UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-6094
-------
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
- ---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square
Memphis, Tennessee 38150
- ------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code - (901)523-3434
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 and 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $2 par value -- 108,238,048 shares as of November 1, 1999
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
--------------------
NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
--------------------------------
(In Thousands)
Sept. 30 Dec. 31
1999 1998
----------- ----------
(unaudited) (Restated)
ASSETS
------
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 18,945 $ 20,335
Cash and non-interest bearing deposits 178,421 236,159
Federal funds sold and securities
purchased under agreements to resell 76,037 79,368
---------- ----------
Total cash and cash equivalents 273,403 335,862
---------- ----------
Securities:
Held-to-maturity 1,706,812 1,377,102
Available-for-sale 500,811 777,615
---------- ----------
Total securities 2,207,623 2,154,717
---------- ----------
Trading account securities 18,723 62,737
Loans:
Commercial, financial and agricultural 711,524 613,557
Real estate - construction 281,313 273,968
Real estate - mortgage 1,524,410 1,250,698
Consumer 1,311,698 1,207,431
Lease financing 33,424 29,805
Unearned discounts (2,861) (3,415)
---------- ----------
Total loans 3,859,508 3,372,044
Less allowance for loan losses 58,119 53,018
---------- ----------
Net loans 3,801,389 3,319,026
---------- ----------
Premises and equipment, net 46,637 45,527
Broker/dealer customer receivables 13,959 2,505
Other assets 181,835 169,917
---------- ----------
Total assets $6,543,569 $6,090,291
========== ==========
See notes to consolidated financial statements.
1
Consolidated Balance Sheets (cont.)
- -----------------------------------
(In Thousands)
Sept. 30 Dec. 31
1999 1998
---------- -------
(unaudited) (Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing deposits $ 443,784 $ 524,386
Money market checking 404,922 444,492
Savings 111,524 125,053
Money market savings 1,122,401 1,217,797
Certificates of deposit less than $100,000 993,488 958,253
Certificates of deposit of $100,000 or more 1,320,196 925,005
---------- ----------
Total deposits 4,396,315 4,194,986
---------- ----------
Federal funds purchased and securities
sold under agreements to repurchase
and other short-term borrowings 445,813 599,378
Broker/dealer customer payables 4,898 714
Accounts payable and accrued liabilities 78,569 83,114
Federal Home Loan Bank advances 1,017,982 731,610
Other borrowed funds and long-term debt 6,372 6,372
---------- ----------
Total liabilities 5,949,949 5,616,204
---------- ----------
Capital trust pass-through securities 49,906 49,896
Stockholders' equity:
Common stock 216,375 209,056
Additional paid-in capital 106,836 27,322
Retained earnings 221,919 186,415
Accumulated other comprehensive income (1,416) 1,398
---------- ----------
Total stockholders' equity 543,714 424,191
---------- ----------
Total liabilities and
stockholders' equity $6,543,569 $6,090,291
========== ==========
See notes to consolidated financial statements.
