UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 0-6094
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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
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(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 -- 205,397,217 shares as of November 1, 2000
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
--------------------------------
(In Thousands)
Sept. 30 Dec. 31
2000 1999
---- ----
(unaudited)
ASSETS
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Cash and cash equivalents:
Interest-bearing deposits with other banks $ 52,360 $ 21,156
Cash and non-interest bearing deposits 391,290 179,082
Federal funds sold and securities
purchased under agreements to resell 170,392 61,058
----------- ----------
Total cash and cash equivalents 614,042 261,296
----------- ----------
Securities:
Available-for-sale 2,406,954 553,928
Held-to-maturity 1,954,463 1,759,383
----------- ----------
Total securities 4,361,417 2,313,311
----------- ----------
Trading account securities 41,879 30,294
Loans, net of unearned discounts 10,866,301 3,985,789
Less allowance for loan losses 143,510 59,597
----------- ----------
Net loans 10,722,791 3,926,192
----------- ----------
Premises and equipment, net 197,502 47,830
Goodwill and core deposit intangibles 1,249,695 122,512
Broker/dealer customer receivables 17,591 25,047
Other assets 460,876 187,304
----------- ----------
Total assets $17,665,793 $6,913,786
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing deposits $ 1,364,830 $ 454,146
Interest-bearing deposits 10,338,659 4,041,754
----------- ----------
Total deposits 11,703,489 4,495,900
Short-term borrowings 1,345,004 883,038
Accounts payable and accrued liabilities 352,958 114,991
Federal Home Loan Bank advances 1,786,181 714,335
Long-term debt 39,087 6,372
----------- ----------
Total liabilities 15,226,719 6,214,636
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Capital trust pass-through securities 49,918 49,909
Stockholders' equity:
Common stock 410,373 216,446
Additional paid-in capital 1,776,633 240,208
Retained earnings 200,930 196,755
Accumulated other comprehensive income (loss) 1,220 (4,168)
----------- ----------
Total stockholders' equity 2,389,156 649,241
Total liabilities and ----------- ----------
stockholders' equity $17,665,793 $6,913,786
=========== ==========
See notes to consolidated financial statements.
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
-------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
Loans $250,045 $ 77,672 $ 433,288 $ 214,139
Securities:
Taxable 72,039 35,836 154,091 101,556
Non-taxable 2,498 3,048 5,899 8,913
Trading account securities 656 532 1,652 1,813
Deposits at bank 783 247 910 723
Other 3,069 1,611 8,064 3,516
-------- -------- ----------- ---------
Total interest income 329,090 118,946 603,904 330,660
-------- -------- ----------- ---------
Interest expense:
Deposits 132,028 40,033 228,284 110,190
Federal Home Loan Bank advances 25,643 11,648 50,327 30,143
Long-term debt 648 93 832 274
Federal funds purchased and securities
sold under agreements to repurchase
and other short-term borrowings 21,934 7,585 51,728 23,532
-------- -------- ----------- ---------
Total interest expense 180,253 59,359 331,171 164,139
-------- -------- ----------- ---------
Net interest income 148,837 59,587 272,733 166,521
Provision for loan losses 5,098 6,403 11,140 12,617
-------- -------- ----------- ---------
Net interest income after
provision for loan losses 143,739 53,184 261,593 153,904
-------- -------- ----------- ---------
Other income:
Trust service income 14,275 1,980 18,987 6,197
Service charges on deposits 26,640 5,523 42,703 14,925
Other services charges and fees 9,247 4,967 20,096 14,789
Broker/dealer revenue 9,649 3,747 18,065 14,070
Securities gains (losses) 4,522 (1,286) 4,650 (3,319)
Other 7,402 6,517 15,744 17,606
-------- -------- ----------- ---------
Total other income 71,735 21,448 120,245 64,268
-------- -------- ----------- ---------
Other expenses:
Salaries and employee benefits 57,242 20,920 99,510 61,720
Occupancy expense 10,119 3,718 17,590 10,139
Furniture and equipment expense 6,464 1,806 10,104 5,093
Amortization of goodwill and core
deposit intangibles 27,822 1,447 33,899 4,225
Loss (gain) from interest rate swaps 12,324 (823) 20,006 (754)
Other 80,939 14,414 109,738 36,862
-------- -------- ----------- ---------
Total other expenses 194,910 41,482 290,847 117,285
-------- -------- ----------- ---------
Income before income taxes 20,564 33,150 90,991 100,887
Income taxes 14,775 11,100 37,269 33,861
-------- -------- ----------- ---------
Net income $ 5,789 $ 22,050 $ 53,722 $ 67,026
======== ======== =========== =========
Basic net income per share of common stock $ .03 $ .21 $ .38 $ .64
Diluted net income per share of common stock $ .03 $ .20 $ .38 $ .63
Dividends per share of common stock $ .105 $ .09 $ .315 $ .27
See notes to consolidated financial statements.
