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National City Reports Third Quarter 2008 Results
CLEVELAND, Oct. 21 /PRNewswire-FirstCall/ -- -- Net Loss of $729 Million Driven by Continued Actions to Build Reserves; Loan Loss Provision Declines 25% from Second Quarter -- Pre-Tax Pre-Provision Operating Earnings of $636 Million Up 17% Year-Over-Year -- Tier 1 Capital Ratio of 11% Among Highest of All Major U.S. Banks and $6.6 Billion Above Regulatory "Well-Capitalized" Minimum -- Retail Deposits Stable in Quarter and Grow Year-Over-Year, Reflecting Steady Household Growth and Expansion -- Net Charge-offs Flat with Second Quarter Excluding Writedowns from Reclassification of Marine Loans to Held for Sale -- $8.4 Billion of Exit Portfolio Loans, Representing 8% of Total Loans, Account for 40% of Total Charge-Offs; Remaining Exit Portfolio Shows Stable to Improving Trends -- Performance Improvement Initiative Targets Total Annual Savings of $500-$600 Million by 2011; $240 Million to be Realized in 2009 National City Corporation (NYSE: NCC) reported a net loss for the third quarter of 2008 of $729 million, driven primarily by continued actions to build loan loss reserves. This compares to a net loss of $1.8 billion in the second quarter of 2008, and a net loss of $19 million in the third quarter a year ago. On a year-to-date basis, the net loss was $2.7 billion in 2008 compared to net income of $647 million in 2007. (Logo: http://www.newscom.com/cgi-bin/prnh/20030428/NATIONALCITYLOGO ) Diluted net loss per common share was $5.86 for the third quarter of 2008 and $9.51 on a year-to-date basis, inclusive of a $4.4 billion one-time noncash preferred dividend recorded in September 2008 on convertible preferred stock issued as part of National City's $7 billion capital raise completed in April. The noncash dividend had no impact on total capital or net income. Excluding diluted net loss per common share would have been $.85 in the third quarter of 2008 and $3.60 on a year-to-date basis based on weighted average common shares outstanding of 877 million and 745 million, respectively. As of September 30, 2008, post conversion of preferred shares, the Corporation had approximately 2.0 billion common shares outstanding. Had those shares been outstanding from the beginning of the period, diluted net loss per common share would have been $.37 for the third quarter of 2008, exclusive of the noncash preferred dividend. The provision for loan losses was $1.2 billion, down $408 million, or 25%, from the preceding quarter. Net charge-offs were $844 million in the third quarter of 2008, up $104 million from the preceding period due to $134 million of writedowns from reclassifications of loans to held for sale. Pre-tax pre-provision operating earnings were $636 million in the third quarter of 2008, about equal to the preceding period, and up $93 million from the third quarter a year earlier. On a year-to-date basis, pre-tax pre-provision operating earnings were approximately $1.9 billion in both 2008 and 2007. As of September 30, 2008, the Corporation's Tier 1 risk-based capital ratio was 10.98%, $6.6 billion in excess of the well-capitalized minimum. Total risk-based capital was 14.86% and tangible equity to assets was 8.93% at September 30, 2008. Summary financial highlights for the three and nine months ended September 30, 2008, compared to prior periods, are shown below:
Third Second Third
($ in millions, except Quarter Quarter Quarter YTD YTD
per share data) 2008 2008 2007 2008 2007
Consolidated net
(loss)/income $(729) $(1,757) $(19) $(2,657) $647
Pre-tax pre-provision
operating earnings* 636 638 543 1,867 1,870
Tier 1 capital ratio 10.98% 11.06% 6.78%
Total risk-based
capital 14.86 14.87 10.37
Tangible equity to
tangible assets 8.93 8.94 5.29
*See reconciliation to consolidated net (loss)/income near the end of this release. Chairman's Comments Chairman, President and CEO Peter E. Raskind said, "Despite the extraordinary disruptions in the financial markets this quarter, National City continued to maintain a strong capital position and build our franchise for the future. The competitive strength and resilience of our core banking franchise is underscored by the year-over-year growth we achieved in retail deposits and net new households as well as the expansion of existing households. By aggressively executing on our direct and integrated strategy, we continued to gain market share, better leverage cross-selling opportunities and establish deeper, more robust customer relationships across our business. The performance improvement initiative we currently have underway will accelerate the implementation of this strategy, reduce costs and improve our ability to serve customers more efficiently and effectively." "Not surprisingly, the larger macro-economic environment affected credit quality in our portfolios during the quarter. Reflecting this, we bolstered reserves by $318 million during the quarter, and by $2.0 billion year-to-date. Loan loss provisions declined by $408 million from the last quarter, and we continue to actively manage down our risk exposure and aggressively pursue loss mitigation strategies. Net charge-offs for the quarter were flat, excluding writedowns on loans reclassified to held for sale." Exit Portfolio The Corporation's Exit Portfolio (formerly termed "Liquidating Portfolio") was formed so that loans remaining from exited businesses and discontinued products could be managed separately from National City's core retail banking, corporate banking and wealth management businesses. This $21 billion portfolio consists of broker-originated home equity loans, nonprime mortgages, non-agency mortgages, residential construction loans, and automobile, marine and recreational vehicle loans originated through dealers. These loans, which are in run-off mode, have been declining about $500 million per month, and are actively