<PAGE>
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, 1998
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 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 -- 100,013,845 shares as of October 31, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
--------------------
NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
--------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Sept 30 Dec. 31
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 18,497 $ 18,293
Cash and non-interest bearing deposits 170,356 206,191
Federal funds sold and securities
purchased under agreements to resell 41,941 23,009
---------- ----------
Total cash and cash equivalents 230,794 247,493
---------- ----------
Securities:
Held-to-maturity 1,059,857 1,210,071
Available-for-sale 787,614 408,083
---------- ----------
Total securities 1,847,471 1,618,154
---------- ----------
Trading account securities 38,362 98,332
Loans:
Commercial, financial and agricultural 584,642 512,534
Real estate - construction 234,913 241,334
Real estate - mortgage 1,096,013 781,826
Consumer 1,115,152 1,045,420
Lease financing 29,714 30,046
Unearned discounts (2,438) (2,193)
---------- ----------
Total loans 3,057,996 2,608,967
Less allowance for loan losses 46,690 43,297
---------- ----------
Net loans 3,011,306 2,565,670
---------- ----------
Premises and equipment, net 33,721 27,404
Broker/dealer customer receivables 4,266 7,695
Other assets 137,642 127,263
---------- ----------
Total assets $5,303,562 $4,692,011
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
Consolidated Balance Sheets (cont.)
- -----------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Sept 30 Dec. 31
1998 1997
---------- ---------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing deposits $ 386,955 $ 417,748
Money market checking 316,529 286,555
Savings 103,879 83,626
Money market savings 1,058,054 943,422
Certificates of deposit less than $100,000 847,591 899,027
Certificates of deposit of $100,000 or more 868,716 620,864
---------- ----------
Total deposits 3,581,724 3,251,242
---------- ----------
Federal funds purchased and securities sold
under agreements to repurchase 481,090 423,573
Broker/dealer customer payables 543 59
Accounts payable and accrued liabilities 57,341 68,969
Federal Home Loan Bank advances 733,324 389,884
Other borrowed funds and long-term debt 6,372 156,252
---------- ----------
Total liabilities 4,860,394 4,289,979
---------- ----------
Capital trust pass-through securities 49,893 49,884
Stockholders' equity:
Common stock 200,095 97,704
Additional paid-in capital 50,865 52,524
Retained earnings 139,937 199,670
Unrealized gains (losses) on securities, net of taxes 2,378 2,250
---------- ----------
Total stockholders' equity 393,275 352,148
Total liabilities and --------- ---------
stockholders' equity $5,303,562 $4,692,011
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Income
----------------------------------
(Unaudited)
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended Sept 30 ended Sept 30
-------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $68,059 $59,995 $191,095 $168,924
Securities:
Taxable 25,594 24,281 77,847 72,778
Non-taxable 1,988 1,870 5,878 5,621
Trading account securities 985 413 2,564 1,237
Deposits at banks 279 266 741 722
Other 488 313 2,082 712
------- ------- -------- --------
Total interest income 97,393 87,138 280,207 249,994
------- ------- -------- --------
Interest expense:
Deposits:
Money market checking 902 733 2,405 2,559
Savings 538 405 1,403 1,195
Money market savings 11,396 10,392 32,346 31,045
Certificates of deposit less than $100,000 11,749 11,229 37,652 31,562
Certificates of deposit $100,000 or more 7,376 7,375 23,696 22,953
Federal Home Loan Bank advances 9,044 6,215 18,672 17,466
Long-term debt 1,413 2,364 6,044 6,949
Federal funds purchased and securities
sold under agreements to repurchase 5,552 6,402 16,642 16,476
------- ------- -------- --------
Total interest expense 47,970 45,115 138,860 130,205
------- ------- -------- --------
Net interest income 49,423 42,023 141,347 119,789
Provision for loan losses 2,962 4,280 6,459 11,285
------- ------- -------- --------
Net interest income after
provision for loan losses 46,461 37,743 134,888 108,504
------- ------- -------- --------
Other income:
Trust service income 2,526 2,409 7,741 6,763
Service charges on deposits 4,828 4,394 13,932 12,192
Other services charges and fees 5,203 4,086 12,873 10,941
Broker/dealer revenue 4,385 3,158 14,055 7,890
Securities gains (losses) 113 2 158 31
Other 4,338 5,963 14,587 18,640
------- ------- -------- --------
Total other income 21,393 20,012 63,346 56,457
------- ------- -------- --------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income (cont.)