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)(Restated)
For the Nine Months Ended Sept. 30
----------------------------------
2000 1999
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(In Thousands)
Operating activities:
Net income $ 53,722 $ 67,026
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 11,140 12,617
Provision for depreciation and amortization 44,918 9,558
Net loss (gain) on sales of investment securities (4,650) 3,319
Net loss (gain) on sales of interest rate swaps 20,006 (754)
Deferred income taxes 32,450 (2,800)
Changes in:
Trading account securities (11,585) 44,014
Other assets (123,422) (24,759)
Other liabilities 42,199 10,390
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Net cash provided by (used in) operating activities 64,778 118,611
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Investing activities:
Proceeds from:
Maturities & calls investment securities 137,821 155,168
Sale of investment securities 1,403,904 268,826
Purchases of:
Investment securities (1,781,768) (494,821)
Premises & equipment (10,377) (6,391)
Net originations of loans (411,343) (467,553)
Net cash acquired in business combinations 318,633 14,560
----------- ---------
Net cash provided by (used in) investing activities (343,130) (530,211)
----------- ---------
Financing activities:
Net increase in deposit accounts 228,967 195,505
Net increase (decrease) in short-term borrowed funds 106,201 (146,031)
Net increase (decrease) in Federal Home Loan bank borrowings 382,764 285,408
Net increase (decrease) in long-term debt (15,809) 10
Issuance of common stock from exercise of stock options 3,938 4,211
Stock offering - 80,248
Purchase and retirement of common stock (25,726) (18,960)
Other equity transactions, net 311 1,061
Cash dividends paid (49,548) (28,299)
----------- ---------
Net cash provided by (used in) financing activities 631,098 373,153
----------- ---------
Decrease in cash and cash equivalents 352,746 (38,447)
Cash and cash equivalents at beginning of period 261,296 311,850
----------- ---------
Cash and cash equivalents at end of period $ 614,042 $ 273,403
=========== =========
See notes to consolidated financial statements.
NATIONAL COMMERCE BANCORPORATION
--------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 2000
------------------
(Unaudited)
---------
Restatement
- -----------
As a result of technical violations of pooling of interest rules regarding
treasury share repurchases and stock options, the Company is restating the
presentation of 9 business combinations as purchases rather than as poolings
of interests as previously reported.
As a result of the foregoing, the company's 1998, 1999, and 2000
consolidated financial statements have been restated. Management believes
that the Company's consolidated financial statements, as restated, include
all adjustments necessary for a fair presentation of the company's financial
position as of December 31, 1999 and September 30, 2000, and its results of
operations for the three month and nine month periods ended September 30,
2000 and 1999.
For the three month and nine month periods ended September 30, 2000,
restated net income equals $5,789,000 and $53,722,000 or $.03 and $.38
diluted earnings per shares, versus originally reported net income (loss) of
($10,125,000) and $109,065,000, or ($.05) and $.53 diluted earnings per
share. For the three and nine month periods ended September 30, 1999,
restated net income equals $22,050,000 and $67,026,000, or $.20 and $.63
diluted earnings per share, versus originally reported net income of
$59,515,000 and $195,420,000, or $.28 and $.94 diluted earnings per share.