managed to mitigate losses by a dedicated team headed by recently appointed Executive Vice President James LeKachman, an experienced risk management executive. Significant resources and talent are devoted to this effort, which includes ongoing evaluation of potential strategic alternatives. Undrawn home equity lines have declined $2.9 billion since year end." "A limited number of segments within our Exit Portfolio generated the majority of net charge-offs for the quarter," said Mr. Raskind. "Specifically, $8.4 billion of Exit Portfolio loans, representing 8% of the company's total loans, accounted for 40% of total net charge-offs. The remainder of our Exit Portfolio showed stable or improving trends. Importantly, we have no exposure to Option ARM-type mortgages. We are actively managing down and mitigating losses from the Exit Portfolio and have the capital flexibility to consider a variety of alternatives for these loans." Performance Improvement Initiative National City also has begun implementation of a previously announced performance improvement initiative to enhance earnings power and ability to grow in a scalable manner. The initiative is focused on reducing costs and driving changes in organizational structure and operations that will increase operating efficiency and accelerate the benefits of National City's direct and integrated strategy. Based on analysis completed to date, the company expects this initiative to result in run-rate annual savings of $500-$600 million by 2011. The company estimates that $240 million of this reduction will be realized in 2009, and expects to take associated charges in the range of $80 to $100 million. While anticipated personnel impacts are still being assessed, at this point, the company expects a reduction of approximately 4,000 positions or 14% of its total workforce, over the next three years. The performance improvement initiative is based on a rigorous, comprehensive analysis of operations conducted over the past quarter with the help of a leading consulting firm. Two executives whose units comprise 60% of the bank's costs are leading the initiative: Dan Frate, Vice Chairman and Head of Retail Banking, and Jon Gorney, Executive Vice President and Head of Corporate Operations and Information Systems. In addition, Jeff Tengel, who previously ran National City's National Commercial business, is leading this effort on a day-to-day basis. Although the review is ongoing, based on the analysis to date, the key areas of focus for this initiative include: -- Immediately executing on a series of tactical, high-impact expense reductions to drive greater efficiencies and reduce procurement and headcount-related costs, worth approximately $165-200 million in annual savings. -- Systematically streamlining and consolidating operations to optimize middle and back office functions, better integrate sales effort across the Company's footprint and improve the ability to serve customers more efficiently and cost-effectively, worth approximately $285-350 million in annual savings. -- Reshaping the Company to simplify its management structure and extend the impact of its direct and integrated strategy across the organization, worth approximately $50 million in annual savings. Raskind said: "This important initiative is the centerpiece of our ongoing efforts to transform National City, drive sustainable, profitable growth and deliver value to our customers and shareholders. Our goal is to create a much more focused, straightforward and streamlined organization with enhanced expense control and risk management as part of its core DNA. At the same time, we are committed to continued investment in our core franchise to expand and deepen our customer relationships." Additional Actions to Strengthen Management and Improve Performance In addition to its progress managing down its Exit Portfolio and implementing its performance improvement initiative, National City has taken the following steps to further strengthen its management team and improve performance, including: -- Combining regional and national commercial operations under one corporate banking division, now operating under the leadership of recently appointed Executive Vice President, Rick Michel, with a more streamlined and integrated organizational structure. -- Investing in new product management capabilities and analytics in corporate banking to enhance return on capital, while continuing to de-emphasize non-core portfolios and business segments. -- Enhancing the financial planning and alternative investment capabilities in the Private Client Group, which completed the rollout of its Emerging Affluent client offering and expanded its Ultra Affluent offering. -- Driving household growth in retail banking through strong "Bank at Work" penetration, and expanding household relationships through National City's industry leading Points program. -- Improving cross-selling efforts to generate a substantial increase in mortgages made to retail banking customers. Financial Review In April 2008, the Corporation issued contingently convertible preferred stock with a conversion price of $5.00 per common equivalent share, which was below the then-current market price of National City's common stock. In September 2008, upon stockholder approval of the conversion of this stock, the Corporation recorded a noncash preferred dividend, in the form of a transfer from retained earnings to capital surplus, of $4.4 billion. This preferred stock dividend had no impact on cash, total stockholders' equity, regulatory capital or net income. Net income available to common stockholders, which is the numerator in the computation of diluted earnings per common share, has been reduced by this noncash preferred dividend. Excluding this noncash preferred dividend, diluted loss per common share was $.85 in the third quarter of 2008 and $3.60 on a year-to-date basis.
