<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, 2000
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 -- 205,397,217 shares as of November 1, 2000
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
--------------------------------
(In Thousands)
Sept 30 Dec. 31
2000 1999
------------ ------------
(unaudited)
ASSETS
------
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 65,170 $ 86,071
Cash and non-interest bearing deposits 412,286 482,050
Federal funds sold and securities
purchased under agreements to resell 128,410 61,058
------------ ------------
Total cash and cash equivalents 605,866 629,179
------------ ------------
Securities:
Available-for-sale 2,406,954 2,179,366
Held-to-maturity 1,954,143 1,837,122
------------ ------------
Total securities 4,361,097 4,016,488
------------ ------------
Trading account securities 41,879 30,294
Loans, net of unearned discounts 10,903,330 10,049,649
Less allowance for loan losses 143,510 139,821
------------ ------------
Net loans 10,759,820 9,909,828
------------ ------------
Premises and equipment, net 170,532 164,913
Broker/dealer customer receivables 17,591 25,047
Other assets 509,384 359,700
------------ ------------
Total assets $ 16,466,169 $ 15,135,449
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing deposits $ 1,384,555 $ 1,291,715
Interest-bearing deposits 10,345,945 10,030,690
------------ ------------
Total deposits 11,730,500 11,322,405
Short-term borrowings 1,299,652 1,112,708
Accounts payable and accrued liabilities 280,156 192,751
Federal Home Loan Bank advances 1,794,375 1,128,823
Long-term debt 39,357 39,357
------------ ------------
Total liabilities 15,144,040 13,796,044
------------ ------------
Capital trust pass-through securities 49,918 49,909
Stockholders' equity:
Common stock 410,373 413,415
Additional paid-in capital 87,824 142,432
Retained earnings 792,156 751,320
Accumulated other comprehensive loss (18,142) (17,671)
------------ ------------
Total stockholders' equity 1,272,211 1,289,496
------------ ------------
Total liabilities and
stockholders' equity $ 16,466,169 $ 15,135,449
============ ============
See notes to consolidated financial statements.
1
<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
---------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 240,363 $ 199,905 $ 688,548 $ 583,628
Securities:
Taxable 69,195 61,795 201,486 176,569
Non-taxable 4,430 4,257 12,981 12,841
Trading account securities 656 532 1,652 1,813
Deposits at bank 882 824 3,220 2,439
Other 2,130 2,311 4,958 8,419
--------- --------- --------- ---------
Total interest income 317,656 269,624 912,845 785,709
--------- --------- --------- ---------
Interest expense:
Deposits 127,984 100,103 359,018 289,285
Federal Home Loan Bank advances 24,352 14,476 65,675 40,258
Long-term debt 650 651 1,947 1,949
Federal funds purchased and securities
sold under agreements to repurchase
and other short-term borrowings 20,843 9,930 54,820 29,858
--------- --------- --------- ---------
Total interest expense 173,829 125,160 481,460 361,350
--------- --------- --------- ---------
Net interest income 143,827 144,464 431,385 424,359
Provision for loan losses 5,098 7,665 15,576 21,682
--------- --------- --------- ---------
Net interest income after
provision for loan losses 138,729 136,799 415,809 402,677
--------- --------- --------- ---------
Other income:
Trust service income 6,251 5,045 17,673 15,631
Service charges on deposits 25,755 21,313 72,856 60,943
Other service charges and fees 8,695 6,395 23,803 19,741
Broker/dealer revenue 9,024 7,028 24,512 23,523
Securities gains (losses) (33) (125) 1,391 (1,712)
Other 22,059 11,429 49,574 42,997
Gain on sale of credit card receivables 0 0 0 32,837
--------- --------- --------- ---------
Total other income 71,751 51,085 189,809 193,960
--------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 53,890 53,878 163,665 161,363
Occupancy expense 9,579 8,133 26,174 23,363
Furniture and equipment expense 6,672 6,584 19,739 24,182
Other 41,523 30,859 107,164 91,368
Conversion/merger expenses 86,205 0 92,252 0
--------- --------- --------- ---------
Total other expenses 197,869 99,454 408,994 300,276
--------- --------- --------- ---------
