<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 June 30, 1999
Commission file number 0-6094
------
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
- --------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square
Memphis, Tennessee 38150
- ------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code - (901)523-3434
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $2 par value -- 105,208,334 shares as of August 3, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
---------------------
NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
--------------------------------
(In Thousands)
June 30 Dec. 31
1999 1998
---------- -------
(unaudited)
ASSETS
------
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 20,161 $ 20,092
Cash and non-interest bearing deposits 162,748 224,875
Federal funds sold and securities
purchased under agreements to resell 53,863 66,883
----------- -----------
Total cash and cash equivalents 236,772 311,850
----------- -----------
Securities:
Held-to-maturity 1,692,493 1,377,102
Available-for-sale 679,362 721,268
----------- -----------
Total securities 2,371,855 2,098,370
----------- -----------
Trading account securities 82,666 62,737
Loans:
Commercial, financial and agricultural 666,201 592,136
Real estate - construction 242,630 242,993
Real estate - mortgage 1,277,021 1,153,717
Consumer 1,201,146 1,181,659
Lease financing 32,340 29,568
Unearned discounts (2,341) (2,400)
----------- -----------
Total loans 3,416,997 3,197,673
Less allowance for loan losses 51,426 49,122
----------- -----------
Net loans 3,365,571 3,148,551
----------- -----------
Premises and equipment, net 38,698 37,382
Broker/dealer customer receivables 37,091 2,505
Other assets 184,020 149,659
----------- -----------
Total assets $ 6,316,673 $ 5,811,054
=========== ===========
See notes to consolidated financial statements.
1
<PAGE>
Consolidated Balance Sheets (cont.)
- ----------------------------------
(In Thousands)
June 30 Dec. 31
1999 1998
--------- -------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing deposits $ 442,894 $ 481,898
Money market checking 368,827 415,815
Savings 106,922 109,094
Money market savings 1,089,814 1,184,556
Certificates of deposit less than $100,000 861,539 867,207
Certificates of deposit of $100,000 or more 1,226,344 888,705
----------- -----------
Total deposits 4,096,340 3,947,275
----------- -----------
Federal funds purchased and securities sold
under agreements to repurchase 708,149 591,829
Broker/dealer customer payables 0 714
Accounts payable and accrued liabilities 169,125 74,809
Federal Home Loan Bank advances 773,649 731,610
Other borrowed funds and long-term debt 6,372 6,372
----------- -----------
Total liabilities 5,753,635 5,352,609
----------- -----------
Capital trust pass-through securities 49,903 49,896
Stockholders' equity:
Common stock 210,234 202,885
Additional paid-in capital 99,206 30,744
Retained earnings 203,834 173,522
Accumulated other comprehensive income (139) 1,398
----------- -----------
Total stockholders' equity 513,135 408,549
Total liabilities and ----------- -----------
stockholders' equity $ 6,316,673 $ 5,811,054
=========== ===========
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 six months
ended June 30 ended June 30
---------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 69,183 $ 63,060 $ 136,467 $ 123,036
Securities:
Taxable 33,551 27,398 65,720 52,253
Non-taxable 2,890 1,934 5,865 3,890
Trading account securities 632 852 1,281 1,579
Deposits at banks 229 248 476 462
Other 1,111 1,095 1,905 1,594
--------- --------- --------- ---------
Total interest income 107,596 94,587 211,714 182,814
--------- --------- --------- ---------
Interest expense:
Deposits:
Money market checking 1,047 664 2,079 1,503
Savings 431 387 866 865
Money market savings 10,590 10,430 21,566 20,950
Certificates of deposit less than $100,000 10,407 13,058 20,859 25,903
Certificates of deposit $100,000 or more 13,128 8,189 24,787 16,320
Federal Home Loan Bank advances 9,528 5,575 18,495 9,628
Long-term debt 91 2,319 181 4,631
Federal funds purchased and securities
sold under agreements to repurchase 8,034 6,312 15,947 11,090
--------- --------- --------- ---------
Total interest expense 53,256 46,934 104,780 90,890
--------- --------- --------- ---------
Net interest income 54,340 47,653 106,934 91,924
Provision for loan losses 3,835 2,630 6,214 3,497
--------- --------- --------- ---------
Net interest income after
provision for loan losses 50,505 45,023 100,720 88,427
--------- --------- --------- ---------
Other income:
Trust service income 2,662 2,417 5,237 5,215
Service charges on deposits 4,767 4,611 9,402 9,104
Other services charges and fees 5,108 4,042 9,822 7,670
Broker/dealer revenue 4,892 4,972 10,323 9,670
Securities gains (losses) (2,034) 43 (2,033) 45
Other 7,951 4,862 11,089 10,249
--------- --------- --------- ---------
Total other income 23,346 20,947 43,840 41,953
--------- --------- --------- ---------
</TABLE>
3
<PAGE>
Consolidated Statements of Income (cont.)
