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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 [FEE REQUIRED]
December 31, 1995 0-6094
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(For the fiscal year ended) (Commission file number)
NATIONAL COMMERCE BANCORPORATION
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(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square, Memphis, Tennessee 38150 (901)523-3242
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(Address of principal executive offices) (Telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2 par value
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(Title of class)
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 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
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 1996, was approximately $559,220,000.
The number of shares of common stock outstanding, as of March 1, 1996, was
24,846,704.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form. X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual Proxy Statement relating to the 1996 Annual Meeting
of Shareholders of National Commerce Bancorporation are incorporated by
reference into Part III. Portions of the 1995 National Commerce Bancorporation
Annual Report are incorporated by reference into Parts I and II.
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PART I.
ITEM 1. BUSINESS.
NATIONAL COMMERCE BANCORPORATION:
National Commerce Bancorporation ("NCBC" or "the Company"), a Tennessee
corporation, is a bank holding company formed in February 1966 as Tennessee
Financial Corporation. The corporate name was changed to United Tennessee
Bancshares Corporation in 1970 and the present corporate name was adopted in
April 1978. The business of NCBC consists of owning all of the outstanding
capital stock of (1) National Bank of Commerce, Memphis, Tennessee ("NBC" or
"the Bank"), (2) Nashville Bank of Commerce, Nashville, Tennessee ("Nashville"
or "the Nashville Bank"), (3) NBC Bank, FSB, Knoxville, Tennessee ("Knoxville"
or "the Knoxville Bank"), (4) NBC Bank, FSB, Belzoni, Mississippi ("FSB"), (5)
Commerce Finance Company, Memphis, Tennessee ("Commerce Finance"), (6) Commerce
Capital Management, Inc., Memphis, TN ("Commerce Capital"), (7) Brooks, Montague
& Associates, Inc, Chattanooga, Tennessee ("Brooks Montague") and (8)
TransPlatinum Service Corp., Nashville, TN ("TransPlatinum"). NCBC provides NBC,
Nashville, Knoxville, and FSB ("the Banks"), Commerce Finance, Commerce Capital,
Brooks Montague, and TransPlatinum with advice and counsel relating to financial
and employee benefit matters, performs certain record-keeping functions relating
to compliance with accounting and regulatory requirements and provides
assistance in obtaining additional financing.
NBC furnishes a full range of banking and trust services through 28 branch
and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee,
one SUPER MONEY MARKET facility located in Johnson City, Tennessee, one SUPER
MONEY MARKET facility located in Kingsport, Tennessee, one SUPER MONEY MARKET
facility located in Jackson, Tennessee, and one SUPER MONEY MARKET facility
located in Cleveland, Tennessee. NBC has two active, wholly owned, non-banking
subsidiaries, Commerce General Corporation ("Commerce General") and Commerce
Investment Corporation ("Commerce Investment"). Commerce General provides a
variety of data processing services to the Banks and other commercial
enterprises. Commerce Investment was chartered in September 1986 to serve the
needs of individual investors as a broker-dealer of investment products,
including stocks, bonds, municipal obligations, mutual funds and unit investment
trusts.
The Nashville Bank was organized in September 1985 to operate full-service
banking facilities in Kroger supermarkets within the Nashville area. The SUPER
MONEY MARKET branches offer a wide variety of personal banking services. The
Nashville Bank
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is a state chartered bank with 18 SUPER MONEY MARKET branch locations and one
traditional branch and has a dormant subsidiary, Commerce Corporate Advisors,
Inc. Another subsidiary, National Commerce Bank Services, Inc. ("NCBS"),
provides supermarket banking services to other financial institutions. The
Nashville Bank also operates three stand-alone automated teller machines
("ATMs") in the Nashville area.
The Knoxville Bank was organized in June 1986 as a state chartered bank to
operate full-service SUPER MONEY MARKET banking facilities within the Knoxville
area. During 1994, the Knoxville Bank was converted to a federally chartered
savings bank and expanded into North Carolina. The Knoxville Bank has 11 SUPER
MONEY MARKET branch locations and one traditional branch location in the
Knoxville area with eight branch locations in the Raleigh-Durham, North Carolina
area. The Knoxville Bank also operates one stand-alone ATM in the Knoxville
area. The Knoxville Bank also offers loans on an indirect basis through area
automobile dealers.
On July 13, 1993, the Company acquired First Federal Savings Bank, a $4.8
million institution located in Belzoni, Mississippi. The name was changed to NBC
Bank, FSB, and its business expanded into Virginia. In addition to one office
in Belzoni, Mississippi, FSB has seven SUPER MONEY MARKET branches in the
Roanoke, Virginia area.
NCBC has executed SUPER MONEY MARKET sublicense agreements with other
financial institutions. Currently, agreements have been executed covering
locations in over 40 states and Jamaica. As of year end NCBC, through NCBS, has
assisted various banks with over 530 locations through either a license or
consulting relationship. The Company has one major competitor in its
supermarket branch sublicensing activity. The competitor is a non-financial
institution with nationwide operations. On November 7, 1989, the service mark
Super Money Market (Stylized) was registered on the U.S. Patent and Trademark
Office Principal Register as Reg. No. 1,565,038. This registration presently
constitutes prima facie proof that NCBC owns the mark. If certain formalities
are observed, the registration will remain in force for 20 years from the date
of registration and may be renewed for successive terms of ten years each. On
April 2, 1991 the service mark Super Money Market (non-stylized) for banking
services was registered on the Supplemental Register under Reg. No. 1,640,085.
If certain formalities are observed, registration will remain in force for ten
years from the date of registration and may be renewed for successive periods.
Commerce Capital and Brooks Montague are registered as investment advisors
with the Securities and Exchange Commission.
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Monroe Properties, Inc., a Tennessee corporation, is a wholly owned subsidiary
of NCBC. Its primary function is to be used in connection with the acquisition
of real estate through foreclosure or deed in lieu of foreclosure.
Commerce Finance was organized in September, 1992, and commenced business
in March, 1993, in the consumer finance segment of the retail credit industry.
Commerce Finance has eight branches; four in Tennessee (Memphis, Bartlett,
Nashville, and Knoxville); two in Mississippi (Amory and New Albany); and one
each in Sullivan, Missouri and Mineola, Texas.
In September of 1995, NCBC acquired 30% of Transplatinum Service Corp.
which offers financial services to the trucking and petroleum industries and
bankcard services to merchants. TransPlatinum is located in Nashville, TN. On
February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum.
Substantially all employees of the Company are also employees of one or
more of its direct or indirect subsidiaries.
NATIONAL BANK OF COMMERCE:
From its inception in 1873, and through the granting of its charter as a
national bank in 1933, NBC has operated a full-service commercial bank and trust
business in metropolitan Memphis, Tennessee. As of December 31, 1995, NBC
operated 13 traditional branches and 19 SUPER MONEY MARKET facilities, 15 in
metropolitan Memphis and one each in Johnson City, Tennessee, Kingsport,
Tennessee, Jackson, Tennessee, and Cleveland, Tennessee. At December 31, 1995,
NBC had $1,732,146,000 in deposits and was the second largest bank in the
Memphis service area (population approximately 1,000,000) and the fifth largest
bank in Tennessee, measured by deposits. Memphis is the largest city in
Tennessee and is the center of a diversified distribution, commercial and
agricultural area. NBC provides complete banking facilities and services to the
Mid-South area through various divisions and departments, described below. The
retail banking activity is carried on through the Branch Banking Division, the
Money Market Division, the Executive Banking Division, and the Consumer Services
Division. The Bank's Commercial Banking Group is composed of seven divisions:
the Metropolitan Lending Division, the Leasing Division, the Asset Based Lending
Division, the Real Estate Lending Division, the National Accounts Division, the
Correspondent Banking Division and the Mortgage Lending Division ("NBC
Mortgage"). Trust services are provided by the Trust Division. Staff support
for the Bank is provided by its Personnel, Marketing, Operations and
Financial/Administrative Divisions.
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Retail Services: NBC provides its customers with a variety of retail
banking services. Among such services are checking accounts and savings
programs, night depository services, safe deposit facilities and several
consumer loan programs, including installment loans for the purchase of consumer
goods, credit card plans and revolving lines of credit. Customers are provided
with current information regarding these services through NBC's marketing
program. NBC has installed 40 ATMs (24-hour tellers), including ATMs located at
Plough, Inc., Hickory Ridge Mall, Graceland, Methodist Hospital, Memphis
International Airport, University of Memphis campus and Rhodes College campus.
At year end, consumer loans and leasing activity accounted for approximately 41%
of NBC's outstanding loans. NBC participates in the MasterCard and Visa Card
Programs, national consumer debit and credit card plans, under which NBC
discounts sales drafts (accounts receivable arising from charges made with
MasterCard and Visa Cards), without recourse, for participating merchants. NBC
also offers a Professional Services Plan, Equity Credit Lines and other credit
services for individuals. A monthly revolving credit charge is levied on the
purchaser depending on the credit plan desired. At December 31, 1995, NBC had
credit card accounts receivable and consumer lines of credit totaling
$128,424,000.
Commercial Services: NBC provides a variety of services for commercial
enterprises, including checking accounts, certificates of deposit, cash
management services, short-term loans for seasonal or working capital purposes,
and term loans for fixed assets and expansion purposes. In addition to these
general services, NBC also provides accounts receivable and inventory financing,
commodity loans and commercial loans tailored to an individual customer's needs.
Secured and unsecured commercial loans and commodity loans, at December 31,
1995, accounted for approximately 37% of the loans made by NBC. Real estate
construction and long-term mortgage loans (including first mortgage refinance
loans) accounted for approximately 12% of NBC's outstanding loans at December
31, 1995.
Correspondent Banking: NBC has correspondent relationships with
approximately 149 banks located in Tennessee, Arkansas, Missouri, Florida,
Mississippi, Kentucky, and Alabama to which it provides a range of correspondent
banking services as well as advice in various fields of banking policy and
operations. Aggregate balances of correspondent banks at NBC averaged
approximately $39,098,000 in 1995.
Trust Services: Through its Trust Division, NBC acts as trustee, executor,
administrator, guardian, custodian and depository for a number of individuals
and corporations. The Bank offers investment advisory services to its customers
in
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addition to portfolio management. At December 31, 1995, the Trust Division
administered assets valued at approximately $1,957,000,000.
International Services: NBC has established 11 accounts with foreign
banks, primarily in Europe, to handle international trade relationships. Four
foreign banks have accounts with NBC for the same purpose. NBC does not now,
nor does it intend to, engage in speculative trading of foreign currencies.
Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce
General offers hospital and clinic processing to several customers. During the
year ended December 31, 1995, approximately 85% of the total revenues of
Commerce General were derived from services provided to NBC and 15% from
services provided to other customers. Commerce Investment Corporation provides
investment services to individual and institutional investors. In 1991, the
institutional investor activity of NBC's Investment Division was merged into
Commerce Investment. At December 31, 1995, Commerce Investment's capital
totaled $13,521,000. Commerce Investment is registered as a broker-dealer with
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., and is a member of the Security Investor Protection
Corporation.
Territory Serviced and Competition: NBC actively competes with other
commercial banks in the Memphis trade area in providing a full range of banking
services, including demand deposits, time deposits, various types of loans,
trust services and other bank related activities. At December 31, 1995, NBC had
$2,690,123,000 in assets. According to December 31, 1995 call reports, one of
the other banks in metropolitan Memphis is 4.5 times larger than NBC as measured
by deposits. However, deposits for that bank include statewide branches, while
NBC deposits are primarily limited to the metropolitan Memphis area. The
Memphis trade area includes western Tennessee, northern Mississippi, and eastern
Arkansas, and NBC considers commercial banks in Little Rock, Arkansas and
Jackson, Mississippi, as competitors in addition to Memphis area banks. In
addition, NBC competes with savings and loan associations, finance companies,
credit unions, insurance companies, real estate investment trusts, mortgage
companies, factoring companies, independent credit card companies and various
other financial institutions whose activities correspond with banking functions.
See "Supervision and Regulation."
Employees: As of December 31, 1995, the Bank and its subsidiaries employed
approximately 247 officers, 551 other full-time employees, 51 part-time
employees and 85 peak-time employees. Relations with employees have been good.
No
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employees are covered by collective bargaining agreements. All full-time
employees are afforded the benefits of group life and health insurance plans.
In addition, the Company has a non-contributory qualified retirement plan and an
Employee Stock Ownership Plan ("ESOP"). All employees who have one full year of
service are eligible to become participants in the retirement plan. The Company
also has a taxable income reduction account ("TIRA") plan which allows employees
to defer payment of taxes on an elected percentage of salary up to $9,240 by
making contributions to this plan. The Company may also make contributions to
this plan for the benefit of participating employees.
NASHVILLE BANK OF COMMERCE:
Nashville Bank of Commerce was organized to compete in retail banking in
the Nashville trade area. The Nashville Bank operates one traditional branch
and 18 SUPER MONEY MARKET facilities located within Kroger stores and three
stand-alone ATMs in the Nashville area. At December 31, 1995, the Nashville
Bank employed 32 officers, 73 other full-time employees, 5 part-time employees
and 23 peak-time employees to provide banking services during the hours when
most grocery shopping occurs. Employees of the Nashville Bank are provided with
the same benefits that all Company employees have available to them. At December
31, 1995, the Nashville Bank had total consolidated assets of $439,846,000.
Nashville Bank of Commerce competes with a number of substantially larger
financial institutions, both banks and savings and loans, as well as various
other financial institutions whose activities correspond with banking functions.
Non-Bank Subsidiaries: National Commerce Bank Services, Inc. provides
supermarket banking services to other financial institutions. During 1994, the
Knoxville Bank's 50% ownership was transferred to the Nashville Bank, resulting
in NCBS being a wholly-owned subsidiary of the Nashville Bank. At December 31,
1995 NCBS's capital totaled $7,060,000. The Nashville Bank's other subsidiary,
Commerce Corporate Advisors, Inc., is currently dormant.
NBC BANK, FSB (KNOXVILLE):
The Company organized NBC Bank, FSB (Knoxville) to become competitive in
retail banking in the Knoxville area. After its 1994 conversion from a state
chartered bank to a federally chartered savings bank, it expanded into North
Carolina. The Knoxville Bank has placed in operation one traditional branch and
13 SUPER MONEY MARKET facilities located within Kroger stores and 4 stand-alone
ATM in the Knoxville area and 8 SUPER MONEY MARKET facilities in the Raleigh-
Durham, North Carolina area. Like
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Nashville, the Knoxville Bank employees are provided with the same benefits that
all Company employees have available to them. At December 31, 1995, the
Knoxville Bank employed 29 officers, 71 other full-time employees, 2 part-time
employees and 14 peak-time employees. At year-end 1995, the Knoxville Bank had
total assets of $439,408,000. The Knoxville Bank competes with a number of
substantially larger financial institutions, both banks and savings and loans,
as well as various other financial institutions whose activities correspond with
banking functions.
NBC BANK, FSB (BELZONI):
FSB was acquired to expand its retail banking activities through
supermarket branches in other states. Seven SUPER MONEY MARKET branches are
located in Kroger supermarkets in Virginia, and one office is located in
Belzoni, Mississippi. At December 31, 1995, FSB employed 8 officers, 38 other
full-time employees, and 3 part-time employees. The same Company benefits are
provided to these employees. At year-end 1995, the FSB had total assets of
$225,001,000. FSB competes with a number of substantially larger financial
institutions, both banks and savings and loans, as well as various other
financial institutions whose activities correspond with banking functions.
COMMERCE CAPITAL MANAGEMENT, INC.:
Commerce Capital was organized to provide specialized investment management
services to individuals, family groups, endowment funds and corporations.
Assets presently managed are approximately $750,000,000. At December 31, 1995,
Commerce Capital had 10 full-time and 2 part-time employees. Commerce Capital's
employees are covered under the same Company benefits. Commerce Capital
competes with a number of other investment counselors, insurance companies,
banks, and other money managers, many of which are substantially larger.
BROOKS, MONTAGUE & ASSOCIATES, INC.:
The Company acquired all of the outstanding stock of Brooks, Montague &
Associates, Inc. on February 15, 1994. Brooks Montague provides specialized
investment management services primarily to individuals, charitable accounts and
corporate retirement plans. Assets presently managed are approximately
$105,000,000. At December 31, 1995, Brooks Montague had four full-time
employees. Brooks Montague's employees are covered under the same Company
benefits. Brooks Montague competes primarily with other regionally based
investment management firms, many of which are substantially larger.
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COMMERCE FINANCE COMPANY:
The Company organized Commerce Finance Company to enter the consumer
finance market. As of December 31, 1995, Commerce Finance had eight offices
opened in the Mid-South area. Commerce Finance employed 3 officers and 24 full-
time employees at December 31, 1995. Financing for indirect purchases, new and
used cars, home improvement and bill consolidation are available through this
subsidiary. Commerce Finance competes with a number of substantially larger
consumer finance companies.
TRANSPLATINUM SERVICE CORP.:
In September of 1995, NCBC acquired 30% of Transplatinum Service Corp.
which offers financial services to the trucking and petroleum industries and
bankcard services to merchants. TransPlatinum is located in Nashville, TN. On
February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum. As of
December 31, 1995, TransPlatinum had 3 officers and 35 full-time employees.
TransPlatinum competes with major larger companies offering similar services on
a nation-wide basis.
SUPERVISION AND REGULATION
NCBC and its subsidiaries are subject to a number of federal and state laws
and regulations. As a bank holding company, NCBC is subject to regulation under
the Bank Holding Company Act of 1956, as amended (the "Act"), which is
administered by the Federal Reserve Board (the "Board"). Under the Act, the
Company is generally prohibited from directly engaging in any activities other
than banking, managing or controlling banks, and those activities that the Board
considers closely related and incidental to banking. Generally,bank holding
companies from any state can now acquire banks and bank holding companies
located in any other state, subject to certain conditions, including nationwide
and state imposed concentration limits. Effective January 1, 1991, Tennessee
amended its reciprocal interstate banking statute to allow a bank or bank
holding company in any other state to acquire a Tennessee bank or bank holding
company as long as a Tennessee bank or bank holding would have a similar
acquisition opportunity in that state. Banks also will be able to branch across
state lines by acquisition, merger or de novo, effective June 1, 1997 (unless
state law would permit such interstate branching at an earlier date), providing
certain conditions are met including that applicable state law must expressly
permit de novo interstate branching.