Income before income taxes 12,611 88,430 196,624 296,361
Income taxes 15,095 28,915 75,155 100,941
--------- --------- --------- ---------
Net income ($ 2,484) $ 59,515 $ 121,469 $ 195,420
========= ========= ========= =========
Basic net income (loss) per share of common stock ($.01) $.29 $.59 $.95
Diluted net income (loss) per share of common stock ($.01) $.28 $.59 $.94
Dividends per share of common stock $.13 $.10 $.35 $.30
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended Sept 30
--------------------------
2000 1999
----------- -----------
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 121,469 $ 195,420
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 15,576 21,682
Provision for depreciation and amortization 14,197 22,441
Amortization of security premiums and accretion 194 240
of discounts, net
(Increase) decrease in loans held for sale (19,739) (71,747)
(Increase) decrease in trading account securities (11,585) 44,014
Realized securities (gains) losses (1,391) 1,712
Net (gain) loss on sale of credit card receivables 0 (32,837)
(Increase) decrease in other assets (87,091) (69,014)
Increase (decrease) in other liabilities 85,890 49,813
----------- -----------
Net cash provided by (used in) operating activities 117,520 161,724
----------- -----------
Investing activities:
Proceeds from the maturities of securities 137,821 676,967
Proceeds from sales of securities 1,403,904 384,217
Purchases of securities (1,865,275) (1,347,173)
Net (increase) decrease in loans (849,407) (946,958)
Purchase of premises and equipment (14,647) (27,921)
Proceeds from sale of mortgage loans held for sale 0 419,330
Purchase of bank owned life insurance (70,000) 0
----------- -----------
Net cash provided by (used in) investing activities (1,257,604) (841,538)
----------- -----------
Financing activities:
Net increase (decrease) in deposits 408,095 267,401
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 186,944 (116,774)
Repayments of long-term debt 9 (6)
Increase (decrease) in Federal Home Loan Bank advances 665,552 253,797
Proceeds from exercise of stock options 4,904 4,001
Issuance of common stock 6,050 81,309
Repurchases of common stock (82,626) (65,383)
Cash dividends paid (72,157) (60,588)
----------- -----------
Net cash provided by (used in) financing activities 1,116,771 363,757
----------- -----------
Increase (decrease) in cash and cash equivalents (23,313) (316,057)
Cash and cash equivalents at beginning of period 629,179 926,261
----------- -----------
Cash and cash equivalents at end of period $ 605,866 $ 610,204
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NATIONAL COMMERCE BANCORPORATION
--------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 2000
------------------
(Unaudited)
---------
Note A - Basis of Presentation
------------------------------
The consolidated balance sheet at December 31, 1999 has been derived
from the audited financial statements at that date. The accompanying
unaudited interim consolidated financial statements reflect all
adjustments (consisting only of normally recurring accruals) which are,
in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. The statements should be
read in conjunction with the summary of accounting policies and notes
to consolidated financial statements included in the Registrant's
annual report for the year ended December 31, 1999. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted in accordance with the rules of the Securities and
Exchange Commission. During third quarter, 1999, the Company acquired
First Financial Corporation of Mt. Juliet, Tennessee, and
Nashville-based Southeastern Mortgage of Tennessee. During second
quarter, 2000, the Company acquired Piedmont Bancorp, Inc. of
Hillsborough, North Carolina. On July 5, 2000 the Company merged with
CCB Financial Corporation in a merger of equals transaction. Each of
the foregoing transactions which were accounted for using the
pooling-of-interest method, are incorporated into reported results.
For comparative purposes, all prior-year results are restated to
include these acquisitions. The Company also acquired FMT Holdings,
Inc. on July 27, 2000, which was accounted for as an immaterial
pooling.