($ in millions, Third Second Third
except per share Quarter Quarter Quarter YTD YTD
data) 2008 2008 2007 2008 2007
Tax-equivalent
net interest
income $1,024 $1,021 $1,102 $3,114 $3,316
Provision for
loan losses 1,184 1,592 368 4,169 635
Noninterest income 386 431 624 1,955 2,009
Noninterest expense 1,335 2,277 1,396 4,624 3,738
(Loss) income before
income taxes (1,109) (2,417) (38) (3,724) 952
Income tax
(benefit) provision
and tax equivalent
adjustment (380) (660) (19) (1,067) 305
Net (loss) income (729) (1,757) (19) (2,657) 647
Preferred dividends
- cash (16) (14) - (30) (2)
Preferred dividends
- noncash (4,400) - - (4,400) -
Net (loss) income
available to common
stockholders $(5,145) $(1,771) $(19) $(7,087) $645
Diluted (loss)
earnings per
share $(5.86) $(2.45) $(.03) $(9.51) $1.07
Noncash preferred
dividend per share (5.01) - - (5.91) -
Diluted (loss)
earnings per share
excluding noncash
preferred dividend (.85) (2.45) (.03) (3.60) 1.07
Weighted average
diluted common
shares 877 723 588 745 604
Common shares
outstanding at
period end 2,036 760 633
Net Interest Income Tax-equivalent net interest income was $1.0 billion for the third quarter of 2008, about equal to the immediately preceding quarter, and down about 7% compared to the third quarter a year ago. Net interest margin was 2.99% in the third quarter of 2008, up 2 basis points from the preceding period. Net interest margin was down 44 basis points compared to the third quarter a year ago due to higher levels of nonperforming assets and higher funding costs. Average earning assets for the third quarter of 2008 were $136.8 billion, down slightly compared to the preceding quarter, and up 7% compared to the third quarter a year ago. The year-over-year growth in earning assets reflects higher balances of federal funds sold and short-term liquid investments. Tax-equivalent net interest income was $3.1 billion for the first nine months of 2008, down 6% compared to the prior year. Net interest margin was 3.05% for the first nine months of 2008, down 52 basis points compared to the same period in 2007. The lower margin in 2008 was attributable to the same factors described above. Average earning assets were $136.4 billion on a year-to-date basis in 2008, up 10% from the same period a year ago. The year-to-date growth in earning assets was due to higher balances of federal funds sold and short-term investments, and a larger loan portfolio, partially offset by a smaller balance of loans held for sale. Provision for Loan Losses The provision for loan losses was $1.2 billion in the third quarter of 2008, down from $1.6 billion in the preceding quarter, and up from $368 million in the third quarter of 2007. The following table shows the provision for loan losses separately for the Core and Exit Portfolios.
Third Second Third
Quarter Quarter Quarter YTD YTD
($ in millions) 2008 2008 2007 2008 2007
Core Portfolio $506 $512 $217 $1,370 $350
Exit Portfolio 678 1,080 151 2,799 285
Total $1,184 $1,592 $368 $4,169 $635
The provision for loan losses in the two most recent quarters included supplemental reserves for emerging credit trends. In the third quarter of 2008, a $31 million loan loss reserve was established for potentially higher losses on credit card loans. In the second quarter of 2008, a $478 million supplemental reserve was established for potentially higher losses on exited residential real estate and home equity loans resulting from declining housing markets. On a year-to-date basis, the provision for loan losses was $4.2 billion in 2008 compared to $635 million in 2007. Net charge-offs were $844 million in the third quarter of 2008, and included $134 million of writedowns on loans transferred to held for sale. Absent this transfer, net charge-offs were slightly lower than the second quarter of 2008 as losses on the Exit Portfolio have held steady. The following table shows net charge-offs separately for the Core and Exit Portfolios.
Third Second Third
Quarter Quarter Quarter YTD YTD
($ in millions) 2008 2008 2007 2008 2007
Core Portfolio:
Commercial loans
and leases $53 $39 $16 $116 $58
Commercial construction
and real estate 106 61 13 193 24
Mortgage and other
consumer* 131 109 57 355 142
Total Core 290 209 86 664 224
Exit Portfolio* 554 531 55 1,458 162
Total $844 $740 $141 $2,122 $386
*Third quarter and YTD 2008 include writedowns on loans transferred to held for sale. Net charge-offs in the Core Portfolio were $290 million in the third quarter of 2008 versus $209 million in the second quarter with increased losses concentrated primarily in commercial construction. Net charge-offs for the Exit Portfolio were $554 million in the third quarter of 2008, inclusive of $126 million of writedowns on loans transferred to held for sale. On a year-to-date basis, net charge-offs were $2.1 billion in 2008, of which $1.5 billion related to Exit Portfolio. Loans 90 days past due were $1.1 billion at September 30, 2008, down somewhat from June 30, 2008, primarily due to a lower level of delinquent residential real estate loans within the Exit Portfolio. Loans 90 days past due as of September 30, 2007 are not directly comparable as the Corporation accelerated the classification of certain past-due loans to nonperforming status in 2008. The following table reports delinquent loans for both the Core and Exit Portfolios:
($ in millions) September 30, June 30, September 30,
2008 2008 2007
Core Portfolio:
Commercial loans and leases $25 $28 $42
Commercial construction and
real estate 141 146 123
Residential real estate 301 308 393
Home equity and other consumer 115 111 81
Total Core 582 593 639
Exit Portfolio:
Residential real estate $519 $543 $734
Home equity and other consumer 7 11 44
Total Exit 526 554 778
Loans held for sale 13 9 43
Total $1,121 $1,156 $1,460
Nonperforming assets were $3.5 billion at September 30, 2008, up $411 million from the preceding quarter, with the growth primarily in commercial, commercial construction loans and exited mortgage loans. Ongoing weakness in the housing markets continues to affect loans related to residential real estate development. Other real estate owned declined by 4% compared to June 30, 2008, due mainly to larger fair value writedowns on foreclosed properties. The following table shows nonperforming assets for both the Core and Exit Portfolios.