The Act requires that a bank holding company obtain the prior approval of
the Board before merging or consolidating with another bank holding company.
Furthermore, unless a bank holding
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company already owns or controls a majority of the shares of a bank or another
bank holding company, Board approval is required for any transaction, if
following such transaction, the bank holding company directly or indirectly owns
or controls more than 5% of the shares of such bank or bank holding company. A
bank holding company and its non-bank subsidiaries must also seek the prior
approval of the Board to acquire all or substantially all of the assets of a
bank.
Under the Act, a bank holding company is required to file with the Board an
annual report and any additional information required by the Board. The Board
may examine the Company's and each of its direct subsidiaries' records,
including a review of capital adequacy in relation to guidelines issued by the
Board. If the level of capital is deemed to be inadequate, the Board may
restrict the future expansion and operations of the Company. The Board possesses
cease-and-desist powers over a bank holding company if its actions or actions of
any of its subsidiaries represent unsafe or unsound practices or violations of
law.
Federal law also regulates transactions among the Company and its
affiliates, including the amount of a banking affiliate's loans to, or
investments in, nonbank affiliates and the amount of advances to third parties
collateralized by securities of an affiliate. In addition, various requirements
and restrictions under federal and state law regulate the operations of the
Company's banking affiliates, including (1) requiring the maintenance of
reserves against deposits, (2) limiting the nature of loans and the interest
that may be charged thereon, and (3) restricting investments and other
activities. The amount of dividends that the Company's bank affiliates may
declare is also limited. Regulatory approval must be obtained before declaring
any dividends if the amount of capital, surplus and retained earnings is below
certain statutory limits. See Note M of the Notes to Consolidated Financial
Statements in the 1995 Annual Report, incorporated herein by reference.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or is in default.
For example, under a policy of the Board with respect to bank holding company
operations, a bank holding company is required to serve as a source of financial
strength to its subsidiary depository institutions to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. In addition, the "cross-guarantee" provisions of federal law require
insured depository institutions
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under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default.
The federal banking agencies have broad powers under current federal law to
take prompt corrective action to resolved problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized", "adequately capitalized", or "significantly
undercapitalized" as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
The Community Reinvestment Act (CRA) requires banks to help meet the credit
needs of the community. Regulatory authorities are required to consider the CRA
performance of a bank or bank holding company when reviewing regulatory
applications.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 (FIRREA) was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and criminal
enforcement provisions. FIRREA allows the acquisition of healthy and failed
savings and loan associations by bank holding companies, and it imposes no
interstate barriers on such acquisitions by bank holding companies. With
certain qualifications, FIRREA also allows bank holding companies to merge
acquired savings and loan associations into their existing commercial bank
subsidiaries. FIRREA also provides that a depository institution insured by the
Federal Deposit Insurance Corporation ("FDIC") can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989 in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") became effective in December 1991. FDICIA revises the bank
regulatory insurance coverage and funding provisions of the Federal Deposit
Insurance Act and makes changes to the regulatory structures found in several
other banking statutes. Various sections of FDICIA are designed to recapitalize
the Bank Insurance Fund and provide for increased funding of the Bank Insurance
Fund by insured banks. The FDIC's capacity to borrow from the United States
Treasury was increased. FDICIA requires the FDIC to develop and implement a
system of risk-based premiums for federal deposit insurance under which the
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semiannual rates at which a depository institution is assessed are based on the
probability that the depository institution fund will incur a loss with respect
to the institution. Various sections of FDICIA impose substantial new audit and
reporting requirements on insured depository institutions. All insured banks are
generally subject to an annual on-site examination by their primary federal
regulatory agency. The role of independent public accountants is increased, and
there are additional reporting requirements imposed on depository institutions.
The federal regulatory agency must devise rules requiring banks and thrift
institutions to disclose the fair market value of their assets. The agencies
must also devise rules for banks and thrifts to report off-balance sheet items
on financial statements. Banks are rated according to a new scheme of capital
adequacy. Better-capitalized institutions are generally subject to less onerous
regulation and supervision than poorly-capitalized institutions. Under FDICIA,
each federal banking agency must prescribe standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares, and other standards as the agency deems appropriate.
As a national bank, NBC operates under the rules and regulations of the
Comptroller of the Currency and is also a member of the Federal Reserve System,
subject to provisions of the Federal Reserve Act. The Nashville Bank is a state
non-member bank operating under the rules and regulations of the FDIC and the
Tennessee Department of Financial Institutions. NBC Bank, FSB (Knoxville) and
NBC Bank, FSB (Belzoni), are federally chartered savings banks that are
primarily regulated by the Office of Thrift Supervision. The FDIC insures the
domestic deposits of all the Banks.
Commerce Finance Company is a consumer finance company organized under the
laws of the State of Tennessee and is primarily regulated by the Consumer
Finance Division of the Tennessee Department of Financial Institutions. In
addition to six offices in Tennessee, Commerce Finance Company also operates two
offices in Mississippi. Mississippi exercises regulatory authority over those
offices in their state and the Federal Trade Commission has primary federal
regulatory authority. Commerce Capital Management, Inc. and Brooks, Montague &
Associates, Inc. are registered with the Securities and Exchange Commission and
are investment advisers pursuant to the Investment Advisers Act of 1940, as
amended. All regulatory agencies require periodic
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audits and regularly scheduled reports of financial information.
The federal Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") imposes a liability scheme for the remediation of property where
hazardous substances have been released. The liability extends to owners and
operators of such properties which could include banks. There is proposed or
pending federal legislation that would consolidate some of the federal agencies
that regulate financial institutions.
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STATISTICAL AND OTHER DATA - The following tables set forth selected
- --------------------------
statistical and other information. Distribution of Assets, Liabilities and
Stockholders' Equity: Interest Rates and Interest Differential The following
table sets forth the combined daily average condensed (consolidated) balance
sheets of NCBC and an analysis of net interest earnings for the periods 1993
through 1995. Interest income and yields on non-taxable investment securities
have been calculated on a fully taxable-equivalent basis assuming a tax rate of
35%.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- ------- -------- --------- -------- ------- --------- -------- ------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans:(1)
Domestic(2) 1,718,424 160,980 9.37% 1,505,716 129,340 8.59% 1,258,620 108,547 8.62%
Taxable securities including trading
account 1,119,057 75,627 6.76 982,788 56,327 5.73 775,499 44,579 5.75
Non-taxable investment securities(2) 154,755 13,101 8.47 147,753 13,679 9.26 125,935 12,669 10.06
Federal funds sold and securities
purchased under agreements to
resell 25,383 1,486 5.85 18,018 793 4.40 47,405 1,431 3.02
Time deposits in other banks 16,881 1,002 5.94 18,807 741 3.94 19,718 581 3.94
--------- ------- --------- ------- --------- -------
Total interest-earning assets 3,034,500 252,196 8.31 2,673,082 200,880 7.51 2,227,177 167,807 7.53
------- ------- -------
Non-interest earning assets:
Cash and due from banks 112,304 110,070 105,690
Premises & equipment, net 17,869 17,246 13,587
Other assets 75,448 68,013 59,937
Allowance for loan losses (25,830) (23,276) (19,181)
--------- --------- ---------
TOTAL ASSETS 3,214,291 2,845,135 2,387,210
========= ========= =========
</TABLE>
(1) For the purposes of these computations, non-accruing loans are included in
the daily average loan amounts outstanding and income on such loans is
recognized as received. There were no foreign loans outstanding.
(2) These items are affected by fully taxable-equivalent adjustments.
Reference is made to page __ of the Annual Report to Shareholders for the
corresponding unadjusted amounts as presented in the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- ------- -------- --------- -------- ------- --------- -------- ------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits 247,002 4,843 1.96% 250,945 4,898 1.95% 206,750 3,906 1.89%
Savings deposits 782,714 32,971 4.21 645,219 21,655 3.36 514,896 13,106 2.55
Time deposits 1,025,093 58,877 5.74 863,925 36,527 4.23 758,859 32,505 4.28
Federal funds purchased and
securities
sold under agreements to repurchase 264,214 13,482 5.10 265,191 9,737 3.67 227,223 5,977 2.63
Federal Home Loan Bank advances 294,833 15,809 5.36 262,125 11,883 4.53 139,533 6,415 4.60
Long-term debt 6,382 458 7.18 6,384 399 6.25 6,372 388 6.09
--------- ------- --------- ------- --------- ------
Total interest bearing liabilities 2,620,238 126,440 4.83 2,293,789 85,099 3.71 1,853,633 62,297 3.36
------- ------ ------
Non-interest bearing liabilities:
Domestic demand deposits 284,744 282,468 290,042
Other 36,832 28,975 32,528
Stockholders' equity 272,477 239,903 211,007
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 3,214,291 2,845,135 2,387,210
========= ========= =========
Net interest earnings 125,756 115,781 105,510
======= ======= =======
Net yield on interest-earning assets 4.14% 4.33% 4.74%
==== ==== =====
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY TABLE BY REPRICING DATES
Within After 3 Mos. After 6 Mos. After 1 Yr. Non
December 31, 1995 0-30 31-90 But Within But Within But Within After Interest
(In Thousands of Dollars) Days Days 6 Mos. 1 Year 5 Years 5 Years Bearing Total
---------- --------- --------- --------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Loans, net 633,260 46,961 57,582 112,757 591,996 488,657 - 1,931,213
Securities 740,010 55,514 47,105 108,516 223,368 104,133 - 1,278,646
Other earning assets 263,748 - - - - - - 263,748
Other assets - - - - - - 221,435 221,435
--------- -------- -------- -------- ------- ------- -------- ---------
Total funding uses 1,637,018 102,475 104,687 221,273 815,364 592,790 221,435 3,695,042
--------- -------- -------- -------- ------- ------- -------- ---------
Funding sources:
Interest-bearing deposits 745,892 395,019 258,575 321,882 388,350 133,616 - 2,243,334
Other borrowings 606,172 9,863 6,757 12,644 122,101 26,389 - 783,926
Demand deposits - - - - - - 331,436 331,436
Other liabilities - - - - - - 39,667 39,667
Interest rate swaps (50,000) - (50,000) 100,000 - - - -
Stockholders' equity - - - - - - 296,679 296,679
--------- -------- -------- -------- ------- ------- -------- ---------
Total funding sources 1,302,064 404,882 215,332 434,526 510,451 160,005 667,782 3,695,042
--------- -------- -------- -------- ------- ------- -------- ---------
Interest-rate
sensitivity GAP 334,954 (302,407) (110,354) (213,253) 304,913 432,785 (446,347)
--------- -------- -------- -------- ------- ------- --------
Cumulative interest-rate
sensitivity GAP 334,954 32,547 (78,098) (291,351) 13,562 446,347
GAP to total assets 9.06% (8.18%) (2.99%) (5.77%) 8.25% 11.71% (12.08%)
Cumulative GAP to total
assets 9.06% .88% (2.11%) (7.88%) .37% 12.08%
</TABLE>
The Company's Interest Rate Sensitivity Table was prepared using contractual
maturities and repricing dates when they exist and are enforceable. Management
adjustments have been applied to allow for prepayment or other variances from
stated maturities or repricing intervals. The management adjustments have been
formulated considering historical experience and market projections and will
change when appropriate to allow for current and projected interest rate
scenarios.
Due to the historical volatility of interest rates, the Company addresses the
problem with an Asset Liability Management Committee comprised of senior
management personnel from each key banking function. The committee's goal is to
stabilize earnings by limiting the gap position between assets and liabilities
repricing within one year to 15% of assets. The committee has determined by
historical experience and simulation modeling that a gap of 15% will not produce
excessive earnings variances in most rate environments. The committee meets
regularly to address the current gap position and evaluate the assumptions and
projections used to calculate interest rate risk.
16
<PAGE>
Changes in Interest Income and Expense
- --------------------------------------
The following table sets forth for NCBC and its subsidiaries
(consolidated), for the periods indicated, a summary of the changes in interest
earned and interest paid resulting from changes in volume and changes in rates.
Interest on non-taxable investment securities has been calculated on a fully
taxable-equivalent basis assuming a tax rate of 35%.
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (decrease) Due to (1) Increase (decrease) Due to (1)
----------------------------------------------- ------------------------------------------
Volume Rate Net Rate/Volume Volume Rate Net Rate/Volume
--------- --------- --------- ----------- ---------- ------- ------- -----------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans:(2)
Domestic 19,282 12,358 31,640 1,655 21,227 (434) 20,793 (85)
Taxable securities including
trading account 8,426 10,874 19,300 1,399 11,880 (132) 11,748 (35)
Non-taxable investment
securities 628 (1,206) (578) (55) 2,076 (1,066) 1,010 (175)
Federal funds sold and
securities purchased
under agreements to
resell to resell 383 310 693 107 (1,122) 484 (638) (407)
Time deposits in other
banks (82) 343 261 (38) (28) 188 160 (9)
------ ------ ------ ----- ------ ------ ------ ------
Total interest earning
assets 28,637 22,679 51,316 3,033 34,507 (960) 33,073 (711)
------ ------ ------ ----- ------ ------ ------ ------
Interest paid on:
Demand deposits (77) 22 (55) 0 859 133 992 28
Savings deposits 5,156 6,160 11,316 1,177 3,782 4,767 8,549 1,057
Time deposits 7,645 14,705 22,350 2,443 4,447 (425) 4,022 (58)
Federal funds purchased
and securities sold under
agreements to repurchase (36) 3,781 3,745 (14) 1,117 2,643 3,760 395
Federal Home Loan Bank
advances 1,594 2,332 3,926 271 5,560 (92) 5,468 (79)
Long-term debt - 59 59 - 1 10 11 -
------ ------ ------ ----- ------ ------ ------ ------
Total interest bearing
liabilities 14,282 27,059 41,341 3,877 15,766 7,036 22,802 1,343
------ ------ ------ ----- ------ ------ ------ ------
Net interest earnings 14,355 (4,380) 9,975 (809) 18,267 (7,996) 10,271 (2,054)
====== ====== ====== ===== ====== ====== ====== ======
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proporation to the
relationship of the absolute dollar amounts to the change in each.
(2) There were no foreign loans outstanding.
17
<PAGE>
SECURITIES PORTFOLIO
The following table sets for the aggregate book value of investment securities
at the dates indicated.
<TABLE>
<CAPTION>
December 31
1995 1994 1993
-------- -------- ------
(in thousands of dollars)
<S> <C> <C> <C>
Securities:
U.S. Treasury 18,582 120,326 49,120
U.S. Government agencies and
corporations 1,027,932 844,782 773,137
States of the U.S. and political
subdivisons 149,975 161,297 132,531
Other securities 82,157 29,880 17,408
--------- --------- -------
Total 1,278,646 1,156,285 972,196
========= ========= =======
</TABLE>
The following table sets forth the maturities at December 31, 1995, and the
weighted average yields of such securities, all of which are computed on a fully
taxable-equivalent basis assuming a tax rate of 35%.
<TABLE>
<CAPTION>
Maturing
--------------------------------------------------------------------------
After 1 But After 5 But After
Within 1 Year Within 5 Years Within 10 Years 10 Years
---------------- ---------------- ----------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
U.S. Treasury 2,033 5.36% 16,549 5.23% - - - -
U.S. Government agencies
and corporations 283,762 6.47 206,031 6.00 61,546 6.54% 476,593 6.59%
States of the U.S. and
political subdivisions 2,885 5.88 31,250 6.66 56,963 7.34 58,877 8.81
Other 1,258 6.47 5,033 6.47 6,292 6.47 69,574 6.35
------- ------- ------- --------
Total 289,938 258,863 124,801 605,044
======= ======= ======= ========
</TABLE>
18
<PAGE>
LOAN PORTFOLIO
The following table shows the Company's gross loan distribution at the end
of the last five years.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Commerce, financial,
and agricultural 399,580 356,035 350,539 354,491 314,361
Real estate - construction 122,720 91,424 66,929 68,238 62,134
Real estate - mortgage 520,657 501,489 429,544 275,732 248,341
Consumer(1) 871,407 630,927 535,417 489,773 396,430
Lease financing 18,678 14,818 13,870 12,423 16,179
--------- --------- --------- --------- ---------
Total 1,933,042 1,594,693 1,396,299 1,200,657 1,037,445
========= ========= ========= ========= =========
</TABLE>
(1) Included within "Consumer" loans are revolving lines of credit secured by
home equities.
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and lease financing) outstanding as of December 31, 1995, which,
based on remaining scheduled repayments of principal, are due in the periods
indicated.
<TABLE>
<CAPTION>
Maturing
Within After 1 But After
1 Year Within 5 Yrs 5 Years Total
------- ------------ ------- -------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural 95,169 160,731 143,680 399,580
Real estate - construction 41,547 40,047 41,126 122,720
------- ------- ------- -------
Total 136,716 200,778 184,806 522,300
======= ======= ======= =======
</TABLE>
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and leasing financing) due after one year classified, according
to the sensitivity to changes in interest rates as of December 31, 1995.
<TABLE>
<CAPTION>
After 1 but After
Within 5 Yrs 5 Years
------------ -------
(in thousands of dollars)
<S> <C> <C>
Predetermined interest rates 107,216 80,620
Floating or adjustable interest rates 93,562 104,186
------- -------
Total 200,778 184,806
======= =======
</TABLE>
19
<PAGE>
NONACCRUAL, PAST DUE, AND RESTRUCTURED
The following table summarized the Company's nonaccrual, past due, and
restructured loans (all of which are domestic):
<TABLE>
<CAPTION>
December 31
------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- -------- -----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans - - - 7,092(1) 2,270
Accruing loans past due
90 days or more 3,252 2,432 2,063 1,858 2,577
Non-performing
restructured loans - - - - 773
Performing restructured - - 1,984 - -
</TABLE>
Substantially all of the nonaccrual and restructured loans were collateralized,
and there were no significant commitments to lend any of these debtors
additional funds.
