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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- EXCHANGE ACT OF 1934 [FEE REQUIRED]
December 31, 1996 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 7, 1997, was approximately $842,550,000.
The number of shares of common stock outstanding, as of March 7, 1997, was
24,537,475.
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 1997 Annual Meeting
of Shareholders of National Commerce Bancorporation are incorporated by
reference into Part III. Portions of the 1996 National Commerce Bancorporation
Annual Report are incorporated by reference into Parts I and II.
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PART I.
This Annual Report on Form 10-K may contain or incorporate by reference
statements which may constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Prospective investors are cautioned
that any such forward-looking statements are not guarantees for future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those in forward-looking statements include
significant fluctuations in interest rates, inflation, economic recession,
significant changes in the federal and state legal and regulatory environment,
significant underperformance in the Company's portfolio of outstanding loans,
and competition in the Company's markets. The Company undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
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"),
(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 ("Belzoni"),
(5) Commerce Capital Management, Inc., Memphis, Tennessee ("Commerce Capital"),
(6) Brooks, Montague & Associates, Inc, Chattanooga, Tennessee ("Brooks
Montague"), (7) TransPlatinum Service Corp., Nashville, Tennessee
("TransPlatinum"), (8) U.S.I. Alliance Corp. ("USI") and (9) Monroe Properties,
Inc ("Monroe"). NCBC provides NBC, Nashville, Knoxville, and Belzoni ("the
Banks"), Commerce Capital, Brooks Montague, TransPlatinum, and USI 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 29 branch
and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee,
two SUPER MONEY MARKET facilities located in Jackson, Tennessee, one SUPER MONEY
MARKET facility located in Cleveland, Tennessee, and one SUPER MONEY MARKET
facility located in Brownsville, Tennessee. NBC has three active, wholly owned,
non-banking subsidiaries, Commerce General Corporation ("Commerce General"),
Commerce Finance Company ("Commerce Finance"), and NBC Capital Markets Group,
Inc. ("Capital Markets"). Commerce General provides a variety of data
processing services to the Banks and other commercial enterprises. Capital
Markets was chartered as Commerce Investment Corporation 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 name was changed to NBC Capital Markets Group, Inc.
effective January 1, 1997.
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 is a state chartered bank with 22 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 12 SUPER
MONEY MARKET branch locations and one traditional branch location in the
Knoxville area with one branch location in Pigeon Forge, Tennessee, twelve
branch locations in the Raleigh-Durham, North Carolina area, three branches in
Greensboro, North Carolina, one branch in Greenville, North Carolina, three
branches in Winston-Salem, North Carolina, one branch location in Olive Branch,
Mississippi, one branch location in Horn Lake, Mississippi and two branches in
Calhoun, Georgia. The Knoxville Bank also operates one stand-alone ATM in the
Knoxville area. The Knoxville Bank also offers loans
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on an indirect basis through area automobile dealers. The Knoxville Bank has
two subsidiaries, Kenesaw Leasing, Inc. and J & S Leasing, Inc., both equipment
leasing firms.
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 eight 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 45 states and Puerto Rico, Peru, Canada, Australia, Japan,
Great Britain and Portugal. As of year end NCBC, through NCBS, has assisted
various banks with over 720 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. The primary function of Monroe
Properties, Inc is to be used in connection with the acquisition of real estate
through foreclosure or deed in lieu of foreclosure.
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.
U.S.I. Alliance Corp. was organized in November, 1995, and commenced
business in July, 1996. USI primarily leases personal lockboxes in long-term
care facilities.
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, 1996, NBC
operated 13 traditional branches and 20 SUPER MONEY MARKET facilities, 16 in
metropolitan Memphis and one each in Brownsville, Tennessee and Cleveland,
Tennessee, and two in Jackson, Tennessee. At December 31, 1996, NBC had
$1,959,875,000 in deposits and was the third largest bank in the Memphis service
area (population approximately 1,000,000) and the sixth 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
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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.
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 46 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 51%
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, 1996, NBC had
credit card accounts receivable and consumer lines of credit totaling
$132,728,000.
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,
1996, 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, 1996.
Correspondent Banking: NBC has correspondent relationships with
approximately 160 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 $37,270,000 in 1996.
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 addition to portfolio management. At December 31, 1996, the Trust Division
administered assets valued at approximately $2,217,000,000.
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, 1996, approximately 83% of the total revenues of
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Commerce General were derived from services provided to NBC and 17% from
services provided to other customers. NBC Capital Markets Group, Inc. (formerly
named 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, 1996, Capital Market's capital totaled $14,786,000. Capital Markets
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. Commerce Finance Company was organized
in September, 1992 and commenced business in March, 1993 in the consumer finance
segment of the retail credit industry as a subsidiary of NCBC. In 1996, the
store-front branches and most of the assets of Commerce Finance were sold and
Commerce Finance began operating on a more centralized basis with emphasis on
second-and third-mortgage loans which come from bank referrals. At December 31,
1996 Commerce Finance had two offices and employed 3 officers and 3 full-time
employees. In February, 1997, Commerce Finance became a subsidiary of NBC. NBC
Insurance Services, Inc. was organized in January, 1997 and commenced business
in March, 1997 to provide life, property and casualty insurance and annuities
through NBC's in-store retail banking system.
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, 1996, NBC had
$2,924,981,000 in assets. According to December 31, 1996 call reports, one of
the other banks in metropolitan Memphis is 4.5 times larger and another is
approximately 2 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, 1996, the Bank and its subsidiaries employed
approximately 256 officers, 583 other full-time employees, 65 part -time
employees and 67 peak-time employees. Relations with employees have been good.
No 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 $9,500 by
making contributions to this plan. The Company may also make contributions to
this plan for the benefit of participating employees. During 1996, the
Company's approved a plan to merge the ESOP into the TIRA.
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
22 SUPER MONEY MARKET facilities located within Kroger stores and three stand-
alone ATMs in the Nashville area. At December 31, 1996, the Nashville Bank
employed 28 officers, 87 other full-time employees, 13 part-time employees and
22 peak-time employees to provide banking services during the hours when most
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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,
1996, the Nashville Bank had total consolidated assets of $521,108,000.
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,
1996 NCBS's capital totaled $13,940,000. 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 12 SUPER MONEY MARKET branch locations and one
traditional branch location in the Knoxville area with one branch location in
Pigeon Forge, Tennessee, twelve branch locations in the Raleigh-Durham, North
Carolina area, three branches in Greensboro, North Carolina, one branch in
Greenville, North Carolina, three branches in Winston-Salem, North Carolina, one
branch location in Olive Branch, Mississippi, one branch location in Horn Lake,
Mississippi and two branches in Calhoun, Georgia. Like Nashville, the Knoxville
Bank employees are provided with the same benefits that all Company employees
have available to them. At December 31, 1996, the Knoxville Bank employed 44
officers, 122 other full-time employees, 7 part-time employees and 12 peak-time
employees. At year-end 1996, the Knoxville Bank had total assets of
$572,804,000. 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.
Non-Bank Subsidiaries: Kenesaw Leasing, Inc, and J & S Leasing, Inc. are
both equipment leasing firms. At December 31, 1996 Kenesaw's capital totaled
$1,163,000. J & S was acquired effective January 1, 1997.
NBC BANK, FSB (BELZONI):
Belzoni was acquired to expand its retail banking activities through
supermarket branches in other states. Eight SUPER MONEY MARKET branches are
located in Kroger supermarkets in Virginia, and one office is located in
Belzoni, Mississippi. At December 31, 1996, Belzoni employed 7 officers, 42
other full-time employees, and 2 part-time employees. The same Company benefits
are provided to these employees. At year-end 1996, the Belzoni had total assets
of $250,841,000. Belzoni 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 $700,000,000. At December 31, 1996,
Commerce Capital had 8 full-time and 1 part-time employee. 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.
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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
$126,000,000. At December 31, 1996, 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.
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, 1996, TransPlatinum had 3 officers, 55 full-time employees, and 14
part-time employees. TransPlatinum competes with major larger companies
offering similar services on a nation-wide basis.
U.S.I. ALLIANCE CORP.:
U.S.I. Alliance Corp. commenced formal operations in February of 1996 as a
wholly owned subsidiary of NCBC. USI operates and administers a security
program in the long-term care industry. The program activities include leasing
personal lock boxes, education and training, risk management reduction, and the
administration of an 800-number tip line and reward payment system for long-term
care facilities. USI Alliance has filed federal and state trademarks in all 50
states for the name "Senior Crimestoppers" and currently does business in all
states. At December 31, 1996, USI had 3 officers and 3 other full-time
employees.
