UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1996
Commission file number 0-6094
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NATIONAL COMMERCE BANCORPORATION
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(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
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(State or other jurisdiction (I.R.S. Employer
of incorporation 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)523-3242
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
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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 -- 24,397,454 shares as of November 6, 1996.
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
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(In Thousands)
Sept.30 Dec. 31
1996 1995
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(unaudited)
ASSETS
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Cash and cash equivalents:
Interest-bearing deposits with other banks $ 17,332 $ 16,660
Cash and non-interest bearing deposits 136,506 144,166
Federal funds sold and securities
purchased under agreements to resell 14,066 226,929
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Total cash and cash equivalents 167,904 387,755
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Securities:
Held-to-maturity 819,651 762,023
Available-for-sale 534,083 516,623
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Total securities 1,353,734 1,278,646
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Trading account securities 25,565 20,159
Loans:
Commercial, financial and agricultural 433,902 399,580
Real estate - construction 142,177 122,720
Real estate - mortgage 582,982 520,657
Consumer 1,074,846 871,407
Lease financing 13,874 18,678
Unearned discounts (4) (1,829)
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Total loans 2,258,442 1,931,213
Less allowance for loan losses 34,827 29,010
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Net loans 2,212,950 1,902,203
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Premises and equipment, net 19,628 18,382
Broker/dealer customer receivables 10,601 13,444
Other assets 95,165 74,453
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Total assets $3,885,547 $3,695,042
========== ==========
See notes to consolidated financial statements.
1
Consolidated Balance Sheets (cont.)
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(In Thousands)
Sept. 30 Dec. 31
1996 1995
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(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities:
Deposits:
Non-interest-bearing deposits $ 309,800 $ 331,436
Money market checking 251,908 274,876
Savings 75,468 86,989
Money market savings 891,422 735,911
Certificates of deposit less than $100,000 716,761 677,733
Certificates of deposit of $100,000 or more 513,030 467,825
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Total deposits 2,758,389 2,574,770
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Federal funds purchased and securities sold
under agreements to repurchase 298,862 404,746
Broker/dealer customer payables 0 1,271
Accounts payable and accrued liabilities 47,099 38,396
Federal Home Loan Bank advances 322,362 372,799
Long-term debt 156,017 6,381
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Total liabilities 3,582,729 3,398,363
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Stockholders' equity:
Common stock 48,782 49,669
Additional paid-in capital 65,606 80,605
Retained earnings 188,362 161,878
Unrealized gains (losses) on securities, net of taxes 68 4,527
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Total stockholders' equity 302,818 296,679
Total liabilities and --------- ---------
stockholders' equity $3,885,547 $3,695,042
========== ==========
See notes to consolidated financial statements.
2
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Income
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(Unaudited)
(In Thousands, Except per Share Data)
For the three months For the nine months
ended Sept. 30 ended Sept. 30
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1996 1995 1996 1995
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Interest income:
Loans $48,747 $41,295 $138,889 $115,971
Securities:
Taxable 20,635 20,264 62,364 51,961
Non-taxable 1,904 2,004 5,867 6,523
Trading account securities 446 328 1,218 893
Deposits at banks 233 256 674 748
Other 455 160 1,103 1,081
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Total interest income 72,420 64,307 210,115 177,177
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Interest expense:
Deposits:
Money market savings 945 1,222 3,016 3,632
Savings 390 463 1,250 1,484
Money market savings 9,772 7,753 25,847 22,882
Certificates of deposit less
than $100,000 9,570 9,301 27,741 26,007
Certificates of deposit $100,000
or more 7,535 6,441 20,855 16,217
Federal Home Loan Bank advances 6,284 4,078 18,113 9,786
Long-term debt 1,047 116 1,276 343
Federal funds purchased and
securities sold under agreements to
repurchase 3,483 3,613 12,462 9,336
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Total interest expense 39,026 32,987 110,560 89,687
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Net interest income 33,394 31,320 99,555 87,490
Provision for loan losses 4,149 3,011 11,444 6,404
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Net interest income after
provision for loan losses 29,245 28,309 88,111 81,086
------- ------- -------- --------
Other income:
Trust service income 2,200 2,070 6,549 6,073
Service charges on deposits 3,701 3,369 10,476 10,239
Other services charges and fees 3,234 1,365 7,639 3,987
Broker/dealer revenue 1,676 2,524 7,617 7,299
Securities gains (losses) 194 51 (38) 219
Other income 7,843 3,982 20,422 12,597
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Total other income 18,848 13,361 52,665 40,414
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3
Consolidated Statements of Income (cont.)