(1) Included in the 1992 non-accrual loan totals is a loan secured by real
estate of $4 million, which was current as to principal and interest and had
performed as agreed since inception. It was so classified based on a highly
technical interpretation of current regulations. See Note A of financial
statements in the Annual Report to Shareholders for management's policy for
placing loans on nonaccrual status.
Loans and lease financing receivables are considered to be in nonaccrual status
if: (1) they are maintained on a cash basis because of deterioration in the
financial position of the borrower, (2) payment in full of interest or principal
is not expected, or (3) principal or interest has been in default for a period
of 90 days or more unless the obligation is both well secured and in the process
of collection. A nonaccrual asset may be restored to an accrual status when
none of its principal and interest is due and unpaid or when it otherwise
becomes well secured and in the process of collection.
Potential Problem Loans
- -----------------------
At December 31, 1995, the Company had $1,136,000 in three loans for which
payments presently are being made, but the borrowers currently are experiencing
severe financial difficulties. Those loans are subject to constant management
attention and their classification is reviewed monthly.
Other Assets
- ------------
During 1989, the purchase money mortgage resulting from the 1984 sale of the
Company's main bank building, parking garage, and interest in Commerce Tower
Joint Venture was restructured. The Company's portion of the purchase money
mortgage had a book value of $8,743,000 at December 31, 1995. Interest was not
received or accrued totaling approximately $568,000 in 1995 in lieu of tenant
and other capital improvements to the building which totaled approximately
$1,012,000 for the year. The purchase money mortgage is due in November 1996 and
the Company is considering renewal or other options. The financial impact of
restructuring the note is not known at this time, but is not expected to be
material to the consolidated financial statements.
20
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
This table summarizes the Company's loan loss experience for each of the five
years ended December 31, 1995. There were no foreign loans.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ---------- ---------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period 24,310 21,467 17,356 13,254 11,313
Charge-offs:
Commercial, financial,
and agricultural 1 442 1,167 2,632(1) 2,263(1)
Real estate - construction 199 212 652 1,163 -
Real estate - mortgage 97 232 207 1,052(1) 434
Consumer 5,366 4,088 3,783 4,317 6,987(2)
Lease financing 1,586 1,500 1,031 1,063 1,267
------ ------ ------ ----- ------
Total charge-offs 7,249 6,474 6,840 10,227 10,951
------ ------ ------ ----- ------
Recoveries of loans
previously charged-off:
Commercial, financial,
and agricultural 55 47 420 56 24
Real estate - construction 44 83 359 268 -
Real estate - mortgage 73 121 47 45 127
Consumer 1,509 1,494 1,237 1,094 1,155
Lease financing 518 495 474 323 321
------ ------ ------ ----- ------
Total recoveries 2,199 2,240 2,537 1,786 1,627
------ ------ ------ ----- ------
Net charge-offs 5,050 4,234 4,303 8,441 9,324
Increase due to acquisition - - 22 - -
Provision for loan losses 9,750 7,077 8,392 12,543 11,265
------ ------ ------ ------ ------
Balance at end of period 29,010 24,310 21,467 17,356 13,254
====== ====== ====== ====== ======
Ratio of net-charge-offs to
average loans outstanding
during the period .29% .28% .34% .76% .95%
</TABLE>
(1) During 1992, $2,300,000 of the charge-offs in these categories resulted
from charge-offs to two local borrowers, one loan to a manufacturing
concern and another to a project related to a hotel project. During 1991,
$2,000,000 of the charge-offs resulted from charge-offs to two local
borrowers, one loan to a remanufacturing concern and another to a project
related to local government entities.
(2) Of the $2.1 million increase in consumer charge-offs during 1991,
approximately 50% were bank credit card related, and approximately 50% were
consumer installment related. These increases are the result of a 10%
growth in the average portfolios of these categories, increased personal
bankruptcies, and the recessionary environment.
(3) The factors which influenced management's judgment in determining the
21
<PAGE>
amount of the provision for loan losses charged to operating expense included
the results of a credit review of the loan portfolio, past loan loss experience,
current economic conditions and other factors, all of which formed a basis for
determining the adequacy of the allowance for loan losses. The allowance for
possible loan losses is maintained at a level believed adequate by management to
absorb potential losses in the loan portfolio.
22
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses has been allocated according to the amount deemed
to be reasonably necessary to provide for the possibility of losses incurred
within the following categories of loans for each for the five years indicated.
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- ----------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
Amount in each Amount in each Amount in each Amount in each Amount in each
of category of category of category of category of category
allow- to total allow- to total allow- to total allow- to total allow- to total
ance loans ance loans ance loans ance loans ance loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 7,264 21% 6,887 22% 6,622 25% 4,033 29% 4,542 30%
Real estate:
Construction 3,006 6 2,731 6 2,644 5 2,408 6 1,973 6
Mortgage 3,567 27 3,352 31 3,277 31 2,663 23 2,174 24
Consumer 12,737 45 9,457 40 7,716 38 7,484 41 4,157 38
Lease financing 2,436 1 1,883 1 1,208 1 768 1 408 2
------ --- ------ --- ------ --- ------ --- ------ ---
Toal 29,010 100% 24,310 100% 21,467 100% 17,356 100% 13,254 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
23
<PAGE>
DEPOSITS
The following table sets out the average amount of deposits and the average rate
paid on such deposits for the periods indicated. There were no material
deposits by foreign depositors in domestic offices. There were no material
deposits in foreign banking offices.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1995 1994 1993
---------------- --------------- --------------
Amount Rate Amount Rate Amount Rate
--------- ----- --------- ----- --------- -----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits 284,744 - 282,468 - 290,042 -
Interest bearing demand deposits 247,002 1.96% 250,945 1.95% 206,750 1.89%
Savings deposits 782,714 4.21 645,219 3.36 514,896 2.55
Time deposits 1,025,093 5.74 863,925 4.23 758,859 4.28
--------- --------- ---------
Total 2,339,553 2,042,557 1,770,547
========= ========= =========
</TABLE>
At December 31, 1995, outstanding maturities of time deposits of $100,000 or
more issued by domestic offices (which consist entirely of time certificates of
deposit) are summarized below (in thousands of dollars):
<TABLE>
<CAPTION>
Time remaining until maturity Amount
- ----------------------------- --------
<S> <C>
3 months or less 179,359
Over 3 through 6 months 104,669
Over 6 through 12 months 165,073
Over 12 months 18,724
-------
Total 467,825
=======
</TABLE>
RETURN ON EQUITY AND ON TOTAL ASSETS
<TABLE>
<CAPTION>
The following table shows consolidated operating and capital ratios for the Company for each
of the last three years.
Year Ended December 31
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
Return on average total assets 1.53% 1.56% 1.65%
Return on average equity* 18.00% 18.48% 18.68%
Dividend payout percent 36.08% 35.03% 34.81%
Average equity to assets percent 8.48% 8.43% 8.84%
Tier 1 capital to total assets (leverage ratio) 7.91% 8.56% 8.62%
Tier 1 capital to risk-weighted assets 12.30% 13.62% 13.77%
Total capital to risk-weighted assets 13.52% 14.87% 15.02%
</TABLE>
* exclusive of mark-to-market adjustment.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Registrant's Annual Report for discussion of minimum capital
requirements.
24
<PAGE>
SHORT-TERM BORROWINGS
- ---------------------
The following table shows the distribution of the Company's short-term
borrowings and the weighted average interest rates thereon at the end of the
last three years. Also provided are the maximum amounts of borrowings and the
average amounts of borrowings as well as weighted average interest rates for the
reported years.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1995 1994 1993
------- ------- -------
(In Thousands of Dollars)
<S> <C> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase:
Balance at year-end 404,746 275,136 247,531
Weighted average interest rate
payable at year-end 5.46% 5.75% 2.68%
Maximum amount outstanding
at any month end 404,746 310,243 347,061
Average outstanding balance
(total daily outstanding
principal balance dividedby 365) 264,214 265,191 227,223
Weighted average interest rate
(related interest expense
divided by the average
outstanding balance) 5.10% 3.67% 2.63%
</TABLE>
25
<PAGE>
ITEM 2. PROPERTIES.
Main Office: NBC leases as its main office approximately 40% -- 185,271
rentable square feet -- of the Commerce Square Complex (the "Complex"), which
includes a thirty-two story office building known as Commerce Square Tower, a
nine-story parking garage and a building known as NBC's main office building.
NBC owns two parcels of land (approximately 74.25 feet by 148.5 feet) adjacent
to the Complex which house a building that is presently used by the Bank for
storage.
Other Offices: As of December 31, 1995, NBC operated 13 traditional
branches (including the main office branch) and 15 SUPER MONEY MARKET branch
facilities in Shelby County, Tennessee and one each in Johnson City, Tennessee,
Kingsport, Tennessee, Jackson, Tennesee, and Cleveland, Tennessee. NBC intends
to continue opening branches at such time and places as management deems prudent
and feasible, subject to approval of regulatory authorities.
Eight of the 13 traditional branches operated by NBC are leased. In
addition, the building housing one branch is owned by NBC but subject to ground
leases. Leases on the 9 branches have remaining terms ranging from one month to
22 years (excluding renewal options). The average unexpired portion of the
lease terms at December 31, 1995 is 7 years, including ground leases. The
remaining four branches are owned in fee. Aggregate annual rentals on the 9
leased branch properties including NBC space in Commerce Square Complex, the
SUPER MONEY MARKET branch facilities and the free-standing ATM locations
amounted to approximately $3,170,000 at December 31, 1995.
Commerce General occupies approximately 9,700 square feet of NBC's space in
the Complex and pays approximately $131,000 per year for this space. Commerce
Investment occupies approximately 10,000 square feet of NBC's space in the
Complex and pays approximately $242,000 per year for this space. Additionally,
Commerce Capital leases approximately 2,900 square feet in the Complex totaling
approximately $54,000 in annual rent in 1995.
Nashville Bank has been granted the right to operate branches in area
Kroger stores. Initial terms of the license agreements are for one year, with
multiple renewal options. In 1995, Nashville paid approximately $599,000 for
licensed space and administrative office space.
Knoxville Bank also has been granted the right to operate branches in area
Kroger stores in the Knoxville, Tennessee and Raleigh/Durham, North Carolina
areas. Initial terms of the license agreements are for one year, with multiple
renewal options. In 1995, Knoxville paid approximately $433,000 for licensed
space and administrative office space.
NBC Bank, FSB has been granted the right to operate branches in area Kroger
stores in Roanoke, Virginia and Blacksburg, Virginia. Initial terms of the
license agreements are for one
26
<PAGE>
year, with multiple renewal options. FSB also leases space for the office in
Belzoni, Mississippi. In 1995, FSB paid approximately $217,000 for licensed and
leased space.
Commerce Finance leases space for 8 branch locations in the Mid-South area
with terms from three years to five years. In 1995, Commerce Finance paid
approximately $68,000 for the leased space.
NBC owns property at 1895 Union Avenue, 309 Monroe Avenue and 5049 Summer
Avenue in Memphis, and 7770 Poplar Avenue in Germantown, Tennessee and 6005
Stage Road in Bartlett, Tennessee, suburbs of Memphis in Shelby County. The
property at 1895 Union is the location of Union Avenue Branch operations. The
Cloverleaf Branch operation is located at 5049 Summer Avenue. The Consumer
Lending and Indirect Loan operations area is located at 309 Monroe, which is
also being used for parking for NBC employees. The Germantown Branch operation,
the operations of the construction lending and mortgage lending activities, and
satellite operations of one of the Bank's subsidiaries and a Company affiliate
are located at 7770 Poplar Avenue. The Bartlett Branch operation is located at
6005 Stage Road.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Executive Officers
Name Age Office Held
---- --- --------------------------
<S> <C> <C>
Thomas M. Garrott 58 Chairman of the Board,
President, Chief Executive
Officer and Director of the
Company and Chairman of the
Board, Chief Executive Officer
and Director of NBC
Gary L. Lazarini 54 Executive Vice President of NBC,
Investments and Chairman and
President of Commerce Investment
Corporation
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Gus B. Denton 55 Secretary of the
Company and Executive
Vice President and
Secretary of NBC,
Director of Commerce
General Corporation
Douglas W. Ferris, Jr. 52 Senior Vice President
of NBC, President of
National Commerce Bank
Services, Inc.
Mackie H. Gober 49 President of NBC,
Director of NBC,
Commerce Finance
Company and NCBS
Lewis E. Holland 53 Executive Vice
President, Treasurer
and Chief Financial
Officer of the
Company and Director,
of NBC, Chairman of the
Board of Commerce
Capital Management,
Inc. and Commerce
Acquisiton Corp.
William R. Reed, Jr. 49 Executive Vice President
of the Company; Director
of NBC, Chairman of
Nashville Bank of Commerce,
NBC Bank, FSB (Knoxville);
Chairman of Commerce General
Corporation; Chairman and
President of Commerce Finance
Company and Chairman and CEO
of NBC Bank, FSB (Belzoni)
Tom W. Scott 52 President of Commerce
General Corporation
</TABLE>
Of the foregoing officers, Mr. Garrott is also a director of the Company.
The above officers have served in the capacities shown for
more than five years except for the following:
Mr. Garrott became Chairman of the Board, President, and
28
<PAGE>
Chief Executive Officer of the Company and Chairman of the Board and Chief
Executive Officer of NBC in May, 1993. Prior to that time, he served as
President and Chief Operating Officer of the Company and NBC.
Mr. Lazarini was elected Executive Vice President of NBC in January, 1992,
and prior to that time was Senior Vice President. He has served as Chairman of
the Board of Commerce Investment Corporation since January, 1991 and President
since January, 1995.
Mr. Denton was elected Secretary of the Company in June, 1995.
Mr. Gober was elected President of NBC in August, 1995. He was Executive
Vice President and Retail Credit Group Head of NBC from January, 1992 until
August, 1995 and prior to that time was Senior Vice President. He was President
of Commerce Finance Company from September, 1992 until August, 1995.
Mr. Holland was elected Executive Vice President of the Company in August,
1995; Treasurer of the Company in June, 1995 and elected Vice President and
Chief Financial Officer of the Company and Director of NBC effective July, 1994.
He was Vice Chairman and Chief Financial Officer of NBC from July, 1994 until
August, 1995. Prior to that time, he was a partner with Ernst & Young LLP.
Mr. Reed was elected Executive Vice President of the Company in August,
1995; Chairman and President of Commerce Finance Company in January, 1996. He
was Vice Chairman of NBC from January, 1992 to August, 1995 and prior to that he
was Executive Vice President of NBC from May, 1988. He has been Chairman of the
Board and Director of NBC Bank, FSB (Knoxville) since July 1986, President since
May 1988, and Chief Executive Officer from November, 1994 to May, 1995. Mr.
Reed has been President and Director of Nashville Bank of Commerce since
September 1985, Chairman of the Board from May, 1988 to May, 1995 and Chief
Executive Officer since November, 1994. He has been Chairman and Chief
Executive Officer of NBC Bank, FSB (Belzoni) since July 1994. He was President
of NBC Bank, FSB (Belzoni) from July, 1994 to January, 1996.
29
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market quotations for the Company's common stock and cash dividends per shares,
as restated to give retroactive recognition to all stock dividends and stock
splits, are as follows:
<TABLE>
<CAPTION>
Fourth Third Second First
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
1995:
High $ 26.88 $ 26.13 $ 25.50 $ 25.00
Low 24.50 24.25 23.75 23.00
Cash dividends .19 .17 .17 .17
1994:
High $ 24.25 $ 24.25 $ 23.50 $ 23.75
Low 21.75 21.50 21.50 20.50
Cash dividends .17 .15 .15 .15
</TABLE>
The Company's stock is traded in the Nasdaq over-the-
counter market and is quoted on its national market
system. The stock prices listed in the table were
obtained from Nasdaq and represent the high and low
closing sales prices. At December 31, 1995, there were
approximately 2,700 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA.
Not Covered by Auditors' Report
In Thousands of Dollars, Except Per
Share and Ratio Data
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net interest income 120,025 110,021 100,393 92,619 83,713
Net income 49,035 44,342 39,406 33,993 29,531
Per common share data:
Net income 1.94 1.77 1.58 1.38 1.23
Cash dividends declared .70 .62 .55 .47 .42
Book value 11.95 9.14 9.64 8.22 7.18
Total average equity 272,477 239,903 211,077 180,690 156,561
Total average assets 3,214,291 2,845,135 2,387,210 2,135,258 2,020,756
Ratios:
Average equity to
average assets 8.48% 8.43% 8.84% 8.46% 7.75%
Return on average
equity 18.00 18.48 18.68 18.81 18.86
Return on average
assets l.53 l.56 1.65 1.59 1.46
</TABLE>
* After retroactive adjustment for all stock dividends and stock splits
declared through December 31, 1995.
30
<PAGE>
ITEM 7. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 22
through 25 in the Registrant's 1995 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and consolidated financial
statements on pages 26 through 39 in the Registrant's Annual Report
to Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 39 of the 1995 Annual Report
to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Except for information contained in Item X above pertaining to
executive officers of the Registrant, the information required by Item
10 is incorporated herein by reference from the Registrant's Proxy
Statement relating to the Registrant's 1996 Annual Meeting of
Shareholders under the caption "Management of the Company".
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Compensation of Management" in the
Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Management of the Company" and
"Principal Shareholders" in the Registrant's Proxy Statement for the
1996 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions with
Management" in the Registrant's Proxy Statement for the 1996 Annual
Meeting of Shareholders is incorporated herein by reference.
31
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) The response to this portion of Item
and (c) 14 is submitted as a separate section of this report.
(a)(3) Listing of Exhibits:
Exhibit No. Description
------------ ----------------------
3.1 Charter of National Commerce Bancorporation as
amended and restated, filed as Exhibit 3.1 to the
Registrant's Form 10-K for the year ended
December 31, 1988 (File No. 0-6094) and
incorporated herein by reference.