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 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.
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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, non-bank 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 1996 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 Federal Deposit Insurance
Corporation ("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 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
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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 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
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. 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 audits and regularly scheduled reports of financial
information.
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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 1994 through 1996. 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>
1996 1995 1994
---------------------------- -------------------------- --------------------------
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) 2,130,810 191,860 9.00% 1,718,424 160,980 9.37% 1,505,716 129,340 8.59
Taxable securities including trading account 1,296,692 85,597 6.60 1,119,057 75,627 6.76 982,788 56,327 5.73
Non-taxable investment securities(2) 143,706 11,881 8.27 154,755 13,101 8.47 147,753 13,679 9.26
Federal funds sold and securities purchased
under agreements to resell 23,388 1,425 6.09 25,383 1,486 5.85 18,018 793 4.40
Time deposits in other banks 16,984 924 5.44 16,881 1,002 5.94 18,807 741 3.94
--------- ------- ---- --------- ------- ---- --------- ------- ----
Total interest-earning assets 3,611,580 291,687 8.08 3,034,500 252,196 8.31 2,673,082 200,880 7.51
--------- ------- ---- --------- ------- ---- --------- ------- ----
Non-interest earning assets:
Cash and due from banks 119,604 112,304 110,070
Premises & equipment, net 19,160 17,869 17,246
Other assets 94,020 75,448 68,013
Allowance for loan losses (32,250) (25,830) (23,276)
--------- --------- ---------
TOTAL ASSETS 3,812,114 3,214,291 2,845,135
========= ========= =========
</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 27 of the Annual Report to Shareholders for the
corresponding unadjusted amounts as presented in the financial statements.
-11-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- -------------------------- --------------------------
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 256,561 3,963 1.54% 247,002 4,843 1.96% 250,945 4,898 1.95%
Savings deposits 902,148 38,301 4.25 782,714 32,971 4.21 645,219 21,655 3.36
Time deposits 1,187,861 65,701 5.53 1,025,093 58,877 5.74 863,925 36,527 4.23
Federal funds purchased and
securities
sold under agreements to repurchase 336,727 16,546 4.91 264,214 13,482 5.10 265,191 9,737 3.67
Federal Home Loan Bank advances 417,316 23,025 5.52 294,833 15,809 5.36 262,125 11,883 4.53
Long-term debt 60,284 3,565 5.91 6,382 458 7.18 6,384 399 6.25
--------- ------- ---- --------- ------- ---- --------- ------ ----
Total interest bearing liabilities 3,160,897 151,101 4.78 2,620,238 126,440 4.83 2,293,789 85,099 3.71
--------- ------- ---- --------- ------- ---- --------- ------ ----
Non-interest bearing liabilities:
Domestic demand deposits 305,989 284,744 282,468
Other 49,402 36,832 28,975
Stockholders' equity 295,826 272,477 239,903
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 3,812,114 3,214,291 2,845,135
========= ========= =========
Net interest earnings 140,586 125,756 115,781
======== ======= =======
Net yield on interest-earning assets 3.89% 4.14% 4.33%
==== ==== ====
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY TABLE BY REPRICING DATES
Within After 3 Mos. After 6 Mos. After 1 Yr. Non
December 31, 1996 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 703,794 129,925 85,541 159,923 968,497 300,293 - 2,347,973
Securities 629,901 53,754 139,178 12,699 408,076 274,291 - 1,517,899
Other earning assets 62,820 - - - - - - 62,820
Other assets - - - - - - 271,717 271,717
--------- -------- -------- -------- --------- ------- -------- ---------
Total funding uses 1,396,515 183,679 224,719 172,622 1,376,573 574,584 271,717 4,200,409
--------- -------- -------- -------- --------- ------- -------- ---------
Funding sources:
Interest-bearing deposits 477,774 325,294 337,835 331,828 1,021,105 129,918 - 2,623,754
Other borrowings 699,206 9,225 5,052 66,215 54,340 16,546 - 850,584
Demand deposits - - - - - - 352,676 352,676
Other liabilities - - - - - - 60,066 60,066
Interest rate swaps - - - - - - - -
Stockholders' equity - - - - - - 313,329 313,329
--------- -------- -------- -------- --------- ------- -------- ---------
Total funding sources 1,176,980 334,519 342,887 398,043 1,075,445 146,464 726,071 4,200,409
---------- -------- -------- -------- -------- -------- -------- ---------
Interest-rate
sensitivity GAP 219,535 (150,840) (118,168) (225,421) 301,128 428,120 (454,354)
---------- -------- -------- -------- -------- -------- --------
Cumulative interest-rate
sensitivity GAP 219,535 68,695 (49,473) (274,894) 26,234 454,354
GAP to total assets 5.23% ( 3.59%) (2.81%) (5.37%) 7.17% 10.19% (10.82%)
Cumulative GAP to total
assets 5.23% 1.64% (1.18%) (6.54%) .62% 10.82%
</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.
-13-
<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>
1996 Compared to 1995 1995 Compared to 1994
Increase (decrease) Due to (1) Increase (decrease) Due to (1)
------------------------------------------------ ----------------------------------------
Volume Rate Net Rate/Volume Volume Rate Net Rate/Volume
------ ---- --- ----------- ------ ---- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands of Dollars)
Interest earned on:
Loans:(2)
Domestic 36,962 (6,082) 30,880 (1,526) 19,282 12,358 31,640 1,655
Taxable securities
including
trading account 11,717 (1,747) 9,970 (284) 8,426 10,874 19,300 1,399
Non-taxable investment
securities (917) (303) (1,220) 22 628 (1,206) (578) (55)
Federal funds sold and
securities purchased
under agreements to
resell to resell (128) 67 (61) (5) 383 310 693 107
Time deposits in other
banks 6 (84) (78) (1) (82) 343 261 (38)
------ ------ ------ ------- ------ ------ ------ -----
Total interest earning
assets 47,640 (8,149) 39,491 (1,794) 28,637 22,679 51,316 3,068
------ ------ ------ ------- ------ ------ ------ -----
Interest paid on:
Demand deposits 194 (1,074) (880) (40) (77) 22 (55) 0
Savings deposits 5,017 313 5,330 48 5,156 6,160 11,316 1,177
Time deposits 8,867 (2,043) 6,824 (342) 7,645 14,705 22,350 2,443
Federal funds purchased
and securities sold under
agreements to repurchase 3,545 (481) 3,064 (138) (36) 3,781 3,745 (14)
Federal Home Loan Bank
advances 6,732 484 7,216 196 1,594 2,332 3,926 271
Long-term debt 3,173 (66) 3,107 (685) - 59 59 -
------ ------ ------ ------- ------ ------ ------ -----
Total interest bearing
liabilities 27,528 (2,867) 24,661 (961) 14,282 27,059 41,341 3,877
------ ------ ------ ------- ------ ------ ------ -----
Net interest earnings 20,112 (5,282) 14,830 833 14,355 (4,380) 9,975 (809)
====== ====== ====== ======= ====== ====== ====== =====
</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 proportion to the
relationship of the absolute dollar amounts to the change in each.
(2) There were no foreign loans outstanding.
-14-
<PAGE>
SECURITIES PORTFOLIO
- --------------------
The following table sets forth the aggregate book value of investment securities
at the dates indicated.
<TABLE>
<CAPTION>
December 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Securities:
U.S. Treasury 30,234 18,582 120,326
U.S. Government agencies and
corporations 1,190,922 1,027,932 844,782
States of the U.S. and political
subdivisions 140,708 149,975 161,297
Other securities 156,035 82,157 29,408
--------- --------- ---------
Total 1,517,899 1,278,646 1,156,285
========= ========= =========
</TABLE>
The following table sets forth the maturities at December 31, 1996, 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 10,044 5.25% 20,190 5.91% - - - -
U.S. Government agencies
and corporations 27,077 6.24 293,702 6.80 405,044 6.86% 465,099 6.44%
States of the U.S. and
political subdivisions 2,076 5.55 39,023 6.89 49,848 7.75 49,761 8.90
Other - - 55,036 6.32 52,501 6.54 48,498 6.75
------ ----- ------- ---- ------- ------- -------- --------
Total 39,197 407,951 507,393 563,358
====== ======= ======= ========
</TABLE>
-15-
<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
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 466,830 399,580 356,035 350,539 354,491
Real estate - construction 170,188 122,720 91,424 66,929 68,238
Real estate - mortgage 602,064 520,657 501,489 429,544 275,732
Consumer(1) 1,086,104 871,407 630,927 535,417 489,773
Lease financing 22,790 18,678 14,818 13,870 12,423
--------- --------- --------- --------- ---------
Total 2,347,976 1,933,042 1,594,693 1,396,299 1,200,657
========= ========= ========= ========= =========
</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, 1996, 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 16,233 229,127 221,470 466,830
Real estate - construction 16,876 95,272 58,040 170,188
------ ------- ------- -------
Total 33,109 324,399 279,510 637,018
====== ======= ======= =======
</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, 1996.
