-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D63dNz6MFSph1LzR9/9xYu361vwRjCBB5G6UMMqO+9yOD5bJNoNQKTZoUPzffL+t QYx8AJBmv75Z86mB44Zxsw== 0000931763-99-001480.txt : 19990510 0000931763-99-001480.hdr.sgml : 19990510 ACCESSION NUMBER: 0000931763-99-001480 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMMERCE BANCORPORATION CENTRAL INDEX KEY: 0000101844 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 620784645 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06094 FILM NUMBER: 99614639 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 BUSINESS PHONE: 9015233242 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANCSHARES CORP DATE OF NAME CHANGE: 19780820 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANSHARES CORP DATE OF NAME CHANGE: 19780525 10-Q 1 FORM 10-Q FOR PERIOD ENDED 3-31-99 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 March 31, 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 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 -- 101,532,135 shares as of May 3, 1999 PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements -------------------- NATIONAL COMMERCE BANCORPORATION Consolidated Balance Sheets -------------------------------- (In Thousands)
March 31 Dec. 31 1999 1998 ----------- ----------- (unaudited) ASSETS ------ Cash and cash equivalents: Interest-bearing deposits with other banks $ 21,493 $ 20,092 Cash and non-interest bearing deposits 185,087 224,875 Federal funds sold and securities purchased under agreements to resell 83,196 66,883 ---------- ---------- Total cash and cash equivalents 289,776 311,850 ---------- ---------- Securities: Held-to-maturity 1,417,413 1,377,102 Available-for-sale 881,544 721,268 ---------- ---------- Total securities 2,298,957 2,098,370 ---------- ---------- Trading account securities 40,576 62,737 Loans: Commercial, financial and agricultural 634,979 592,136 Real estate - construction 246,069 242,993 Real estate - mortgage 1,143,044 1,153,717 Consumer 1,153,905 1,181,659 Lease financing 30,129 29,568 Unearned discounts (2,238) (2,400) ---------- ---------- Total loans 3,205,888 3,197,673 Less allowance for loan losses 49,484 49,122 ---------- ---------- Net loans 3,156,404 3,148,551 ---------- ---------- Premises and equipment, net 40,331 37,382 Broker/dealer customer receivables 42,166 2,505 Other assets 160,527 149,659 ---------- ---------- Total assets $6,028,737 $5,811,054 ========== ==========
See notes to consolidated financial statements. 1 Consolidated Balance Sheets (cont.) - ----------------------------------- (In Thousands)
March 31 Dec. 31 1999 1998 --------- ---------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Non-interest-bearing deposits $ 428,917 $ 481,898 Money market checking 390,536 415,815 Savings 112,907 109,094 Money market savings 1,169,728 1,184,556 Certificates of deposit less than $100,000 865,042 867,207 Certificates of deposit of $100,000 or more 976,217 888,705 ---------- ---------- Total deposits 3,943,347 3,947,275 ---------- ---------- Federal funds purchased and securities sold under agreements to repurchase 723,911 591,829 Broker/dealer customer payables 0 714 Accounts payable and accrued liabilities 106,834 74,809 Federal Home Loan Bank advances 777,673 731,610 Other borrowed funds and long-term debt 6,372 6,372 ---------- ---------- Total liabilities 5,558,137 5,352,609 ---------- ---------- Capital trust pass-through securities 49,899 49,896 Stockholders' equity: Common stock 203,032 202,885 Additional paid-in capital 29,236 30,744 Retained earnings 188,463 173,522 Accumulated other comprehensive income (30) 1,398 ---------- ---------- Total stockholders' equity 420,701 408,549 Total liabilities and ---------- ---------- stockholders' equity $6,028,737 $5,811,054 ========== ==========
See notes to consolidated financial statements. 2 NATIONAL COMMERCE BANCORPORATION Consolidated Statements of Income -------------------------------- (Unaudited) (In Thousands, Except per Share Data)
