-----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, M0NiyF22msdKxZHHQTBDPxbOH0L01B5gPTa9HsALOZAHffyqMQJGoNWBFZ5ViFZZ llcrhat5XLPDr+n3uQvLyA== 0000931763-99-002336.txt : 19990816 0000931763-99-002336.hdr.sgml : 19990816 ACCESSION NUMBER: 0000931763-99-002336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99686824 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 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 June 30, 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 or organization) Identification No.) One Commerce Square Memphis, Tennessee 38150 - ------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code - (901)523-3434 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $2 par value -- 105,208,334 shares as of August 3, 1999 PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements --------------------- NATIONAL COMMERCE BANCORPORATION Consolidated Balance Sheets -------------------------------- (In Thousands) June 30 Dec. 31 1999 1998 ---------- ------- (unaudited) ASSETS ------ Cash and cash equivalents: Interest-bearing deposits with other banks $ 20,161 $ 20,092 Cash and non-interest bearing deposits 162,748 224,875 Federal funds sold and securities purchased under agreements to resell 53,863 66,883 ----------- ----------- Total cash and cash equivalents 236,772 311,850 ----------- ----------- Securities: Held-to-maturity 1,692,493 1,377,102 Available-for-sale 679,362 721,268 ----------- ----------- Total securities 2,371,855 2,098,370 ----------- ----------- Trading account securities 82,666 62,737 Loans: Commercial, financial and agricultural 666,201 592,136 Real estate - construction 242,630 242,993 Real estate - mortgage 1,277,021 1,153,717 Consumer 1,201,146 1,181,659 Lease financing 32,340 29,568 Unearned discounts (2,341) (2,400) ----------- ----------- Total loans 3,416,997 3,197,673 Less allowance for loan losses 51,426 49,122 ----------- ----------- Net loans 3,365,571 3,148,551 ----------- ----------- Premises and equipment, net 38,698 37,382 Broker/dealer customer receivables 37,091 2,505 Other assets 184,020 149,659 ----------- ----------- Total assets $ 6,316,673 $ 5,811,054 =========== =========== See notes to consolidated financial statements. 1 Consolidated Balance Sheets (cont.) - ---------------------------------- (In Thousands) June 30 Dec. 31 1999 1998 --------- ------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Non-interest-bearing deposits $ 442,894 $ 481,898 Money market checking 368,827 415,815 Savings 106,922 109,094 Money market savings 1,089,814 1,184,556 Certificates of deposit less than $100,000 861,539 867,207 Certificates of deposit of $100,000 or more 1,226,344 888,705 ----------- ----------- Total deposits 4,096,340 3,947,275 ----------- ----------- Federal funds purchased and securities sold under agreements to repurchase 708,149 591,829 Broker/dealer customer payables 0 714 Accounts payable and accrued liabilities 169,125 74,809 Federal Home Loan Bank advances 773,649 731,610 Other borrowed funds and long-term debt 6,372 6,372 ----------- ----------- Total liabilities 5,753,635 5,352,609 ----------- ----------- Capital trust pass-through securities 49,903 49,896 Stockholders' equity: Common stock 210,234 202,885 Additional paid-in capital 99,206 30,744 Retained earnings 203,834 173,522 Accumulated other comprehensive income (139) 1,398 ----------- ----------- Total stockholders' equity 513,135 408,549 Total liabilities and ----------- ----------- stockholders' equity $ 6,316,673 $ 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 For the six months ended June 30 ended June 30 ---------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Interest income: Loans $ 69,183 $ 63,060 $ 136,467 $ 123,036 Securities: Taxable 33,551 27,398 65,720 52,253 Non-taxable 2,890 1,934 5,865 3,890 Trading account securities 632 852 1,281 1,579 Deposits at banks 229 248 476 462 Other 1,111 1,095 1,905 1,594 --------- --------- --------- --------- Total interest income 107,596 94,587 211,714 182,814 --------- --------- --------- --------- Interest expense: Deposits: Money market checking 1,047 664 2,079 1,503 Savings 431 387 866 865 Money market savings 10,590 10,430 21,566 20,950 Certificates of deposit less than $100,000 10,407 13,058 20,859 25,903 Certificates of deposit $100,000 or more 13,128 8,189 24,787 16,320 Federal Home Loan Bank advances 9,528 5,575 18,495 9,628 Long-term debt 91 2,319 181 4,631 Federal funds purchased and securities sold under agreements to repurchase 8,034 6,312 15,947 11,090 --------- --------- --------- --------- Total interest expense 53,256 46,934 104,780 90,890 --------- --------- --------- --------- Net interest income 54,340 47,653 106,934 91,924 Provision for loan losses 3,835 2,630 6,214 3,497 --------- --------- --------- --------- Net interest income after provision for loan losses 50,505 45,023 100,720 88,427 --------- --------- --------- --------- Other income: Trust service income 2,662 2,417 5,237 5,215 Service charges on deposits 4,767 4,611 9,402 9,104 Other services charges and fees 5,108 4,042 9,822 7,670 Broker/dealer revenue 4,892 4,972 10,323 9,670 Securities gains (losses) (2,034) 43 (2,033) 45 Other 7,951 4,862 11,089 10,249 --------- --------- --------- --------- Total other income 23,346 20,947 43,840 41,953 --------- --------- --------- ---------