Note B - Mergers and Merger Related Costs
-----------------------------------------
Net interest income, non-interest revenue and net income as previously
reported individually by National Commerce Bancorporation (NCBC) and
CCB Financial Corporation (CCBF) and for the combined company for the
three and nine month periods ended September 30, 2000, and reflected
below:
<TABLE>
<CAPTION>
3 months ended Nine months ended
September 30 September 30
-------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest income:
NCBC $143,827 $ 61,719 $265,958 $177,031
CCBF(1) 0 82,745 165,427 247,328
-------- -------- -------- --------
Combined $143,827 $144,646 $431,385 $424,359
======== ======== ======== ========
Non-interest income:
NCBC $ 71,751 $ 22,536 $122,319 $ 67,982
CCBF(1) 0 28,549 67,490 125,978
-------- -------- -------- --------
Combined $ 71,751 $ 51,085 $189,809 $193,960
======== ======== ======== ========
Net-income (loss):
NCBC $ (2,484) $ 27,970 $ 56,489 $ 78,038
CCBF(1) 0 31,545 64,980 117,382
-------- -------- -------- --------
Combined $ (2,484) $ 59,515 $121,469 $195,420
======== ======== ======== ========
</TABLE>
(1) The 2000 amounts reflect the results of operations from January 1, 2000
through June 30, 2000. The results from July 1, 2000 to September 30, 2000 are
included in the NCBC amounts.
NCBC expects to incur approximately $110 million total pretax merger expenses in
connection with the CCBF merger, of which $86.2 million was incurred during the
third quarter, 2000. In addition, the Company incurred $6.0 pretax
merger-related expenses in connection with the acquisition of the former
Piedmont Bancorp. of Hillsborough, NC and the consolidation of American Federal
Bank, FSB, a South Carolina banking subsidiary, into Central Carolina Bank and
Trust Company. The components of the cost are shown below:
<TABLE>
<CAPTION>
3 months ended 9 months ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
(In Thousands)
<S> <C> <C>
Merger & integration costs:
Severance and personnel related costs $52,046 $52,938
Investment banking and other transaction costs 15,282 16,261
Occupancy & equipment writedowns 0 0
Systems and other integration costs 6,847 10,517
------- -------
Total merger and integration costs 74,175 79,716
Losses on securities transactions 10,358 10,358
Other merger-related charges 1,672 2,178
------- -------
Total conversion/merger costs $86,205 $92,252
======= =======
</TABLE>
Severance and personnel related costs include severance payments under the
Company's change in control severance plan, employee relocations expenses,
retention bonuses, accelerating vesting of long-term incentive compensation and
change in control payments under employee agreements with certain officers.
The Company has identified cost savings in connection with the CCB Financial
Corporation merger of $6 million for the year 2000, $45 million for the year
2000 and $50 million for the year 2002. As discussed in the second paragraph of
Managment's Discussion and Analysis, actual cost savings may differ from the
amounts identified.
Note C - Segment Information
----------------------------
Before the merger of equals transaction with CCB Financial Corporation,
former management segregated business into three segments: commercial
banking, retail banking and other financial services. Following the
merger, management has redefined the business and considers itself to
operate two principal lines: traditional banking and financial
enterprises.
The traditional banking segment includes sales and distribution of
financial products and services to individuals. These products and
services include loan products such as residential mortgages, home
equity lending, automobile and other personal financing needs.
Traditional banking also offers various deposit products that are
designed for customers' saving and transaction needs.
The traditional banking segment also includes lending and related
financial services provided to large and medium-sized corporations.
Included among these services are several specialty services such as
real estate finance, asset based lending and residential construction
lending. Traditional banking also includes management of the investment
portfolio and non-deposit based funding.
The Financial Enterprises segment includes trust services and
investment management, transaction processing, in-store
consulting/licensing and institutional broker/dealer activities.
The accounting policies of the individual segments are the same as
those of the Company described in Note A. Transactions between business
segments are conducted at fair value and are eliminated for reporting
consolidated financial position and results of operations. There are no
significant intersegment revenues. Interest income for tax-exempt loans
and securities is adjusted to a taxable equivalent basis.
The following tables (in thousands of dollars) present condensed income
statements on a fully taxable equivalent basis and average assets for
each reportable segment.