For the three months ended March 31 -------------------- 1999 1998 ---------- -------- Interest income: Loans $ 67,284 $59,976 Securities: Taxable 32,169 24,855 Non-taxable 2,975 1,956 Trading account securities 649 727 Deposits at banks 247 214 Other 794 499 -------- ------- Total interest income 104,118 88,227 -------- ------- Interest expense: Deposits: Money market checking 1,032 839 Savings 435 478 Money market savings 10,976 10,520 Certificates of deposit less than $100,000 10,452 12,845 Certificates of deposit $100,000 or more 11,659 8,131 Federal Home Loan Bank advances 8,967 4,053 Long-term debt 90 2,312 Federal funds purchased and securities sold under agreements to repurchase 7,913 4,778 -------- ------- Total interest expense 51,524 43,956 -------- ------- Net interest income 52,594 44,271 Provision for loan losses 2,379 867 -------- ------- Net interest income after provision for loan losses 50,215 43,404 -------- ------- Other income: Trust service income 2,575 2,798 Service charges on deposits 4,635 4,493 Other service charges and fees 4,714 3,628 Broker/dealer revenue 5,431 4,698 Securities gains 1 2 Other 3,138 5,387 -------- ------- Total other income 20,494 21,006 -------- -------
3 Consolidated Statements of Income (cont.) - ---------------------------------
For the three months ended March 31 -------------------- 1999 1998 ---------- -------- Other expenses: Salaries and employee benefits 17,738 16,442 Occupancy expense 3,196 2,803 Furniture and equipment expenses 1,565 1,380 Other 12,579 13,516 ------- ------- Total other expenses 35,078 34,141 ------- ------- Income before income taxes 35,631 30,269 Income taxes 11,563 10,254 ------- ------- Net income $24,068 $20,015 ======= ======= Basic net income per share of common stock $ .24 $ .20 Diluted net income per share of common stock $ .23 $ .19 Dividends per share of common stock $ .09 $ .07
See notes to consolidated financial statements. 4 NATIONAL COMMERCE BANCORPORATION Consolidated Statements of Cash Flows ------------------------------------- (Unaudited)
For the Three Months Ended March 31 ---------------------- 1999 1998 ---------- ---------- (In Thousands) Operating activities: Net income $ 24,068 $ 20,015 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 2,379 867 Provision for depreciation and amortization 4,340 1,493 Amortization of security premiums and accretion of discounts, net 80 (896) Deferred income taxes (credit) 868 769 (Increase) decrease in trading account securities 22,161 46,283 Realized securities (gains) losses (1) (2) (Increase) decrease in broker/dealer customer receivables (39,661) (3,859) (Increase) decrease in interest receivable 6,000 (143) (Increase) decrease in other assets (17,736) 4,159 Increase (decrease) in broker/dealer customer payables (714) 8,507 Increase (decrease) in interest payable 5,230 (710) Increase (decrease) in accounts payable and accrued expenses 28,731 16,942 --------- --------- Net cash provided by (used in) operating activities 35,745 93,425 --------- --------- Investing activities: Proceeds from the maturities of securities 102,931 170,415 Proceeds from sales of securities 167 1,155 Purchases of securities (306,090) (348,304) Net (increase) decrease in loans (10,232) (109,766) Purchase of premises and equipment (7,289) (4,073) --------- --------- Net cash provided by (used in) investing activities (220,513) (290,573) --------- ---------
5 Financing activities: Net increase (decrease) in demand deposits, NOW accounts and savings accounts (89,275) 193,473 Net increase (decrease) in certificates of deposit 85,347 64,487 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 132,082 41,954 Increase (decrease) in long-term debt 3 49 Increase (decrease) in Federal Home Loan Bank advances 46,063 (49,018) Proceeds from exercise of stock options 1,619 1,140 Issuance of common stock 628 0 Repurchases of common stock (4,645) (7,365) Cash dividends paid (9,128) (6,388) --------- --------- Net cash provided by (used in) financing activities 162,694 238,332 --------- --------- Increase (decrease) in cash and cash equivalents (22,074) 41,184 Cash and cash equivalents at beginning of period 311,850 247,493 --------- --------- Cash and cash equivalents at end of period $ 289,776 $ 288,677 ========= ========= Interest paid $ 56,754 $ 43,246 Income taxes paid $ 12,781 $ 7,200