3 Consolidated Statements of Income (cont.) - --------------------------------- (Unaudited) - ----------
For the three months For the six months ended June 30 ended June 30 --------------------------- ---------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Other expenses: Salaries and employee benefits 17,824 16,331 35,562 32,773 Occupancy expense 3,225 2,921 6,421 5,724 Furniture and equipment expenses 1,722 1,300 3,287 2,680 Other 14,077 14,296 26,656 27,812 ----------- ----------- ----------- ---------- Total other expenses 36,848 34,848 71,926 68,989 ----------- ----------- ----------- ---------- Income before income taxes 37,003 31,122 72,634 61,391 Income taxes 12,176 10,643 23,739 20,897 ----------- ----------- ----------- ---------- Net income $ 24,827 $ 20,479 $ 48,895 $ 40,494 =========== =========== =========== ========== Basic net income per share of common stock $ .24 $ .20 $ .48 $ .40 Diluted net income per share of common stock $ .24 $ .20 $ .47 $ .40 Dividends per share of common stock $ .09 $ .08 $ .18 $ .15 See notes to consolidated financial statements.
4 NATIONAL COMMERCE BANCORPORATION Consolidated Statements of Cash Flows ------------------------------------- (Unaudited)
For the Six Months Ended June 30 ---------------------- 1999 1998 ---- ---- (In Thousands) Operating activities: Net income $ 48,895 $ 40,494 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 6,214 3,497 Provision for depreciation and amortization 5,551 2,593 Amortization of security premiums and accretion of discounts, net 201 (1,498) Deferred income taxes (credit) 615 1,223 (Increase) decrease in trading account securities (19,929) 30,454 Realized securities (gains) losses 2,033 (45) (Increase) decrease in broker/dealer custom (34,586) (47,920) (Increase) decrease in interest receivable 12,229 (4,956) (Increase) decrease in other assets (47,205) 6,187 Increase (decrease) in broker/dealer customer payables (714) (59) Increase (decrease) in interest payable (1,704) 1,324 Increase (decrease) in accounts payable and accrued expenses 100,136 20,054 --------- --------- Net cash provided by (used in) operating activities 71,736 51,348 --------- --------- Investing activities: Proceeds from the maturities of securities 154,753 451,705 Proceeds from sales of securities 62,828 1,155 Purchases of securities (495,806) (651,771) Net (increase) decrease in loans (223,234) (280,230) Purchase of premises and equipment (6,867) (7,309) --------- --------- Net cash provided by (used in) investing activities (508,326) (486,450) --------- --------- Financing activities: Net increase (decrease) in demand deposits, NOW accounts and savings accounts (182,906) 154,294 Net increase (decrease) in certificates of deposit 331,971 10,252 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 116,320 53,502 Increase (decrease) in long-term debt 7 99 Increase (decrease) in Federal Home Loan Bank advance 42,039 246,928 Proceeds from exercise of stock options 1,690 2,660 Issuance of common stock 80,935 0 Repurchases of common stock (9,977) (23,723) Cash dividends paid (18,567) (14,386) --------- --------- Net cash provided by (used in) financing activities 361,512 429,626 --------- --------- Decrease in cash and cash equivalents (75,078) (5,476) Cash and cash equivalents at beginning of period 311,850 247,493 --------- --------- Cash and cash equivalents at end of period $ 236,772 $ 242,017 ========= ========= Interest paid $ 106,484 $ 89,566 Income taxes paid $ 15,177 $ 18,171
See notes to consolidated financial statements. 5 NATIONAL COMMERCE BANCORPORATION -------------------------------- Notes to Consolidated Financial Statements ------------------------------------------ June 30, 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 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of Statement No. 133 on April 1, 1999, did not have a material effect on operating results or financial position. Note B - Securities Portfolio - ----------------------------- In accordance with FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities", as of June 30, 1999 the securities in the "Available for Sale" category included $246,000 in unrealized losses. Accordingly, total securities and total stockholders' equity were decreased by $246,000 and $150,000 (net of taxes), respectively, at June 30, 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 $1.7 billion at June 30, 1999. Note C - Floating Rate Capital Trust Pass-through Securities - ------------------------------------------------------------ In March, 1997, the Company issued $49,875,000 in Floating Rate Capital Trust Passthrough 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. 6 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 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.
