irvin W. Quesenberry, Jr. Principal & Managing Director P.O. Box 36010 Louisville, Kentucky 40232 (502) 581-7668 Merchants Capital Management Incorporated William H. Olds Chairman 101 West Washington Street, Suite 635E Indianapolis, Indiana 46255 (317) 267-3880 COMMUNITY DEVELOPMENT National City Community Development Corporation Danny H. Cameron President 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2293 Offices: Akron, Cleveland, Columbus, Dayton, Indianapolis, Lexington, Louisville, Toledo CREDIT CARD SERVICES National City Card Services G. Brent Bostick President 4661 East Main Street Columbus, Ohio 43213 (614) 863-8370 FUNDING National City Credit Corporation Jeffrey D. Kelly Senior Vice President 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2268 INSURANCE National City Life Insurance Company Anthony N. McEwen President 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2946 National City Insurance Agency, Inc. Anne E. Lazarz President 101 West Washington, Suite 305E Indianapolis, Indiana 46255 (317) 267-7033 ITEM PROCESSING National City Processing Company Delroy R. Hayunga President & CEO 1231 Durrett Lane Louisville, Kentucky 40285-0001 (502) 364-2000 MORTGAGE BANKING National City Mortgage Co. Leo E. Knight, Jr. President & CEO 3232 Newmark Drive Miamisburg, Ohio 45342 (513) 436-3025 Offices: Agawam (MA), Akron, Annapolis, Atlanta, Cary (NC), Charlotte, Cincinnati, Columbia (SC), Columbus, Dayton, Detroit, Falls Church (MD), Frederick (MD), Greensboro (NC), Greenwood (IN), Indianapolis, Peachtree (GA), Raleigh, Richmond, Toledo, Towson (MD), Troy (OH), Virginia Beach, Wethers- field (CT), Wheaton (MD), Wilmington (NC), York (PA) Merchants Mortgage Corporation David H. Mills President 201 South Capitol, Suite 800 Indianapolis, Indiana 46255 (317) 237-5415 Mortgage Company of Indiana R. Thomas Gracey President 201 South Capitol, Suite 900 Indianapolis, Indiana 46225 (317) 237-5378 TRUST SERVICES Charles W. Hall Executive Vice President 1900 East Ninth Street Cleveland, Ohio 44114 (216) 575-2262 Offices: All National City Banks National City Trust Company (Florida) Ellen J. Abrams President 1401 Forum Way, Suite 503 West Palm Beach, Florida 33401-2324 (407) 697-2424 1-800-826-9095 Offices: Naples, Vero Beach, West Palm Beach 45 BOARD OF DIRECTORS/OFFICERS BOARD OF DIRECTORS Edward B. Brandon (2, 3, 4) Chairman & CEO National City Corporation David A. Daberko President & COO National City Corporation William R. Robertson Deputy Chairman National City Corporation Sandra H. Austin (4, 6) President Headquarters Operations Healthcare Services Division Caremark International Northbrook, Illinois James M. Biggar (1, 2, 3) Chairman & CEO Glencairn Corporation Beachwood, Ohio John G. Breen (3, 4, 5) Chairman & CEO The Sherwin-Williams Company Cleveland, Ohio Richard E. Disbrow (1, 6) Retired Chairman & CEO American Electric Power Service Corporation Columbus, Ohio Daniel E. Evans (6) Chairman & CEO Bob Evans Farms, Inc. Columbus, Ohio Otto N. Frenzel III Chairman National City Bank, Indiana Indianapolis, Indiana Joseph H. Lemieux (3, 5) Chairman & CEO Owens-Illinois, Inc. Toledo, Ohio A. Stevens Miles (4) Retired President National City Corporation COMMITTEES (1) Audit Committee (2) Dividend Committee (3) Executive Committee (4) Nominating Committee (5) Organization & Compensation Committee (6) Public Policy Committee Adolph Posnick (1, 2, 3, 4) Retired Chairman & CEO Ferro Corporation Cleveland, Ohio Burnell R. Roberts (3, 5) Retired Chairman & CEO The Mead Corporation Dayton, Ohio Stephen A. Stitle (4, 5) Vice President Eli Lilly and Company Indianapolis, Indiana Morry Weiss (1) Chairman & CEO American Greetings Corporation Cleveland, Ohio HONORARY DIRECTORS Claude M. Blair Retired Chairman National City Corporation Julien L. McCall Retired Chairman National City Corporation OFFICERS OFFICE OF THE CHAIRMAN Edward B. Brandon Chairman & CEO David A. Daberko President & COO William R. Robertson Deputy Chairman EXECUTIVE VICE PRESIDENTS Morton Boyd Kentucky Banking Vincent A. DiGirolamo Indiana Banking Gary A. Glaser Columbus Banking Jon L. Gorney Information Services & Operations Charles W. Hall Trust William E. MacDonald III Cleveland Banking Robert G. Siefers Chief Financial Officer Harold B. Todd, Jr. Administration SENIOR VICE PRESIDENTS W. Douglas Bannerman Corporate Banking Jeffrey M. Biggar Trust Mary H. Griffith Marketing Communications Joseph J. Herr Loan Review Karl A. Johns Human Resources Jeffrey D. Kelly Investments Anthony N. McEwen Retail Product Development Gary P. Obers Corporate Services Robert J. Ondercik Credit Administration Thomas W. Owen General Auditor Donna M. Pacchioni Corporate Accounting A. Joseph Parker Strategic Planning Thomas A. Richlovsky Treasurer William H. Schecter Investment Banking Theodore H. Tung Economist Allen C. Waddle Public Affairs Patrick D. Walsh Information Systems David L. Zoeller General Counsel & Secretary 46