See notes to consolidated financial statements. NATIONAL COMMERCE BANCORPORATION -------------------------------- Notes to Consolidated Financial Statements ------------------------------------------ March 31, 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 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for annual and interim periods beginning after December 15, 1997. The Company has adopted the new requirements retroactively in fiscal 1999. This statement established standards for the method that public entities use to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also 6 establishes standards for related disclosures about products and services, geographical areas and major customers. The Financial Accounting Standards Board issued in June 1998 its new standard on derivatives - Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The new Statement resolves the inconsistencies that existed with respect to derivatives accounting, and dramatically changes the way many derivatives transactions and hedged items are reported. The Statement is effective for years beginning after June 15, 1999, but companies can early adopt as of the beginning of any fiscal quarter after June 1998. Because of the limited use of derivatives, the Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. Note B - Securities Portfolio - ----------------------------- In accordance with FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities", as of March 31, 1999 the securities in the "Available for Sale" category included $49 thousand in unrealized losses. Accordingly, total securities and total stockholders' equity were decreased by $49 thousand and $30 thousand (net of taxes), respectively, at March 31, 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 $1.4 billion at March 31, 1999. Note C - Floating Rate Capital Trust Pass-through Securities - ------------------------------------------------------------ In March, 1997, the Company issued $49,875,000 in Floating Rate Capital Trust Pass-through Securities ("Capital Securities"). The proceeds of this issue were used by the Company for general corporate purposes and may be counted as Tier I capital. 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 7 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. This presentation reflects management's determination that it operates in three separate business segments. Management has determined that Treasury, which has previously been reported as a separate segment, should be combined with the Financial Services segment. Quarter Ended March 31, 1999:
Commercial Retail Financial Banking Banking Services Total ---------- ---------- ---------- ---------- Net interest margin $ 14,435 $ 30,593 $ 10,814 $ 55,842 Provision for loan losses (831) (1,505) (43) (2,379) -------- ---------- ---------- ---------- Net interest income after provision 13,604 29,088 10,771 53,463 Non-interest income 363 3,790 16,341 20,494 Non-interest expense (3,044) (19,164) (12,870) (35,078) -------- ---------- ---------- ---------- Net income before taxes 10,923 13,714 14,242 38,879 Income taxes (4,161) (5,224) (5,426) (14,811) -------- ---------- ---------- ---------- Net income $ 6,762 $ 8,490 $ 8,816 $ 24,068 ======== ========== ========== ========== Average assets $940,860 $2,508,464 $2,428,593 $5,877,917
Quarter Ended March 31, 1998:
Commercial Retail Financial Banking Banking Services Total ---------- ---------- ---------- ---------- Net interest margin $ 12,641 $ 26,460 $ 6,370 $ 45,471 Provision for loan losses 112 (1,003) 24 (867) -------- ---------- ---------- ---------- Net interest income after provision 12,753 25,457 6,394 44,604 Non-interest income 787 3,635 16,584 21,006 Non-interest expense (3,040) (17,804) (13,297) (34,141) -------- ---------- ---------- ---------- Net income before taxes 10,500 11,288 9,681 31,469 Income taxes (3,822) (4,108) (3,524) (11,454) -------- ---------- ---------- ---------- Net income $ 6,678 $ 7,180 $ 6,157 $ 20,015 ======== ========== ========== ========== Average assets $818,377 $2,089,177 $1,794,224 $4,701,778
8 Note E - Earnings Per Share - --------------------------- The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended March 31 ------------------ In Thousands, Except Per Share Data 1999 1998 -------- -------- Numerator: Net income $ 24,068 $ 20,015 ======== ======== Denominator: Denominator for basic earnings per share - weighted average shares 101,394 99,955 Dilutive potential common shares - Employee stock options 2,030 2,482 -------- -------- Denominator for diluted earnings per share - adjusted weighted average and assumed conversions 103,424 102,888 ======== ======== Basic earnings per share $ .24 $ .20 Diluted earnings per share $ .23 $ .19