3.2 Bylaws of National Commerce Bancorporation as
amended.
10.1 Form of Promissory Notes of NBC payable to The
Mallory Partners, filed as Exhibit 10.1 to the
Registrant's Form 10-K for the year ended December
31, 1987 (File No. 0-6094) and incorporated herein
by reference.
10.2 Employment Agreement as of January 1, 1986, by and
between National Bank of Commerce and Bruce E.
Campbell, Jr., filed as Exhibit 10.2 to the
Registrant's Form 10-K for the year ended December
31, 1987 (File No. 0-6094) and incorporated herein
by reference.
10.3 Employment Agreement dated as of January 1, 1988, by
and between National Bank of Commerce and Thomas M.
Garrott, filed as Exhibit 10.3 to the Registrant's
Form 10-K for the year ended December 31, 1987 (File
No. 0-6094) and incorporated herein by reference.
10.4 Employment Agreement dated as of September 1, 1987,
by and between National Bank of Commerce and John S.
Evans, filed as Exhibit 10.4 to the Registrant's
Form 10-K for the year ended December 31, 1987 (File
No. 0-6094) and incorporated herein by reference.
32
<PAGE>
10.5 Employment Agreement dated as of October 1, 1991,
by and between National Bank of Commerce and Bruce
E. Campbell, Jr., filed as Exhibit 10.5 to the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-6094) and incorporated herein
by reference.
10.6 Employment Agreement dated as of January 1, 1992,
by and between National Bank of Commerce and John
S. Evans, filed as Exhibit 10.6 to the Registrant's
Form 10-K for the year ended December 31, 1992
(File No. 0-6094) and incorporated herein by
reference.
10.7 Employment Agreement dated as of January 1, 1992,
by and between National Bank of Commerce and
William R. Reed, Jr., filed as Exhibit 10.8 to the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-6094) and incorporated herein
by reference.
10.8 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Thomas
M. Garrott, filed as Exhibit 10.9 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.9 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Gary
L. Lazarini, filed as Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.10 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Mackie
H. Gober, filed as Exhibit 10.11 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.11 Employment Agreement dated as of May 1, 1993, by
and between National Bank of Commerce and William
T. Williams, filed as Exhibit 10.12 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
33
<PAGE>
10.12 Deferred Compensation Agreement for Thomas M.
Garrott, filed as Exhibit 10c(2) to the
Registrant's Form 10-K for the year ended December
31, 1984 (File No. 0-6094) and incorporated herein
by reference.
10.13 Employment Agreement dated as of July 1, 1994, by
and between National Bank of Commerce and Lewis E.
Holland filed as Exhibit 10.14 to the Registrant's
Form 10-K for the year ended December 31, 1994
(File No. 0-6094) and incorporated herein by
reference.
10.14 Split Dollar Insurance Plan filed as Exhibit 10c(3)
to the Registrant's Form 10-K for the year ended
December 31, 1984 (File No. 0-6094) and
incorporated herein by reference.
10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to
the Registrant's Form 10-K for the year ended
December 31, 1980 (File No. 0-6094) and
incorporated herein by reference.
10.16 1982 Incentive Stock Option Plan, as amended.
(Filed as Exhibit 10.8 to the Registrant's Form 10-
K for the year ended December 31, 1988 (File No. 0-
6094)) and incorporated herein by reference.
10.17 1986 Stock Option Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1987 Annual
Meeting of Shareholders and incorporated herein by
reference.
10.18 1990 Stock Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1990 Annual
Meeting of Shareholders and incorporated herein by
reference.
10.19 Form of Amendment to 1986 Stock Option Plan, filed
as Exhibit 10.10 to the Registrant's Form 10-K for
the year ended December 31, 1988 (File No. 0-6094)
and incorporated herein by reference.
10.20 1994 Stock Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1994 Annual
Meeting of Shareholders and incorporated herein by
reference.
34
<PAGE>
10.30 Resolution authorizing Pension Restoration Plan,
filed as Exhibit 10(c)(7) to the Registrant's Form
10-K for the year ended December 31, 1986 (File No.
0-6094) and incorporated herein by reference.
11 Statement re: Earnings Per Share.
13 Registrant's 1995 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last quarter
of the period covered by this report.
(d) Financial Statement Schedules:
None
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Registrant)
By /s/ Thomas M. Garrott
------------------------------
Thomas M. Garrott
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
March 14, 1996 By /s/ Thomas M. Garrott
- -------------- ------------------------------
Dated Thomas M. Garrott
Chairman of the Board
(Principal Executive Officer)
March 14, 1996 By /s/ Lewis E. Holland
- -------------- ------------------------------
Dated Lewis E. Holland
Executive Vice President,
Treasurer, and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Henry M. Turley, Jr. /s/ Robert M. Solmson
- ------------------------ ------------------------------
Director Director
/s/ R. Lee Taylor /s/ Jack R. Blair
- ------------------------- ------------------------------
Director Director
/s/ Lucy Y. Shaw /s/ Harry J. Phillips, Sr.
- ------------------------- ------------------------------
Director Director
/s/ R. Grattan Brown, Jr. /s/ Bruce E. Campbell, Jr.
- ------------------------- ------------------------------
Director Director
/s/ Edmond D. Cicala /s/ Thomas C. Farnsworth, Jr.
- ------------------------- ------------------------------
Director Director
36
<PAGE>
/s/ John D. Canale, III /s/ Christopher W. Canale
- ------------------------- ------------------------------
Director Director
/s/ Rudi E. Scheidt
- ------------------------- ------------------------------
Director Director
/s/ James E. McGehee, Jr.
- ------------------------- ------------------------------
Director Director
- ------------------------- ------------------------------
Director Director
Dated: March 14, 1996
----------------
37
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), and (c)
LIST OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1995
NATIONAL COMMERCE BANCORPORATION
MEMPHIS, TENNESSEE
38
<PAGE>
FORM 10-K -- ITEMS 14(a)(1) and (2)
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements and report of independent
auditors of National Commerce Bancorporation and Subsidiaries, included in the
annual report of the registrant to its shareholders for the year ended December
31, 1995, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1995 and 1994
Consolidated Statements of Income--Years ended December 31, 1995, 1994
and 1993
Consolidated Statements of Stockholders' Equity--Years ended December
31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements--December 31, 1995
Schedules to the consolidated financial statements required by Article
9 of Regulation S-X are not required under the related instructions or
are inapplicable, and therefore have been omitted.
39
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Page
Exhibit Description of Exhibit Number
- -------------------------------------------------------------------------
<S> <C> <C>
3.1 Charter of National Commerce *
Bancorporation as amended and
restated, filed as Exhibit 3.1 to
the Registrant's Form 10-K for the
year ended December 31, 1988
(File No. 0-6094).
3.2 Bylaws of National Commerce 43
Bancorporation as amended.
10.1 Form of Promissory Notes of National *
Bank of Commerce payable to The Mallory
Partners filed as Exhibit 10.1 to
the Registrant's Form 10-K for the
year ended December 31, 1987
(File No. 0-6094).
10.2 Employment Agreement dated as of *
October 1, 1991, by and between
National Bank of Commerce and
Bruce E. Campbell, Jr. filed as
Exhibit 10.5 to the Registrant's Form
10-K for the year ended December 31, 1992
(File No. 0-6094).
10.3 Employment Agreement dated as of *
January 1, 1992, by and between
National Bank of Commerce and
John S. Evans filed as Exhibit 10.6
to the Registrant's Form 10-K for the
year ended December 31, 1992
(File No. 0-6094).
10.4 Employment Agreement dated as of *
January 1, 1992, by and between
National Bank of Commerce and
William R. Reed, Jr. filed as
Exhibit 10.8 to the Registrant's Form 10-K
for the year ended December 31, 1992 (File
10.5 Employment Agreement dated as of *
September 1, 1993, by and between
National Bank of Commerce and
Thomas M. Garrott filed as Exhibit 10.9
to the Registrant's Form 10-K for the
year ended December 31, 1994
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
(File No. 0-6094).
10.6 Employment Agreement dated as of *
September 1, 1993, by and between
National Bank of Commerce and
Gary L. Lazarini filed as Exhibit 10.10
to the Registrant's Form 10-K for the
year ended December 31, 1994
(File No. 0-6094).
10.7 Employment Agreement dated as of *
September 1, 1993, by and between
National Bank of Commerce and
Mackie H. Gober filed as Exhibit 10.11
to the Registrant's Form 10-K for the
year ended December 31, 1994
(File No. 0-6094).
10.8 Employment Agreement dated as of *
May 1, 1993, by and between
National Bank of Commerce and
William T. Williams filed as Exhibit 10.12
to the Registrant's Form 10-K for the
year ended December 31, 1994
(File No. 0-6094).
10.9 Deferred Compensation Agreement *
for Thomas M. Garrott, filed as
Exhibit 10c(2) to the Registrant's
Form 10-K for the year ended
December 31, 1984 (File No. 0-6094).
10.10 Employment Agreement dated as of *
July 1, 1994, by and between
National Bank of Commerce and
Lewis E. Holland, filed as
Exhibit 10.14 to the Registrant's
Form 10-K for the year ended
December 31, 1994 (File No. 0-6094).
10.11 Split Dollar Insurance Plan filed *
as Exhibit 10c(3) to the Registrant's
Form 10-K for the year ended
December 31, 1984 (File No. 0-6094).
10.12 Bonus Incentive Plan, filed as *
Exhibit 10c(1) to the Registrant's
Form 10-K for the year ended
December 31, 1980 (File No. 0-6094).
10.13 1982 Incentive Stock Option Plan, as *
amended, filed as Exhibit 10.8 to the
Registrant's Form 10-K for the year
ended December 31, 1988
(File No. 0-6094).
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
10.14 1986 Stock Option Plan, filed as *
Exhibit A to the Registrant's Proxy
Statement for the 1987 Annual Meeting
of Shareholders.
10.15 1990 Stock Plan, filed as Exhibit A *
to the Registrant's Proxy Statement
for the 1990 Annual Meeting of
Shareholders.
10.16 Form of Amendment to 1986 Stock Option *
Plan, filed as Exhibit 10.10 to the
Registrant's Form 10-K for the year
ended December 31, 1988 (File No. 0-6094).
10.17 1994 Stock Plan, filed as Exhibit A to the *
Registrant's Proxy Statement for the 1994
Annual Meeting of Shareholders.
10.30 Resolution authorizing Pension Restoration *
Plan, filed as Exhibit 10(c)(7) to the
Registrant's Form 10-K for the year
ended December 31, 1986 (File No. 0-6094).
11 Statement re: Earnings Per Share. 51
13 Registrant's 1995 Annual Report to 52
Shareholders.
21 Subsidiaries of the Registrant. 84
23 Consent of Independent Auditors. 85
27 Financial Data Schedule 86
</TABLE>
- ----------
* incorporated herein by reference
42
<PAGE>
EXHIBIT 3.2. Bylaws of National Commerce Bancorporation
As Last Amended January 18, 1996
- -----------------------------------------------------------
ARTICLE I.
Identification
Section 1.01. Name. The name of this Corporation shall be National Commerce
Bancorporation.
Section 1.02. Seal. The Corporation shall not be required to use a corporate
seal.
Section 1.03. Offices. The address of the principal office of the
Corporation shall be One Commerce Square, Memphis, Tennessee 38150. The
Corporation may also have offices at such other places as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE II.
Shareholders
Section 2.01. Place of Meetings. Meetings of shareholders may be held at
such place, either within or without the State of Tennessee, as may be set by
the Board of Directors pursuant to these Bylaws. In the absence of any such
provision, all meetings shall be held at the principal office of the
Corporation.
Section 2.02. Annual Meeting. An annual meeting of the shareholders shall be
held at such time as may be set by the Board of Directors pursuant to these
Bylaws. Failure to hold the annual meeting at the designated time shall not
work a forfeiture or dissolution of the Corporation.
Section 2.03. Special Meetings. Special meetings of shareholders may be
called by the Chairman of the Board, the Board of Directors or the holders of
not less than one-tenth (1/10) of all the shares entitled to vote at such
meeting by giving written instructions to the Secretary of the Corporation to
call such meeting, stating the purpose or purposes of the proposed meeting and
identifying those persons calling the meeting.
Section 2.04. Notice of Meetings; Waiver. Written or printed notice stating
the place, day and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called and the person or
persons calling the meeting, shall be delivered either personally or by mail by
or at the direction of the Chairman of the Board or other officer or person or
persons calling the meeting, to each share holder entitled to vote at the
meeting. If mailed, such notice shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting and shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. If delivered personally, such notice
shall be delivered not less than five (5) nor more than sixty (60) days before
the date of the meeting and shall be deemed delivered when actually received by
the share holder. Notice to a shareholder shall not be required if that
shareholder has, before or after the meeting, submitted a signed waiver of
notice.
Section 2.05. Record Date. For the purpose of determining shareholders
entitled to notice of or entitled to vote at any meeting of
43
<PAGE>
shareholders, or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the stock transfer books of the Corporation shall not
be closed, but, in lieu thereof, the Board shall fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not less than ten (10) days prior to the date on which the particular action
requiring such determination of shareholders is to be taken.
Section 2.06. Quorum. "Quorum" means a majority of the shares entitled to
vote. When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any of those present. The meeting may be adjourned
despite the absence of a quorum.
Section 2.07. Shareholder's Right to Vote. Every shareholder of record of
the Corporation shall be entitled at each meeting of shareholders, and upon each
proposal presented at such meeting, to one (1) vote for each share of stock
standing in such shareholder's name on the books of the Corporation.
Section 2.08. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Each fiduciary, including
such acting as executor, administrator, guardian, committee, agent, or trustee,
owning shares registered in such fiduciary's name as fiduciary, or in the name
of another for the convenience of the fiduciary, may, in addition to exercising
the voting rights vested in such fiduciary, waive notice of shareholders'
meetings and execute and deliver or cause to be executed and delivered, a proxy
or proxies in accordance with law to others for the voting of such shares.
Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy
shall be valid after the expiration of eleven (11) months from the date thereof
unless otherwise provided in the proxy.
Section 2.09. Vote of Shareholders. Whenever any corporate action other than
the election of directors is to be taken by vote of the shareholders, it shall,
except as otherwise required or permitted by law, be authorized by a majority of
the shares represented and entitled to vote thereon.
ARTICLE III.
Corporate Directors and Officers
Section 3.01. Board of Directors. The business affairs of the Corporation
shall be managed by the Board, each of whom shall be at least eighteen (18)
years of age and not more than seventy-two (72) years of age; provided, however,
a director may be nominated by management for re-election and may continue to
serve as a director until the meeting of the Board of Directors in January in
the year in which such director's seventy-third (73rd) birthday occurs.
Directors need not be shareholders and need not be residents of the State of
Tennessee.
Any director who shall have become ineligible for nomination by management of
the Corporation for re-election by the shareholders as herein provided and who
shall not have been so re-elected, may be elected by the Board of Directors as
an honorary director or director emeritus, whose past
44
<PAGE>
service shall be duly and appropriately recognized and honored. Such honorary
director shall possess none of the usual privileges, rights or emoluments of
regular members of the Board, except that he shall be entitled to such life
insurance benefits as may be enjoyed by the regular directors, provided he is
eligible therefor.
Section 3.02. Number of Directors. The Board of the Corporation shall
consist of twenty-five (25) natural persons. The Board shall be divided into
three (3) classes as nearly equal in number as possible with each class serving
staggered three-year terms, as provided in the Charter. The Board may decrease
to three (3) the number of directors by amending these Bylaws, but such
amendment shall require the vote of the majority of the entire Board. No
decrease in the number of directors shall shorten the term of any incumbent
director.
Section 3.03. Election and Term of Directors. As provided in the Charter,
directors shall be elected at the annual meeting of shareholders in the year in
which the term of their respective class expires for terms of three (3) years.
Directors shall be elected by a plurality of the votes cast in the election.
Except as provided for in Section 3.01 hereinabove, each director shall hold
office until the expiration of the term for which he is elected or until a
successor shall be elected and qualified.
Section 3.04. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason, including the removal of
directors without cause, may be filled by vote of a majority of the directors
then in office, although less than a quorum exists. Any directors so chosen
shall hold office until the next election of the class for which the director
shall have been chosen and until a successor shall be elected and qualified.
Section 3.05. Removal of Directors. As provided in the Charter, any one (1)
or more directors may be removed, either for cause or without cause, at any
time, only by the affirmative vote of at least two-thirds of the entire Board of
Directors.
Section 3.06. Directors' and Committee Meetings; Vote of the Directors.
(a) Place. Meetings of the Board, regular or special, may be held either
within or without the State of Tennessee.
(b) Annual Meeting. The annual meeting of the Board of Directors for the
purpose of electing officers and transacting such other business as may
properly be brought before the meeting shall be held each year immediately
following the annual meeting of shareholders.
(c) Regular Meetings. The Board of Directors may by resolution provide for the
time and place of other regular meetings, and no notice of such regular
meetings need be given.
(d) Special Meetings. Special meetings of the Board may be called by the
Chairman of the Board or any five (5) directors. Special meetings of the
Board shall be held upon notice sent by any usual means of communication
not less than forty-eight (48) hours before the meeting. Attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
45
<PAGE>
lawfully called or convened. Notice of any meeting of the Board may be waived
in writing signed by the person entitled to the notice, whether before or after
the time of the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board need be specified in the
notice or waiver of notice of such meeting. Notice of an adjourned meeting need
not be given if the time and place to which the meeting is adjourned are fixed
at the meeting at which the adjournment is taken and if the period of
adjournment does not exceed thirty (30) days in any one (1) adjournment.
(e) Meeting by Telephone. Members of the Board may participate in a meeting of
such Board by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this subsection
shall constitute presence in person at such meeting. The directors shall
be promptly furnished a copy of the minutes of the Board meetings.
(f) Definition of Quorum. "Quorum" means a majority of the total number of
directors then in office. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any of those
present. A meeting may be adjourned despite the absence of a quorum.
