-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VT34AeQlzps20hwd89Xv8HurazeeyOjpGPt8I2xMLa1X9GEAt3LtdXmdB8uZMfL0 qCYIpKSTtKXZOiI4oMIxmQ== 0000950152-97-000504.txt : 19970131 0000950152-97-000504.hdr.sgml : 19970131 ACCESSION NUMBER: 0000950152-97-000504 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL CITY CORP CENTRAL INDEX KEY: 0000069970 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 341111088 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-07229 FILM NUMBER: 97513906 BUSINESS ADDRESS: STREET 1: 1900 E NINTH ST CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2165752000 10-K405 1 NATIONAL CITY CORP. ANNUAL REPORT 1 1996 ANNUAL REPORT [GRAPHICS] NATIONAL CITY (R) 2 1996 ANNUAL REPORT CORPORATE PROFILE National City Corporation is a $51 billion diversified financial services company based in Cleveland, Ohio. National City operates banks and other financial service subsidiaries principally in Ohio, Kentucky, Indiana and Pennsylvania. National City subsidiaries provide financial services that meet a wide range of customer needs, including commercial and retail banking, trust and investment services, item processing, mortgage banking, and credit card processing. - ------------------------------------------------------------------------------- ANNUAL MEETING The Annual Meeting of Stockholders will be on Monday, April 14, 1997 at 10:00 a.m.: National City Center 1900 East Ninth Street, 4th Floor Cleveland, OH 44114 3 FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Amounts) 1996 1995 Percent Change - ----------------------------------------------------------------------------------------------------------- FOR THE YEAR: Net Income $736,630 $591,460 25% Preferred Dividend Requirements 4,028 14,830 (73) Net Income Applicable to Common Stock 732,602 576,630 27 Net Income Per Common Share: Primary 3.29 2.68 23 Fully Diluted 3.27 2.64 24 Dividends Paid Per Common Share 1.47 1.30 13 - ----------------------------------------------------------------------------------------------------------- Return on Average Common Equity 17.69% 16.18% Return on Average Assets 1.51 1.23 - ----------------------------------------------------------------------------------------------------------- Average Shares -- Primary 222,674,326 215,097,124 4% Average Shares -- Fully Diluted 225,503,431 224,004,487 1 - ----------------------------------------------------------------------------------------------------------- AT YEAR END: Assets $50,855,835 $50,541,845 1% Loans 35,830,068 34,465,826 4 Securities 8,997,322 10,344,988 (13) Deposits 35,999,747 35,580,967 1 Common Stockholders' Equity 4,432,063 3,878,446 14 Stockholders' Equity 4,432,063 4,063,846 9 - ----------------------------------------------------------------------------------------------------------- Equity to Assets Ratio 8.71% 8.04% Tier 1 Capital Ratio 9.84 9.14 Total Risk-Based Capital Ratio 14.79 13.47 Leverage Ratio 8.16 7.26 - ----------------------------------------------------------------------------------------------------------- Book Value Per Common Share $19.86 $18.33 8% Market Value Per Common Share 44.88 33.13 35 - ----------------------------------------------------------------------------------------------------------- Common Shares Outstanding 223,198,494 211,571,079 5 Common Stockholders of Record 36,153 37,827 (4) Full-Time Equivalent Employees 26,256 25,913 1 - -----------------------------------------------------------------------------------------------------------
Note: All prior period amounts, except for dividends paid per share and market value per share, have been restated to reflect the pooling-of-interests transaction with Integra Financial Corporation which closed May 3, 1996. - -------------------------------------------------------------------------------- ANNUAL TOTAL RETURN National City vs. S&P 500 20 Yrs: 12/76-12/96 16.0% 14.5% CONTENTS 15 Yrs: 12/81-12/96 22.2% 16.8% To Our Stockholders...........2 10 Yrs: 12/86-12/96 16.6% 15.3% Financial Review..............5 5 Yrs: 12/91-12/96 24.4% 15.20% Financial Statements and Notes......................22 1 Yrs: 12/95-12/96 40.7% 22.9% Form 10-K.....................42 Board of Directors/Officers...46 Corporate Directory...........48 1 4 TO OUR STOCKHOLDERS =============================================================================== [PICTURE] From left: David A. Daberko, Chairman & Chief Executive Officer; William R. Robertson, President; Vincent A. DiGirolamo, Vice Chairman The year 1996 was an exciting and eventful one for National City. We achieved record earnings, successfully completed the largest acquisition in our history, and directly addressed the major strategic issues in a number of our businesses. Net income for 1996 was a record $736.6 million, or $3.27 per share, and 23.9% higher than 1995. Return on equity was 17.7% on a capital base that is one of the strongest in the industry. Total revenues, excluding security gains, grew 8.8%, while overhead expenses, excluding one-time merger costs, were flat. The provision for loan losses fully covered net loan charge-offs, so that reserve balances were maintained. Credit quality, long a National City hallmark, continues to be excellent both in absolute terms and relative to the industry. National City stock closed the year at $44.88 per share, representing a total return to investors (price appreciation plus dividends) of 40.7% for the year. Over the last five years, National City stock has outperformed both the banking industry and the general market as measured by the S&P Regional Bank Index and the S&P 500 Index, respectively. 2 5 The reported numbers include the results of Integra Financial Corporation, a $14 billion Pittsburgh-based banking company which merged with National City in a pooling-of-interests transaction consummated in May. This merger was the most successful in our history. As of June 1996, less than 30 days after closing, the new National City Bank of Pennsylvania made its debut, with all systems and procedures of the former Integra Bank converted to National City's single operating system. While the cost savings achieved from merger integration enhance the initial return from this transaction, the real payoff is the opportunity for revenue growth -- marketing National City products and services in the western Pennsylvania market. It is clear that our earnings, and our growth rate, will benefit from this acquisition for years to come. As we outlined in last year's letter, our principal business strategy is to capture a greater "share-of-wallet" by selling more products to existing customers and therefore realize the maximum long-term value of the customer relationship. To do so requires that we understand our customers' needs, organize ourselves to meet those needs cost-effectively, and market the right products and services through the appropriate delivery channels. In retail banking, we are using sophisticated information management techniques to better understand and predict customer needs and behaviors. In corporate banking, we have automated the routine aspects of the credit administration process, and we are using a team selling approach to bring an impressive array of capital markets, cash management, and other corporate service capabilities to our large base of middle-market clientele. In addition, to better serve the growing base of affluent individuals and households, we created the Private Client Group which combines the former personal trust and private banking divisions into a single customer-driven entity. The remainder of the former Trust Group, principally asset management, employee benefits and corporate trust services, has been reorganized into Institutional Trust, focusing on corporate clients and providing investment management services to the Private Client Group. Behind these initiatives is a financial performance culture which emphasizes achieving the highest sustainable return on equity in each business. The core banking businesses are already earning a high return. This year we also addressed strategic challenges in the nonbank businesses. For example, National City has long been an efficient and high-quality servicer of mortgages, but mortgage origination volume has been insufficient to maintain a critical mass of servicing. We have renewed our commitment to this business and are seeking ways to increase mortgage originations, including faster turnaround of applications and acquisitions. This month we announced the acquisition of a mortgage origination network which will increase annual origination volume by over fifty percent. Commitment to Shareholder Value - ------------------------------------------------------------------------------- National City achieved a 17.7% return on equity in 1996 on an exceptionally strong capital base. - ------------------------------------------------------------------------------- Net income per share grew 23.9% in 1996 to $3.27 from $2.64 in 1995, a record. - ------------------------------------------------------------------------------- In December 1996, the annual indicated dividend increased 11.6% to $1.64 per share, compared to $1.47 per share paid in 1996. This continues our pattern of semi-annual dividend increases over the past four years. - ------------------------------------------------------------------------------- Total return on National City stock over the past five years has exceeded that of the S&P Super Regional Bank Index and the S&P 500 Index by 22.8% and 93.7%, respectively. - ------------------------------------------------------------------------------- Share ownership requirements further align management's interests with those of stockholders. 3 6 In August, our National Processing Company (NPC) subsidiary made a successful initial public stock offering, highlighting the "hidden value" in this profitable, fast-growing specialty business. National City continues to own 85% of NPC and the stock trades on the New York Stock Exchange under the symbol "NAP." As an aside, the current market value of National City's investment in NPC exceeds the entire purchase price of First Kentucky National Corporation in 1988, of which NPC was a relatively small subsidiary. In November, we exited the private label credit card business with the sale of our $400 million private label portfolio. The business had not met our return targets for the last several years. Going forward, our credit card focus will be narrowed to marketing to our natural bank customer base in the four-state region; back-office processing operations will be outsourced in 1997. The purpose of these strategies and actions is to generate superior value for our stockholders. We are committed to taking National City to the next level of performance in terms of return on equity and consistent high growth in earnings per share. Our balance sheet is solid, and we have more than adequate capital to invest in high-return businesses, either internally or through acquisition. In December, we increased the quarterly dividend to $.41 per share, continuing our pattern of semi-annual dividend increases since 1993. At the same time, following a reevaluation of our capital position, we announced a five-million share stock repurchase program. We will continue to evaluate capital needs and alternatives carefully. Although the economy and interest rates may present some unanticipated challenges in 1997, the fundamentals of our main operating businesses and markets are sound. To remain successful, we must execute flawlessly in sales and customer service, utilization of technology, risk management, cost control, and deployment of capital. To assure that our employees are focused on the right things, we have and will continue to emphasize merit-based and incentive-based variable compensation over the traditional fixed salary. We have also encouraged all employees to own more National City stock, and have established formal ownership requirements for senior officers and directors. These programs are indicative of our desire to foster a performance culture in which National City employees and management are both customer- and shareholder-oriented. The beneficiaries of this environment will be our customers, our employees and, most importantly, our shareholders. /s/ David A. Daberko David A. Daberko January 22, 1997 4 7 FINANCIAL REVIEW EARNINGS SUMMARY National City Corporation reported record net income of $736.6 million in 1996, compared with $591.5 million in 1995 and $598.5 million in 1994. Fully diluted earnings per share increased 23.9% in 1996 to $3.27, compared with $2.64 in 1995 and $2.60 in 1994. Return on average common equity was 17.69% in 1996, up from 16.18% in 1995 and 17.31% in 1994 (Chart 2). Return on average assets was 1.51% in 1996 versus 1.23% in 1995 and 1.35% in 1994 (Chart 3). The 1996 results reflect solid net interest income, growing noninterest income and demonstrated expense management. National City's results for all prior periods have been restated to include the results of Integra Financial Corporation ("Integra"). Integra was merged with National City, effective May 3, 1996, and was accounted for using the pooling-of-interests method of accounting. The following table reconciles the major changes in fully diluted net income per common share:
- -------------------------------------------------------------------- 1996 1995 VS vs 1995 1994 - -------------------------------------------------------------------- NET INCOME PER COMMON SHARE, PRIOR YEAR $2.64 $2.60 Increase (decrease) from changes in: Net interest income .33 .11 Provision for loan losses (.09) (.01) Fee and other income .40 .15 Noninterest expense (.21) (.39) Security gains .22 .04 Shares outstanding and taxes (.02) .14 - ------------------------------------------------------------------- NET INCOME PER COMMON SHARE, CURRENT YEAR $3.27 $2.64 - -------------------------------------------------------------------
"Tangible" or "cash" earnings per share were $3.42 and $2.80 in 1996 and 1995, respectively. This calculation adjusts net income for the non-cash impact of intangible amortization expense. "Return on tangible equity," which excludes the impact of intangibles from both net income and equity, was 20.1% in 1996 versus 18.7% in 1995. UNIT PROFITABILITY The financial performance of National City is monitored by an internal profitability measurement system which produces line-of-business results and key performance measures. National City's major business units include corporate banking, retail banking and fee-based businesses. The reported results reflect the underlying economics of the businesses. Expenses for centrally provided services are allocated based on estimated usage of those services. Capital has been allocated among the businesses on a risk-adjusted basis. The businesses are match-funded and interest rate risk is centrally managed by the investment/funding unit within the "Parent and other" line item in the contribution table below. The contribution of National City's major units to consolidated results for the past two years is summarized in the following table:
- ------------------------------------------------------------------- 1996 1995 ---------------- ---------------- RETURN Return NET ON Net on (Dollars in Millions) INCOME EQUITY Income Equity - ------------------------------------------------------------------- Corporate banking $175.6 20.74% $185.4 22.25% Retail banking 481.3 25.06 383.7 21.43 Fee-based businesses 60.3 18.46 51.3 18.56 Parent and other 19.4 -- (28.9) -- - ------------------------------------------------------------------- Consolidated total $736.6 17.69% $591.5 16.18% - -------------------------------------------------------------------
The corporate banking business includes a broad range of commercial and corporate lending, as well as commercial real estate, asset-based lending and leasing. A full range of deposit, treasury management and international services is also offered. In 1996, corporate banking had a return on equity of 20.74% and earnings of $175.6 million. Although average commercial loans - -------------------------------------------------------------------------------- Chart 1 Fully diluted net income and dividends per common share (as originally reported) Net income Dividends paid per share per share 76 .75 .26 77 .81 .29 78 .84 .33 79 .91 .37 80 .89 .41 81 .76 .41 82 .84 .41 83 .95 .41 84 1.21 .42 85 1.52 .44 86 1.61 .50 87 1.16 .60 88 1.92 .72 89 2.18 .84 90 1.93 .94 91 1.80 .94 92 2.06 .94 93 2.37 1.06 94 2.64 1.18 95 2.95 1.30 96 3.25 1.47 5 8 FINANCIAL REVIEW (continued) increased 5.8% from 1995, competitive pricing pressure resulting in narrower spreads on loans, compounded with a higher provision for loan losses, led to a $9.8 million decrease in corporate banking net income. The retail banking business includes the deposit-gathering branch franchise along with lending to individuals and small businesses. Lending activities include residential mortgages, indirect and direct consumer installment loans, leasing, credit cards and student lending. The return on equity for this business was 25.06% in 1996 and earnings were $481.3 million. The 25.4% increase in net income was due to higher net interest income from consumer loan growth, wider spreads on deposit accounts, and increases in banking office and card related fees. The fee-based businesses include institutional trust, mortgage banking, and item processing: - - Institutional trust includes employee benefit administration, mutual fund management, charitable and endowment services, and custodial services. Trust assets under management totaled $38.0 billion at December 31, 1996, up from $35.0 billion at December 31, 1995. Assets in the ARMADA(TM)mutual funds increased 50% to $5.1 billion, through new sales and a strong stock market. - - Mortgage banking includes the origination of mortgages through retail offices and broker networks, and mortgage servicing. The servicing portfolio totaled $22.8 billion at December 31, 1996. - - Item processing is conducted by National City's majority-owned subsidiary, National Processing, Inc. (NYSE: NAP), and includes merchant credit card processing, airline ticket processing, check guarantee services, and receivables and payables processing services. The increase in net income in the fee-based businesses reflects growing revenues in all units which is further described in the Noninterest Income discussion beginning on page 8. The parent and other category includes general corporate expenses not allocated to the business units, unallocated capital, interest expense on corporate debt, and the net results of investment securities and interest rate risk management. NET INTEREST INCOME On a tax equivalent basis, net interest income was up 6.2% to $1,963.5 million in 1996, compared with $1,849.5 million in 1995, and $1,811.0 million in 1994 (Chart 4). Although average earning assets remained stable in 1996, net interest income growth was the result of an improved asset and funding mix. The following table reconciles net interest income as shown in the financial statements to tax equivalent net interest income:
- ------------------------------------------------------------------- (Dollars in Millions) 1996 1995 1994 - ------------------------------------------------------------------- Net interest income - per financial statements $1,942.6 $1,828.3 $1,765.6 Tax equivalent adjustment 20.9 21.2 45.4 - ------------------------------------------------------------------- Net interest income - tax equivalent $1,963.5 $1,849.5 $1,811.0 - ------------------------------------------------------------------- Average earning assets $ 44,227 $ 43,844 $ 40,197 - ------------------------------------------------------------------- Net interest margin 4.44% 4.22% 4.50% - -------------------------------------------------------------------
To compare nontaxable asset yields to taxable yields on a similar basis, amounts are adjusted to pretax equivalents, based on the marginal corporate tax rate of 35%. The net interest margin, which is the difference between the tax equivalent yield on earning assets and the rate paid on funds to support those earning assets, increased 22 basis points to 4.44% in 1996 from 4.22% in 1995. The margin increase reflects an improved asset and funding mix. - -------------------------------------------------------------------------------- Chart 2 Return on average common equity (net income after preferred dividends, divided by average common equity) 91 11.02 Return on average common equity rose to 17.69% 92 13.36 in 1996 on a very strong capital base. National 93 18.75 City seeks to produce a return which is higher 94 17.31 than its peers over time. 95 16.18 96 17.96 Chart 3 Return on average assets (net income divided by average assets) 91 0.73 Return on average assets was 1.51% in 1996. Higher 92 0.99 fee income and expense efficiencies have helped 93 1.46 to boost this ratio. 94 1.35 95 1.23 96 1.51 6 9 The following table summarizes the contribution of derivatives to net interest income (amounts in brackets represent reductions of the related interest income or expense line, as applicable):
- -------------------------------------------------------------------- (Dollars in Millions) 1996 1995 1994 - -------------------------------------------------------------------- INTEREST ADJUSTMENT TO: Loans $ 21.9 $(13.1) $ 38.6 Securities (1.0) (7.7) (14.5) - -------------------------------------------------------------------- Assets 20.9 (20.8) 24.1 Deposits (21.8) (4.6) (10.6) - -------------------------------------------------------------------- EFFECT ON NET INTEREST INCOME $ 42.7 $(16.2) $ 34.7 - --------------------------------------------------------------------
The future net interest income contribution of the derivative portfolio is not significant at current interest rates. The effects of changing interest rates are more fully discussed in the Asset/Liability Management discussion starting on page 16. 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:
- ---------------------------------------------------------------------- 1996 VS. 1995 1995 vs. 1994 ------------------------- --------------------------- DUE TO CHANGE IN Due to Change in (Dollars in ----------------- NET ---------------- Net Millions) VOLUME RATE* CHANGE Volume Rate* Change - ---------------------------------------------------------------------- INCREASE (DECREASE) IN TAX EQUIVALENT INTEREST INCOME -- Loans $197.1 $(51.4) $145.7 $297.1 $ 231.4 $528.5 Securities (102.6) 24.5 (78.1) 7.6 30.4 38.0 Money market assets (12.6) (3.8) (16.4) (3.8) 14.5 10.7 - ---------------------------------------------------------------------- TOTAL $ 81.9 $(30.7) $51.2 $300.9 $ 276.3 $577.2 - ---------------------------------------------------------------------- (INCREASE) DECREASE IN INTEREST EXPENSE -- Savings and NOW accounts $(14.1) $ (9.1) $(23.2) $ 12.0 $ (42.1) $(30.1) Money market accounts 8.9 4.8 13.7 13.9 (4.4) 9.5 Time deposits (4.0) 15.7 11.7 (127.4) (146.0) (273.4) Purchased funds 70.6 27.0 97.6 (58.5) (136.3) (194.8) Long-term debt (48.1) 11.1 (37.0) (31.7) (18.1) (49.8) - ---------------------------------------------------------------------- TOTAL $ 13.3 $ 49.5 $62.8 $(191.7) $(346.9) $(538.6) - ---------------------------------------------------------------------- INCREASE IN TAX EQUIVALENT NET INTEREST INCOME $114.0 $ 38.6 - ---------------------------------------------------------------------- * Changes in interest income and interest expense not arising solely from rate or volume variances are included in rate variances. - ----------------------------------------------------------------------
- -------------------------------------------------------------------------------- Chart 4 Net interest income and net interest margin Net Interest Net Interest Tax equivalent net interest Income Margin income increased 6.2% in 1996 92 1,714 4.54 due to solid loan growth and 93 1,790 4.63 reduced costs of interest- 94 1,811 4.50 bearing funds. The stable net 95 1,850 4.22 interest margin over time 96 1,964 4.44 reflects conservative interest rate risk management. 7 10 FINANCIAL REVIEW (continued) NONINTEREST INCOME An analysis of fees and other income for the last three years follows:
- -------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 1994 - -------------------------------------------------------------------- Item processing revenue $ 364,512 $ 327,929 $ 312,358 Service charges on deposits 214,659 196,474 190,707 Trust fees 177,124 167,224 153,431 Card related fees 123,306 98,806 97,197 Mortgage banking revenue 114,742 89,918 82,770 Service fees - other 54,209 53,693 59,854 Brokerage revenue 47,546 29,502 19,748 Other real estate owned income 7,474 5,188 13,696 Other 61,310 58,204 45,921 - -------------------------------------------------------------------- TOTAL $ 1,164,882 $1,026,938 $ 975,682 - --------------------------------------------------------------------
Noninterest income increased 13.4% in 1996 to $1,164.9 million from $1,026.9 million in 1995. All categories of noninterest income increased in 1996, with the highest growth coming from item processing, credit card fees, mortgage banking revenue and brokerage revenue. Item processing increased 11.2% in 1996 due to ongoing increases in merchant card services and remittance processing revenues. Deposit service charges increased 9.3% to $214.7 million in 1996 primarily due to implementation of National City's fee structure in markets previously served by Integra. Trust fees increased 5.9% in 1996 and 9.0% in 1995 due to market-related increases in assets under management. Increasing corporate custody assets over the same two year period generated additional institutional trust revenue. Card related fees increased 24.8% to $123.3 million in 1996. The increase reflects the full year impact of excess servicing fees generated by the September 1995 securitization of $440 million in credit card receivables, as well as increased cardholder and merchant fees, and ATM interchange fees. Mortgage banking revenues increased 27.6% to $114.7 million in 1996 due mainly to the $25.2 million impact of Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting for Mortgage Servicing Rights, which was adopted January 1, 1996. For explanation of the Corporation's accounting policy regarding mortgage servicing rights, see Note 1 of the Notes to Consolidated Financial Statements (Notes). Gains on mortgage servicing rights sold totaled $18.4 million in 1995 and $16.7 million in 1994. There were no sales in 1996. Brokerage revenue increased 61.2% to $47.5 million in 1996. This increase reflects the full year impact from the July 1995 acquisition of Raffensperger, Hughes & Co., Inc., a full-service investment banking and brokerage firm now known as NatCity Investments, Inc. The increase also reflects additional investment banking fees, higher transaction volume in retail brokerage, and a strong stock market. Other noninterest income increased 5.3% to $61.3 million in 1996. In 1996, other income included a $6.0 million gain on the sale of the private label credit card portfolio and $9.2 million of gains on branch sales. In 1995, other income included a $9.2 million gain on the sale of credit card receivables. NONINTEREST EXPENSE The following table provides details of noninterest expenses for the last three years:
- ---------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 1994 - ---------------------------------------------------------------------- Salaries $ 736,439 $ 693,952 $ 654,660 Benefits 187,325 184,663 177,019 Equipment 135,139 127,612 122,278 Net occupancy 132,143 125,072 122,213 Third party services 139,928 147,595 116,834 Credit card fees 129,304 115,184 98,663 Postage and supplies 96,946 89,905 84,597 FDIC assessments 5,794 65,978 70,728 Amortization of intangibles 39,637 41,971 36,326 State and local taxes 38,561 39,027 39,227 Marketing and public relations 84,238 60,668 48,365 Transportation 34,377 31,293 30,247 Telephone 39,073 36,877 33,599 Other real estate owned expense 9,551 6,075 13,630 Merger-related charges 74,745 24,200 -- Other 127,480 148,949 154,525 - ---------------------------------------------------------------------- TOTAL $ 2,010,680 $1,939,021 $1,802,911 - ----------------------------------------------------------------------
Noninterest expense increased 3.7% to $2,010.7 million in 1996, compared to $1,939.0 million in 1995. One-time charges associated with the Integra merger were the largest contributor to the increase. Excluding those charges, noninterest expense was essentially flat compared to 1995. Merger-related charges of $74.7 million were recorded in 1996 in connection with the Integra merger. Merger charges included $33.4 million for severance and other personnel costs, $26.2 million for write-offs of facilities, software, equipment and other assets, and $15.1 million for transaction and miscellaneous costs. In 1995, merger-related charges of $24.2 million were paid toward contractual penalties and professional fees. Third party service fees fluctuated over the past three years due to a higher level of consulting and data processing fees in 1995. Elimination and consolidation of third party service providers as a result of the Integra merger caused the decrease from 1995. FDIC assessments decreased $60.2 million in 1996 as a result of the statutory reduction of the Federal Deposit Insurance Corporation's deposit insurance premiums. 8 11 Marketing and public relations expenses increased $23.6 million to $84.2 million in 1996. The increase reflects a $30.4 million discretionary pre-funding of National City's charitable foundation. Other noninterest expense included $16.4 million and $13.2 million of unusual items in 1995 and 1994, respectively, related to legal settlements and other miscellaneous items. The overhead performance measures of National City's major units for the past two years are summarized in the following table:
- ----------------------------------------------------------------------- Full-Time Overhead Efficiency Equivalent Staff Ratio Ratio - ----------------------------------------------------------------------- 1996 Corporate and retail banking 16,213 38.93% 53.43% Fee-based businesses 8,719 -- 79.58 Corporate staff 1,324 -- -- - ----------------------------------------------------------------------- TOTAL 26,256 43.08% 64.27% - ----------------------------------------------------------------------- Excluding merger charges 39.27% 61.88% 1995 Corporate and retail banking 17,009 45.67% 58.34% Fee-based businesses 7,772 -- 81.58 Corporate staff 1,132 -- -- - ----------------------------------------------------------------------- TOTAL 25,913 49.31% 67.41% - ----------------------------------------------------------------------- Excluding merger charges 48.01% 66.57%
Full-time equivalent staff increased in 1996 primarily due to staffing in the item processing subsidiary. The overhead ratio (noninterest expense less fee income as a percentage of fully taxable net interest income) was 43.1% in 1996, compared with 49.3% in 1995 and 45.7% in 1994 (Chart 5). The efficiency ratio (noninterest expense as a percentage of fee income plus tax-equivalent net interest income) was 61.9% in 1996 (excluding merger charges) versus 66.6% in 1995 and 64.7% in 1994. The fee-based businesses generally have lower gross margins than traditional banking. Therefore, growth in these businesses penalizes the efficiency ratio; conversely, strong fee income benefits the overhead ratio. SECURITIES GAINS AND LOSSES Net realized securities gains and losses are summarized as follows:
- ---------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 1994 - ---------------------------------------------------------------------- Net gain (loss) on sales of debt securities $ 5,838 $ (8,279) $ 12,095 Tax expense (benefit) 2,043 (2,898) 4,234 - ---------------------------------------------------------------------- After tax $ 3,795 $ (5,381) $ 7,861 - ---------------------------------------------------------------------- Net gains on sales of equity securities $ 102,308 $ 50,644 18,184 Tax expense 27,544 16,399 6,014 - ---------------------------------------------------------------------- After tax $ 74,764 $ 34,245 $ 12,170 - ---------------------------------------------------------------------- Effect on net income $ 78,559 $ 28,864 $ 20,031 - ---------------------------------------------------------------------- Effect on earnings per share $ .35 $ .13 $ .09 - ----------------------------------------------------------------------
As shown in the above table, equity securities gains represent the majority of securities gains over the last three years. The primary source of these gains has been the Corporation's internally-managed Bank Stock Fund, an equity portfolio consisting primarily of bank and thrift common stock investments. At December 31, 1996, the market value and unrealized appreciation of Bank Stock Fund equity investments totaled $463.0 million and $207.9 million, respectively. EARNING ASSETS Average earning assets for 1996 were $44,227 million, compared with $43,844 million in 1995 and $40,197 million in 1994. Although average loans increased 6.7% over the prior year, this growth was offset by a decline in the securities portfolio. Average earning assets increased 9.1% in 1995 versus 1994, driven by a 12.4% increase in average loans. - -------------------------------------------------------------------------------- Chart 5 Overhead ratio (noninterest expenses less fee income, divided by net interest income) 91 54.89 92 55.25 93 47.47 94 45.68 95 49.31 96 43.08 The overhead ratio improved in 1996 to the lowest level in the last six years. The improvement was due to successful integration of acquisitions, the maintenance of flat overhead expenses at the banking level, and revenue growth. 9 12 FINANCIAL REVIEW (continued) LOANS: At year-end 1996, loans were $35,830 million, representing an increase of 4.0% from year-end 1995. Average loans are shown in Chart 6. Ending loan balances are summarized in the table below:
- ------------------------------------------------------------------------- (Dollars in Millions) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------- Commercial and industrial $ 10,935 $11,048 $ 9,888 $ 9,764 $ 9,452 Nontaxable 283 282 344 343 410 Real estate construction 775 713 575 686 736 Leasing 516 358 297 310 323 Commercial mortgage 3,441 3,332 3,195 3,058 2,738 Residential mortgage 7,623 7,501 6,218 5,903 4,482 Consumer 9,252 8,149 7,161 6,325 5,742 Home equity 1,783 1,546 1,327 1,176 1,024 Credit card 1,222 1,537 1,696 1,037 1,044 - ------------------------------------------------------------------------- TOTAL LOANS $ 35,830 $34,466 $30,701 $28,602 $25,951 - -------------------------------------------------------------------------
Commercial: More than 75% of the commercial loan portfolio consists of loans made to middle-market customers in National City's four-state 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. Commercial loan growth remained steady throughout 1996. Future growth should be supplemented by increased emphasis on commercial leasing and asset-based lending. An analysis of the maturity and interest rate sensitivity of commercial loans at the end of 1996 follows:
- --------------------------------------------------------------------- One Year One to Over (Dollars in Millions) or Less Five Years Five Years Total - --------------------------------------------------------------------- Domestic commercial $4,924 $5,074 $1,672 $11,670 Real estate construction 262 257 256 775 International 37 13 14 64 - --------------------------------------------------------------------- TOTAL $5,223 $5,344 $1,942 $12,509 - --------------------------------------------------------------------- TOTAL VARIABLE RATE $4,773 $4,024 $1,040 $ 9,837 TOTAL FIXED RATE 450 1,320 902 2,672 - ---------------------------------------------------------------------
Commercial Real Estate: Commercial mortgages included $2,451 million of loans secured by income-producing real estate in 1996, up from $2,375 million in 1995 and $2,415 million in 1994. 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 Real (Dollars in Millions) Construction Permanent Estate - ----------------------------------------------------------------- OUTSTANDING: 1996 $775 $ 2,451 $3,226 1995 713 2,375 3,088 1994 575 2,415 2,990 UNFUNDED COMMITMENTS: 1996 $394 $ 296 $ 690 1995 305 263 568 1994 261 206 467 - -----------------------------------------------------------------
Activities in commercial real estate are based primarily on relationships with developers who are active in local markets. More than 85% of outstandings are in National City's primary markets of Ohio, Kentucky, Indiana and Pennsylvania. The portfolio consists predominantly of relatively small-scale office, retail and apartment buildings. Total commercial real estate loans made up 9% of the total loan portfolio at December 31, 1996, relatively the same percentage as at year-end 1995 and 1994. The following table shows commercial real estate loans at year-end 1996 by state and by project:
- ------------------------------------------------------------------- (Dollars in Millions) - ------------------------------------------------------------------- BY STATE: BY PROJECT: Ohio $1,480 Retail $ 736 Pennsylvania 767 Land 102 Kentucky 308 Apartments 648 Indiana 250 Office 486 Florida 52 Industrial 154 Michigan 22 Other 1,100 Other 347 - ------------------------------------------------------------------- TOTAL $3,226 TOTAL $3,226 - -------------------------------------------------------------------
At year-end, there were no concentrations of real estate loans in any deteriorating economic areas. Residential Mortgage: Residential mortgage loan demand continued strong in 1996. Loan originations totaled approximately $3.7 billion in 1996, up from $3.6 billion in 1995. Of the 1996 originations, $2.6 billion were sold in the secondary market. Consumer: During 1996, consumer loans continued the upward trend, increasing 13.5% from year-end 1995. More than 70% of consumer loans are installment loans, primarily auto-related, and of these more than 65% are indirect, with the majority at fixed rates. The remainder of the consumer portfolio is comprised of student loans. 10 13 Credit Card: The decline in credit card outstandings in 1996 reflects the sale of the $400 million private label credit card portfolio in November 1996. The decline in credit card receivables from 1994 to 1995 reflects the securitization of $440 million of credit card receivables in September 1995. The managed card portfolio, which includes both on-balance sheet receivables and securitized balances, decreased 15.9% from year-end 1995 as the result of the private label credit card portfolio sale. SECURITIES: On a cost basis, the securities portfolio decreased from $10.0 billion at December 31, 1995 to $8.8 billion at December 31, 1996. The decrease in the securities portfolio was used to finance growth in the loan portfolio. The decrease during 1996 was primarily in mortgage-backed securities which declined by $1.6 billion as sales, scheduled and unscheduled principal repayments totaled $2.7 billion and exceeded purchases of $1.1 billion. Summary information with respect to the securities portfolio at December 31 follows:
- ---------------------------------------------------------------------- 1996 1995 1994 AMORTIZED 1996 Amortized Amortized (Dollars in Millions) COST YIELD Cost Cost - ---------------------------------------------------------------------- U.S. TREASURY AND FEDERAL AGENCY DEBENTURES: Under 1 year $ 527 6.47% $ 50 $ 154 1 to 5 years 1,382 5.63 1,427 1,996 5 to 10 years 321 6.22 504 487 Over 10 years -- -- 95 67 - ---------------------------------------------------------------------- TOTAL 2,230 5.91 2,076 2,704 - ---------------------------------------------------------------------- MORTGAGE-BACKED SECURITIES: Under 1 year 122 5.88 104 13 1 to 5 years 2,619 6.86 2,826 1,716 5 to 10 years 1,635 6.86 811 902 Over 10 years 14 6.58 2,255 2,638 - ---------------------------------------------------------------------- TOTAL 4,390 6.83 5,996 5,269 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- 1996 1995 1994 AMORTIZED 1996 Amortized Amortized (Dollars in Millions) COST YIELD Cost Cost - ---------------------------------------------------------------------- ASSET-BACKED AND CORPORATE DEBT SECURITIES: Under 1 year 93 6.47 2 -- 1 to 5 years 591 6.81 159 188 5 to 10 years 221 7.35 75 69 Over 10 years 85 6.46 581 478 - ---------------------------------------------------------------------- TOTAL 990 6.87 817 735 - ---------------------------------------------------------------------- STATES AND POLITICAL SUBDIVISIONS: Under 1 year 58 12.25 69 117 1 to 5 years 91 10.77 115 203 5 to 10 years 89 8.70 122 109 Over 10 years 87 9.02 130 149 - ---------------------------------------------------------------------- TOTAL 325 10.00 436 578 - ---------------------------------------------------------------------- OTHER SECURITIES: Under 1 year 183 -- 25 18 1 to 5 years 2 -- 172 155 5 to 10 years 19 -- 93 81 Over 10 years 631 -- 428 347 - ---------------------------------------------------------------------- TOTAL 835 -- 718 601 - ---------------------------------------------------------------------- TOTAL SECURITIES $ 8,770 6.57%* $10,043 $ 9,887 - ---------------------------------------------------------------------- * Yield on debt securities only; equity securities excluded. - ----------------------------------------------------------------------
Yields on tax-exempt securities are calculated on a tax 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. The general increase in interest rates during 1996 led to a decrease in the unrealized appreciation of the securities portfolio. At December 31, 1996, a net unrealized gain of $147.8 million, net of tax, was included in stockholders' equity, compared to a net unrealized gain of $196.5 million, net of tax, at December 31, 1995. The portfolio yield at December 31, 1996 was 6.57%, compared to 6.74% at December 31, 1995. The - -------------------------------------------------------------------------------- Chart 6 Average Loans ($ in million) Corporate Banking Consumer Banking Comm'l Residential Revolving Commercial Real Estate Installment Real Estate Credit 91 11,819 2,463 91 5,898 4,133 1,878 92 10,977 2,621 92 5,909 4,237 1,763 93 10,543 3,018 93 5,906 4,998 2,106 94 10,782 3,236 94 6,693 5,888 2,511 95 11,584 3,473 95 7,617 7,039 3,058 96 12,261 3,368 96 8,739 7,486 3,125 The loan portifolio mix is approximately 45% corporate and 55% retail loans. The retail loan portifolio, which includes revlolving credit, residential real estate and installment loans, has grown at a faster rate than corporate loans in recent years. 11 14 FINANCIAL REVIEW (continued) decline in yield is attributable primarily to prepayments of higher yielding mortgage-backed securities and the maturity and sale of higher yielding callable Federal agency securities. Investments in collateralized mortgage obligations (CMO's) totaled $1.6 billion and $2.1 billion at December 31, 1996 and 1995, respectively. At December 31, 1996, CMO's with book values of $134 million and market values of $137 million were considered "high risk" under regulatory definitions. These securities are classified as "high risk" because either their price sensitivity or average life extension is potentially beyond the limits for CMO's not classified as "high risk" by regulatory definitions. These securities and all CMO's are continually monitored and subjected to stress tests for price and average life sensitivity. The amount of mortgage-backed securities that are either variable or adjustable rate totaled $1.4 billion at December 31, 1996, or 32% of total mortgage-backed securities. INTEREST-BEARING LIABILITIES Average balances in transaction accounts, which include demand deposits, savings, and interest-bearing checking, grew by 1.5% in 1996, while time deposits of individuals remained flat. Overall, average core deposits increased at a pace similar to earning assets. On average, use of purchased funds decreased by $492 million in 1996, due to an increase in lower cost deposits. Purchased funds include all interest-bearing liabilities that are not core deposits. A maturity distribution of certificates of deposit of $100,000 or more at year-end follows:
- ------------------------------------------------------------------- (Dollars in Millions) 1996 1995 - ------------------------------------------------------------------- DUE IN: 3 months or less $1,107 $ 890 3 to 6 months 349 345 6 to 12 months 450 469 Over 1 year 1,507 1,055 - ------------------------------------------------------------------- TOTAL $3,413 $2,759 - -------------------------------------------------------------------
Details regarding federal funds borrowed and security repurchase agreements follow:
- ------------------------------------------------------------------ (Dollars in Millions) 1996 1995 1994 - ------------------------------------------------------------------ Balance at December 31 $4,277 $5,300 $3,842 Maximum outstanding at any month-end 4,512 5,300 3,893 Daily average amount outstanding 3,959 4,394 3,401 Weighted daily average interest rate 5.40% 5.43% 5.00% Weighted daily interest rate for amounts outstanding at December 31 5.89% 4.90% 5.28% - ------------------------------------------------------------------
CAPITAL Total stockholders' equity was $4,432 million at December 31, 1996, representing a 9.1% increase from year-end 1995. The Corporation has consistently maintained capital ratios at or above the "well capitalized" standards. For further detail on capital ratios, see Note 11. Total equity was 8.71% of total assets at year-end 1996 compared to 8.04% a year ago. Tangible equity, which excludes goodwill and other intangible assets was 7.81% of tangible assets at December 31, 1996 versus 7.09% at December 31, 1995. Book value per common share at December 31, 1996 was $19.86, compared to $18.33 at December 31, 1995 (Chart 8). The 1996 book value included $.66 of unrealized market appreciation in the securities available for sale portfolio, compared with $.93 of market appreciation at year-end 1995. - -------------------------------------------------------------------------------- Chart 7 Average Funding Sources ($ in million) Core Other Purchased Deposits Deposits Funds 91 24,904 2,152 5,126 92 25,496 1,199 5,427 93 25,052 827 6,494 94 25,097 1,519 7,146 95 26,739 1,886 8,745 95 27,005 1,504 8,635 12 15 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 46.0% and 46.4%, respectively. In December 1996, the Board of Directors declared a first quarter dividend of $.41 per common share, representing a 9% increase from the next preceding quarterly dividend of $.375 per share. The dividend is payable February 1 to stockholders of record on January 12, 1997. At December 31, 1996, the Corporation had authorization to repurchase up to five million shares of National City common stock in the open market. All shares repurchased will be held as treasury shares for reissue in connection with the dividend reinvestment and stock option plans, and for general corporate purposes. Effective May 1, 1996, the Corporation called for redemption all of the outstanding depositary shares of the 8% Cumulative Convertible Preferred Stock. The depositary shares were convertible at a rate of approximately 2.384 shares of National City common stock per depositary share, and virtually all preferred stockholders exercised their conversion rights prior to the redemption date. National City Corporation's common stock trades on the New York Stock Exchange under the symbol NCC. As of December 31, 1996, there were 36,153 common stockholders of record. The total market capitalization of the Corporation was approximately $10.0 billion at December 31, 1996. Quarterly dividends paid and common stock prices follow:
- ------------------------------------------------------------------------- NYSE: NCC First Second Third Fourth Year 1996 Dividends paid $ .36 $ .36 $ .375 $.375 $ 1.47 High 35.38 37.75 42.75 47.25 47.25 Low 30.63 33.25 33.75 41.50 30.63 Close 35.13 35.13 42.13 44.88 44.88 1995 Dividends paid $ .32 $ .32 $ .33 $ .33 $ 1.30 High 27.88 30.63 31.63 33.75 33.75 Low 25.25 26.50 29.00 29.88 25.25 Close 26.63 29.38 30.88 33.13 33.13 - -------------------------------------------------------------------------
ASSET QUALITY NONPERFORMING ASSETS: A summary of nonaccrual and restructured loans and other nonperforming assets at December 31 follows:
- ------------------------------------------------------------------------- (Dollars in Millions) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------- COMMERCIAL: Nonaccrual $ 82.7 $ 108.2 $ 66.1 $102.1 $179.0 Restructured -- .1 2.4 4.1 6.6 - ------------------------------------------------------------------------- TOTAL COMMERCIAL 82.7 108.3 68.5 106.2 185.6 - ------------------------------------------------------------------------- REAL ESTATE RELATED: Nonaccrual 57.2 75.0 104.6 156.7 182.9 Restructured 3.2 4.1 4.4 6.5 4.3 - ------------------------------------------------------------------------- TOTAL REAL ESTATE RELATED 60.4 79.1 109.0 163.2 187.2 - ------------------------------------------------------------------------- TOTAL NONPERFORMING LOANS 143.1 187.4 177.5 269.4 372.8 Other real estate owned (OREO) 24.5 21.4 48.7 114.0 221.6 - ------------------------------------------------------------------------- TOTAL NONPERFORMING ASSETS $ 167.6 $ 208.8 $226.2 $383.4 $594.4 - ------------------------------------------------------------------------- Loans 90 days past due accruing interest $ 107.1 $ 64.7 $ 51.3 $ 68.1 $ 76.4 - -------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Chart 8 Book value and stock price history (adjusted for stock splits; not restated for poolings) High Low Year-end National City's stock Book Stock Stock Stock price at December 31, 1996 Value Price Price Price was 2.3 times book value, roughly in line with 76 4.80 6.76 4.26 6.76 peers. Over the past 20 77 5.31 6.67 6.08 6.13 years, the average 78 5.81 7.19 5.71 5.95 annual total return on 79 6.34 6.82 5.89 6.39 National City stock, 80 6.83 6.41 4.41 5.08 assuming reinvestment of 81 7.18 5.56 4.26 4.52 dividends, was 16.0%, 82 7.69 5.41 3.45 4.78 compared with 14.5% for 83 8.24 6.89 4.49 6.89 the S&P 500. 84 8.65 8.61 5.78 8.47 85 8.74 11.28 8.39 10.97 86 10.40 16.46 10.95 15.29 87 10.58 19.13 11.94 14.56 88 10.92 16.82 13.88 16.44 89 12.43 20.75 15.38 19.56 90 13.39 19.94 11.32 15.63 91 14.24 21.13 14.07 18.63 92 14.54 24.82 17.94 24.81 93 16.15 28.06 23.13 24.50 94 16.36 29.00 23.75 25.88 95 18.80 33.75 25.25 33.13 96 19.86 47.25 30.63 44.88 13 16 FINANCIAL REVIEW (continued)
- ----------------------------------------------------------------------- (Dollars in Millions) 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------- NONPERFORMING LOANS AND OREO AS A PERCENT OF: Loans and OREO .5% .6% .7% 1.3% 2.3% Assets .3 .4 .5 .8 1.4 Equity 3.8 5.1 6.5 10.1 18.3 Loan loss allowance to nonperforming loans 493% 377% 398% 254% 167% - -----------------------------------------------------------------------
All loans considered impaired under SFAS No. 114, Accounting by Creditors for Impairment of a Loan, adopted on January 1, 1995, are included in non-performing loans. Commercial and residential real estate loans and securities are designated as nonperforming when payments are 90 or more days past due, when credit terms are renegotiated below market levels, or when individual analysis of a borrower's creditworthiness indicates that a credit should be placed on nonaccrual status, unless the loan is adequately collateralized and is in the process of collection. Consumer loans are reported as "90 days past due accruing interest" once the 90-day criterion has been met, and are charged off in the month in which the loan becomes 120 days past due. Generally, when loans are classified as nonperforming or impaired, unpaid accrued interest is written off and future income may be recorded only as cash payments are received. Nonperforming assets decreased $41.2 million in 1996, continuing the trend of the past several years. Loans 90 days past due accruing interest increased $42.4 million from the end of 1995. Increased consumer delinquencies, experienced across the banking industry, caused this rebound to a level more representative of historical norms. 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) 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------- Income potential based on original contract $ 20.6 $21.3 $22.6 $27.6 $27.5 Actual income 9.0 12.1 10.3 8.6 5.7 - --------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES: The following table presents a reconciliation of the allowance for loan losses:
- ------------------------------------------------------------------------ (Dollars in Millions) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------ BALANCE AT BEGINNING OF YEAR $ 705.8 $706.5 $685.3 $622.7 $568.5 Provision 146.5 113.5 109.4 143.1 225.8 Net acquired allowance .1 11.5 9.7 50.7 19.5 LOANS CHARGED OFF: Commercial 58.0 52.3 54.9 84.7 101.6 Real estate mortgage 10.2 27.5 27.3 29.4 32.1 Consumer 95.9 57.1 47.2 50.0 69.5 Revolving credit 72.5 65.6 50.8 49.3 57.9 - ------------------------------------------------------------------------ TOTAL CHARGE-OFFS 236.6 202.5 180.2 213.4 261.1 - ------------------------------------------------------------------------ RECOVERIES: Commercial 35.0 25.7 36.1 40.1 24.5 Real estate mortgage 5.7 9.9 5.2 3.9 5.7 Consumer 35.5 27.8 27.9 26.2 27.5 Revolving credit 13.9 13.4 13.1 12.0 12.3 - ------------------------------------------------------------------------ TOTAL RECOVERIES 90.1 76.8 82.3 82.2 70.0 - ------------------------------------------------------------------------ Net charged-off loans 146.5 125.7 97.9 131.2 191.1 - ------------------------------------------------------------------------ BALANCE AT END OF YEAR $ 705.9 $705.8 $706.5 $685.3 $622.7 - ------------------------------------------------------------------------ Ratio of ending allowance to ending loans 1.97% 2.05% 2.30% 2.40% 2.40% - ------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Chart 9 Nonperforming assets and the allowances for loan losses ($ in millions) Nonperforming Allowance for Nonperforming assets at Assets loan losses December 31, 1996 totaled $168 91 816 569 million and represented a 20% 92 594 623 decrease from a year ago. At 93 383 686 December 31, 1996, the 94 226 707 allowance for loan losses 95 209 706 represented 1.97% of total 96 168 706 loans and 493% of nonperforming assets. 14 17 The commercial category includes real estate construction net charge-offs/(recoveries) of $(10.4) million in 1996, $(2.4) million in 1995 and $(1.5) million in 1994. The real estate mortgage category includes commercial real estate net charge-offs/(recoveries) of $.02 million in 1996, $15.8 million in 1995 and $19.2 million in 1994. Net charge-offs as a percentage of average loans by portfolio type are shown in the following table:
- ------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------- Commercial .19% .23% .17% .42% .70% Real estate mortgage .04 .17 .24 .31 .38 Consumer .69 .38 .29 .40 .71 Revolving credit 1.88 1.71 1.50 1.77 2.59 TOTAL NET CHARGE-OFFS TO AVERAGE LOANS .42% .38% .34% .49% .75% - -------------------------------------------------------------------------
Net charge-offs as a percentage of loans increased 4 basis points from 1995, and the 1995 rate was up 4 basis points from 1994 (Chart 10). Consumer and credit card loans are charged off within industry norms, while commercial loans are evaluated individually. The adequacy of the allowance for loan losses is evaluated based on an assessment of the losses inherent in the loan portfolio. This assessment results in an allowance consisting of two components, allocated and unallocated. The allocated component of the allowance for loan losses reflects expected losses resulting from the analysis of individual loans, developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on a regular analysis of all loans and commitments over a fixed dollar amount where the internal credit rating is at or below a predetermined classification. The historical loan loss element represents a projection of future credit problems and is determined statistically using a loss migration analysis that examines loss experience and the related internal gradings of loans charged off. The allocated component of the allowance for loan losses also includes management's determination of the amounts necessary for concentrations, economic uncertainties, change in mix of the portfolio and other subjective factors. Since banking is a cyclical business, National City's allocation methodology gives consideration to potential losses in the portfolio over a two year period of time. An allocation of the ending allowance for loan losses by major loan type follows: - ------------------------------------------------------------
(Dollars in Millions) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------- Commercial and commercial mortgage $ 205.2 $261.3 $272.5 $311.8 $325.0 Consumer and residential mortgage 100.1 93.5 88.2 82.7 83.6 Revolving credit 48.9 40.9 43.3 22.1 30.1 Unallocated 351.7 310.1 302.5 268.7 184.0 - ---------------------------------------------------------------------- TOTAL $ 705.9 $705.8 $706.5 $685.3 $622.7 - ----------------------------------------------------------------------
The allocations are made for analytical purposes. The total allowance is available to absorb losses from any segment of the portfolio. The following table shows the percentage of loans in each category to total loans at year-end:
- ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------- Commercial and commercial mortgage 44.5% 45.6% 46.6% 49.5% 52.6% Consumer and residential mortgage 47.1 45.5 44.3 43.5 40.4 Revolving credit 8.4 8.9 9.1 7.0 7.0 - ---------------------------------------------------------------------- TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% - ----------------------------------------------------------------------
- -------------------------------------------------------------------------------- Chart 10 Net charge-offs as a percentage of average loans Net C/O Ratio Net charge-offs were.42% of average 91 1.18% loans in 1996 compared with .38% in 92 .75% 1995 and .34% in 1994. The slight 93 .49% increase in 1996 reflects higher 94 .34% consumer loan losses. 95 .38% 96 .42% 15 18 FINANCIAL REVIEW (continued) 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 core deposit base, the ability to acquire large deposits and issue bank notes in the local and national markets, and the capability to securitize or package loans for sale. The parent company has four major sources of funding to meet its liquidity requirements: dividends from its subsidiaries, the commercial paper market, a revolving credit agreement, and access to the capital markets. The main source for parent company cash requirements has been dividends from its subsidiaries. At January 1, 1997, $378.0 million was available within the bank subsidiaries to pay parent company dividends without prior regulatory approval, versus $498.5 million at January 1, 1996. During 1996, subsidiary banks declared $579.5 million in dividends to the parent company. In addition, the issuance of Tier 2 debt capital at certain subsidiary banks permitted the banks to return $495.0 million in equity capital to the parent company. As discussed in Item 1 of Form 10-K (page 42), subsidiary banks are subject to regulation and, among other things, may be limited in their ability to pay dividends or transfer funds to the parent company. Accordingly, consolidated cash flows as presented in the Consolidated Statements of Cash Flows on page 26 may not represent cash available to National City Corporation's stockholders. Funds raised in the commercial paper market through the Corporation's subsidiary, National City Credit Corporation, are primarily used to support the activities of National City Mortgage Co., the Corporation's mortgage banking subsidiary, as well as other occasional short-term cash needs. Commercial paper outstandings at December 31, 1996 were $556 million, compared with $374 million at year-end 1995. National City Corporation has a $350 million revolving credit agreement with a group of unaffiliated banks which serves as a back-up liquidity facility. The agreement expires February 1, 2000, with a provision to extend the expiration date under certain circumstances. No borrowings have occurred under this facility. The parent company also has in place a $250 million shelf registration with the Securities and Exchange Commission permitting ready access to the public debt and preferred stock markets. In February 1996, National City Bank of Kentucky issued $200 million principal amount of 6.30% Subordinated Bank Notes due 2011. The notes are not redeemable prior to maturity and qualify as Tier 2 capital for regulatory purposes. In October 1996, National City Bank of Pennsylvania issued $200 million principal amount of 7.25% Subordinated Bank Notes due 2011. The notes are not redeemable prior to maturity and qualify as Tier 2 capital for regulatory purposes. ASSET/LIABILITY MANAGEMENT The primary goal of asset/liability management is to maximize net interest income within the interest rate risk limits set by the Corporate Asset/Liability Committee. Interest rate risk is monitored and controlled through the use of three different measures: static gap analysis, earnings simulation and net present value modeling. The most useful of these measures is earnings simulation. The model forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments, interest rate relationships, and changes in the volumes and rates of various loan and deposit categories. The model also incorporates all off-balance sheet commitments, as well as assumptions about reinvestment and the repricing characteristics of certain noncontractual assets and liabilities. While each of the interest rate risk measurements has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Corporation, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to certain interest rate relationships. National City uses a variety of financial instruments to manage its interest rate sensitivity. These include the securities in its investment portfolio, interest rate swaps, interest rate caps and floors, and, to a lesser extent, exchange-traded futures and options contracts. Frequently called interest rate derivatives, interest rate swaps, caps and floors have similar characteristics to securities but possess the advantages of customization of the risk-reward profile of the instrument, minimization of balance sheet leverage and improvement of the liquidity position. STATIC GAP: As illustrated in the following table, at year-end, the amount of interest earning assets, adjusted for off-balance sheet instruments, less interest bearing liabilities which reprice within a given period, was (2.0)% of adjusted total earning assets within six months and (3.9)% within one year. However, the ongoing management of the gap incorporates noninterest earning assets, noninterest bearing liabilities and equity. These items, which include cash, mortgage servicing rights and noninterest bearing demand deposits, are included in the periods in which they are likely to affect National City's interest rate sensitivity. At year-end, the amount of total assets, adjusted for off-balance sheet instruments, less total liabilities which reprice 16 19 within a given period, was (10.3)% of adjusted total earning assets within six months and (12.2)% within one year. The policy limit for the one-year gap is plus or minus 20% of adjusted total earning assets, including the effect of noninterest earning assets, noninterest bearing liabilities and equity.