Note F - Comprehensive Income - ----------------------------- As of January 1, 1998, the Company adopted Statement 130, "Reporting Comprehensive Income". Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or stockholders' equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption were reported separately in stockholders' equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. During the first quarter of 1999 and 1998, total comprehensive income amounted to $22,640 and $20,165, respectively. 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) 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. 9 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 Annual Report on Form 10-K 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 March 31, 1999 and December 31, 1998 consolidated balance sheets. In the liability section, total deposits decreased by $3.9 million or 0.1%, principally as a result of a $53 million or 11.0% decrease in non-interest-bearing deposits, a $25 million or 6.1% decrease in money market checking accounts, and a $15 million or 1.3% decrease in money market savings accounts which were partially offset by an $88 million or 9.8% increase in certificates of deposit greater than $100,000. Federal funds purchased and securities sold under agreements to repurchase increased $132 million or 22.3% 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 $46 million or 6.3% 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 $8.2 million or .3% compared to December 31, 1998 levels. Commercial loans increased by $42.8 million or 7.2% and real estate construction loans increased by $3.1 million or 1.3% reflecting current demand. Real estate mortgage loans decreased by $10.7 million or .9%, and consumer loans decreased $27.8 million or 2.3%, reflecting lower interest rates and the competitive refinancing environment. Securities increased by $201 million or 9.6% from year-end 1998. Securities held to maturity increased by $40.3 million or 2.9%, and securities available for sale increased $160.3 million or 22.2%, reflecting current portfolio investment strategies, and current market conditions. Federal funds sold and securities purchased under agreements to resell increased by $16.3 million or 24.4% from December 31, 1998 levels, reflecting excess funds that otherwise were not employed in loans or securities at March 31, 1999. Trading account securities decreased by $22.2 million or 35.3% 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. 10 Broker/dealer customer receivables increased $40 million or 1,583.3% and payables decreased $714 thousand or 100.0% reflecting levels of activity. Results of Operations - --------------------- Three Months Ended March 31, 1999, Compared to Three Months Ended March 31, 1998 - -------------------------------------------------------------------------------- Net income was $24,068,000 for the first quarter of 1999, a 20.2% increase over the $20,015,000 reported for the same period a year earlier. Diluted earnings per share were $.23, compared to $.19 per share in 1998, up 21.1%. Basic earnings per share 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 $10,371,000 or 22.8% for the first quarter of 1999. This increase reflects a $17,939,000 or 20.1% increase in total interest income that more than offsets a $7,568,000 or 17.2% increase in interest expense. Interest income increased in 1999 due to an increase of $1,121,000,000 or 25.6% in total average earning assets which was partially offset by a decrease in the yield on average earning assets from 8.27% in the first quarter of 1998 to 7.91% in the first quarter of 1999. The increased volume of earning assets raised interest income by approximately $22,877,000, while the decreased yield reduced interest income by approximately $4,938,000. Interest expense increased in the first quarter of 1999, reflecting an increase in average interest-bearing liabilities of $1,065,000,000 or 28.1%, and a decrease in the cost of interest-bearing liabilities from 4.70% to 4.30%. The decrease in the rate paid on interest- bearing liabilities reduced interest expense by approximately $4,762,000 and the increase in average outstandings raised interest expense by approximately $12,330,000. The net interest margin (taxable equivalent net interest income as a percentage of average earning assets) was 4.11% in first quarter 1999, compared to 4.21% in first quarter of 1998. The provision for loan losses in the first quarter of 1999 was $2,379,000, versus $867,000 for the first quarter of 1998. Net charge-offs were $2,017,000, or .25% of average loans compared to $762,000 or .11% of average loans in 1998. The allowance for loan losses totaled $49,484,000 at March 31, 1999, representing 1.54% of total loans compared to $44,643,000 at March 31, 1998, representing 1.64% of total loans. Following is a comparison of non-earning assets and loans past due 90 days or more for the quarters ended March 31, 1999, December 31, 1998, and March 31, 1998 (dollars in thousands):