4
<PAGE>
Quarter Ended September 30, 2000:
<TABLE>
<CAPTION>
Traditional Financial
Banking Enterprises Total
----------- ----------- -----
<S> <C> <C> <C>
Net interest income $ 148,795 $ 2,731 $ 151,526
Provision for loan losses (5,098) 0 (5,098)
---------- -------- -----------
Net interest income after provision 143,697 2,731 146,428
Non-interest income 42,709 29,042 71,751
Non-interest expense (177,065) (20,804) (197,869)
----------- -------- -----------
Net income before taxes 9,341 10,969 20,310
Income taxes (loss) (18,505) (4,289) (22,794)
----------- -------- -----------
Net income (loss) $ (9,164) $ 6,680 $ (2,484)
=========== ======== ===========
Average assets $15,738,133 $424,270 $16,162,403
Quarter Ended September 30, 1999:
Traditional Financial
Banking Enterprises Total
----------- ----------- -----------
Net interest income $ 150,358 $ 1,865 $ 152,223
Provision for loan losses (7,665) 0 (7,665)
----------- -------- -----------
Net interest income after provision 142,693 1,865 144,558
Non-interest income 35,585 15,500 51,085
Non-interest expense (89,196) (10,258) (99,454)
----------- -------- -----------
Net income before taxes 89,082 7,107 96,189
Income taxes (33,889) (2,785) (36,674)
----------- -------- -----------
Net income $ 55,193 $ 4,322 $ 59,515
=========== ======== ===========
Average assets $14,216,993 $345,848 $14,562,841
Nine Months Ended September 30, 2000:
Traditional Financial
Banking Enterprises Total
----------- ----------- -----------
Net interest income $ 448,334 $ 7,349 $ 455,683
Provision for loan losses (15,576) 0 (15,576)
----------- -------- -----------
Net interest income after provision 432,758 7,349 440,107
Non-interest income 124,718 65,091 189,809
Non-interest expense (363,559) (45,435) (408,994)
----------- -------- -----------
Net income before taxes 193,917 27,005 220,922
Income taxes (88,899) (10,554) (99,453)
----------- -------- -----------
Net income $ 105,018 $ 16,451 $ 121,469
=========== ======== ===========
Average assets $15,511,575 $368,771 $15,880,346
Nine Months Ended September 30, 1999:
Traditional Financial
Banking Enterprises Total
----------- ----------- -----------
Net interest income $ 441,914 $ 4,994 $ 446,908
Provision for loan losses (21,682) 0 (21,682)
----------- -------- -----------
Net interest income after provision 420,232 4,994 425,676
Non-interest income 144,927 49,033 193,960
Non-interest expense (268,467) (31,809) (300,276)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
----------- -------- -----------
Net income before taxes 296,692 22,218 318,910
Income taxes (114,804) (8,686) (123,490)
----------- -------- -----------
Net income $ 181,888 $ 13,532 $ 195,420
=========== ======== ===========
Average assets $13,891,062 $312,018 $14,203,080
</TABLE>
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
September 30 September 30
------------------- ------------------
In Thousands, Except Per Share Data 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (2,484) $ 59,515 $121,469 $195,420
======== ======== ======== ========
Denominator:
Denominator for basic earnings per
share - weighted average shares 205,466 206,832 205,419 205,633
Dilutive potential common shares -
Employee stock options 1,864 2,975 1,974 3,077
-------- -------- -------- --------
Denominator for diluted earnings per
share - adjusted weighted average
and assumed conversions 207,330 209,807 207,393 208,710
======== ======== ======== ========
Basic earnings (loss) per share $ (.01) $ .29 $ .59 $ .95
Diluted earnings (loss) per share $ (.01) $ .28 $ .59 $ .94
</TABLE>
Note E - Comprehensive Income
-----------------------------
During the third quarter of 2000 and 1999, total comprehensive income
amounted to $7,109,000 and $54,557,000 respectively. The year-to-date
total comprehensive income for 2000 and 1999 was $120,996,000 and
$175,060,000 respectively.
6
<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. During third quarter, 1999, the
Company acquired First Financial Corporation of Mt. Juliet, Tennessee, and
Nashville-based Southeastern Mortgage of Tennessee. During second quarter, 2000,
the Company acquired Piedmont Bancorp, Inc. of Hillsborough, North Carolina. On
July 5, 2000 the Company merged with CCB Financial Corporation in a merger of
equals transaction. Each of the foregoing transactions which were accounted for
using the pooling-of-interests method, are incorporated into reported results.
