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 September 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 September 30, 2000, 8,471,911 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 September 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 - September 30, 2000 and December 31, 1999.
Consolidated Statements of Earnings - Three and nine months ended
September 30, 2000 and 1999.
Consolidated Statements of Cash Flows - Nine months ended September 30, 2000 and
1999 are set forth on page 2 of this report.
Consolidated Statements of Earnings and Comprehensive Income - Three and nine
months ended September 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>
Nine months ended
September 30,
(In Thousands) 2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 13,545 $ 12,542
Adjustments to reconcile net earnings to net cash from operating
activities:
Depreciation and amortization 2,036 2,081
Amortization (accretion) of securities premiums and discounts (108) 261
Provision for loan losses 1,995 2,970
(Increase) decrease in accrued income receivable (1,705) 384
(Increase) in other assets (1,531) (846)
(Decrease) in other liabilities, including a security settlement (10,581) (771)
Other (decrease) (700)
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Total operating adjustments (10,594) 4,079
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Net cash from operating activities 2,951 16,621
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Cash flows from investing activities:
Net (increase) in loans (69,603) (67,656)
Net decrease in federal funds sold 51,930 2,880
Available-for-sale securities:
Proceeds from maturities and principal repayments 18,071 34,654
Purchases of securities (39,783) (33,146)
Held-to-maturity securities:
Proceeds from maturities and principal repayments 5,652 10,728
Purchases of securities (17,396)
Purchase of premises and equipment (914) (901)
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Net cash (used in) investing activities (34,647) (70,837)
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Cash flows from financing activities:
Net (decrease) in non-interest bearing and savings deposits (30,999) (30,474)
Net increase in time deposits 60,452 72,447
Net (decrease) increase in federal funds purchased and repurchase
agreements (1,770) 2,878
Net (decrease) in commercial paper (1,933) (60,082)
Net increase in other borrowed funds 11,412 27,991
Net increase in long-term debt 10,000 37,000
Purchase of treasury stock (4,105) (1,422)
Payment for cash dividends (3,255) (6,311)
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Net cash from financing activities 39,802 42,027
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Net increase (decrease) in cash and due from banks 8,106 (12,189)
Cash and due from banks at beginning of year 36,997 52,271
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Cash and due from banks at end of period $ 45,103 $ 40,082
======================
Supplemental disclosures
Cash paid during the period for:
Interest $ 38,534 $ 29,315
Income taxes 7,822 7,686
</TABLE>
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CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Total interest income $ 27,170 $ 22,960 $ 77,662 $ 64,950
Total interest expense 13,845 10,231 38,012 28,197
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Net interest income 13,325 12,729 39,650 36,753
Provision for loan losses 845 1,111 1,995 2,970
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Net interest income after provision for loan losses 12,480 11,618 37,655 33,783
Total noninterest income 2,334 3,647 7,137 8,483
Total noninterest expense 7,313 7,045 22,558 21,612
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Earnings from operations before taxes 7,501 8,220 22,234 20,654
Applicable income taxes 2,949 3,197 8,689 8,112
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Net Earnings 4,552 5,023 13,545 12,542
Other comprehensive income, before tax:
Unrealized gain (loss) on investments in securities 1,890 (37) 1,928 (3,148)
Applicable income tax 765 (15) 780 (1,274)
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Other comprehensive income, net of tax 1,125 (22) 1,148 (1,874)
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Comprehensive Income $ 5,677 $ 5,001 $ 14,693 $ 10,668
================================================
</TABLE>
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The Consolidated Balance Sheet as of September 30, 2000, the
Consolidated Statements of Earnings for the three and nine-month periods ended
September 30, 2000 and 1999, the Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 2000 and 1999 and the Consolidated
Statements of Earnings and Comprehensive Income for the three and nine-month
periods ended September 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 September 30, 2000 and 1999,
have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States 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 September 30, 2000
are not necessarily indicative of the operating results for the full year.
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NATIONAL CITY BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS:
Net earnings for the third quarter ended September 30, 2000 were
$4,552,000 compared with $5,023,000 in the third quarter of 1999. Basic earnings
per share was $ .53 for the third quarter of 2000, compared with earnings per
share of $ .57 in the third quarter of 1999. Net earnings for the third quarter
and the nine months ended September 30, 1999 included a state income tax refund
of $1,233,000, which had an after-tax effect of approximately $769,000. Without
the tax refund, earnings would have been $4,254,000 or $ .49 per share for the
quarter and $11,773,000 or $1.34 per share for the nine-month period ended
September 30, 1999. Earnings information is summarized below:
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Third Quarter Nine Months
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 4,552 $ 5,023 $13,545 $12,542
Earnings per share $ .53 $ .57 $ 1.58 $ 1.43
Return on average equity 11.51% 11.94% 11.67% 11.24%
Return on average assets 1.56% 1.65% 1.59% 1.58%
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Net interest income for the third quarter was $13,325,000 compared with
$12,729,000 in the third 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:
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NET INTEREST INCOME CHANGE FROM THIRD QUARTER 1999
Resulting from:
Interest On: Total Rates Volumes
----- ----- -------
Total Earning Assets $ 4,287 $ 2,049 $ 2,238
Total Interest Bearing Liabilities 3,614 2,421 1,193
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Change in Net Interest Income $ 673 $ (372) $ 1,045
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NET INTEREST INCOME CHANGE FROM NINE MONTHS 1999
Resulting from:
Interest On: Total Rates Volumes
----- ----- -------
Total Earning Assets $ 12,977 $ 6,538 $ 6,439
Total Interest Bearing Liabilities 9,815 5,884 3,931
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Change in Net Interest Income $ 3,162 $ 654 $ 2,508
=================================
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The tax equivalent net interest margin for the quarter was 4.86 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 was 9.50 percent in the quarter compared with 8.10 percent
last year. In the same period, the rate paid on interest bearing liabilities has
also increased, again reflecting the overall increase in interest rates. Average
loans increased by 9 percent over the third 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 third quarter was $2,334,000 compared with
$3,647,000 in 1999. Noninterest income for the third quarter of 1999 included a
state tax refund of $1,233,000, which represents most of the decrease. There was
also 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 $7,313,000 for the third quarter compared with
$7,045,000 for the third quarter of 1999. Increases in personnel expenses,
occupancy and other were partially offset by decreases in equipment expenses.
