-----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, WGeVtzJuMAJ/MKVan8uM9uu9Y8wWBKneuJYI8NZMHBZxPT8NKZP4qMs6qzZWplo2 LTNyhiHvj6xvyWBLfJhn2A== 0000931763-98-002889.txt : 19981116 0000931763-98-002889.hdr.sgml : 19981116 ACCESSION NUMBER: 0000931763-98-002889 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98746519 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 QUARTERLY REPORT 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, 1998 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 -- 100,013,845 shares as of October 31, 1998 PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements -------------------- NATIONAL COMMERCE BANCORPORATION Consolidated Balance Sheets -------------------------------- (In Thousands)
Sept 30 Dec. 31 1998 1997 ----------- ----------- (unaudited) ASSETS ------ Cash and cash equivalents: Interest-bearing deposits with other banks $ 18,497 $ 18,293 Cash and non-interest bearing deposits 170,356 206,191 Federal funds sold and securities purchased under agreements to resell 41,941 23,009 ---------- ---------- Total cash and cash equivalents 230,794 247,493 ---------- ---------- Securities: Held-to-maturity 1,059,857 1,210,071 Available-for-sale 787,614 408,083 ---------- ---------- Total securities 1,847,471 1,618,154 ---------- ---------- Trading account securities 38,362 98,332 Loans: Commercial, financial and agricultural 584,642 512,534 Real estate - construction 234,913 241,334 Real estate - mortgage 1,096,013 781,826 Consumer 1,115,152 1,045,420 Lease financing 29,714 30,046 Unearned discounts (2,438) (2,193) ---------- ---------- Total loans 3,057,996 2,608,967 Less allowance for loan losses 46,690 43,297 ---------- ---------- Net loans 3,011,306 2,565,670 ---------- ---------- Premises and equipment, net 33,721 27,404 Broker/dealer customer receivables 4,266 7,695 Other assets 137,642 127,263 ---------- ---------- Total assets $5,303,562 $4,692,011 ========== ==========
See notes to consolidated financial statements. 1 Consolidated Balance Sheets (cont.) - ----------------------------------- (In Thousands)
Sept 30 Dec. 31 1998 1997 ---------- --------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Non-interest-bearing deposits $ 386,955 $ 417,748 Money market checking 316,529 286,555 Savings 103,879 83,626 Money market savings 1,058,054 943,422 Certificates of deposit less than $100,000 847,591 899,027 Certificates of deposit of $100,000 or more 868,716 620,864 ---------- ---------- Total deposits 3,581,724 3,251,242 ---------- ---------- Federal funds purchased and securities sold under agreements to repurchase 481,090 423,573 Broker/dealer customer payables 543 59 Accounts payable and accrued liabilities 57,341 68,969 Federal Home Loan Bank advances 733,324 389,884 Other borrowed funds and long-term debt 6,372 156,252 ---------- ---------- Total liabilities 4,860,394 4,289,979 ---------- ---------- Capital trust pass-through securities 49,893 49,884 Stockholders' equity: Common stock 200,095 97,704 Additional paid-in capital 50,865 52,524 Retained earnings 139,937 199,670 Unrealized gains (losses) on securities, net of taxes 2,378 2,250 ---------- ---------- Total stockholders' equity 393,275 352,148 Total liabilities and --------- --------- stockholders' equity $5,303,562 $4,692,011 ========== ==========
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 For the nine months ended Sept 30 ended Sept 30 -------------------- ------------------- 1998 1997 1998 1997 --------- --------- --------- -------- Interest income: Loans $68,059 $59,995 $191,095 $168,924 Securities: Taxable 25,594 24,281 77,847 72,778 Non-taxable 1,988 1,870 5,878 5,621 Trading account securities 985 413 2,564 1,237 Deposits at banks 279 266 741 722 Other 488 313 2,082 712 ------- ------- -------- -------- Total interest income 97,393 87,138 280,207 249,994 ------- ------- -------- -------- Interest expense: Deposits: Money market checking 902 733 2,405 2,559 Savings 538 405 1,403 1,195 Money market savings 11,396 10,392 32,346 31,045 Certificates of deposit less than $100,000 11,749 11,229 37,652 31,562 Certificates of deposit $100,000 or more 7,376 7,375 23,696 22,953 Federal Home Loan Bank advances 9,044 6,215 18,672 17,466 Long-term debt 1,413 2,364 6,044 6,949 Federal funds purchased and securities sold under agreements to repurchase 5,552 6,402 16,642 16,476 ------- ------- -------- -------- Total interest expense 47,970 45,115 138,860 130,205 ------- ------- -------- -------- Net interest income 49,423 42,023 141,347 119,789 Provision for loan losses 2,962 4,280 6,459 11,285 ------- ------- -------- -------- Net interest income after provision for loan losses 46,461 37,743 134,888 108,504 ------- ------- -------- -------- Other income: Trust service income 2,526 2,409 7,741 6,763 Service charges on deposits 4,828 4,394 13,932 12,192 Other services charges and fees 5,203 4,086 12,873 10,941 Broker/dealer revenue 4,385 3,158 14,055 7,890 Securities gains (losses) 113 2 158 31 Other 4,338 5,963 14,587 18,640 ------- ------- -------- -------- Total other income 21,393 20,012 63,346 56,457 ------- ------- -------- --------