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For the three months For the nine months
ended Sept. 30 ended Sept. 30
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1996 1995 1996 1995
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Other expenses:
Salaries and employee benefits 11,744 10,646 35,797 30,812
Occupancy expense 2,391 2,188 7,103 6,446
Furniture and equipment expenses 961 903 2,807 2,642
FDIC assessment 106 5 323 2,408
Other expenses 10,377 8,575 31,326 25,759
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Total other expenses 25,579 22,317 77,356 68,067
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Income before income taxes 22,514 19,353 63,420 53,433
Income taxes 7,789 6,587 21,656 17,584
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Net income $14,725 $12,766 $41,764 $35,849
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Net income per share of common stock $.59 $.51 $1.67 $1.42
Dividends per share of common stock $.19 $.l7 $.57 $.51
See notes to consolidated financial statements.
4
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
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(Unaudited)
For the Nine Months
Ended Sept 30
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1996 1995
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(In Thousands)
Operating activities:
Net income $41,764 $35,849
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 11,444 6,404
Provision for depreciation and amortization 2,839 2,998
Amortization of security premiums and accretion
of discounts, net 6 (257)
Deferred income taxes (credit) 945 (1,018)
(Increase) decrease in trading account securities (5,406) (5,590)
Realized securities (gains) losses 38 (219)
(Increase) decrease in broker/dealer customer
receivables 2,843 (4,573)
(Increase) decrease in interest receivable 496 (4,927)
(Increase) decrease in other assets (22,553) (7,422)
Increase in broker/dealer customer payables (1,271) 1,371
Increase (decrease) in interest payable (662) 8,272
Increase (decrease) in accounts payable and
accrued expenses 13,727 1,012
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Net cash provided by (used in) operating activities 44,210 31,900
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Investing activities:
Available for sale securities:
Proceeds from the maturities of securities 168,279 40,975
Proceeds from sales of securities 274,464 229,827
Purchases of securities available for sale (375,478) (159,428)
Purchases of securities held to maturity (149,707) (338,286)
Net increase (decrease) in loans (323,472) (234,634)
Purchase of premises and equipment (3,685) (3,285)
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Net cash provided by (used in) investing activities (409,599) (464,831)
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Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 99,386 (37,780)
Net increase (decrease) in certificates of deposit 84,233 336,962
Net decrease in federal funds purchased and
securities sold under agreements to repurchase (105,884) (56,508)
Increase (decrease) in long-term debt 149,636 (2)
Increase (decrease) in Federal Home Loan Bank
advances (50,437) (108,901)
Proceeds from exercise of stock options 3,198 1,718
Issuance of common stock 3,583 0
Repurchases of common stock (24,180) 0
Cash dividends paid (13,997) (12,582)
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Net cash provided by (used in) financing activities 145,538 453,725
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Decrease in cash and cash equivalents (219,851) 20,794
Cash and cash equivalents at beginning of period 387,755 166,433
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Cash and cash equivalents at end of period $167,904 $187,227
========= =========
Interest paid $111,222 $81,415
Income taxes paid $22,549 $18,635
5
NATIONAL COMMERCE BANCORPORATION
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Notes to Consolidated Financial Statements
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September 30, 1996
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(Unaudited)
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Note A - Basis of Presentation
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The consolidated balance sheet at December 31, 1995 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, 1995. 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.
Note B - Securities Portfolio
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In accordance with FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities", as of September 30, 1996 the securities in the
"Available for Sale" category included $112,000 in unrealized gains.
Accordingly, total securities and total stockholders' equity were increased
by $112,000 and $68,000 (net of taxes), respectively, at September 30,
1996, to reflect the adjustment of the securities portfolio to market. The
calculation of book value per share reflects these mark-to-market
unrealized gains, whereas the calculation of ROA and ROE do not, because
the unrealized gains are not included in net income. The fair value of the
"Held to Maturity" category was $804.0 million at September 30, 1996.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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) 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 through September 30, 1996.
Financial Condition
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Following is a comparison of the September 30, 1996, and December 31, 1995,
consolidated balance sheets. In the liability section, total deposits increased
by $184 million or 7.1%, principally as a result of a $45 million or 9.7%
increase in certificates of deposit of $100,000 or more, reflecting current
market trends and increases of $156 million or 21.1% increase in money market
savings deposits, and a $39 million or 5.8% increase in certificates of deposit
less than $100,000, reflecting new deposit gathering campaigns. Partially
offsetting these increases, money market checking accounts decreased $23 million
or 8.4%, savings deposits decreased $12 million or 13.2%, and non-interest-
bearing deposit accounts decreased $22 million or 6.5% reflecting normally
higher year-end non-interest-bearing deposit levels.