<TABLE>
<CAPTION>
After 1 but After
Within 5 Yrs 5 Years
-------------- ---------
(in thousands of dollars)
<S> <C> <C>
Predetermined interest rates 115,025 138,786
Floating or adjustable interest rates 209,374 140,724
------- -------
Total 324,399 279,510
======= =======
</TABLE>
-16-
<PAGE>
NONACCRUAL, PAST DUE, AND RESTRUCTURED
- --------------------------------------
The following table summarizes the Company's nonaccrual, past due, and
restructured loans (all of which are domestic):
<TABLE>
<CAPTION>
December 31
------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans - - - - 7,092(1)
Accruing loans past due
90 days or more 3,482 3,252 2,432 2,063 1,848
Non-performing
restructured loans - - - - -
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, 1996, the Company had no problem loans for which payments were
being made, but the borrowers currently were experiencing severe financial
difficulties. Any such loans would be subject to constant management attention
and their classification would be reviewed monthly.
-17-
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
- -------------------------------
This table summarizes the Company's loan loss experience for each of the five
years ended December 31, 1996. There were no foreign loans.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period 29,010 24,310 21,467 17,356 13,254
Charge-offs:
Commercial, financial,
and agricultural 12 1 442 1,167 2,632 (1)
Real estate - construction 70 199 2122 652 1,163
Real estate - mortgage 74 97 232 207 1,052 (1)
Consumer 8,270 5,366 4,088 3,783 4,317
Lease financing 1,912 1,586 1,500 1,0131 1,063
------ ------ ------ ------ ------
Total charge-offs 10,338 7,249 6,474 6,840 10,227
------ ------ ------ ------ ------
Recoveries of loans
previously charged-off:
Commercial, financial,
and agricultural 20 55 47 420 56
Real estate - construction 244 44 83 359 268
Real estate - mortgage 61 73 121 47 45
Consumer 1,965 1,509 1,494 1,237 1,094
Lease financing 533 518 495 474 323
------ ------ ------ ------ ------
Total recoveries 2,823 2,199 2,240 2,537 1,786
------ ------ ------ ------ ------
Net charge-offs 7,515 5,050 4,234 4,303 8,441
Increase due to acquisition 288 - - 22 -
Decrease due to loan sale (403) - - - -
Provision for loan losses(2) 14,134 9,750 7,077 8,392 12,543
------ ------ ------ ------ ------
Balance at end of period 35,514 29,010 24,310 21,467 17,356
====== ====== ====== ====== ======
Ratio of net-charge-offs to
average loans outstanding
during the period .35% .29% .28% .34% .76%
</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) The factors which influenced management's judgment in determining the 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 loan losses is maintained at a level believed adequate by management to
absorb potential losses in the loan portfolio.
-18-
<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
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
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 7,813 20% 7,264 21% 6,887 22% 6,622 25% 4,033 29%
Real estate:
Construction 3,196 7 3,006 6 2,731 6 2,644 5 2,408 6
Mortgage 5,327 26 3,567 27 3,352 31 3,277 31 2,663 23
Consumer 17,402 46 12,737 45 9,457 40 7,716 38 7,484 41
Lease financing 1,776 1 2,436 1 1,883 1 1,208 1 768 1
------ --- ------ --- ------ --- ------ --- ------ ---
Total 35,514 100% 29,010 100% 24,310 100% 21,467 100% 17,356 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
-19-
<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
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
Amount Rate Amount Rate Amount Rate
--------- ----- --------- ----- --------- -----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits 305,989 - 284,744 - 282,468 -
Interest bearing demand deposits 256,561 1.54% 247,002 1.96% 250,945 1.95%
Savings deposits 902,148 4.25 782,714 4.21 645,219 3.36
Time deposits 1,187,861 5.53 1,025,093 5.74 863,925 4.23
--------- ---- --------- ---- --------- ----
Total 2,652,559 2,339,553 2,042,557
========= ========= =========
</TABLE>
At December 31, 1996, 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 255,692
Over 3 through 6 months 172,588
Over 6 through 12 months 132,917
Over 12 months 8,400
-------
Total 569,597
=======
</TABLE>
RETURN ON EQUITY AND ON TOTAL ASSETS
- --------------------------------------------------------------------------
The following table shows consolidated operating and capital ratios for the
Company for each of the last three years.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Return on average total assets 1.51% 1.53% 1.56%
Return on average equity* 19.44% 18.00% 18.48%
Dividend payout percent 34.35% 36.08% 35.03%
Average equity to assets percent 7.76% 8.48% 8.43%
Tier 1 capital to total assets (leverage ratio) 7.33% 7.91% 8.56%
Tier 1 capital to risk-weighted assets 11.05% 12.30% 13.62%
Total capital to risk-weighted assets 12.30% 13.52% 14.87%
</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.
-20-
<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
----------------------------
1996 1995 1994
-------- -------- -------
(In Thousands of Dollars)
<S> <C> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase:
Balance at year-end 298,410 404,746 275,136
Weighted average interest rate
payable at year-end 5.09% 5.46% 5.75%
Maximum amount outstanding
at any month end 398,898 404,746 310,243
Average outstanding balance
(total daily outstanding
principal balance divided
by 365) 336,727 264,214 265,191
Weighted average interest rate
(related interest expense
divided by the average
outstanding balance) 4.91% 5.10% 3.67%
</TABLE>
-21-
<PAGE>
ITEM 2. PROPERTIES.
Main Office: NBC leases as its main office approximately 40% -- 187,500
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, 1996, NBC operated 13 traditional
branches (including the main office branch) and 16 SUPER MONEY MARKET branch
facilities in Shelby County, Tennessee and one each in Johnson City, Tennessee;
Kingsport, Tennessee; Brownsville, Tennessee; and Cleveland, Tennessee and two
in Jackson, 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
21 years (excluding renewal options). The average unexpired portion of the
lease terms at December 31, 1996 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 $3,346,000 at December 31, 1996.
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 $251,000 per year for this space. Additionally,
Commerce Capital leases approximately 2,900 square feet in the Complex totaling
approximately $61,600 in annual rent in 1996. Brooks Montague leases
approximately 1,200 square feet in a Chattanooga building totaling approximately
$14,000 in annual rent in 1996.
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 1996, Nashville paid approximately $710,000 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; Raleigh/Durham, North Carolina;
Greensboro, North Carolina; Winston-Salem, North Carolina; and North Georgia
areas. Initial terms of the license agreements are for one year, with multiple
renewal options. In 1996, Knoxville paid approximately $677,000 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 year, with multiple renewal options. FSB also
leases space for the office in Belzoni, Mississippi. In 1996, FSB paid
approximately $232,000 for licensed and 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 residential and commercial construction lending, mortgage
lending, aircraft lending areas and satellite operations of one of the Bank's
-22-
<PAGE>
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 59 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, National
Commerce Bank Services, Inc., Commerce
Capital, Commerce General, and Brooks
Montague
Gary L. Lazarini 55 Executive Vice President of NBC, Investments
and Chairman and President of NBC Capital
Markets Group, Inc., Director of Commerce
Capital
Gus B. Denton 56 Secretary of the Company and Executive Vice
President and Secretary of NBC, Director of
Commerce General Corporation
Mackie H. Gober 50 President of NBC, Director of NBC,
Commerce Finance Company and NCBS
Lewis E. Holland 54 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
Acquisition Corp., Director of Brooks
Montague, National Commerce Bank Services,
NBC Capital Markets and Kenesaw Leasing, Inc.
</TABLE>
-23-
<PAGE>
<TABLE>
<S> <C> <C>
William R. Reed, Jr. 50 Executive Vice President of the Company;
Director of NBC and National Commerce Bank
Services, Inc., 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),
Director of Kenesaw Leasing
Tom W. Scott 53 President of Commerce General Corporation,
Director of TransPlatinum Service Corp.
</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 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.