For comparative purposes, all prior-year results are restated to include these
acquisitions. The Company also acquired PMT Holdings, Inc. on July 27, 2000,
which was accounted for as an immaterial pooling.
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
the Company. All statements in this Quarterly Report on Form 10-Q that are not
historical facts or that express expectations or projections with respect to
future matters are "forward-looking statements" for the purpose of the safe
harbor provided by the Act. The Company cautions readers that such
"forward-looking statements," including, without limitation, those relating to
future business initiatives and prospects, revenues, working capital, liquidity,
capital needs, and interest costs and income, 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, difficulty in integrating the operations of the Company and
CCB Financial Corporation, lower than expected cost savings and failure to
achieve anticipated synergies following the Company's merger with CCB Financial
Corporation, competition in the Company's markets from both financial and
non-financial institutions, including institutions moving into the Company's
markets for the first time through mergers and acquisitions. Other factors set
forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission should also be considered. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
-------------------
Following is a comparison of the September 30, 2000 and December 31,
1999 consolidated balance sheets.
In the asset section, total loans, net of unearned discounts, increased
by $854 million or 8.5% compared to December 31, 1999 levels. Commercial loans
decreased by $154 million or 11.1%, real estate construction loans increased by
$389 million or 27.1%, real estate mortgage loans increased by $658 million or
12.8% reflecting current demand. Consumer loans decreased $71 million or 3.5%,
primarily due to the termination of an automobile loan referral program from
State Farm insurance agents.
Securities increased by $344 million or 8.6% from year-end 1999.
Securities held to maturity increased by $117 million or 6.4%, and securities
available for sale increased by $228 million or 10.4%, reflecting current
portfolio investment strategies, and current market conditions.
7
<PAGE>
Federal funds sold and securities purchased under agreements to resell
increased by $67 million or 110.3% from December 31, 1999 levels, reflecting
levels of activity of correspondent banks at September 30, 2000.
Trading account securities increased by $12 million or 38.2% from
year-end 1999 levels. This increase 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 $7 million or 29.8%.
In the liability section, total deposits increased by $408 million or
3.6%, principally as a result of a $301 million or 16.6% increase in
certificates of deposit greater than $100,000, a $136 million or 3.7% increase
in certificates of deposit less than $100,000 and a $92 million or 7.2% increase
in non-interest- bearing deposits. This increase was partially offset by a $46
million or 1.5% decrease in money market savings accounts, and a $71 million or
4.7% decrease in money market checking accounts.
Federal funds purchased and securities sold under agreements to
repurchase increased $187 million or 16.8% from year-end 1999 levels. This
category of liabilities fluctuates with the availability of overnight funds
purchased from downstream correspondent banks.
Federal Home Loan Bank advances increased $665 million or 59.0% from
December 31, 1999. This increase is principally the result of asset/liability
management decisions related to funding loan growth in the current interest rate
environment.
Results of Operations
---------------------
Three Months Ended September 30, 2000, Compared to Three Months Ended
September 30, 1999
--------------------------------------------------------------------------------
Net loss was $2,484,000 for the third quarter of 2000 compared to
$59,515,000 net income for the same period a year earlier. Diluted earnings
(loss) per share were ($.01), compared to $.28 per share in 1999. Basic earnings
(loss) per share were ($.01), compared to $.29 per share in 1999. During the
quarter, the Company incurred non-recurring expenses of $86.2 million in
connection with the CCB Financial Corporation merger. The after-tax cost of
$68.8 million amounted to $.33 per diluted share.
Net income, before non-recurring expenses, was $66,317,000, an 11.4%
increase over the $59,515,000 reported for the third quarter of 1999. Diluted
earnings per share before non-recurring expenses was $.32 compared to $.28 in
third quarter of 1999. Basic earnings per share were $.32 compared to $.29 for
third quarter 1999.
Net interest income, the difference between interest earned on loans
and investments and interest paid on interest-bearing liabilities, decreased by
$637,000 or .5% for the third quarter of 2000, compared to third quarter 1999.