($ in millions) September 30, June 30, September 30,
2008 2008 2007
Core Portfolio:
Commercial loans and leases $296 $236 $152
Commercial construction and
real estate 1,128 920 415
Residential real estate 303 261 191
Home equity 13 16 15
Total Core 1,740 1,433 773
Exit Portfolio:
Residential real estate 1,100 997 86
Home equity 184 160 2
Total Exit 1,284 1,157 88
Other real estate owned 505 528 324
Loans held for sale 8 8 26
Total $3,537 $3,126 $1,211
The allowance for loan losses increased to $3.8 billion as of September
30, 2008, up from $3.4 billion at June 30, 2008. The allowance for loan
losses was 3.40% of portfolio loans and 124% of nonperforming loans as of
September 30, 2008.
($ in millions) September 30, June 30, September 30,
2008 2008 2007
Core Portfolio $1,715 $1,497 $1,063
Exit Portfolio 2,037 1,937 310
Total $3,752 $3,434 $1,373
As a percentage of portfolio
loans 3.40% 3.03% 1.23%
Noninterest Income Noninterest income was $386 million in the third quarter of 2008, down $45 million from the second quarter, and down $238 million from the third quarter a year ago. On a year-to-date basis, noninterest income was approximately $2.0 billion in both 2008 and 2007.
Third Second Third
Quarter Quarter Quarter YTD YTD
($ in millions) 2008 2008 2007 2008 2007
Deposit service charges $273 $260 $229 $763 $656
Loan sale and servicing
(loss) revenue* (56) (141) 85 (92) 398
Security (losses) gains** (77) (11) - 427 26
All other 246 323 310 857 929
Total noninterest income $386 $431 $624 $1,955 $2,009
*MSR hedging losses and mortgage recourse provision included within loan sale and servicing (loss)/revenue in all periods. **Gain on redemption of Visa shares included within YTD 2008 security gains. Deposit service fees were $273 million in the third quarter of 2008, up 5% compared to the second quarter and up 19% compared to the third quarter a year ago. This growth reflects higher fee generating transaction volumes as well as a larger number of deposit accounts. On a year-to-date basis, deposit service fees were $763 million, up 16% from the same period last year, resulting from the same factors previously described, as well as an acquisition completed in the last half of 2007. Loan sales and servicing loss was $56 million in the third quarter of 2008, $85 million better than the preceding quarter, but $141 million worse than the third quarter a year ago. The net loss from loan sales and servicing arose from net mortgage servicing right (MSR) hedging losses. Net MSR hedging (losses)/gains were $(189) million in the third quarter of 2008, $(146) million in the second quarter of 2008, versus $64 million in the third quarter a year ago. Loan sale revenue improved compared to the preceding quarter due to a lower provision for estimated recourse losses on potential mortgage loan repurchases. On a year-to-date basis, the loan sale and servicing loss was also driven by net MSR hedging losses as well as lower mortgage production and sales volume. On a year-to-date basis, net MSR hedging (losses)/gains were $(394) million in 2008 and $25 million in 2007. Net security losses arose from other-than-temporary impairment of available for sale securities of $91 million in the third quarter of 2008 and $29 million in second quarter of 2008. On a year-to-date basis, net security gains of $532 million were realized on the partial redemption of Visa Class B shares, partially offset by other-than-temporary impairment losses of $136 million. No redemptions or impairments were recognized in 2007. Noninterest Expense Noninterest expense was $1.3 billion in the third quarter of 2008, down $942 million from the second quarter, and down $61 million from the third quarter a year ago. On a year-to-date basis, noninterest expense was $4.6 billion in 2008, up about $886 million from the prior year due to asset impairment charges.
Third Second Third
Quarter Quarter Quarter YTD YTD
($ in millions) 2008 2008 2007 2008 2007
Salaries, benefits and
other personnel costs $563 $619 $642 $1,841 $1,917
Impairment, fraud and
other losses* 134 1,098 257 1,035 277
Foreclosure costs 122 61 17 232 40
All other 516 499 480 1,516 1,504
Total noninterest
expense $1,335 $2,277 $1,396 $4,624 $3,738
*Goodwill impairment and Visa indemnification included within impairment, fraud and other losses in all periods. Salaries, benefits and other personnel costs decreased 9% compared to the preceding quarter and 12% compared to the third quarter a year ago due to reductions in staffing, lower business volumes, and lower incentive compensation. On a year-to-date basis, personnel costs were down 4% compared to the prior year. Cost savings from reduced staffing levels in 2008 were partially offset by lower deferrals of loan origination costs resulting from the adoption of fair value for certain loans held for sale at the beginning of the year. Impairment, fraud and other losses for the third quarter of 2008 included a provision of $87 million for Visa indemnification obligations, as well as an impairment loss of $28 million for real estate under development associated with a prior acquisition. In the second quarter of 2008, impairment, fraud and other losses included a goodwill impairment charge of $1.1 billion. The third quarter of 2007 included a provision of $157 million for Visa indemnification obligations, $44 million of asset impairments, and a $25 million litigation settlement. On a year-to-date basis, the higher losses in 2008 reflect the previously described indemnification obligation and asset impairments, partially offset by a release of Visa indemnification liabilities established in prior periods. Foreclosure costs increased to $122 million in the third quarter, up $61 million from the immediately preceding quarter, and up $105 million versus the third quarter a year ago. Larger fair value writedowns were recognized in the third quarter of 2008 based on more aggressive property disposition strategies. Compared to the third quarter a year earlier, foreclosure costs have increased due to more loans in foreclosure and higher expected and realized losses associated with declining property values. The same factors accounted for the higher foreclosure costs on a year-to-date basis. Balance Sheet Loans Average portfolio loans were $111.7 billion in the third quarter of 2008, down $2.4 billion from the second quarter of 2008, and up $7.2 billion from the third quarter a year ago. Average loans held for sale were $2.1 billion in the third quarter of 2008, down almost $1 billion from the preceding quarter, and down $10.5 billion from the third quarter a year ago. The table shown below summarizes the average balances for both the Core and Exit Portfolios, as well as loans held for sale.