- --------------------------------------------------------------------------- Within Six to One to Three to Over Six Twelve Three Five Five (Dollars in Millions) Months Months Years Years Years - --------------------------------------------------------------------------- Loans $19,546 $ 3,212 $ 6,442 $ 2,879 $ 3,750 Securities 2,903 904 1,937 1,523 1,731 Money market assets 693 185 0 0 0 - --------------------------------------------------------------------------- Total interest earning assets 23,142 4,301 8,379 4,402 5,481 Interest bearing liabilities 18,266 5,862 9,856 1,127 2,717 - --------------------------------------------------------------------------- Gap between interest earning assets and interest bearing liabilities before swaps and options 4,876 (1,561) (1,477) 3,275 2,764 Net swaps and options (5,958) 551 2,672 1,439 1,296 - --------------------------------------------------------------------------- Gap between interest earning assets and interest bearing liabilities, adjusted for swaps and options $(1,082) $(1,010) $ 1,195 $ 4,714 $ 4,060 - --------------------------------------------------------------------------- Cumulative gap between interest earning assets and interest bearing liabilities, adjusted for swaps and options $(1,082) $(2,092) $ (897) $ 3,817 $ 7,877 - --------------------------------------------------------------------------- Gap between interest earning assets and interest bearing liabilities, adjusted for swaps and options (1,082) (1,010) 1,195 4,714 4,060 Nonearning assets 2,660 252 287 491 1,460 Noninterest bearing liabilities, demand deposits and equity 7,052 265 1,058 220 4,432 - --------------------------------------------------------------------------- Gap adjusted for swaps, options, nonearning assets, noninterest bearing liabilities, demand deposits and equity $(5,474) $(1,023) $ 424 $ 4,985 $ 1,088 - --------------------------------------------------------------------------- Cumulative gap adjusted for swaps, options, nonearning assets, noninterest bearing liabilities, demand deposits and equity $(5,474) $(6,497) $(6,073) $(1,088) $ 0 - ---------------------------------------------------------------------------
Core deposits and loans with noncontractual maturities are distributed or spread among the various repricing categories based upon historical patterns of repricing which are reviewed at least annually. Management constructs rolling portfolios of fixed rate certificates of deposit whose interest cash flows over historical time periods most closely replicate the current portfolio of noncontractual assets and liabilities. It is the maturity or repricing distribution of this replicating portfolio which appears in the gap table as a surrogate for the particular noncontractual asset or liability. The gap table presented includes the following loans and core deposits that reprice on average in the noted time frames: fixed rate credit card loans (21 months), demand deposits (7 months), savings accounts (17 months), and money market and NOW accounts (9 months). The assumptions regarding these repricing characteristics greatly influence conclusions regarding interest sensitivity. Management believes its assumptions regarding these assets and liabilities are conservative. EARNINGS SIMULATION: Management evaluates the effects on income of alternative interest rate scenarios against earnings in a stable interest rate environment. The most recent earnings simulation model projects net income would increase by approximately 1.1% if rates fell gradually by two percentage points over the next year. It projects a decrease of approximately 1.2% if rates rose gradually by two percentage points, well within the (5.0)% policy limit. Management believes this reflects a slight liability sensitive rate risk position for the one year horizon. Earnings are also affected by changes in spread relationships. For example, a 50 basis point contraction in the relationship between the prime rate and Federal funds rate would cause an estimated 3.3% reduction in net income over a 12-month period. NET PRESENT VALUE: National City's net present value model analyzes the impacts of changes in interest rates on expected asset and liability cash flows, including those maturing in time periods greater than one year. At year-end, a two percentage point immediate increase in rates would reduce the present value of these cash flows by an amount estimated to equal 1.8% of total assets. Policy limits restrict this amount to 2.0% of total assets. The value of these cash flows was projected to increase by 1.9% of total assets for an immediate decrease in rates of two percentage points. Due to borrowers' preferences for floating-rate loans and depositors' preferences for fixed-rate deposits, National City's balance sheet moves toward less liability sensitivity with the passage of time. In fact, earnings simulation indicates that if all prepayments, calls and maturities of the securities and derivatives portfolios, which are expected over the next year, were to remain uninvested, then the liability sensitivity in a 200 basis point rising interest rate environment would result in a decrease in net income of 0.5% compared with a stable rate environment. Purchases of fixed-rate securities or interest rate derivative instruments have been made to offset the natural tendency toward an asset sensitive interest rate risk position. Using a one-year static gap measure, National City would be 7.7% asset sensitive without securities and interest rate derivatives. Management expects interest rates to be relatively stable during 1997 and believes that the current modest level of liability sensitivity is appropriate. 17 20 QUARTERLY DATA FOURTH QUARTER RESULTS Net income for the fourth quarter of 1996 was $191.1 million, or $.85 per fully diluted common share up from $129.1 million, or $.57 per fully diluted common share for the same period in 1995. The increase in earnings was primarily due to higher net interest income and noninterest income when merger charges and other unusual items affecting income and expense are excluded. Annualized return on average common equity for the fourth quarter of 1996 was 17.53%, compared to 13.12% for the fourth quarter 1995. Annualized return on average assets was 1.55% in 1996 versus 1.04% in 1995. Tax equivalent net interest income was $493.2 million, reflecting a 6.7% increase over $462.1 million in 1995. Net interest margin for the fourth quarter of 1996 was 4.43%. Net overhead decreased 19% from the fourth quarter of 1995 as a result of higher fee-based business revenues and relatively flat noninterest expense. - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL INFORMATION The following is a summary of unaudited quarterly results of operations for the years 1996, 1995 and 1994:
- ------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands Except Per Share Amounts) First Second Third Fourth Full Year - ------------------------------------------------------------------------------------------------------------------------------ 1996 Interest income $ 914,284 $ 919,421 $ 910,414 $ 911,216 $ 3,655,335 Interest expense 439,062 429,563 420,475 423,659 1,712,759 Net interest income 475,222 489,858 489,939 487,557 1,942,576 Provision for loan losses 32,039 37,353 38,608 38,480 146,480 Securities gains 12,735 68,617 (114) 26,908 108,146 Net overhead 196,749 258,092 181,358 209,599 845,798 Income before income taxes 259,169 263,030 269,859 266,386 1,058,444 Net income 176,864 182,832 185,822 191,112 736,630 Net income applicable to common stock 173,375 182,293 185,822 191,112 732,602 Primary net income per common share .80 .82 .82 .85 3.29 Fully diluted net income per common share .79 .81 .82 .85 3.27 Dividends paid per common share .36 .36 .375 .375 1.47 - ------------------------------------------------------------------------------------------------------------------------------ 1995 Interest income $845,261 $901,800 $938,126 $918,844 $3,604,031 Interest expense 397,985 444,916 471,800 460,985 1,775,686 Net interest income 447,276 456,884 466,326 457,859 1,828,345 Provision for loan losses 26,590 27,577 32,160 27,155 113,482 Securities gains 5,057 4,724 18,646 13,938 42,365 Net overhead 209,685 218,429 224,786 259,183 912,083 Income before income taxes 216,058 215,602 228,026 185,459 845,145 Net income 150,925 152,522 158,884 129,129 591,460 Net income applicable to common stock 147,205 148,800 155,164 125,461 576,630 Primary net income per common share .68 .70 .72 .58 2.68 Fully diluted net income per common share .67 .69 .71 .57 2.64 Dividends paid per common share .32 .32 .33 .33 1.30 - ------------------------------------------------------------------------------------------------------------------------------ 1994 Net income $150,595 $147,597 $149,847 $150,428 $ 598,467 Primary net income per common share .65 .66 .66 .67 2.64 Fully diluted net income per common share .64 .64 .66 .66 2.60 Dividends paid per common share .29 .29 .30 .30 1.18 - ------------------------------------------------------------------------------------------------------------------------------
18 - -------------------------------------------------------------------------------- 21 STATISTICAL DATA CONSOLIDATED SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
For the Calendar Year - ---------------------------------------------------------------------------------------------------------------------------------- (In Millions Except Per Share Amounts and Ratios) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $ 3,059 $ 2,910 $ 2,386 $ 2,195 $ 2,249 $ 2,651 $ 2,922 $ 2,868 $ 2,444 $ 2,104 $ 1,931 Securities 567 648 582 640 720 721 699 619 553 508 500 Other interest income 29 46 35 33 72 131 122 142 117 114 156 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest income 3,655 3,604 3,003 2,868 3,041 3,503 3,743 3,629 3,114 2,726 2,587 INTEREST EXPENSE Deposits 1,216 1,250 911 887 1,153 1,631 1,821 1,748 1,426 1,197 1,234 Other interest expense 497 526 326 238 228 308 395 400 323 305 254 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest expense 1,713 1,776 1,237 1,125 1,381 1,939 2,216 2,148 1,749 1,502 1,488 - ---------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 1,942 1,828 1,766 1,743 1,660 1,564 1,527 1,481 1,365 1,224 1,099 PROVISION FOR LOAN LOSSES 146 113 110 143 226 323 439 254 231 318 139 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,796 1,715 1,656 1,600 1,434 1,241 1,088 1,227 1,134 906 960 FEES AND OTHER INCOME 1,165 1,027 976 911 840 748 700 607 596 500 443 SECURITIES GAINS 108 42 30 42 85 49 6 13 19 22 34 - ---------------------------------------------------------------------------------------------------------------------------------- Total noninterest income 1,273 1,069 1,006 953 925 797 706 620 615 522 477 NONINTEREST EXPENSE 2,011 1,939 1,803 1,761 1,787 1,643 1,575 1,376 1,270 1,171 1,101 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting changes 1,058 845 859 792 572 395 219 471 479 257 336 INCOME TAXES 321 254 261 235 164 96 84 108 110 34 53 - ---------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 737 591 598 557 408 299 135 363 369 223 283 Cumulative effect of accounting changes, net -- -- -- 60 -- -- -- -- -- -- -- NET INCOME $ 737 $ 591 $ 598 $ 617 $ 408 $ 299 $ 135 $ 363 $ 369 $ 223 $ 283 - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE: Primary $ 3.29 $ 2.68 $ 2.64 $ 2.62 $ 1.76 $ 1.37 $ .65 $ 1.74 $ 1.75 $ 1.06 $ 1.37 Fully diluted 3.27 2.64 2.60 2.59 1.76 1.38 .65 1.74 1.77 1.06 1.35 Dividends paid per common share 1.47 1.30 1.18 1.06 .94 .94 .94 .84 .72 .60 .50 Average shares -- primary 222.67 215.10 220.82 228.79 221.28 207.77 207.70 208.45 208.47 208.90 202.06 Average shares -- fully diluted 225.50 224.00 229.84 238.31 232.12 216.33 207.70 208.45 208.47 210.52 209.94 FINANCIAL RATIOS: Return on average common equity 17.69% 16.18% 17.31% 18.75% 13.63% 11.02% 5.14% 14.60% 16.19% 10.59% 14.75% Return on average assets 1.51 1.23 1.35 1.46 .99 .73 .34 .99 1.08 .70 .97 Average equity to average assets 8.61 7.80 8.05 8.11 7.47 6.78 6.76 6.91 6.70 6.76 6.68 Dividends paid to net income 44.68 48.51 44.70 40.46 53.41 68.61 144.62 48.28 41.14 56.60 36.50 Net interest margin 4.44 4.22 4.50 4.63 4.54 4.39 4.50 4.71 4.69 4.68 4.79 AT YEAR-END: Assets $50,856 $50,542 $45,869 $45,165 $42,322 $41,973 $40,627 $39,126 $37,162 $33,984 $32,343 Loans 35,830 34,466 30,701 28,602 25,952 25,495 26,264 25,510 23,717 21,634 19,782 Securities 8,997 10,345 9,637 11,323 10,898 10,066 8,228 7,618 7,507 6,728 6,402 Deposits 36,000 35,581 34,555 33,144 33,192 32,887 32,521 30,412 29,363 26,686 24,930 Long-term debt 2,994 3,025 2,012 1,261 1,010 520 395 397 382 414 447 Common equity 4,432 3,878 3,272 3,597 3,008 2,654 2,505 2,602 2,343 2,129 2,043 Total equity 4,432 4,064 3,460 3,795 3,245 2,891 2,543 2,639 2,380 2,171 2,093 Common shares outstanding 223.20 211.57 213.21 225.69 224.08 207.96 209.70 211.62 208.00 209.16 208.35 - ----------------------------------------------------------------------------------------------------------------------------------
All prior period amounts, except for dividends paid per common share, have been restated to reflect the pooling-of-interests transaction with Integra Financial Corporation which closed May 3, 1996. 19 22 STATISTICAL DATA (continued) DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
Daily Average Balance - ------------------------------------------------------------------------------------------------------------------ (Dollars in Millions) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ ASSETS Earning assets: Loans: Commercial $12,261 $11,584 $10,782 $10,543 $10,977 Real estate mortgage 10,854 10,512 9,169 8,126 6,858 Consumer 8,739 7,617 6,693 5,906 5,909 Revolving credit 3,125 3,058 2,511 2,106 1,763 - ------------------------------------------------------------------------------------------------------------------ Total loans 34,979 32,771 29,155 26,681 25,507 Securities: Taxable 8,323 9,788 9,544 10,358 9,576 Tax-exempt 367 515 633 757 956 - ------------------------------------------------------------------------------------------------------------------ Total securities 8,690 10,303 10,177 11,115 10,532 Federal funds sold 135 87 79 90 358 Security resale agreements 285 404 470 274 706 Eurodollar time deposits in banks 22 2 107 278 417 Other short-term money market investments 116 277 209 202 276 - ------------------------------------------------------------------------------------------------------------------ Total earning assets/ Total interest income/rates 44,227 43,844 40,197 38,640 37,796 Allowance for loan losses (708) (720) (706) (651) (635) Market value appreciation of securities available for sale 165 31 23 -- -- Cash and demand balances due from banks 2,434 2,385 2,420 2,352 2,142 Properties and equipment 592 582 553 521 537 Customers' acceptance liability 65 91 69 51 78 Accrued income and other assets 1,955 1,867 1,655 1,482 1,420 - ------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $48,730 $48,080 $44,211 $42,395 $41,338 - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: NOW and money market accounts $ 9,031 $ 8,507 $ 9,054 $ 9,365 $ 9,049 Savings accounts 4,118 4,446 4,977 4,562 3,882 Time deposits of individuals 13,856 13,786 11,066 11,125 12,565 Other time deposits 645 521 493 564 948 Deposits in overseas offices 859 1,365 1,026 263 251 Federal funds borrowed 1,011 1,404 1,398 1,501 1,047 Security repurchase agreements 2,948 2,990 2,003 2,336 2,010 Borrowed funds 1,510 1,916 1,853 1,325 1,487 Long-term debt 3,166 2,435 1,892 1,332 883 - ------------------------------------------------------------------------------------------------------------------ Total interest bearing liabilities/ Total interest expense/rates 37,144 37,370 33,762 32,373 32,122 Noninterest bearing deposits 6,398 6,090 6,216 5,971 5,527 Acceptances outstanding 65 91 69 51 78 Accrued expenses and other liabilities 925 780 603 563 521 - ------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 44,532 44,331 40,650 38,958 38,248 Preferred stock 56 186 191 200 200 Common stock 4,142 3,563 3,370 3,237 2,890 - ------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 4,198 3,749 3,561 3,437 3,090 - ------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,730 $48,080 $44,211 $42,395 $41,338 - ------------------------------------------------------------------------------------------------------------------ Net interest income - ------------------------------------------------------------------------------------------------------------------ Interest spread Contribution of noninterest bearing sources of funds - ------------------------------------------------------------------------------------------------------------------ Net interest margin - ------------------------------------------------------------------------------------------------------------------
Tax equivalent basis computed using 35% for years 1996 through 1993, and 34% in 1992. Average loan balances include nonperforming loans. 20 23
Interest - ------------------------------------------------------------------------------------------------------------------ (Dollars in Millions) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ ASSETS Earning assets: Loans: Commercial $1,034.9 $1,000.9 $ 841.4 $ 777.9 $ 824.9 Real estate mortgage 895.6 868.5 712.0 651.1 625.0 Consumer 764.1 697.0 554.2 532.1 560.1 Revolving credit 375.0 357.6 287.9 243.5 249.4 - ------------------------------------------------------------------------------------------------------------------ Total loans 3,069.6 2,924.0 2,395.5 2,204.6 2,259.4 Securities: Taxable 540.4 608.4 558.9 604.9 669.1 Tax-exempt 37.1 47.2 58.7 72.5 94.4 - ------------------------------------------------------------------------------------------------------------------ Total securities 577.5 655.6 617.6 677.4 763.5 Federal funds sold 7.4 5.3 3.4 4.9 12.6 Security resale agreements 15.4 23.9 20.0 8.8 26.9 Eurodollar time deposits in banks 1.2 .1 3.0 9.6 16.4 Other short-term money market investments 5.2 16.3 8.5 10.1 16.3 - ------------------------------------------------------------------------------------------------------------------ Total earning assets/ $3,676.3 $3,625.2 $3,048.0 $2,915.4 $3,095.1 Total interest income/rates Allowance for loan losses Market value appreciation of securities available for sale Cash and demand balances due from banks Properties and equipment Customers' acceptance liability Accrued income and other assets - ------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: NOW and money market accounts $ 252.6 $ 229.4 $ 199.3 $ 210.9 $ 261.7 Savings accounts 107.4 121.1 130.6 126.7 130.6 Time deposits of individuals 779.9 791.6 518.2 522.9 711.8 Other time deposits 31.6 28.3 18.6 20.1 40.7 Deposits in overseas offices 44.6 79.2 44.1 6.9 8.3 Federal funds borrowed 65.9 87.2 59.3 47.4 36.0 Security repurchase agreements 147.7 151.3 110.7 65.7 61.8 Borrowed funds 85.8 127.3 44.7 47.7 65.6 Long-term debt 197.3 160.3 111.5 77.3 64.3 - ------------------------------------------------------------------------------------------------------------------ Total interest bearing liabilities/ $1,712.8 $1,775.7 $1,237.0 $1,125.6 $1,380.8 Total interest expense/rates Noninterest bearing deposits Acceptances outstanding Accrued expenses and other liabilities - ------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES Preferred stock Common stock - ------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ Net interest income $1,963.5 $1,849.5 $1,811.0 $1,789.8 $1,714.3 - ------------------------------------------------------------------------------------------------------------------ Interest spread Contribution of noninterest bearing sources of funds - ------------------------------------------------------------------------------------------------------------------ Net interest margin - ------------------------------------------------------------------------------------------------------------------
Daily Average Rate - ------------------------------------------------------------------------------------------------------------------ (Dollars in Millions) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ ASSETS Earning assets: Loans: Commercial 8.44% 8.64% 7.80% 7.38% 7.51% Real estate mortgage 8.25 8.26 7.77 8.01 9.11 Consumer 8.74 9.15 8.28 9.01 9.48 Revolving credit 12.00 11.69 11.47 11.56 14.15 - ------------------------------------------------------------------------------------------------------------------ Total loans 8.78 8.92 8.22 8.26 8.86 Securities: Taxable 6.49 6.22 5.86 5.84 6.99 Tax-exempt 10.11 9.17 9.27 9.58 9.87 - ------------------------------------------------------------------------------------------------------------------ Total securities 6.65 6.36 6.07 6.09 7.25 Federal funds sold 5.48 6.09 4.30 5.44 3.52 Security resale agreements 5.40 5.92 4.26 3.21 3.81 Eurodollar time deposits in banks 5.45 5.00 2.80 3.45 3.93 Other short-term money market investments 4.48 5.88 4.07 5.00 5.91 - ------------------------------------------------------------------------------------------------------------------ Total earning assets/ 8.31% 8.27% 7.58% 7.55% 8.19% Total interest income/rates Allowance for loan losses Market value appreciation of securities available for sale Cash and demand balances due from banks Properties and equipment Customers' acceptance liability Accrued income and other assets - ------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: NOW and money market accounts 2.80% 2.70% 2.20% 2.25% 2.89% Savings accounts 2.61 2.72 2.62 2.78 3.36 Time deposits of individuals 5.63 5.74 4.68 4.70 5.66 Other time deposits 4.90 5.43 3.77 3.56 4.29 Deposits in overseas offices 5.19 5.80 4.30 2.62 3.31 Federal funds borrowed 6.52 6.21 4.24 3.16 3.44 Security repurchase agreements 5.01 5.06 5.53 2.81 3.07 Borrowed funds 5.68 6.64 2.41 3.60 4.41 Long-term debt 6.23 6.58 5.89 5.80 7.28 - ------------------------------------------------------------------------------------------------------------------ Total interest bearing liabilities/ 4.61% 4.75% 3.66% 3.48% 4.30% Total interest expense/rates Noninterest bearing deposits Acceptances outstanding Accrued expenses and other liabilities - ------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES Preferred stock Common stock - ------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ Net interest income - ------------------------------------------------------------------------------------------------------------------ Interest spread 3.70% 3.52% 3.92% 4.07% 3.89% Contribution of noninterest bearing sources of funds .74 .70 .58 .56 .65 - ------------------------------------------------------------------------------------------------------------------ Net interest margin 4.44% 4.22% 4.50% 4.63% 4.54% - ------------------------------------------------------------------------------------------------------------------
21 24 REPORT OF MANAGEMENT The management of National City Corporation has prepared the accompanying financial statements and is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and necessarily include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. National City Corporation maintains a system of internal control over financial reporting designed to produce reliable financial statements. The system contains self-monitoring mechanisms, and compliance is tested and evaluated through an extensive program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any internal control system has inherent limitations, including the possibility that controls can be circumvented or overridden. Further, because of changes in conditions, internal control system effectiveness may vary over time. The Audit Committee, consisting entirely of outside directors, meets regularly with management, internal auditors and independent auditors, and reviews audit plans and results as well as management's actions taken in discharging responsibilities for accounting, financial reporting, and internal controls. Ernst & Young LLP, independent auditors, and the internal auditors have direct and confidential access to the Audit Committee at all times to discuss the results of their examinations. National City Corporation assessed its internal control system as of December 31, 1996 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, 1996, its system of internal control met those criteria. Cleveland, Ohio January 22, 1997 /s/ DAVID A. DABERKO /s/ ROBERT G. SIEFERS DAVID A. DABERKO ROBERT G. SIEFERS Chairman and Chief Executive Vice President and Executive Officer Chief Financial Officer - -------------------------------------------------------------------------------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Stockholders National City Corporation Cleveland, Ohio We have audited the accompanying consolidated balance sheets of National City Corporation and subsidiaries as of December 31, 1996 and 1995, 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, 1996. These financial statements are the responsibility of National City's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of National City Corporation and Integra Financial Corporation, (Integra), which has been accounted for using the pooling of interests accounting method as described in Note 3 to the consolidated financial statements. We did not audit the 1995 and 1994 financial statements of Integra, which statements reflect total assets constituting 28% for 1995 and net income constituting 21% for 1995 and 28% for 1994 of the related consolidated financial statement totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Integra, is based solely on the report of other auditors. 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, based on our audits, and for 1995 and 1994 the reports of other auditors, 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Cleveland, Ohio January 22, 1997 /s/ Ernst & Young LLP 22 25 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
December 31 - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Loans: Commercial $ 11,217,815 $11,329,695 Real estate construction 774,991 712,524 Lease financing 515,576 357,883 Real estate mortgage - nonresidential 3,440,696 3,332,164 Real estate mortgage - residential 7,288,677 7,187,070 Mortgage loans held for sale 334,742 314,350 Consumer 9,251,982 8,148,886 Revolving credit 3,005,589 3,083,254 - --------------------------------------------------------------------------------------------------------------------------------- Total loans 35,830,068 34,465,826 Allowance for loan losses (705,893) (705,846) - --------------------------------------------------------------------------------------------------------------------------------- Net loans 35,124,175 33,759,980 Securities available for sale, at market 8,997,322 10,344,988 Federal funds sold and security resale agreements 493,733 734,564 Trading account assets 102,493 23,715 Other short-term money market investments 281,563 105,993 Cash and demand balances due from banks 2,935,282 2,995,905 Properties and equipment 616,426 593,506 Customers' acceptance liability 66,767 66,169 Accrued income and other assets 2,238,074 1,917,025 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 50,855,835 $50,541,845 - --------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Demand deposits (noninterest bearing) $ 7,436,403 $ 6,993,221 NOW and money market accounts 9,162,353 9,035,259 Savings accounts 3,896,234 4,198,518 Time deposits of individuals 13,896,667 14,147,551 Other time deposits 721,647 488,595 Deposits in overseas offices 886,443 717,823 - --------------------------------------------------------------------------------------------------------------------------------- Total deposits 35,999,747 35,580,967 Federal funds borrowed and security repurchase agreements 4,276,722 5,299,566 Borrowed funds 1,994,009 1,562,504 Long-term debt 2,994,418 3,024,990 Acceptances outstanding 66,767 66,169 Accrued expenses and other liabilities 1,092,109 943,803 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 46,423,772 46,477,999 - --------------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock -- 185,400 Common stock, par value $4 per share, authorized 350,000,000 shares, outstanding 223,198,494 shares in 1996 and 211,571,079 shares in 1995 892,794 846,284 Capital surplus 622,543 399,813 Retained earnings 2,916,726 2,635,090 Unallocated shares held by Employee Stock Ownership Plan (ESOP) trust -- (2,741) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 4,432,063 4,063,846 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,855,835 $50,541,845 - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 23 26 CONSOLIDATED FINANCIAL STATEMENTS (continued) CONSOLIDATED STATEMENTS OF INCOME