- ---------------------------------
(Unaudited)
- ----------
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30 ended June 30
--------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other expenses:
Salaries and employee benefits 17,824 16,331 35,562 32,773
Occupancy expense 3,225 2,921 6,421 5,724
Furniture and equipment expenses 1,722 1,300 3,287 2,680
Other 14,077 14,296 26,656 27,812
----------- ----------- ----------- ----------
Total other expenses 36,848 34,848 71,926 68,989
----------- ----------- ----------- ----------
Income before income taxes 37,003 31,122 72,634 61,391
Income taxes 12,176 10,643 23,739 20,897
----------- ----------- ----------- ----------
Net income $ 24,827 $ 20,479 $ 48,895 $ 40,494
=========== =========== =========== ==========
Basic net income per share of common stock $ .24 $ .20 $ .48 $ .40
Diluted net income per share of common stock $ .24 $ .20 $ .47 $ .40
Dividends per share of common stock $ .09 $ .08 $ .18 $ .15
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
----------------------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 48,895 $ 40,494
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 6,214 3,497
Provision for depreciation and amortization 5,551 2,593
Amortization of security premiums and accretion
of discounts, net 201 (1,498)
Deferred income taxes (credit) 615 1,223
(Increase) decrease in trading account securities (19,929) 30,454
Realized securities (gains) losses 2,033 (45)
(Increase) decrease in broker/dealer custom (34,586) (47,920)
(Increase) decrease in interest receivable 12,229 (4,956)
(Increase) decrease in other assets (47,205) 6,187
Increase (decrease) in broker/dealer customer payables (714) (59)
Increase (decrease) in interest payable (1,704) 1,324
Increase (decrease) in accounts payable and accrued expenses 100,136 20,054
--------- ---------
Net cash provided by (used in) operating activities 71,736 51,348
--------- ---------
Investing activities:
Proceeds from the maturities of securities 154,753 451,705
Proceeds from sales of securities 62,828 1,155
Purchases of securities (495,806) (651,771)
Net (increase) decrease in loans (223,234) (280,230)
Purchase of premises and equipment (6,867) (7,309)
--------- ---------
Net cash provided by (used in) investing activities (508,326) (486,450)
--------- ---------
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (182,906) 154,294
Net increase (decrease) in certificates of deposit 331,971 10,252
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 116,320 53,502
Increase (decrease) in long-term debt 7 99
Increase (decrease) in Federal Home Loan Bank advance 42,039 246,928
Proceeds from exercise of stock options 1,690 2,660
Issuance of common stock 80,935 0
Repurchases of common stock (9,977) (23,723)
Cash dividends paid (18,567) (14,386)
--------- ---------
Net cash provided by (used in) financing activities 361,512 429,626
--------- ---------
Decrease in cash and cash equivalents (75,078) (5,476)
Cash and cash equivalents at beginning of period 311,850 247,493
--------- ---------
Cash and cash equivalents at end of period $ 236,772 $ 242,017
========= =========
Interest paid $ 106,484 $ 89,566
Income taxes paid $ 15,177 $ 18,171
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NATIONAL COMMERCE BANCORPORATION
--------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
June 30, 1999
-------------
(Unaudited)
---------
Note A - Basis of Presentation
- ------------------------------
The consolidated balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date. The accompanying unaudited
interim consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals) which are, in the opinion
of management, necessary for a fair statement of the results for the
interim periods presented. The statements should be read in conjunction
with the summary of accounting policies and notes to consolidated financial
statements included in the Registrant's annual report for the year ended
December 31, 1998. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with the
rules of the Securities and Exchange Commission.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
Statement requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives are either
offset against change in fair value of assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of
a derivative's change in fair value will be immediately recognized in
earnings. The adoption of Statement No. 133 on April 1, 1999, did not have
a material effect on operating results or financial position.