- -----------------------------------------------------------------------------------------------
(Unaudited)
- ----------
For the three months For the nine months
ended Sept 30 ended Sept 30
------------------- -------------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Other expenses:
Salaries and employee benefits 16,622 14,123 49,395 41,917
Occupancy expense 3,140 2,581 8,864 7,727
Furniture and equipment expenses 1,448 1,236 4,128 3,534
Other 14,481 12,595 42,293 36,825
------- ------- -------- -------
Total other expenses 35,691 30,535 104,680 90,003
------- ------- -------- -------
Income before income taxes 32,163 27,220 93,554 74,958
Income taxes 10,299 9,175 31,196 25,689
------- ------- -------- -------
Net income $21,864 $18,045 $ 62,358 $49,269
======= ======= ======== =======
Basic net income per share of common stock $ .22 $ .18 $ .62 $ .50
Diluted net income per share of common stock $ .21 $ .18 $ .61 $ .49
Dividends per share of common stock* $ .08 $ .05 $ .23 $ .17
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended Sept 30
------------ ----------
1998 1997
------------ ----------
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 62,358 $ 49,269
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 6,459 11,285
Provision for depreciation and amortization 5,591 3,884
Amortization of security premiums and accretion
of discounts, net (2,252) 28
Deferred income taxes (credit) 1,336 (861)
(Increase) decrease in trading account securities 59,970 10,615
Realized securities (gains) losses (158) (31)
(Increase) decrease in broker/dealer customer receivables 3,429 (2,310)
(Increase) decrease in interest receivable (1,959) 3,260
(Increase) decrease in other assets (9,756) (13,547)
Increase (decrease) in broker/dealer customer payables 484 (1,002)
Increase (decrease) in interest payable 215 1,137
Increase (decrease) in accounts payable and accrued expenses (6,094) 98,728
----------- ---------
Net cash provided by (used in) operating activities 119,623 160,455
----------- ---------
Investing activities:
Proceeds from the maturities of securities 766,817 168,886
Proceeds from sales of securities 24,701 79,987
Purchases of securities (1,018,216) (302,674)
Net (increase) decrease in loans (452,095) (266,267)
Purchase of premises and equipment (11,908) (8,198)
----------- ---------
Net cash provided by (used in) investing activities (690,701) (328,266)
----------- ---------
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 134,066 (8,021)
Net increase (decrease) in certificates of deposit 196,416 3,488
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 57,517 153,493
Increase (decrease) in long-term debt (149,871) 50,021
Increase (decrease) in Federal Home Loan Bank advances 343,440 28,728
Proceeds from exercise of stock options 4,003 2,987
Issuance of common stock 19,637 53
Repurchases of common stock (28,426) (8,481)
Cash dividends paid (22,403) (16,195)
----------- ---------
Net cash provided by (used in) financing activities 554,379 206,073
----------- ---------
Decrease in cash and cash equivalents (16,699) 38,262
Cash and cash equivalents at beginning of period 247,493 195,902
----------- ---------
Cash and cash equivalents at end of period $ 230,794 $ 234,164
=========== =========
Interest paid $ 139,075 $ 130,837
Income taxes paid $ 25,939 $ 23,818
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NATIONAL COMMERCE BANCORPORATION
--------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1998
------------------
(Unaudited)
---------
Note A - Basis of Presentation
- ------------------------------
The consolidated balance sheet at December 31, 1997 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, 1997. 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.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective for annual and
interim periods beginning after December 15, 1997. The Company will adopt
the new requirements retroactively in fiscal 1999. This statement
established standards for the method that public entities use to report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographical areas and major customers. Management has not completed its
review of the statement, but does not anticipate its adoption will have a
significant effect on the Company's annual or interim reporting.
The Financial Account Standards Board issued in June 1998 its new standard
on derivatives - Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The new Statement resolves the inconsistencies that
existed with respect to derivatives accounting, and dramatically changes the
way many derivatives transactions and hedged items are reported. The
Statement is effective for years beginning after June 15, 1999, but
companies can early adopt as of the beginning of any fiscal quarter after
June 1998. The Company has not yet determined the effect, if any, Statement
133 will have on the earnings and financial condition 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, 1998 the securities in the
"Available for Sale" category included $3.9 million in unrealized gains.
Accordingly, total securities and total stockholders' equity were increased
by $3.9 million and $2.4 million (net of taxes), respectively, at September
30, 1998, 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 gains are not included in net income. The fair value of the
"Held to Maturity" category was $1.1 billion at September 30, 1998.