2
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Income
----------------------------------
(Unaudited)(Restated)
(In Thousands, Except per Share Data)
For the three months For the nine months
ended Sept. 30 ended Sept. 30
---------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Loans $ 79,161 $ 72,031 $224,369 $202,586
Securities:
Taxable 36,047 26,165 102,867 79,326
Non-taxable 3,110 2,155 9,333 6,367
Trading account securities 532 985 1,813 2,564
Deposits at bank 54 279 725 1,119
Other 1,611 756 3,607 2,557
-------- ------- -------- --------
Total interest income 120,515 102,371 342,714 294,519
-------- ------- -------- --------
Interest expense:
Deposits:
Money market checking 1,181 1,076 3,524 2,912
Savings 501 627 1,575 1,644
Money market savings 10,765 11,690 32,967 33,141
Certificates of deposit less than $100,000 12,273 12,259 35,524 39,182
Certificates of deposit $100,000 or more 16,135 8,559 41,957 27,119
Federal Home Loan Bank advances 11,648 9,044 30,143 18,672
Long-term debt 93 1,413 274 6,044
Federal funds purchased and securities
sold under agreements to repurchase
and other short-term borrowings 7,471 5,642 23,567 16,989
-------- ------- -------- --------
Total interest expense 60,067 50,310 169,531 145,703
-------- ------- -------- --------
Net interest income 60,448 52,061 173,183 148,816
Provision for loan losses 4,378 3,082 10,902 6,819
-------- ------- -------- --------
Net interest income after
provision for loan losses 56,070 48,979 162,281 141,997
-------- ------- -------- --------
Other income:
Trust service income 2,490 2,526 7,727 7,741
Service charges on deposits 5,619 5,087 15,610 14,695
Other services charges and fees 5,186 4,515 15,439 12,309
Broker/dealer revenue 3,747 4,385 14,070 14,055
Securities gains (losses) 20 137 (2,013) 182
Other 5,805 5,300 18,213 17,058
-------- ------- -------- --------
Total other income 22,867 21,950 69,046 66,040
-------- ------- -------- --------
3
Consolidated Statements of Income (cont.)
- ---------------------------------
(Unaudited)(Restated)
- --------------------
For the three months For the nine months
ended Sept. 30 ended Sept. 30
---------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Other expenses:
Salaries and employee benefits 18,663 17,951 57,108 53,403
Occupancy expense 3,676 3,296 10,425 9,299
Furniture and equipment expenses 1,850 1,634 5,543 4,646
Other 13,497 14,502 42,028 43,623
-------- -------- -------- --------
Total other expenses 37,686 37,383 115,104 110,971
-------- -------- -------- --------
Income before income taxes 41,251 33,546 116,223 97,066
Income taxes 13,092 10,702 37,561 32,224
-------- -------- -------- --------
Net income $ 28,159 $ 22,844 $ 78,662 $ 64,842
======== ======== ======== ========
Basic net income per share of common stock $.26 $.22 $.74 $.62
Diluted net income per share of common stock $.26 $.22 $.73 $.61
Dividends per share of common stock $.09 $.08 $.27 $.23
See notes to consolidated financial statements.
4
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)(Restated)
For the Nine Months
Ended Sept. 30
----------------------
1999 1998
---- ----
(In Thousands)
Operating activities:
Net income $78,662 $64,842
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 10,902 6,819
Provision for depreciation and amortization 5,543 5,980
Amortization of security premiums and accretion
of discounts, net 240 (2,252)
Deferred income taxes (credit) (3,098) 1,336
(Increase) decrease in trading account securities 44,014 59,970
Realized securities (gains) losses 2,013 (182)
(Increase) decrease in broker/dealer customer receivables (11,454) 3,429
(Increase) decrease in interest receivable 5,742 (2,119)
(Increase) decrease in other assets (14,562) (6,569)
Increase (decrease) in broker/dealer customer payables 4,184 484
Increase (decrease) in interest payable (6,313) 270
Increase (decrease) in accounts payable and accrued expenses 8,936 (3,532)
-------- -------
Net cash provided by (used in) operating activities 124,809 128,476
-------- -------
Investing activities:
Proceeds from the maturities of securities 180,168 775,685
Proceeds from sales of securities 293,826 26,220
Purchases of securities (533,751) (1,042,672)
Net (increase) decrease in loans (493,265) (474,571)
Purchase of premises and equipment (6,653) (12,913)
-------- --------
Net cash provided by (used in) investing activities (559,675) (728,251)
-------- --------
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (229,097) 151,518
Net increase (decrease) in certificates of deposit 430,426 207,584
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (153,565) 53,641
Increase (decrease) in long-term debt 10 (149,871)
Increase (decrease) in Federal Home Loan Bank advances 286,372 343,440
Proceeds from exercise of stock options 4,211 4,003
Issuance of common stock 81,309 19,535
Repurchases of common stock (18,960) (28,426)
Cash dividends paid (28,299) (22,403)
-------- --------
Net cash provided by (used in) financing activities 372,407 579,021
-------- --------
Decrease in cash and cash equivalents (62,459) (20,754)
Cash and cash equivalents at beginning of period 335,862 263,137
-------- --------
Cash and cash equivalents at end of period $273,403 $242,383
======== ========
Interest paid $163,218 $145,589
Income taxes paid $ 39,034 $ 26,888
See notes to consolidated financial statements.