For the Calendar Year - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Amounts) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $ 3,059,041 $2,910,070 $2,385,782 Securities: Taxable 543,006 617,635 543,622 Exempt from Federal income taxes 24,114 30,675 38,141 Federal funds sold and security resale agreements 22,831 30,228 23,427 Eurodollar time deposits in banks 1,198 104 3,044 Other short-term investments 5,145 15,319 8,626 - --------------------------------------------------------------------------------------------------------------------------------- Total interest income 3,655,335 3,604,031 3,002,642 INTEREST EXPENSE Deposits 1,216,089 1,249,698 910,737 Federal funds borrowed and security repurchase agreements 213,554 238,484 170,011 Borrowed funds 85,781 127,250 44,728 Long-term debt 197,335 160,254 111,538 - --------------------------------------------------------------------------------------------------------------------------------- Total interest expense 1,712,759 1,775,686 1,237,014 - --------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 1,942,576 1,828,345 1,765,628 PROVISION FOR LOAN LOSSES 146,480 113,482 109,356 - --------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 1,796,096 1,714,863 1,656,272 NONINTEREST INCOME Item processing revenue 364,512 327,929 312,358 Service charges on deposit accounts 214,659 196,474 190,707 Trust fees 177,124 167,224 153,431 Card related fees 123,306 98,806 97,197 Mortgage banking revenue 114,742 89,918 82,770 Brokerage revenue 47,546 29,502 19,748 Other 122,993 117,085 119,471 - --------------------------------------------------------------------------------------------------------------------------------- Total fees and other income 1,164,882 1,026,938 975,682 Securities gains 108,146 42,365 30,279 - --------------------------------------------------------------------------------------------------------------------------------- Total noninterest income 1,273,028 1,069,303 1,005,961 NONINTEREST EXPENSE Salaries and employee benefits 923,764 878,615 831,679 Equipment 135,139 127,612 122,278 Net occupancy 132,143 125,072 122,213 Assessments and taxes 44,355 105,005 109,955 Merger-related charges 74,745 24,200 -- Other 700,534 678,517 616,786 - --------------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,010,680 1,939,021 1,802,911 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 1,058,444 845,145 859,322 Income tax expense 321,814 253,685 260,855 - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 736,630 $ 591,460 $ 598,467 - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME APPLICABLE TO COMMON STOCK $ 732,602 $ 576,630 $ 583,267 - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE Primary $3.29 $2.68 $2.64 Fully diluted 3.27 2.64 2.60 AVERAGE COMMON SHARES OUTSTANDING Primary 222,674,326 215,097,124 220,822,755 Fully diluted 225,503,431 224,004,487 229,844,700 - ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 24 27 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------- Unallocated Preferred Common Capital Retained Shares Held by (Dollars in Thousands Except Per Share Amounts) Stock Stock Surplus Earnings ESOP Trust Total - --------------------------------------------------------------------------------------------------------------------------------- BALANCE JANUARY 1, 1994 $ 198,310 $902,777 $318,092 $2,392,780 $(16,446) $3,795,513 Net income 598,467 598,467 Common dividends declared, National City, $1.18 per share (179,675) (179,675) Common dividends declared of Integra, prior to merger (56,865) (56,865) Preferred dividends, $4.00 per depositary share (15,415) (15,415) Issuance of 1,499,589 common shares under corporate stock and dividend reinvestment plans 5,998 23,265 29,263 Purchase of 14,030,032 common shares and 215,400 depositary shares of preferred stock (10,770) (56,120) (50,618) (256,077) (373,585) Shares distributed by ESOP trust and tax benefit on dividends 665 7,428 8,093 Change in unrealized market value adjustment on securities available for sale, net of tax (346,599) (346,599) Other 180 352 (79) 453 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1994 187,540 852,835 291,091 2,137,202 (9,018) 3,459,650 Net income 591,460 591,460 Common dividends declared, National City, $1.30 per share (191,907) (191,907) Common dividends declared of Integra, prior to merger (64,006) (64,006) Preferred dividends, $4.00 per depositary share (14,910) (14,910) Issuance of 2,279,422 common shares under corporate stock and dividend reinvestment plans 9,116 37,015 (1,246) 44,885 Purchase of 8,215,284 common shares and 30,000 depositary shares of preferred stock (1,500) (32,860) (22,479) (184,414) (241,253) Issuance of 4,267,760 common shares pursuant to acquisitions 17,071 93,668 110,739 Conversion of 12,800 depositary shares of preferred stock to 30,515 common shares (640) 122 518 -- Shares distributed by ESOP trust and tax benefit on dividends 544 6,277 6,821 Change in unrealized market value adjustment on securities available for sale, net of tax 362,367 362,367 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1995 185,400 846,284 399,813 2,635,090 (2,741) 4,063,846 Net income 736,630 736,630 Common dividends declared, National City, $1.88 per share (363,999) (363,999) Common dividends declared of Integra, prior to merger (36,009) (36,009) Preferred dividends, $2.00 per depositary share (6,458) (6,458) Issuance of 2,787,765 common shares under corporate stock and dividend reinvestment plans 11,151 47,612 58,763 Issuance of common stock by subsidiary 25,077 25,077 Conversion of 3,708,000 depositary shares of preferred stock to 8,839,650 common shares (185,400) 35,359 150,041 -- Shares distributed by ESOP trust and tax benefit on dividends 189 2,741 2,930 Change in unrealized market value adjustment on securities available for sale, net of tax (48,717) (48,717) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1996 $ -- $892,794 $622,543 $2,916,726 $ -- $4,432,063 - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 25 28 CONSOLIDATED FINANCIAL STATEMENTS (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Calendar Year - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 736,630 $ 591,460 $ 598,467 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 146,480 113,482 109,356 Depreciation and amortization 92,710 87,355 82,464 Amortization of intangibles and servicing rights 61,838 65,232 57,411 Amortization of securities discount and premium 3,502 18,728 10,734 Securities gains (108,146) (42,365) (30,279) Other gains, net (14,446) (23,271) (19,808) Net (increase) decrease in trading account securities (78,778) (6,671) 142,356 Originations and purchases of mortgage loans held for sale (2,610,000) (2,075,968) (2,039,026) Proceeds from sales of mortgage loans held for sale 2,421,252 1,878,381 2,668,063 Deferred income taxes (16,801) 2,672 10,647 Increase in interest receivable (40,479) (89,851) (49,035) Increase in interest payable 4,837 156,582 42,128 Net change in other assets/liabilities (322,864) (105,767) (194,159) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 275,735 569,999 1,389,319 LENDING AND INVESTING ACTIVITIES Net (increase) decrease in short-term investments 65,261 (20,553) 382,619 Purchases of securities (3,439,159) (7,269,362) (4,800,590) Proceeds from sales of securities 3,416,044 5,589,865 4,165,952 Proceeds from maturities and prepayments of securities 1,401,079 1,932,384 1,767,919 Net increase in loans (1,722,485) (3,043,087) (2,831,110) Proceeds from sales of loans 400,558 61,225 -- Net increase in properties and equipment (115,630) (101,676) (98,220) Acquisitions -- (16,498) -- - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by lending and investing activities 5,668 (2,867,702) (1,413,430) DEPOSIT AND FINANCING ACTIVITIES Net increase (decrease) in Federal funds borrowed and security repurchase agreements (1,022,844) 1,457,409 (404,740) Net increase (decrease) in borrowed funds 431,505 278,464 (123,651) Net increase (decrease) in demand, savings, NOW, money market accounts, and deposits in overseas offices 436,612 (1,530,940) 76,560 Net increase (decrease) in time deposits (17,832) 1,668,121 1,334,279 Repayment of long-term debt (528,261) (72,935) (15,362) Proceeds from issuance of long-term debt, net 497,086 1,123,360 207,207 Dividends paid, net of tax benefit of ESOP shares (314,762) (270,279) (251,290) Issuance of common stock and preferred stock 58,763 44,885 30,453 Repurchase of common and preferred stock -- (241,253) (373,585) Proceeds from issuance of common stock by subsidiary 114,966 -- -- ESOP trust repayment 2,741 6,277 7,428 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by deposit and financing activities (342,026) 2,463,109 487,299 - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and demand balances due from banks (60,623) 165,406 463,188 Cash and demand balances due from banks, January 1 2,995,905 2,830,499 2,367,311 - --------------------------------------------------------------------------------------------------------------------------------- Cash and demand balances due from banks, December 31 $ 2,935,282 $ 2,995,905 $ 2,830,499 - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES Interest paid $ 1,707,922 $ 1,619,204 $ 1,195,018 Income taxes paid 392,247 238,400 258,187 Common stock issued in purchase acquisitions -- 110,739 -- - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 26 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS National City Corporation ("National City" or "the Corporation") is a multi-bank holding company headquartered in Cleveland, Ohio. The Corporation's principal banking subsidiaries are located in Cleveland, Columbus, Indianapolis, Louisville and Pittsburgh. In addition to retail and commercial banking, the Corporation and its subsidiaries are engaged in trust and investment management, mortgage banking, investment banking, leasing, item processing, venture capital, insurance and other financial-related businesses. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of National City conform with generally accepted accounting principles and prevailing industry practices. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. A description of the significant accounting policies is presented below: PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All material intercompany transactions and balances have been eliminated. The consolidated financial statements have been prepared to give retroactive effect to the May 3, 1996 merger with Integra Financial Corporation (Integra) which was accounted for as a pooling-of-interests. Certain prior year amounts have been reclassified to conform with the current year presentation. BUSINESS COMBINATIONS: Business combinations which have been accounted for under the purchase method of accounting include the results of operations of the acquired businesses from the date of acquisition. Net assets of the companies acquired were recorded at their estimated fair value as of the date of acquisition. Other business combinations have been accounted for under the pooling-of-interests method of accounting which requires the assets, liabilities and shareholders' equity of the merged entity to be retroactively combined with the Corporation's respective accounts at recorded value. Prior period financial statements have been restated to give effect to business combinations accounted for under this method. CASH FLOWS: Cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and demand balances due from banks." LOANS: Loans are generally reported at the principal amount outstanding, net of unearned income. Loans held for sale are valued at the lower of cost or market, as calculated on an aggregate basis. Loan origination fees and certain 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. Loans are classified as nonaccrual or restructured based on management's judgment and requirements established by bank regulatory agencies. Subsequent receipts on nonaccrual loans, including those considered impaired under the provisions of Statement of Financial Accounting Standards No. 114, are recorded as a reduction of principal, and interest income is recorded once principal recovery is reasonably assured. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is that amount believed adequate to absorb estimated credit losses in the portfolio based on management's evaluation of various factors including overall growth in the portfolio, an analysis of individual credits, adverse situations that could affect a borrower's ability to repay (including the timing of future payments), prior and current loss experience, and current and anticipated economic conditions. A provision for loan losses is charged to operations based on management's periodic evaluation of these and other pertinent factors. Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures. These standards require an allowance to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loan will not be collected and the recorded investment in the loan exceeds the fair value. Fair value is measured using either the present value of expected future cash flows based on the initial effective interest rate on the loan, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. The adoption of these standards did not have a material impact on the overall allowance for loan losses and did not affect the Corporation's charge-off or income recognition policies. SECURITIES AND TRADING ACCOUNT ASSETS: Trading account assets are held for resale in anticipation of short-term market movements and are carried at market value. Gains and losses, both realized and unrealized, are included in other income. Securities are classified as held to maturity when management has the intent and ability to hold the securities to maturity. Securities held to maturity, when present, are carried at amortized cost. Securities not classified as held to maturity or trading are classified as available for sale. Securities available for sale are carried at fair value with unreal- 27 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ized gains and losses reported separately through retained earnings, net of tax. Interest and dividends on securities, including amortization of premiums and accretion of discounts, is included in interest income. Realized gains and losses are recorded as net security gains (losses). The adjusted cost of specific securities sold is used to compute gains or losses on sales. Other income includes gains, losses and adjustments to market on interest rate futures and forward contracts related to trading account assets and liabilities. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally treated as collateralized financing transactions and are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is the Corporation's policy to obtain control or take possession of securities purchased under resale agreements, which are primarily U.S. Government and Federal agency securities. The market value of the collateral is monitored and additional collateral obtained when deemed appropriate. The Corporation also monitors its exposure with respect to securities borrowed transactions and requests the return of excess collateral as required. INTANGIBLES: The excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination (goodwill) is included in other assets. Goodwill related to bank acquisitions is amortized over varying periods not exceeding 25 years. Goodwill related to nonbank acquisitions is amortized over varying periods not exceeding 40 years, based on industry practice within the respective nonbank industry. Core deposit and other identified intangibles are amortized over periods ranging from 4 to 15 years. MORTGAGE SERVICING RIGHTS: Beginning January 1, 1996, the Corporation changed its accounting for mortgage servicing rights to include the capitalization of both originated and purchased servicing rights as required under the provisions of SFAS No. 122, Accounting for Mortgage Servicing Rights. Prior to 1996, capitalization was limited to purchased servicing. The total cost of loans originated or purchased is allocated between loans and servicing rights based on the relative fair values of each. The servicing rights capitalized are amortized in proportion to and over the period of estimated servicing income. Management stratifies servicing rights based on origination period and interest rate and evaluates the recoverability in relation to the impact of actual and anticipated loan portfolio prepayment, foreclosure, and delinquency experience. The Corporation did not have a valuation allowance associated with the mortgage servicing rights portfolio as of December 31, 1996. The Corporation hedges its exposure to the prepayment risk associated with the servicing rights by using off-balance sheet derivative agreements. Further discussion regarding this activity is provided in Note 19. The adoption of SFAS No. 122 did not have a material impact on financial position or results of operations. 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. Long-lived assets to be held and those to be disposed of and certain intangibles are evaluated for impairment using the guidance provided by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, which was adopted on January 1, 1996. The provisions of this statement establish when an impairment loss should be recognized and how it should be measured. The adoption of the statement did not have a material impact on financial position or results of operations. OFF-BALANCE SHEET FINANCIAL AGREEMENTS: The Corporation utilizes a variety of off-balance sheet financial instruments to manage various financial risks. These instruments include interest rate swaps, interest rate caps and floors, futures, forwards and option contracts. Interest rate swaps are used to synthetically alter the price risk or cash flow characteristics of various on-balance sheet assets and liabilities. The net interest income or expense on interest rate swaps is accrued and recognized as an adjustment to the interest income or expense of the associated on-balance sheet asset or liability. The Corporation purchases interest rate caps and floors to reduce the cash flow risk of various on-balance sheet variable rate assets and liabilities. The cost or premium paid for purchased interest rate caps and floors is capitalized and charged to income based on the economic value at the time of purchase. The unamortized cost of caps or floors purchased is carried in other assets. Interest payments received on interest rate caps and floors are recorded as an interest income or expense adjustment to the related assets and liabilities. Unrealized gains or losses on interest rate swaps or purchased interest rate caps and floors are deferred. Deferred gains and losses are recorded in other assets or other liabilities, as applicable. Net cash flows related to interest rate swaps and interest rate caps and floors used to hedge mortgage servicing rights 28 31 are recognized as adjustments to the carrying value of the servicing rights and are amortized over the estimated life of the servicing rights. Futures, forwards and options are also utilized to manage exposures to changes in interest rates. Futures, forwards and options that are used for risk management are carried at cost and realized gains and losses are amortized into interest income or interest expense over the life of the instrument. Realized gains and losses on all off-balance sheet transactions used to manage risk that are terminated prior to maturity are deferred and amortized as a yield adjustment over the remaining original life of the agreement. The Corporation also enters into off-balance sheet financial agreements on behalf of its customers and for its trading account. These instruments include interest rate swaps, interest rate caps and floors, futures, forwards and option contracts. These contracts are carried at market value as other assets or liabilities with changes in market value reflected in other income. INCOME TAXES: Deferred income taxes reflect the temporary tax consequences on future years of differences between the tax bases and financial statement amounts of assets and liabilities at each year-end. 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. 2. RECENT ACCOUNTING PRONOUNCEMENTS ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES: In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings based on a control-oriented "financial-components" approach. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. The provisions of SFAS No. 125 are effective for transactions occurring after December 31, 1996, except those provisions relating to repurchase agreements, securities lending, and other similar transactions and pledged collateral, which have been delayed until after December 31, 1997 by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125. The adoption of these statements is not expected to have a material impact on financial position or results of operations. 3. MERGERS AND ACQUISITIONS On May 3, 1996, National City Corporation merged with Integra Financial Corporation, a $14 billion bank holding company headquartered in Pittsburgh, Pennsylvania, in a transaction accounted for as a pooling-of-interests. National City issued 66.6 million shares of common stock to the shareholders of Integra based upon an exchange ratio of two shares of National City common stock for each outstanding share of Integra common stock. Separate results of operations for National City and Integra follow:
- --------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, For the Calendar Year 1996 ------------------------- (Dollars In Thousands) (UNAUDITED) 1995 1994 - --------------------------------------------------------------------- Net interest income National City $ 340,042 $1,321,085 $1,236,809 Integra 135,180 507,260 528,819 - --------------------------------------------------------------------- COMBINED $ 475,222 $1,828,345 $1,765,628 Net income National City $ 124,834 $ 465,109 $ 429,434 Integra 52,030 126,351 169,033 - --------------------------------------------------------------------- COMBINED $ 176,864 $ 591,460 $ 598,467 Net income per common share National City $ .81 $3.03 $2.70 Integra 1.56 3.81 5.01 COMBINED .80 2.68 2.64 - ---------------------------------------------------------------------
4. LOANS AND ALLOWANCE FOR LOAN LOSSES Total loans outstanding were recorded net of unearned income of $325.6 million in 1996 and $238.6 million in 1995. The following table summarizes the activity in the allowance for loan losses:
For the Calendar Year - -------------------------------------------------------------------- (In Thousands) 1996 1995 1994 - -------------------------------------------------------------------- BALANCE AT BEGINNING OF YEAR $ 705,846 $ 706,452 $ 685,313 Acquired allowance 94 11,643 9,729 Provision 146,480 113,482 109,356 Loans charged off (236,615) (202,547) (180,249) Recoveries 90,088 76,816 82,303 - -------------------------------------------------------------------- Net charge-offs (146,527) (125,731) (97,946) - -------------------------------------------------------------------- BALANCE AT END OF YEAR $ 705,893 $ 705,846 $ 706,452 - --------------------------------------------------------------------
The financial review section provides detail regarding nonperforming loans. At December 31, 1996, and December 31, 1995, loans that were considered to be impaired under SFAS No. 114 totaled $13.9 million and $42.8 million, respectively. All impaired loans are included in nonperforming assets. Management does not individually evaluate certain smaller-balance loans for impairment. These loans are evaluated on an aggregate basis using a formula-based approach in 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) accordance with the Corporation's policy. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. The related allowance allocated to impaired loans was $9.6 million and $20.0 million, respectively. The contractual interest due and actual interest recognized on impaired loans, as well as on total nonperforming assets, for the twelve months ended December 31, 1996 was $20.6 million and $9.0 million, compared to $21.3 million and $12.1 million, respectively, for the twelve months ended December 31, 1995. At December 31, 1996, nonaccrual and restructured loans were $143.1 million and other real estate owned was $24.5 million. At December 31, 1995, the corresponding amounts were $187.4 million and $21.4 million, respectively. 5. SECURITIES The following is a summary of securities available for sale:
DECEMBER 31, 1996 - -------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED MARKET (IN THOUSANDS) COST GAINS LOSSES VALUE - -------------------------------------------------------------------------- U.S. Treas. and Fed. agency debentures $ 2,230,328 $ 5,330 $(22,903) $ 2,212,755 Mortgage-backed securities 4,390,066 32,417 (30,968) 4,391,515 Asset-backed and corporate debt securities 990,014 6,171 (2,453) 993,732 States and political subdivisions 324,520 13,351 (915) 336,956 Other 835,009 230,555 (3,200) 1,062,364 - -------------------------------------------------------------------------- TOTAL SECURITIES $ 8,769,937 $287,824 $(60,439) $ 8,997,322 - --------------------------------------------------------------------------
December 31, 1995 - -------------------------------------------------------------------------- Amortized Unrealized Unrealized Market (In Thousands) Cost Gains Losses Value - -------------------------------------------------------------------------- U.S. Treas. and Fed. agency debentures $ 2,075,783 $ 28,524 $ (7,576) $ 2,096,731 Mortgage-backed securities 5,996,309 63,034 (23,723) 6,035,620 Asset-backed and corporate debt securities 816,578 217,289 (9,050) 1,024,817 States and political subdivisions 435,988 22,681 (1,154) 457,515 Other 718,077 15,136 (2,908) 730,305 - -------------------------------------------------------------------------- TOTAL SECURITIES $10,042,735 $346,664 $(44,411) $10,344,988 - --------------------------------------------------------------------------
At December 31, 1996, the unrealized appreciation in securities available for sale included in retained earnings totaled $147.8 million, net of tax, compared to unrealized appreciation of $196.5 million, net of tax, at December 31, 1995. The Corporation's securities portfolio consists mainly of financial instruments that pay back par value upon maturity. Market value fluctuations occur over the lives of the instruments due to changes in market interest rates. Management has concluded that current declines in value are temporary and accordingly, no valuation adjustments have been included as a charge to income. The following table shows the amortized cost and market value (carrying value) of securities at December 31, 1996 by maturity:
- --------------------------------------------------------------------- Available for Sale ------------------------------- (In Thousands) Amortized Cost Market Value - --------------------------------------------------------------------- Due in 1 year or less $ 983,188 $ 988,660 Due in 1 to 5 years 4,685,383 4,682,091 Due in 5 to 10 years 2,284,551 2,280,718 Due after 10 years 816,815 1,045,853 - --------------------------------------------------------------------- TOTAL $ 8,769,937 $8,997,322 - ---------------------------------------------------------------------
Mortgage-backed securities and other securities which have prepayment provisions are assigned to maturity categories based on estimated average lives. At December 31, 1996, 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 $5.5 billion. At December 31, 1996, there were no securities of a single issuer, other than U.S. Treasury and other U.S. government agency securities, which exceeded 10% of stockholders' equity. The following table represents the segregation of cash flows between securities available for sale and securities held to maturity:
- --------------------------------------------------------------------- Available Held to (In Thousands) for Sale Maturity Total - --------------------------------------------------------------------- 1996: Purchases of securities $ 3,439,159 $ -- $ 3,439,159 Proceeds from sales of securities 3,416,044 -- 3,416,044 Proceeds from maturities and prepayments of securities 1,401,079 -- 1,401,079 1995: Purchases of securities $ 6,058,386 $ 1,210,976 $ 7,269,362 Proceeds from sales of securities 5,589,865 -- 5,589,865 Proceeds from maturities and prepayments of securities 916,138 1,016,246 1,932,384 - ---------------------------------------------------------------------
On November 15, 1995, the FASB staff issued a special report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. In accordance with provisions in that special report, management chose to reclassify all securities classified as held to maturity to available for sale. At December 1, 1995, the date of the transfer, the amortized cost of those securities was $3.0 billion. In 1996, 1995, and 1994, gross gains of $122.3 million, $71.4 million, and $46.9 million and gross losses of $14.2 million, $29.0 million, and $16.6 million were realized, respectively. 30 33 6. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value disclosures of financial instruments are made to comply with the requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments. The market value of securities is primarily based upon quoted market prices. For substantially all other financial instruments, the fair values are management's estimates of the values at which the instruments could be exchanged in a transaction between willing parties. Fair values are based on estimates using present value and other valuation techniques in instances where quoted market prices are not available. These techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. As such, the derived fair value estimates cannot be substantiated by comparison to independent markets and, further, may not be realizable in an immediate settlement of the instruments. SFAS No. 107 also excludes certain items from its disclosure requirements. These items include non-financial assets, intangibles, and future business growth, as well as certain liabilities such as pension and other post-retirement benefits, deferred compensation arrangements, and leases. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. Portions of the unrealized gains and losses inherent in the valuation are a result of management's program to manage overall interest rate risk and represent a point in time valuation. It is not management's intention to immediately dispose of a significant portion of its financial instruments and, thus, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. The following table presents the estimates of fair value of financial instruments at December 31, 1996 and 1995. Bracketed amounts in the carrying value columns represent either reduction of asset accounts, liabilities, or commitments representing potential cash outflows. Bracketed amounts in the fair value columns represent estimated cash outflows required to settle the obligations at current market rates.