Note B - Securities Portfolio
- -----------------------------
In accordance with FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities", as of June 30, 1999 the securities in the
"Available for Sale" category included $246,000 in unrealized losses.
Accordingly, total securities and total stockholders' equity were decreased
by $246,000 and $150,000 (net of taxes), respectively, at June 30, 1999, to
reflect the adjustment of the securities portfolio to market. The
calculation of book value per share reflects these mark-to-market
unrealized losses, whereas the calculation of ROA and ROE do not, because
the unrealized losses are not included in net income. The fair value of the
"Held to Maturity" category was $1.7 billion at June 30, 1999.
Note C - Floating Rate Capital Trust Pass-through Securities
- ------------------------------------------------------------
In March, 1997, the Company issued $49,875,000 in Floating Rate Capital
Trust Passthrough Securities ("Capital Securities"). The proceeds of this
issue were used by the Company for general corporate purposes and may be
counted as Tier I capital.
6
<PAGE>
Note D - Segment Information
- ----------------------------
The Company operates several major lines of business. The commercial
banking segment includes lending and related financial services to
large-and medium-sized corporations. Included among these are several
specialty services such as real estate finance, asset based lending and
residential construction.
The retail banking segment includes sales and distribution of financial
products and services to individuals. These include loan products such as
residential mortgages, home equity lending, automobile and other personal
financing needs. Retail banking also offers various deposit products that
are designed for customers' saving and transaction needs.
The other financial services segment includes trust, asset management,
insurance and brokerage activities. Financial services also includes income
from treasury, transaction processing, in-store consulting/licensing and
specialty leasing.
The accounting policies of the individual segments are the same as those of
the Company described in Note A. Transactions between business segments are
conducted at fair value and are eliminated for reporting consolidated
financial position and results of operations. Interest income for
tax-exempt loans and securities is adjusted to a taxable equivalent basis.
Expenses for centrally provided services such as deposit servicing, data
processing, technology and loan servicing and underwriting are allocated to
each segment based upon various statistical information. Other indirect
costs, such as management overhead and corporate support, are also
allocated to each segment based upon various statistical information. The
portion of the provision for loan losses that is not related to specific
net charge-offs is allocated to the segment based upon loan growth. There
are no significant intersegment revenues.
Performance is assessed primarily on net interest margin by the chief
operating decision makers.
The following tables present condensed income statements and average assets
for each reportable segment.
<TABLE>
<CAPTION>
Quarter Ended June 30, 1999:
Commercial Retail Financial
Banking Banking Services Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net interest income $ 11,862 $ 32,292 $ 13,410 $ 57,564
Provision for loan losses 296 (4,043) (88) (3,835)
--------- ----------- ----------- -----------
Net interest income after provision 12,158 28,249 13,322 53,729
Non-interest income 901 5,175 17,270 23,346
Non-interest expense (3,080) (18,086) (15,682) (36,848)
--------- ----------- ----------- -----------
Net income before taxes 9,979 15,338 14,910 40,227
Income taxes (3,821) (5,871) (5,708) (15,400)
--------- ----------- ----------- -----------
Net income $ 6,158 $ 9,467 $ 9,202 $ 24,827
========= =========== =========== ===========
Average assets $ 939,750 $ 2,558,694 $ 2,571,906 $ 6,070,350
Quarter Ended June 30, 1998:
Commercial Retail Financial
Banking Banking Services Total
----------- ----------- ----------- -----------
Net interest income $ 10,993 $ 27,540 $ 10,326 $ 48,859
Provision for loan losses (361) (2,068) (201) (2,630)
--------- ----------- ----------- -----------
Net interest income after provision 10,632 25,472 10,125 46,229
Non-interest income 698 4,623 15,626 20,947
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Non-interest expense (3,076) (18,025) (13,747) (34,848)
--------- ----------- ----------- -----------
Net income before taxes 8,254 12,070 12,004 32,328
Income taxes (3,028) (4,424) (4,397) (11,849)
--------- ----------- ----------- -----------
Net income $ 5,226 $ 7,646 $ 7,607 $ 20,479
========= =========== =========== ===========