5
NATIONAL COMMERCE BANCORPORATION
--------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1999
------------------
(Unaudited)
---------
Note A - Basis of Presentation
- ------------------------------
The consolidated balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date. The accompanying unaudited
interim consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals) which are, in the opinion
of management, necessary for a fair statement of the results for the
interim periods presented. The statements should be read in conjunction
with the summary of accounting policies and notes to consolidated financial
statements included in the Registrant's annual report for the year ended
December 31, 1998. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with the
rules of the Securities and Exchange Commission. During third quarter,
1999, the Company acquired First Financial Corporation of Mt. Juliet,
Tennessee, and Nashville-based Southeastern Mortgage of Tennessee. These
acquisitions, which were accounted for using the pooling-of-interest
method, are incorporated into reported results. For comparative purposes,
all prior year results are restated to include these acquisitions.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
Statement requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives are either
offset against change in fair value of assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of
a derivative's change in fair value is recognized in earnings. The adoption
of Statement No. 133 on April 1, 1999, did not have a material effect on
the consolidated operating results or financial position of the Company.
Note B - Securities Portfolio
- -----------------------------
In accordance with FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities", as of September 30, 1999 the securities in the
"Available for Sale" category included $3,087,000 in unrealized losses.
Accordingly, total securities and total stockholders' equity were decreased
by $3,087,000 and $1,884,000 (net of taxes), respectively, at September 30,
1999, to reflect the adjustment of the securities portfolio to market. The
calculation of book value per share reflects these mark-to-market
unrealized losses, whereas the calculation of ROA and ROE do not, because
the unrealized losses are not included in net income. The fair value of the
"Held to Maturity" category was $1.6 billion at September 30, 1999.
Note C - Floating Rate Capital Trust Pass-through Securities
- ------------------------------------------------------------
In March, 1997, the Company issued $49,875,000 in Floating Rate Capital
Trust Pass-through Securities ("Capital Securities"). The proceeds of this
issue were used by the Company for general corporate purposes and are
counted as Tier I capital.
Note D - Segment Information
- ----------------------------
The Company operates several major lines of business. The commercial
banking segment includes lending and related financial services provided to
large and medium-sized corporations. Included among these services are
several specialty services such as real estate finance, asset based lending
and residential construction.
The retail banking segment includes sales and distribution of financial
products and services to individuals. These services include loan products
such as residential mortgages, home equity lending, automobile and other
personal financing needs.
6
Retail banking also offers various deposit products that are designed for
customers' saving and transaction needs.
The other financial services segment includes trust, asset management,
insurance and brokerage activities. Financial services also includes income
from treasury, transaction processing, in-store consulting/licensing and
specialty leasing.
The accounting policies of the individual segments are the same as those of
the Company described in Note A. Transactions between business segments are
conducted at fair value and are eliminated for reporting consolidated
financial position and results of operations. Interest income for tax-
exempt loans and securities is adjusted to a taxable equivalent basis.
Expenses for centrally provided services such as deposit servicing, data
processing, technology and loan servicing and underwriting are allocated to
each segment based upon various statistical information. Other indirect
costs, such as management overhead and corporate support, are also
allocated to each segment based upon various statistical information. The
portion of the provision for loan losses that is not related to specific
net charge-offs is allocated to the segment based upon loan growth. There
are no significant intersegment revenues.
Performance is assessed primarily on net interest margin by the chief
operating decision makers.