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 are being used by the Company for general corporate purposes and may
be counted as Tier I capital.
Note D - Earnings Per Share
- ---------------------------
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30 Sept 30
------------------ -----------------
<S> <C> <C> <C> <C>
In Thousands, Except Per Share Data 1998 1997 1998 1997
-------- -------- -------- --------
Numerator:
Net income $ 21,864 $ 18,045 $ 62,358 $ 49,269
======== ======== ======== ========
Denominator:
Denominator for basic earnings
per share - weighted average shares 100,156 97,881 100,406 98,084
Dilutive potential common shares -
Employee stock options 2,388 3,463 2,482 3,202
-------- -------- -------- --------
Denominator for diluted earnings
per share - adjusted weighted average
and assumed conversions 102,544 101,344 102,888 101,286
======== ======== ======== ========
Basic earnings per share* $ .22 $ .18 $ .62 $ .50
Diluted earnings per share* $ .21 $ .18 $ .61 $ .49
</TABLE>
* All share and per share amounts have been retroactively restated for stock
dividends and splits declared through July 1, 1998.
6
<PAGE>
Note E - Comprehensive Income
- -----------------------------
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company's net income or
stockholders' equity. Statement 130 requires unrealized gains or losses on
the Company's available-for-sale securities, which prior to adoption were
reported separately in stockholders' equity to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the third quarter of 1998 and 1997, total comprehensive income
amounted to $21,791 and $19,818, respectively. The year-to date total
comprehensive income for 1998 and 1997 was $62,486 and $50,702,
respectively.
7
<PAGE>
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 through September 30,
1998.
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Prospective investors are cautioned that any such
forward-looking statements are not guarantees for future performance and involve
known and unknown risks and uncertainties, and that actual results may differ
materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results,
performance or achievements of the Company to differ materially from those in
forward-looking statements include significant fluctuations in interest rates,
inflation, economic recession, general economic and business conditions,
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. 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 results over time.
Financial Condition
- -------------------
Following is a comparison of the September 30, 1998, and December 31, 1997,
consolidated balance sheets. Total deposits increased by $330 million or 10.2%,
principally as a result of a $115 million or 12.2% increase in money market
savings accounts, a $30 million or 10.5% increase in money market checking
accounts, a $247 million or 39.9% increase in certificates of deposit greater
than $100,000, and a $20 million or 24.2% increase in savings accounts. These
increases were partially offset by a $31 million or 7.4% decrease in non-
interest-bearing deposits from normally higher year-end levels, and a $51
million or 5.7% decrease in certificates of deposit less than $100,000. These
deposit increases are the result of new locations opened during 1998 and new
deposit gathering campaigns initiated in 1998.
Federal funds purchased and securities sold under agreements to repurchase
increased $58 million or 13.6% from year-end 1997 levels. This category of
liabilities fluctuates with the availability of overnight funds purchased from
downstream correspondent banks.
Federal Home Loan Bank advances increased $343 million or 88.1% from
December 31, 1997. This increase is principally the result of asset/liability
management decisions related to the current interest rate environment.
Long-term debt decreased $150 million or 95.9% as a result of debt maturing
at the Company's National Bank of Commerce subsidiary.
Total gross loans increased by $449 million or 17.2% compared to December
31, 1997 levels. Commercial loans increased by $72 million or 14.1% and real
estate construction loans decreased by $6 million or 2.7%, reflecting current
demand. Real estate mortgage loans increased by $314 million or 40.2% and
consumer loans increased $70 million or 6.7%, reflecting an increased emphasis
on promoting home equity loans and other consumer products.
Securities increased by $229 million or 14.2% from year-end 1997.
Securities held to maturity decreased by $150 million or 12.4, and securities
available for sale increased by $380 million or 93.0%, reflecting current
portfolio investment strategies, and current market conditions.
8
<PAGE>
Federal funds sold and securities purchased under agreements to resell
increased by $19 million or 82.3% from December 31, 1997 levels, reflecting
excess funds that otherwise were not employed in loans or securities at
September 30, 1998.
Trading account securities decreased by $60 million or 61.0% from year-end
1997 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 decreased $3 million or 44.6% and
payables increased $484 thousand or 820.3% reflecting levels of activity.
Results of Operations
- ---------------------
Three Months Ended September 30, 1998, Compared to Three Months Ended September
30, 1997
- --------------------------------------------------------------------------------
Net income was $21,864,000 for the third quarter of 1998, a 21.2% increase
over the $18,045,000 reported for the same period a year earlier. Diluted
earnings per share were $.21, compared to $.18 per share in 1997, up 16.7%.