Average assets $ 857,173 $ 2,149,015 $ 2,003,324 $ 5,009,512
Six Months Ended June 30, 1999:
Commercial Retail Financial
Banking Banking Services Total
----------- ----------- ----------- -----------
Net interest income $ 26,297 $ 62,885 $ 24,224 $ 113,406
Provision for loan losses (535) (5,548) (131) (6,214)
--------- ----------- ----------- -----------
Net interest income after provision 25,762 57,337 24,093 107,192
Non-interest income 1,264 8,965 33,611 43,840
Non-interest expense (6,124) (37,250) (28,552) (71,926)
--------- ----------- ----------- -----------
Net income before taxes 20,902 29,052 29,152 79,106
Income taxes (7,983) (11,095) (11,133) (30,211)
--------- ----------- ----------- -----------
Net income $ 12,919 $ 17,957 $ 18,019 $ 48,895
========= =========== =========== ===========
Average assets $ 940,308 $ 2,533,587 $ 2,500,239 $ 5,974,134
Six Months Ended June 30, 1998:
Commercial Retail Financial
Banking Banking Services Total
----------- ----------- ----------- -----------
Net interest income $ 23,634 $ 53,999 $ 16,697 $ 94,330
Provision for loan losses (249) (3,071) (177) (3,497)
--------- ----------- ----------- -----------
Net interest income after provision 23,385 50,928 16,520 90,833
Non-interest income 1,485 8,258 32,210 41,953
Non-interest expense (6,116) (35,828) (27,045) (68,989)
--------- ----------- ----------- -----------
Net income before taxes 18,754 23,358 21,685 63,797
Income taxes (6,850) (8,532) (7,921) (23,303)
--------- ----------- ----------- -----------
Net income $ 11,904 $ 14,826 $ 13,764 $ 40,494
========= =========== =========== ===========
Average assets $ 837,815 $ 2,119,235 $ 1,898,595 $ 4,855,645
</TABLE>
8
<PAGE>
Note E - Earnings Per Share
- ---------------------------
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
In Thousands, Except Per Share Data 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 24,827 $ 20,479 $ 48,895 $ 40,494
======== ======== ========= =========
Denominator:
Denominator for basic earnings per
share - weighted average shares 102,878 100,039 102,140 99,998
Dilutive potential common shares -
Employee stock options 2,166 2,579 2,099 2,530
-------- -------- --------- ---------
Denominator for diluted earnings per
share - adjusted weighted average
and assumed conversions 105,044 102,618 104,239 102,528
======== ======== ========= =========
Basic earnings per share $ .24 $ .20 $ .48 $ .40
Diluted earnings per share $ .24 $ .20 $ .47 $ .40
</TABLE>
Note F - Comprehensive Income
- -----------------------------
During the second quarter of 1999 and 1998, total comprehensive income
amounted to $24,718 and $20,530, respectively. The year-to-date total
comprehensive income for 1999 and 1998 was $47,358 and $40,695,
respectively.
9
<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.
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 Report on Form 10-Q that are not historical facts or that
express expectations and projections with respect to future matters are
"forward-looking statements" for the purpose of the safe harbor provided by the
Act. The Company cautions readers that such "forward-looking statements,"
including, without limitation, those relating to future business initiatives and
prospects, revenues, working capital, liquidity, capital needs, interest costs
and income, and "Year 2000" remediation efforts, wherever they occur in this
document or in other statements attributable to the Company, are necessarily
estimates reflecting the best judgment of the Company's senior management. Such
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the "forward-looking
statements." Such "forward-looking statements" should, therefore be considered
in light of various important factors, including those set forth in this
document. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. Other factors set
forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission should also be considered. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
- -------------------
Following is a comparison of the June 30, 1999 and December 31, 1998
consolidated balance sheets. Total deposits increased by $149 million or 3.8%,
principally as a result of a $338 million or 38.0% increase in certificates of
deposit greater than $100,000. This increase was partially offset by a $95
million or 8.0% decrease in money market savings accounts, a $47 million or
11.3% decrease in money market checking accounts, a $2 million or 2.0% increase
in savings accounts and a $39 million or 8.1% decrease in non-interest-bearing
deposits from normally higher year-end levels, and a $6 million or .7% decrease
in certificates of deposit less than $100,000. The change in deposits are a
result of asset/liability management decisions related to the current interest
rate environment.
