SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 2000 Commission file number 09426
NATIONAL CITY BANCORPORATION
(Exact name of registrant as specified in its charter)
Iowa 42-0316731
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
651 Nicollet Mall
Minneapolis, Minnesota 55402-1611
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code 612-904-8500
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_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities 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_____
As of June 30, 2000, 8,470,614 shares of $1.25 par value common stock of
the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1)National City Bancorporation's Quarterly Report to Stockholders for the
quarter ended June 30, 2000, is incorporated by reference and made a part of
Part I of Form 10-Q.
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NATIONAL CITY BANCORPORATION
INDEX
Part I Financial Statements
The following data is incorporated by reference from National City
Bancorporation's Quarterly Report to Stockholders filed as Exhibit 1:
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999.
Consolidated Statements of Earnings - Three and six months ended June 30,
2000 and 1999.
Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999
are set forth on page 2 of this report.
Consolidated Statements of Earnings and Comprehensive Income - Three and six
months ended June 30, 2000 and 1999 are set forth on page 3 of this report
Notes to Consolidated Financial Statements are included in this report appearing
on page 4.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on pages 5 through 9 of this report.
Part II. Other Information
Part II items requiring a response are included on page 10 of this report.
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NATIONAL CITY BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
(In Thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,993 $ 7,519
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization 1,379 1,388
Amortization (accretion) of securities premiums and discounts (59) 210
Provision for loan losses 1,150 1,859
(Increase) in accrued income receivable (1,106) (211)
(Increase) decrease in other assets (233) 1
(Decrease) in other liabilities, including a security settlement (10,849) (1,074)
Other increase 41 1,199
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Total operating adjustments (9,677) 3,372
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Net cash (used in) from operating activities (684) 10,891
-------------------------
Cash flows from investing activities:
Net (increase) in loans (41,168) (51,547)
Net decrease in federal funds sold 18,360 2,600
Available-for-sale securities:
Proceeds from maturities and principal repayments 14,160 22,549
Purchases of securities (29,783) (21,340)
Held-to-maturity securities:
Proceeds from maturities and principal repayments 3,626 8,209
Purchases of securities (17,396)
Purchase of premises and equipment (524) (602)
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Net cash from (used in) investing activities (35,329) (57,527)
-------------------------
Cash flows from financing activities:
Net (decrease) in non-interest bearing and savings deposits (2,749) (6,486)
Net increase in time deposits 64,382 6,211
Net (decrease) increase in federal funds purchased and repurchase
agreements (26,344) 29,240
Net (decrease) in commercial paper (5,100) (25,155)
Net (decrease) increase in other borrowed funds (6,996) 45,053
Net increase in long-term debt 20,000
Purchase of treasury stock (4,104) (1,421)
Payment for cash dividends (2,069) (5,260)
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Net cash from (used in) financing activities 37,020 42,182
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Net increase (decrease) in cash and due from banks 1,007 (4,454)
Cash and due from banks at beginning of year 36,997 52,271
-------------------------
Cash and due from banks at end of period $ 38,004 $ 47,817
=========================
Supplemental disclosures
Cash paid during the year for:
Interest $ 22,611 $ 18,212
Income taxes 7,759 5,387
</TABLE>
2
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CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Total interest income $ 26,268 $ 21,459 $ 50,492 $ 41,990
Total interest expense 12,722 9,152 24,167 17,966
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Net interest income 13,546 12,307 26,325 24,024
Provision for loan losses 630 997 1,150 1,859
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Net interest income after provision for loan losses 12,916 11,310 25,175 22,165
Total noninterest income 2,326 2,423 4,803 4,836
Total noninterest expense 7,581 7,263 15,245 14,567
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Earnings from operations before taxes 7,661 6,470 14,733 12,434
Applicable income taxes 2,938 2,556 5,740 4,915
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Net Earnings 4,723 3,914 8,993 7,519
Other comprehensive income, before tax:
Unrealized gain (loss) on investments in securities 426 (2,411) 38 (3,111)
Applicable income tax 172 (976) 15 (1,259)
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Other comprehensive income, net of tax 254 (1,435) 23 (1,852)
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Comprehensive Income $ 4,977 $ 2,479 $ 9,016 $ 5,667
==========================================================
</TABLE>
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The Consolidated Balance Sheet as of June 30, 2000, the Consolidated
Statements of Earnings for the three and six-month periods ended June 30, 2000
and 1999, the Consolidated Statements of Cash Flows for the six-month periods
then ended June 30, 2000 and 1999 and the Consolidated Statements of Earnings
and Comprehensive Income for the three and six-month periods then ended June 30,
2000 and 1999 have been prepared by the Company, without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position, results of operations, cash flows and comprehensive income at and for
the periods ended June 30, 2000 and 1999, respectively, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's December 31, 1999 annual report to shareholders. The results of
operations for the period ended June 30, 2000 are not necessarily indicative of
the operating results for the full year.