- ----------------------------------------------------------------------------------- Debt Ratings Standard Duff & Thomson Moody's & Poor's Phelps Bankwatch - ----------------------------------------------------------------------------------- National City Corporation A/B Commercial paper (short-term debt) P-1 A-1 Duff 1+ TBW1 Senior debt A1 A AA- Subordinated debt A2 A- A+ Preferred stock "a1" BBB+ A Certificates of Deposit: National City Bank (Cleveland) Aa3 A+ AA National City Bank, Columbus Aa3 A+ AA National City Bank, Kentucky Aa3 A+ AA National City Bank, Indiana -- A+ AA Subordinated Bank Notes: National City Bank (Cleveland) A1 A AA- National City Bank, Columbus A1 A AA-
- ------------------------------------------------------------------ CORPORATE INVESTOR INFORMATION Corporate Headquarters National City Center 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2000 Transfer Agent and Registrar National City Bank Corporate Trust Department 1900 East Ninth Street Cleveland, Ohio 44114-3484 1-800-622-6757 Investor Information Janis E. Lyons, Vice President Investor Relations Department 2145 P.O. Box 5756 Cleveland, Ohio 44101-0756 1-800-622-4204 Common Stock Listing National City Corporation common stock is traded on the New York Stock Exchange under the symbol NCC. The stock is abbreviated in financial publications as NtlCity. Preferred Stock Listing National City Corporation 8% Cumulative Convertible Preferred Stock depositary shares are traded on the New York Stock Exchange under the symbol NCC PR. The preferred stock is abbreviated as NtlCity pf in financial publications. Dividend Reinvestment and Stock Purchase Plan Common stockholders participating in the Plan receive a three percent discount from market price when they reinvest their National City dividends in additional shares. Participants may also make optional cash purchases of common stock at a three percent discount from market price and pay no brokerage commissions. To obtain our Plan prospectus and authorization card, call 1-800-622-6757. 47 National City Corporation Logo 1900 East Ninth Street Cleveland, Ohio 44114-3484 EX-11 2 EXHIBIT 1 EXHIBIT (11) -- COMPUTATION OF EARNINGS PER SHARE NATIONAL CITY CORPORATION (Dollars in Thousands, Except Per Share Amounts)
FOR THE CALENDAR YEAR ------------------------------------------- 1993 1992 1991 ------------ ------------ ----------- PRIMARY: -------- Net Income $403,997 $346,923 $236,805 Less Preferred Dividend Requirements 15,966 16,000 11,200 ----------- ----------- ----------- Net Income Applicable to Common Stock $388,031 $330,923 $225,605 =========== =========== =========== Average Common Shares Outstanding 161,163,816 158,011,980 154,430,222 =========== =========== =========== Net Income Per Share - Primary $2.41 $2.09 $1.46 =========== =========== =========== ASSUMING FULL DILUTION: ----------------------- Net income $403,997 $346,923 $236,805 =========== =========== =========== Average Common Shares Outstanding 161,163,816 158,011,980 154,430,222 Pro Forma Effect of Assumed Conversion of 8% Cumulative Convertible Preferred Stock 9,455,420 9,535,160 6,713,798 Pro Forma Average Fully Diluted Common Shares Outstanding Assuming Exercise of all Outstanding Stock Options as of the Beginning of Year or Date of Grant, if Later 64,276 518,232 1,840,892 ----------- ----------- ----------- Pro Forma Fully Diluted Common Shares Outstanding 170,683,512 168,065,372 162,984,912 =========== =========== =========== Pro Forma Fully Diluted Net Income Per Share $2.37 $2.06 $1.45 =========== =========== ===========
EX-21 3 EXHIBIT 1 EXHIBIT (21)--SUBSIDIARIES The following table sets forth all of National City Corporation's direct or indirect subsidiaries, as of December 31, 1993.
