Magazine article American Banker

Merrill Applauds National Commerce for 'Reemergence'

Magazine article American Banker

Merrill Applauds National Commerce for 'Reemergence'

Article excerpt

After a tough start this year National Commerce Financial Corp. seems to have regained its footing in the second quarter, and one analyst is giving the $23 billion-asset Memphis company credit for the improvement.

Though profits of $71.5 million dropped 11.5% from a year earlier -- because of expenses to settle a lawsuit against its First Mercantile trust subsidiary and put a management shuffle behind it -- they rose 11.6% from the previous quarter.

The first-quarter profits were hurt by weak profits from lending, coupled with the cost of settling the lawsuit.

National Commerce's poor showing prompted the shake-up in May. However, its second-quarter earnings report on Thursday showed a surge in loans and deposits and reduced pressure on its net interest margins.

The results were enough to earn National Commerce an upgrade Friday from Edward Najarian, an analyst at Merrill Lynch & Co., to "buy" from "neutral."

In a research note, Mr. Najarian wrote that the "strong second-quarter earnings marked the first step toward its reemergence as an above-average revenue and earnings story."

For years National Commerce's stock has traded at a premium to that of many other regional banks, but that changed in April, after the company warned that its first-quarter earnings were not going to meet analysts' expectations. It cited the $18 million settlement and stronger-than-expected pressure on its profit margin from lending amid low interest rates. Analysts downgraded the stock, and investors sold it, pushing the price down 20%.

The second-quarter earnings included a one-time charge of $9.2 million to pay severance costs related to the management changes, which included the early retirement of Ernest C. Roessler, its chairman and chief executive, and the replacement of Sheldon Fox, its chief financial officer.

Earnings per share fell 4 cents from a year earlier, to 35 cents. …

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