- ----------------------------------------------------------------------- 1996 1995 ------------------- ------------------- CARRYING FAIR Carrying Fair (In Millions) VALUE VALUE Value Value - ----------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 4,318 $ 4,318 $ 4,378 $ 4,378 Loans held for sale 335 335 314 314 Loans receivable 35,495 35,578 34,151 34,371 Allowance for loan losses (706) -- (706) -- Securities 8,997 8,997 10,345 10,346 Trading account assets 102 102 24 24 - ----------------------------------------------------------------------- LIABILITIES: Demand deposits $ (7,436) $ (7,436) $ (6,993) $ (6,993) Savings and time deposits (28,563) (28,763) (28,588) (28,814) Short-term borrowings (6,271) (6,271) (6,862) (6,862) Long-term debt (2,994) (3,231) (3,024) (3,118) Other liabilities (475) (475) (450) (450) - ----------------------------------------------------------------------- OFF-BALANCE SHEET INSTRUMENTS: Interest rate swaps $ (4) $ 15 $ -- $ 94 Interest rate caps, floors and corridors 21 24 29 47 Commitments to extend credit (12) (12) (11) (11) Standby letters of credit (2) (2) (1) (1) - -----------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. For purposes of this disclosure only, cash equivalents include Federal funds sold, security resale agreements, Eurodollar time deposits, customers' acceptance liability, accrued interest receivable, and other short-term money market investments. LOANS RECEIVABLE AND LOANS HELD FOR SALE: For performing variable rate loans that reprice frequently and loans held for sale, estimated fair values are based on carrying values. The fair values for all other loans are estimated using a discounted cash flow calculation that applies interest rates used to price new, similar loans to a schedule of aggregated expected monthly maturities, adjusted for market and credit risks. SECURITIES: The market values of securities are based upon quoted market prices, where available, and on quoted market prices of comparable instruments when specific quoted prices are not available. DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) amounts payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. SHORT-TERM BORROWINGS: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements, commercial paper, and other short-term borrowings approximate their fair values. LONG-TERM DEBT: The fair values of long-term borrowings (other than deposits) are based on quoted market prices, where available, or 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 off-balance sheet financial instruments. Fair values for off-balance sheet instruments (futures, swaps, forwards, options, guarantees, and lending commitments) are based on quoted market prices (futures); current settlement values (financial forwards); quoted market prices of comparable instruments; fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing (guarantees, loan commitments); or, if there are no relevant comparables, on pricing models or formulas using current assumptions (interest rate swaps and options). 7. CASH AND DEMAND BALANCES DUE FROM BANKS The Corporation's subsidiary banks are required to maintain noninterest bearing reserve balances with the Federal Reserve Bank. The consolidated average reserve balance was $244 million for 1996. 8. PROPERTIES AND EQUIPMENT A summary of properties and equipment follows:
December 31 - -------------------------------------------------------------------- (In Thousands) 1996 1995 - -------------------------------------------------------------------- Land $ 87,060 $ 87,572 Buildings and leasehold improvements 585,838 601,713 Equipment 701,477 665,472 - -------------------------------------------------------------------- 1,374,375 1,354,757 Less accumulated depreciation and amortization 757,949 761,251 - -------------------------------------------------------------------- NET PROPERTIES AND EQUIPMENT $ 616,426 $ 593,506 - --------------------------------------------------------------------
The Corporation and certain of its subsidiary banks occupy their respective headquarters offices under long-term operating leases and, in addition, lease certain data processing equipment. The aggregate minimum annual rental commitments under these leases total approximately $56.3 million in 1997, $51.4 million in 1998, $48.5 million in 1999, $45.2 million in 2000, $42.3 million in 2001, and $263.7 million thereafter. Total expense recorded under all operating leases in 1996, 1995, and 1994 was $79.8 million, $73.3 million, and $69.2 million, respectively. 9. BORROWED FUNDS The composition of borrowed funds follows:
December 31 - ------------------------------------------------------------------- (In Thousands) 1996 1995 - ------------------------------------------------------------------- U.S. Treasury demand notes and Federal funds borrowed-term $ 1,056,499 $ 391,765 Notes payable to Student Loan Marketing Association 300,000 600,000 Other 79,648 186,916 - ------------------------------------------------------------------- Total bank subsidiaries 1,436,147 1,178,681 Commercial paper 556,100 374,017 Other 1,762 9,806 - ------------------------------------------------------------------- Total parent company and other subsidiaries 557,862 383,823 - ------------------------------------------------------------------- TOTAL $ 1,994,009 $1,562,504 - -------------------------------------------------------------------
U.S. Treasury demand notes represent secured borrowings from the U.S. Treasury. These borrowings are collateralized with securities or 1-4 family residential mortgage loans. The funds are placed with the banks at the discretion of the U.S. Treasury and may be called at any time. The $300 million floating rate note payable to Student Loan Marketing Association is secured by and provides funding for student loan receivables. 32 35 10. LONG-TERM DEBT The composition of long-term debt, net of unamortized discount, if applicable, follows:
December 31 - ------------------------------------------------------------------- (In Thousands) 1996 1995 - ------------------------------------------------------------------- 8 3/8% Notes due 1996 $ -- $ 99,987 Floating Rate Subordinated Notes due 1997 74,998 74,980 Floating Rate Notes due 1997 49,983 49,962 9 7/8% Subordinated Notes due 1999 64,872 64,825 6.50% Subordinated Notes due 2000 99,820 99,777 8.50% Subordinated Notes due 2002 99,881 99,849 6 5/8% Subordinated Notes due 2004 249,072 248,942 7.20% Subordinated Notes due 2005 249,756 249,727 Other 1,794 2,561 - ------------------------------------------------------------------- TOTAL PARENT COMPANY 890,176 990,610 - ------------------------------------------------------------------- 6.50% Subordinated Notes due 2003 199,525 199,451 7.25% Subordinated Notes due 2010 222,779 222,612 6.30% Subordinated Notes due 2011 200,000 -- 7.25% Subordinated Notes due 2011 197,080 -- Other 2,103 2,309 - ------------------------------------------------------------------- TOTAL SUBSIDIARY SUBORDINATED NOTES 821,487 424,372 - ------------------------------------------------------------------- TOTAL LONG-TERM DEBT QUALIFYING FOR TIER II CAPITAL 1,711,663 1,414,982 - ------------------------------------------------------------------- Senior Bank Notes 754,582 654,547 Federal Home Loan Bank Advances 528,173 955,461 - ------------------------------------------------------------------- TOTAL OTHER LONG-TERM DEBT OF SUBSIDIARIES 1,282,755 1,610,008 - ------------------------------------------------------------------- TOTAL $ 2,994,418 $3,024,990 - -------------------------------------------------------------------
The $75 million floating rate notes and the $50 million floating rate notes pay interest quarterly at a rate of 12.5 basis points over the three-month Eurodollar deposit rate and may be redeemed in whole or in part at the option of the Corporation. All of the subordinated notes of the parent and bank subsidiaries pay interest semi-annually and may not be redeemed prior to maturity. The 6.30% Subordinated Notes were issued in February 1996 by National City Bank of Kentucky. The 7.25% Subordinated Notes were issued in October 1996 by National City Bank of Pennsylvania. The Senior Bank Notes are at fixed and variable rates and mature at various dates through 2007. The weighted average interest rate of the notes as of December 31, 1996 and 1995 was 6.07% and 6.29%, respectively. Long-term advances from the Federal Home Loan Bank (FHLB) are at fixed and variable rates ranging up to 8.40% and mature at various dates through 2023. Advances from the FHLB are collateralized by qualifying securities and loans. A credit agreement dated February 2, 1996, with a group of unaffiliated banks, allows the Corporation to borrow up to $350 million until February 1, 2000, with a provision to extend the expiration date under certain circumstances. The Corporation pays an annual facility fee of 10 basis points on the amount of the line. There were no borrowings outstanding under this agreement at December 31, 1996. Long-term debt maturities for the next five years are as follows: $227.8 million in 1997; $27.9 million in 1998; $67.5 million in 1999; $677.7 million in 2000; and $126.8 million in 2001. 11. CAPITAL RATIOS The following table reflects various measures of capital at year-end:
1996 1995 ------------------- ------------------ (DOLLARS IN MILLIONS) AMOUNT RATIO Amount Ratio - --------------------------------------------------------------------- Total equity(1) $ 4,432.1 8.71% $4,063.8 8.04% Tangible equity(2) 3,932.7 7.81 3,545.9 7.09 Tier 1 capital(3) 3,976.5 9.84 3,546.4 9.14 Total risk-based capital(4) 5,980.6 14.79 5,228.4 13.47 Leverage(5) 3,976.5 8.16 3,546.4 7.26 - --------------------------------------------------------------------- (1) Computed in accordance with generally accepted accounting principles, including unrealized market value adjustment of securities available for sale. (2) Stockholders' equity less all intangible assets and servicing rights; computed as a ratio to total assets less intangible assets and servicing rights. (3) Stockholders' equity less certain intangibles and the unrealized market value adjustment of securities available for sale; computed as a ratio to risk-adjusted assets, as defined. (4) Tier 1 capital plus qualifying loan loss allowance and subordinated debt; computed as a ratio to risk-adjusted assets, as defined. (5) Tier 1 capital; computed as a ratio to average total assets less certain intangibles. - ---------------------------------------------------------------------
National City's Tier 1, total risk-based capital and leverage ratios are well above the required minimum levels of 4.00%, 8.00%, and 4.00%, respectively. The capital levels at all of National City's subsidiary banks are maintained at or above the well-capitalized minimums of 6.00%, 10.00% and 5.00% for the Tier I capital, total risk-based capital and leverage ratios, respectively. Intangible asset and mortgage servicing right totals used in the capital ratio calculations are summarized below:
December 31 - -------------------------------------------------------------------- (Dollars in Millions) 1996 1995 - -------------------------------------------------------------------- Goodwill $307.8 $319.7 Core deposit intangibles 17.7 26.9 Other intangibles 1.6 2.4 Purchased credit cards 31.1 47.4 Mortgage servicing rights 141.2 121.5 - --------------------------------------------------------------------
12. OTHER CAPITAL TRANSACTIONS The Corporation is authorized to issue 5,000,000 shares of no par value preferred stock. At December 31, 1995, the Corporation had 741,600 shares of 8% Cumulative Convertible Preferred Stock outstanding in the form of 3,708,000 depositary shares. The depositary shares had a stated value of $50.00 per share and each share represented a one-fifth interest in a preferred share. The preferred shares were convertible at the option of the 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) holder into 2.384 common shares per depositary share. On March 5, 1996, the Corporation called the preferred stock for redemption, effective May 1, 1996, at the fixed redemption price of $52.00 per depositary share. Prior to the redemption date, all of the outstanding depositary shares were converted into common stock. The final 613,429 shares in the Employee Stock Ownership Plan (ESOP) were allocated to benefit plan participants during 1996. The ESOP, which was part of the National City Savings and Investment Plan, earned dividends on company shares of $.4 million and $1.4 million in 1996 and 1995, respectively. Company contributions of $2.8 million and $6.8 million in 1996 and 1995, respectively, were used with dividends to service the loan which was fully paid during 1996. In August 1996, National Processing, Inc. (NPI), a subsidiary of National City, issued 7,475,000 shares of common stock in an underwritten public offering. The net proceeds from the transaction were retained by NPI to finance internal business development needs. This capital transaction resulted in a $25.1 million increase in the carrying value of National City's interest in the net assets of NPI. Amounts related to the minority shareholders' interest in the equity of NPI are not material to the consolidated financial statements. 13. NET INCOME PER COMMON SHARE Primary net income per common share is based upon net income after preferred dividend requirements and the weighted average number of common shares outstanding, adjusted for the dilutive effect of outstanding stock options. Fully diluted earnings per share is based upon net income and the weighted average number of shares outstanding, adjusted for the dilutive effect of outstanding stock options and the conversion impact of convertible equity instruments. The calculation of net income per common share follows:
For the Calendar Year - ---------------------------------------------------------------------- (In Thousands Except Per Share Amounts) 1996 1995 1994 - ---------------------------------------------------------------------- PRIMARY: Net income $736,630 $591,460 $598,467 Less preferred dividends 4,028 14,830 15,200 - ---------------------------------------------------------------------- Net income applicable to common stock $732,602 $576,630 $583,267 - ---------------------------------------------------------------------- Average common shares outstanding 222,674,326 215,097,124 220,822,755 - ---------------------------------------------------------------------- Net income per common share $3.29 $2.68 $2.64 - ---------------------------------------------------------------------- ASSUMING FULL DILUTION: Net income $736,630 $591,460 $598,467 - ---------------------------------------------------------------------- Fully diluted average common shares outstanding 225,503,431 224,004,487 229,844,700 - ---------------------------------------------------------------------- Fully diluted net income per share $3.27 $2.64 $2.60 - ----------------------------------------------------------------------
14. PARENT COMPANY AND REGULATORY RESTRICTIONS At December 31, 1996, retained earnings of the parent company included $1,973.7 million of equity in undistributed earnings of subsidiaries. Dividends paid by the Corporation's subsidiary banks are subject to various legal and regulatory restrictions. In 1996, subsidiary banks declared $579.5 million in dividends to the parent company. The subsidiary banks can initiate dividend payments in 1997, without prior regulatory approval, of $378.0 million, plus an additional amount equal to their net profits for 1997, as defined by statute, up to the date of any such dividend declaration. Under Section 23A of the Federal Reserve Act, as amended, loans from subsidiary banks to nonbank affiliates, including the parent company, are required to be collateralized. Commercial paper borrowings of a subsidiary ($556.1 million outstanding at December 31, 1996) are guaranteed by the parent company. Condensed parent company financial statements, which include transactions with subsidiaries, follow: 34 37 BALANCE SHEETS
December 31 - -------------------------------------------------------------------- (In Thousands) 1996 1995 - -------------------------------------------------------------------- ASSETS Cash and demand balances due from banks $ 14,355 $ 12,658 Loans to and accounts receivable from subsidiaries 1,014,375 587,534 Securities 747,644 252,686 Investments in: Subsidiary banks 3,149,276 3,592,561 Nonbank subsidiaries 442,711 642,812 Goodwill, net of accumulated amortization of $34,897 and $32,217, respectively 47,793 50,473 Other assets 184,015 87,435 - -------------------------------------------------------------------- TOTAL ASSETS $ 5,600,169 $5,226,159 - -------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper $ -- $ 34,319 Corporate long-term debt 890,176 990,610 Accrued expenses and other liabilities 277,930 137,384 - -------------------------------------------------------------------- Total liabilities 1,168,106 1,162,313 Stockholders' equity 4,432,063 4,063,846 - -------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,600,169 $5,226,159 - --------------------------------------------------------------------
STATEMENTS OF INCOME
For the Calendar Year - ------------------------------------------------------------------------ (In Thousands) 1996 1995 1994 - ------------------------------------------------------------------------ INCOME Dividends from: Subsidiary banks $ 579,500 $ 329,751 $ 354,878 Nonbank subsidiaries 10,420 12,676 16,129 Interest on loans to subsidiaries 10,810 11,686 5,250 Interest and dividends on securities 21,997 9,268 7,487 Security gains 93,720 19,764 476 Other income 2,851 1,046 3,542 - ------------------------------------------------------------------------ TOTAL INCOME 719,298 384,191 387,762 - ------------------------------------------------------------------------ EXPENSE Interest on debt and other borrowings 67,280 68,578 55,147 Goodwill amortization 2,588 2,360 2,344 Other expense 153,487 118,909 70,915 - ------------------------------------------------------------------------ TOTAL EXPENSE 223,355 189,847 128,406 - ------------------------------------------------------------------------ Income before taxes and equity in undistributed income of subsidiaries 495,943 194,344 259,356 Income tax (benefit) (81,357) (79,474) (60,082) - ------------------------------------------------------------------------ Income before equity in undistributed net income of subsidiaries 577,300 273,818 319,438 Equity in undistributed net income of subsidiaries 159,330 317,642 279,029 - ------------------------------------------------------------------------ NET INCOME $ 736,630 $ 591,460 $ 598,467 - ------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the Calendar Year - ----------------------------------------------------------------------- (In Thousands) 1996 1995 1994 - ----------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 736,630 $ 591,460 $ 598,467 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (159,330) (317,642) (279,029) Amortization of goodwill 2,588 2,360 2,344 Depreciation of premises and equipment 5,447 4,339 7,750 Decrease (increase) in dividends receivable from subsidiaries (114,820) (89,500) 55,669 Security gains (93,720) (19,764) (476) Other, net (114,604) (79,879) (109,762) - ----------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 262,191 91,374 274,963 - ----------------------------------------------------------------------- INVESTING ACTIVITIES Net change in short-term money market investments 29,065 (35,613) (26,750) Purchases of securities (260,765) (144,259) (123,613) Sales and maturities of securities 199,324 93,129 91,261 Net sales (purchases) of premises and equipment 11,513 19,266 (10,221) Principal collected on loans to subsidiaries 8,524 7,800 50,850 Loans to subsidiaries (49,167) (24,975) (25,805) Investment in subsidiaries -- (72,961) (14,784) Return of investment from subsidiaries 198,000 286,000 168,000 - ----------------------------------------------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 136,494 128,387 108,938 - ----------------------------------------------------------------------- FINANCING ACTIVITIES Repayment of corporate long-term debt (100,000) (556) (13,405) Proceeds from issuance of long-term debt -- 249,710 247,080 Increase (decrease) in other borrowings (43,730) (7,115) (26,148) Common and preferred dividends (314,762) (270,279) (251,290) Issuance of common stock 58,763 44,885 30,453 Repurchase of stock -- (241,253) (373,585) Shares distributed by ESOP 2,741 6,277 7,428 - ----------------------------------------------------------------------- NET CASH (USED) BY FINANCING ACTIVITIES (396,988) (218,331) (379,467) - ----------------------------------------------------------------------- Increase in cash and demand balances due from banks 1,697 1,430 4,434 Cash and demand balances due from banks, January 1 12,658 11,228 6,794 - ----------------------------------------------------------------------- Cash and demand balances due from banks, December 31 $ 14,355 $ 12,658 $ 11,228 - -----------------------------------------------------------------------
35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Calendar Year - ------------------------------------------------------------------------ (In Thousands) 1996 1995 1994 - ------------------------------------------------------------------------ SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 64,764 $ 65,106 $ 46,700 Securities transferred to (from) subsidiaries (248,234) 89,400 -- Shares issued in purchase acquisitions and additional investment in subsidiaries -- 110,739 -- - ------------------------------------------------------------------------
15. STOCK OPTIONS AND AWARDS National City maintains various incentive and non-qualified stock-based compensation plans that allow for the granting of restricted shares, stock options or other stock-based awards to eligible employees and directors. The Corporation has elected not to adopt the recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which requires a fair-value based method of accounting for stock options and similar equity awards, and will continue to follow APB No. 25, Accounting For Stock Issued to Employees, and related Interpretations to account for its stock-based compensation plans. Included below are pro forma net income and earnings per share, as required by SFAS No. 123, determined as if the Corporation had accounted for stock options granted in 1995 and 1996 under the provisions of SFAS No. 123. STOCK OPTION PLANS: The stock option plans for officers and key employees authorize the issuance of up to 10,000,000 options to purchase shares of common stock at the market price of the shares at the date of grant. These options generally become exercisable to the extent of either 25% or 50% annually beginning one year from the date of grant and expire not later than ten years from the date of grant. In addition, stock options may be granted that include the right to receive additional options not exceeding the number of options exercised under the original grant if certain criteria are met. The exercise price of an additional option is equal to the market price of the common stock on the date the additional option is granted. Additional options vest six months from the date of grant and have a contractual term equal to the remaining term of the original option. In 1995, the Corporation was authorized to grant up to 3,500,000 options to purchase common stock to virtually all employees in commemoration of National City's 150th anniversary. One-third of these options become exercisable in each of the years 1998, 1999, and 2000. As of the merger date, all former Integra options were assumed by National City with appropriate conversion of the option price per share and the number of shares under option. All former Integra plans were terminated with respect to the granting of any additional options. RESTRICTED STOCK PLAN: The 1991 Restricted Stock Plan provides for the issuance of up to 1,000,000 shares of common stock to officers, key employees, and outside directors. In general, restrictions on outside directors' shares granted after 1992 expire after nine months and restrictions on shares granted to key employees and officers expire over a four-year period. The Corporation generally recognizes compensation expense over the restricted period. Compensation expense recognized in 1996, 1995 and 1994 totaled $2.0 million, $1.9 million and $1.4 million, respectively, related to shares issued under this plan. OPTION AND RESTRICTED STOCK AWARD ACTIVITY: A summary of stock option and restricted stock award activity follows:
- ---------------------------------------------------------------------------- Shares -------------------------------------- Available Weighted- for Grant Average ---------- Outstanding Option Awards & ----------------------- Price Per Options Awards Options Share - ---------------------------------------------------------------------------- January 1, 1994 10,339,300 243,750 9,023,949 $20.75 Integra shares authorized 650,223 Cancelled 109,492 (4,350) (105,142) 28.74 Exercised (4,400) (952,028) 17.72 Granted (2,205,600) 92,800 2,112,800 29.79 - ---------------------------------------------------------------------------- December 31, 1994 8,893,415 327,800 10,079,579 22.84 Authorized 3,500,000 Cancelled 95,577 (8,950) (793,767) 29.12 Acquired 88,418 Exercised (139,250) (1,822,509) 20.40 Granted (5,849,640) 111,090 5,738,550 30.10 - ---------------------------------------------------------------------------- December 31, 1995 6,639,352 290,690 13,290,271 25.86 Cancelled 125,368 (11,300) (820,718) 29.35 Exercised (49,532) (2,999,388) 19.83 Granted (3,649,117) 162,977 4,105,003 35.20 - ---------------------------------------------------------------------------- DECEMBER 31, 1996 3,115,603 392,835 13,575,168 $29.89 - ----------------------------------------------------------------------------
At December 31, 1996, 1995 and 1994, options exercisable under National City option plans totaled 6,975,620, 6,160,826, and 5,669,645 shares, respectively, and had a weighted average option price per share of $22.45, $20.71, and $18.74, respectively. All options outstanding under the Integra option plan became exercisable as of the acquisition date. For options outstanding at December 31, 1996, the option price per share ranged from $5.31 to $47.50 and the weighted-average remaining contractual life of the options was 7.3 years. PRO FORMA DISCLOSURES: For purposes of providing the pro forma disclosures required under SFAS No. 123, the fair value of stock options granted in 1995 and 1996 was estimated at the date of grant using a Black-Scholes option pricing model. The Black-Scholes option pricing model was originally developed for use in estimating the fair value of traded options which have different characteristics than the Corporation's employee stock options. The model is also sensitive to changes in the subjective assumptions which can materially affect the fair value estimate. As a result, 36 39 management believes that the Black-Scholes model may not necessarily provide a reliable single measure of the fair value of employee stock options. The following weighted-average assumptions were used in the option pricing model: a risk-free interest rate of 6.04% and 5.64% for 1996 and 1995, respectively; an expected life of the option of 4.2 years and 5.4 years for 1996 and 1995, respectively; and an expected dividend yield and volatility factor of 3.80% and .21 respectively, for both years. For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Had compensation cost for the Corporation's stock-based compensation plans been determined consistent with SFAS No. 123, net income and earnings per share would have been as summarized below:
- -------------------------------------------------------------------- (In Thousands, Except Per Share Amounts) 1996 1995 - -------------------------------------------------------------------- Pro forma net income $ 725,726 $ 588,122 Pro forma earnings per share: Primary $3.24 $2.67 Fully diluted 3.22 2.63 - --------------------------------------------------------------------
Due to the inclusion of only 1995 and 1996 option grants, the effects of applying SFAS No. 123 in 1995 and 1996 may not be representative of the pro forma impact in future years. 16. PENSION PLANS National City has a noncontributory, defined benefit retirement plan covering substantially all employees. Retirement benefits are based upon the employees' length of service and salary levels. Actuarially determined pension costs are charged to current operations. The funding policy is to pay at least the minimum amount required by the Employee Retirement Income Security Act of 1974. The defined benefit pension plan's funded status (at its year-end September 30) follows:
- -------------------------------------------------------------------- (In Thousands) 1996 1995 - -------------------------------------------------------------------- Projected benefit obligation: Vested benefits $ 422,876 $ 414,937 Nonvested benefits 21,121 15,342 - -------------------------------------------------------------------- Accumulated benefit obligation 443,997 430,279 Effect of projected future compensation levels 84,875 99,229 - -------------------------------------------------------------------- Projected benefit obligation 528,872 529,508 Plan's assets at fair value, primarily stocks and bonds, including $22.7 million and $16.7 million in the common stock of the Corporation for 1996 and 1995, respectively 561,133 496,400 - -------------------------------------------------------------------- Funded status - plan assets in excess of (less than) projected benefit obligation $ 32,261 $ (33,108) - -------------------------------------------------------------------- Comprised of: Unrecognized net gains (losses) $ 31,626 $ (35,482) Unrecognized net assets being recognized over 15 years 20,787 24,477 Less accrued pension liability on balance sheet 20,152 22,103 - -------------------------------------------------------------------- $ 32,261 $ (33,108) - --------------------------------------------------------------------
Assumptions used in the valuation of the defined benefit pension plan at its year-end (September 30) follow:
- ----------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------- Weighted average discount rate 7.50% 7.50% 8.25-8.50% Average assumed rate of compensation increase 5.00 4.75-5.00 4.75-5.50 Long-term rate of return on assets 10.00 10.00 9.50 - -----------------------------------------------------------------------
Net defined benefit pension plan costs include the following components:
For the Calendar Year - ------------------------------------------------------------------------ (In Thousands) 1996 1995 1994 - ------------------------------------------------------------------------ Service cost - benefits earned during year $ 20,306 $ 19,871 $ 22,775 Interest cost on projected benefit obligation 36,033 36,324 33,619 Actual return on plan assets (78,548) (74,411) (7,889) Net amortization and deferral 30,577 29,732 (37,140) - ------------------------------------------------------------------------ Net periodic pension cost $ 8,368 $ 11,516 $ 11,365 - ------------------------------------------------------------------------
The Corporation also maintains nonqualified supplemental retirement plans for certain key employees. All benefits provided under these plans are unfunded and any payments to plan participants are made by the Corporation. As of December 31, 1996 and 1995 approximately $32.6 million and $18.2 million, respectively, were included in accrued expenses and other liabilities for these plans. For the years ended Decem- 37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ber 31, 1996, 1995 and 1994, expense related to these plans was $17.6 million, $5.6 million, and $5.4 million, respectively. The accrued liability and expense for 1996 include a $11.4 million charge relating to the curtailment of a supplemental executive retirement plan for former key employees of Integra. Substantially all employees with one or more years of service are eligible to contribute a portion of their pre-tax salary to a defined contribution plan. The Corporation may make contributions to the plan in varying amounts depending on the level of employee contributions. For the years ended 1996, 1995 and 1994, the expense related to this plan was $10.7 million, $17.8 million, and $18.5 million, respectively. 17. OTHER POSTRETIREMENT BENEFIT PLANS The Corporation has a benefit plan which offers postretirement medical and life insurance benefits to all employees who have attained the age of 55 and have at least 10 years of service (five years of service if age 65 or older). The medical portion is contributory and the life insurance coverage is noncontributory to the participants. For any employee who retired on or after April 1, 1989, the Corporation's medical contribution is fixed, based on years of service and age at retirement. The accounting for the medical portion anticipates contributions for retirees prior to April 1, 1989, to continue to increase as a proportion of the total costs of the plan. The Corporation reserves the right to terminate or make plan changes at any time. The Corporation has no plan assets attributable to the plan and funds the benefits as the claims arise. Postretirement benefit costs are recognized during the periods in which employees provide service for such benefits. The following table presents the Plan's status at December 31, reconciled with amounts recognized in the consolidated balance sheet:
- -------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 - -------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 40,704 $ 38,982 Fully eligible active plan participants 10,826 8,671 Other active plan participants 15,573 13,593 - -------------------------------------------------------------------- Accumulated postretirement benefit obligation 67,103 61,246 Unrecognized net gain (loss) (9,585) (6,206) Unrecognized transition obligation (27,210) (29,133) - -------------------------------------------------------------------- Accrued postretirement benefit cost $ 30,308 $ 25,907 - --------------------------------------------------------------------
Net periodic postretirement benefit costs include the following components:
- --------------------------------------------------------------------- For the Calendar Year (Dollars in Thousands) 1996 1995 1994 - --------------------------------------------------------------------- Service cost $1,270 $ 983 $1,194 Interest cost 4,805 4,406 4,433 Net amortization and deferral 2,231 1,822 2,172 - --------------------------------------------------------------------- Net periodic postretirement benefit cost $8,306 $7,211 $7,799 - ---------------------------------------------------------------------
Assumptions used in the valuation of the accumulated postretirement benefit obligation at December 31 follow:
- ---------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------- Weighted average discount rate 7.75% 7.75% 8.50% Average salary scale 5.00 5.00 5.50 - ----------------------------------------------------------------------
The health care trend rate assumption only affects those participants retired under the plan prior to April 1, 1989. The 1996 health care trend rate is projected to be 10.5 percent for participants under 65 and 7.5 percent for participants over 65. These rates are assumed to decrease incrementally by .5 percentage point per year until they reach 5 percent and remain at that level thereafter. The health care trend rate assumption does not have a significant effect on the medical plan, therefore, a 1 percentage point change in the trend rate is not material in the determination of the accumulated postretirement benefit obligation or the ongoing expense. 18. INCOME TAXES The composition of income tax expense(benefit) follows:
- -------------------------------------------------------------------- For the Calendar Year 1996 1995 1994 - -------------------------------------------------------------------- Current: Federal $320,696 $234,809 $237,452 State 17,919 16,204 12,756 - -------------------------------------------------------------------- Total current 338,615 251,013 250,208 Deferred: Federal (15,682) 1,733 8,886 State (1,119) 939 1,761 - -------------------------------------------------------------------- Total deferred (16,801) 2,672 10,647 - -------------------------------------------------------------------- Tax expense $321,814 $253,685 $260,855 - -------------------------------------------------------------------- Tax expense applicable to security transactions $ 29,587 $ 13,501 $ 10,248 - --------------------------------------------------------------------
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 1996 1995 1994 - ------------------------------------------------------------------- Statutory rate 35.0% 35.0% 35.0% Life insurance (2.2) (3.0) (2.2) Tax-exempt income (1.5) (2.3) (2.6) Other (.9) .3 .2 - ------------------------------------------------------------------- EFFECTIVE TAX RATE 30.4% 30.0% 30.4% - -------------------------------------------------------------------
38 41 Significant components of deferred tax liabilities and assets as of December 31 are as follows:
- ------------------------------------------------------------------- (Dollars in Thousands) 1996 1995 - ------------------------------------------------------------------- Deferred tax liabilities: Lease accounting $ 98,707 $ 79,937 Depreciation 23,210 24,444 Mark to market adjustments 83,452 116,206 Other - net 77,925 76,974 - ------------------------------------------------------------------- Total deferred tax liabilities 283,294 297,561 Deferred tax assets: Provision for losses 248,462 246,637 Employee benefits 33,308 11,384 Other - net 76,553 112,071 - ------------------------------------------------------------------- Total deferred tax assets 358,323 370,092 - ------------------------------------------------------------------- Net deferred tax assets $ 75,029 $ 72,531 - -------------------------------------------------------------------
19. OFF-BALANCE SHEET FINANCIAL AGREEMENTS The Corporation uses a variety of off-balance sheet financial instruments such as interest rate swaps, futures, options, forwards, and cap and floor contracts. These financial agreements, frequently called interest rate derivatives, enable the Corporation to efficiently manage its exposure to changes in interest rates. As with any financial instrument, derivatives have inherent risks. Market risk represents the risk of gains and losses that result from changes in interest rates. These gains and losses may be offset by other on- or off-balance sheet transactions. Credit risk is the risk that a counterparty to a derivative contact with an unrealized gain fails to perform according to the terms of the agreement. Credit risk can be measured as the cost of acquiring a new derivative agreement with cash flows identical to those of a defaulted agreement in the current interest rate environment. The credit exposure to counterparties is managed by limiting the aggregate amount of net unrealized gains in agreements outstanding, monitoring the size and the maturity structure of the derivative portfolio, applying uniform credit standards maintained for all activities with credit risk, and by collateralizing unrealized gains. The Corporation has established bilateral collateral agreements with its major off-balance sheet counterparties that provide for exchanges of marketable securities to collateralize either party's unrealized gains. On December 31, 1996, these collateral agreements covered 95% of the notional amount of the derivative portfolio, and the Corporation was holding net U.S. government and agency securities with a market value of $34 million from various counterparties to collateralize unrealized gains. The Corporation has never experienced, nor does it have any reason to expect, a credit loss associated with any interest rate derivative. INTEREST RATE RISK MANAGEMENT: On December 31, 1996, the total notional amount of the interest rate swap portfolio used to manage interest rate sensitivity was $8.0 billion, which is an increase of $1.0 billion from December 31, 1995. The Corporation uses receive fixed interest rate swaps, receive fixed cancelable interest rate swaps and receive fixed indexed amortizing interest rate swaps to convert variable rate loans and securities into synthetic fixed rate instruments and to convert fixed rate funding sources into synthetic variable rate funding instruments. The Corporation increased its use of receive fixed rate interest rate swaps and cancelable interest rate swaps during the year primarily to facilitate its funding activities. During 1996, the Corporation entered into $1.1 billion of receive fixed interest rate swaps and $550 million of receive fixed cancelable swaps in association with the issuance of fixed rate and fixed rate callable funding products. During 1996, the Corporation entered in $2.6 billion of receive fixed indexed amortizing interest rate swaps. These swaps were used primarily to convert portions of variable rate loan portfolios into synthetic fixed rate loans. During 1996, $175 million of receive fixed interest rate swaps matured or amortized and $1.8 billion of indexed amortizing receive fixed interest rate swaps matured or amortized. The Corporation uses pay fixed interest rate swaps to convert fixed rate loans and securities into synthetic variable rate instruments and to convert variable rate funding sources into synthetic fixed rate funding instruments. During 1996, the Corporation entered into $424 million of pay fixed interest rate swaps, with weighted initial expected maturity of 4.62 years. During 1996, $32 million of pay fixed interest rate swaps matured and $100 million of pay fixed interest rate swaps were terminated prior to maturity. The Corporation uses interest rate floors to help protect its interest margin in periods of low interest rates and a flattening yield curve. During 1996, the Corporation purchased $165 million three-month Eurodollar floors with an average maturity of 5 years and an average strike rate of 5.75%. The Corporation uses interest rate corridors to help protect its net interest margin in various interest rates environments. These interest rate corridors pay 1.0% of the notional amount per annum over their lives only when the three-month Eurodollar rate is between the corridor strike rates. There are no payments due to the Corporation when three-month Eurodollar rates are outside of the corridor strike rates. On December 31, 1996, the Corporation had $8 million of net deferred gains on terminated derivative contracts and had no derivative contracts outstanding that were hedging anticipated transactions. Summary information with respect to the interest rate derivative portfolio used for risk management purposes follows: 39 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------------------------------------------------------------ December 31, 1996 ---------------------------------------------------------------------------------------- Weighted Average -------------------------------------------- December 31, 1995 (Dollars in Notional Unrealized Unrealized Receive Pay Strike Life ----------------- Thousands) Amount Gains Losses Rate Rate Rate (Years) Notional Amount ------------------------------------------------------------------------------------------------------------------------------ INTEREST RATE SWAPS: Receive fixed indexed amortizing swaps $ 3,107,448 $ 7,371 $(18,574) 6.26% 5.55% N/A 1.8 $ 2,769,970 Receive fixed callable swaps 905,000 5,212 (2,611) 6.86 5.56 N/A 6.4 105,000 Receive fixed swaps 3,047,370 49,274 (16,458) 6.46 5.49 N/A 4.13 2,456,370 Pay fixed swaps 874,145 -- (3,942) 5.53 6.86 N/A 2.21 582,000 Basis swaps 75,000 523 -- 5.92 5.68 N/A 3.82 1,050,000 - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate swaps 8,008,963 62,380 (41,585) 6,963,340 INTEREST RATE CAPS AND FLOORS: Three-month Eurodollar floors purchased 1,400,000 8,826 (4,235) N/A N/A 5.71% 3.88 1,435,000 Five-year U.S. Treasury floors purchased -- -- -- N/A N/A -- -- 50,000 Ten-year U.S. Treasury floors sold 163,000 -- -- N/A N/A 5.17% 4.66 -- Three-month Eurodollar caps purchased 100,000 -- -- N/A N/A 7.00% 0.08 300,000 One-month Eurodollar caps sold 19,000 -- -- N/A N/A 12.00% 0.29 95,000 - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate caps and floors 1,682,000 8,826 (4,235) 1,880,000 INTEREST RATE CORRIDORS PURCHASED: 1% Payout corridors 200,000 -- (33) N/A N/A 4.50% TO 5.50% 0.5 200,000 1% Payout corridors 250,000 62 -- N/A N/A 6.00% TO 7.50% 1.53 250,000 1% Payout corridors -- -- -- N/A N/A 6.13% TO 7.50% -- 2,000,000 1% Payout corridors 500,000 -- (334) N/A N/A 6.50% TO 7.50% 1.69 500,000 1% Payout corridors 300,000 -- (152) N/A N/A 8.50% TO 9.75% .22 300,000 - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate corridors 1,250,000 62 (519) 3,250,000 - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate swaps, caps, floors & corridors $10,940,963 $ 71,268 $(46,339) $12,093,340 - ------------------------------------------------------------------------------------------------------------------------------
The variable rates in the interest rate swap contracts are primarily based on the three-month Eurodollar rate. The average variable rates included in the table above are those in effect in the specific contracts at December 31, 1996. The following table details the expected notional maturities of off-balance sheet instruments used for interest-rate risk management at December 31, 1996: - --------------------------------------------------------------------------------
Less than 1 to 3 3 to 5 5 to 10 Greater (In Thousands) 1 Year Years Years Years than 10 Years - --------------------------------------------------------------------------------------------------------------------------------- Receive fixed indexed amortizing swaps $1,430,194 $ 591,978 $1,085,276 $ -- $ -- Receive fixed callable swaps -- 450,000 -- 245,000 210,000 Receive fixed swaps 837,370 1,015,000 365,000 405,000 425,000 Pay fixed swaps 550,000 194,000 -- 127,000 3,145 Basis swaps -- -- 75,000 -- -- Three-month Eurodollar floors purchased -- 735,000 200,000 465,000 -- Ten-year U.S. Treasury floors sold -- -- 163,000 -- -- Three-month Eurodollar caps purchased 100,000 -- -- -- -- One-month Eurodollar caps sold 19,000 -- -- -- -- Interest rate corridors purchased 500,000 750,000 -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- TOTAL $3,436,564 $3,735,978 $1,888,276 $1,242,000 $ 638,145 - ---------------------------------------------------------------------------------------------------------------------------------
Indexed amortizing interest rate swaps are contracts where the notional amount amortizes after a predetermined lock-out period. The rate of amortization is determined by formula and is based upon movements of short-term interest rates, usually three-month Eurodollar rates. The indexed amortizing interest rate swap portfolio contains no imbedded options that have multiplicative impacts affecting valuations or expected notional maturities. The following table shows the estimated impact on valuation, average life, and the expected notional amortization schedule of the indexed amortizing swap portfolio if interest rates immediately 40 43 increase or decrease 100 basis points from December 31, 1996 levels:
- ---------------------------------------------------------------------------------- (unaudited) Expected Notional Net Amortization Unrealized Average Less than 1 to 2 2 to 5 (In Millions) Gain/(Loss) Life(Years) 1 Year Years Years - ---------------------------------------------------------------------------------- Interest rates at year end $ (12) 1.8 $ 1,430 $473 $1,205 Interest rates +100bp (71) 2.5 621 550 1,937 Interest rates -100bp 22 0.8 2,207 717 183 - ----------------------------------------------------------------------------------
MORTGAGE SERVICING RISK MANAGEMENT: The Corporation uses off-balance sheet derivative contracts to hedge the market value of a portion of its mortgage servicing portfolio. The market value of the mortgage servicing portfolio is adversely affected when mortgage interest rates decline and mortgage loan prepayments increase. To hedge this exposure, the Corporation entered into receive fixed interest rate swaps, purchased and sold interest rate floors (net purchased options) and purchased interest rate caps all with payoffs based on 10 year U.S. Treasury note yields. The Corporation has also entered into $34 million of interest rate swaps where the Corporation receives the periodic total return of Principal Only Mortgage Backed Securities and pays a variable rate based on one-month Eurodollar rates. Information with respect to the interest rate derivative portfolio used for hedging mortgage servicing assets is summarized in the table below. At December 31, 1996, the net unrealized loss on the derivative portfolio was more than offset by net unrealized appreciation in the mortgage servicing portfolio.