Quarter Ended June 30, 1999: Commercial Retail Financial Banking Banking Services Total ----------- ----------- ----------- ----------- Net interest income $ 11,862 $ 32,292 $ 13,410 $ 57,564 Provision for loan losses 296 (4,043) (88) (3,835) --------- ----------- ----------- ----------- Net interest income after provision 12,158 28,249 13,322 53,729 Non-interest income 901 5,175 17,270 23,346 Non-interest expense (3,080) (18,086) (15,682) (36,848) --------- ----------- ----------- ----------- Net income before taxes 9,979 15,338 14,910 40,227 Income taxes (3,821) (5,871) (5,708) (15,400) --------- ----------- ----------- ----------- Net income $ 6,158 $ 9,467 $ 9,202 $ 24,827 ========= =========== =========== =========== Average assets $ 939,750 $ 2,558,694 $ 2,571,906 $ 6,070,350 Quarter Ended June 30, 1998: Commercial Retail Financial Banking Banking Services Total ----------- ----------- ----------- ----------- Net interest income $ 10,993 $ 27,540 $ 10,326 $ 48,859 Provision for loan losses (361) (2,068) (201) (2,630) --------- ----------- ----------- ----------- Net interest income after provision 10,632 25,472 10,125 46,229 Non-interest income 698 4,623 15,626 20,947
7 Non-interest expense (3,076) (18,025) (13,747) (34,848) --------- ----------- ----------- ----------- Net income before taxes 8,254 12,070 12,004 32,328 Income taxes (3,028) (4,424) (4,397) (11,849) --------- ----------- ----------- ----------- Net income $ 5,226 $ 7,646 $ 7,607 $ 20,479 ========= =========== =========== =========== Average assets $ 857,173 $ 2,149,015 $ 2,003,324 $ 5,009,512 Six Months Ended June 30, 1999: Commercial Retail Financial Banking Banking Services Total ----------- ----------- ----------- ----------- Net interest income $ 26,297 $ 62,885 $ 24,224 $ 113,406 Provision for loan losses (535) (5,548) (131) (6,214) --------- ----------- ----------- ----------- Net interest income after provision 25,762 57,337 24,093 107,192 Non-interest income 1,264 8,965 33,611 43,840 Non-interest expense (6,124) (37,250) (28,552) (71,926) --------- ----------- ----------- ----------- Net income before taxes 20,902 29,052 29,152 79,106 Income taxes (7,983) (11,095) (11,133) (30,211) --------- ----------- ----------- ----------- Net income $ 12,919 $ 17,957 $ 18,019 $ 48,895 ========= =========== =========== =========== Average assets $ 940,308 $ 2,533,587 $ 2,500,239 $ 5,974,134 Six Months Ended June 30, 1998: Commercial Retail Financial Banking Banking Services Total ----------- ----------- ----------- ----------- Net interest income $ 23,634 $ 53,999 $ 16,697 $ 94,330 Provision for loan losses (249) (3,071) (177) (3,497) --------- ----------- ----------- ----------- Net interest income after provision 23,385 50,928 16,520 90,833 Non-interest income 1,485 8,258 32,210 41,953 Non-interest expense (6,116) (35,828) (27,045) (68,989) --------- ----------- ----------- ----------- Net income before taxes 18,754 23,358 21,685 63,797 Income taxes (6,850) (8,532) (7,921) (23,303) --------- ----------- ----------- ----------- Net income $ 11,904 $ 14,826 $ 13,764 $ 40,494 ========= =========== =========== =========== Average assets $ 837,815 $ 2,119,235 $ 1,898,595 $ 4,855,645
8 Note E - Earnings Per Share - --------------------------- The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended June 30 June 30 ----------------------------- ----------------------------- In Thousands, Except Per Share Data 1999 1998 1999 1998 ---- ---- ---- ---- Numerator: Net income $ 24,827 $ 20,479 $ 48,895 $ 40,494 ======== ======== ========= ========= Denominator: Denominator for basic earnings per share - weighted average shares 102,878 100,039 102,140 99,998 Dilutive potential common shares - Employee stock options 2,166 2,579 2,099 2,530 -------- -------- --------- --------- Denominator for diluted earnings per share - adjusted weighted average and assumed conversions 105,044 102,618 104,239 102,528 ======== ======== ========= ========= Basic earnings per share $ .24 $ .20 $ .48 $ .40 Diluted earnings per share $ .24 $ .20 $ .47 $ .40