3
Consolidated Statements of Income (cont.) - ----------------------------------------------------------------------------------------------- (Unaudited) - ---------- For the three months For the nine months ended Sept 30 ended Sept 30 ------------------- ------------------- 1998 1997 1998 1997 ------- ------- -------- ------- Other expenses: Salaries and employee benefits 16,622 14,123 49,395 41,917 Occupancy expense 3,140 2,581 8,864 7,727 Furniture and equipment expenses 1,448 1,236 4,128 3,534 Other 14,481 12,595 42,293 36,825 ------- ------- -------- ------- Total other expenses 35,691 30,535 104,680 90,003 ------- ------- -------- ------- Income before income taxes 32,163 27,220 93,554 74,958 Income taxes 10,299 9,175 31,196 25,689 ------- ------- -------- ------- Net income $21,864 $18,045 $ 62,358 $49,269 ======= ======= ======== ======= Basic net income per share of common stock $ .22 $ .18 $ .62 $ .50 Diluted net income per share of common stock $ .21 $ .18 $ .61 $ .49 Dividends per share of common stock* $ .08 $ .05 $ .23 $ .17
See notes to consolidated financial statements. 4 NATIONAL COMMERCE BANCORPORATION Consolidated Statements of Cash Flows ------------------------------------- (Unaudited)
For the Nine Months Ended Sept 30 ------------ ---------- 1998 1997 ------------ ---------- (In Thousands) Operating activities: Net income $ 62,358 $ 49,269 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 6,459 11,285 Provision for depreciation and amortization 5,591 3,884 Amortization of security premiums and accretion of discounts, net (2,252) 28 Deferred income taxes (credit) 1,336 (861) (Increase) decrease in trading account securities 59,970 10,615 Realized securities (gains) losses (158) (31) (Increase) decrease in broker/dealer customer receivables 3,429 (2,310) (Increase) decrease in interest receivable (1,959) 3,260 (Increase) decrease in other assets (9,756) (13,547) Increase (decrease) in broker/dealer customer payables 484 (1,002) Increase (decrease) in interest payable 215 1,137 Increase (decrease) in accounts payable and accrued expenses (6,094) 98,728 ----------- --------- Net cash provided by (used in) operating activities 119,623 160,455 ----------- --------- Investing activities: Proceeds from the maturities of securities 766,817 168,886 Proceeds from sales of securities 24,701 79,987 Purchases of securities (1,018,216) (302,674) Net (increase) decrease in loans (452,095) (266,267) Purchase of premises and equipment (11,908) (8,198) ----------- --------- Net cash provided by (used in) investing activities (690,701) (328,266) ----------- --------- Financing activities: Net increase (decrease) in demand deposits, NOW accounts and savings accounts 134,066 (8,021) Net increase (decrease) in certificates of deposit 196,416 3,488 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 57,517 153,493 Increase (decrease) in long-term debt (149,871) 50,021 Increase (decrease) in Federal Home Loan Bank advances 343,440 28,728 Proceeds from exercise of stock options 4,003 2,987 Issuance of common stock 19,637 53 Repurchases of common stock (28,426) (8,481) Cash dividends paid (22,403) (16,195) ----------- --------- Net cash provided by (used in) financing activities 554,379 206,073 ----------- --------- Decrease in cash and cash equivalents (16,699) 38,262 Cash and cash equivalents at beginning of period 247,493 195,902 ----------- --------- Cash and cash equivalents at end of period $ 230,794 $ 234,164 =========== ========= Interest paid $ 139,075 $ 130,837 Income taxes paid $ 25,939 $ 23,818
See notes to consolidated financial statements. 5 NATIONAL COMMERCE BANCORPORATION -------------------------------- Notes to Consolidated Financial Statements ------------------------------------------ September 30, 1998 ------------------ (Unaudited) --------- Note A - Basis of Presentation - ------------------------------ The consolidated balance sheet at December 31, 1997 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, 1997. 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 will adopt 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 establishes standards for related disclosures about products and services, geographical areas and major customers. Management has not completed its review of the statement, but does not anticipate its adoption will have a significant effect on the Company's annual or interim reporting. The Financial Account 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. The Company has not yet determined the effect, if any, Statement 133 will have on the earnings and financial condition of the Company. Note B - Securities Portfolio - ----------------------------- In accordance with FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities", as of September 30, 1998 the securities in the "Available for Sale" category included $3.9 million in unrealized gains. Accordingly, total securities and total stockholders' equity were increased by $3.9 million and $2.4 million (net of taxes), respectively, at September 30, 1998, 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 gains are not included in net income. The fair value of the "Held to Maturity" category was $1.1 billion at September 30, 1998. 