-24-
<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
share, 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>
1996:
High $38.38 $33.50 $31.75 $31.00
Low 33.25 31.00 29.75 25.50
Cash dividends .22 .19 .19 .19
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
</TABLE>
The Company's stock is traded over-the-counter on the Nasdaq National
Market tier and is quoted under the trade symbol NCBC. The stock prices
listed in the table were obtained from Nasdaq and represent the high and
low closing sales prices. At December 31, 1996, 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>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net interest income 135,466 120,025 110,021 100,393 92,619
Net income 57,513 49,035 44,342 39,406 33,993
Per common share data:*
Net income 2.30 1.94 1.77 1.58 1.38
Cash dividends declared .79 .70 .62 .55 .47
Book value 12.85 11.95 9.14 9.64 8.22
Total average equity 295,826 272,477 239,903 211,007 180,690
Total average assets 3,812,114 3,214,291 2,845,135 2,387,210 2,135,258
Ratios:
Average equity to
average assets 7.76% 8.48% 8.43% 8.84% 8.46%
Return on average
equity 19.44 18.00 18.48 18.68 18.81
Return on average
assets 1.51 l.53 l.56 1.65 1.59
</TABLE>
* After retroactive adjustment for all stock dividends and stock splits
declared through December 31, 1996.
-25-
<PAGE>
ITEM 7. MANAGEMENT'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 20
through 25 in the Registrant's 1996 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 43 in the Registrant's Annual Report to
Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 42 of the 1996 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 1997 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 1997 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
1997 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 1997 Annual
Meeting of Shareholders is incorporated herein by reference.
-26-
<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 14
and (c) 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.
3.2 Bylaws of National Commerce Bancorporation as amended filed as
Exhibit 3.2 to the Registrant's Form 10-K for the year ended
December 31, 1995 (File No. 0-6094) and incorporated herein by
reference.
4.1 Specimen Stock Certificate
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 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, 1987 (File No. 0-6094) and incorporated herein by
reference.
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) and incorporated herein by
reference.
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 No. 0-6094) and incorporated herein by
reference.
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 (File No. 0-6094) and incorporated herein by
reference.
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) and incorporated herein by
reference.
-27-
<PAGE>
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) and incorporated herein by
reference.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
-28-
<PAGE>
11 Statement re: Earnings Per Share.
13 Registrant's 1996 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
-29-
<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)
/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, 1997 /s/ Thomas M. Garrott
- -------------- ----------------------------
Dated Thomas M. Garrott
Chairman of the Board
(Principal Executive Officer)
March 14, 1997 /s/ Lewis E. Holland
- -------------- ----------------------------
Dated Lewis E. Holland
Executive Vice President, Treasurer,
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ John D. Canale, III /s/ Frank G. Barton, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ Rudi E. Scheidt /s/ R. Grattan Brown, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ G. Mark Thompson /s/ Bruce E. Campbell, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ James E. McGehee, Jr. /s/ Edmond D. Cicala
- ----------------------------- -----------------------------
Director Director
/s/ Thomas C. Farnsworth, Jr. /s/ W. Neely Mallory, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ R. Lee Jenkins /s/ Harry J. Phillips, Sr.
- ----------------------------- -----------------------------
Director Director
/s/ Sidney A. Stewart, Jr.
- -----------------------------
Dated: March 14, 1997
--------------
-30-
<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, 1996
NATIONAL COMMERCE BANCORPORATION
MEMPHIS, TENNESSEE
-31-
<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, 1996, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income--Years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements--December 31, 1996
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.
-32-
<PAGE>
EXHIBIT 3.1
RESTATED CHARTER
OF
NATIONAL COMMERCE BANCORPORATION
UNDER SECTION 48-20-107 OF THE TENNESSEE BUSINESS CORPORATION ACT
Pursuant to the provisions of Section 48-20-107 of the Tennessee Business
Corporation Act, the undersigned corporation adopts the following Restated
Charter:
FIRST. The name of this Corporation is NATIONAL COMMERCE BANCORPORATION.
SECOND. The address of the principal office of this Corporation in the State of
Tennessee is One Commerce Square, Memphis, Tennessee, County of Shelby, 38150.
THIRD. (a) The complete address of the Corporation's registered office in
Tennessee is One Commerce Square, Memphis, Tennessee, County of
Shelby, 38150.
(b) The name of the registered agent to be located at the address
listed in part (a) of this Article Third is Charles A. Neale.
FOURTH. The general nature of the business to be transacted by this Corporation
is:
(1) To acquire by purchase, subscription or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge or otherwise dispose of or deal in and with any of the shares
of the capital stock (whether such shares be voting or nonvoting),
or any voting trust certificates in respect of the shares of capital
stock, scrip, warrants, rights, bonds, debentures, notes, trust
receipts, and other securities, obligations, choses in action and
evidences of indebtedness or interest issued or created by banks,
trust companies or other corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or
private, or by the government of the United States of America, or by
any state or other governmental agency, and as owner thereof to
possess and exercise all the rights, powers and privileges of
ownership, including the right to execute consents and vote thereon,
and to do any and all acts and things necessary or advisable for the
preservation, protection, improvement and enhancement in value
thereof.
(2) To the extent permitted by law, to promote, finance, aid and assist,
financially and otherwise, any bank, trust company, other
corporation, association, joint stock company, syndicate, firm,
trust or person, public or private, governmental agency or other
entity, of which any stock, share, voting trust certificate, bond,
mortgage, debenture, note, right, warrant, scrip, commercial paper,
chose in action, contract, evidence of indebtedness or other
obligation or security is held directly or indirectly by or for the
Corporation, or in the business, financing or welfare of which the
Corporation shall have any interest; and in connection therewith and
to the extent permitted by law, to guarantee or become surety for
the performance of any undertaking or obligations of such entity; to
guarantee by endorsement or otherwise the payment of the principal
of or interest or dividends on or sinking fund payments with respect
to any such security of any such entity or any other payments
whatsoever to be made by it; and to join in any reorganization with
respect to such entity. (3) To pay for any property, securities,
rights or interests acquired by the Corporation in cash or other
property,
<PAGE>
rights or interests held by the Corporation or by issuing and
delivering in exchange therefor its own property, stock, shares,
bonds, debentures, notes or warrants for capital stock, certificates
of indebtedness, obligations or other securities howsoever
evidenced.
(4) To acquire by purchase, gift, lease, exchange or otherwise, real and
personal property, or either, situated either within or without the
State of Tennessee; and to lease, sell, or otherwise dispose of or
encumber the same; to turn the same to account as may seem
expedient; and, in particu lar, to prepare building sites, and to
construct, reconstruct, alter, improve, manage and maintain
buildings of all kinds including bank buildings, general office
buildings, and other structures.
(5) To conduct a general real estate business, whether as principal or
as agent or in any other capacity whatsoever, in the purchase, sale,
lease, exchange, and management of real estate and the negotiation
of loans thereon; to buy, sell, deal, and trade in mortgages or
other liens on or interest in real estate.
(6) To conduct a general insurance agency and insurance brokerage
business of all kinds including but not limited to fire, life,
accident, fidelity, plate glass, boiler, theft, health,
hospitalization, burglary, marine, airplane, credit, and all other
kinds of insurance whatsoever, and in all its branches.
(7) To engage in and carry on either as principal or as agent, or in any
other capacity whatsoever, the business of rendering management
services and advice to any and all types of business enterprise and
activity in connection with the operation, management, supervision,
control, personnel policies, purchasing, selling, advertising,
financing, and all other phases of operation.
(8) To borrow or raise money for any of the purposes of the Corporation
and from time to time without limit as to amount, to draw, make,
accept, endorse, execute and issue promissory notes, drafts, bills
of exchange, warrants, bonds and other negotiable or non-negotiable
instruments and evidences of indebtedness therefor, to make and
enter into indentures or trust agreements, to make and issue its
debenture bonds or certificates of indebtedness, payable to bearer
or otherwise, with or without interest coupons attached, and in
addition to such interest, until such debenture bond or certificate
of indebtedness is discharged but not thereafter, with or without
participation in the earnings, or a share of the earnings of the
Corporation, and to secure the payment of any of the foregoing
evidences of indebtedness and of the interest thereof by mortgage
upon or pledge, conveyance or assignment in trust of the whole or
any part of the property of the Corporation whether at the time
owned or thereafter acquired, and to sell, pledge, exchange or
otherwise dispose of such obligations of the Corporation for its
corporate purposes.
(9) To loan to any person, firm or corporation any of its surplus funds,
either with or without security.
(10) In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the
laws of Tennessee upon corporations formed under the Tennessee
Business Corporation Act, and amendments thereto, and to do any and
all of the things hereinbefore set forth to the same extent as
natural persons might or could do, it being hereby specifically
provided that the enumeration of certain specific powers herein
-2-
<PAGE>
shall not be held to limit or restrict in any manner such general
powers; provided, however, and notwithstanding any provision in this
Restated Charter or any amendment thereof to the contrary, so long
as the Corporation is subject to the provisions of the United States
Bank Holding Company Act of 1956 or acts amendatory thereof, the
Corporation shall not engage in any activities prohibited thereby,
unless it is determined that any such activity is exempt therefrom
or the prohibition is otherwise inapplicable thereto.