Note A - Basis of Presentation
- ------------------------------
The consolidated balance sheet at December 31, 1999 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, 1999. 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. During second
quarter, 2000, the Company acquired Piedmont Bancorp. Inc., a $150 million
asset size bank holding company headquartered in Hillsborough, North
Carolina. On July 5, 2000, the Company merged with CCB Financial Corporation
of Durham, North Carolina, an $8 billion bank holding company. The Company
also acquired FMT Holding, Inc. of Memphis, Tennessee on July 27, 2000. Each
of these acquisitions, which were accounted for using the purchase method of
accounting for business combinations, are included in reported results from
the date of acquisition.
Note B - Segment Information
- ----------------------------
The Company considers itself to operate two principal lines: traditional
banking and financial enterprises.
The traditional banking segment includes sales and distribution of financial
products and services to individuals. These products and services include
loan products such as residential mortgages, home equity lending, automobile
and other personal financing needs. Traditional banking also offers various
deposit products that are designed for customers' saving and transaction
needs.
The traditional banking segment also 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 lending. Traditional
banking also includes management of the investment portfolio and non-deposit
based funding.
The Financial Enterprises segment includes trust services and investment
management, transaction processing, in-store consulting/licensing and
institutional broker/dealer activities.
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.
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, 2000:
Traditional Financial
Banking Enterprises Total
----------- ----------- -----------
Net interest income $ 153,551 $ 3,108 $ 156,659
Provision for loan losses (5,098) - (5,098)
----------- -------- -----------
Net interest income after provision 148,453 3,108 151,561
Non-interest income 42,102 29,633 71,735
Non-interest expense (172,872) (22,038) (194,910)
----------- -------- -----------
Net income before taxes 17,683 10,703 28,386
Income taxes (18,337) (4,260) (22,597)
----------- -------- -----------
Net income $ (654) $ 6,443 $ 5,789
=========== ======== ===========
Average assets $16,652,802 $425,524 $17,078,326
Quarter Ended Sept. 30, 1999:
Traditional Financial
Banking Enterprises Total
----------- ----------- -------
Net interest income $ 59,974 $ 3,007 $ 62,981
Provision for loan losses (6,403) - (6,403)
----------- -------- -----------
Net interest income after provision 53,571 3,007 56,578
Non-interest income 10,204 11,244 21,448
Non-interest expense (33,168) (8,314) (41,482)
----------- -------- -----------
Net income before taxes 30,607 5,937 36,544
Income taxes (12,016) (2,478) (14,494)
----------- -------- -----------
Net income $ 18,591 $ 3,459 $ 22,050
=========== ======== ===========
Average assets $ 6,297,105 $334,412 $ 6,631,517
Nine Months Ended Sept. 30, 2000:
Traditional Financial
Banking Enterprises Total
----------- ----------- -------
Net interest income $ 280,191 $ 8,975 $ 289,166
Provision for loan losses (11,140) - (11,140)
----------- -------- -----------
Net interest income after provision 269,051 8,975 278,026
Non-interest income 63,371 56,874 120,245
Non-interest expense (249,628) (41,219) (290,847)
----------- -------- -----------
Net income before taxes 82,794 24,630 107,424
Income taxes (43,932) (9,770) (53,702)
----------- -------- -----------
Net income $ 38,862 $ 14,860 $ 53,722
=========== ======== ===========
Average assets $10,236,088 $407,325 $10,643,412
Nine Months Ended Sept. 30, 1999:
Traditional Financial
Banking Enterprises Total
----------- ----------- -------
Net interest income $ 168,250 $ 8,137 $ 176,387
Provision for loan losses (12,617) - (12,617)
----------- -------- -----------
Net interest income after provision 155,633 8,137 163,770
Non-interest income 27,893 36,375 64,268
Non-interest expense (91,039) (26,246) (117,285)
----------- -------- -----------
Net income before taxes 92,487 18,266 110,753
Income taxes (36,087) (7,640) (43,727)
----------- -------- -----------
Net income $ 56,400 $ 10,626 $ 67,026
=========== ======== ===========
Average assets $ 5,930,012 $296,175 $ 6,226,187
Note C - 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 2000 1999 2000 1999
-------- -------- -------- --------
Numerator:
Net income $ 5,789 $ 22,050 $ 53,722 $ 67,026
======== ======== ======== ========
Denominator:
Denominator for basic earnings per
share - weighted average shares 205,570 107,137 140,856 103,491
Dilutive potential common shares -
Employee stock options 1,325 1,946 1,358 2,380
-------- -------- -------- --------
Denominator for diluted earnings per
share - adjusted weighted average
and assumed conversions 206,895 109,083 142,214 105,871
======== ======== ======== ========
Basic earnings per share $ .03 $ .21 $ .38 $ .65
Diluted earnings per share $ .03 $ .20 $ .38 $ .63
Note D - Comprehensive Income
- -----------------------------
During the third quarter of 2000 and 1999, total comprehensive income
amounted to $14,443,000 and $20,316,000 respectively. The year-to-date
total comprehensive income for 2000 and 1999 was $59,110,000 and $63,744,000
respectively.