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 are being used by the Company for general corporate purposes and may be counted as Tier I capital. Note D - Earnings Per Share - --------------------------- The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended Sept 30 Sept 30 ------------------ ----------------- In Thousands, Except Per Share Data 1998 1997 1998 1997 -------- -------- -------- -------- Numerator: Net income $ 21,864 $ 18,045 $ 62,358 $ 49,269 ======== ======== ======== ======== Denominator: Denominator for basic earnings per share - weighted average shares 100,156 97,881 100,406 98,084 Dilutive potential common shares - Employee stock options 2,388 3,463 2,482 3,202 -------- -------- -------- -------- Denominator for diluted earnings per share - adjusted weighted average and assumed conversions 102,544 101,344 102,888 101,286 ======== ======== ======== ======== Basic earnings per share* $ .22 $ .18 $ .62 $ .50 Diluted earnings per share* $ .21 $ .18 $ .61 $ .49
* All share and per share amounts have been retroactively restated for stock dividends and splits declared through July 1, 1998. 6 Note E - 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 third quarter of 1998 and 1997, total comprehensive income amounted to $21,791 and $19,818, respectively. The year-to date total comprehensive income for 1998 and 1997 was $62,486 and $50,702, respectively. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------- The purpose of this discussion is to focus on important factors affecting the Company's financial condition and results of operations. Reference should be made to the consolidated financial statements (including the notes thereto) set forth in this report for an understanding of the following discussion and analysis. In this discussion, net interest income and net interest margin are presented on a fully taxable equivalent basis. All per share data is adjusted to reflect all stock dividends and stock splits declared through September 30, 1998. This Form 10-Q may contain or incorporate by reference statements which may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Prospective investors are cautioned that any such forward-looking statements are not guarantees for future performance and involve known and unknown risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results, performance or achievements of the Company to differ materially from those in forward-looking statements include significant fluctuations in interest rates, inflation, economic recession, general economic and business conditions, 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. 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 results over time. Financial Condition - ------------------- Following is a comparison of the September 30, 1998, and December 31, 1997, consolidated balance sheets. Total deposits increased by $330 million or 10.2%, principally as a result of a $115 million or 12.2% increase in money market savings accounts, a $30 million or 10.5% increase in money market checking accounts, a $247 million or 39.9% increase in certificates of deposit greater than $100,000, and a $20 million or 24.2% increase in savings accounts. These increases were partially offset by a $31 million or 7.4% decrease in non- interest-bearing deposits from normally higher year-end levels, and a $51 million or 5.7% decrease in certificates of deposit less than $100,000. These deposit increases are the result of new locations opened during 1998 and new deposit gathering campaigns initiated in 1998. Federal funds purchased and securities sold under agreements to repurchase increased $58 million or 13.6% from year-end 1997 levels. This category of liabilities fluctuates with the availability of overnight funds purchased from downstream correspondent banks. Federal Home Loan Bank advances increased $343 million or 88.1% from December 31, 1997. This increase is principally the result of asset/liability management decisions related to the current interest rate environment. Long-term debt decreased $150 million or 95.9% as a result of debt maturing at the Company's National Bank of Commerce subsidiary. Total gross loans increased by $449 million or 17.2% compared to December 31, 1997 levels. Commercial loans increased by $72 million or 14.1% and real estate construction loans decreased by $6 million or 2.7%, reflecting current demand. Real estate mortgage loans increased by $314 million or 40.2% and consumer loans increased $70 million or 6.7%, reflecting an increased emphasis on promoting home equity loans and other consumer products. Securities increased by $229 million or 14.2% from year-end 1997. Securities held to maturity decreased by $150 million or 12.4, and securities available for sale increased by $380 million or 93.0%, reflecting current portfolio investment strategies, and current market conditions. 