Federal funds purchased and securities sold under agreements to repurchase
increased $116 million or 19.7% from year-end 1998 levels. This category of
liabilities fluctuates with the availability of overnight funds purchased from
downstream correspondent banks.
Federal Home Loan Bank advances increased $42 million or 5.7% from December
31, 1998. This increase is principally the result of asset/liability management
decisions related to the current interest rate environment.
Total loans, net of unearned discounts, increased by $219 million or 6.9%
compared to December 31, 1998 levels. Commercial loans increased by $74 million
or 12.5% and real estate construction loans decreased by $363 thousand or .1%,
reflecting current demand. Real estate mortgage loans increased by $123 million
or 10.7% and consumer loans increased $19 million or 1.6%, reflecting an
increased emphasis on promoting home equity loans and other consumer products.
10
<PAGE>
Securities increased by $273 million or 13.0% from year-end 1998.
Securities held to maturity increased by $315 million or 22.9, and securities
available for sale decreased by $42 million or 5.8%, reflecting current
portfolio investment strategies, and current market conditions.
Federal funds sold and securities purchased under agreements to resell
decreased by $13 million or 19.5% from December 31, 1998 levels, reflecting
levels of activity of correspondent banks at June 30, 1999.
Trading account securities decreased by $20 million or 31.8% from year-end
1998 levels. This decrease reflects the trading activity generated by NBC
Capital Markets, Group, Inc., the Company's broker/dealer subsidiary, which
fluctuates from time to time.
Broker/dealer customer receivables increased $35 million or 1380.7% and
payables decreased $714 thousand or 100.0% reflecting levels of activity.
Results of Operations
- ---------------------
Three Months Ended June 30, 1999, Compared to Three Months Ended June 30, 1998
- ------------------------------------------------------------------------------
Net income was $24,827,000 for the second quarter of 1999, a 21.2% increase
over the $20,479,000 reported for the same period a year earlier. Diluted
earnings per share were $.24, compared to $.20 per share in 1998, up 20.0%.
Basic earnings per shares were $.24, compared to $.20 per share in 1998, up
20.0%.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$8,705,000 or 17.8% for the second quarter of 1999, compared to second quarter
1998. This increase reflects a $15,027,000 or 15.7% increase in total interest
income that more than offsets a $6,322,000 or 13.5% increase in interest
expense. Interest income increased in 1999 due to an increase of $1,030,838,000
or 22.2% in total average earning assets, partially offset by a decrease in the
yield on average earning assets from 8.27% in the second quarter of 1998 to
7.83% in the second quarter of 1999. The increased volume of earning assets
increased interest income by approximately $21,245,000 while the decreased yield
reduced interest income by approximately $6,218,000. Interest expense increased
in the second quarter of 1999, reflecting an increase in average
interest-bearing liabilities of $926,118,000 or 22.7%, partially offset by a
decrease in the cost of interest-bearing liabilities from 4.62% to 4.27%. The
decrease in the rate paid on interest-bearing liabilities reduced interest
expense by approximately $4,348,000 and the increase in average outstandings
increased interest expense by approximately $10,670,000. The net interest margin
(taxable equivalent net interest income as a percentage of average earning
assets) was 4.07% in second quarter 1999, compared to 4.22% in second quarter of
1998.
The provision for loan losses in the second quarter of 1999 was $3,835,000,
versus $2,630,000 for the second quarter of 1998. Net charge-offs were
$1,893,000, or .23% of average net loans, compared to $2,223,000 or .32% of
average net loans in 1998. The allowance for loan losses totaled $51,426,000 at
June 30, 1999, representing 1.51% of quarter-end net loans, compared to
$45,050,000 or 1.56% of quarter-end net loans at June 30, 1998.