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------ SUBSIDIARIES OF NATIONAL CITY CORPORATION: National City Bank, Cleveland 100% United States National City Bank, Columbus 100% United States National City Bank, Ashland 99.5% United States National City Bank, Northeast 100% United States National City Bank, Dayton 100% United States National City Bank, Northwest 100% United States National City Bank, Indiana 100% United States National City Bank, Kentucky 100% United States National City Credit Corporation 100% Ohio National City Life Insurance Co. 100% Arizona National City Capital Corporation 100% Delaware National City Community Development Corporation 100% Ohio National City Venture Corporation 100% Delaware National City Trust Company 100% United States National City Financial Corporation 100% Ohio National City Mortgage Co. 100% Ohio NCC Services, Inc. 100% Ohio Gem America Realty and Investment Corporation 100% Ohio Buckeye Service Corporation 100% Ohio Ohio National Corporation of Columbus 100% Ohio National City Bank, Bowling Green 100% United States National City Bank, Ashland, Kentucky 100% United States Central Bank and Trust Company 100% Kentucky National City Bank, Southern Indiana 100% United States Crestwood State Bank 100% Kentucky National Asset Management Corporation 100% Kentucky National City Processing Company 100% Kentucky Second Premises Corporation 100% Kentucky Madison Bank & Trust Company 100% Indiana Merchants Capital Management, Inc. 100% Indiana Circle Equity Leasing Corporation of Michigan 100% Michigan Merchants Service Corporation 100% Indiana Merchants Mortgage Corporation 100% Indiana Circle Leasing Corporation 100% Indiana
(continued) 2 EXHIBIT (21)-SUBSIDIARIES Page 2 (Continued)
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------- Mortgage Company of Indiana, Inc. 100% Indiana Money Station, Inc. 16.3% Ohio Bank 2000 100% Ohio Cortland Bancorp 7.15% Ohio The Dollar Savings and Trust Company 100% Ohio The Miners and Mechanics Savings and Trust Company 100% Ohio Peoples Banking Company 100% Ohio The Potters Bank and Trust Company 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK: Capstone Realty, Inc. 100% Ohio National City Investments Corporation 100% Kentucky SUBSIDIARY OF NATIONAL CITY BANK, NORTHEAST: AKREO Service Corporation 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK, COLUMBUS: Scott Street Properties, Inc. 100% Ohio Buckeye Capital Corp. I 100% Delaware SUBSIDIARIES OF NATIONAL CITY BANK, KENTUCKY Churchill Insurance Agency, Inc. 100% Kentucky National City Leasing Corporation 100% Kentucky FNB Service Corporation 100% Kentucky National Capital Properties, Inc. 100% Kentucky First National Broadway Corp. 100% Kentucky NCBK Holdings, Inc. 100% Delaware First Premises Corporation 100% Kentucky SUBSIDIARIES OF NATIONAL CITY PROCESSING COMPANY NPC Internacional, S.A. de C.V. 100% Mexico B&L Consultants, Inc. 100% Massachusetts SUBSIDIARY OF GEM AMERICA REALTY & INVESTMENT CORP. Gem Financial Insurance Agency, Inc. 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK, INDIANA Merchants Securities Company 100% Indiana Prestige Realty, Inc. 100% Indiana
3 EXHIBIT (21)- SUBSIDIARIES Page 3 (Continued)
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized --------------- -------------- MNB Financial Corporation 100% Indiana Newcorp, Inc. 100% Indiana Ash Realty Company, Inc. 100% Indiana MNB Trustee Co., (UK) Ltd. 50%* United Kingdom Bank Service Corporation of Indiana 33-1/3% Indiana SUBSIDIARY OF MADISON BANK & TRUST COMPANY National City Insurance Agency, Inc. 100% Indiana SUBSIDIARY OF CIRCLE LEASING CORPORATION Circle Acceptance Leasing Corporation 100% Ohio SUBSIDIARY OF MNB FINANCIAL CORPORATION Indiana Plaza Leasing, Inc. 100% New York SUBSIDIARY OF ASH REALTY COMPANY, INC. Sterling Equities Corp. 100% Indiana *Additional 50% owned by National City Bank.