8 Federal funds sold and securities purchased under agreements to resell increased by $19 million or 82.3% from December 31, 1997 levels, reflecting excess funds that otherwise were not employed in loans or securities at September 30, 1998. Trading account securities decreased by $60 million or 61.0% from year-end 1997 levels. This decrease reflects the trading activity generated by NBC Capital Markets, Group, Inc., the Company's broker/dealer subsidiary, which fluctuates from time to time. Broker/dealer customer receivables decreased $3 million or 44.6% and payables increased $484 thousand or 820.3% reflecting levels of activity. Results of Operations - --------------------- Three Months Ended September 30, 1998, Compared to Three Months Ended September 30, 1997 - -------------------------------------------------------------------------------- Net income was $21,864,000 for the third quarter of 1998, a 21.2% increase over the $18,045,000 reported for the same period a year earlier. Diluted earnings per share were $.21, compared to $.18 per share in 1997, up 16.7%. Basic earnings per shares were $.22, compared to $.18 per share in 1997, up 22.2%. Net interest income, the difference between interest earned on loans and investments and interest paid on interest-bearing liabilities, increased by $7,444,000 or 17.2% for the third quarter of 1998, compared to third quarter 1997. This increase reflects a $10,299,000 or 11.7% increase in total interest income that more than offsets a $2,855,000 or 6.3% increase in interest expense. Interest income increased in 1998 due to an increase of $466,457,000 or 11.0% in total average earning assets, partially offset by a decrease in the yield on average earning assets from 8.25% in the third quarter of 1997 to 8.17% in the third quarter of 1998. The increased volume of earning assets positively impacted interest income by approximately $11,000,000, while the decreased yield negatively impacted interest income by approximately $1,000,000. Interest expense increased in the third quarter of 1998, reflecting an increase in average interest-bearing liabilities of $420,864,000 or 11.3%, partially offset by a decrease in the cost of interest-bearing liabilities from 4.82% to 4.54%. The decrease in the rate paid on interest-bearing liabilities positively affected interest expense by approximately $2,200,000 and the increase in average outstandings negatively affected interest expense by approximately $5,100,000. The net interest margin (taxable equivalent net interest income as a percentage of average earning assets) was 4.18% in third quarter 1998, compared to 4.04% in third quarter of 1997. The provision for loan losses in the third quarter of 1998 was $2,962,000, versus $4,280,000 for the third quarter of 1997. Net charge-offs were $1,710,000, or .23% of average net loans, compared to $2,479,000 or .38% of average net loans in 1997. The allowance for loan losses totaled $46,690,000 at September 30, 1998, representing 1.53% of quarter-end net loans, compared to $39,911,000 or 1.53% of quarter-end net loans at September 30, 1997. Following is a comparison of non-earning assets and loans past due 90 days or more for the quarters ended September 30, 1998, June 30, 1998 and September 30, 1997 (dollars in thousands):
9-30-98 6-30-98 9-30-97 -------- -------- ------- Non-accrual loans $ 551 $ 543 $ 111 Renegotiated loans 0 0 0 Other real estate 724 263 34 -------- -------- ------ Total non-earning assets $ 1,275 $ 806 $ 145 ======== ======== ====== Loans past due 90 days or more $ 4,442 $ 3,050 $4,181 -------- -------- ------ Percentage of total loans .15% .11% .16% -------- -------- ------
9 Non-interest income, excluding securities transactions, totaled $21,280,000 for the quarter, an increase of $1,270,000, or 6.3%, from last year's third quarter. Securities gains totaled $113,000 in third quarter, 1998, compared to $2,000 in 1997. Non-interest expenses (excluding the provision for loan losses) increased by $5,156,000 or 16.9% in third quarter, 1998, primarily reflecting increased employment and occupancy expenses relating to new products and locations and increased promotional expenses of new loan and deposit gathering campaigns. The Company's return on average assets and return on average equity were 1.72% and 22.48% respectively, for third quarter of 1998. These compared with 1997 third quarter returns of 1.60% and 21.38%, respectively. Nine Months Ended September 30, 1998, Compared to Nine Months Ended September 30, 1997 - -------------------------------------------------------------------------------- For the nine months ended September 30, 1998, net income totaled $62,358,000, a 26.6% increase over the $49,269,000 for the first nine months of 1997. Diluted earnings per share were $.61, compared to $.49 for the same period in 1997, a 24.5% increase. Basic earnings per share were $.62 compared to $.50 in 1997, a 24.0% increase. For the nine-month period, return