($ in millions) Third Quarter Second Quarter Third Quarter
2008 2008 2007
Core portfolio $90,604 $91,302 $85,913
Exit portfolio 21,062 22,763 18,526
Total portfolio loans 111,666 114,065 104,439
Loans held for sale 2,131 3,075 12,643
The average balance of the Core Portfolio was down slightly compared to the preceding quarter but up $4.7 billion compared to the third quarter a year ago primarily due to a September 2007 acquisition. The Exit Portfolio declined from the second quarter with ongoing paydowns and charge-offs. The Exit Portfolio balance increased compared to third quarter a year earlier as residential construction and non-agency mortgage loans were added to this portfolio in 2008. Loans held for sale declined compared to prior periods which reflects the curtailment of non-agency mortgage-related products and wholesale channels. Late in the third quarter of 2008, the Corporation's $1.2 billion marine portfolio was transferred to held for sale. This reclassification did not have a significant impact on the average balances reported above. Deposits Average total deposits were $98.7 billion in the third quarter of 2008, down less than $1 billion compared to the preceding quarter, and up $5.2 billion compared to the third quarter a year ago. Average core deposits, excluding mortgage escrow and custodial balances, were $83.3 billion in the third quarter of 2008, down $1.0 billion compared to the second quarter of 2008, and up $5.7 billion compared to the third quarter a year ago. New customers and accounts were added during the quarter, which partially offset declines in deposit balances in excess of FDIC insurance limits. Compared to the third quarter a year earlier, deposits have grown with continued household growth and expansion as well as a September 2007 acquisition. Capital Total stockholders' equity was $17.2 billion at September 30, 2008 and tangible stockholders' equity was $12.5 billion, up $4.9 billion compared to December 31, 2007. During the second quarter of 2008, the Corporation raised $7.0 billion of equity capital by issuing common stock, contingently convertible preferred shares and warrants. On September 15, 2008, stockholders approved the conversion of the contingently convertible preferred shares, and shortly thereafter, these shares were exchanged into approximately 1.3 billion common shares. This exchange had no effect on cash, total stockholders' equity or regulatory capital. Capital ratios are shown in the table below.
Third Second Third
Quarter Quarter Quarter
2008 2008 2007
Tier 1 capital 10.98% 11.06% 6.78%
Total risk-based capital 14.86 14.87 10.37
Tier 1 leverage 10.07 10.33 6.96
Period end equity to assets 11.85 11.70 8.98
Period end tangible equity to
assets 8.93 8.94 5.29
Pre-Tax Pre-Provision Operating Earnings Consolidated net (loss)/income, measured in accordance with GAAP, is the principal and most useful measure of earnings and provides comparability of earnings with other companies. However, management believes presenting pre-tax pre-provision operating earnings provides investors with additional information in order to better understand the company's underlying operating trends. Pre-tax pre-provision operating earnings, as defined by management, represents net (loss) income excluding income tax (benefit) expense, the provision for loan losses, as well as other items as shown below. The following table reconciles consolidated net (loss)/income presented in accordance with U.S. generally accepted accounting principles (GAAP) to pre-tax pre-provision operating earnings.