The following tables (in thousands of dollars) present condensed income
statements on a fully taxable equivalent basis and average assets for each
reportable segment.
Quarter Ended September 30, 1999:
Commercial Retail Financial
Banking Banking Services Total
---------- ------- --------- -----
Net interest income $13,863 $27,416 $22,626 $63,905
Provision for loan losses (137) (4,103) (138) (4,378)
------- ------- ------- -------
Net interest income after provision 13,726 23,313 22,488 59,527
Non-interest income 1,038 2,894 18,935 22,867
Non-interest expense (4,066) (11,265) (22,355) (37,686)
------- ------- ------- -------
Net income before taxes 10,698 14,942 19,068 44,708
Income taxes (2,701) (5,061) (8,787) (16,549)
------- ------- ------- -------
Net income $ 7,997 $ 9,881 $10,281 $28,159
======= ======= ======= =======
Average assets $1,068,085 $2,922,062 $2,657,665 $6,647,812
Quarter Ended September 30, 1998:
Commercial Retail Financial
Banking Banking Services Total
---------- ------- --------- -----
Net interest income $11,224 $23,018 $19,119 $53,361
Provision for loan losses 527 (3,562) (47) (3,082)
------- ------- ------- -------
Net interest income after provision 11,751 19,456 19,072 50,279
Non-interest income 857 2,985 18,108 21,950
Non-interest expense (4,461) (11,315) (21,607) (37,383)
------- ------- ------- -------
Net income before taxes 8,147 11,126 15,573 34,846
Income taxes (2,069) (2,870) (7,063) (12,002)
------- ------- ------- -------
Net income $ 6,078 $ 8,256 $ 8,510 $22,844
======= ======= ======= =======
Average assets $927,837 $2,463,780 $1,935,442 $5,327,059
7
Nine Months Ended September 30, 1999:
Commercial Retail Financial
Banking Banking Services Total
---------- --------- --------- -----
Net interest income $ 40,242 $ 79,415 $ 63,643 $ 183,300
Provision for loan losses (827) (9,806) (269) (10,902)
---------- ---------- ---------- ----------
Net interest income after provision 39,415 69,609 63,374 172,398
Non-interest income 3,081 8,775 57,190 69,046
Non-interest expense (11,719) (32,026) (71,359) (115,104)
---------- ---------- ---------- ----------
Net income before taxes 30,777 46,358 49,205 126,340
Income taxes (10,358) (17,041) (20,279) (47,678)
---------- ---------- ---------- ----------
Net income $ 20,419 $ 29,317 $ 28,926 $ 78,662
========== ========== ========== ==========
Average assets $1,030,972 $2,755,957 $2,594,717 $6,381,646
Nine Months Ended September 30, 1998:
Commercial Retail Financial
Banking Banking Services Total
---------- --------- --------- -----
Net interest income $ 36,526 $ 65,704 $ 50,489 $ 152,719
Provision for loan losses 158 (6,753) (224) (6,819)
----------- ---------- ---------- ----------
Net interest income after provision 36,684 58,951 50,265 145,900
Non-interest income 3,054 8,678 54,308 66,040
Non-interest expense (12,110) (31,749) (67,112) (110,971)
----------- ---------- ---------- ----------
Net income before taxes 27,628 35,880 37,461 100,969
Income taxes (9,172) (11,911) (15,044) (36,127)
----------- ---------- ---------- ----------
Net income $ 18,456 $ 23,969 $ 22,417 $ 64,842
=========== ========== ========== ==========
Average assets $ 911,313 $2,322,316 $1,960,906 $5,194,535
8
Note E - Earnings Per Share
- ---------------------------
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Nine Months Ended
Sept 30 Sept 30
------------------------- ------------------------
In Thousands, Except Per Share Data 1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income $28,159 $22,844 $78,662 $64,842
======= ======= ======= =======
Denominator:
Denominator for basic earnings per
share - weighted average shares 108,214 103,242 106,233 103,491
Dilutive potential common shares -
Employee stock options 1,970 2,387 2,114 2,482
------- ------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted average
and assumed conversions 110,184 105,629 108,347 105,973
======= ======= ======= =======
Basic earnings per share $.26 $.22 $.74 $.62
Diluted earnings per share $.26 $.22 $.73 $.61
Note F - Comprehensive Income
- -----------------------------
During the third quarter of 1999 and 1998, total comprehensive income
amounted to $26,882,000 and $22,771,000 respectively. The year-to-date
total comprehensive income for 1999 and 1998 was $75,848,000 and
$64,970,000 respectively.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