This decrease reflects a $47,972,000 or 17.3% increase in total interest income
that was offset by a $48,669,000 or 38.9% increase in interest expense. Interest
income increased in 2000 due to an increase of $1,462,000,000 or 10.6% in total
average earning assets, and an increase in the yield on average earning assets
from 8.08% in the third quarter of 1999 to 8.49% in the third quarter of 2000.
The increased volume of earning assets increased interest income by
approximately $29,463,000 while the increased yield increased interest income by
approximately $18,509,000. Interest expense increased in the third quarter of
2000, reflecting an increase in average interest-bearing liabilities of
$1,545,000,000 or 13.2% and an increase in the cost of interest-bearing
liabilities from 4.29% to 5.22%. The increase in the rate paid on interest-
bearing liabilities increased interest expense by approximately $32,133,000 and
the increase in average outstandings increased interest expense by approximately
$16,536,000. The net interest margin (taxable equivalent net interest income as
a percentage of average earning assets) was 3.96% in third quarter 2000,
compared to 4.39% in third quarter of 1999.
8
<PAGE>
The provision for loan losses in the third quarter of 2000 was
$5,098,000, versus $7,665,000 for the third quarter of 1999. Net charge-offs
were $4,748,000, or .18% of average net loans, compared to $3,619,000 or .15% of
average net loans in 1999. The allowance for loan losses totaled $143,510,000 at
September 30, 2000, representing 1.32% of quarter-end net loans, compared to
$143,160,000 or 1.36% of quarter-end net loans at June 30, 2000 and $135,248,000
or 1.41% of quarter-end net loans at September 30, 1999.
Following is a comparison of non-earning assets and loans past due 90
days or more for the quarters ended September 30, 2000, June 30, 2000, and
September 30, 1999 (dollars in thousands):
9-30-00 6-30-00 9-30-99
------- ------- -------
Non-accrual loans $26,432 $28,292 $22,165
Renegotiated loans 2,235 2,237 714
Other real estate 4,366 5,062 3,166
------- ------- -------
Total non-earning assets $33,033 $35,591 $26,045
======= ======= =======
Percentage of total loans .31% .34% .28%
Loans past due 90 days or more $7,949 $7,025 $6,989
Percentage of total loans .07% .07% .07%
Non-interest income, excluding securities transactions, totaled
$71,784,000 for the quarter, an increase of $20,574,000, or 40.2%, from last
year's third quarter. Securities losses totaled $33,000 in third quarter, 2000,
compared to a loss of $125,000 in third quarter 1999. Non-interest expenses
(excluding the provision for loan losses) increased by $98,415,000 or 99.0% in
third quarter, 2000. Non-recurring expenses related to the CCB Financial
Corporation merger were $86.2 million. The Company also had $7.2 million in
expense from FMT Holding, Inc., which was acquired during the third quarter,
2000.
The Company's return on average assets and return on average equity
were 1.63% and 20.26% respectively, for third quarter of 2000 before non-
recurring expenses. These compared with 1999 third quarter returns of 1.62% and
18.78%, respectively.
Nine Months Ended September 30, 2000, Compared to Nine Months Ended
September 30, 1999
--------------------------------------------------------------------------------
Net income was $121,469,000 for the first nine months of 2000 a 37.8%
decrease over the $195,420,000 income for the same period a year earlier.
Diluted earnings per share were $.59, compared to $.94 per share in 1999, down
37.8%. Basic earnings per share were $.59, compared to $.95 per share in 1999,
down 37.4%.
In addition to the expenses related to the CCB merger, the Company had
non- recurring expenses of $.02 per diluted share in connection with the
acquisition of the former Piedmont Bancorp. of Hillsborough, North Carolina and
the consolidation of American Federal Bank, FSB, a South Carolina banking
subsidiary, into Central Carolina Bank and Trust Company. During the second
quarter of 1999, the Company reported a non-recurring gain of $.10 per diluted
share on the sale of consumer credit card receivables.
Net income, before non-recurring items, was $193,984,000, a 10.5%
increase over the $175,485,000 reported for the same period of 1999. Diluted
earnings per share before non-recurring items was $.94 compared to $.84 in 1999.