Third Second Third
Quarter Quarter Quarter YTD YTD
($ in millions) 2008 2008 2007 2008 2007
Consolidated net
(loss)/income $(729) $(1,757) $(19) $(2,657) $647
Income tax (benefit)
expense (391) (667) (26) (1,093) 283
Provision for loan
losses 1,184 1,592 368 4,169 635
MSR hedging losses
(gains) 189 146 (64) 394 (25)
Foreclosed asset losses 122 61 17 232 40
Securities losses/
(gains) 77 11 - (427) (26)
Litigation and
indemnification losses 148 214 223 161 273
Goodwill and other asset
impairments 41 1,080 44 1,135 43
Derivative gains on
equity-linked instruments (5) (42) - (47) -
Pre-tax pre-provision
operating earnings $636 $638 $543 $1,867 $1,870
Conference Call Management of National City will host a conference call at 8:00 a.m. (ET) on Tuesday, October 21, 2008 to discuss the third quarter 2008 results. Presentation slides to accompany the conference call remarks may be found at http://phx.corporate-ir.net/phoenix.zhtml?c=64242&p=irol-presentations . Interested parties may access the conference call by dialing 1-800-230-1951. Participants are encouraged to call in 15 minutes prior to the call in order to register for the event. The conference call will also be accessible via the Company's Web site, nationalcity.com/investorrelations. Questions for discussion at the conference call may be submitted any time prior to or during the call by sending an email to investor.relations@nationalcity.com. A replay of the conference call will be available from 10:00 a.m. (ET) on October 21, 2008, until midnight (ET) on October 28, 2008. The replay will be accessible by calling 1-800-475-6701 (domestic) or 320-365-3844 (international) using the pass code of 893755 or via the Company's Web site. National City Corporation (NYSE: NCC) , headquartered in Cleveland, Ohio, is one of the nation's largest financial holding companies. The company operates through an extensive banking network primarily in Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Pennsylvania, and Wisconsin and also serves customers in selected markets nationally. Its core businesses include commercial and retail banking, mortgage financing and servicing, consumer finance and asset management. For more information about National City, visit the company's Web site at nationalcity.com. Forward-Looking Statements This document contains forward-looking statements. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. The forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, the Corporation's ability to effectively execute its business plans; changes in general economic and financial market conditions including the housing and residential mortgage markets; changes in interest rates; changes in the competitive environment; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; losses, customer bankruptcies, claims and assessments; changes in banking regulations or other regulatory or legislative requirements affecting the Corporation's business; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent filings with the United States Securities and Exchange Commission (SEC). Copies of these filings are available at no cost on the SEC's Web site at sec.gov or on the Corporation's Web site at nationalcity.com/investorrelations. Management may elect to update forward-looking statements at some future point; however, it specifically disclaims any obligation to do so.
Unaudited
National City Corporation
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In millions, except per share data)
2008
3rd Qtr 2nd Qtr 1st Qtr
EARNINGS
Tax-equivalent interest income $1,853 $1,886 $2,132
Interest expense 829 865 1,063
Tax-equivalent net interest income 1,024 1,021 1,069
Provision for loan losses 1,184 1,592 1,393
Tax-equivalent (NIE) NII after
provision for loan losses (160) (571) (324)
Noninterest income 386 431 1,138
Noninterest expense 1,335 2,277 1,012
(Loss) income before taxes and tax-
equivalent adjustment (1,109) (2,417) (198)
Income tax (benefit) expense (391) (667) (35)
Tax-equivalent adjustment 11 7 8
Net (loss) income ($729) ($1,757) ($171)
Net (loss) income available to common
stockholders(1) ($5,145) ($1,771) ($171)
Effective tax rate (34.9)% (27.5)% (17.0)%
PER COMMON SHARE
Net (loss) income:
Basic ($5.86) ($2.45) ($.27)
Diluted (5.86) (2.45) (.27)
Dividends paid .01 .01 .21
Book value 8.37 15.07 20.61
Tangible book value 6.09 8.94 11.53
Market value (close) 1.75 4.77 9.95
Average shares:
Basic 877.3 722.9 633.4
Diluted 877.3 722.9 633.4
PERFORMANCE RATIOS
Return on average common equity - - -
Return on average total equity - - -
Return on average assets - - -
Net interest margin 2.99% 2.97% 3.18%
Efficiency ratio 94.71 156.79 45.84
LINE OF BUSINESS (LOB) RESULTS
Net Income:
Retail Banking $132 $150 $97
Corporate Banking (27) (1,107) 92
Mortgage Banking (174) (193) (76)
Asset Management 7 20 19
Exit Portfolios (405) (677) (579)
Parent and Other (262) 50 276
Total Consolidated National City