Note E - Acquisitions
- ---------------------
On July 27, 2000, the Company completed its merger with First Mercantile
Trust and First Mercantile Capital Management, Inc. (collectively, "First
Mercantile"), a $7 million trust company based in Germantown, Tennessee, in a
transaction accounted for as a purchase. Under the terms of the agreement,
First Mercantile shareholders received 1.7 million shares of stock for all of
the First Mercantile stock outstanding. The approximate cost of the acquisition
was $32.9 million, of which $28.4 million has been recorded as goodwill.
Results of operations of First Mercantile have been included in the Company's
consolidated statements of income from the date of acquisition.
On July 5, 2000, the Company completed its merger with CCB Financial
Corporation ("CCBF"), an $8.8 billion bank holding company based in Durham,
North Carolina, in a transaction accounted for as a purchase. Under the terms
of the agreement, CCBF shareholders received 2.45 shares of the Company's stock
for each share of CCBF stock held. Approximately 93.8 million shares of common
stock were issued in exchange for all of the CCBF common stock outstanding. The
approximate cost of the acquisition, including the fair value of stock options
assumed and transaction costs, was $1.7 billion, of which $8l4.2 million has
been recorded as goodwill. Results of operations of CCBF have been included the
Company's consolidated statements of income from the date of acquisition.
On April 11, 2000, the Company completed its merger with Piedmont Bancorp.,
Inc. ("PBI"), a $151 million bank holding company based in Hillsborough, North
Carolina, in a transaction accounted for as a purchase. Under the terms of the
agreements, PBI shareholders received .60499 shares of the Company's stock for
each share of PBI stock held. Approximately 1.5 million shares of the Company's
stock were issued in exchange for all of the PBI common stock outstanding. The
approximate cost of the acquisition, including the fair value of stock options
and transaction costs, was $32.3 million, of which $12.7 million has been
recorded as goodwill. Results of operations of PBI have been included in the
Company's consolidated statements of income from the date of acquisition.
In March of 2000, TransPlatinum acquired Prime Financial Services, Inc., a
receivables financing company serving the transportation industry, in a
transaction accounted for as a purchase. This transaction is not material to
the consolidated financial statements.
On December 31, 1999, TransPlatinum completed the cash acquisition of
FleetOne, LLC. This transaction is not material to the consolidated financial
statements.
On August 20, 1999, the Company completed its merger with Southeastern
Mortgage of Tennessee, Inc. ("SMTI"), in a transaction accounted for as a
purchase. This transaction is
not material to the consolidated financial statements.
On August 4, 1999, the Company completed its merger with First Financial
Corporation of Mt. Juliet, Tennessee ("FFC"), a $277.7 million bank holding
company, in a transaction accounted for as a purchase. Under the terms of the
agreement, FFC shareholders received 2.8502 shares of the Company's stock for
each share of FFC held. Approximately 2.9 million shares of the Company's stock
were issued in exchange for all of the FFC common stock outstanding. The
approximate cost of the acquisition, including the fair value of stock options
assumed and transaction costs, was $77.1 million, of which $50.3 million has
been recorded as goodwill. Results of operating of FFC have been included in
the Company's consolidated statements of income from the date of acquisition.