The objects and purposes specified in the foregoing Article Fourth
shall, except where otherwise expressed, be in nowise limited or
restricted by reference to or inference from the terms of any other
clause hereof, but the objects and purposes specified in each of the
foregoing clauses of this Article Fourth shall be regarded as
independent objects and purposes.
FIFTH. This Corporation shall have the authority to issue a maximum of
75,000,000 shares of common stock, par value $2.00 per share, which shares
collectively shall have unlimited voting rights and the right to receive the net
assets of the Corporation upon dissolution. No holder of any class of this
Corporation's common stock shall have preemptive rights. Members of the Board of
Directors, other than directors elected to fill vacancies caused by an increase
in the number of directors or by the removal, death or resignation of existing
directors, shall be elected by the shareholders only and shall be elected by a
plurality of the votes cast in any such election.
Except as otherwise provided by the laws of the State of Tennessee, as
now in effect or hereafter amended, the Bylaws of the Corporation may be amended
or repealed or additional Bylaws may be adopted by the Board of Directors by a
vote of a majority of the entire Board of Directors.
The Corporation is hereby authorized to issue 5,000,000 shares of preferred
stock without par value and subject to the following designations, preferences,
limitations and relative rights:
I. So long as any of the preferred stock is outstanding, no dividends
(other than (i) dividends on common stock payable in common stock, (ii)
dividends payable in stock junior to the preferred stock both as to
dividends and upon liquidation, and (iii) cash in lieu of fractional
shares in connection with any such dividends) shall be paid or declared
in cash or otherwise, nor shall any other distribution be made on the
common stock or any other securities junior to the preferred stock as
to dividends, unless (a) there shall be no arrearages in dividends on
the preferred stock for all previous dividend periods, and the full
dividend on the preferred stock for the current dividend period shall
have been or shall then be paid or declared and funds set aside
therefor, and (b) the Corporation shall not be in default on its
obligation to redeem any of the preferred stock called for redemption.
Subject to the foregoing provisions, such dividends as may be determined by
the Board of Directors may be declared and paid from time to time on the common
stock or on any stock junior to the preferred stock, without any right or
participation therein by the holders of the preferred stock.
II. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary ("liquidation"), the
holders of the preferred stock shall be entitled to receive an amount
per share equal to the amount fixed and determined by the Board of
Directors in the resolution establishing the preferred stock, plus an
amount equal to all dividends accrued on the preferred stock to the
-3-
<PAGE>
date fixed for the payment in liquidation, before any distribution
shall be made to the holders of the common stock or any stock junior
to the preferred stock as to the distribution of assets upon
liquidation. If the assets of the Corporation are insufficient to
permit the payment of the full preferential amounts payable to the
holders of the preferred stock, then the assets available for
distribution to holders of the preferred stock shall be distributed
ratably to the holders of the preferred stock, in proportion to the
full preferential amounts payable on their respective shares upon
liquidation.
III. This Restated Charter does not establish series of the preferred
stock and does not fix and determine variations in the relative rights
and preferences as between series of the preferred stock. There is
hereby expressly vested in the Board of Directors of the Corporation
the authority to divide the class of preferred stock authorized in
this Restated Charter into series, and to fix and determine, in the
manner provided by law, the relative rights and preferences of the
shares of any series so established. The Board of Directors is also
authorized to make any changes in the designations, terms, limitations
or relative rights or preferences of any series of the preferred
stock, before the issuance of any shares of that series, in the manner
provided by law.
SIXTH. The amount of capital with which this Corporation will begin business
shall be Five Thousand Dollars ($5,000. 00).
SEVENTH. The Board of Directors of the Corporation shall consist of not less
than three (3) and not more than twenty-five (25) natural persons. The exact
number of directors shall be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority of the entire Board of Directors.
The Board of Directors shall be divided into three (3) classes, as nearly equal
in number as possible, with the term of office of one class expiring each year.
At the annual meeting of shareholders in 1983, directors of the first class
shall be elected to hold office for a term expiring at the next succeeding
annual meeting, and upon expiration of such one-year term and thereafter, such
class of directors shall be eligible to hold office for terms of three (3)
years. At the annual meeting of shareholders in 1983, directors of the second
class shall be elected to hold office for a term expiring at the second
succeeding annual meeting, and upon the expiration of such two-year term and
thereafter, such class of directors shall be eligible to hold office for terms
of three (3) years. At the annual meeting of shareholders in 1983, directors of
the third class shall be elected to hold office for a term expiring at the third
succeeding annual meeting, and thereafter such class of directors shall continue
to be eligible to hold office for terms of three (3) years. 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, may be filled by the Board of Directors acting by a majority of
directors then in office, although less than a quorum, and 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.
Notwithstanding any other provision of this Restated Charter or the Bylaws
of the Corporation, and notwithstanding specification of some lesser percentage
by law, any one or more directors or the entire Board of Directors of the
-4-
<PAGE>
Corporation may be removed for cause, at any time, by the affirmative vote of at
least two-thirds of the entire Board of Directors.
Notwithstanding any provision of this Restated Charter or of the Bylaws of
this Corporation, and notwithstanding the specification of some lesser
percentage by law, the affirmative vote of the holders of two-thirds or more of
the outstanding shares of each class of stock of the Corporation entitled to
vote thereon shall be required to amend, alter, change or repeal any provision
of this Article Seventh; provided, however, that if a two-thirds majority of the
entire Board of Directors shall adopt a resolution setting forth a proposed
amendment to this Article Seventh and directing that it be submitted to a vote
at a meeting of shareholders, then such amendment shall be approved upon
receiving the affirmative vote of the holders of a majority of all the
outstanding shares of each class of stock of the Corporation entitled to vote
thereon.
EIGHTH. Any action which the Board of Directors of this Corporation may
properly take may be taken without a meeting. If all directors consent to
taking such action without a meeting, the affirmative vote of the number of
directors that would be necessary to authorize or take such action at a meeting
shall be the act of the Board. The action must be evidenced by one or more
written consents setting forth the action so taken, signed by each member of the
Board of Directors, indicating each signing director's vote or abstention on the
action, and shall be included in the minutes or filed with the corporate records
reflecting the action taken.
The Corporation shall have the right to purchase its own shares in
accordance with Sections 48-16-302 and 48-16-401 of the Tennessee Business
Corporation Act.
The Board of Directors may authorize and the Corporation may make certain
distributions to its shareholders, in accordance with Section 48-16-401 of the
Tennessee Business Corporation Act.
NINTH. SECTION 1. Certain Definitions.
-------------------
For the purpose of this Article Ninth, the terms:
A. "Business Combination" means any merger, consolidation, or amalgamation
of the Corporation or any of its subsidiaries with any Person; any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
to or with any Person of net assets of the Corporation having an
aggregate fair market value in excess of $5,000,000; the issuance or
transfer by the Corporation or any of its subsidiaries of any
securities of the Corporation to any Person in exchange for cash,
securities or other property having a fair market value in excess of
$5,000,000; a liquidation of the Corporation proposed by any Person;
any reclassification of securities or recapitalization of the
Corporation.
B. "Interested Shareholder" means any Person, other than the Corporation
or any of its subsidiaries, who (i) is the beneficial owner, directly
or indirectly, of more than 5% of the voting power of any class of
outstanding voting stock; or (ii) is an Affiliate of the Corporation
and at anytime within the two-year period immediately prior to the date
in question was the beneficial owner, directly or indirectly, of 5% or
more of the voting power of any class of the then outstanding voting
stock.
C. "Affiliate" has the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on January 1, 1983.
D. "Minimum Price Per Share" shall mean the higher of (i) the highest
gross per share price paid or agreed to be paid by the Interested
Shareholder for any shares of common stock of the Corporation acquired
-5-
<PAGE>
or agreed to be acquired by it (1) within the four-year period
immediately prior to the first public announcement of the Business
Combination (the "Announcement Date"), or (2) in the transaction in
which it became an Interested Shareholder, whichever is higher, or (ii)
the fair market value per share of common stock of the Corporation on
the Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder, whichever is higher. The
calculation of the Minimum Price Per Share shall require appropriate
adjustments for capital changes, including without limitation stock
splits, stock dividends and reverse stock splits.