Corporation ($729) ($1,757) ($171)
LOB Contribution to Diluted Earnings
Per Share:
Retail Banking $.15 $.21 $.15
Corporate Banking (.03) (1.53) .14
Mortgage Banking (.20) (.27) (.12)
Asset Management .01 .03 .03
Exit Portfolios (.46) (.94) (.91)
Parent and Other (5.33) .05 .44
Total Consolidated National City
Corporation ($5.86) ($2.45) ($.27)
2007
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
EARNINGS
Tax-equivalent interest income $2,381 $2,360 $2,255 $2,218
Interest expense 1,272 1,258 1,159 1,100
Tax-equivalent net interest income 1,109 1,102 1,096 1,118
Provision for loan losses 691 368 145 122
Tax-equivalent (NIE) NII after
provision for loan losses 418 734 951 996
Noninterest income 597 624 764 621
Noninterest expense 1,567 1,396 1,186 1,156
(Loss) income before taxes and tax-
equivalent adjustment (552) (38) 529 461
Income tax (benefit) expense (226) (26) 175 134
Tax-equivalent adjustment 7 7 7 8
Net (loss) income ($333) ($19) $347 $319
Net (loss) income available to common
stockholders(1) ($333) ($19) $346 $318
Effective tax rate (40.5)% (58.4)% 33.6% 29.5%
PER COMMON SHARE
Net (loss) income:
Basic ($.53) ($.03) $.60 $.50
Diluted (.53) (.03) .60 .50
Dividends paid .41 .41 .39 .39
Book value 21.15 21.86 21.45 22.12
Tangible book value 12.03 12.38 13.02 14.05
Market value (close) 16.46 25.09 33.32 37.25
Average shares:
Basic 633.2 588.1 572.7 631.7
Diluted 633.2 588.1 580.4 640.5
PERFORMANCE RATIOS
Return on average common equity - - 11.35% 8.98%
Return on average total equity - - 11.37 8.99
Return on average assets - - 1.00 .94
Net interest margin 3.30% 3.43% 3.59 3.69
Efficiency ratio 91.86 80.89 63.76 66.50
LINE OF BUSINESS (LOB) RESULTS
Net Income:
Retail Banking $174 $172 $193 $170
Corporate Banking 151 150 178 226
Mortgage Banking (346) (125) 24 (26)
Asset Management 24 21 29 27
Exit Portfolios (188) (29) 62 13
Parent and Other (148) (208) (139) (91)
Total Consolidated National City
Corporation ($333) ($19) $347 $319
LOB Contribution to Diluted Earnings
Per Share:
Retail Banking $.28 $.29 $.33 $.27
Corporate Banking .23 .25 .31 .35
Mortgage Banking (.55) (.21) .04 (.04)
Asset Management .04 .04 .05 .04
Exit Portfolios (.30) (.05) .11 .02
Parent and Other (.23) (.35) (.24) (.14)
Total Consolidated National City
Corporation ($.53) ($.03) $.60 $.50
Nine Months Ended
September 30,
2008 2007
EARNINGS
Tax-equivalent interest income $5,871 $6,833
Interest expense 2,757 3,517
Tax-equivalent net interest income 3,114 3,316
Provision for loan losses 4,169 635
Tax-equivalent (NIE) NII after
provision for loan losses (1,055) 2,681
Noninterest income 1,955 2,009
Noninterest expense 4,624 3,738
(Loss) income before taxes and tax-
equivalent adjustment (3,724) 952
Income tax (benefit) expense (1,093) 283
Tax-equivalent adjustment 26 22
Net (loss) income ($2,657) $647
Net (loss) income available to common
stockholders(1) ($7,087) $645
Effective tax rate (29.2)% 30.4%
PER COMMON SHARE
Net (loss) income:
Basic ($9.51) $1.08
Diluted (9.51) 1.07
Dividends paid .23 1.19
Book value
Tangible book value
Market value (close)
Average shares:
Basic 745.0 597.4
Diluted 745.0 604.3
PERFORMANCE RATIOS
Return on average common equity - 6.60%
Return on average total equity - 6.61
Return on average assets - .62
Net interest margin 3.05% 3.57
Efficiency ratio 91.21 70.20
LINE OF BUSINESS (LOB) RESULTS
Net Income:
Retail Banking $379 $535
Corporate Banking (1,042) 554
Mortgage Banking (443) (127)
Asset Management 46 77
Exit Portfolios (1,661) 46
Parent and Other 64 (438)
Total Consolidated National City
Corporation ($2,657) $647
LOB Contribution to Diluted Earnings
Per Share:
Retail Banking $.51 $.89
Corporate Banking (1.40) .91
Mortgage Banking (.59) (.21)
Asset Management .06 .13
Exit Portfolios (2.23) .08
Parent and Other (5.86) (.73)
Total Consolidated National City
Corporation ($9.51) $1.07
(1) Includes a $4.4 billion non-cash preferred stock dividend arising from
the Series G preferred stock conversion during the third quarter of
2008.
Unaudited
National City Corporation
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
($ in millions)
2008
3rd Qtr 2nd Qtr 1st Qtr
CREDIT QUALITY STATISTICS
Net charge-offs $844 $740 $538
Provision for loan losses 1,184 1,592 1,393
Loan loss allowance 3,752 3,434 2,582
Lending-related commitment allowance 71 75 67
Nonperforming assets 3,537 3,126 2,752
Annualized net charge-offs to average
portfolio loans 2.67% 2.61% 1.88%
Loan loss allowance to period-end
portfolio loans 3.40 3.03 2.23
Loan loss allowance to nonperforming
portfolio loans 124.07 132.59 114.25
Loan loss allowance (period-end) to
annualized net charge-offs 111.78 115.45 119.22
Nonperforming assets to period-end
portfolio loans
and other nonperforming assets 3.19 2.74 2.37
CAPITAL AND LIQUIDITY RATIOS
Tier 1 capital(1) 10.98% 11.06% 6.67%
Total risk-based capital(1) 14.86 14.87 10.31
Leverage(1) 10.07 10.33 6.49