------------------------------------------------------------------------------------------------------------------------------ December 31, 1996 ----------------------------------------------------------------------------------- Weighted Average ------------------------------------------- December 31, 1995 Notional Unrealized Unrealized Receive Pay Strike Life ----------------- (Dollars in Thousands) Amount Gains Losses Rate Rate Rate (Years) Notional Amount ------------------------------------------------------------------------------------------------------------------------------ INTEREST RATE SWAPS: Receive fixed swaps $ 630,000 $ 990 $ (9,335) 5.90% 5.53% N/A 3.9 $ 315,000 Principal only swaps 34,251 601 (1,260) -- 5.91 N/A 2.8 -- - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate swaps 664,251 1,591 (10,595) 315,000 INTEREST RATE CAPS AND FLOORS: Ten-year U.S. Treasury caps purchased 85,000 482 -- N/A N/A 8.82% 4.6 -- Ten-year U.S. Treasury floors purchased 1,015,662 2,440 -- N/A N/A 5.45% 3.2 906,820 Ten-year U.S. Treasury floors sold 400,000 -- (407) N/A N/A 4.91% 3.1 -- - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate caps and floors 1,500,662 2,922 (407) 906,820 - ------------------------------------------------------------------------------------------------------------------------------ Total interest rate swaps, caps and floors $ 2,164,913 $4,513 $(11,002) $ 1,221,820 - ------------------------------------------------------------------------------------------------------------------------------
TRADING ACTIVITIES: The Corporation also enters into off-balance sheet financial instruments for its trading account. These transactions are executed primarily with customers to facilitate their interest rate risk management strategies. The trading portfolio consists entirely of off-setting pairs of derivative contracts which effectively eliminate the risk of market value fluctuations in the portfolio caused by changes in market conditions. During 1996, the Corporation executed $3.6 billion notional amount of derivative contracts for its trading portfolio. As of December 31, 1996, the total notional amount of derivative contracts held for trading was $3.0 billion with a net market value of $3 million. Total trading revenue for derivative contracts during 1996 was $3 million. In prior years, derivative trading activity was not significant. All contracts in the preceding tables are valued using cash flow projection models either acquired from third parties or developed in-house. Pricing models used for valuing derivative instruments are regularly validated by testing through comparison with other third parties. Valuations and notional maturities presented above are based on yield curves, forward yield curves, and implied volatilities that were observable in the cash and derivatives markets at year-end 1996. OTHER OFF-BALANCE SHEET COMMITMENTS: The Corporation also enters into forward contracts related to its mortgage banking business. At December 31, 1996 and 1995, the Corporation had commitments to sell mortgages and mortgage-backed securities totaling $613 million and $473 million, respectively. These contracts mature in less than one year. In the normal course of business, the Corporation makes various commitments to extend credit which are not reflected in the balance sheet. A summary of these commitments follows:
December 31 - ----------------------------------------------------------------- (In Millions) 1996 1995 - ----------------------------------------------------------------- Commitments to extend credit $ 11,160 $9,473 Standby letters of credit 1,781 1,867 - -----------------------------------------------------------------
The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Collateral is obtained based on management's credit assessment of the customer. 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information is contained on page 18. 41 44 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 1996 results. Portions of the Annual Report are not required by the Form 10-K report and are not filed as part of the Corporation's Form 10-K. Only those portions of the Annual Report referenced in the cross-reference index are incorporated in the Form 10-K. The report has not been approved or disapproved by the Securities and Exchange Commission, nor has the Commission passed upon its accuracy or adequacy. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]. For the transition period from _____ to _____ . Commission File Number 1-10074. NATIONAL CITY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware --------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 34-1111088 --------------------------------------------------------- (I.R.S. Employer Identification No.) 1900 East Ninth Street, Cleveland, Ohio --------------------------------------------------------- (Address of principal executive offices) 44114-3484 --------------------------------------------------------- (Zip Code) Registrant's telephone number, including area code, 216-575-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Securities registered pursuant to Section 12(g) of the Act: National City Corporation Common Stock, $4.00 Per Share - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stocks held by nonaffiliates of the registrant as of December 31, 1996 - $9,860,248,766. The number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1996. Common Stock, $4.00 Per Share -- 223,198,494 Documents Incorporated By Reference: Portions of the registrant's Proxy Statement (to be dated approximately February 26, 1997) 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. 42 45 FORM 10-K CROSS REFERENCE INDEX
Pages - ------------------------------------------------------------------- PART I Item 1 -- Business Description of Business 43 Average Balance Sheets/Interest/Rates 20-21 Volume and Rate Variance Analysis 7 Securities 11-12 Loans 10-11 Risk Elements of Loan Portfolio 13-15 Loan Loss Experience 13-15 Allocation of Allowance for Loan Losses 13-15 Deposits 12, 20-21 Financial Ratios 19 Short-Term Borrowings 12, 32 Item 2 -- Properties 44 Item 3 -- Legal Proceedings 44 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 13 Item 6 -- Selected Financial Data 19 Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 5-17 Item 8 -- Financial Statements and Supplementary Data 22-41 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 44 Compliance with Section 16(a) of the Securities Exchange Act - Note (1) Item 11 -- Executive Compensation - Note (1) Item 12 -- Security Ownership of Certain Beneficial Owners and Management - Note (1) Item 13 -- Certain Relationships and Related Transactions - Note (1) - ------------------------------------------------------------------- PART IV Item 14 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K Report of Ernst & Young LLP, Independent Auditors 22 Financial Statements: Consolidated Balance Sheets - December 31, 1996 and 1995 23 Consolidated Statements of Income - Calendar Years 1996, 1995 and 1994 24 Consolidated Statements of Changes in Stockholders' Equity - Calendar Years 1996, 1995, and 1994 25 Consolidated Statements of Cash Flows - Calendar Years 1996, 1995 and 1994 26 Notes to Financial Statements 27-41 Signatures 45
Reports on Form 8-K filed in the fourth quarter of 1996: Form 8-K, dated December 17, 1996, announced an increase in the quarterly dividend on common stock from $.375 per share to .$41 per share and the approval of an authorization by the Board of Directors to purchase up to five million shares of common stock in the open market or otherwise subject to a total purchase limit of $275 million. Exhibits -- The index of exhibits has been filed as separate pages of the 1996 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 February 26, 1997. - ------------------------------------------------------------------------------- BUSINESS At December 31, 1996, National City Corporation ("National City" or "the Corporation") was the third largest bank holding company headquartered in the State of Ohio and approximately the 18th largest in the United States on the basis of total assets. National City owns and operates 11 commercial banks with a total of 885 banking offices in Ohio, Kentucky, Indiana and Pennsylvania. The five largest subsidiary banks (and only significant subsidiaries) are National City Bank of Pennsylvania; National City Bank (Cleveland), National City Bank of Columbus; National City Bank of Indiana; and National City Bank of Kentucky. The banks and other subsidiaries and divisions are engaged in a variety of financial services businesses. In addition to a general commercial banking business, National City or its subsidiaries are engaged in trust, mortgage banking, merchant banking, leasing, item processing, venture capital, insurance, and other financial-related businesses. National City and its subsidiaries had 26,256 full-time equivalent employees at December 31, 1996. COMPETITION The banking business is highly competitive. The banking subsidiaries of National City compete actively with national and state banks, savings and loan associations, securities dealers, mortgage bankers, finance companies, insurance companies and other financial service entities. SUPERVISION AND REGULATION National City is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "Act"). The Act requires the prior approval of the Federal Reserve Board for a bank holding company to acquire or hold more than a 5% voting interest in any bank, and restricts interstate banking activities. On 43 46 FORM 10-K (continued) September 29, 1994, the Act was amended by The Interstate Banking and Branch Efficiency Act of 1994 which authorizes interstate bank acquisitions anywhere in the country, effective one year after the date of enactment and interstate branching by acquisition and consolidation, effective June 1, 1997 in those states that have not opted out by that date. The impact of this amendment on the Corporation cannot be measured at this time. The Act restricts National City's nonbanking activities to those which are determined by the Federal Reserve Board to be closely related to banking and a proper incident thereto. The Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies. National City's banking subsidiaries are subject to limitations with respect to transactions with affiliates. A substantial portion of National City's cash revenue is derived from dividends paid by its subsidiary banks. These dividends are subject to various legal and regulatory restrictions as summarized in Note 14. The subsidiary banks are subject to the provisions of the National Bank Act or the banking laws of their respective states, are under the supervision of, and are subject to periodic examination by, the Comptroller of the Currency (the "OCC") or the respective state banking departments, and are subject to the rules and regulations of the OCC, Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). National City's subsidiary banks are also subject to certain state laws of each state in which such bank is located. Such state laws may restrict branching of banks within the state and acquisition or merger involving banks and bank holding companies located in other states. Ohio, Kentucky, Indiana and Pennsylvania 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 FDIC in connection with the default of or any FDIC-assisted transaction involving an affiliated insured bank or savings association. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act") covers a wide expanse of banking regulatory issues. The FDIC Improvement Act deals with the recapitalization of the Bank Insurance Fund, with deposit insurance reform, including requiring the FDIC to establish a risk-based premium assessment system, and with a number of other regulatory and supervisory matters. The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of National City and its subsidiary banks cannot be predicted. PROPERTIES National City and its significant subsidiaries occupy their headquarter offices under long-term leases. The Corporation also own freestanding operations centers in Columbus and Cleveland and leases an operations center in Pittsburgh. 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 the liquidity of the Corporation. EXECUTIVE OFFICERS The Executive Officers of National City (as of January 22, 1997) are as follows:
Name Age Position - --------------------------------------------------------------- David A. Daberko 51 Chairman and Chief Executive Officer William R. Robertson 55 President Vincent A. DiGirolamo 59 Vice Chairman James R. Bell III 40 Executive Vice President Gary A. Glaser 52 Executive Vice President Thomas W. Golonski 54 Executive Vice President Jon L. Gorney 46 Executive Vice President Christopher Graffeo 49 Executive Vice President Jeffrey D. Kelly 43 Executive Vice President William E. MacDonald III 50 Executive Vice President Robert J. Ondercik 50 Executive Vice President Robert G. Siefers 51 Executive Vice President and Chief Financial Officer Harold B. Todd, Jr. 55 Executive Vice President James P. Gulick 38 Senior Vice President and General Auditor Thomas A. Richlovsky 45 Senior Vice President and Treasurer David L. Zoeller 47 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. Bell was elected president and chief executive officer of National City Bank of Kentucky in 1996. Prior to that time he was an executive vice president since 1994 and a senior vice president of National City Bank in Cleveland from 1990 to 1993. 44 47 Mr. Golonski was elected executive vice president in 1996. Prior to that time he was the president of Integra Bank since 1995, chairman and director of Altegra Credit Company and Integra Mortgage Company from 1994 to 1995, executive vice president of Integra Bank from 1994 to 1995, and chairman and chief executive officer of Integra Bank/North from 1991 to 1993. Mr. Graffeo was appointed an executive vice president in 1995. Prior to that time he was president and chief executive officer of National City Bank, Northeast since 1992 and an executive vice president of that Bank from 1991 to 1992. Mr. Gulick was appointed a senior vice president in 1995. Prior to that time he was a vice president since 1992 and an audit manager with Coopers & Lybrand LLP from 1987 to 1992. Mr. Kelly was appointed an executive vice president in 1994. Prior to that time he was a senior vice president since 1990 and a senior vice president of National City Bank in Cleveland from 1987 to 1990. Mr. Ondercik was appointed an executive vice president in 1994. Prior to that time he was a senior vice president since 1991 and a senior vice president of National City Bank in Cleveland from 1989 to 1991. Mr. Gorney was appointed an executive vice president in 1993. Prior to that time he was a senior vice president since 1991 and senior vice president of National City Bank in Cleveland from 1988 to 1991. Mr. Zoeller was elected senior vice president, general counsel and secretary in 1992. Prior to that time he was senior vice president, general counsel and secretary of Merchants National Corporation. With the exception of Mr. Golonski, 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. SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 22, 1997. National City Corporation /s/ David A. Daberko - ---------------------- David A. Daberko Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on January 22, 1997. /s/ David A. Daberko - ---------------------- David A. Daberko Chairman and Chief Executive Officer /s/ William R. Robertson /s/ Vincent A. DiGirolamo - ---------------------------- -------------------------- William R. Robertson Vincent A. DiGirolamo President Vice Chairman /s/ Robert G. Siefers /s/ Thomas A. Richlovsky - ---------------------------- -------------------------- Robert G. Siefers Thomas A. Richlovsky Executive Vice President Senior Vice President and Chief Financial Officer and Treasurer The Directors of National City Corporation (listed below) executed a power of attorney appointing David L. Zoeller their attorney-in-fact, empowering him to sign this report on their behalf. Sandra H. Austin Joseph H. Lemieux Charles H. Bowman W. Bruce Lunsford Edward B. Brandon A. Stevens Miles John G. Breen Robert A. Paul James S. Broadhurst William R. Robertson Duane E. Collins William F. Roemer David A. Daberko Michael A. Schuler Daniel E. Evans Stephen A. Stitle Otto N. Frenzel III Morry Weiss Bernadine P. Healy, M.D. /s/ David L. Zoeller ------------------------ By David L. Zoeller Attorney-in-fact 45 48 BOARD OF DIRECTORS/OFFICERS Board of Directors DAVID A. DABERKO (2,3,4) Chairman & CEO National City Corporation WILLIAM R. ROBERTSON (7) President National City Corporation SANDRA H. AUSTIN (1,3,7) Retired President Physicians Services Caremark International CHARLES H. BOWMAN (3,6,7) Retired Chairman & CEO BP America Inc. EDWARD B. BRANDON (2,3,4) Retired Chairman National City Corporation JOHN G. BREEN (3,4,5) Chairman & CEO The Sherwin-Williams Company JAMES S. BROADHURST (1,5) Chairman & CEO Eat'n Park Restaurants DUANE E. COLLINS (2,5,6) President & CEO Parker Hannifin Corporation DANIEL E. EVANS (1,5) Chairman & CEO Bob Evans Farms, Inc. OTTO N. FRENZEL III (3,4) Retired Chairman National City Bank of Indiana BERNADINE P. HEALY, M.D. (6,7) Dean Ohio State University College of Medicine JOSEPH H. LEMIEUX (2,3,5) Chairman & CEO Owens-Illinois, Inc. W. BRUCE LUNSFORD (1,6) Chairman, President & CEO Vencor, Inc. A. STEVENS MILES (3,4) Retired President National City Corporation ROBERT A. PAUL (2,7) President & CEO Ampco-Pittsburgh Corporation COMMITTEES: (1) Audit Committee (2) Dividend Committee (3) Executive Committee (4) Nominating Committee (5) Compensation & Organization Committee (6) Public Policy Committee (7) Investment Committee 49 WILLIAM F. ROEMER (3,4) Chairman National City Bank of Pennsylvania MICHAEL A. SCHULER (1,5,6) Chairman, President & CEO Zippo Manufacturing Company STEPHEN A. STITLE (6,7) Chairman National City Bank of Indiana MORRY WEISS (1,3,4) Chairman & CEO American Greetings Corporation - -------------------------------------------------------------------------------- Honorary Directors CLAUDE M. BLAIR Retired Chairman National City Corporation JULIEN L. MCCALL Retired Chairman National City Corporation - -------------------------------------------------------------------------------- Officers Office of the Chairman DAVID A. DABERKO Chairman & CEO WILLIAM R. ROBERTSON President VINCENT A. DIGIROLAMO Vice Chairman Executive Vice Presidents JAMES R. BELL III Kentucky Banking GARY A. GLASER Columbus Banking THOMAS W. GOLONSKI Pennsylvania Banking JON L. GORNEY Information Services & Operations CHRISTOPHER GRAFFEO Indiana Banking JEFFREY D. KELLY Investments WILLIAM E. MACDONALD III Cleveland Banking ROBERT J. ONDERCIK Credit Administration ROBERT G. SIEFERS Chief Financial Officer HAROLD B. TODD, JR. Institutional Trust & Investment Services Senior Vice Presidents W. DOUGLAS BANNERMAN Corporate Banking JEFFREY M. BIGGAR Private Client Group MARY H. GRIFFITH Marketing Communications JAMES P. GULICK General Auditor JOSEPH J. HERR Loan Review GARY P. OBERS Corporate Services A. JOSEPH PARKER Retail Business Line Management J. ARMANDO RAMIREZ Strategic Planning and Mergers & Acquisitions EDWARD B REILLY Corporate Business Line Management THOMAS A. RICHLOVSKY Treasurer WILLIAM H. SCHECTER Merchant Banking SHELLEY J. SEIFERT Human Resources THEODORE H. TUNG Economist ALLEN C. WADDLE Public Affairs DAVID L. ZOELLER General Counsel & Secretary 50 CORPORATE DIRECTORY PRINCIPAL MEMBER BANKS OHIO National City Bank William E. MacDonald III Chairman, President & CEO 1900 East Ninth Street Cleveland, Ohio 44114-3484 (216) 575-2000 National City Bank of Columbus Gary A. Glaser President & CEO 155 East Broad Street Columbus, Ohio 43251 (614) 463-7100 National City Bank, Northeast Robert E. Showalter President & CEO One Cascade Plaza Akron, Ohio 44308-1198 (330) 375-8450 National City Bank of Dayton Frederick W. Schantz President & CEO 6 North Main Street Dayton, Ohio 45412-2790 (937) 226-2000 National City Bank, Northwest Salvatore E. Gianino President & CEO 405 Madison Avenue Toledo, Ohio 43603-1263 (419) 259-7700 KENTUCKY National City Bank of Kentucky Leonard V. Hardin Chairman James R. Bell III Chief Executive Officer 101 South Fifth Street Louisville, Kentucky 40202-3101 (502) 581-4200 INDIANA National City Bank of Indiana Christopher Graffeo President & CEO One National City Center, Suite 400E Indianapolis, Indiana 46255 (317) 267-7000 PENNSYLVANIA National City Bank of Pennsylvania Thomas W. Golonski President & CEO National City Center 20 Stanwix Street Pittsburgh, PA 15222-4802 (412) 644-8111 OTHER UNITS NATIONAL CITY COMMERCIAL FINANCE, INC. Thomas R. Poe President 1965 East Sixth Street, Suite 400 Cleveland, Ohio 44114-2214 (216) 575-3274 NATCITY INVESTMENTS, INC. Herbert R. Martens, Jr. Chairman & CEO 1965 East Sixth Street Cleveland, Ohio 44114 (216) 575-9590 NATIONAL CITY CAPITAL CORPORATION NATIONAL CITY VENTURE CORPORATION William H. Schecter Chairman & President 1965 East Sixth Street Cleveland, Ohio 44114 (216) 575-3340 NATIONAL ASSET MANAGEMENT COMPANY William F. Chandler, Jr. Managing Director & Principal Carl W. Hafele Managing Director & Principal 101 South Fifth Street Louisville, Kentucky 40202 (502) 581-7668 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, Pittsburgh, Toledo, Youngstown ALTEGRA CREDIT COMPANY Robert C. Mercer President 150 Allegheny Center Mall Pittsburgh, Pennsylvania 15212 1-800-225-8347 NATIONAL PROCESSING, INC. Tony G. Holcombe President & CEO One Oxmoor Place 101 Bullitt Lane, Suite 450 Louisville, Kentucky 40222 (502) 326-7000 NATIONAL CITY LEASING CORPORATION J. Edward Vittitow Senior Vice President 101 South Fifth Street Louisville, Kentucky 40202-3101 (502) 581-7679 NATIONAL CITY MORTGAGE CO. Leo E. Knight, Jr. President & CEO 3232 Newmark Drive Miamisburg, Ohio 45342 (937) 436-3025 INSTITUTIONAL TRUST AND INVESTMENT SERVICES Harold B. Todd, Jr. Senior Trust Executive 1900 East Ninth Street Cleveland, Ohio 44114 (216) 575-2863 National City Trust Company (Florida) Ellen J. Abrams President & CEO 1401 Forum Way, Suite 503 West Palm Beach, Florida 33401-2324 (561) 697-2424 1-800-826-9095 Offices: Naples, West Palm Beach 48 51 INVESTOR INFORMATION CORPORATE HEADQUARTERS COMMON STOCK LISTING National City Center National City Corporation common stock is traded on 1900 East Ninth Street the New York Stock Exchange under the symbol NCC. Cleveland, Ohio 44114-3484 The stock is abbreviated in financial publications (216) 575-2000 as NTLCITY. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN TRANSFER AGENT AND Participating common stockholders receive a three REGISTRAR percent discount from market price when reinvesting National City Bank their National City dividends in additional shares. Corporate Trust Operations Participants may also make optional cash purchases Department 5352 of common stock at a three percent discount from P.O. Box 92301 market price and pay no brokerage commissions. To Cleveland, Ohio 44193-0900 obtain our Plan prospectus and authorization card, 1-800-622-6757 call 1-800-622-6757. DIRECT DEPOSIT OF DIVIDENDS INVESTOR CONTACT This free service provides for the deposit of Julie I. Sabroff quarterly dividends directly to a checking or Manager, Investor Relations savings account. For information regarding this Dept. 2145 program, call 1-800-622-6757. P.O. Box 5756 Cleveland, Ohio 44101-0756 1-800-622-4204 STOCKHOLDER ACCOUNTS If you have questions regarding your stockholder account, please call our transfer agent, National INTERNET ADDRESS City Bank, at 1-800-622-6757. www:national-city.com
- ---------------------------------------------------------------------------------------- DEBT RATINGS Moody's Standard Duff Thomson Investors Service & Poor's & Phelps BankWatch ------------------------------------------------------- National City Corporation A/B Commercial paper (short-term debt) P-1 A-1 D-1+ TBW1 Senior debt A1 A AA- Subordinated Debt A2 A- A+ A - ---------------------------------------------------------------------------------------- Bank Subsidiaries: Certificates of deposit Aa3 A+ AA Subordinated bank notes A1 A AA- A+
CUSTOMER INFORMATION National City operates full service banking offices in four states. For customer service call: OHIO: Akron/Canton (800) 861-8450 Cleveland (800) 622-6736 Columbus (800) 738-3888 Dayton (800) 368-0122 Toledo (800) 331-8275 Youngstown (800) 861-8450 INDIANA: Indianapolis (800) 774-2424 Madison (800) 766-0388 Southern Indiana (800) 766-0377 KENTUCKY: (800) 727-8686 PENNSYLVANIA: (800) 352-0186 [LOGO] OWN YOUR SHARE OF AMERICA National City Corporation is a proud sponsor of the National Association of Investors Corporation's (NAIC) "Own Your Share of America" campaign, which encourages individual investors to invest in common stock. NAIC is a not-for-profit association dedicated to teaching investment principles to individual investors. 52 EXHIBIT INDEX
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY - ------- ------------------------------------------------------------------- -------------- 2.1 Agreement and Plan of Merger dated as of August 27, 1995 by and between National City Corporation and Integra Financial Corporation filed as Exhibit 2.1 to Form 8-K dated August 30, 1995, and incorporated herein by reference). 3.1 Restated Certificate of Incorporation of NCC, as amended (filed as Exhibit 3.1 to Registration Statement No. 33-49823 and incorporated herein by reference). 3.2 National City Corporation First Restatement of By-laws adopted April 27, 1987 (As Amended through October 24, 1994) (filed as Exhibit 3.2 to Registrant's Form S-4 Registration Statement No. 33-56539 dated November 18, 1994 and incorporated herein by reference). 4.1 Instruments defining the rights of holders of certain long-term debt of NCC and its consolidated subsidiaries are not filed as exhibits because the amount of debt under such instruments is less than 10% of the total consolidated assets of NCC. NCC undertakes to file these instruments with the Commission upon request. 4.2 Credit Agreement dated as of February 2, 1996, by and between NCC and the banks named therein. (filed as Exhibit 4.2 to Registrant's Proxy Statement Form 14A #001-10074 dated February 6, 1996 and incorporated herein by Reference). 4.3 Certificate of Stock Designation dated April 18, 1991, designating NCC's 8% Cumulative Convertible Preferred Stock, without par value, and fixing the powers, preference, rights, and qualifications, limitations and restrictions thereof in addition to those set forth in NCC's Restated Certificate of Incorporation, as amended (incorporated herein by reference to Exhibit 4.4 to NCC's Annual Report on Form 10-K for the year ended December 31, 1991). 10.1 National City Corporation Short Term Incentive Compensation Plan for Senior Officers As Amended and Restated Effective January 1, 1995. (filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.2 National City Corporation Long Term Incentive Compensation Plan for Senior Officers As Amended and Restated Effective January 1, 1995. (filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.3 National City Corporation Annual Corporate Performance Incentive Plan Effective January 1, 1995. (filed as Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.4 National City Savings and Investment Plan, As Amended and Restated Effective July 1, 1992. (filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.5 The National City Savings and Investment Plan No. 2, As Amended and Restated Effective January 1, 1992 (filed as Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.6 National City Corporation's Amended and Restated 1973 Stock Option Plan, as amended (filed as Exhibit 10.4 to Registration Statement No. 2-91434) and amended 1984 Stock Option Plan (filed as Exhibit No. 10.2 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1987); both incorporated herein by reference.