Basic earnings per share were $.94 compared to $.85 in 1999. For the nine-month
period, return on average assets and return on average stockholders' equity were
1.63% and 19.89% respectively before non-recurring items. These compared with
1999 nine month returns of 1.65% and 19.72% before non-recurring items.
Net interest income increased by $8,775,000 or 2.0% for the first nine
months of 2000. This increase reflects a $128,885,000 or 15.9% increase in total
interest income that more than offsets a $120,110,000 or 33.2% increase in
interest expense. Interest income increased in 2000 due to an increase of
$1,552,000,000 or 11.6% in total average earning assets and an increase in the
yield on average earning assets
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from 8.06% in 1999 to 8.38% in 2000. The increased volume of earning assets
increased interest income by approximately $95,539,000, and the increased yield
increased interest income by approximately $35,346,000. Interest expense
increased in the first nine months of 2000 reflecting an increase in average
interest-bearing liabilities of $1,550,000,000 or 13.5%, with the cost of
interest-bearing liabilities increasing from 4.23% to 4.96% in 2000. The
increase in average outstandings increased interest expense by approximately
$24,179,000 and the increased rate increased interest expense by approximately
$95,931,000. The net interest margin was 4.07% in the first nine months of 2000,
compared to 4.45% in the first nine months of 1999.
The provision for loan losses for the first nine months of 2000 was
$15,576,000, versus $21,682,000 for the first nine months of 1999. Net
charge-offs were $11,087,000, or .15% of average net loans compared to
$13,530,000, or .19% of average net loans in 1999.
Non-interest income, excluding securities transactions, totaled
$188,418,000 for the first nine months of 2000 compared to a total of
$195,672,000 for the first nine months of 1999, a decrease of 3.7%. Included in
1999 is a $32,837,000 pre-tax gain from the sale of consumer credit card
receivables. Included in 2000 is $8.0 million pretax income from FMT Holdings,
Inc., which was acquired during third quarter 2000. Adjusting for these
items, non-interest income increased 10.77% over 1999. Securities gains totaled
$1,391,000 in 2000, compared to a loss of $1,712,000 in 1999.
Non-interest expenses (excluding the provision for loan losses)
increased by $108,718,000 or 36.2% for the first nine months of 2000. Excluding
the non-recurring items already mentioned and $7.2 million in expense from FMT
Holdings, Inc., which was acquired during third quarter 2000, non interest
expense increased $9,313,000 or 3.1% for the first nine months of 2000.
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 stockholders' equity decreased by $17,285,000 from December 31,
1999. Common stock and additional paid-in capital accounted for the majority of
the decrease. Through September 30, 2000, 9.8 million shares had been
repurchased and cancelled under a stock repurchase program initiated in January,
1996, extended in December, 1997 and December, 1999.
The following capital ratios do not include the effect of FAS No. 115
or FAS No. 133 on Tier I capital, total capital, or total risk-weighted assets.
As indicated in the following table, the Company and its banking
subsidiaries exceeded all minimum required capital ratios for well-capitalized
institutions at September 30, 2000.
9-30-00 6-30-00 9-30-99
------- ------- -------
Total capital to risk-weighted assets 12.15% 12.76% 13.84%
Tier I capital to risk-weighted assets 10.78% 11.36% 12.32%
Tier I capital to assets (leverage ratio) 8.00% 8.30% 8.80%
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods.
After the merger of equals transaction with the former CCB Financial
Corporation, NCBC's market risk continues to result primarily from interest
rate risk inherent in its lending and deposit-taking activities. The structure
of NCBC's loan and deposit portfolios is such that a significant rise or decline
in interest rates may adversely impact net market values and net interest
income. Responsibility for monitoring interest rate risk rests with the
asset/liability committee (ALCO), comprised of senior management. ALCO regularly
reviews NCBC's interest rate risk position and adopts balance sheet strategies
that are intended to optimize net interest income while maintaining market risk
within a set of Board-approved guidelines. NCBC is not subject to currency
exchange risk nor commodity price risk.
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PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
(Registrant)
/s/ Mark A. Wendel
-------------------------------------
Mark A. Wendel
Senior Vice President and Chief
Accounting Officer
(Authorized Officer)
(Chief Accounting Officer)
Date November 10, 2000
-----------------
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