Note F - Comprehensive Income - ----------------------------- During the second quarter of 1999 and 1998, total comprehensive income amounted to $24,718 and $20,530, respectively. The year-to-date total comprehensive income for 1999 and 1998 was $47,358 and $40,695, respectively. 9 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. 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 Report on Form 10-Q 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 June 30, 1999 and December 31, 1998 consolidated balance sheets. Total deposits increased by $149 million or 3.8%, principally as a result of a $338 million or 38.0% increase in certificates of deposit greater than $100,000. This increase was partially offset by a $95 million or 8.0% decrease in money market savings accounts, a $47 million or 11.3% decrease in money market checking accounts, a $2 million or 2.0% increase in savings accounts and a $39 million or 8.1% decrease in non-interest-bearing deposits from normally higher year-end levels, and a $6 million or .7% decrease in certificates of deposit less than $100,000. The change in deposits are a result of asset/liability management decisions related to the current interest rate environment. Federal funds purchased and securities sold under agreements to repurchase increased $116 million or 19.7% 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 $42 million or 5.7% 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 $219 million or 6.9% compared to December 31, 1998 levels. Commercial loans increased by $74 million or 12.5% and real estate construction loans decreased by $363 thousand or .1%, reflecting current demand. Real estate mortgage loans increased by $123 million or 10.7% and consumer loans increased $19 million or 1.6%, reflecting an increased emphasis on promoting home equity loans and other consumer products. 10 Securities increased by $273 million or 13.0% from year-end 1998. Securities held to maturity increased by $315 million or 22.9, and securities available for sale decreased by $42 million or 5.8%, reflecting current portfolio investment strategies, and current market conditions. Federal funds sold and securities purchased under agreements to resell decreased by $13 million or 19.5% from December 31, 1998 levels, reflecting levels of activity of correspondent banks at June 30, 1999. Trading account securities decreased by $20 million or 31.8% 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. Broker/dealer customer receivables increased $35 million or 1380.7% and payables decreased $714 thousand or 100.0% reflecting levels of activity. Results of Operations - --------------------- Three Months Ended June 30, 1999, Compared to Three Months Ended June 30, 1998 - ------------------------------------------------------------------------------ Net income was $24,827,000 for the second quarter of 1999, a 21.2% increase over the $20,479,000 reported for the same period a year earlier. Diluted earnings per share were $.24, compared to $.20 per share in 1998, up 20.0%. Basic earnings per shares 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 $8,705,000 or 17.8% for the second quarter of 1999, compared to second quarter 1998. This increase reflects a $15,027,000 or 15.7% increase in total interest income that more than offsets a $6,322,000 or 13.5% increase in interest expense. Interest income increased in 1999 due to an increase of $1,030,838,000 or 22.2% in total average earning assets, partially offset by a decrease in the yield on average earning assets from 8.27% in the second quarter of 1998 to 7.83% in the second quarter of 1999. The increased volume of earning assets increased interest income by approximately $21,245,000 while the decreased yield reduced interest income by approximately $6,218,000. Interest expense increased in the second quarter of 1999, reflecting an increase in average interest-bearing liabilities of $926,118,000 or 22.7%, partially offset by a decrease in the cost of interest-bearing liabilities from 4.62% to 4.27%. The decrease in the rate paid on interest-bearing liabilities reduced interest expense by approximately $4,348,000 and the increase in average outstandings increased interest expense by approximately $10,670,000. The net interest margin (taxable equivalent net interest income as a percentage of average earning assets) was 4.07% in second quarter 1999, compared to 4.22% in second quarter of 1998. The provision for loan losses in the second quarter of 1999 was $3,835,000, versus $2,630,000 for the second quarter of 1998. Net charge-offs were $1,893,000, or .23% of average net loans, compared to $2,223,000 or .32% of average net loans in 1998. The allowance for loan losses totaled $51,426,000 at June 30, 1999, representing 1.51% of quarter-end net loans, compared to $45,050,000 or 1.56% of quarter-end net loans at June 30, 1998. Following is a comparison of non-earning assets and loans past due 90 days or more for the quarters ended June 30, 1999, March 31, 1999 and June 30, 1998 (dollars in thousands): 11 6-30-99 3-31-99 6-30-98 ------- ------- ------- Non-accrual loans $ 205 $ 129 $ 543 Renegotiated loans 0 0 0 Other real estate 437 1,200 263 ------- ------- ------- Total