During 1998, the Company completed mergers with four financial institutions
with combined assets of $312.6 million in transactions accounted for as
purchases. Approximately 3.1 million shares of the Company's stock were issued
in connection with these mergers. The approximate cost of the acquisitions was
$78.0 million, of which $42.2 million has been recorded as goodwill. Results of
operations of these acquired companies have been included in the Company's
consolidated statements of income from the dates of acquisition.
The following unaudited financial information presents the combined results
of operations of the Company, First Mercantile, PBI and CCBF as if those
acquisitions had occurred as of January 1, 2000 and 1999, respectively. Theses
proforma results give effect to certain adjustments, primarily amortization of
goodwill and core deposit intangibles, and related tax effects. The proforma
financial information does not necessarily reflect the results of operations
that would have occurred had the mergers occurred as of these proforma dates.
Proforma financial information relating to other acquisitions has not been
provided, as the acquisitions are not considered material to the Company's
financial position or results of operations as of September 30, 2000.
In Thousands, Except Per Share Data September 30
- ---------------------------------------------------------------
2000 1999
---- ----
Total revenue $1,133,139 $995,082
Net income 56,747 130,454
Basic earnings per common share .28 .64
Diluted earnings per common share .27 .63
In connection with the 2000 CCBF merger discussed above, the Company
incurred merger and integration charges of $44,765,000. The components of the
charges are shown below (in thousands):
2000
----
Merger integration costs:
Severance costs $ 2,335
Employee retention costs -
Restricted stock acceleration 759
Change-in-control related costs 30,891
Other costs accrued 2,403
-------
Total personnel-related costs 36,388
Occupancy and equipment write-downs -
Systems and other integration costs 6,375
Securities losses from balance restructuring 2,002
-------
Total merger and integration costs $44,765
=======
Personnel-related costs include accrued termination benefits for the
Company's employees in operational and support positions that management has
elected to eliminate as a result of the CCBF merger integration plan. Of a total
134 positions to be eliminated, 76 positions had been eliminated as of September
30, 2000. A total of $5.1 million of severance costs for CCBF employees was
included in the cost of the CCBF acquisition. Systems and other integration
costs included incremental costs such as consultants and contract labor related
to the conversion of systems, customer communications and Employee benefits
integration costs.
The following summarized activity within the Company's merger accrual
account during 2000 (in thousands):
Balance at beginning of period $ -
Provision charged to operating expense 44,765
Cash outlays (37,690)
Non-cash write-downs (2,635)
-------
Balance at end of period $ 4,440
=======
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. During third quarter 1999, the
Company acquired First Financial Corporation of Mt. Juliet, Tennessee and
Nashville-based Southeastern Mortgage of Tennessee. During second quarter, 2000,
the Company acquired Piedmont Bancorp. Inc., a $150 million asset size bank
holding company headquartered in Hillsborough, North Carolina. On July 5, 2000,
the Company merged with CCB Financial Corporation of Durham, North Carolina, an
$8 billion bank holding company. in a merger of equals transaction. The Company
also acquired FMT Holding, Inc. of Memphis, Tennessee on July 27, 2000. Each of
these acquisitions, which were accounted for using the purchase method of
accounting for business combinations, are included in reported results from the
date of acquisition.
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/A 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.
The Financial Condition and Results of Operations for the period ended
September 30, 2000, as compared to the period ended September 30, 1999 are
impacted significantly by the purchase acquisitions of Piedmont Bancorp. Inc. in
April, 2000; CCB Financial Corporation in July, 2000; and First Mercantile and
First Mercantile Capital in July, 2000. These companies are referred to
collectively in the remainder of this discussion as the "Acquired Companies".
Financial Condition
- -------------------
Following is a comparison of the September 30, 2000 and December 31, 1999
consolidated balance sheets.
Total assets increased by $10.8 billion compared to December 31, 1999
levels, with the majority of the increase attributable to the Acquired
Companies. Total loans, net of unearned discounts, increased by $6.9 billion.
Securities increased by $2.0 billion and federal funds sold and securities
purchased under agreements to resell increased by $109 million. Trading account
securities increased by $11.6 million from year-end 1999 levels. This increase
reflects the trading activity generated by NBC Capital Markets Group, Inc., the
Companies broker/dealer subsidiary which fluctuates from time to time.
