SHOULD NATIONAL City Corp. go national? Don't bet on it, at least as long as Edward B. Brandon remains in charge of the $31 billion-asset institution.

Mr. Brandon and National City were upstaged last month when Robert W. Gillespie, when Robert W. Gillespie, chief executive of local rival Society Corp., engineered the year's largest deal, a $58 billion megamerger with Keycorp. It's a deal that will eventually place Mr. Gillespie at the helm of a company that is national in scope.

It is also a deal that left Mr. Brandon unmoved, for the most part. "If the goal of the game is to be one of the five largest banks, then I guess I missed the game," said Mr. Brandon, who at 62 is in his seventh year as National City's chairman and chief executive.

"I don't think you have to be a national bank in order to survive. There's just as many arguments to be made that you can be better and take care of your customers better by not being that big," he continued.

Society actually dealt National City a much more significant blow two years ago, when it acquired Ameritrust Corp., the other large institution headquartered in Cleveland, after National City had launched a hostile takeover.

Since that debacle, National City has for the most part turned inward. The company has not attempted any acquisitions on the order of Ameritrust, limiting itself to smaller, in-market deals.

The latest was completed in October, when National City merged $1.6 billion-asset Ohio Bancorp, Youngstown, into its northeastern Ohio bank.

National City also completed a two-year restructuring program - called Vision - that Mr. Brandon says identified $90 million in potential cost savings. He is clearly pleased with the results of that program, which was championed by chief financial officer Robert G. Siefers and implemented with the assistance of the consulting firm McKinsey & Co.

"We had acquired an awful lot of banks in a ten-year period, and in the process had gone from one of the most efficient banks in the industry to where we were at best mediocre," Mr. Brandon explained.

The program created a team of managers and redeployed them in areas other than their fields of expertise. Those managers then worked within various departments to identify and implement cost savings and customer service improvements.

"Vision allowed us to accelerate our approach to [adopting] best practices," said Jon L. Gorney, executive vice president in charge of data processing and operations. "We centralized things that were more electronic in nature."

Mr. Gorney said all of the 32 banks in the National City fold will be on common systems and procedures by early next year.

Overall, the program "created a degree of uncertainty, a lack of security. But I think we're past that," said Mr. Brandon.

As evidence, expenses within the bank have begun to fall by most measures. National City's efficiency ratio, or noninterest expense as a percentage of fee income and net interest income, stood at 65.2% through the first three quarters of the year. That number had been hovering around 68% during 1991 and 1992.

"You don't have to necessarily be the most efficient bank in the world but you have to be the possessor of class cost structures. You've got to be among the top performers or else the economic rationale for your staying independent blows away," Mr. Brandon noted.

"It's garned the cost savings they expected," Salomon Brothers banking analyst Diane Glossman said of the Vision program. Still, National City's efficiency ratio remains slightly higher than the roughly 62% average of its peer group.

Mr. Brandon said the results of the program will soon become more evident. "I think we ended up identifying $90 million [in cost savings] and we'll realize $80 million of that," he said. He also expects costs to remain flat on a gross dollar basis through 1994.

The benefits of Vision, said Mr. Brandon, "will accrue to us over the next couple of years, to the extent that we can assure ourselves of an incremental earnings increase through at least 1995."

While the company's internal growth all but stopped during the past couple of years, as it both restructured and dealt with a slew of nonperforming assets, some of National City's strengths have become more evident. Its fee-based revenues, for example, have been growing at a double-digit rate for the past three years, and currently account for 40% of the corporation's overall revenue.

Most of that growth has come from a subsidiary, National Processing Co. National City gained ownership of the Louisville-based processor of merchant payments when it acquired First Kentucky National Corp. in 1988.

The unit handles 70% of the receivables for the airline industry, and also markets item processing, remittance processing, credit card processing, and payable functions. The company expects revenues to reach $272 million this year, with net income of about $20 million.

The unit bolstered its presence in the merchant processing arena with its February acquisition of JBS Associates, a Ringwood, N.J., check guarantee, verification, and collection business.

"NPC has always been strong, something of a shining star. I think the check guarantee business is going to be a good addition for them," said f Joseph A. Stieven, the banking analyst at Stifel, Nicolaus & Co., St. Louis.