non-earning assets $ 642 $ 1,329 $ 806 ======= ======= ======= Loans past due 90 days or more $ 3,323 $ 4,122 $ 3,050 Percentage of total loans .10% .11% .11% Non-interest income, excluding securities transactions, totaled $25,380,000 for the quarter, an increase of $4,476,000, or 21.4%, from last year's second quarter. Securities losses totaled $2,034,000 in second quarter, 1999, compared to a $43 thousand gain in 1998. Non-interest expenses (excluding the provision for loan losses) increased by $2,000,000 or 5.7% in second quarter, 1999, 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 1.64% and 22.01% respectively, for second quarter of 1999. These compared with 1998 second quarter returns of 1.64% and 21.54%, respectively. Six Months Ended June 30, 1999, Compared to Six Months Ended June 30, 1998 - -------------------------------------------------------------------------- For the six months ended June 30, 1999, net income totaled $48,895,000, a 20.7% increase over the $40,494,000 for the first six months of 1998. Diluted earnings per share were $.47, compared to $.40 for the same period in 1998, a 17.5% increase. Basic earnings per share were $.48 compared to $.40 in 1998, a 20.0% increase. For the six-month period, return on average assets and return on average stockholders' equity were 1.64% and 22.49% respectively. These compared with 1998 six month returns of 1.67% and 21.65%. Net interest income increased by $19,076,000 or 20.2% for the first six months of 1999. This increase reflects a $32,966,000 or 17.8% increase in total interest income that more than offsets a $13,890,000 or 15.3% increase in interest expense. Interest income increased in 1999 due to an increase of $1,076,022,000 or 23.8% in total average earning assets partially offset by a decrease in the yield on average earning assets from 8.27% in 1998 to 7.87% in 1999. The increased volume of earning assets increased interest income by approximately $44,138,000, and the decreased yield reduced interest income by approximately $11,172,000. Interest expense increased in the first six months of 1999, reflecting an increase in average interest-bearing liabilities of $995,311,000 or 25.3%, with the cost of interest-bearing liabilities decreasing from 4.66% to 4.29% in 1999. The increase in average outstandings increased interest expense by approximately $22,993,000 while the decreased rate reduced interest expense by approximately $9,103,000. The net interest margin was 4.09% in the first six months of 1999, compared to 4.21% in the first six months of 1998. The provision for loan losses for the first six months of 1999 was $6,214,000, versus $3,497,000 for the first six months of 1998. Net charge-offs were $3,910,000, or .24% of average net loans compared to $2,985,000, or .22% of average net loans in 1998. Non-interest income, excluding securities transactions, totaled $45,873,000 for the first six months of 1999, compared to a total of $41,908,000 for the first six months of 1998, an increase of 9.5%. Securities losses totaled $2,033,000 in 1999, compared to a gain of $45,000 in 1998. Non-interest expenses (excluding the provision for loan losses) increased by 12 $2,937,000 or 4.3% for the first six months of 1999. Increased employment and occupancy expenses relating to new products and locations, and increased promotional expenses of new loan and deposit gathering campaigns were the primary reasons for the increase. Liquidity and Capital Resources - ------------------------------- Interest-bearing bank balances, federal funds sold, trading account securities, and securities available for sale are the principal sources of short-term asset liquidity. Other sources of short-term liquidity include federal funds purchased and repurchase agreements, credit lines with other banks, and borrowings from the Federal Reserve Bank and the Federal Home Loan Bank. Maturing loans and securities are the principal sources of long-term asset liquidity. Total realized stockholders' equity increased by $106,123,000 from December 31, 1998. Due to a sale of common stock in second quarter 1999, additional paid-in capital accounted for the majority of the increase. Through June 30, 1999, 7.8 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 OR FAS No. 133 on Tier I capital, total capital, or total risk-weighted assets. As indicated in the following table, the Company and its banking subsidiaries exceeded all minimum required capital ratios for well-capitalized institutions at June 30, 1999. 