Total liabilities increased $9.0 billion compared to the December 31, 1999
levels, with the majority of the increase again attributable to the Acquired
Companies. Total deposits increased $7.2 billion and short-term borrowings
increased $462 million.
Results of Operations
- ---------------------
Three Months Ended September 30, 2000, Compared to Three Months Ended September
- -------------------------------------------------------------------------------
30, 1999
- --------
Net income was $5,789,000 for the third quarter of 2000, a 73.7% decrease
over the $22,050,000 reported for the same period a year earlier. Diluted
earnings per share were $.03, compared to $.20 per share in 1999, down 85.0%.
Basic earnings per share were $.03, compared to $.21 per share in 1999, down
85.7%. During the quarter, the Company incurred non-recurring expenses of $57.1
million in connection with the CCB Financial Corporation merger and losses on
interest rate swaps. The after-tax cost amounted to $.20 per diluted share.
Net income, before non-recurring expenses, was $48,123,000, compared to
$22,050,000 reported for the third quarter of 1999. Diluted earnings per share
before non-recurring expenses were $.23 and basic earnings per share were $.23.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$93,678,000 or 148.7% for the third quarter of 2000, compared to third quarter
1999. This decrease reflects a $214,572,000 or 175.4% increase in total interest
income that was offset by a $120,894,000 or 203.7% increase in interest expense.
Interest income increased in 2000 due to an increase of $8.8 billion or 142.4%
in total average earning assets, and an increase in the yield on average earning
assets from 7.90% in the third quarter of 1999 to 8.97% in the third quarter of
2000. The increased volume of earning assets increased interest income by
approximately $174,246,000 while the increased yield increased interest income
by approximately $40,326,000. Interest expense increased in the third quarter of
2000, reflecting an increase in average interest-bearing liabilities of $7.6
billion or 140.5% and an increase in the cost of interest-bearing liabilities
from 4.36% to 5.50%. The increase in the rate paid on interest-bearing
liabilities increased interest expense by approximately $37,507,000 and the
increase in average outstandings increased interest expense by approximately
$83,387,000. The net interest margin (taxable equivalent net interest income as
a percentage of average earning assets) was 4.17% in third quarter 2000,
compared to 4.07% in third quarter of 1999.
The provision for loan losses in the third quarter of 2000 was $5,098,000,
versus $6,403,000 for the third quarter of 1999. Net charge-offs were
$4,746,000, or .18% of average net loans, compared to $1,770,000 or .05% of
average net loans in 1999. The allowance for loan losses totaled $143,510,000 at
September 30, 2000, representing 1.32% of quarter-end net loans, compared to
$62,061,000 or 1.45% of quarter-end net loans at June 30, 2000.
Following is a comparison of non-earning assets and loans past due 90 days
or more for the quarters ended September 30, 2000, June 30, 2000, and September
30, 1999 (dollars in thousands):
9-30-00 6-30-00 9-30-99
-------- -------- -------
Non-accrual loans $ 26,432 $ 1,377 $ 76
Renegotiated loans 2,235 - -
Other real estate 3,219 1,309 217
-------- -------- -------
Total non-earning assets $ 31,886 $ 2,686 $ 293
======== ======== =======
Percentage of total loans .29% .06% .01%
Loans past due 90 days or more $ 7,949 $ 6,142 $ 3,704
Percentage of total loans .07% .14% .10%
Non-interest income, excluding securities transactions, totaled $67,213,000
for the quarter, an increase of $44,479,000, or 195.6%, from last year's third
quarter. Securities gains totaled $4,522,000 in third quarter, 2000, compared
to losses of $1,286,000 in 1999. Non-interest expenses (excluding the provision
for loan losses) increased by $153,428,000 or 369.9% in third quarter, 2000.
Non-recurring expenses related to the CCB Financial Corporation merger were
$44.8 million. The Company also had $7.2 million in expense from FMT Holdings,
Inc., which was acquired during the third quarter, 2000.
The Company's return on average assets and return on average equity were
.13% and .98% respectively, for third quarter of 2000. These compared with 1999
third quarter returns of 1.33% and 14.79%, respectively.