The purpose of this discussion is to focus on important factors affecting the
Company's financial condition and results of operations. Reference should be
made to the consolidated financial statements (including the notes thereto) set
forth in this report for an understanding of the following discussion and
analysis. In this discussion, net interest income and net interest margin are
presented on a fully taxable equivalent basis. All per share data is adjusted to
reflect all stock dividends and stock splits declared.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
All statements in this Quarterly Report on Form 10-Q that are not historical
facts or that express expectations or projections with respect to future matters
are "forward-looking statements" for the purpose of the safe harbor provided by
the Act. The Company cautions readers that such "forward-looking statements,"
including, without limitation, those relating to future business initiatives and
prospects, revenues, working capital, liquidity, capital needs, interest costs
and income, and "Year 2000" remediation efforts, wherever they occur in this
document or in other statements attributable to the Company, are necessarily
estimates reflecting the best judgment of the Company's senior management. Such
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the "forward-looking
statements." Such "forward-looking statements" should, therefore be considered
in light of various important factors, including those set forth in this
document. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. Other factors set
forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission should also be considered. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
- -------------------
Following is a comparison of the September 30, 1999 and December 31, 1998
consolidated balance sheets. Total deposits increased by $201 million or 4.8%,
principally as a result of a $395 million or 42.7% increase in certificates of
deposit greater than $100,000 and a $35 million or 3.7% increase in certificates
of deposit less than $100,000. This increase was partially offset by a $95
million or 7.8% decrease in money market savings accounts, a $39 million or 8.9%
decrease in money market checking accounts, a $13 million or 10.8% decrease in
savings accounts and an $81 million or 15.4% decrease in non-interest-bearing
deposits from normally higher year-end levels. The change in deposits are a
result of asset/liability management decisions related to the current interest
rate environment.
Federal funds purchased and securities sold under agreements to repurchase
decreased $154 million or 25.6% from year-end 1998 levels. This category of
liabilities fluctuates with the availability of overnight funds purchased from
downstream correspondent banks.
Federal Home Loan Bank advances increased $286 million or 39.1% from
December 31, 1998. This increase is principally the result of asset/liability
management decisions related to the current interest rate environment.
Total loans, net of unearned discounts, increased by $487 million or 14.5%
compared to December 31, 1998 levels. Commercial loans increased by $98 million
or 16.0% and real estate construction loans increased by $7 million or 2.7%,
reflecting current demand. Real estate mortgage loans increased by $274 million
or 21.9% and consumer loans increased $104 million or 8.6%, reflecting an
increased emphasis on promoting home equity loans and other consumer products.
10
Securities increased by $53 million or 2.5% from year-end 1998. Securities
held to maturity increased by $330 million or 23.9%, and securities available
for sale decreased by $277 million or 35.6%, reflecting current portfolio
investment strategies, and current market conditions.
Federal funds sold and securities purchased under agreements to resell
decreased by $3 million or 4.2% from December 31, 1998 levels, reflecting levels
of activity of correspondent banks at September 30, 1999.
Trading account securities decreased by $44 million or 70.2% from year-end
1998 levels. This decrease reflects the trading activity generated by NBC
Capital Markets Group, Inc., the Company's broker/dealer subsidiary, which
fluctuates from time to time.
Broker/dealer customer receivables increased $11 million or 457.2% and
payables increased $4 million or 586.0% reflecting levels of activity.