(g) Vote Required. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board, unless
the vote of a greater number is required by law, the Charter or these
Bylaws.
(h) Action by Written Consent. Any action required or permitted to be taken at
a meeting of the Board may be taken without a meeting if written consent,
setting forth the action so taken, is signed by all the directors and filed
with the minutes of the proceedings of the Board.
(i) Definition of "Board". For purposes of these Bylaws, the term "Board"
means the governing Board of the Corporation, and the term "entire Board"
means all the members of the Board then serving.
Section 3.07. Committees of the Board. The Board, by a resolution adopted by
a majority of the entire Board, may designate an Executive Committee, consisting
of two (2) or more directors, and other committees consisting of two (2) or more
persons, who may or may not be directors and may delegate to such committee or
committees all such authority of the Board that it deems desirable. The Board
may designate one (1) or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee. Each such committee shall serve at the pleasure of the Board. The
designation of any such committee and the delegation thereto of authority shall
not relieve any director of any responsibility imposed by law. The provisions
of Section 3.06 of these Bylaws relating to the conduct of meetings of the Board
shall govern meetings of the Executive and other Committees.
Section 3.08. Executive Committee.
(a) There shall be an Executive Committee composed of the Chairman of the Board
and the President, who shall serve thereon without extra compensation
during their continuance in office; and further composed of five (5) or
more directors to be appointed by the Board. A majority of the members of
the Executive Committee shall be composed of directors who are not
employees of the Corporation.
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<PAGE>
(b) All authority of the Board is hereby delegated to the Executive Committee
except that no such committee, unless specifically so authorized by the
Board, shall have and exercise the authority of the Board to:
(i) Adopt, amend, or repeal the Bylaws;
(ii) Submit to the shareholders any action that needs shareholder's
authorization under the law;
(iii) Fill vacancies in the Board or any committee; or
(iv) Declare dividends or make other corporate distributions.
(c) The Board shall also appoint one of the members of the Executive Committee
to serve as its Chairman, who shall preside at all meetings of the
Executive Committee and shall perform such other duties as may be
designated by the Executive Committee. The Chairman of the Executive
Committee shall designate one (1) member of the Executive Committee as Vice
Chairman of the Executive Committee, who shall preside at the Executive
Committee meetings in the absence of the Chairman of the Executive
Committee.
(d) The Executive Committee shall keep minutes of its meetings and report the
same to the next meeting of the Board of Directors. The Chairman of the
Executive Committee shall also report to the Board concerning any matters
which the Executive Committee determines are appropriate for Board review.
Section 3.09. Audit Committee.
(a) There is hereby established by a majority of the entire Board of Directors
an Audit Committee consisting of not less than four (4) nor more than seven
(7) directors.
(b) The Audit Committee shall insure that an audit of the books and affairs of
the Corporation and each of its subsidiaries shall be made at such time or
times as the members of the Audit Committee shall choose.
(c) The Audit Committee shall elect its own Chairman, who shall preside at all
meetings of the Audit Committee and shall perform such other duties as may
be designated by the Audit Committee. The Chairman of the Audit Committee
shall designate one (1) member of the Audit Committee as Vice Chairman of
the Audit Committee, who shall preside at the Audit Committee meetings in
the absence of the Chairman of the Audit Committee.
(d) The Audit Committee shall keep minutes of its meetings and report the same
to the next meeting of the Board of Directors.
Section 3.10. Officers.
(a) The Corporation's officers shall be a Chairman of the Board, President,
Secretary and Treasurer and such other officers as may be deemed necessary.
Any two or more offices may be held by the same person, except the offices
of President and Secretary. The officers of the Corporation may be
designated by such additional titles as may be provided in the Charter or
in these Bylaws or by the Board. The Chairman of the Board, the President,
the Secretary, and the Treasurer shall be elected by the Board, and all
other officers shall be appointed by the Chairman of the Board.
(b) All officers shall be elected at the meeting of the Board following the
annual meeting of shareholders for terms not exceeding one (1) year. Each
officer shall hold office until the expiration of the term for which
47
<PAGE>
he is elected and thereafter until his successor has been elected or appointed
and qualified. The Board may require any officer to give security for the
faithful performance of his duties.
(c) Any officer or agent may be removed by the Board whenever in its judgment
the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall
not of itself create contract rights.
Section 3.11. Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the Corporation. He shall have general supervision
over all officers and the business or affairs of the Corporation. Without
limiting the generality of the foregoing, the Chairman of the Board:
(a) Shall have the right to employ and discharge all officers and agents of the
Corporation except those officers who are required by law or by these
Bylaws to be elected by the Board;
(b) Shall have the supervision of all financial matters pertaining to the
Corporation and shall have the duties to prepare under his authority
financial plans, budgets, reports or any other financial materials
reasonably required by the business or affairs of the Corporation;
(c) Shall have, whenever the Corporation is the holder of record of shares of
another Corporation, the authority to vote such shares and to execute
proxies and written waivers and consents in relation thereto;
(d) Shall, when present, preside over the meetings of the Board;
(e) Shall be an ex-officio member of all committees of the Board, except the
Audit Committee, unless otherwise provided by resolution of the entire
Board or by these Bylaws; and
(f) Shall have authority to represent to the Board that financial statements of
the Corporation are correct.
Section 3.12. President. The President shall have such duties and such
authority as may be delegated to him by the Chairman of the Board. The President
shall report to the Chairman of the Board. The President, in the absence of the
Chairman, shall preside at all meetings of the Board.
Section 3.13. Secretary. Due notice of all meetings of the shareholders and
directors shall be given by the Secretary or by the person or persons calling
such meeting. The Secretary shall report the proceedings of all meetings and
shall perform all of the other duties appertaining to his office. In the absence
of a Secretary, an Assistant Secretary shall perform the duties of the
Secretary.
Section 3.14. Vice Presidents. There may be such number of Vice Presidents
as the Chairman of the Board shall choose. The Vice Presidents shall have such
duties and authorities as shall be delegated to them by the Board or by the
Chairman of the Board.
Section 3.15. Treasurer. The Treasurer shall have the care, custody,
control and handling of the funds and assets of the Corporation and shall render
a full and detailed statement of the assets, liabilities and operations of the
Corporation to the Chairman of the Board and the Board of Directors at its
regular meetings.
Section 3.16. Indemnification of Directors and Officers. The Corporation
shall indemnify any person who is made a party to a suit by or
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<PAGE>
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he, his testator or intestate is or was a director or officer of
the Corporation, against amounts paid in settlement and reasonable expenses
including attorneys' fees actually and necessarily incurred as a result of such
suit or proceeding or any appeal therein to the extent permitted by and in the
manner provided by the laws of Tennessee. The Corporation shall indemnify any
person made or threatened to be made a party to a suit or proceeding other than
by or in the right of any corporation of any type or kind, domestic or foreign,
which any director or officer of the Corporation, by reason of the fact that he,
his testator or intestate, was a director or officer of the Corporation or
served such other corporation in any capacity, against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees actually
and necessarily incurred as a result of such suit or proceeding, or any appeal
therein, if such director or officer acted in good faith for a purpose which he
reasonably believed to be in the best in terest of the Corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that this conduct was un lawful, and to the extent permitted by, and in the
manner provided by, the laws of Tennessee.
ARTICLE IV.
Capital Stock
Section 4.01. Certificates Representing Shares.
(a) The shares of the Corporation shall be represented by certificates signed
by the Chairman of the Board and the Secretary, who are hereby designated
for that purpose. Either or both of such signatures upon a certificate may
be facsimiles if the certificate is counter-signed by a transfer agent, or
registered by a registrar, other than an officer or employee of the
Corporation. In case any officer who has signed or whose facsimile
signature has been placed upon such certificates shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
its issuance.
(b) Each certificate representing shares shall include the following upon the
face thereof: (i) that the Corporation is organized under the laws of the
State of Tennessee; (ii) the name of the Corporation; (iii) the name of the
person to whom issued; (iv) the number and class of shares, and the
designation of the series, if any, which such certificate represents; (v)
the par value of each share represented by such certificate.
(c) Such certificate may contain such other statement as may be lawful, and
such certificate shall be in such form as shall be approved by the Board.
Section 4.02. Board Regulations Regarding Stock. The Board from time to time
may make such rules and regulations by resolution as it may deem expedient
concerning the issue, transfer, and registration of stock.
ARTICLE V.
Special Corporate Acts
All checks, drafts, notes, bonds, bills of exchange, and orders for
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the payment of money of the Corporation; all deeds, mortgages, and other written
contracts and agreements to which the Corporation shall be a party; and all
assignments or endorsements of stock certificates, registered bonds, or other
securities owned by the Corporation shall, unless otherwise directed by the
Board of Directors, be signed by the Chairman of the Board. The Board of
Directors may, however, designate other officers, directors or employees of the
Corporation to sign such instruments in the name of the Corporation and may
authorize the use of facsimile signatures of any of such persons.
ARTICLE VI.
Fiscal Year
The Corporation's fiscal year shall extend from January 1 to December 31 of
each calendar year.
ARTICLE VII.
Amendments
The Bylaws of the Corporation may be amended or repealed or additional Bylaws
may be adopted by the Board by a vote of a majority of the entire Board.
50
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EXHIBIT 11. Statement Re: Earnings Per Share *
National Commerce Bancorporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1995 1994 1993
------- ------- -------
(amounts in thousands, except
per share amounts)
<S> <C> <C> <C>
Primary:
Average shares outstanding 24,690 24,476 24,292
Less leveraged ESOP shares (53) (75) -
Net effect of the assumed
exercise of stock options -
based upon the treasury stock
method using average market
price 612 650 712
------- ------- -------
Total 25,249 25,051 25,004
======= ======= =======
Net income $49,035 $44,342 $39,406
Per share amount $ 1.94 $ 1.77 $ 1.58
Fully diluted:
Average shares outstanding 24,690 24,476 24,292
Less leveraged ESOP shares (53) (75) -
Net effect of the assumed
exercise of stock options -
based on the treasury stock
method using higher of year-end
or average market price 638 664 738
------- ------- -------
Total 25,265 25,065 25,030
======= ======= =======
Net income $49,035 $44,342 $39,406
Per share amount $ 1.94 $ 1.77 $ 1.58
</TABLE>
*Reflects all stock splits and stock dividends declared through December 31,
1995.
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<PAGE>
EXHIBIT 13. Registrant's 1995 Annual Report to Shareholders
National Commerce Bancorporation and Subsidiaries
- -------------------------------------------------------------
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), the
selected financial data and other consolidated financial statements presented
elsewhere 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 December 31,
1995.
RESULTS OF OPERATIONS
For the year ended December 31, 1995, net income totaled $49,035,000, a
$4,693,000 or 10.6 percent increase over 1994 net income of $44,342,000. Net
income increased by $4,936,000 or 12.5 percent in 1994. Earnings per share were
$1.94 in 1995, compared to $1.77 in 1994 and $1.58 in 1993. For 1995, return on
average assets was 1.53 percent, compared to 1.56 percent in 1994 and 1.65
percent in 1993. Return on average equity (excluding unrealized gains or losses
on investment securities) was 18.00 percent in 1995, compared to 18.48 percent
in 1994 and 18.68 percent in 1993.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$9,975,000 or 8.6 percent in 1995 and increased by $10,271,000 or 9.7 percent in
1994. The increase in 1995 reflects a $51,316,000 or 25.5 percent increase in
interest income, and a $41,341,000 or 48.6 percent increase in total interest
expense. The increase in interest income was the result of a $212,708,000 or
14.1 percent increase in average loans, a $143,271,000 or 12.7 percent increase
in average securities and an increase in the average yield on earning assets
from 7.51 percent in 1994 to 8.31 percent in 1995. The increased volume of
average earning assets (partially funded by an increase of $34,969,000 in
average non-interest-bearing liabilities, net of non-interest-earning assets)
positively impacted interest income by approximately $27.1 million, while the
increased yield positively impacted interest income by approximately $24.2
million. Interest expense increased in 1995, reflecting an increase in the cost
of interest-bearing liabilities from 3.71 percent in 1994 to 4.83 percent in
1995, and a $326,449,000 or 14.2 percent increase in average outstanding
interest-bearing liabilities. The increase in the rate paid on interest-bearing
liabilities negatively affected interest expense by approximately $29.2 million
and the increase in average outstandings negatively affected interest expense by
approximately $12.1 million. The 1994 increase in net interest income was
primarily the result of an increase in earning assets and an increase of $5.7
million in average non-interest-bearing liabilities, net of non-interest-earning
assets. The net interest margin (taxable equivalent net interest income as a
percentage
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<PAGE>
of average earning assets) was 4.14 percent in 1995, compared to 4.33 percent in
1994 and 4.74 percent in 1993. The yield on earning assets was 8.31 percent in
1995, compared to 7.51 percent in 1994 and 7.53 percent in 1993. The cost of
interest-bearing liabilities was 4.83 in 1995, compared to 3.71 percent in 1994
and 3.36 percent in 1993.
The Company's provision for loan losses was $9,750,000 for 1995, compared to
$7,077,000 for 1994 and $8,392,000 for 1993. The 1995 provision was primarily
the result of loan growth. Net loan charge-offs were $5,050,000 (.29 percent of
average loans, net of unearned discounts) in 1995, compared to $4,234,000 (.28
percent of average loans) in 1994 and $4,303,000 (.34 percent of average loans)
in 1993.
The allowance for loan losses at December 31, 1995, was $29,010,000 or 1.50
percent of loans, net of unearned discounts, compared to $24,310,000 or 1.53
percent of net loans at December 31, 1994, and $21,467,000 or 1.54 percent of
net loans at December 31, 1993.
Following is a comparison of non-earning assets and loans past due 90 days or
more for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
In Thousands 1995 1994 1993
<S> <C> <C> <C>
Non-accrual loans $ -- $ -- $ --
Renegotiated loans -- -- --
Other real estate owned 30 61 1,711
------ ------ ------
Total non-earning assets $ 30 $ 61 $1,711
====== ====== ======
Loans past due 90 days
or more $3,252 $2,432 $2,063
Percentage of total loans 0.17% 0.15% 0.15%
Performing restructured
loans $ --- $ --- $1,984
</TABLE>
At December 31, 1995, the allowance for loan losses was 967 times problem
assets, compared to 399 times at December 31, 1994, and 126 times at December
31, 1993. Based on the regulatory definition, the Company has no "Highly
Leveraged Transactions" (HLTs). The Company also has no loans involving
syndicated leveraged buyouts (LBOs). Management believes that the allowance for
loan losses is adequate to provide for inherent losses in the loan portfolio.
Non-interest income (excluding securities gains or losses) increased $3,202,000
or 6.3 percent in 1995. The Company's broker-dealer revenue decreased $373,000
or 3.7 percent and mortgage banking origination revenue increased $472,000 or
54.9 percent, reflecting current market conditions. Other sources of non-
interest income, including trust service income, service
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<PAGE>
charge income and in-store banking sublicense income increased a net of
$3,103,000 or 7.9 percent. During the fourth quarter 1994, the Company
experienced a $757,000 gain on the disposition of other real estate. The
Company realized $228,000 in securities gains in 1995, versus $498,000 in
securities losses in 1994 as lower-yielding, available-for-sale securities were
sold and the proceeds invested in higher yields which completely recovered the
losses in 1995. The 1993 securities gains were primarily the result of
municipal securities called prior to maturity. Non-interest income (excluding
securities gains or losses) decreased by $1,620,000 or 3.1 percent in 1994,
primarily as a result of decreases in broker-dealer revenue and mortgage banking
origination revenue, partially offset by increases in trust service income,
service charges on deposit accounts and in-store banking sublicense income.
Non-interest expenses (excluding the provision for loan losses) increased by
$4,256,000 or 4.9 percent in 1995. Salaries and employee benefits increased by
$1,821,000 or 4.7 percent, primarily the result of increases related to the new
automobile indirect lending and corporate cash management businesses, due to
normal merit increases, additional staffing and the higher cost of employee
benefits. Total non-interest expenses increased by $1,492,000 or 1.7 percent in
1994, primarily due to start-up expenses at the Company's North Carolina
operation of NBC Bank, FSB (Knoxville), full year expenses at the Company's
Virginia operation of NBC Bank, FSB (Belzoni) and Commerce Finance Company, the
Company's consumer finance subsidiary. The reduction in FDIC assessment was a
result of refunds and reduced premiums in 1995 due to a change in rate
schedules.