Following is a comparison of non-earning assets and loans past due 90 days
or more for the quarters ended June 30, 1999, March 31, 1999 and June 30, 1998
(dollars in thousands):
11
<PAGE>
6-30-99 3-31-99 6-30-98
------- ------- -------
Non-accrual loans $ 205 $ 129 $ 543
Renegotiated loans 0 0 0
Other real estate 437 1,200 263
------- ------- -------
Total non-earning assets $ 642 $ 1,329 $ 806
======= ======= =======
Loans past due 90 days or more $ 3,323 $ 4,122 $ 3,050
Percentage of total loans .10% .11% .11%
Non-interest income, excluding securities transactions, totaled $25,380,000
for the quarter, an increase of $4,476,000, or 21.4%, from last year's second
quarter. Securities losses totaled $2,034,000 in second quarter, 1999, compared
to a $43 thousand gain in 1998.
Non-interest expenses (excluding the provision for loan losses) increased
by $2,000,000 or 5.7% in second quarter, 1999, 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
1.64% and 22.01% respectively, for second quarter of 1999. These compared with
1998 second quarter returns of 1.64% and 21.54%, respectively.
Six Months Ended June 30, 1999, Compared to Six Months Ended June 30, 1998
- --------------------------------------------------------------------------
For the six months ended June 30, 1999, net income totaled $48,895,000, a
20.7% increase over the $40,494,000 for the first six months of 1998. Diluted
earnings per share were $.47, compared to $.40 for the same period in 1998, a
17.5% increase. Basic earnings per share were $.48 compared to $.40 in 1998, a
20.0% increase. For the six-month period, return on average assets and return on
average stockholders' equity were 1.64% and 22.49% respectively. These compared
with 1998 six month returns of 1.67% and 21.65%.
Net interest income increased by $19,076,000 or 20.2% for the first six
months of 1999. This increase reflects a $32,966,000 or 17.8% increase in total
interest income that more than offsets a $13,890,000 or 15.3% increase in
interest expense. Interest income increased in 1999 due to an increase of
$1,076,022,000 or 23.8% in total average earning assets partially offset by a
decrease in the yield on average earning assets from 8.27% in 1998 to 7.87% in
1999. The increased volume of earning assets increased interest income by
approximately $44,138,000, and the decreased yield reduced interest income by
approximately $11,172,000. Interest expense increased in the first six months of
1999, reflecting an increase in average interest-bearing liabilities of
$995,311,000 or 25.3%, with the cost of interest-bearing liabilities decreasing
from 4.66% to 4.29% in 1999. The increase in average outstandings increased
interest expense by approximately $22,993,000 while the decreased rate reduced
interest expense by approximately $9,103,000. The net interest margin was 4.09%
in the first six months of 1999, compared to 4.21% in the first six months of
1998.
The provision for loan losses for the first six months of 1999 was
$6,214,000, versus $3,497,000 for the first six months of 1998. Net charge-offs
were $3,910,000, or .24% of average net loans compared to $2,985,000, or .22% of
average net loans in 1998.
Non-interest income, excluding securities transactions, totaled $45,873,000
for the first six months of 1999, compared to a total of $41,908,000 for the
first six months of 1998, an increase of 9.5%. Securities losses totaled
$2,033,000 in 1999, compared to a gain of $45,000 in 1998.
Non-interest expenses (excluding the provision for loan losses) increased
by
12
<PAGE>
$2,937,000 or 4.3% for the first six months of 1999. Increased employment and
occupancy expenses relating to new products and locations, and increased
promotional expenses of new loan and deposit gathering campaigns were the
primary reasons for the increase.
Liquidity and Capital Resources
- -------------------------------
Interest-bearing bank balances, federal funds sold, trading account
securities, and securities available for sale are the principal sources of
short-term asset liquidity. Other sources of short-term liquidity include
federal funds purchased and repurchase agreements, credit lines with other
banks, and borrowings from the Federal Reserve Bank and the Federal Home Loan
Bank. Maturing loans and securities are the principal sources of long-term asset
liquidity.