Basic earnings per shares were $.22, compared to $.18 per share in 1997, up
22.2%.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$7,444,000 or 17.2% for the third quarter of 1998, compared to third quarter
1997. This increase reflects a $10,299,000 or 11.7% increase in total interest
income that more than offsets a $2,855,000 or 6.3% increase in interest expense.
Interest income increased in 1998 due to an increase of $466,457,000 or 11.0% in
total average earning assets, partially offset by a decrease in the yield on
average earning assets from 8.25% in the third quarter of 1997 to 8.17% in the
third quarter of 1998. The increased volume of earning assets positively
impacted interest income by approximately $11,000,000, while the decreased yield
negatively impacted interest income by approximately $1,000,000. Interest
expense increased in the third quarter of 1998, reflecting an increase in
average interest-bearing liabilities of $420,864,000 or 11.3%, partially offset
by a decrease in the cost of interest-bearing liabilities from 4.82% to 4.54%.
The decrease in the rate paid on interest-bearing liabilities positively
affected interest expense by approximately $2,200,000 and the increase in
average outstandings negatively affected interest expense by approximately
$5,100,000. The net interest margin (taxable equivalent net interest income as
a percentage of average earning assets) was 4.18% in third quarter 1998,
compared to 4.04% in third quarter of 1997.
The provision for loan losses in the third quarter of 1998 was $2,962,000,
versus $4,280,000 for the third quarter of 1997. Net charge-offs were
$1,710,000, or .23% of average net loans, compared to $2,479,000 or .38% of
average net loans in 1997. The allowance for loan losses totaled $46,690,000 at
September 30, 1998, representing 1.53% of quarter-end net loans, compared to
$39,911,000 or 1.53% of quarter-end net loans at September 30, 1997.
Following is a comparison of non-earning assets and loans past due 90 days
or more for the quarters ended September 30, 1998, June 30, 1998 and September
30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9-30-98 6-30-98 9-30-97
-------- -------- -------
Non-accrual loans $ 551 $ 543 $ 111
Renegotiated loans 0 0 0
Other real estate 724 263 34
-------- -------- ------
Total non-earning assets $ 1,275 $ 806 $ 145
======== ======== ======
Loans past due 90 days or more $ 4,442 $ 3,050 $4,181
-------- -------- ------
Percentage of total loans .15% .11% .16%
-------- -------- ------
</TABLE>
9
<PAGE>
Non-interest income, excluding securities transactions, totaled $21,280,000
for the quarter, an increase of $1,270,000, or 6.3%, from last year's third
quarter. Securities gains totaled $113,000 in third quarter, 1998, compared to
$2,000 in 1997.
Non-interest expenses (excluding the provision for loan losses) increased by
$5,156,000 or 16.9% in third quarter, 1998, 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
1.72% and 22.48% respectively, for third quarter of 1998. These compared with
1997 third quarter returns of 1.60% and 21.38%, respectively.
Nine Months Ended September 30, 1998, Compared to Nine Months Ended September
30, 1997
- --------------------------------------------------------------------------------
For the nine months ended September 30, 1998, net income totaled
$62,358,000, a 26.6% increase over the $49,269,000 for the first nine months of
1997. Diluted earnings per share were $.61, compared to $.49 for the same
period in 1997, a 24.5% increase. Basic earnings per share were $.62 compared
to $.50 in 1997, a 24.0% increase. For the nine-month period, return on average
assets and return on average stockholders' equity were 1.68% and 21.82%
respectively. These compared with 1997 nine month returns of 1.50% and 19.95%.
Net interest income increased by $21,699,000 or 17.6% for the first nine
months of 1998. This increase reflects a $30,354,000 or 12.0% increase in total
interest income that more than offsets a $8,655,000 or 6.6% increase in interest
expense. Interest income increased in 1998 due to an increase of $478,232,000
or 11.6% in total average earning assets and an increase in the yield on average
earning assets from 8.21% in 1997 to 8.24% in 1998. The increased volume of
earning assets positively impacted interest income by approximately $29,000,000,
and the increased yield positively impacted interest income by approximately
$1,000,000. Interest expense increased in the first nine months of 1998,
reflecting an increase in average interest-bearing liabilities of $396,774,000
or 11.0%, with the cost of interest-bearing liabilities decreasing from 4.80% to
4.62% in 1998. The increase in average outstandings negatively impacted
interest expense by approximately $14,000,000 while the decreased rate
positively impacted interest expense by approximately $5,350,000. The net
interest margin was 4.21% in the first nine months of 1998, compared to 3.99% in
the first nine months of 1997.