3-31-99 12-31-98 3-31-98 -------- --------- -------- Non-accrual loans $ 129 $ 533 $ 0 Renegotiated loans 0 0 0 Other real estate 1,200 442 217 ------ ------ ------ Total non-earning assets $1,329 $ 975 $ 217 ====== ====== ====== Accruing loans past due 90 days or more $4,122 $4,218 $4,602 Percentage of total loans .13% .13% .17%
Non-interest income, excluding securities transactions, totaled $20,493,000 for the first quarter of 1999, a decrease of $511,000, or 2.4%, from the first quarter of 1998. The Company's broker/dealer revenue increased $733,000 versus first quarter 1998, reflecting favorable market conditions. All other sources of non-interest income, including service charge income, trust service income, fuel card processing income, and supermarket sublicense income decreased a net of $1,244,000 or 7.6%. Securities gains totaled $1,000 in first quarter 1999, compared to securities gains of $2,000 in 1998. Non-interest expenses (excluding the provision for loan losses) increased by $937,000 or 2.7% in first quarter, 1999, primarily reflecting increased employment and other expenses relating to new products and locations and increased promotional 11 expenses of new loan and deposit gathering campaigns. The Company's annualized return on average assets and return on average equity were 1.64% and 23.00% respectively, for first quarter of 1999. These compared with 1998 first quarter returns of 1.70% and 21.76%, respectively. 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 $13,580,000 from December 31, 1998. Retained earnings accounted for the majority of the increase. Through March 31, 1999, 7.6 million shares had been repurchased and cancelled under a stock repurchase program initiated in January, 1996, and extended in December, 1997. The following capital ratios do not include the effect of FAS No. 115 on Tier I capital, total capital, or total risk-weighted assets. As indicated in the following table, the Company and its banking subsidiaries exceeded all minimum required capital ratios for well-capitalized institutions at March 31, 1999.
3-31-99 12-31-98 3-31-98 -------- -------- ------- Total capital to risk-weighted assets 13.19% 13.04% 14.07% Tier I capital to risk-weighted assets 11.94% 11.79% 12.82% Tier I capital to assets (leverage ratio) 7.85% 8.03% 8.89%
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. As of March 31, 1999, the Company has successfully completed internal testing of all of 12 its mission critical systems for Year 2000 compliance. The Company is now in the process of testing interfaces between its systems and those of its business partners and governmental agencies. This phase of the project is scheduled for completion by June 30, 1999. 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 are being 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. The Company expects Year 2000 contingency planning to be substantially complete by June 30, 1999. 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 will 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." PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K --------------------------------- a. Exhibits 27. Financial Data Schedule b. Reports on Form 8-K The Registrant did not file any reports on Form 8-K during the quarter ended March 31, 1999. 13 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 May 7, 1999 ------------ 14 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS 3-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 MAR-31-1999 MAR-31-1998 185,087 216,050 21,493 17,704 83,196 54,923 40,576 52,049 881,544 541,840 1,417,413 1,254,194 1,417,755 1,255,460 3,205,888 2,719,212 49,484 44,643 6,028,737 4,992,478 3,943,347 3,509,202 723,911 467,832 106,834 91,378 784,045 494,859 0 0 0 0 420,701 379,320 0 0 6,028,737 4,992,478 67,284 59,976 35,144 26,811 1,690 1,440 104,118 88,227 34,554 32,813 51,524 43,956 52,594 44,271 2,379 867 1 2 35,078 34,141 35,631 30,269 35,631 30,269 0 0 0 0 24,068 20,015 .24 .20 .23 .19 4.11 4.21 129 0 4,122 4,602 0 0 0 0 49,122 43,297 2,860 2,525 843 1,763 49,484 44,643 49,484 44,643 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----