Total realized stockholders' equity increased by $106,123,000 from December
31, 1998. Due to a sale of common stock in second quarter 1999, additional
paid-in capital accounted for the majority of the increase. Through June 30,
1999, 7.8 million shares had been repurchased and cancelled under a stock
repurchase program initiated in January, 1996, and extended in December, 1997.
The following capital ratios do not include the effect of FAS No. 115 OR
FAS No. 133 on Tier I capital, total capital, or total risk-weighted assets.
As indicated in the following table, the Company and its banking
subsidiaries exceeded all minimum required capital ratios for well-capitalized
institutions at June 30, 1999.
6-30-99 3-31-99 6-30-98
------- ------- -------
Total capital to risk-weighted assets 14.66% 13.19% 13.47%
Tier I capital to risk-weighted assets 13.41% 11.94% 12.22%
Tier I capital to assets (leverage ratio) 9.03% 7.85% 8.32%
Year 2000 Preparations
- ----------------------
The "Year 2000 Issue" is a term used to describe the problems created by
computer systems that are unable to accurately interpret dates after December
31, 1999. It arises because many software programs use only two digits to
specify the year rather than four. Unless modified, such programs may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
is a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send statements, or engage in similar normal business activities.
Management recognized the unique worldwide challenge of the Year 2000 issue
several years ago, and in 1996 appointed a task force of senior officers to
develop and oversee execution of a comprehensive action plan for identifying and
addressing the technical and business risks associated with the century date
change. The resultant project plan incorporates procedures recommended by the
Federal Financial Institutions Council and is employed throughout the
organization. The Year 2000 project has been assigned highest priority. The
Audit Committee of the Board of Directors is regularly advised of the status of
the Company's Year 2000 readiness efforts.
The Company engages the services of third-party software vendors and
service providers for most of its mission critical business applications. In
addressing the Year 2000 issue, the Company's plan analyzes how the Year 2000
will impact its operations, including monitoring the status of its service
providers and evaluating alternatives. Most of the Company's major vendors and
service providers have completed Year 2000 renovation and provided compliant
versions of mission critical systems. In addition, the Company has successfully
completed testing of its mission critical systems for Year 2000 compliance.
13
<PAGE>
The Company's Year 2000 Plan also includes assessing risks associated with
its major borrowers, funds providers and other external counterparties who may
encounter Year 2000 related problems. Questionnaires, letters, verbal
communication and published readiness statements are being used to evaluate
exposure. These assessment efforts and the evaluation of alternatives will
continue through the remainder of 1999.
The Company has business continuity plans in place that cover its current
operations. As part of its Year 2000 preparations, the plans have been expanded
to address reasonably likely failure scenarios for critical information systems,
external relationships, and the embedded systems in its critical facilities.
These plans are designed to provide methods of returning to normal activities
while minimizing the impact of any disruptions on operations.
Given the Company's significant use of third-party software vendors,
incremental costs of the Year 2000 project, which exclude the costs to upgrade
and replace systems in the ordinary course of business, are not expected to be
material to the consolidated results of operations or financial position. The
Company has reallocated some internal resources from non-critical activities to
assist with the Year 2000 project. These reallocations are not expected to have
a material impact on the Company's ongoing business operations. No mission
critical information technology projects have been deferred due to Year 2000
efforts.
Management believes the efforts described above provide reasonable
assurance that Year 2000 issues will be addressed successfully and without
adverse impact on our customers, shareholders and business partners.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
No significant changes since December 31, 1998. See Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
14
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's Annual Meeting of Shareholders held April 28, 1999, the
following proposals were approved by the shareholders of the Company:
The following individuals were elected to serve as directors of the Company
for terms that expire at the Annual Meeting of Shareholders to be held in 2001:
Frank G. Barton, Jr.; James H. Daughdrill, Jr.; Thomas C. Farnsworth, Jr.; Lewis
E. Holland; Phillip H. McNeill, Sr.; and J. Bradbury Reed. (78,691,636 shares in
favor the slate of directors; 133,464 withheld; and 94,988 exceptions).