E. "Person" shall mean any individual, firm, partnership, trust, business
association, corporation, or other entity.
SECTION 2. Vote Required for Business Combinations.
---------------------------------------
In addition to any affirmative vote required by law or this Restated
Charter, and except as otherwise expressly provided in Section 3 of this Article
Ninth, any Business Combination shall require the affirmative vote of the
holders of at least two-thirds of the outstanding shares of each class of
capital voting stock of the Corporation.
SECTION 3. When Higher Vote is Not Required.
--------------------------------
The provisions of Section 2 of this Article Ninth shall not be applicable
to (i) any Business Combination not with or involving any Interested
Shareholders or an Affiliate of an Interested Shareholder if the conditions of
the following Paragraph A are met, in which event such Business Combination
shall require only such affirmative vote as is required by law and any other
provi sion of this Restated Charter, or (ii) any Business Combination with or
involving an Interested Shareholder or an Affiliate of an Interested Shareholder
if all of the conditions in both of the following Paragraphs A and B are met, in
which event such Business Combination shall require only such affirmative vote
as is required by law and any other provision of this Restated Charter.
A. Approval by the Board of Directors. The Business Combination shall
----------------------------------
have been approved by at least two-thirds of the entire Board of
Directors of the Corporation at anytime prior to the consummation of
the Business Combination.
B. Price and Form of Consideration. Both of the following conditions
-------------------------------
shall have been met:
(i) The aggregate amount of the cash and the fair market value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
outstanding capital voting stock of the Corporation in such Business
Combination shall be at least equal to the Minimum Price Per Share.
(ii) The consideration to be received by holders of a particular
class of outstanding voting stock shall be in cash or in the same form
as the Interested Shareholder has previously paid for shares of such
class of voting stock. If the Interested Shareholder has paid for
shares of any class of voting stock with varying forms of
consideration, the form of consider ation for such class of voting
stock shall be either cash or the form used to acquire the largest
number of shares of such class of voting stock previously acquired by
it.
SECTION 4. Determination of Certain Matters.
--------------------------------
Notwithstanding any other provision of this Restated Charter or the Bylaws
of the Corporation, the directors of the Corporation
-6-
<PAGE>
shall have the power and duty to determine for the purposes of this Article
Ninth, on the basis of information known to them after reasonable inquiry, (A)
whether a Person is an Interested Shareholder, (B) the number of shares of
voting stock beneficially owned by any Person, (C) whether a Person is an
Affiliate of another, and (D) whether the net assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any of its subsidiaries
in any Business Combination has, an aggregate fair market value of $5,000,000 or
more.
SECTION 5. No Effect on Fiduciary Obligations of Interested Shareholders.
-------------------------------------------------------------
Nothing contained in this Article Ninth shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
SECTION 6. Amendment, Repeal and Other Matters.
-----------------------------------
Notwithstanding any provisions of this Restated Charter or the Bylaws of
the Corporation, and notwithstanding the specification of some lesser percentage
by law, the affirmative vote of the holders of two-thirds or more of the
outstanding shares of each class of stock of the Corporation entitled to vote
thereon shall be required to amend, alter, change or repeal any provision of
this Article Ninth; provided, however, that if at least two-thirds majority of
the entire Board of Directors shall adopt the resolution setting forth the
proposed amendment to this Article Ninth and directing that it be submitted to a
vote at a meeting of the shareholders, then such amendment shall be approved
upon receiving the affirmative vote of the holders of a majority of the
outstanding shares of each class of stock of the Corporation entitled to vote
thereon.
TENTH. The Corporation is to have perpetual existence. The Corporation is for
profit.
ELEVENTH. Special meetings of shareholders may be called by the Chairman,
President or a Vice President, or by a majority of the members of the Board of
Directors acting with or without a meeting, upon notice to the shareholders
being delivered not less than ten (10) days nor more than two (2) months before
the date of the meeting. Such notice shall include a description of the purpose
or purposes for which the meeting is called and shall be effective when mailed
postpaid and correctly addressed to the shareholder's address shown in the
Corporation's current record of shareholders.
Special meetings of shareholders also may be called by the holders of at
least ten percent (10%) of all the votes entitled to be cast on any issue
proposed to be considered at such meeting upon request in writing, signed, dated
and delivered either in person or by registered or certified mail, return
receipt requested, to the Secretary of the Corporation by such shareholders at
least ninety (90) days before the date of the meeting. Upon receipt of such
request, it shall be the duty of such Secretary forthwith to cause to be given
to the shareholders entitled thereto notice of such meeting, which notice shall
be given on a date not more than one (1) month after the date such request was
delivered to such Secretary, as such Secretary may fix and shall be effective
when mailed postpaid and correctly addressed to the shareholder's address shown
in the Corporation's current record of shareholders.
TWELFTH. No director of this Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of
loyalty to the Corporation or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; or (iii) for
-7-
<PAGE>
unlawful distributions under Section 48-18-304 of the Tennessee Business
Corporation Act.
NATIONAL COMMERCE BANCORPORATION
By: /s/ Gus B. Denton
----------------------------
Gus B. Denton, Secretary
-8-
<PAGE>
- --------------------------------------------------------------------------------
COMMON COMMON
- --------------- -------------
NATIONAL COMMERCE
-----------------
BANCORPORATION
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE
CUSIP 635449 10 1
This Certifies that
is the owner of
FULL-PAID AND NON-ASSESSABLE SHARES EACH OF $2.00 PAR VALUE OF THE COMMON STOCK
OF
NATIONAL COMMERCE BANCORPORATION
transferable on the books of the corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. The Shares
represented hereby are issued and shall be held subject to all of the provisions
of the Certificate of Incorporation and amendments thereto, to all of which the
holder by acceptance hereof assents. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of the Corporation's duly authorized
officers.
Dated
/s/ Walter B. Howell, Jr. /s/ Thomas M. Garrott
--------------------------- ---------------------------
Treasurer Chairman of the Board
<PAGE>
NATIONAL COMMERCE BANCORPORATION
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenant in common UNIF GIFT MIN ACT - ......Custodian......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act.................
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
--------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------
-------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
-------------------------------------------
THE SIGNATURES SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11. Statement Re: Earnings Per Share *
National Commerce Bancorporation and Subsidiaries
- -------------------------------------------------
Year Ended December 31
------------------------------
1996 1995 1994
-------- -------- --------
(amounts in thousands, except
per share amounts)
<S> <C> <C> <C>
Primary:
Average shares outstanding 24,547 24,690 24,476
Less leveraged ESOP shares (110) (53) (75)
Net effect of the assumed
exercise of stock options -
based upon the treasury stock
method using average market
price 612 612 650
------- ------- -------
Total 25,049 25,249 25,051
======= ======= =======
Net income $57,513 $49,035 $44,342
Per share amount $ 2.30 $ 1.94 $ 1.77
======= ======= =======
Fully diluted:
Average shares outstanding 24,547 24,690 24,476
Less leveraged ESOP shares (110) (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 661 628 664
------- ------- -------
Total 25,098 25,265 25,065
======= ======= =======
Net income $57,513 $49,035 $44,342
Per share amount $ 2.29 $ 1.94 $ 1.77
</TABLE>
- ------------
* Reflects all stock splits and stock dividends declared through December 31,
1996.
<PAGE>
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,
1996.
RESULTS OF OPERATIONS
For the year ended December 31, 1996, net income totaled $57,513,000, a
$8,478,000 or 17.3 percent increase over 1995 net income of $49,035,000. Net
income increased by $4,693,000 or 10.6 percent in 1995. Earnings per share were
$2.30 in 1996, compared to $1.94 in 1995 and $1.77 in 1994. For 1996, return on
average assets was 1.51 percent, compared to 1.53 percent in 1995 and 1.56
percent in 1994. Return on average equity (excluding unrealized gains or losses
on investment securities) was 19.44 percent in 1996, compared to 18.00 percent
in 1995 and 18.48 percent in 1994.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$14,830,000 or 11.8 percent in 1996 and increased by $9,975,000 or 8.6 percent
in 1995. The increase in 1996 reflects a $39,491,000 or 15.7 percent increase
in interest income, and a $24,661,000 or 19.5 percent increase in total interest
expense. The increase in interest income was the result of a $412,386,000 or
24.0 percent increase in average loans and a $156,147,000 or 12.4 percent
increase in average securities, partially offset by a decrease in the average
yield on earning assets from 8.31 percent in 1995 to 8.08 percent in 1996. The
increased volume of average earning assets (partially funded by an increase of
$36,421,000 in average non-interest-bearing liabilities, net of non-interest-
earning assets) positively impacted interest income by approximately $48
million, while the decreased yield on average earning assets negatively impacted
interest income by approximately $9 million. Interest expense increased in
1996, reflecting a $540,659,000 or 20.6 percent increase in average outstanding
interest-bearing liabilities, partially offset by a decrease in the cost of
interest-bearing liabilities from 4.83 percent in 1995 to 4.78 percent in 1996.