Federal funds purchased and securities sold under agreements to repurchase
decreased $106 million or 26.2% from year-end 1995 levels. This category of
liabilities fluctuates with the availability of overnight funds purchased from
downstream correspondent banks.
Federal Home Loan Bank advances decreased $50 million or 13.5% from
December 31, 1995. This increase is principally the result of asset/liability
management decisions related to the current interest rate environment.
Long-term debt increased $150 million, reflecting management's decision to
issue floating-rate notes with a two-year maturity of a bank subsidiary due to a
favorable interest rate environment.
In the asset section, total gross loans increased by $315 million or 16.3%
compared to December 31, 1995 levels. Commercial loans increased by $34 million
or 8.6%, real estate construction loans increased by $19 million or 15.9%, and
real estate mortgage loans increased $62 million or 12.0%, reflecting current
demand. Consumer loans increased $203 million or 23.3%, reflecting an increased
emphasis on promoting indirect automobile loans.
Securities increased by $75 million or 5.9% from year-end 1995. Securities
held to maturity increased by $58 million or 7.6%, and securities available for
sale increased $17 million or 3.4%, reflecting current portfolio investment
strategies, and current market conditions.
Federal funds sold and securities purchased under agreements to resell
decreased by $213 million or 93.8% from December 31, 1995 levels, reflecting
less excess funds that otherwise were not employed in loans or securities at
September 30, 1996.
Trading account securities increased by $5 million or 26.8% from year-end
1995 levels. This decrease reflects the trading activity generated by Commerce
Investment Corporation, the Company's broker/dealer subsidiary, which fluctuates
from time to time.
Broker/dealer customer receivables decreased $3 million and payables
decreased $1 million reflecting levels of activity.
7
Results of Operations
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Three Months Ended September 30, 1996, Compared to Three Months Ended
September 30, 1995
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Net income was $14,725,000 for the third quarter of 1996, a 15.3% increase
over the $12,766,000 reported for the same period a year earlier. Earnings per
share were $.59, compared to $.51 per share in 1995, up 15.7%.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$1,990,000 or 6.1% for the third quarter of 1996. This increase reflects an
$8,029,000 or 12.2% increase in total interest income that more than offsets a
$6,039,000 or 18.3% increase in interest expense. Interest income increased in
1996 due to an increase of $513,236,000 or 16.3% in total average earning
assets, partially off-set by a decrease in the yield on average earning assets
from 8.27% in the third quarter of 1995 to 8.00% in the third quarter of 1996.
The increased volume of earning assets positively impacted interest income by
approximately $10,000,000, while the decreased yield negatively impacted
interest income by approximately $2,000,000. Interest expense increased in the
third quarter of 1996, reflecting an increase in average interest-bearing
liabilities of $499,849,000 or 18.3%, and an increase in the cost of interest-
bearing liabilities from 4.80% to 4.81%. The increase in the rate paid on
interest-bearing liabilities had a minimal effect on interest expense, and the
increase in average outstandings negatively affected interest expense by
approximately $6,000,000. The net interest margin (taxable equivalent net
interest income as a percentage of average earning assets) was 3.76% in third
quarter 1996, compared to 4.11% in third quarter of 1995.
The provision for loan losses in the third quarter of 1996 was $4,149,000,
versus $3,011,000 for the third quarter of 1995. Net charge-offs were
$1,797,000, or .33% of average loans compared to $1,135,000 or .26% of average
loans in 1995. The increased provision was due to possible losses on current
loan growth. The allowance for loan losses totaled $34,827,000 at September 30,
1996, representing 1.55% of quarter-end net loans, compared to $27,456,000 or
1.51% of quarter-end net loans at September 30, 1995.
Following is a comparison of non-earning assets and loans past due 90 days
or more for the quarters ended September 30 1996, June 30, 1996, and
September 30, 1995 (dollars in thousands):
9-30-96 6-30-96 9-30-95
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Non-accrual loans 0 0 57
Renegotiated loans 0 0 0
Other real estate 0 97 0
------- ------- -------
Total non-earning assets 0 97 57
======= ======= =======
Loans past due 90 days or more 3,068 2,561 2,953
Percentage of total loans .14% .12% .16%
Non-interest income, excluding securities transactions, totaled $18,654,000
for the quarter, an increase of $5,344,000, or 40.2%, from last year's third
quarter. The Company's broker/dealer revenue decreased $848,000 versus third
quarter 1995, reflecting current market conditions. Also included in non-
interest income was a pre-tax gain of $1.8 million relating to bank facilities
transactions. All other sources of non-interest income, including service charge
income, trust service income, fuel card processing income, and supermarket
sublicense income increased a net of $4,393,000 or 40.7%. Securities gains
totaled $194,000 in third quarter 1996, compared to $51,000 in securities gains
in 1995.