Results of Operations
- ---------------------
Three Months Ended September 30, 1999, Compared to Three Months Ended September
30, 1998
- -------------------------------------------------------------------------------
Net income was $28,159,000 for the third quarter of 1999, a 23.3% increase
over the $22,844,000 reported for the same period a year earlier. Diluted
earnings per share were $.26, compared to $.22 per share in 1998, up 18.2%.
Basic earnings per share were $.26, compared to $.22 per share in 1998, up
18.2%.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$10,544,000 or 19.8% for the third quarter of 1999, compared to third quarter
1998. This increase reflects a $20,301,000 or 19.6% increase in total interest
income that more than offsets a $9,757,000 or 19.4% increase in interest
expense. Interest income increased in 1999 due to an increase of $1,300,917,000
or 26.4% in total average earning assets, and decrease in the yield on average
earning assets from 8.34% in the third quarter of 1998 to 7.89% in the third
quarter of 1999. The increased volume of earning assets increased interest
income by approximately $27,347,000 while the decreased yield reduced interest
income by approximately $7,046,000. Interest expense increased in the third
quarter of 1999, reflecting an increase in average interest-bearing liabilities
of $1,148,981,000 or 26.5% and a decrease in the cost of interest-bearing
liabilities from 4.61% to 4.35%. The decrease in the rate paid on interest-
bearing liabilities decreased interest expense by approximately $3,601,000 and
the increase in average outstandings increased interest expense by approximately
$13,358,000. The net interest margin (taxable equivalent net interest income as
a percentage of average earning assets) was 4.07% in third quarter 1999,
compared to 4.29% in third quarter of 1998.
The provision for loan losses in the third quarter of 1999 was $4,378,000,
versus $3,082,000 for the third quarter of 1998. Net charge-offs were
$1,760,000, or .19% of average net loans, compared to $1,710,000 or .22% of
average net loans in 1998. The allowance for loan losses totaled $58,119,000 at
September 30, 1999, representing 1.51% of quarter-end net loans, compared to
$48,421,000 or 1.50% of quarter-end net loans at September 30, 1998.
Following is a comparison of non-earning assets and loans past due 90 days
or more for the quarters ended September 30, 1999, June 30, 1999, and September
30, 1998 (dollars in thousands):
11
9-30-99 6-30-99 9-30-98
------- ------- -------
Non-accrual loans $ 76 $ 250 $ 604
Renegotiated loans 0 0 0
Other real estate 217 1,200 724
------- ------- -------
Total non-earning assets $ 293 $ 1,450 $ 1,328
======= ======= =======
Loans past due 90 days or more $ 3,704 $ 4,202 $ 4,915
Percentage of total loans .10% .12% .15%
Non-interest income, excluding securities transactions, totaled $22,847,000
for the quarter, an increase of $1,034,000, or 4.7%, from last year's third
quarter. Securities gains totaled $20,000 in third quarter, 1999, compared to
$137,000 in 1998. Non-interest expenses (excluding the provision for loan
losses) increased by $303,000 or .8% in third quarter, 1999.
The Company's return on average assets and return on average equity were
1.69% and 21.02% respectively, for third quarter of 1999. These compared with
1998 third quarter returns of 1.72% and 22.66%, respectively.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
- --------------------------------------------------------------------------------
For the nine months ended September 30, 1999, net income totaled
$78,662,000, a 21.3% increase over the $64,842,000 for the first nine months of
1998. Diluted earnings per share were $.73, compared to $.61 for the same period
in 1998, a 19.7% increase. Basic earnings per share were $.74 compared to $.62
in 1998, a 19.7% increase. For the nine-month period, return on average assets
and return on average stockholders' equity were 1.64% and 21.84% respectively.
These compared with 1998 six month returns of 1.66% and 21.87%.