The decrease in the rate paid on interest-bearing liabilities positively
affected interest expense by approximately $2 million and the increase in
average outstandings negatively affected interest expense by approximately $26
million. The 1995 increase in net interest income was primarily the result of
an increase in earning assets and an increase of $36 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 of
average earning assets) was 3.89 percent in 1996, compared to 4.14 percent in
1995 and 4.33 percent in 1994. The yield on earning assets was 8.08 percent in
1996, compared to 8.31 percent in 1995 and 7.51 percent in 1994. The cost of
interest-bearing liabilities was 4.78 in 1996, compared to 4.83 percent in 1995
and 3.71 percent in 1994.
The Company's provision for loan losses was $14,134,000 for 1996, compared to
$9,750,000 for 1995 and $7,077,000 for 1994. The 1996 provision was primarily
the result of loan growth. Net loan charge-offs were $7,515,000 (.35 percent of
average loans, net of unearned discounts) in 1996, compared to $5,050,000 (.29
percent of average loans) in 1995 and $4,234,000 (.28 percent of average loans)
in 1994.
The allowance for loan losses at December 31, 1996, was $35,514,000 or 1.51
percent of loans, net of unearned discounts, compared to $29,010,000 or 1.50
percent of net loans at December 31, 1995, and $24,310,000 or 1.53 percent of
net loans at December 31, 1994.
Following is a comparison of non-earning assets and loans past due 90 days or
more for the years ended December 31, 1996, 1995 and 1994:
In Thousands 1996 1995 1994
Non-accrual loans $ - $ - $ -
Renegotiated loans - - -
Other real estate owned - 30 61
------ ------ ------
<PAGE>
Total non-earning assets $ - $ 30 $ 61
====== ====== ======
Accruing loans past due
90 days or more $3,482 $3,252 $2,432
Percentage of total loans 0.15% 0.17% 0.15%
At December 31, 1996, there were no non-performing assets. At December 31, 1995,
the allowance for loan losses was 967 times non-performing assets, compared to
399 times at December 31, 1994. 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 $17,286,000
or 32.2 percent in 1996. The Company's broker-dealer revenue increased $239,000
or 2.4 percent and mortgage banking origination revenue increased $1,288,000 or
96.8 percent, reflecting current market conditions. Also included in non-
interest income was a pre-tax gain of $2,900,000 relating to the sale of certain
assets, primarily loans, of the Company's Commerce Finance subsidiary, and a
pre-tax gain of $3,000,000 relating to bank premises transactions. All other
sources of non-interest income, including trust service income, service charge
income, fuel card processing income and in-store banking licensing income
increased a net of $9,859,000 or 23.2 percent. Securities gains totaled $3,000
in 1996, compared to $228,000 in 1995. Non-interest income (excluding
securities gains or losses) increased by $3,202,000 or 6.3 percent in 1995,
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 licensing income.
Non-interest expenses (excluding the provision for loan losses) increased by
$13,339,000 or 14.5 percent in 1996, primarily reflecting increased employment
and other expenses relating to new products and locations, and increased
promotional expenses of new loan and deposit gathering campaigns. Total non-
interest expenses increased by $4,256,000 or 4.9 percent in 1995, primarily the
result of increases related to the new automobile indirect lending and corporate
cash management businesses, 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:
<PAGE>
SOURCES AND USES OF FUNDS TRENDS
<TABLE>
<CAPTION>
1995-1996 1994-1995
1996 Increase 1995 Increase 1994
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 $2,130,810 $412,386 24.0% $1,718,424 $212,708 14.1% $1,505,716
Securities:
Taxable 1,267,535 167,196 15.2 1,100,339 142,454 14.9 957,885
Non-taxable 143,706 (11,049) (7.1) 154,755 7,002 4.7 147,753
Trading account securities 29,157 10,439 55.8 18,718 (6,185) (24.8) 24,903
Federal funds sold and
securities purchased under
agreements to resell 23,388 (1,995) (7.9) 25,383 7,365 40.9 18,018
Time deposits in banks 16,984 103 0.6 16,881 (1,926) (10.2) 18,807
---------- -------- ---------- -------- ----------
Total interest-earning assets 3,611,580 577,080 19.0 3,034,500 361,418 13.5 2,673,082
Other uses 200,534 20,743 11.5 179,791 7,738 4.5 172,053
---------- -------- ---------- -------- ----------
Total funding uses $3,812,114 $597,823 18.6% $3,214,291 $369,156 13.0% $2,845,135
========== ======== ========== ======== ==========
FUNDING SOURCES
Interest-bearing liabilities:
Interest-bearing deposits $2,346,570 $291,761 14.2% $2,054,809 $294,720 16.7% $1,760,089
Federal funds purchased and
securities sold under
agreements to repurchase 336,727 72,513 27.4 264,214 (977) (0.4) 265,191
Other borrowed funds and
long-term debt 477,600 176,385 58.6 301,215 32,706 12.2 268,509
---------- -------- ---------- -------- ----------
Total interest-bearing liabilities 3,160,897 540,659 20.6 2,620,238 326,449 14.2 2,293,789
Non-interest-bearing deposits 305,989 21,245 7.5 284,744 2,276 0.8 282,468
Stockholders' equity 295,826 23,349 8.6 272,477 32,574 13.6 239,903
Other sources 49,402 12,570 34.1 36,832 7,857 27.1 28,975
---------- -------- ---------- -------- ----------
Total funding sources $3,812,114 $597,823 18.6% $3,214,291 $369,156 13.0% $2,845,135
========== ======== ========== ======== ==========
</TABLE>
<PAGE>
Average loans, the largest use of funds, increased $412 million or 24.0 percent
in 1996 and $213 million or 14.1 percent in 1995. Increases in consumer loans,
real estate construction and mortgage loans and commercial loans were the
primary reasons for the increases in 1996, and increases in real estate mortgage
loans and consumer loans were the primary reasons for the 1995 loan increase.
For 1996 the growth in all loan categories reflects increased demand and
consumer loan promotions. The 1995 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 $156 million or 12.4 percent in 1996. Taxable securities increased
by $167 million or 15.2 percent, reflecting increases in both fixed and variable
rate federal agency securities. Non-taxable securities decreased by $11 million
or 7.1 percent, reflecting decreased investment in bank-qualified municipal
investments. Total securities increased by $149 million or 13.5 percent in
1995. The 1995 increase reflects increases in both fixed- and variable-rate
federal agency securities and non-taxable securities. The Company accounts for
securities in accordance with Financial Accounting Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires an adjustment of the securities portfolio to market value for those
designated as available for sale, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity. This
year-end adjustment increased the securities portfolio by $2.0 million and
increased stockholders' equity by $1.2 million at December 31, 1996, and
increased the securities portfolio by $7.4 million and increased stockholders'
equity by $4.5 million at December 31, 1995.
Trading account securities increased by $10 million or 55.8 percent in 1996 and
decreased by $6 million or 24.8 percent in 1995. These changes are a result of
trading inventory levels needed by NBC Capital Markets Group, Inc.
Federal funds sold and securities purchased under agreements to resell decreased
by $2 million or 7.9 percent in 1996, and increased by $7 million or 40.9
percent in 1995, representing excess funds not otherwise employed in loans or
investment securities.
Time deposits in other banks increased by $103,000 or 0.6 percent in 1996, and
decreased by $2 million or 10.2 percent in 1995. This is a readily manageable
asset and balances are maintained at levels which are based on operating needs.
Total interest-earning assets increased by $577 million or 19.0 percent in 1996,
compared to an increase of $361 million or 13.5 percent in 1995. As described
below, the growth in 1996 and 1995 was funded primarily by increases in
interest-bearing deposits, other borrowed funds and stockholders' equity in 1996
and 1995.
Total average deposits increased by $313 million or 13.4 percent in 1996,
compared to an increase of $297 million or 14.5 percent in 1995. Total
interest-bearing deposits increased $292 million or 14.2 percent and total non-
interest-bearing deposits increased $21 million or 7.5 percent in 1996,
reflecting current market trends, compared to an increase of $295 million or
16.7 percent in interest-bearing deposits and an increase of $2 million or 0.8
percent in non-interest-bearing deposits in 1995.