Nine Months Ended September 30, 2000, Compared to Nine Months Ended September
- -----------------------------------------------------------------------------
30, 1999
- --------
For the nine months ended September 30, 2000, net income totaled
$53,722,000, a 19.8% decrease over the $67,026,000 for the first nine months of
1999. Diluted earnings per share were $.38, compared to $.63 for the same
period in 1999, a 39.7% decrease. Basic earnings per share were $.38 compared
to $.65 in 1999, a 41.5% decrease.
Net income, before non-recurring items, was $69,417,000, compared to
$47,091,000 for the same period of 1999. Diluted earnings per share before non-
recurring items were $.49 compared to $.44 in 1999. Basic earnings per share
were $.49 compared to $.46 in 1999. For the nine-month period, return on
average assets and return on average stockholders' equity were .87% and 7.56%,
respectively, before non-recurring items. These compared with 1999 nine month
returns of 1.44% and 17.35% before non-recurring items.
Net interest income increased by $112,779 or 63.9% for the first nine months
of 2000. This increase reflects a $280,351,000 or 82.3% increase in total
interest income that more than offsets a $167,032,000 or 101.8% increase in
interest expense. Interest income increased in 2000 due to an increase of $3.3
billion or 51.8% in total average earning assets and by an increase in the yield
on average earning assets from 7.88% in 1999 to 8.68% in 2000. The increased
volume of earning assets increased interest income by approximately
$176,266,000, and the increased yield reduced interest income by approximately
$104,085,000. Interest expense increased in the first nine months of 2000,
reflecting an increase in average interest-bearing liabilities of $2.9 billion
or 52.2%, with the cost of interest-bearing liabilities increasing from 4.31% to
5.25% in 2000. The increase in average outstandings increased interest expense
by approximately $85,611,000 while the increased rate reduced interest expense
by approximately $81,421,000. The net interest margin was 4.04% in the first
nine months of 2000, compared to 4.08% in the first nine months of 1999.
The provision for loan losses for the first nine months of 2000 was
$11,140,000, versus $12,617,000 for the first nine months of 2000. Net charge-
offs were $9,454,000, or .20% of average net loans compared to $5,670,000, or
.23% of average net loans in 1999.
Non-interest income, excluding securities transactions, totaled $115,595,000
for the first nine months of 2000, compared to a total of $67,587,000 for the
first nine months of 1999, an increase of 71.0%. The majority of the increase
is from the Acquired Companies. Securities gains totaled $4,650,000 in 2000,
compared to a loss of $3,319,000 in 1999.
Non-interest expenses (excluding the provision for loan losses) increased by
$173,562,000 or 148.0% for the first nine months of 2000, excluding the non-
recurring items already mentioned.
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 stockholders' equity increased by $1,739,915,000 from December 31,
1999. Common stock and additional paid-in capital accounted for the majority of
the increase. Through September 30, 2000, 9.8 million shares had been
repurchased and cancelled under a stock repurchase program initiated in January,
1996, extended in December, 1997 and December, 1999.
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, 2000.
9-30-00
-------
Total capital to risk-weighted assets 11.13%
Tier I capital to risk-weighted assets 9.93%
Tier I capital to assets (leverage ratio) 7.51%
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
to future periods.
After the merger of equals transaction with the former CCB Financial
Corporation, the Company's market risk continues to result primarily from
interest rate risk inherent in its lending and deposit-taking activities. The
structure of the Company's loan and deposit portfolios is such that a
significant rise or decline in interest rates may adversely impact net market
values and net interest income. Responsibility for monitoring interest rate
risk rests with the asset/liability committee (ALCO), comprised of senior
management. ALCO regularly reviews the Company's interest rate risk position
and adopts balance sheet strategies that are intended to optimize net interest
income while maintaining market risk within a set of Board-approved guidelines.
The Company is not subject to currency exchange risk nor commodity price risk.
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
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/ Mark A. Wendel
--------------------------------------
Mark A. Wendel
Senior Vice President and Chief Accounting
Officer
(Authorized Officer)
(Chief Accounting Officer)
Date: September 11, 2001
------------------