FINANCIAL CONDITION
The Company functions as a financial intermediary, and as such its financial
condition should be examined in terms of trends in its sources and uses of
funds. The following comparison of daily average balances indicates how the
Company has managed its sources and uses of funds:
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<PAGE>
SOURCES AND USES OF FUNDS TRENDS
<TABLE>
<CAPTION>
1994-1995 1993-1994
1995 Increase 1994 Increase 1993
Average (Decrease) Average (Decrease) Average
In Thousands Balance Amount % Balance Amount % Balance
<S> <C> <C> <C> <C> <C> <C> <C>
FUNDING USES
Interest-earning assets:
Loans, net of unearned
discounts $1,718,424 $212,708 14.1% $1,505,716 $247,096 19.6% $1,258,620
Securities:
Taxable 1,100,339 142,454 14.9 957,885 215,080 29.0 742,805
Non-taxable 154,755 7,002 4.7 147,753 21,818 17.3 125,935
Trading account securities 18,718 (6,185) (24.8) 24,903 (7,791) (23.8) 32,694
Federal funds sold and
securities purchased under
agreements to resell 25,383 7,365 40.9 18,018 (29,387) (62.0) 47,405
Time deposits in banks 16,881 (1,926) (10.2) 18,807 (911) (4.6) 19,718
---------- -------- --------- ---------- -------- --------- ----------
Total interest-earning assets 3,034,500 361,418 13.5 2,673,082 445,905 20.0 2,227,177
Other uses 179,791 7,738 4.5 172,053 12,020 7.5 160,033
---------- -------- --------- ---------- -------- --------- ----------
Total funding uses $3,214,291 $369,156 13.0% $2,845,135 $457,925 19.2% $2,387,210
========== ======== ========= ========== ======== ========= ==========
FUNDING SOURCES
Interest-bearing liabilities:
Interest-bearing deposits $2,054,809 $294,720 16.7% $1,760,089 $279,584 18.9% $1,480,505
Federal funds purchased and
securities sold under
agreements to repurchase 264,214 (977) (0.4) 265,191 37,968 16.7 227,223
Other borrowed funds and
long-term debt 301,215 32,706 12.2 268,509 122,604 84.0 145,905
---------- -------- --------- ---------- -------- --------- ----------
Total interest-bearing liabilities 2,620,238 326,449 14.2 2,293,789 440,156 23.7 1,853,633
Non-interest-bearing deposits 284,744 2,276 0.8 282,468 (7,574) (2.6) 290,042
Stockholders' equity 272,477 32,574 13.6 239,903 28,896 13.7 211,007
Other sources 36,832 7,857 27.1 28,975 (3,553) (10.9) 32,528
---------- -------- --------- ---------- -------- --------- ----------
Total funding sources $3,214,291 $369,156 13.0% $2,845,135 $457,925 19.2% $2,387,210
========== ======== ========= ========== ======== ========= ==========
</TABLE>
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<PAGE>
Average loans, the largest use of funds, increased $213 million or 14.1 percent
in 1995 and $247 million or 19.6 percent in 1994. Increases in consumer loans
and real estate construction loans were the primary reasons for the increases in
1995, and increases in real estate mortgage loans and consumer loans were the
primary reasons for the 1994 loan increase. For 1995 the growth in real estate
construction loans reflects increased demand. The 1994 growth in real estate
mortgage loans reflects growth in first mortgage refinancing loans. The growth
in consumer loans reflects increased indirect installment loan activity in both
years.
Total securities (excluding the trading account), another major use of funds,
increased by $149 million or 13.5 percent in 1995. Taxable securities increased
by $142 million or 14.9 percent, reflecting increases in both fixed and variable
rate federal agency securities. Non-taxable securities increased by $7 million
or 4.7 percent, reflecting increased investment in bank-qualified municipal
investments. Total securities increased by $237 million or 27.3 percent in
1994. The 1994 increase reflects increases in both fixed and variable rate
federal agency securities and non-taxable securities. Effective December 31,
1993, the Company early adopted Financial Accounting Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
resulted in the adjustment of the securities portfolio to market value for those
designated as available for sale. This year-end adjustment increased the
securities portfolio by $7.4 million and increased stockholders' equity by $4.5
million at December 31, 1995, and decreased the securities portfolio by $53.9
million and decreased stockholders' equity by $32.9 million at December 31,
1994.
Trading account securities decreased by $6 million or 24.8 percent in 1995 and
decreased by $8 million or 23.8 percent in 1994. These decreases are a result
of trading inventory levels needed by Commerce Investment Corporation.
Federal funds sold and securities purchased under agreements to resell increased
by $7 million or 40.9 percent in 1995, and decreased by $29 million or 62.0
percent in 1994, representing excess funds not otherwise employed in loans or
investment securities.
Time deposits in other banks decreased by $2 million or 10.2 percent in 1995,
and decreased by $911,000 or 4.6 percent in 1994. This is a readily manageable
asset and balances are maintained at levels which are based on operating needs.
Total interest-earning assets increased by $361 million or 13.5 percent in 1995,
compared to an increase of $446 million or 20.0 percent in 1994. As described
below, the growth in 1995 and 1994 was funded primarily by increases in
interest-bearing deposits, other borrowed funds and stockholders' equity in 1995
and 1994.
Total average deposits increased by $297 million or 14.5 percent in 1995,
compared to an increase of $272 million or 15.4 percent in 1994. Total
interest-bearing deposits increased $295 million or 16.7 percent and total
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<PAGE>
non-interest-bearing deposits increased $2 million or 0.8 percent in 1995,
reflecting current market trends, compared to an increase of $280 million or
18.9 percent in interest-bearing deposits and a decrease of $8 million or 2.6
percent in non-interest-bearing deposits in 1994.
Federal funds purchased and securities sold under agreements to repurchase
decreased $1 million or 0.4 percent in 1995, compared to an increase of $38
million or 16.7 percent in 1994. These changes were primarily the result of the
availability of overnight funds purchased from downstream correspondent banks.
Other borrowed funds, primarily Federal Home Loan Bank advances, increased $33
million or 12.2 percent in 1995, compared to an increase of $123 million or 84.0
percent in 1994. These advances are partially the result of asset/liability
management decisions matching certain earning assets (first mortgage and
consumer installment loans) against these advances at positive rate spreads.
For 1996, the Company anticipates loan demand similar to that which occurred in
1995 and deposit growth due to continued expansion into Virginia, North Carolina
and Mississippi. Above normal operating expense increases are expected in the
Company's thrift subsidiaries due to planned continued expansion. However, the
Company expects continued back-office expense control and continued increases in
non-interest income. The resulting pre-tax income should be sufficient to
realize the benefits of the Company's deferred tax assets referenced in Note P.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary functions of asset/liability management are to assure adequate
liquidity and to maintain an appropriate balance between interest-earning assets
and interest-bearing liabilities. Liquidity management involves the ability to
meet the cash flow requirements of customers who may be either depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs. Interest rate sensitivity
management seeks to avoid rapidly fluctuating net interest margins and to
promote consistent growth of net income through periods of changing interest
rates.
Cash and 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 Home Loan Bank. Maturing loans and securities are
the principal sources of long-term asset liquidity. Automobile, home equity and
credit card loans are secondary liquidity sources as a result of active
securitizations based on these procducts.
Interest rate sensitivity varies with different types of interest-earning assets
and interest-bearing liabilities. Overnight federal funds, on which
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<PAGE>
rates change daily, and loans which are tied to the Prime rate are much more
interest rate sensitive than long-term, fixed-rate securities and fixed-rate
loans. Similarly, time deposits of $100,000 and over and money market
certificates and accounts are much more interest rate sensitive than savings
accounts. The shorter term interest rate sensitivities are the key to
measurement of the interest sensitivity gap, or difference between interest-
sensitive-earning assets or interest-sensitive-bearing liabilities or vice
versa. Trying to minimize this gap is a continual challenge in a changing
interest rate environment and one of the objectives of the Company's
asset/liability management strategy. Company policy states that the six-month
cumulative gap shall be no more than 12 percent of total assets and the one-year
cumulative gap, no more than 15 percent. At year-end 1995, both six-month and
one-year cumulative gaps were within these parameters.
CAPITAL RESOURCES
Total average assets increased by 13.0 percent in 1995, 19.2 percent in 1994 and
11.8 percent in 1993. Correspondingly, total average equity capital increased
by 13.6 percent in 1995, 13.7 percent in 1994 and 16.8 percent in 1993.
The percentage of average equity capital to average assets was 8.48 percent in
1995, 8.43 percent in 1994 and 8.84 percent in 1993. The internal capital
growth rate was 11.65 percent in 1995, 12.16 percent in 1994 and 12.33 percent
in 1993. These growth rates are the result of a return on average equity of
18.00 percent in 1995, 18.48 percent in 1994 and 18.68 percent in 1993. In
early 1996, the Company announced a share repurchase program which authorizes
the purchase, over the next two years, of up to 2,000,000 shares of its common
stock with the objective of increasing per share returns and funding stock-based
employee benefits plans.
The Company's management plans to continue its efforts to increase the return on
average equity while maintaining a consistent dividend ratio in order to achieve
continued internal capital growth.
As previously disclosed, the Company early adopted FAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," on December 31, 1993. This
resulted in an increase of $4.5 million to 1995 year-end stockholders' equity
and a decrease of $32.9 million to 1994 year-end stockholders' equity.
The following ratios in the table on selected capital information do not include
the effect of FAS No. 115 on Tier 1 capital, total capital or total risk-
weighted assets.
At December 31, 1995, the Company did not have any material commitments which
would require an expenditure of capital funds. However, there are regulatory
constraints placed on the Company's capital. The FDIC Improvement Act (FDICIA),
effective December 19, 1992, established capital levels for the five capital
categories created by the law. These capital categories range from the highest
category, well-capitalized institutions, to the lowest category, critically
under-capitalized institutions. The federal banking
58
<PAGE>
regulatory agencies each issued substantially the same regulations on a joint
basis to establish a uniform approach to the capital categories and supervisory
procedures. Well-capitalized institutions are required to maintain a total
capital to risk-weighted assets ratio of at least 10 percent, a Tier 1 capital
to risk-weighted assets ratio of at least 6 percent and a Tier 1 capital to
total assets (leverage) ratio of at least 5 percent. As indicated in the table
of selected capital information, the Company and its banking subsidiaries
exceeded all minimum required capital ratios for well-capitalized institutions
at December 31, 1995.
SELECTED CAPITAL INFORMATION
<TABLE>
<CAPTION>
December 31
In Thousands 1995 1994
<S> <C> <C>
Capital:
Stockholders' equity $ 296,679 $ 224,419
Less:
Unrealized gains (losses) on
securities, net of taxes 4,527 (32,864)
Goodwill 9 9
---------- ----------
Tier 1 capital 292,143 257,274
Qualifying allowance for loan losses 29,010 23,629
---------- ----------
Total capital $ 321,153 $ 280,903
========== ==========
Total risk-weighted assets $2,374,668 $1,889,613
Ratios:
Total capital to risk-weighted assets 13.52% 14.87%
Tier 1 capital to risk-weighted assets 12.30 13.62
Tier 1 capital to total assets
(leverage ratio) 7.91 8.56
Average equity to assets 8.48 8.43
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are monetary
in nature and therefore differ greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Another significant effect of inflation is on other expenses, which tend
to rise during periods of general inflation.
Management believes the most significant impact on financial results is the
Company's ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain an essentially balanced
position between interest-sensitive assets and liabilities in order to protect
against wide interest rate fluctuations.
59
<PAGE>
CONSOLIDATED BALANCE SHEETS
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
Dollar Amounts in Thousands 1995 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 16,660 $ 17,620
Cash and non-interest-bearing deposits 144,166 123,138
Federal funds sold and securities purchased
under agreements to resell 226,929 25,675
---------- ----------
Total cash and cash equivalents 387,755 166,433
Available-for-sale securities (amortized cost - $509,759
at December 31, 1995, and $926,249 at December 31, 1994) 516,623 872,379
Held-to-maturity securities (market value - $765,142 at
December 31, 1995, and $269,043 at December 31, 1994) 762,023 283,906
Trading account securities 20,159 13,507
Loans, net of unearned discounts of $1,829 at
December 31, 1995, and $1,887 at December 31, 1994 1,931,213 1,592,806
Less allowance for loan losses 29,010 24,310
---------- ----------
Net loans 1,902,203 1,568,496
Premises and equipment, net 18,382 17,729
Broker/dealer customer receivables 13,444 1,130
Other assets 74,453 82,229
---------- ----------
Total assets $3,695,042 $3,005,809
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest-bearing $ 331,436 $ 306,684
Interest-bearing 2,243,334 1,847,706
---------- ----------
Total deposits 2,574,770 2,154,390
Federal funds purchased and securities sold under
agreements to repurchase 404,746 275,136
Broker/dealer customer payables 1,271 399
Accounts payable and accrued liabilities 38,396 23,541
Federal Home Loan Bank advances 372,799 321,541
Long-term debt 6,381 6,383
---------- ----------
Total liabilities 3,398,363 2,781,390
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value -- authorized 5,000,000
shares, none issued
Common stock, par value $2 per share - authorized
75,000,000 shares, issued and outstanding 24,834,581
shares in 1995 and 24,547,121 in 1994 49,669 49,094
Additional paid-in capital 80,605 77,785
Retained earnings 161,878 130,404
Unrealized gains (losses) on securities, net of taxes 4,527 (32,864)
---------- ----------
Total stockholders' equity 296,679 224,419
---------- ----------
Total liabilities and stockholders' equity $3,695,042 $3,005,809
========== ==========
</TABLE>
- --------
See notes to consolidated financial statements.
60
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands, Except Per Share Amounts 1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Loans $159,816 $128,297 $107,673
Securities:
Taxable 74,365 54,836 42,794
Non-taxable 8,556 8,982 8,451
-------- -------- --------
82,921 63,818 51,245
Trading account securities 1,240 1,471 1,760
Other 2,488 1,534 2,012
-------- -------- --------
Total interest income 246,465 195,120 162,690
-------- -------- --------
INTEREST EXPENSE
Deposits 96,691 63,080 49,517
Short-term borrowings 13,482 9,737 5,977
Federal Home Loan Bank advances 15,809 11,883 6,415
Long-term debt 458 399 388
-------- -------- --------
Total interest expense 126,440 85,099 62,297
-------- -------- --------
Net interest income 120,025 110,021 100,393
Provision for loan losses 9,750 7,077 8,392
-------- -------- --------
Net interest income after provision for loan losses 110,275 102,944 92,001
-------- -------- --------
OTHER INCOME
Trust service income 8,296 7,967 6,897
Service charges on deposits 13,519 14,359 14,362
Other service charges and fees 5,264 4,386 4,707
Broker/dealer revenue 9,840 10,213 17,342
Investment securities gains (losses) 228 (498) 231
Other 16,721 13,513 8,750
-------- -------- --------
Total other income 53,868 49,940 52,289
-------- -------- --------
OTHER EXPENSES
Salaries and employee benefits 40,935 39,114 36,800
Occupancy expense 8,665 7,447 7,146
Furniture and equipment expense 3,510 3,301 2,865
FDIC assessment 2,725 4,375 3,862
Other 35,995 33,337 35,409
-------- -------- --------
Total other expenses 91,830 87,574 86,082
-------- -------- --------
Income before income taxes 72,313 65,310 58,208
Income taxes 23,278 20,968 18,802
-------- -------- --------
Net income $ 49,035 $ 44,342 $ 39,406
======== ======== ========
Net income per common share $1.94 $1.77 $1.58
Average shares outstanding 25,249 25,051 25,004
</TABLE>
See notes to consolidated financial statements.
61
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
For Year Ended December 31
In Thousands 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 49,053 $ 44,342 $ 39,406
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 9,750 7,077 8,392
Provision for depreciation and
amortization 4,249 3,359 3,455
Amortization of securities premiums and
(accretion of discounts), net (460) 409 1,283
Deferred income taxes (1,866) (1,008) (1,579)
(Increase) decrease in trading account securities (6,652) 49,617 (26,841)
Realized securities (gains) losses (228) 498 (231)
(Increase) decrease in broker/dealer customer
receivables (12,314) 22,515 (22,503)
Increase in interest receivable (5,532) (4,438) (1,287)
Increase in other assets (6,363) (5,673) (2,874)
Increase (decrease) in broker/dealer customer
payables 872 (13,219) 12,491
Increase in interest payable 10,907 2,044 1,692
Increase in accounts payable and accrued
liabilities 2,368 417 4,589
--------- --------- ---------
Net cash provided by operating activities 43,766 105,940 15,993
INVESTING ACTIVITIES
Available-for-sale securities:
Proceeds from maturities of securities 101,157 213,724 342,062
Proceeds from sales of securities 512,112 82,936 20,157
Purchases of securities (276,553) (283,964) (636,555)
Held-to-maturity securities:
Purchases of securities (406,827) (266,452) (7,077)
Proceeds from maturities of securities 9,731 --- ---
Net increase in loans (343,718) (200,785) (201,214)
Purchases of premises and equipment (4,455) (5,306) (5,564)
--------- --------- ---------
Net cash used in investing activities (408,553) (459,847) (488,191)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts 66,154 257,162 36,023
Net increase (decrease) in
certificates of deposit 354,226 (22,413) 112,448
Net increase in federal
funds purchased and securities
sold under agreements to repurchase 129,610 27,605 31,084
Net increase in Federal Home Loan Bank advances 51,258 151,516 98,926
Proceeds from exercise of stock options 2,163 1,172 1,413
Other (2) 85 626
Cash dividends (17,300) (15,183) (13,394)
--------- --------- ---------
Net cash provided by financing activities 586,109 399,944 267,126
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 221,322 46,037 (205,072)
Cash and cash equivalents at beginning of year 166,433 120,396 325,468
--------- --------- ---------
Cash and cash equivalents at end of year $ 387,755 $ 166,433 $ 120,396
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
62
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION> Unrealized
Additional Securities
Number of Common Paid-in Retained Gains
Dollar Amounts in Thousands Shares Stock Capital Earnings (Losses) Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 16,120,046 $32,240 $73,900 $ 92,520 $198,660
Add (deduct):
Net income 39,406 $ 39,406
Common stock issued upon
exercise of stock options 137,789 276 1,137 1,413
Cash dividends declared ($.55 per share) (13,394) (13,394)
3-for-2 stock split 8,113,506 16,227 (16,227)
Tax benefit of stock options exercised 762 762
Unrealized gains on available-for-sale
securities, net of taxes 9,084 9,084
ESOP loan (1,706) (1,706)
Other 21,240 42 584 226 852
---------- ------- ------- -------- -------- -------
Balance at December 31, 1993 24,392,581 48,785 76,383 100,825 9,084 235,077
Add (deduct):
Net income 44,342 44,342
Common stock issued upon
exercise of stock options 128,066 256 916 1,172
Cash dividends declared ($.62 per share) (15,183) (15,183)
Tax benefit of stock options exercised 459 459
Unrealized losses on available-for-sale
securities, net of taxes (41,948) (41,948)
Other 26,474 53 27 420 500
---------- ------- ------- -------- -------- -------
Balance at December 31, 1994 24,547,121 49,094 77,785 130,404 (32,864) 224,419
Add (deduct):
Net income 49,035 49,035
Common stock issued upon
exercise of stock options 287,460 575 1,588 2,163
Cash dividends declared
($.70 per share) (17,300) (17,300)
Tax benefit of stock
options exercised 1,232 1,232
Unrealized gain on available-for-sale
securities, net of taxes 37,391 37,391
ESOP loan (261) (261)
---------- ------- ------- -------- -------- -------
Balance at December 31, 1995 24,834,581 $49,669 $80,605 $161,878 $ 4,527 $296,679
========== ======= ======= ======== ======== ========
</TABLE>
63
<PAGE>
Notes To Consolidated Financial Statements
National Commerce Bancorporation and Subsidiaries
December 31, 1995
Note A - Significant Accounting Policies
Consolidation The consolidated financial statements include the accounts of
National Commerce Bancorporation and its subsidiaries (the Company). The
consolidated group provides financial services principally to domestic markets.