Unlike the processing businesses of some banks, "NPC is big enough so you can see it," said Ms. Glossman, who has closely followed the processing side of the banking business. Such nonbanking businesses, she added, can offer benefits for banks that are already in them.

Analysts like businesses such as National Processing because they require a relatively small investment in capital, have minimal impact on a bank's balance sheet, and as a result are looked upon favorably by analysts and investors.

"It's an important adjunct in boosting our return on assets and our return on equity," Thomas A. Richlovsky, National City Corp. senior vice president and treasurer, said of the unit.

However, Ms. Glossman noted, "there are significant competitive issues involved in those businesses, just as there is in banking."

"As we see other providers of financial services nick away it our family jewels, so to speak, with less encumbered regulatory structures around them, I think it behooves us to add to and expand in those less regulated areas," Mr. Brandon said.

Mr. Brandon also noted that National City has to cope with regulators as it attempts to enter nonbanking businesses. "We've lost out on things because of that," said Mr. Brandon of the inherent delay in obtaining approvals.

Still, National Processing contributes only 5% of National City's net income, and therefore lacks the critical mass necessary to sway Wall Street. National City's stock trades at a price-to-earnings ratio of about 11, in line with banks in its peer group, but far below the ratios of such technology stalwarts as State Street Boston Corp. and Synovus Financial Corp.

"The diversity of revenue is good, but the valuation of our company is not predicated on the fee-based businesses," said Mr. Richlovsky.

Improvedd credit quality and increased fee income combined with stable expenses and net interest margins have brought the company's returns back to what Mr. Stieven of Stifel Nicolaus calls "traditional National City numbers." That translates into net income of $102.7 million in the third quarter, for a 1.43% return on assets and a return on equity of 16.26%.

Foremost in the minds of analysts who come calling on National City, Mr. Richlovskly says, are revenue growth and acquisition strategy.

For the time being, there is not much movement on either front. National City shows no indication of moving much beyond its core franchises in Ohio, Indiana, and Kentucky. Consumer loan demand, meanwhile, has picked up slightly during the year, but other lending has remainded flat.

During this lull, Mr. Gorney has overseen significant investment in new systems for corporate banking, retail customer information systems, and automation for National City's brokerage subsidiary.

Mr. Gorney said his staff of 2,400 has the daily rigors of operations and data processing under control. "We process DDA transactions and deposit transactions just fine," he said.

"Now that we have our house in order, we're beginning the transformation of taking our staff from where they are today to where they need to be," he continued. "And that's exciting."

National City's data processing operation is highly proprietary, using mostly software that was developed internally. Now, the programming staff is using the latest tools, including computer-aided software engineering and reusable code, that Mr. Gorney said have fundamentally changed the development process for this next generation of systems.

"The issue in systems development for us is speed to market," he said. "How can we do more? How can we do it faster? How can we do it cheaper?"

No matter what the project, those developmentt efforts are focused on putting the right information in the hands of National City employees when the need it.

"We have a ton of customer information today, but we're trying to get that focused to what's needed from a sales perspective," Mr. Gorney explained.

There is evidence that such focus is beginning to pay off. National City is marketing its retail brokerage automation system to other banks. That systems puts data from such disparate sources as Dow Jones, Fidelity Investments, and the bank's own customer information files into a unified, graphical format via a broker's desktop or laptop PC. Barnett Banks Inc. was the first customer for the customer.

"We're probably not state of the art, but we're not far behind," Mr. Brandon said of the new information systems.

Right now, though, he is focused on devising a follow-up to the Vision program. "Somehow I have to caputre the energy that is out there," he said. "It'd be a shame form a management standpoint to say, Let's relax. You got a job the rest of your life.'"

The answer, he thinks, is creating a more performance-based compensation structure for the company's top executives. "The next step has to be tied to something broader than customer service, broader than quality, to involve work ethic types of thingks," he explained.

Despite some missteps, Mr. Brandon has generally delivered on the promises he had made since ascending to the top spot at National City.

"The business I came into in 1956, and the business now are recognizable, but only recognizable," said Mr. Bradon. But, he added, "the basis tenets don't change. As soon as we think they have changed, we end up getting in a lot of trouble."

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