6-30-99 3-31-99 6-30-98 ------- ------- ------- Total capital to risk-weighted assets 14.66% 13.19% 13.47% Tier I capital to risk-weighted assets 13.41% 11.94% 12.22% Tier I capital to assets (leverage ratio) 9.03% 7.85% 8.32% 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. In addition, the Company has successfully completed testing of its mission critical systems for Year 2000 compliance. 13 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 have been 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. 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 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." 14 PART II. OTHER INFORMATION - --------------------------- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- At the Company's Annual Meeting of Shareholders held April 28, 1999, the following proposals were approved by the shareholders of the Company: The following individuals were elected to serve as directors of the Company for terms that expire at the Annual Meeting of Shareholders to be held in 2001: Frank G. Barton, Jr.; James H. Daughdrill, Jr.; Thomas C. Farnsworth, Jr.; Lewis E. Holland; Phillip H. McNeill, Sr.; and J. Bradbury Reed. (78,691,636 shares in favor the slate of directors; 133,464 withheld; and 94,988 exceptions). The appointment of Ernst & Young LLP as auditors of the Company for 1999 was ratified. (78,724,473 shares in favor; 68,560 against; and 127,055 abstained). Item 6. Exhibits and Reports on Form 8-K --------------------------------- a. Exhibits 4.1. Specimen Stock Certificate 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 June 30, 1999. 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: August 13, 1999 ---------------- 15 EX-4.1 2 STOCK CERTIFICATE EXHIBIT 4.1 Specimen Stock Certificate - --------------------------------------- COMMON COMMON ------ ------ NATIONAL COMMERCE ----------------- BANCORPORATION SEE REVERSE FOR CERTAIN DEFINITIONS INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE CUSIP 635449 10 1 This Certifies that ------------------------------------------------------------ is the owner of ---------------------------------------------------------------- FULL-PAID AND NON-ASSESSABLE SHARES EACH OF $2.00 PAR VALUE OF THE COMMON STOCK OF NATIONAL COMMERCE BANCORPORATION transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate of Incorporation and amendments thereto, to all of which the holder by acceptance hereof assents. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile of the Corporation's duly authorized officers. Dated: /s/ Gus B. Denton /s/ Thomas M. Garrott ----------------- --------------------- Secretary Chairman of the Board NATIONAL COMMERCE BANCORPORATION The Corporation is authorized to issue different classes of shares and different series within a class. The Corporation will furnish to the holder of this certificate a full statement of the designations, relative rights, preferences and limitations applicable to each class and the variations for rights, preferences and limitation determined for any series (and the authority of the Board of Directors to determine variations for future series) on request in writing and without charge. The following abbreviations, when used in the inscription of the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenant in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties ----- ----- JT TEN - as joint tenants with right (CUST) (MINOR) of survivorship and not as under Uniform Gifts to Minors Act tenants in common ------ Additional abbreviations may also be used though not in the above list. (State)
For value received, hereby sell, assign and transfer unto ------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OF TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ----------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ---------------- ------------------------------------------ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: ------------------------------------------ THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS 6-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 JUN-30-1999 JUN-30-1998 162,748 205,789 20,161 19,140 53,863 17,088 82,666 67,878 679,362 687,151 1,692,493 1,131,779 1,634,744 1,134,487 3,416,997 2,887,453 51,426 45,050 6,316,673 5,200,617 4,096,340 3,415,788 708,149 478,726 169,125 86,429 780,021 791,506 513,135 378,278 0 0 0 0 0 0 6,316,673 5,200,617 136,467 123,036 71,585 56,143 3,662 3,635 211,714 182,814 70,157 65,541 104,780 90,890 106,934 91,924 6,214 3,497 (2,033) 45 71,926 68,989 72,634 61,391 72,634 61,391 0 0 0 0 48,895 40,494 .48 .40 .47 .40 4.09 4.21 205 543 3,323 3,050 0 0 483 175 49,122 43,297 6,033 5,507 2,123 2,522 51,426 45,050 51,426 45,050 0 0 0 0
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