The appointment of Ernst & Young LLP as auditors of the Company for 1999
was ratified. (78,724,473 shares in favor; 68,560 against; and 127,055
abstained).
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a. Exhibits
4.1. Specimen Stock Certificate
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 June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
(Registrant)
By /s/ Lewis E. Holland
-----------------------------
Lewis E. Holland
Vice Chairman, Treasurer and
Chief Financial Officer
(Authorized Officer)
(Principal Financial Officer)
Date: August 13, 1999
----------------
15
<PAGE>
EXHIBIT 4.1 Specimen Stock Certificate
- ---------------------------------------
COMMON COMMON
------ ------
NATIONAL COMMERCE
-----------------
BANCORPORATION
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE
CUSIP 635449 10 1
This Certifies that
------------------------------------------------------------
is the owner of
----------------------------------------------------------------
FULL-PAID AND NON-ASSESSABLE SHARES EACH OF $2.00 PAR VALUE
OF THE COMMON STOCK OF
NATIONAL COMMERCE BANCORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate of Incorporation and amendments
thereto, to all of which the holder by acceptance hereof assents. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile of the Corporation's duly authorized officers.
Dated:
/s/ Gus B. Denton /s/ Thomas M. Garrott
----------------- ---------------------
Secretary Chairman of the Board
<PAGE>
NATIONAL COMMERCE BANCORPORATION
The Corporation is authorized to issue different classes of shares and different
series within a class. The Corporation will furnish to the holder of this
certificate a full statement of the designations, relative rights, preferences
and limitations applicable to each class and the variations for rights,
preferences and limitation determined for any series (and the authority of the
Board of Directors to determine variations for future series) on request in
writing and without charge.
The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenant in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ----- -----
JT TEN - as joint tenants with right (CUST) (MINOR)
of survivorship and not as under Uniform Gifts to Minors Act
tenants in common ------
Additional abbreviations may also be used though not in the above list. (State)
</TABLE>
For value received, hereby sell, assign and transfer unto
-------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OF TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------
------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
------------------------------------------
THE SIGNATURES SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 162,748 205,789
<INT-BEARING-DEPOSITS> 20,161 19,140
<FED-FUNDS-SOLD> 53,863 17,088
<TRADING-ASSETS> 82,666 67,878
<INVESTMENTS-HELD-FOR-SALE> 679,362 687,151
<INVESTMENTS-CARRYING> 1,692,493 1,131,779
<INVESTMENTS-MARKET> 1,634,744 1,134,487
<LOANS> 3,416,997 2,887,453
<ALLOWANCE> 51,426 45,050
<TOTAL-ASSETS> 6,316,673 5,200,617
<DEPOSITS> 4,096,340 3,415,788
<SHORT-TERM> 708,149 478,726
<LIABILITIES-OTHER> 169,125 86,429
<LONG-TERM> 780,021 791,506
513,135 378,278
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 6,316,673 5,200,617
<INTEREST-LOAN> 136,467 123,036
<INTEREST-INVEST> 71,585 56,143
<INTEREST-OTHER> 3,662 3,635
<INTEREST-TOTAL> 211,714 182,814
<INTEREST-DEPOSIT> 70,157 65,541
<INTEREST-EXPENSE> 104,780 90,890
<INTEREST-INCOME-NET> 106,934 91,924
<LOAN-LOSSES> 6,214 3,497
<SECURITIES-GAINS> (2,033) 45
<EXPENSE-OTHER> 71,926 68,989
<INCOME-PRETAX> 72,634 61,391
<INCOME-PRE-EXTRAORDINARY> 72,634 61,391
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 48,895 40,494
<EPS-BASIC> .48 .40
<EPS-DILUTED> .47 .40
<YIELD-ACTUAL> 4.09 4.21
<LOANS-NON> 205 543
<LOANS-PAST> 3,323 3,050
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 483 175
<ALLOWANCE-OPEN> 49,122 43,297
<CHARGE-OFFS> 6,033 5,507
<RECOVERIES> 2,123 2,522
<ALLOWANCE-CLOSE> 51,426 45,050
<ALLOWANCE-DOMESTIC> 51,426 45,050
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