Period-end equity to assets 11.85 11.70 8.53
Period-end tangible equity to assets
(2) 8.93 8.94 5.00
Average equity to assets 11.69 11.35 8.76
Average equity to portfolio loans 15.78 15.30 11.62
Average portfolio loans to deposits 113.11 114.58 118.23
Average portfolio loans to core
deposits 126.85 127.65 131.57
Average portfolio loans to earning
assets 81.61 82.80 85.75
Average securities to earning assets 7.00 6.16 6.38
AVERAGE BALANCES
Assets $150,740 $153,852 $153,032
Portfolio loans 111,666 114,065 115,379
Loans held for sale or securitization 2,131 3,075 4,494
Securities (at cost) 9,582 8,491 8,588
Earning assets 136,833 137,755 134,552
Core deposits 88,027 89,357 87,691
Purchased deposits and funding 41,666 43,361 47,475
Total equity 17,618 17,455 13,411
PERIOD-END BALANCES
Assets $145,035 $153,673 $155,038
Portfolio loans 110,462 113,420 115,859
Loans held for sale or securitization 3,246 2,385 4,536
Securities (at fair value) 8,826 9,404 8,449
Core deposits 85,637 91,096 89,135
Purchased deposits and funding 38,719 40,603 48,733
Total equity 17,182 17,981 13,223
2007
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
CREDIT QUALITY STATISTICS
Net charge-offs $275 $141 $98 $147
Provision for loan losses 691 368 145 122
Loan loss allowance 1,762 1,373 1,136 1,104
Lending-related commitment
allowance 65 54 61 63
Nonperforming assets 1,523 1,211 848 801
Annualized net charge-offs to
average portfolio loans .96% .54% .39% .61%
Loan loss allowance to period-end
portfolio loans 1.52 1.23 1.14 1.11
Loan loss allowance to
nonperforming portfolio loans 161.55 159.42 202.16 206.08
Loan loss allowance (period-end)
to annualized net charge-offs 161.24 245.43 291.06 184.68
Nonperforming assets to period-end
portfolio loans
and other nonperforming assets 1.31 1.08 .85 .80
CAPITAL AND LIQUIDITY RATIOS
Tier 1 capital(1) 6.53% 6.78% 6.56% 7.08%
Total risk-based capital(1) 10.27 10.37 10.28 10.13
Leverage(1) 6.39 6.96 6.53 6.92
Period-end equity to assets 8.95 8.98 8.64 9.51
Period-end tangible equity to
assets (2) 5.29 5.29 5.43 6.26
Average equity to assets 8.88 8.71 8.83 10.45
Average equity to portfolio loans 11.94 12.10 12.27 14.66
Average portfolio loans to
deposits 115.45 111.70 110.74 111.78
Average portfolio loans to core
deposits 130.20 128.17 127.87 128.66
Average portfolio loans to earning
assets 84.60 81.43 81.48 80.79
Average securities to earning
assets 6.58 6.11 5.84 6.34
AVERAGE BALANCES
Assets $152,566 $145,095 $138,587 $137,810
Portfolio loans 113,484 104,439 99,689 98,198
Loans held for sale or
securitization 8,340 12,643 12,615 11,769
Securities (at cost) 8,826 7,835 7,143 7,704
Earning assets 134,142 128,249 122,344 121,543
Core deposits 87,164 81,484 77,964 76,322
Purchased deposits and funding 47,450 47,093 44,604 43,001
Total equity 13,554 12,636 12,231 14,398
PERIOD-END BALANCES
Assets $149,852 $154,166 $140,636 $138,559
Portfolio loans 116,022 111,991 99,683 99,566
Loans held for sale or
securitization 4,290 11,987 14,421 10,693
Securities (at fair value) 8,731 8,977 7,024 7,208
Core deposits 87,536 86,450 79,043 77,884
Purchased deposits and funding 44,822 49,193 45,036 42,897
Total equity 13,408 13,843 12,147 13,170
Nine Months Ended
September 30,
2008 2007
CREDIT QUALITY STATISTICS
Net charge-offs $2,122 $386
Provision for loan losses 4,169 635
Loan loss allowance
Lending-related commitment allowance
Nonperforming assets
Annualized net charge-offs to average
portfolio loans 2.46% .51%
Loan loss allowance to period-end
portfolio loans
Loan loss allowance to nonperforming
portfolio loans
Loan loss allowance (period-end) to
annualized net charge-offs 132.38 266.24
Nonperforming assets to period-end
portfolio loans
and other nonperforming assets
CAPITAL AND LIQUIDITY RATIOS
Tier 1 capital(1)
Total risk-based capital(1)
Leverage(1)
Period-end equity to assets
Period-end tangible equity to
assets (2)
Average equity to assets 10.60% 9.31%
Average equity to portfolio loans 14.22 12.98
Average portfolio loans to deposits 115.29 111.41
Average portfolio loans to core
deposits 128.68 128.23
Average portfolio loans to earning
assets 83.37 81.24
Average securities to earning assets 6.52 6.09
AVERAGE BALANCES
Assets $152,535 $140,524
Portfolio loans 113,696 100,798
Loans held for sale or securitization 3,229 12,346
Securities (at cost) 8,889 7,561
Earning assets 136,382 124,070
Core deposits 88,358 78,609
Purchased deposits and funding 44,157 44,914
Total equity 16,167 13,082
PERIOD-END BALANCES
Assets
Portfolio loans
Loans held for sale or securitization
Securities (at fair value)
Core deposits
Purchased deposits and funding
Total equity
(1) Third quarter 2008 regulatory capital ratios are based upon
preliminary data.
(2) Excludes goodwill and other intangible assets.
Supplemental financial information available at:
http://media.corporate-ir.net/media_files/irol/64/64242/sup/3Q08.pdf
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