4
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NATIONAL CITY BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS:
Net earnings for the second quarter ended June 30, 2000 were $4,723,000
compared with $3,914,000 in the second quarter of 1999. Basic earnings per share
was $ .56 for the second quarter of 2000, compared with earnings per share of $
.45 in the second quarter of 1999. Earnings information is summarized below:
Second Quarter Six Months
2000 1999 2000 1999
---- ---- ---- ----
Net income $4,723 $3,914 $8,993 $7,519
Earnings per share $ .56 $ .45 $ 1.05 $ .86
Return on average equity 12.32% 10.88% 11.75% 10.35%
Return on average assets 1.65% 1.52% 1.61% 1.47%
Net interest income for the second quarter was $13,546,000 compared with
$12,307,000 in the second quarter of 1999. Fluctuations in net interest income
can result from changes in the volume of assets and liabilities as well as
changes in interest rates. The following table summarizes variances in net
interest income attributed to changes in balance sheet volumes and interest
rates on a fully taxable equivalent basis:
NET INTEREST INCOME CHANGE FROM SECOND QUARTER 1999
Resulting from:
Interest On: Total Rates Volumes
----- ----- -------
Total Earning Assets $ 4,919 $ 2,362 $ 2,557
Total Interest Bearing Liabilities 3,570 2,367 1,203
----- ----- -----
Change in Net Interest Income $ 1,349 $ (5) $ 1,354
=======================================
NET INTEREST INCOME CHANGE FROM SIX MONTHS 1999
Resulting from:
Interest On: Total Rates Volumes
----- ----- -------
Total Earning Assets $ 8,690 $ 4,204 $ 4,486
Total Interest Bearing Liabilities 6,201 3,449 2,752
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Change in Net Interest Income $ 2,489 $ 755 $ 1,734
=====================================
The tax equivalent net interest margin for the quarter was 4.98 percent
compared with 5.06 percent for the same period last year. The yield on earning
assets has increased in 2000 due to the overall increase in rates. The average
base lending rate increased to 9.50 percent in the quarter from 8.50 percent
last year. In the same period, the rate paid on interest bearing liabilities
5
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has also increased, again reflecting the overall increase in interest rates.
Average loans increased by 10 percent over the second quarter of 1999, resulting
from increased loan demand at our bank subsidiary, National City Bank of
Minneapolis. Both commercial and commercial real estate loan volume increased at
the bank.
Noninterest income for the second quarter was $2,326,000 compared with
$2,423,000 in 1999. There was a slight decrease in service charges, trust fees,
and fees from other customer services, partially offset by an increase in other
income.
Noninterest expense was $7,581,000 for the second quarter compared with
$7,263,000 for the second quarter of 1999. Increases in personnel expenses,
equipment and other were partially offset by decreases in occupancy expenses.
The increase in personnel expense was primarily due to performance-related
compensation costs, reflecting higher net earnings at the bank subsidiary.
The efficiency ratio was 47.76 percent for the second quarter of 2000
compared to 49.31 percent for the same period last year. The improved efficiency
was due to the increased net interest income, relative to growth in noninterest
expense.
RESERVE FOR LOAN LOSSES:
Net loan charge-offs during the second quarter were $734,000 compared with
$3,269,000 for the same period last year. Net charge-offs last year included
$3,276,000 at Diversified Business Credit, Inc., the Company's commercial
finance subsidiary. The charge-off was primarily a single credit in the
subsidiary's portfolio. The loan loss provision was $630,000 for the second
quarter, compared with $997,000 in the second quarter of 1999. The provision is
based on management's continuing evaluation of the Company's loan portfolio,
including estimates and appraisals of collateral values, and current economic
conditions. At June 30, 2000, the allowance for loan losses was $14,079,000, or
1.60 percent of loans, compared to 1.66 percent of loans at December 31, 1999.
Nonperforming assets were 13.8 million at June 30, 2000 compared with 16.3
million at December 31, 1999. Nonperforming assets consist of loans 90 days or
more past due, non-accrual loans, restructured loans and impaired loans. Loans
on non-accrual were $4.0 million compared with $5.6 million at March 31, 2000.
Activity regarding the allowance is summarized below:
6
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<TABLE>
<CAPTION>
(in thousands)
Second Quarter Six Months
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance beginning of period $ 14,183 $ 14,651 $ 13,883 $ 13,785
Provision charge to operating expense 630 997 1,150 1,859
Less net loan charge-offs (recoveries) (734) (3,269) (954) (3,265)
------- ------- ------- -------
Balance June 30 $ 14,079 $ 12,379 $ 14,079 $ 12,379
======================================================
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES:
The Company's average total assets were $ 1.124 billion for the
six-months ended June 30, 2000, up from $ 1.033 billion for the same period in
1999. The majority of the increase was attributed to loans to businesses. The
Company continues to fund asset growth from various liability sources, including
interest and noninterest bearing deposits, short-term and long-term borrowings,
and retention of earnings. Short-term borrowings include commercial paper and a
bank line of credit, which are used to fund loans made by Diversified Business
Credit, Inc. (DBCI). In addition to deposits and short-term borrowings, the
Company had long-term debt of $ 196 million at June 30, 2000, in the form of
Federal Home Loan Bank advances at National City Bank of Minneapolis (NCB) and
senior notes issued by DBCI and guaranteed by the Company. The notes are rated
BBB by Fitch. The Company issues commercial paper primarily in its local market.