The provision for loan losses for the first nine months of 1998 was
$6,459,000, versus $11,285,000 for the first nine months of 1997. Net charge-
offs were $4,695,000, or .22% of average net loans compared to $7,513,000, or
.40% of average net loans in 1997.
Non-interest income, excluding securities transactions, totaled $63,188,000
for the first nine months of 1998, compared to a total of $56,426,000 for the
first nine months of 1997, an increase of 12.0%. Securities gains totaled
$158,000 in 1998, compared to $31,000 in 1997.
Non-interest expenses (excluding the provision for loan losses) increased by
$14,677,000 or 16.3% for the first nine months of 1998. 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
- -------------------------------
10
<PAGE>
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 $40,999,000 from December
31, 1997. Retained earnings accounted for the majority of the increase.
Through September 30, 1998, 7.00 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 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, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9-30-98 6-30-98 9-30-97
------- ------- -------
Total capital to risk-weighted assets 13.65% 13.47% 13.73%
Tier I capital to risk-weighted assets 12.39% 12.22% 12.47%
Tier I capital to assets (leverage ratio) 8.52% 8.32% 8.50%
</TABLE>
Year 2000 Preparations
- ----------------------
Management has developed a plan to modify the Company's information
technology and equipment to recognize the year 2000 and is converting critical
data processing systems. The Company has also initiated discussions with its
significant vendors to ensure that those parties have appropriate plans to
remediate year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable and developing contingency plans should
those organizations fail to remediate their systems properly. This project is
not expected to have a significant effect of the Company's business operations.
Testing of mission critical systems should be substantially completed by March
31, 1999.
Currently, management expects the project to be substantially complete by
early 1999. Incremental costs, which exclude the costs to upgrade and replace
systems in the ordinary course of business, are not expected to be material to
the Company's consolidated results of operations or financial position.
The Company has developed a contingency plan methodology to address the
likely worst-case effects of year 2000 issues. The implementation and
validation of this methodology will be substantially completed by March 31,
1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
No significant changes since December 31, 1997. See Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
11
<PAGE>
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, 1998.
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 13, 1998
-----------------
12
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<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 170,356 199,129
<INT-BEARING-DEPOSITS> 18,497 18,465
<FED-FUNDS-SOLD> 41,941 16,570
<TRADING-ASSETS> 38,362 21,197
<INVESTMENTS-HELD-FOR-SALE> 787,614 611,626
<INVESTMENTS-CARRYING> 1,059,857 962,423
<INVESTMENTS-MARKET> 1,064,659 956,486
<LOANS> 3,057,996 2,607,352
<ALLOWANCE> 46,090 39,911
<TOTAL-ASSETS> 5,303,562 4,556,960
<DEPOSITS> 3,581,724 2,971,897
<SHORT-TERM> 482,197 539,864
<LIABILITIES-OTHER> 57,341 157,401
<LONG-TERM> 738,589 493,081
0 0
0 0
<COMMON> 393,275 344,836
<OTHER-SE> 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 5,303,562 4,556,960
<INTEREST-LOAN> 191,095 168,924
<INTEREST-INVEST> 83,725 78,399
<INTEREST-OTHER> 5,387 2,671
<INTEREST-TOTAL> 280,207 249,994
<INTEREST-DEPOSIT> 97,502 89,314
<INTEREST-EXPENSE> 138,860 130,205
<INTEREST-INCOME-NET> 141,347 119,789
<LOAN-LOSSES> 6,459 11,285
<SECURITIES-GAINS> 158 31
<EXPENSE-OTHER> 104,680 90,003
<INCOME-PRETAX> 93,554 74,958
<INCOME-PRE-EXTRAORDINARY> 93,554 74,958
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 62,358 49,269
<EPS-PRIMARY> .62 .50
<EPS-DILUTED> .61 .49
<YIELD-ACTUAL> 4.21 3.99
<LOANS-NON> 551 111
<LOANS-PAST> 4,442 4,181
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 112 319
<ALLOWANCE-OPEN> 43,297 35,514
<CHARGE-OFFS> 7,945 9,676
<RECOVERIES> 3,250 2,163
<ALLOWANCE-CLOSE> 46,690 39,911
<ALLOWANCE-DOMESTIC> 46,690 39,911
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
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