All significant intercompany transactions have been eliminated in consolidation.
Securities In accordance with Financial Accounting Statement (FAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," securities
available for sale are carried at market. The amortized cost of debt securities
classified as available for sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security. Unrealized gains or losses
on these securities are included in stockholders' equity net of tax. Securities
which the Company intends to hold until maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts. Trading account securities
consist of securities inventories held for the purpose of brokerage activities
and are carried at market. Trading account income includes the effects of
adjustments to market values. The adjusted cost of the specific securities sold
is used to compute gains or losses on the sale of securities.
Interest Rate Swaps Net interest received or paid on an interest rate agreement
that is a hedge against interest rate risks is recognized over the life of the
contract as an adjustment to interest income (expense) of the hedged financial
instrument.
Interest Income Interest on loans is accrued and credited to operations based
upon the principal amount outstanding. Generally, the accrual of income is
discontinued when the full collection of principal is in doubt or when the
payment of principal or interest has become contractually 90 days past due
unless the obligation is both well secured and in the process of collection.
When interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged to
the allowance for loan losses.
Loan Fees and Costs Loan origination and commitment fees and certain direct
costs are deferred and the net amount amortized as an adjustment of the related
loans' yields, generally over the contractual life, or estimated economic life
if shorter, of the related loans.
Premises and Equipment Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed generally
by use of the straight-line method. Leasehold improvements are amortized over
the period of the leases or the estimated lives of the improvements, whichever
period is shorter.
Provision for Loan Losses For financial reporting purposes, the provision for
loan losses charged to operating expense is based upon a credit review of the
loan portfolio, past loan loss experience, current economic conditions and other
pertinent factors which form a basis for determining the adequacy of the
allowance for loan losses. The allowance is maintained at a level believed
adequate by management to absorb potential losses in the loan portfolio.
64
<PAGE>
Net Income Per Common Share The number of shares used to compute net income per
common share is determined by use of the weighted average method including
shares issuable under the stock option plans, when dilutive, and excluding
leveraged shares under the Company's Employee Stock Ownership Plan (ESOP), all
of which are adjusted retroactively for stock dividends and splits.
Income Taxes The Company and its subsidiaries file a consolidated federal
income tax return. Each subsidiary provides for income taxes on a separate-
return basis and remits to or receives from the Company amounts currently
payable or receivable.
Income taxes have been provided using the liability method in accordance with
FAS No. 109, "Accounting for Income Taxes."
Cash Flow Information Cash equivalents include cash, due from banks, federal
funds sold and securities purchased under agreements to resell. Generally,
federal funds are sold for one-day periods and securities purchased under
agreements to resell are for periods of less than two weeks.
During 1995, 1994 and 1993, interest paid was $115,533,000, $83,055,000 and
$60,605,000, respectively. During 1995, 1994 and 1993, income taxes paid were
$25,329,000, $23,294,000 and $18,922,000, respectively.
Reclassification Certain account reclassifications have been made to the 1994
financial statements to conform with the 1995 presentation, none of which are
material.
Stock-based Compensation The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, recognizes no compensation expense for the stock option
grants.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-based Compensation," which provides an alternative to
APB Opinion No. 25 in accounting for stock-based compensation issued to
employees. The statement allows for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for companies
that continue to account for stock-based compensation arrangements under Opinion
No. 25, FAS No. 123 requires disclosure of the pro forma effect on net income
and earnings per share of its fair value based accounting for those
arrangements. These disclosure requirements are effective for fiscal years
beginning after December 15, 1995.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Note B - Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value. These fair values are provided for disclosure purposes only, and do not
impact carrying values of financial statement
65
<PAGE>
amounts.
Cash and Cash Equivalents The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Securities (Including Mortgage-backed Securities) Fair values for securities
are based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments.
Trading Account Assets Fair values for the Company's trading account assets
(including off-balance-sheet instruments), which also are the amounts recognized
in the balance sheet, are based on quoted market prices where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans Receivable For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (e.g., one-to-four family
residential), credit card loans and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
for other loans (e.g., commercial real estate and rental property mortgage
loans, commercial and industrial loans, financial institution loans and
agricultural loans) are estimated using discounted cash flow analyses, using
interest rates currently offered for loans with similar terms to borrowers of
similar credit quality. The carrying amount of accrued interest approximates
its fair value.
Deposit Liabilities The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term Borrowings The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Long-term Borrowings The fair values of the Company's long-term borrowings
(other than deposits) are estimated using discounted cash flow analyses, based
on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Off-balance-sheet Instruments Fair values for the Company's swaps are based on
current settlement values. The Company has commitments to extend credit and
standby letters of credit. These types of credit are made at market rates;
therefore, there would be no market risk associated with these credits which
would create a significant fair value liability for the Company.
66
<PAGE>
<TABLE>
December 31, 1995
In Thousands Carrying Amount Fair Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 387,755 $ 387,755
Available-for-sale securities $ 516,623 $ 516,623
Held-to-maturity securities $ 762,023 $ 765,142
Trading account securities $ 20,159 $ 20,159
Net loans $1,902,203 $1,958,071
Financial liabilities:
Deposits $2,574,770 $2,578,229
Federal funds purchased $ 404,746 $ 404,746
Federal Home Loan Bank advances
and long-term debt $ 379,180 $ 409,045
Off-balance sheet financial instruments:
Interest rate swaps in net payable
position (loss) $ 13 $ (116)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
In Thousands Carrying Amount Fair Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 166,433 $ 166,433
Available-for-sale securities $ 872,379 $ 872,379
Held-to-maturity securities $ 283,906 $ 269,043
Trading account securities $ 13,507 $ 13,507
Net loans $1,568,496 $1,559,661
Financial liabilities:
Deposits $2,154,390 $2,152,521
Federal funds purchased $ 275,136 $ 275,136
Federal Home Loan Bank advances
and long-term debt $ 327,924 $ 317,353
Off-balance sheet financial instruments:
Interest rate swaps in net receivable
position (loss) $ 78 $ (3,172)
</TABLE>
Note C - Restrictions on Cash and Due From Banks
The Company's lead bank subsidiary is required to maintain reserve balances with
the Federal Reserve Bank. The average amounts of those reserve balances for the
years ended December 31, 1995 and 1994, were approximately $9,665,000 and
$15,148,000, respectively.
NOTE D - Securities
The following is a summary of available-for-sale securities and held-to-maturity
securities:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Available-for-sale Securities
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
-------- ------ ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $114,624 $ 661 $ --- $115,285
</TABLE>
67
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions 78,100 1,955 (289) 79,766
Mortgage-backed securities 281,098 5,592 (1,045) 285,645
Total debt securities 473,822 8,208 (1,334) 480,696
Equity securities 35,937 --- (10) 35,927
-------- ------ ---------- --------
Total $509,759 $8,208 $(1,344) $516,623
======== ====== ========== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Held-to-maturity Securities
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
-------- ------ ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $131,289 $ 270 $ --- $131,559
Obligations of states and
political subdivisions 71,722 3,035 (283) 74,474
Mortgage-backed securities 512,222 3,082 (2,466) 512,838
Total debt securities 715,233 6,387 (2,749) 718,871
Equity securities 46,231 40 --- 46,271
-------- ------ ---------- --------
Total $761,464 $6,427 $(2,749) $765,142
======== ====== ========== ========
</TABLE>
On December 27, 1995, the Company reclassified securities with an amortized cost
of $415,469,000 (market value $418,061,000) from held to maturity to available
for sale. The Company also reclassified securities with an amortized cost of
$495,870,000 (market value $496,429,000) from available for sale to held to
maturity. The reclassification was made pursuant to a reassessment of the
securities portfolio based on the Financial Accounting Standards Board "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provisions in the special
report, the Company was allowed a one-time reclassification of the securities
portfolio between the special report date of November 15, 1995, and December 31,
1995. There were no sales of held-to-maturity securities in 1995 or 1994. At
December 31, 1995, the net unrealized gain on the securities reclassified was
$559,000. Consistent with the requirements of FAS No. 115, the write-ups
(downs) on the reclassified securities are being accreted back to the amortized
cost of each specific security based upon its estimated average life.
68
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Available-for-sale Securities
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $115,684 $ 200 $ (2,495) $113,389
Obligations of states and
political subdivisions 99,219 1,273 (4,825) 95,667
Mortgage-backed securities 681,459 1,104 (49,120) 633,443
-------- ------ --------- --------
Total debt securities 896,362 2,577 (56,440) 842,499
Equity securities 29,887 --- (7) 29,880
-------- ------ -------- --------
Total $926,249 $2,577 $(56,447) $872,379
======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Held-to-maturity Securities
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $ 6,937 $ --- $ (17) $ 6,920
Obligations of states and
political subdivisions 65,630 --- (3,476) 62,154
Mortgage-backed securities 211,339 --- (11,370) 199,969
-------- ------ --------- --------
Total $283,906 $ --- $(14,863) $269,043
-------- ------ -------- --------
</TABLE>
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Available-for-sale Securities
-----------------------------
Amortized Estimated
In Thousands Cost Fair Value
<S> <C> <C>
Due in one year or less $ 63,751 $ 63,847
Due after one year through five years 81,222 82,731
Due after five years through 10 years 45,202 45,673
Due after 10 years 2,549 2,800
-------- --------
192,724 195,051
</TABLE>
69
<PAGE>
<TABLE>
<S> <C> <C>
Mortgage-backed securities 281,098 285,645
Equity securities 35,937 35,927
-------- --------
Total $509,759 $516,623
======== ========
<S> <C> <C>
December 31, 1995
---------------------------
Held-to-maturity Securities
---------------------------
Amortized Estimated
In Thousands Cost Fair Value
------------ ------------
<S> <C> <C>
Due in one year or less $131,288 $131,559
Due after one year through five years 2,841 2,809
Due after five years through 10 years 11,290 11,469
Due after 10 years 103,823 106,467
-------- --------
249,242 252,304
Mortgage-backed securities 512,222 512,838
-------- --------
Total $761,464 $765,142
======== ========
</TABLE>
The amortized cost of securities pledged to secure repurchase agreements and
government, public and trust deposits was $915,854,000 and $729,483,000 at
December 1995 and 1994, respectively.
Note E - Loans
Analyses of loans outstanding by category were as follows:
<TABLE>
<CAPTION>
December 31
In Thousands 1995 1994
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural $ 399,580 $ 356,035
Real estate - construction 122,720 91,424
Real estate - mortgage 520,657 501,489
Consumer 871,407 630,927
Lease financing 18,678 14,818
Unearned discounts (1,829) (1,887)
---------- ----------
1,913,213 1,592,806
Allowance for loan losses (29,010) (24,310)
---------- ----------
Net loans $1,902,203 $1,568,496
========== ==========
</TABLE>
The Company and its subsidiaries have granted loans to officers and directors of
the Company and its subsidiaries and to their associates. Related party loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of these loans was $31,187,000 and $31,970,000 at
December 31, 1995 and 1994, respectively. During 1995, $24,848,000 of new loans
to related parties
70
<PAGE>
were made and payments totaled $25,631,000.
Note F - Allowance for Loan Losses
Changes in the allowance for loans losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands 1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $24,310 $21,467 $17,356
Provision for loan losses 9,750 7,077 8,392
Loans charged off, net of recoveries of
$2,199 in 1995, $2,240 in 1994 and
$2,538 in 1993 (5,050) (4,234) (4,281)
------- ------- -----------
Balance at end of year $29,010 $24,310 $21,467
======= ======= ===========
</TABLE>
Note G - Non-performing Assets and Past Due Loans
The following table summarizes the Company's non-performing assets (all of
which are domestic):
<TABLE>
<CAPTION>
December 31
In Thousands 1995 1994
<S> <C> <C>
Non-accrual loans $ -- $ --
Other real estate owned 30 61
- --- --
Total $ 30 $ 61
======= =======
</TABLE>
During 1993, the Company early adopted FAS No. 114, "Accounting by Creditors for
Impairment of a Loan." The early adoption had no effect on either the balance
sheet or income statement. In summary, the statement calls for reducing the
value of impaired loans either to the present value of expected future cash
flows, discounted at the loan's effective interest rate, the market price of the
loan or fair value of the underlying collateral if the loan is collateral
dependent.
There were no non-accrual loans at December 31, 1995 or 1994. There were no
restructured loans at December 31, 1995 or 1994. Accruing loans past due 90
days or more were $3,252,000 and $2,432,000 at December 31, 1995 and 1994,
respectively.
Note H - Premises and Equipment
The following is a summary of the premises and equipment accounts:
December 31
In Thousands 1995 1994
Land $ 2,240 $ 2,240
Premises 2,364 2,364
Furniture and equipment 22,780 20,821
Leasehold improvements 13,262 10,720
Construction in progress 846 1,309
------- -------
41,492 37,454
71
<PAGE>
<TABLE>
<S> <C> <C>
Less accumulated depreciation and amortization 23,110 19,725
---------- ----------
Premises and equipment,net $ 18,382 $ 17,729
========== ==========
Note I - Deposits
Analyses of deposits outstanding by category were as follows:
December 31
In Thousands 1995 1994
<S> <C> <C>
Non-interest-bearing $ 331,436 $ 306,684
Money market checking 274,876 257,729
Savings 86,989 93,094
Money market savings 735,911 705,551
Certificates of deposit less than $100,000 677,733 511,772
Certificates of deposit $100,000 and over 467,825 279,560
---------- ----------
Total $2,574,770 $2,154,390
========== ==========
</TABLE>
Note J - Lease Commitments
The Company leases land, certain bank premises and equipment. Total rental
expense for all operating leases is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands 1995 1994 1993
<S> <C> <C> <C>
Minimum rentals $4,456 $3,996 $3,860
Contingent rentals 823 848 671
------ ------ ------
Total $5,279 $4,844 $4,531
====== ====== ======
</TABLE>
The contingent rentals are based on additional usage of equipment in excess of a
specified minimum. Also, for land and bank premises, contingent rentals are
based on escalation and parity clauses for real estate.
Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases with initial or remaining terms of one year or more, consisted
of the following at December 31, 1995:
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1996 $ 3,968
1997 3,472
1998 3,033
1999 2,799
2000 2,392
Thereafter 2,578
-------
Total minimum lease payments $18,242
=======
</TABLE>
The various leases on the land and bank premises may be renewed for periods
72
<PAGE>
of five to 70 years upon the expiration of the respective leases.
Note K - Credit Facilities
During 1995, the Company obtained numerous advances from the Federal Home Loan
Bank totaling $394 million. The advances ranged from $19 million to $50 million
with interest rates from 5.50 percent to 5.94 percent. Maturity dates ranged
from July 18, 1997, until August 18, 2000. At December 31, 1995, the Company
had pledged as collateral $237,333,000 of its loans secured by mortgages on one-
to-four family residential properties and certain securities totaling
$233,407,000. During 1994, the Company obtained numerous advances from the
Federal Home Loan Bank totaling $205 million. The advances ranged from $1.6
million to $50 million with interest rates from 3.95 percent to 6.8 percent.
Maturity dates ranged from February 9, 1995, until September 23, 2004. At
December 31, 1994, the Company had pledged as collateral $222,958,000 of its
loans secured by mortgages on one-to-four family residential properties and
certain securities totaling $223,454,000. Future minimum payments, by year and
in the aggregate, related to the advances with initial or remaining terms of one
year or more, consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
In Thousands
------------
<S> <C>
1996 $ 26,690
1997 195,225
1998 67,002
1999 14,822
2000 42,647
Thereafter 26,413
--------
Total $372,799
========
</TABLE>
Long-term debt at December 31, 1995 and 1994, consisted primarily of the
following unsecured term notes of a subsidiary of the Company:
In Thousands
Term notes originated October 23 and December 11, 1987, bearing interest payable
at calendar quarters with a variable rate which is repriced every three years
based on the yield on three-year United States Treasury notes. The next reprice
date for the notes is 1997. At December 31, 1995, the rates ranged from 7.04
percent to 7.66 percent, maturing October 23 and December 11, 2007. $5,347
Term notes originated December 3 and December 17, 1987, bearing interest payable
at calendar quarters with a variable rate which is repriced every three years
based on the yield on United States Treasury notes. The next reprice date for
the notes is 1997. At December 31, 1995, the rates ranged from 7.57 percent to
7.69 percent, maturing December 3 and December 17, 2007.
$1,025
------
Total $6,372
======
At December 31, 1995, the Company had available $7 million in unsecured lines of
credit with other financial institutions consisting of a $5 million line of
credit which is contractual in nature and requires no compensating balances or
fees and expires May 31, 1996, and a $2 million
73
<PAGE>
line of credit which expires June 29, 1996. There were no borrowings against
these lines during 1995.