EX-23 4 EXHIBIT 1 EXHIBIT (23) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Amendment No. 2 to Registration Statement No. 33-39479 on Form S-3, Amendment No. 2 to Registration Statement No. 33-39480 on Form S-3, Post-Effective Amendment No. 1 to Registration Statement No. 33-44209 on Form S-3, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-20267 on Form S-4, Registration Statement No. 33-27655 on Form S-8, Registration Statement No. 33-45363 on Form S-8 and Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-45980 on Form S-4 of our report dated January 21, 1994, with respect to the consolidated financial statements of National City Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1993. /s/ Ernst & Young ERNST & YOUNG CLEVELAND, OHIO JANUARY 31, 1994 EX-24 5 EXHIBIT 1 EXHIBIT (24) -- POWER OF ATTORNEY The undersigned Directors and Officers of National City Corporation, a Delaware corporation (the "Corporation"), which anticipates filing a Form 10-K annual report pursuant to Section 12(g) of the Securities Exchange Act of 1934 for the Corporation's fiscal year ended December 31, 1993, with the Securities and Exchange Commission hereby constitute and appoint David L. Zoeller, Thomas F. Harvey, Carlton E. Langer and Thomas A. Richlovsky, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for us and in our names, in the capacities indicated below, said Form 10-K, and any and all amendments and exhibits thereto, or other documents to be filed with the Securities and Exchange Commission pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as we could do if personally present, hereby ratifying and approving the acts of said attorneys, and any of them, and any such substitute. EXECUTED this 20th day of December, 1993. /s/Sandra H. Austin Director - ------------------------------------ Sandra H. Austin /s/James M. Biggar Director - ------------------------------------ James M. Biggar /s/Edward B. Brandon Chairman of the Board and Chief - ------------------------------------ Executive Officer (Principal Edward B. Brandon Executive Officer) /s/John G. Breen Director - ------------------------------------ John G. Breen Director - ------------------------------------ Rodney F. Chase /s/David A. Daberko Director, President and Chief - ------------------------------------ Operating Officer David A. Daberko /s/Richard E. Disbrow Director - ------------------------------------ Richard E. Disbrow 2 /s/Daniel E. Evans Director - ------------------------------------- Daniel E. Evans /s/Otto N. Frenzel III Director - ------------------------------------- Otto N. Frenzel III /s/Joseph H. Lemieux Director - ------------------------------------- Joseph H. Lemieux /s/A. Stevens Miles Director - ------------------------------------- A. Stevens Miles /s/Adolph Posnick Director - ------------------------------------- Adolph Posnick /s/Burnell R. Roberts Director - ------------------------------------- Burnell R. Roberts /s/William R. Robertson Director and Deputy Chairman of - ------------------------------------- the Board William R. Robertson Director - ------------------------------------- Stephen A. Stitle /s/Morry Weiss Director - ------------------------------------- Morry Weiss -2- -----END PRIVACY-ENHANCED MESSAGE-----