The increase in personnel expense was primarily due to performance-related
compensation costs, resulting from higher net earnings at the bank subsidiary.
The efficiency ratio was 46.70 percent for the third quarter of 2000
compared to 45.59 percent for the same period last year. The change was due
primarily to the effect of the one-time state tax refund.
RESERVE FOR LOAN LOSSES:
Net loan charge-offs during the third quarter were $2,333,000 compared
with net recoveries of $63,000 for the same period last year. The loan loss
provision was $845,000 for the third quarter, compared with $1,111,000 in the
third 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 performance of individual loans. At September 30,
2000, the allowance for loan losses was $12,591,000, or 1.39 percent of loans,
compared to $13,883,000 or 1.66 percent of loans at December 31, 1999.
Nonperforming assets were $12.9 million at September 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 $3.7 million compared with $4.0 million at June 30,
2000.
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Activity regarding the allowance is summarized below:
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(in thousands)
Third Quarter Nine Months
2000 1999 2000 1999
---- ---- ---- ----
Balance beginning of period $14,079 $12,379 $13,883 $13,785
Provision charge to operating expense 845 1,111 1,995 2,970
Less net loan charge-offs (recoveries) 2,333 (63) 3,287 3,202
------- ------- ------- -------
Balance September 30 $12,591 $13,553 $12,591 $13,553
=====================================
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LIQUIDITY AND CAPITAL RESOURCES:
The Company's average total assets were $1.137 billion for the
nine-months ended September 30, 2000, up from $1.045 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 $186 million at September 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:
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September 30,
2000 1999
---- ----
RISK CAPITAL RATIOS
Tier I Capital 15.1% 15.5%
Tier II Capital 16.3% 16.8%
LEVERAGE RATIO 13.7% 14.0%
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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
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branch bank in Edina, Minnesota. The commercial finance segment also has an
office in Milwaukee, Wisconsin.
The commercial bank offers 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 earnings of the commercial bank were $2.4 million in the third quarter
of 2000 compared to $3.0 million in the same period of 1999. The net earnings of
the bank for the third quarter of 1999 were affected by the state tax refund,
which had an after-tax effect of approximately $769,000. The bank has increased
its net earnings through the growth of its loan portfolio, however, the net
interest margin has declined from the prior year. Interest bearing liabilities
are a proportionately greater source of total funding than in the prior year.
The following table summarizes the commercial bank's performance measures:
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(in thousands)
Third Quarter Nine Months
2000 1999 2000 1999
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Total revenue $20,171 $17,352 $57,513 $47,266
Net earnings 2,441 2,966 7,210 6,805
Total assets, at quarter end 889,472 775,677
Return on average equity 13.76% 15.67% 14.13% 14.19%
Efficiency ratio 58.29% 58.67% 59.87% 60.81%
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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.
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The net earnings of the commercial finance segment were $1.4 million in the
third quarter of 2000 compared with $1.6 million in the same period of 1999. The
change is due primarily to higher funding costs and a reduced loan volume,
resulting in a lower net interest income.
The following table summarizes the commercial finance segment's performance
measures:
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(in thousands)
Third Quarter Nine Months
2000 1999 2000 1999
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Total revenue $9,232 $9,373 $27,858 $26,469
Net earnings 1,672 1,637 5,095 4,611
Total assets, at quarter end 299,322 305,754
Return on average equity 15.28% 17.44% 16.22% 17.26%
Efficiency ratio 25.05% 23.11% 25.56% 25.44%
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NEW ACCOUNTING PRONOUNCEMENT:
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement will be adopted effective
January 1, 2001, but is not expected to materially impact the Company's
financial statements.
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.
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NATIONAL CITY BANCORPORATION
Part II Other Information
Item 4. Submission of matters to a vote of security holders.
None
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 nine months ended
September 30, 2000.
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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: November 8, 2000 By: /S/David L. Andreas
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President & Chief Executive Officer
Dated: November 8, 2000 By: /S/Thomas J. Freed
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Secretary and Chief Financial Officer
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