The commercial paper is rated F2 by Fitch.
The Company continues to maintain a capital position that exceeds
regulatory risk based and leverage ratio capital requirements. The required risk
based ratio is 8 percent and the required leverage ratio is 3 to 5 percent. The
following table shows the Company's capital ratios:
June 30,
2000 1999
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RISK CAPITAL RATIOS
Tier I Capital 15.2% 15.6%
Tier II Capital 16.4% 16.8%
LEVERAGE RATIO 13.6% 13.7%
BUSINESS SEGMENTS:
The Company has two business segments, National City Bank of Minneapolis
(commercial bank) and Diversified Business Credit, Inc. (commercial finance).
The main offices of each segment are located in the business district of
downtown Minneapolis. The commercial bank has a full service branch bank in
Edina, Minnesota. The commercial finance segment also has an office in
Milwaukee, Wisconsin.
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The commercial bank offers the usual banking services including business,
consumer, and real estate loans, deposit and cash management services,
correspondent banking, and safe deposit. In addition, the commercial bank also
offers trust services including management of funds for individuals, the
administration of estates and trusts, and for corporations, governmental bodies,
and public authorities, paying agent services, trustee under corporate
indenture, pension and profit sharing agreements, and record keeping and
reporting for 401-K savings plans. The commercial bank originates the majority
of its business in the Minneapolis/St. Paul area.
The net income of the commercial bank increased to $2.6 million in the second
quarter of 2000 from $2.0 million in the same period of 1999. The bank has
increased its net earnings through the growth of its loan portfolio and the use
of lower cost funding sources, primarily non-interest bearing deposits, and by
maintaining the level of non-interest expenses incurred.
The following table summarizes the commercial bank's performance measures:
(in thousands)
Second Quarter Six Months
2000 1999 2000 1999
---- ---- ---- ----
Total revenue $19,470 $15,149 $37,342 $29,914
Net earnings 2,562 1,986 4,769 3,839
Total assets, at quarter end 886,009 746,603
Return on average equity 15.10% 12.79% 14.33% 13.14%
Efficiency ratio 58.89% 63.55% 60.66% 63.92%
The commercial finance segment specializes in providing working capital loans
secured by accounts receivable, inventory, and other marketable assets. Loans
are made on a demand basis with no fixed repayment schedule. Compared to
equity-based loans made by commercial banks and others, asset-based loans
require closer monitoring and interest rates earned on these loans are typically
higher. The commercial finance segment funds its loans through the issuance of
long-term debt in the form of Senior Notes and borrowings from the parent
company. The commercial finance segment originates the majority of its loans in
Minnesota with approximately 15 percent originated in its Wisconsin office.
The net earnings of the commercial finance segment were $1.8 million in the
second quarter of 2000 compared with $1.6 million in the same period of 1999.
The increase is due primarily to a reduction in the provision for loan losses.
The following table summarizes the commercial finance segment's performance
measures:
8
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(in thousands)
Second Quarter Six Months
2000 1999 2000 1999
---- ---- ---- ----
Total revenue $9,335 $8,829 $18,325 $16,358
Net earnings 1,758 1,561 3,423 2,974
Total assets, at quarter end 288,181 328,639
Return on average equity 16.84% 17.56% 16.73% 17.16%
Efficiency ratio 25.84% 25.02% 25.83% 29.23%
PRIVATE SECURITIES LITIGATION REFORM ACT:
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other material filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect actual results in the future and,
accordingly, such results may differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to development and
construction activities, dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest rates), domestic or
global economic conditions, changes in federal or state tax laws or the
administration of such laws, litigation or claims, as well as all other risks
and uncertainties described in the Company's filings.
9
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NATIONAL CITY BANCORPORATION
Part II Other Information
Item 4. Submission of matters to a vote of security holders.
Election of Directors
At the annual stockholders' meeting held on April 21, 2000, the
stockholders reelected Terry L. Andreas, Sharon N. Bredeson and James
B. Goetz, Sr. to the Company's Board of Directors.
Affirmative Negative
Votes Votes Abstentions
Terry L. Andreas 7,873,553 19,385 828,774
Sharon N. Bredeson 7,866,562 26,376 828,774
James B. Goetz, Sr. 7,877,429 15,509 828,774
Item 6. Exhibits and reports of Form 8-K.
Exhibit index:
Number Description
------ -----------
19 Quarterly Report to Stockholders
27 Financial Data Schedule
There were no reports on Form 8-K filed for the six months ended June 30,
2000.
10
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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 thereunto duly authorized.
NATIONAL CITY BANCORPORATION
Dated: August 9, 2000 By: /S/David L. Andreas
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President & Chief Executive Officer
Dated: August 9, 2000 By: /S/Thomas J. Freed
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Secretary and Chief Financial Officer
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