53
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY - ------- ------------------------------------------------------------------- -------------- 10.7 National City Corporation 1989 Stock Option Plan (filed as Exhibit 10.7 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by reference). 10.8 National City Corporation's 1993 Stock Option Plan, as amended and restated (filed as Appendix F to Registration Statement No. 333-01697 and incorporated herein by reference). 10.9 National City Corporation 150th Anniversary Stock Option Plan. (Filed as Exhibit 10.9 to Registration Statement No. 33-59487 and incorporated herein by reference). 10.10 National City Corporation Plan for Deferred Payment of Directors' Fees, as amended (filed as Exhibit 10.5 to Registration Statement No. 2-914334 and incorporated herein by reference). 10.11 National City Corporation Supplemental Executive Retirement Plan, as amended and restated effective January 1, 1995 (filed as Exhibit 10.5 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference). 10.12 National City Corporation Executive Savings Plan As Amended and Restated Effective January 1, 1995 (filed as Exhibit 10.9 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference). 10.13 National City Corporation Amended and Second Restated 1991 Restricted Stock Plan (filed as Exhibit 10.9 to Registration Statement No. 33-49823 and incorporated herein by reference). 10.14 First Kentucky National Corporation 1985 Stock Option Plan (filed as Exhibit 10.2 to First Kentucky National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.15 First Kentucky National Corporation 1982 Stock Option Plan (filed as Exhibit 10.3 to First Kentucky National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference). 10.16 Form of grant made under National City Corporation 1991 Restricted Stock Plan made in connection with National City Corporation Supplemental Executive Retirement Plan as amended (filed as Exhibit 10.10 to NCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by reference). 10.17 Amended Employment Agreement dated July 21, 1989 by and between Merchants National Corporation or a subsidiary and Otto N. Frenzel, III (filed as Exhibit 10(21) to Merchants National Corporation Annual Report of Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference). 10.18 Split Dollar Insurance Agreement dated January 4, 1988 between Merchants National Corporation and Otto N. Frenzel, III Irrevocable Trust II (filed as Exhibit 10(26) to Merchants National Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference). 10.19 Merchants National Corporation Director's Deferred Compensation Plan, as amended and restated August 16, 1983 (filed as Exhibit 10(3) to Merchants National Corporation Registration Statement as Form S-2 filed June 28, 1985, incorporated herein by reference).
54
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY - ------- ------------------------------------------------------------------- -------------- 10.20 Merchants National Corporation Supplemental Pension Plan dated November 20, 1984; First Amendment to the Supplemental Pension Plans dated January 21, 1986; Second Amendment to the Supplemental Pension Plans dated July 3, 1989; and Third Amendment to the Supplemental Pension Plans dated November 21, 1990 (filed respectively as Exhibit 10(n) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1984; as Exhibit 10(q) to the Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1985; as Exhibit 10(49) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990; and as Exhibit 10(50) to the Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990; all incorporated herein by reference). 10.21 Merchants National Corporation Employee Benefit Trust Agreement, effective July 1, 1987 (filed as Exhibit 10(27) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1987, incorporated herein by reference). 10.22 Merchants National Corporation Non-qualified Stock Option Plan effective January 20, 1987, and the First Amendment to that Merchants National Non-qualified Stock Option Plan, effective October 16, 1990 (filed respectively as Exhibit 10(23) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1986, and as Exhibit 10(55) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both of which are incorporated herein by reference). 10.23 Merchants National Corporation 1987 Non-qualified Stock Option Plan, effective November 17, 1987, and the First Amendment to effective October 16, 1990, (filed respectively as Exhibit 10(30) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1987, and as Exhibit 10(61) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both of which are incorporated herein by reference). 10.24 Merchants National Corporation Directors Non-qualified Stock Option Plan and the First Amendment to Merchants National Corporation Directors Non-qualified Stock Option Plan effective October 16, 1990 (filed respectively as Exhibit 10(44) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1988, and as Exhibit 10(68) to Merchants National Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both of which are incorporated herein by reference). 10.25 Central Indiana Bancorp Option Plan effective March 15, 1991 (filed as Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.26 Central Indiana Bancorp 1993 Option Plan effective October 12, 1993 (filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.27 Forms of contracts with David A. Daberko, William R. Robertson, Vincent A. DiGirolamo, William E. MacDonald III, Jon L. Gorney, Harold B. Todd, Jr., Robert G. Siefers, Robert J. Ondercik, Jeffrey D. Kelly, David L. Zoeller, Thomas A. Richlovsky, James P. Gulick, Gary A. Glaser, J. Christopher Graffeo, Morton Boyd, Thomas W. Golonski and James R. Bell (filed as Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference).
55
PAGE NUMBER IN EXHIBIT SEQUENTIALLY NUMBER EXHIBIT DESCRIPTION NUMBERED COPY - ------- ------------------------------------------------------------------- -------------- 10.28 Split Dollar Insurance Agreement effective January 1, 1994 between National City Corporation and those individuals listed in Exhibit 10.27 and other key employees. (filed as exhibit 10.28 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.29 National City Corporation Short-Term Incentive Compensation Plan for Senior Officers--Corporate Results As Amended and Restated Effective January 1, 1996 (filed as Exhibit 10.31 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 10.30 Consulting Agreement dated as of August 27, 1995 by and between Integra Financial Corporation and William F. Roemer. (Filed as Exhibit 10.30) 11.1 Computation of Earnings per share. (Filed as Exhibit 11.1). 21.1 Subsidiaries. (Filed as Exhibit 21.1). 23.1 Consent of Ernst & Young LLP, Independent Auditors for NCC. (Filed as Exhibit 23.1). 23.2 Consent of Coopers & Lybrand LLP, Independent Accountants for Integra Financial Corporation. (Filed as Exhibit 23.2). 24.1 Powers of attorney. (Filed as Exhibit 24.1). 27.1 Financial Data Schedule (Filed as Exhibit 27.1). 99.1 Report of Coopers & Lybrand LLP on Integra Financial Corporation's Financial Statement as of December 31, 1995 and for each of the years in the two year period ended December 31, 1995. (Filed as Exhibit 99.1).
EX-10.30 2 EXHIBIT 10.30 1 Exhibit 10.30 CONSULTING AGREEMENT THIS AGREEMENT, made by and between Integra Financial Corporation, a Pennsylvania corporation (the "Corporation"), and William F. Roemer (the "Executive") dated the 27th day of August, 1995. WHEREAS, the Corporation has entered into an Agreement and Plan of Merger (the "Merger Agreement") with National City Corporation, a Delaware corporation of even date herewith; WHEREAS, the Executive has served as Chairman and Chief Executive Officer of the Corporation, and has gained significant and valuable knowledge and experience with respect to the Corporation in such capacities; and WHEREAS, The Executive and the Corporation have entered into an Employment Agreement dated as of the 25th day of January, 1995 (the "Prior Agreement"); and WHEREAS, the Corporation wishes to provide for the continued involvement of the Executive in the business of the Corporation following the consummation of the Merger (as such term is defined in the Merger Agreement) and the Executive desires to perform such services; NOW, THEREFORE, in consideration of the foregoing, and of the mutual provisions herein contained, the Executive and the Corporation agree with each other as follows: 1. CONSULTING PERIOD. The Corporation hereby retains the Executive as a consultant for the period commencing on the Effective Date (as such term is defined in the Merger Agreement) and ending on the date on which the Executive attains the age of 65 (the "Consulting Period") during which time the Executive shall be available to aid the Corporation in the transition period following the acquisition of the Corporation with respect to (a) general corporate and personnel organizational matters; (b) the retention of employees and employee relations; (c) the retention of customers; and (d) cost reduction and organizational efficiencies. For purposes of the Prior Agreement, the Executive shall be deemed to have terminated his employment with the Corporation immediately after the Merger in a manner qualifying him for the benefits set for the in Section 6(d) of the Prior Agreement. Except as specifically provided herein, this Agreement shall not affect the Executive's rights under the Prior Agreement. 2. CONSULTING FEE AND OFFICE SPACE. In consideration of the services and duties agreed to be rendered and performed by the Executive hereunder, the Corporation hereby convenants and agrees to pay the Executive a monthly consulting fee at the rate of one-twelfth of two hundred twenty-five thousand dollars ($225,000). The Corporation shall provide the Executive with office space and secretarial assistance in Pittsburgh, Pennsylvania reasonably acceptable to the Executive for the duration of the Consulting Period. Further, the Executive shall be entitled to post-retirement welfare benefits no less favorable than those in effect, in his capacity as Chief Executive Officer of the Corporation, as of the date hereof. 2 3. CHANGE IN CONTROL PAYMENT. Upon consummation of the Merger the Corporation shall immediately pay to the Executive the termination benefits, including the continuation of the benefits described in Section 6(a)(3), provided by the Prior Agreement as if the Executive had been terminated by the Corporation as a result of a Change in Control pursuant to Section 6(d) and Section 8 thereof whether or not the Executive is then employed by the Corporation and regardless of the reason for any such cessation of employment. 4. TERMINATION. (a) Subject to Section 4(b), during the Consulting Period the Corporation may not terminate the Executive's consulting services other than for "Cause." For purposes of this Agreement, Cause means either: i. Conviction of a felony involving moral turpitude; or ii. Conduct willfully injurious to the Corporation. (b) In addition to the foregoing, in the event that, during the Consulting Period, the Corporation shall terminate the Executive's consulting services (other than for Cause) without the Executive's written consent, the Executive shall be entitled to receive a termination payment equal to the balance of his consulting fees that would be payable if his services had continued through the end of the Consulting Period. 5. FULL SETTLEMENT. the Corporation's obligation to make the payments provided for in this Agreement and other-wise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Corporation agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Corporation, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 6. CERTAIN ADDITIONAL PAYMENTS. In the event it shall be determined that any payment (within the meaning of Section 280G of the Code) or distribution to or for the benefit of the Executive (determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to received from the Corporation an 3 additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto), and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All determinations under this Section 6 shall be made by a nationally recognized accounting firm selected by the Executive. 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall limit or otherwise affect such rights as the Executive may have under any other agreements with, or plans or programs of, the Corporation or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any of their affiliated companies at or subsequent to the Effective Date including, but not limited to, the Executive's entitlement to severance under the Prior Agreement shall be payable in accordance with such plan or program, except as otherwise expressly provided herein. 8. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Corporation shall not be assigned by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. (c) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. As used in this Agreement, "Corporation" shall mean the Corporation as here-inbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 4 IF TO THE EXECUTIVE: ------------------- IF TO THE CORPORATION: --------------------- Chief Executive Officer Integra Financial Corporation Four PPG Place Pittsburgh, Pennsylvania 15222 with a copy to: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) This invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Corporation may withhold from any amounts payable under this Agreement such amounts as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, all of the day and year first above written. /S/ WILLIAM F. ROEMER -------------------------------- William F. Roemer INTEGRA FINANCIAL CORPORATION By /S/ LEONARD M. CARROLL ---------------------------- EX-11.1 3 EXHIBIT 11.1 1 Exhibit 11.1 EXHIBIT (11.1) -- COMPUTATION OF EARNINGS PER SHARE NATIONAL CITY CORPORATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE CALENDAR YEAR -------------------------------------- 1996 1995 1994 ----------- ----------- ------------ PRIMARY: - -------- Net Income $736,630 $591,460 $598,467 Less Preferred Dividend Requirements 4,028 14,830 15,200 ----------- ----------- ----------- Net Income Applicable to Common Stock $732,602 $576,630 $583,267 =========== =========== =========== Average Common Shares Outstanding 222,674,326 215,097,124 220,822,755 =========== =========== =========== Net Income Per Share-Primary $ 3.29 $ 2.68 $ 2.64 =========== =========== =========== ASSUMING FULL DILUTION: - ----------------------- Net Income $736,630 $591,460 $598,467 =========== =========== =========== Average Common Shares Outstanding 222,674,326 215,097,124 220,822,755 Average Effect of Assumed Conversion of 8% Cumulative Convertible Preferred Stock 2,679,175 8,839,872 8,941,907 Fully Diluted Average Common Shares Outstanding Assuming Exercise of all Outstanding Stock Options as of the Beginning of Year or Date of Grant, if Later 149,930 67,491 80,038 ----------- ----------- ----------- Fully Diluted Common Shares Outstanding 225,503,431 224,004,487 229,844,700 =========== =========== =========== Fully Diluted Net Income Per Share $ 3.27 $ 2.64 $ 2.60 =========== =========== ===========
EX-21.1 4 EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES The following table sets forth all of National City Corporation's direct or indirect subsidiaries, as of December 31, 1996
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ----------------- SUBSIDIARIES OF NATIONAL CITY CORPORATION: ------------------------------------------ Advent Guaranty Corporation 100% Vermont Advent Life Insurance Company 100% Arizona Buckeye Service Corporation 100% Ohio Circle Equity Leasing Corporation of Michigan 100% Michigan Commercial Servicing, Inc. 100% Indiana Computer Bank Services, Inc. 100% Kentucky Cortland Bancorp 7.15% Ohio Electronic Payments Services, Inc. 20% Delaware Gem America Realty and Investment Corp. 100% Ohio Harva, Inc. 100% Delaware Integra Holdings Limited (Inactive) 100% Delaware Integra Investment Company 100% Delaware Madison Bank & Trust Company 100% Indiana Merchants Capital Management, Inc. 100% Indiana Merchants Service Corporation (Inactive) 100% Indiana Money Station, Inc. 16.3% Ohio National Asset Management Corporation 100% Kentucky National City Bank 100% United States National City Bank of Ashland 99.5% United States National City Bank of Columbus 100% United States National City Bank of Dayton 100% United States National City Bank of Indiana 100% United States National City Bank of Kentucky 100% United States National City Bank, Northeast 100% United States National City Bank, Northwest 100% United States National City Bank of Pennsylvania 100% United States National City Bank of Southern Indiana 100% United States
2
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------- SUBSIDIARIES OF NATIONAL CITY CORPORATION: - ------------------------------------------ National City Capital Corporation 100% Delaware National City Community Development Corporation 100% Ohio National City Credit Corporation 100% Ohio National City Financial Corporation 100% Delaware National City Life Insurance Co. 100% Arizona National City Mortgage Company 100% Ohio National Processing, Inc. 85% Ohio National City Trust Company 100% United States National City Venture Corporation 100% Delaware NC Acquisition, Inc. (inactive) 100% Delaware NatCity Investments, Inc. 100% Indiana Second Premises Corporation 100% Kentucky Stored Value Systems, Inc. 100% Delaware UBK Realty, Inc. 100% Kentucky Western Reserve Company 100% Pennsylvania
2 3
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------- SUBSIDIARIES OF NATIONAL CITY BANK: - ----------------------------------- Capstone Realty, Inc. 100% Ohio National City Commercial Finance, Inc. 100% Ohio National City Investments Corporation 100% Kentucky Ohio National Corporation Trade Services 100% Ohio SUBSIDIARY OF NATIONAL CITY BANK, NORTHEAST: - -------------------------------------------- AKREO Service Corporation 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK OF COLUMBUS: - ----------------------------------------------- Scott Street Properties, Inc. 100% Ohio The Loan Zone, Inc. (Inactive) 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK OF KENTUCKY: - ----------------------------------------------- Churchill Insurance Agency, Inc. 100% Kentucky First National Broadway Corp. 100% Kentucky FNB Service Corporation 100% Kentucky National Capital Properties, Inc. 100% Kentucky National City Auto Leasing Corporation (Inactive) 100% Kentucky National City Leasing Corporation 100% Kentucky SUBSIDIARIES OF NATIONAL CITY BANK OF PENNSYLVANIA: - --------------------------------------------------- Altegra Credit Company 100% Florida Herron Land Company 100% Pennsylvania Integra Brokerage Services Company 100% Pennsylvania Integra Business Credit Company 100% Pennsylvania Liberty Business Credit Corporation 100% Pennsylvania Nottingham Corporation (Inactive 100% Pennsylvania Western Properties, Inc. 100% Pennsylvania
3 4
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------- SUBSIDIARIES OF NATIONAL PROCESSING, INC. - ----------------------------------------- National Processing Company 100% Kentucky SUBSIDIARY OF GEM AMERICA REALTY & INVESTMENT CORP.: - ---------------------------------------------------- Gem Financial Insurance Agency, Inc. 100% Ohio SUBSIDIARIES OF NATIONAL CITY BANK OF INDIANA: - ---------------------------------------------- Ash Realty Company, Inc. 100% Indiana Bank Service Corporation of Indiana 33 1/3% Indiana MNB Trustee Co., (UK) Ltd. 50%1 United Kingdom SUBSIDIARIES OF NATIONAL CITY INVESTMENTS CORPORATION - ----------------------------------------------------- National City Commodity Corp. 100% Indiana SUBSIDIARY OF MADISON BANK & TRUST COMPANY: - ------------------------------------------- National City Insurance Agency, Inc. 100% Indiana SUBSIDIARY OF OHIO NATIONAL CORPORATION TRADE SERVICES: - ------------------------------------------------------- National City Trade Services Limited. 99%2 New York - ------------------ 1 Additional 50% Owned by National City Bank. 2 Additional 1% Owned by National City Corporation.
4 5
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------- SUBSIDIARY OF ASH REALTY COMPANY, INC.: - --------------------------------------- Sterling Equities Corp. 100% Indiana SUBSIDIARY OF NOTTINGHAM CORPORATION: - ------------------------------------- EQK Realty Holdings, Inc. 100% Pennsylvania Horsham Penn, Inc. 100% Delaware LBCC Properties, Inc. 100% Delaware LSB Properties, Inc. 100% Delaware LTL Acquisition Corp. (Inactive) 100% Delaware SUBSIDIARY OF ELECTRONIC PAYMENT SERVICES, INC.: - ------------------------------------------------ Electronic Payment Service Corporation 100% Delaware SUBSIDIARY OF ELECTRONIC PAYMENT SERVICES CORPORATION: - ------------------------------------------------------ Buypass Corporation 100% Georgia Money Access Services, Inc. 100% Delaware SUBSIDIARY OF BUYPASS CORPORATION: - ---------------------------------- Buypass Inco Corporation 100% Delaware Data Now National Services, Inc. (Inactive) 100% Georgia SUBSIDIARY OF MONEY ACCESS SERVICE, INC.: - ----------------------------------------- MAS Inco Corporation 100% Delaware Metroteller Security Corporation (Inactive) 100% New York Money Access Service Corporation 100% Ohio
5 6
State or Jurisdiction Under the Law % of Voting of which Securities Owned Organized ---------------- ------------- SUBSIDIARY OF NATIONAL PROCESSING COMPANY: - ------------------------------------------ B. & L. Consultants, Inc. 100% Massachusetts NPC Check Services, Inc. 100% Delaware NPC International, S.A. de C.V. (7) 100% Mexico NPC Services, Inc. 100% Arizona SUBSIDIARY OF WESTERN RESERVE COMPANY: - -------------------------------------- Great Cascade Development Company, Inc. (Inactive) 100% Pennsylvania SUBSIDIARY OF GREAT CASCADE DEVELOPMENT COMPANY, INC. (INACTIVE): - ----------------------------------------------------------------- Perry's Landing Yacht Club, Inc. (Inactive) 100% Pennsylvania Pier West, Inc. (Inactive) 100% Pennsylvania SUBSIDIARY OF ALTEGRA CREDIT COMPANY: - ------------------------------------- New England AFC. (Inactive) 100% Massachusetts
6 EX-23.1 5 EXHIBIT 23.1 1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in Registration Statement No. 33-39479 on Form S-3, Registration Statement No. 33-39480 on Form S-3, Registration No. 33-44209 on Form S-3, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-20267 on Form S-4, Registration Statement No. 33-52271 on Form S-8, Registration Statement No. 33-45363 on Form S-8, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-45980 on Form S-4, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-56539, Registration Statement No. 33-58115 on Form S-8, Registration Statement No. 33-55487 on Form S-8 and Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 333-01697 of our report dated January 22, 1997, 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, 1996. Ernst & Young LLP Cleveland, Ohio January 29, 1997 EX-23.2 6 EXHIBIT 23.2 1 [COOPERS & LYBRAND LETTERHEAD] Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of National City Corporation on Form S-3 (File Numbers 33-39479, 33-39480, 33-44209, 33-54323), Form S-8 (File Numbers 33-52271, 33-45363, 33-57045, 33-58115, 33-59487), Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-45980 on Form S-4, Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 33-56539 and Post-Effective Amendment No. 1 (on Form S-8) to Registration Statement No. 333-01697 of our report dated January 17, 1996, on our audits of the consolidated financial statements of Integra Financial Corporation and subsidiaries as of December 31, 1995, and for the years ended December 31, 1995 and 1994, which report is included in this Form 10-K dated January 30, 1997. /s/ Coopers & Lybrand LLP Pittsburgh, Pennsylvania January 29, 1997 EX-24.1 7 EXHIBIT 24.1 1 Exhibit 24.1 POWER OF ATTORNEY The undersigned Directors and Officers of National City Corporation, a Delaware corporation (the "Corporation"), which anticipate filing a Form 10-K annual report pursuant to Section 12(g) Securities and Exchange Commission Act of 1934 for the Corporation's fiscal year ended December 31, 1996, with the Securities and Exchange Commission hereby constitute and appoint David L. Zoeller, Carlton E. Langer and Thomas A. Richlovsky, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for us and in our names, in the capacities indicated below, said Form 10-K, and any and all amendments and exhibits thereto, or other documents to be filed with the Securities and Exchange Commission pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as we could do if personally present, hereby ratifying and approving the acts of said attorneys, and any of them, and any such substitute. EXECUTED this 16th day of December, 1996. /s/ Sandra H. Austin - ------------------------- Director Sandra H. Austin /s/ Charles H. Bowman - ------------------------- Director Charles H. Bowman /s/ Edward B. Brandon - ------------------------- Director Edward B. Brandon /s/ John G. Breen - ------------------------- Director John G. Breen /s/ James S. Broadhurst - ------------------------- Director James S. Broadhurst 2 /s/ Duane E. Collins - ----------------------------- Director Duane E. Collins /s/ David A. Daberko - ----------------------------- Chairman of the Board and Chief David A. Daberko Executive Officer (Principal Executive Officer) /s/ Daniel E. Evans - ----------------------------- Director Daniel E. Evans /s/ Otto N. Frenzel III - ----------------------------- Director Otto N. Frenzel III /s/ Bernadine P. Healy, M.D. - ----------------------------- Director Bernadine P. Healy, M.D. /s/ Joseph H. Lemieux - ----------------------------- Director Joseph H. Lemieux /s/ W. Bruce Lunsford - ----------------------------- Director W. Bruce Lunsford /s/ A. Stevens Miles - ----------------------------- Director A. Stevens Miles /s/ Robert A. Paul - ----------------------------- Director Robert A. Paul 2 3 /s/ William R. Robertson - ----------------------------- Director and President William R. Robertson /s/ William F. Roemer - ---------------------------- Director William F. Roemer /s/ Michael A. Schuler - ---------------------------- Director Michael A. Schuler /s/ Stephen A. Stitle - ---------------------------- Director Stephen A. Stitle /s/ Morry Weiss - ---------------------------- Director Morry Weiss 3 EX-27.1 8 EXHIBIT 27.1 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 1,000 U.S. DOLLAR YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,935,282 281,563 493,733 102,493 8,997,322 0 0 35,830,068 705,893 50,855,835 35,999,747 6,270,731 1,158,876 2,994,418 892,794 0 0 3,539,269 50,855,835 3,059,041 567,120 29,174 3,655,335 1,216,089 1,712,759 1,942,576 146,480 108,146 2,010,680 1,058,444 1,058,444 0 0 736,630 3.29 3.27 4.44 143,100 107,100 0 0 705,846 236,615 90,088 705,893 424,410 282 281,201
EX-99.1 9 EXHIBIT 99.1 1 [COOPERS & LYBRAND LETTERHEAD] Exhibit 99.1 REPORT OF INDEPENDENT ACCOUNTANTS We have audited the consolidated balance sheet of Integra Financial Corporation and subsidiaries (Integra) as of December 31, 1995, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years ended December 31, 1995 and 1994 (not presented herein). These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We have 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 Integra as of December 31, 1995, and the consolidated results of their operations and their cash flows for the years ended December 31, 1995 and 1994, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand LLP Pittsburgh, Pennsylvania January 17, 1996 -----END PRIVACY-ENHANCED MESSAGE-----