on average assets and return on average stockholders' equity were 1.68% and 21.82% respectively. These compared with 1997 nine month returns of 1.50% and 19.95%. Net interest income increased by $21,699,000 or 17.6% for the first nine months of 1998. This increase reflects a $30,354,000 or 12.0% increase in total interest income that more than offsets a $8,655,000 or 6.6% increase in interest expense. Interest income increased in 1998 due to an increase of $478,232,000 or 11.6% in total average earning assets and an increase in the yield on average earning assets from 8.21% in 1997 to 8.24% in 1998. The increased volume of earning assets positively impacted interest income by approximately $29,000,000, and the increased yield positively impacted interest income by approximately $1,000,000. Interest expense increased in the first nine months of 1998, reflecting an increase in average interest-bearing liabilities of $396,774,000 or 11.0%, with the cost of interest-bearing liabilities decreasing from 4.80% to 4.62% in 1998. The increase in average outstandings negatively impacted interest expense by approximately $14,000,000 while the decreased rate positively impacted interest expense by approximately $5,350,000. The net interest margin was 4.21% in the first nine months of 1998, compared to 3.99% in the first nine months of 1997. The provision for loan losses for the first nine months of 1998 was $6,459,000, versus $11,285,000 for the first nine months of 1997. Net charge- offs were $4,695,000, or .22% of average net loans compared to $7,513,000, or .40% of average net loans in 1997. Non-interest income, excluding securities transactions, totaled $63,188,000 for the first nine months of 1998, compared to a total of $56,426,000 for the first nine months of 1997, an increase of 12.0%. Securities gains totaled $158,000 in 1998, compared to $31,000 in 1997. Non-interest expenses (excluding the provision for loan losses) increased by $14,677,000 or 16.3% for the first nine months of 1998. 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 - ------------------------------- 10 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 $40,999,000 from December 31, 1997. Retained earnings accounted for the majority of the increase. Through September 30, 1998, 7.00 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 September 30, 1998.
9-30-98 6-30-98 9-30-97 ------- ------- ------- Total capital to risk-weighted assets 13.65% 13.47% 13.73% Tier I capital to risk-weighted assets 12.39% 12.22% 12.47% Tier I capital to assets (leverage ratio) 8.52% 8.32% 8.50%
Year 2000 Preparations - ---------------------- Management has developed a plan to modify the Company's information technology and equipment to recognize the year 2000 and is converting critical data processing systems. The Company has also initiated discussions with its significant vendors to ensure that those parties have appropriate plans to remediate year 2000 issues where their systems interface with the Company's systems or otherwise impact its operations. The Company is assessing the extent to which its operations are vulnerable and developing contingency plans should those organizations fail to remediate their systems properly. This project is not expected to have a significant effect of the Company's business operations. Testing of mission critical systems should be substantially completed by March 31, 1999. Currently, management expects the project to be substantially complete by early 1999. Incremental costs, which exclude the costs to upgrade and replace systems in the ordinary course of business, are not expected to be material to the Company's consolidated results of operations or financial position. The Company has developed a contingency plan methodology to address the likely worst-case effects of year 2000 issues. The implementation and validation of this methodology will be substantially completed by March 31, 1999. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- No significant changes since December 31, 1997. See Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." 11 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 September 30, 1998. 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: November 13, 1998 ----------------- 12 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS 9-MOS DEC-31-1998 DEC-31-1998 JAN-01-1998 JAN-01-1998 SEP-30-1998 SEP-30-1997 170,356 199,129 18,497 18,465 41,941 16,570 38,362 21,197 787,614 611,626 1,059,857 962,423 1,064,659 956,486 3,057,996 2,607,352 46,090 39,911 5,303,562 4,556,960 3,581,724 2,971,897 482,197 539,864 57,341 157,401 738,589 493,081 0 0 0 0 393,275 344,836 0 0 5,303,562 4,556,960 191,095 168,924 83,725 78,399 5,387 2,671 280,207 249,994 97,502 89,314 138,860 130,205 141,347 119,789 6,459 11,285 158 31 104,680 90,003 93,554 74,958 93,554 74,958 0 0 0 0 62,358 49,269 .62 .50 .61 .49 4.21 3.99 551 111 4,442 4,181 0 0 112 319 43,297 35,514 7,945 9,676 3,250 2,163 46,690 39,911 46,690 39,911 0 0 0 0
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