Net interest income increased by $30,581,000 or 20.0% for the first nine
months of 1999. This increase reflects a $54,409,000 or 18.2% increase in total
interest income that more than offsets a $23,828,000 or 16.4% increase in
interest expense. Interest income increased in 1999 due to an increase of
$1,155,309,000 or 24.0% in total average earning assets partially offset by a
decrease in the yield on average earning assets from 8.29% in 1998 to 7.90% in
1999. The increased volume of earning assets increased interest income by
approximately $71,601,000, and the decreased yield reduced interest income by
approximately $17,192,000. Interest expense increased in the first nine months
of 1999, reflecting an increase in average interest-bearing liabilities of
$1,048,319,000 or 24.9%, with the cost of interest-bearing liabilities
decreasing from 4.63% to 4.31% in 1999. The increase in average outstandings
increased interest expense by approximately $36,302,000 while the decreased rate
reduced interest expense by approximately $12,474,000. The net interest margin
was 4.10% in the first nine months of 1999, compared to 4.24% in the first nine
months of 1998.
The provision for loan losses for the first nine months of 1999 was
$10,902,000, versus $6,819,000 for the first nine months of 1998. Net charge-
offs were $5,668,000, or .22% of average net loans compared to $5,028,000, or
.23% of average net loans in 1998.
Non-interest income, excluding securities transactions, totaled $71,059,000
for the first nine months of 1999, compared to a total of $65,858,000 for the
first nine months of 1998, an increase of 7.9%. Included in 1999 is a $4,009,000
pre-tax gain from the sale of branches. Adjusting for this gain, non-interest
income increased 1.8% over 1998. Securities losses totaled $2,013,000 in 1999,
compared to a gain of $182,000 in 1998.
Non-interest expenses (excluding the provision for loan losses) increased
by
12
$4,133,000 or 3.7% for the first nine months of 1999. Increased employment
and occupancy expenses relating to new products and locations, and increased
promotional expenses of new loan and deposit gathering campaigns were the
primary reasons for the increase.
Liquidity and Capital Resources
- -------------------------------
Interest-bearing bank balances, federal funds sold, trading account
securities, and securities available for sale are the principal sources of
short-term asset liquidity. Other sources of short-term liquidity include
federal funds purchased and repurchase agreements, credit lines with other
banks, and borrowings from the Federal Reserve Bank and the Federal Home Loan
Bank. Maturing loans and securities are the principal sources of long-term asset
liquidity.
Total realized stockholders' equity increased by $122,337,000 from December
31, 1998. Due to a sale of common stock in second quarter 1999, additional paid-
in capital accounted for the majority of the increase. Through September 30,
1999, 8.2 million shares had been repurchased and cancelled under a stock
repurchase program initiated in January, 1996, and extended in December, 1997.
The following capital ratios do not include the effect of FAS No. 115 or
FAS No. 133 on Tier I capital, total capital, or total risk-weighted assets.
As indicated in the following table, the Company and its banking
subsidiaries exceeded all minimum required capital ratios for well-capitalized
institutions at September 30, 1999.
9-30-99 6-30-99 9-30-98
------- ------- -------
Total capital to risk-weighted assets 14.18% 14.45% 13.52%
Tier I capital to risk-weighted assets 12.93% 13.21% 12.28%
Tier I capital to assets (leverage ratio) 8.73% 8.96% 8.47%
Year 2000 Preparations
- ----------------------
The Company is Y2K ready and has met recommended regulatory milestones
which include: successful testing of all its mission critical systems for Year
2000 compliance; assessing risks associated with its major borrowers, funds
providers and other business partners; and expanding its business continuity
plans to address Year 2000 scenarios.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
No significant changes since December 31, 1998. See Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
13
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
The Registrant did not file any reports on Form 8-K
during the quarter ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
(Registrant)
By /s/ Lewis E. Holland
--------------------------------------
Lewis E. Holland
Vice Chairman, Treasurer and
Chief Financial Officer
(Authorized Officer)
(Principal Financial Officer)
Date November 9, 1999
--------------------
14