Note L - Stock Options
During 1994, the shareholders approved the Company's 1994 Stock Plan, which
reserved an additional 1,050,000 shares of the Company's common stock for use
under the Plan. Options become exercisable in equal parts over the succeeding
five years from the date of grant. Unoptioned shares under previous plans were
transferred to reserved shares for the 1994 Plan. The 1990 Stock Plan reserved
an additional 675,000 shares of the Company's common stock for the granting of
options and restricted stock to key employees. The 1990 Plan amended the
Company's 1986 Stock Option Plan and the 1982 Incentive Stock Option Plan and
merged such amended and restated plans into the 1990 Stock Plan. Options became
exercisable six months subsequent to the date of grant under the 1982 Plan and
became exercisable in equal parts over the succeeding five to 10 years under the
1986 and 1990 Plans. At the discretion of the 1982 Plan's administering
committee, stock appreciation rights were attached to some of the options,
whereby the optionee may receive cash for the difference between the exercise
price of the related option and the fair market value of the Company's common
stock. The Plans are restricted to eligible officers and key employees. The
following amounts reflect the effect of all stock dividends and splits declared
through 1995:
<TABLE>
<CAPTION>
December 31
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Options outstanding 1,592,690 1,764,704
Price/share range $6.68 - $24.63 $5.26 - $23.25
Options exercised during the year 317,871 132,525
Price/share range $5.25 - $22.67 $3.15 - $21.00
Stock appreciation rights exercised 1,000 500
Price/share range $ 18.39 $ 17.98
Exercisable options 1,008,510 1,228,537
Unoptioned shares 328,928 477,285
Total shares reserved 1,921,618 2,241,989
</TABLE>
Note M - Debt and Dividend Restrictions
In accordance with federal banking laws, certain restrictions exist regarding
the ability of the banking subsidiaries to transfer funds to the Company in the
form of cash dividends, loans or advances. The approval of certain regulatory
authorities is required to pay dividends in excess of earnings retained in the
current year plus retained net earnings for the preceding two years. As of
December 31, 1995, $58,487,000 of undistributed earnings of the banking
subsidiaries, included in consolidated retained earnings, was available for
distribution to the Company as dividends without prior regulatory approval. For
the thrift subsidiaries the undistributed earnings are such that any dividend
restrictions would not prevent the payment of routine dividends.
Under Federal Reserve regulations, the banking subsidiaries are also limited as
to the amount they may loan to affiliates, including the Company, unless such
loans are collateralized by specified obligations. At December 31, 1995, the
maximum amount available for transfer from the banking subsidiaries to the
Company in the form of loans approximated 11 percent of consolidated net assets.
74
<PAGE>
Note N - Employee Benefits
The Company has a defined benefit non-contributory pension plan covering
substantially all of its full-time employees who have served continuously for
one year. Amounts determined under ERISA are funded annually. Benefits are
based on compensation and years of service.
The following tables set forth the plan's status and amounts recognized in the
Company's consolidated financial statements:
<TABLE>
<CAPTION>
December 31
In Thousands 1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $37,031 at December 31, 1995, and
$29,850 at December 31, 1994 $ 39,713 $ 32,053
======== ========
Projected benefit obligation for services rendered
to date $(45,148) $(36,485)
Plan assets at fair value (stocks and bonds) 43,491 38,237
-------- --------
Plan assets in excess of (under) projected
benefit obligation (1,657) 1,752
Unrecognized net assets (2,074) (2,038)
Unrecognized net loss 12,287 9,105
Unrecognized prior service cost (1,604) (1,711)
-------- --------
Prepaid pension cost included in other assets $ 6,952 $ 7,108
======= ========
In Thousands 1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost - benefits earned
during the period $ 1,210 $ 1,607 $ 1,478
Interest cost on projected
benefit obligation 2,941 2,652 2,521
Actual return on plan assets
(gain) loss (6,254) 787 (5,074)
Net amortization and deferral 2,193 (4,911) 1,448
------- -------- --------
Net periodic pension expense $ 90 $ 135 $ 373
======= ======== ========
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7.25 percent and 4.25 percent, respectively, at December 31,
1995, and 8.25 percent and 4.25 percent, respectively, at December 31, 1994.
The expected long-term rate of return on plan assets was 10.25 percent in 1995
and 10 percent in 1994. The assumed normal retirement age was 64 in 1995 and
1994.
The Company and its subsidiaries maintain an Employee Stock Ownership Plan which
is generally available to all full-time employees. Annual contributions to this
plan, which are discretionary, were $400,000 in both 1995 and 1994 and $425,000
in 1993.
75
<PAGE>
The Company and its subsidiaries also maintain a Taxable Income Reduction
Account Plan. Participants can elect to defer a percentage of their annual
earnings, subject to the maximum amount allowed of $9,240. The Company matches
participants' basic contributions up to a specified percentage of basic
contributions. The Taxable Income Reduction Account Plan, Employee Stock
Ownership Plan and the Retirement Plan net assets include equity securities of
the Company.
Included in other expenses are broker-dealer commissions of $3,484,000,
$3,874,000 and $6,955,000 paid to employees for the years ended December 31,
1995, 1994 and 1993, respectively.
Note O - Other Employee Benefits
In addition to the Company's defined benefit pension plan, the Company sponsors
retirement medical and life insurance plans that provide postretirement
healthcare and life insurance benefits.
Employees must retire under the pension plan with at least 15 years of service
and must have participated in the active medical plan for at least 10 years
prior to retirement to be eligible for retiree medical plan benefits.
The plan is contributory and contains other cost-sharing features such as
deductibles and coinsurance. The Company's policy to fund the cost of medical
benefits to employees varies by age and service at retirement. Employees must
retire under the pension plan to be eligible for retiree life insurance
benefits.
The following table represents the plan's funded status reconciled with amounts
recognized in the Company's statement of income:
<TABLE>
<CAPTION>
December 31
---------------------------
In Thousands 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(3,217) $(2,919) $(2,496)
Fully eligible active plan participants (91) (62) (32)
Other active plan participants (2,265) (1,552) (1,842)
------- ------- -------
Postretirement benefit obligation in excess
of plan assets (5,573) (4,533) (4,367)
Unrecognized transition obligation 3,003 3,180 3,356
Unrecognized net (gain) or loss 1,047 372 624
------- ------- -------
Accrued expense $(1,523) $ (981) $ (387)
======= ======= =======
</TABLE>
Net periodic postretirement benefits costs include the following
components:
<TABLE>
<CAPTION>
In Thousands 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost $ 142 $ 149 $ 111
Interest cost 387 330 285
Net amortization and deferral 191 202 177
------- ------- -------
Net periodic postretirement benefits cost $ 720 $ 681 $ 573
======= ======= =======
</TABLE>
76
<PAGE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., healthcare cost trend rate) is 10 percent for 1995 and
12 percent for 1994 and is assumed to decrease gradually to 5.5 percent for 2005
and thereafter. The healthcare cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed healthcare
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995, by
$687,595 and the aggregate of the service and interest cost components of net
periodic postretirement benefit costs for 1995 by $83,156. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5 percent at December 31, 1995, and 8.50 percent at December
31, 1994.
Note P - Income Taxes
The Company accounts for income taxes using the liability method required by FAS
No. 109, "Accounting for Income Taxes."
The components of the provision for income taxes for the three years ended
December 31 were:
<TABLE>
<CAPTION>
In Thousands 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal:
Current $23,008 $19,107 $16,763
Deferred (credits) (1,866) (1,008) (1,579)
------- ------- -------
21,142 18,099 15,184
State 2,136 2,869 3,618
------- ------- -------
Income taxes $23,278 $20,968 $18,802
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax liabilities and assets are summarized as follows:
<TABLE>
<CAPTION>
December 31
----------------
In Thousands 1995 1994
------- -------
<S> <C> <C>
Deferred tax liabilities:
Net unrealized gains on available-for-
sale securities $ 2,896 $ ---
Pension costs 1,895 1,812
FAS No. 91 net deferred costs 2,264 2,324
Other 1,791 1,784
------- -------
Total deferred tax liabilities 8,846 5,920
------- -------
Deferred tax assets:
Net unrealized losses on available-for-sale
securities --- 21,009
Provision for loan losses over charge-offs 11,285 9,417
Other 1,620 1,592
------- -------
Total deferred tax assets 12,905 32,018
------- -------
Net deferred tax assets $ 4,059 $26,098
======= =======
</TABLE>
77
<PAGE>
Income taxes varied from the amount computed at the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
In Thousands Amount % Amount % Amount %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $25,310 35.00 $22,858 35.00 $20,372 35.00
Add (deduct):
State income taxes net of federal
tax benefits 1,388 1.92 1,865 2.85 2,352 4.04
Non-taxable interest income (3,700) (5.12) (3,586) (5.49) (3,457) (5.94)
Other items - net 280 .39 (169) (.25) (465) (.80)
------- ----- ------- ----- ------- -----
Income taxes $23,278 32.19 $20,968 32.11 $18,802 32.30
======= ===== ======= ===== ======= =====
</TABLE>
Income taxes (credits) applicable to securities gains (losses) for 1995, 1994
and 1993 which are included in the provision for income taxes were $89,000,
$(194,000) and $90,000, respectively.
78
<PAGE>
Note Q - Commitments and Contingent Liabilities
For purposes other than trading, the Company and its subsidiaries have various
commitments and contingent liabilities, such as commitments to extend credit,
letters of credit, guarantees and liability for assets held in trust, which
arise in the normal course of business. Loan commitments are made to
accommodate the financial needs of the Company's customers. Standby letters of
credit commit the Company to make payments on behalf of customers when certain
specified future events occur. Commercial letters of credit are issued to
facilitate the purchase of foreign and domestic merchandise.
Both types of letters of credit have credit risk essentially the same as that
involved in extending loans to customers and are subject to the bank's normal
credit policies. Collateral primarily consists of securities, cash,
receivables, inventory and equipment. It is obtained based on management's
credit assessment of the customer. Management does not anticipate any
significant losses as a result of these transactions.
The Company's maximum exposure to credit loss at December 31 was as follows:
<TABLE>
<CAPTION>
In Thousands 1995 1994
-------- --------
<S> <C> <C>
Loan commitments $789,210 $635,440
Standby letters of credit $ 20,792 $ 26,394
Commercial letters of credit $ 3,696 $ 2,826
</TABLE>
Interest rate agreements are designed to provide an exchange of interest
payments computed on notional amounts that will offset all or part of any
undesirable change in cash flows resulting from market rate changes on
designated (hedged) transactions. The Company limits the credit risks of the
interest rate agreements by initiating the transactions with counter parties
with significant financial positions.
The Company's agreements modify the interest characteristics of its outstanding
debt from a fixed to a floating rate basis. These agreements involve the
receipt of fixed rate amounts in exchange for floating rate interest payments
over the life of the agreement without an exchange of the underlying principal
amount. The differential to be paid or received is accrued as interest rates
change and recognized as an adjustment to interest expense related to the debt.
The related amount payable to or receivable from counterparties is included in
other liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements.
The Company's broker-dealer subsidiary, for trading purposes, enters into
transactions involving financial instruments with off-balance sheet risk in
order to meet the financing and hedging needs of its customers and to reduce its
own exposure to fluctuations in interest rates. These financial instruments
include forward contracts, when issued contracts and options written. All such
contracts are for United States Treasury, federal agency or municipal
securities. These financial instruments involve varying degrees of credit and
market risk. The contract amounts of those instruments reflect the extent of
involvement in particular classes of financial instruments. Risks arise from
the possible inability of counter parties to meet the terms of their contracts
and from movements in securities' market values and interest rates. The extent
of the Company's involvement in financial instruments with off-balance sheet
risk as of
79
<PAGE>
December 31, 1995, was as follows:
<TABLE>
<CAPTION>
In Thousands 1995 1994
-------- --------
<S> <C> <C>
Forward contracts:
Commitments to purchase $212,836 $ 28,798
Commitments to sell $217,847 $ 31,512
When issued contracts:
Commitments to purchase $ 10,388 $ 10,379
Commitments to sell $ 10,633 $ 12,926
Interest rate agreements
(Notional amount) $150,000 $100,000
Option contracts:
Written option contracts $ 2,000 $ 92,000
Purchased option contracts $ 2,000 $ 1,000
</TABLE>
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Although the ultimate
outcome cannot be ascertained at this time, it is the opinion of management
(based on advice of legal counsel) that all litigation and claims should be
resolved without material effect on the Company's financial position or results
of operations.
Note R - National Commerce Bancorporation Financial Information (Patent Company
Only)
<TABLE>
<CAPTION>
Balance Sheets
December 31
----------------------
In Thousands 1995 1994
-------- --------
<S> <C> <C>
Assets
Cash* $ 2,261 $ 852
Investments in:
Bank subsidiaries* 267,749 184,863
Non-bank subsidiaries* 26,403 38,706
Other 1,606 896
-------- --------
Total assets $298,019 $225,317
======== ========
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ 1,340 $ 898
Stockholders' equity 296,679 224,419
-------- --------
Total liabilities and stockholders' equity $298,019 $225,317
======== ========
</TABLE>
*Eliminated in consolidation.
80
<PAGE>
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income:
Dividends from bank and thrift subsidiaries* $ 26,330 $ 32,938 $ 13,376
Dividends from non-bank subsidiaries* 2,500 3,500 ---
Income from bank subsidiaries* 132 154 672
Other --- 321 ---
-------- -------- --------
28,962 36,913 14,048
Expenses:
Salaries and employee benefits 50 65 74
Other 2,138 774 561
======== ======== ========
2,188 839 635
Income before income taxes (credits) and
equity in undistributed earnings
of subsidiaries 26,774 36,074 13,413
Income taxes (credits) (808) (142) 13
-------- -------- --------
27,582 36,216 13,400
Equity in undistributed net income of:
Bank and thrift subsidiaries 15,653 6,066 20,241
Non-bank subsidiaries 5,800 2,060 5,765
-------- -------- --------
Net income $ 49,035 $ 44,342 $ 39,406
======== ======== ========
</TABLE>
*Eliminated in consolidation.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income $ 49,035 $ 44,342 $ 39,406
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiaries (21,453) (8,126) (26,006)
Decrease in other assets 522 1,914 2,592
Increase (decrease) in liabilities 442 (795) (545)
-------- -------- --------
Net cash provided by operating
activities 28,546 37,335 15,447
Investing activities:
Investment in subsidiaries (12,000) (26,298) (9,577)
Financing activities:
Proceeds from exercise of stock options 2,163 1,172 1,413
Cash dividends paid (17,300) (15,183) (13,394)
Other --- 75 626
-------- -------- --------
Net cash used in financing activities (15,137) (13,936) (11,355)
-------- -------- --------
Increase (decrease) in cash 1,409 (2,899) (5,485)
Cash at beginning of year 852 3,751 9,236
-------- -------- --------
Cash at end of year $ 2,261 $ 852 $ 3,751
======== ======== ========
</TABLE>
81
<PAGE>
Note S - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION> Quarter
In Thousands, Except Per Share Data
First Second Third Fourth
-------- -------- -------- -------
<S> <C> <C> <C> <C>
1995:
Interest income $ 55,828 $ 57,042 $ 64,307 $69,288
Interest expense 28,031 28,669 32,987 36,753
Net interest income 27,797 28,373 31,320 32,535
Provision for loan losses 1,708 1,685 3,011 3,346
Other income 12,455 14,430 13,310 13,445
Securities gains 53 115 51 9
Other expenses 22,064 23,686 22,317 23,763
Income before income taxes 16,533 17,547 19,353 18,880
Income taxes 5,313 5,684 6,587 5,694
Net income $ 11,220 $ 11,863 $ 12,766 $13,186
Net income per common share $.45 $.47 $.51 $.52
1994:
Interest income $ 43,685 $ 46,993 $ 50,166 $54,276
Interest expense 17,438 19,289 22,573 25,799
Net interest income 26,247 27,704 27,593 28,477
Provision for loan losses 1,661 2,399 1,554 1,463
Other income 11,343 12,801 12,745 13,549
Securities gains (losses) 335 34 --- (867)
Other expenses 21,131 21,875 21,895 22,673
Income before income taxes 15,133 16,265 16,889 17,023
Income taxes 4,978 5,495 5,621 4,874
Net income $ 10,155 $ 10,770 $ 11,268 $12,149
Net income per common share $.41 $.43 $.45 $.48
</TABLE>
82
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
National Commerce Bancorporation
We have audited the accompanying consolidated balance sheets of National
Commerce Bancorporation and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Commerce
Bancorporation and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes A, O and P to the consolidated financial statements, the
Company changed its methods of accounting for certain securities, postretirement
benefits other than pensions and income taxes in the year ended December 31,
1993.
Memphis, Tennessee
February 5, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 144,166 123,138
<INT-BEARING-DEPOSITS> 16,660 17,620
<FED-FUNDS-SOLD> 226,929 25,675
<TRADING-ASSETS> 20,159 13,507
<INVESTMENTS-HELD-FOR-SALE> 516,623 872,379
<INVESTMENTS-CARRYING> 762,023 283,906
<INVESTMENTS-MARKET> 765,142 269,043
<LOANS> 1,931,213 1,592,806
<ALLOWANCE> 29,010 24,310
<TOTAL-ASSETS> 3,695,042 3,005,809
<DEPOSITS> 2,574,770 2,154,390
<SHORT-TERM> 431,427 326,070
<LIABILITIES-OTHER> 39,667 23,940
<LONG-TERM> 352,499 276,990
0 0
0 0
<COMMON> 296,679 224,419
<OTHER-SE> 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 3,695,042 3,005,809
<INTEREST-LOAN> 159,816 128,297
<INTEREST-INVEST> 82,921 63,818
<INTEREST-OTHER> 3,728 3,005
<INTEREST-TOTAL> 246,465 195,120
<INTEREST-DEPOSIT> 96,691 63,080
<INTEREST-EXPENSE> 126,440 85,099
<INTEREST-INCOME-NET> 120,025 110,021
<LOAN-LOSSES> 9,750 7,077
<SECURITIES-GAINS> 228 (498)
<EXPENSE-OTHER> 91,830 87,574
<INCOME-PRETAX> 72,313 65,310
<INCOME-PRE-EXTRAORDINARY> 72,313 65,310
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 49,035 44,342
<EPS-PRIMARY> 1.94 1.77
<EPS-DILUTED> 1.94 1.77
<YIELD-ACTUAL> 4.14 4.33
<LOANS-NON> 0 0
<LOANS-PAST> 3,252 2,432
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1,136 1,443
<ALLOWANCE-OPEN> 24,310 21,467
<CHARGE-OFFS> 7,249 6,475
<RECOVERIES> 2,199 2,241
<ALLOWANCE-CLOSE> 29,010 24,310
<ALLOWANCE-DOMESTIC> 29,010 24,310
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