8
Non-interest expenses (excluding the provision for loan losses) increased
by $3,262,000 or 14.6% in third quarter, 1996, primarily reflecting increased
employment and occupancy expenses relating to new products and locations and
increased promotional expenses of new loan and deposit gathering campaigns.
The Company's return on average assets and return on average equity were
1.52% and 19.98% respectively, for third quarter of 1996. These compared with
1995 third quarter returns of 1.53% and 18.45%, respectively.
Nine Months Ended September 30, 1996, Compared to Nine Months Ended
September 30, 1995
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For the nine months ended September 30, 1996, net income totaled
$41,764,000, a 16.5% increase over the $35,849,000 for the first nine months of
1995. Earnings per share were $1.67, compared to $1.42 for the same period in
1995, a 17.6% increase. For the nine-month period, return on average assets and
return on average stockholders' equity were $1.49% and 19.01% respectively.
These compared with 1995 nine month returns of 1.54% and 17.84%.
Net interest income increased by $11,616,000 or 12.6% for the first nine
months of 1996. This increase reflects a $32,489,000 or 17.9% increase in total
interest income that more than offsets a $20,873,000 or 23.3% increase in
interest expense. Interest income increased in 1996 due to an increase of
$627,729,000 or 21.5% in total average earning assets, partially offset by a
decrease in the yield on average earning assets from 8.32% in 1995 to 8.06% in
1996. The increased volume of earning assets positively impacted interest
income by approximately $39,000,000, while the decreased yield negatively
impacted interest income by approximately $6,800,000. Interest expense
increased in the first nine months of 1996, reflecting an increase in average
interest-bearing liabilities of $586,895,000 or 23.4%, with the cost of
interest-bearing liabilities remaining flat at 4.77%. The increase in average
oustandings negatively impacted interest expense by approximately $21,000,000.
The net interest margin was 3.90% in the first nine months of 1996, compared to
4.21% in the first nine months of 1995.
The provision for loan losses for the first nine months of 1996 was
$11,444,000, versus $6,604,000 for the first nine months of 1995. Net charge-
offs were $5,224,000, compared to $3,258,000 in 1995.
Non-interest income, excluding securities transactions, totaled $52,703,000
for the first nine months of 1996, compared to a total of $40,195,000 for the
first nine months of 1995, an increase of 31.1%. The Company's broker-dealer
revenue increased $318,000 or 4.4%, reflecting current market conditions. Other
sources of non-interest income, including service charge income, trust service
income, fuel card processing income, supermarket sublicence income, and the
previously mentioned gain on the sale of certain assets, primarily loans, of the
Company's Commerce Finance Company subsidiary, and the previously mentioned gain
relating to bank facilities transactions, increased a net of $12,190,000 or
37.1%. Securities losses totaled $38,000 in 1996, compared to $219,000 in
securities gains in 1995.
Non-interest expenses (excluding the provision for loan losses) increased
by $9,289,000 or 13.6% for the first nine months of 1996. Increased employment
and occupancy expenses relating to new products and locations, and increased
promotional expenses of new loan and deposit gathering campaigns, partially
offset by lower FDIC insurance premiums, were the primary reasons for the
increase.
9
Liquidity and Capital Resources
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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 $10,598 from December 31,
1995. Retained earnings increased a total of $26,484,000. Offsetting this
increase was the effect of a stock repurchase program initiated in January,
1996. Through September 30, 1996, 840,408 shares had been repurchased and
cancelled under the program at a cost of $24,181,000. This decrease in shares
outstanding was partially offset by the issue of 265,035 shares through the
exercise of stock options and 129,908 shares issued in exchange for the
remaining stock of TransPlatinum Service Corp.
The following capital ratios do not include the effect of FAS No. 115 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, 1996.
9-30-96 6-30-96 9-30-95
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Total capital to risk-weighted assets 12.36% 12.22% 12.82%
Tier I capital to risk-weighted assets 11.11% 10.96% 14.06%
Tier I capital to assets (leverage ratio) 7.69% 7.41% 8.02%
10
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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a. Exhibits
11. Computation of Earnings per Share
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, 1996.
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
Executive Vice President, Treasurer and
Chief Financial Officer
(Authorized Officer)
(Principal Financial Officer)
Date November 12, 1996
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11