Federal funds purchased and securities sold under agreements to repurchase
increased $73 million or 27.4 percent in 1996, compared to a decrease of $1
million or 0.4 percent in 1995. 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 and bank notes,
increased $176 million or 58.6 percent in 1996, compared to an increase of $33
million or 12.2 percent in 1995. Approximately $54 million of this increase was
due to a new program of floating rate bank notes issued through the Company's
banking subsidiary National Bank of Commerce. These advances and notes 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.
<PAGE>
For 1997, the Company anticipates loan demand and deposit growth similar to that
which occurred in 1996 due to expansion in existing Tennessee markets and
continued expansion into Virginia, North Carolina, Mississippi and Georgia.
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 products.
Interest rate sensitivity varies with different types of interest-earning assets
and interest-bearing liabilities. Overnight federal funds, on which 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 1996, both six-month and one-year
cumulative gaps were within these parameters.
CAPITAL RESOURCES
Total average assets increased by 18.6 percent in 1996, 13.0 percent in 1995 and
19.2 percent in 1994. Correspondingly, total average equity capital increased
by 8.6 percent in 1996, 13.6 percent in 1995 and 13.7 percent in 1994.
The percentage of average equity capital to average assets was 7.76 percent in
1996, 8.48 percent in 1995 and 8.43 percent in 1994. The internal capital
growth rate was 12.89 percent in 1996, 11.65 percent in 1995 and 12.16 percent
in 1994. These growth rates are the result of a return on average equity of
19.44 percent in 1996, 18.00 percent in 1995 and 18.48 percent in 1994. The
capital ratios were reduced due to utilization of excess capital for a stock
repurchase program which was authorized in 1996 for 2,000,000 shares over two
years. During 1996, 1,024,928 shares of common stock were repurchased at a cost
of $30,581,000.
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.
The Company accounts for securities in accordance with FAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This results in an
increase of $1.2 million to 1996 year-end stockholders' equity and an increase
of $4.5 million to 1995 year-end stockholders' equity.
<PAGE>
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, 1996, 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 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, 1996.
SELECTED CAPITAL INFORMATION
December 31
------------------------
In Thousands 1996 1995
----------- -----------
Capital:
Stockholders' equity $ 313,329 $ 296,679
Less:
Unrealized gains on
securities, net of taxes 1,230 4,527
Goodwill and other deductions 4,118 9
---------- ----------
Tier 1 capital 307,981 292,143
Qualifying allowance for loan losses 34,847 29,010
---------- ----------
Total capital $ 342,828 $ 321,153
========== ==========
Total risk-weighted assets $2,787,088 $2,374,668
========== ==========
Ratios:
Total capital to risk-weighted assets 12.30% 13.52%
Tier 1 capital to risk-weighted assets 11.05 12.30
Tier 1 capital to total assets
(leverage ratio) 7.33 7.91
Average equity to assets 7.76 8.48
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's strategy is to attempt to maintain an essentially
balanced position between interest-sensitive assets and liabilities in order to
protect against wide interest rate fluctuations.
<PAGE>
CONSOLIDATED BALANCE SHEETS
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
----------------------
Dollar Amounts in Thousands 1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 17,789 $ 16,660
Cash and non-interest-bearing deposits 164,894 144,166
Federal funds sold and securities purchased under agreements to resell 13,219 226,929
---------- ----------
Total cash and cash equivalents 195,902 387,755
Available-for-sale securities (amortized cost - $699,314 at December 31, 1996,
$509,759 at December 31, 1995) 700,775 516,623
Held-to-maturity securities (market value - $804,690 at December 31, 1996, and
$765,142 at December 31, 1995) 817,124 762,023
Trading account securities 31,812 20,159
Loans, net of unearned discounts 2,347,973 1,931,213
Less allowance for loan losses 35,514 29,010
---------- ----------
Net loans 2,312,459 1,902,203
Premises and equipment, net 21,799 18,382
Broker/dealer customer receivables 11,699 13,444
Other assets 108,839 74,453
---------- ----------
Total assets $4,200,409 $3,695,042
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest-bearing $ 352,676 $ 331,436
Interest-bearing 2,623,754 2,243,334
---------- ----------
Total deposits 2,976,430 2,574,770
Federal funds purchased and securities sold under agreements to repurchase 298,410 404,746
Broker/dealer customer payables 1,002 1,271
Accounts payable and accrued liabilities 59,064 38,396
Federal Home Loan Bank advances 396,109 372,799
Long-term debt 156,065 6,381
---------- ----------
Total liabilities 3,887,080 3,398,363
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 24,385,202 in 1996 and 24,834,581 shares in 1995 48,770 49,669
Additional paid-in capital 61,763 80,605
Retained earnings 201,566 161,878
Unrealized gains on securities, net of taxes 1,230 4,527
---------- ----------
Total stockholders' equity 313,329 296,679
Total liabilities and stockholders' equity $4,200,409 $3,695,042
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
National Commerce Bancorporation and Subsidiaries
Year Ended December 31
----------------------------
In Thousands, Except Per Share Amounts 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans $190,879 $159,816 $128,297
Securities:
Taxable 83,797 74,365 54,836
Non-taxable 7,765 8,556 8,982
-------- -------- --------
91,562 82,921 63,818
Trading account securities 1,777 1,240 1,471
Other 2,349 2,488 1,534
-------- -------- --------
Total interest income 286,567 246,465 195,120
-------- -------- --------
INTEREST EXPENSE
Deposits 107,965 96,691 63,080
Short-term borrowings 16,546 13,482 9,737
Federal Home Loan Bank advances 23,025 15,809 11,883
Long-term debt 3,565 458 399
-------- -------- --------
Total interest expense 151,101 126,440 85,099
-------- -------- --------
Net interest income 135,466 120,025 110,021
Provision for loan losses 14,134 9,750 7,077
-------- -------- --------
Net interest income after provision for loan losses 121,332 110,275 102,944
-------- -------- --------
OTHER INCOME
Trust service income 8,719 8,296 7,967
Service charges on deposits 14,292 13,519 14,359
Other service charges and fees 10,902 5,264 4,386
Broker/dealer revenue 10,079 9,840 10,213
Investment securities gains (losses) 3 228 (498)
Other 26,934 16,721 13,513
-------- -------- --------
Total other income 70,929 53,868 49,940
-------- -------- --------
OTHER EXPENSES
Salaries and employee benefits 48,468 40,935 39,114
Occupancy expense 8,517 8,665 7,447
Furniture and equipment expense 3,848 3,510 3,301
FDIC assessment 431 2,725 4,375
Other 43,905 35,995 33,337
-------- -------- --------
Total other expenses 105,169 91,830 87,574
-------- -------- --------
Income before income taxes 87,092 72,313 65,310
Income taxes 29,579 23,278 20,968
-------- -------- --------
Net income $ 57,513 $ 49,035 $ 44,342
======== ======== ========
Net income per common share $2.30 $1.94 $1.77
Weighted average shares outstanding 25,049 25,249 25,051
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
National Commerce Bancorporation and Subsidiaries
For Year Ended December 31
----------------------------------
In Thousands 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 57,513 $ 49,035 $ 44,342
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 14,134 9,750 7,077
Provision for depreciation and amortization 3,227 4,249 3,359
Amortization of securities premiums and (accretion of discounts), net 11 (460) 409
Deferred income taxes (1,079) (1,866) (1,008)
(Increase) decrease in trading account securities (11,653) (6,652) 49,617
Realized securities (gains) losses (3) (228) 498
(Increase) decrease in broker/dealer customer receivables 1,745 (12,314) 22,515
Increase (decrease) in interest receivable 1,838 (5,532) (4,438)
Increase in other assets (28,429) (6,363) (5,673)
Increase (decrease) in broker/dealer customer payables (269) 872 (13,219)
Increase (decrease) in interest payable (315) 10,907 2,044
Increase in accounts payable and accrued liabilities 23,388 2,368 417
--------- --------- ---------
Net cash provided by operating activities 60,108 43,766 105,940
INVESTING ACTIVITIES
Available-for-sale securities:
Proceeds from maturities of securities 78,456 101,157 213,724
Proceeds from sales of securities 289,492 512,112 82,936
Purchases of securities (557,647) (276,553) (283,964)
Held-to-maturity securities:
Purchases of securities (149,707) (406,827) (266,452)
Proceeds from maturities of securities 94,738 9,731 ---
Net increase in loans (422,848) (343,718) (200,785)
Purchases of premises and equipment (6,644) (4,455) (5,306)
--------- --------- ---------
Net cash used in investing activities (674,160) (408,553) (459,847)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts, and savings accounts 249,372 66,154 257,162
Net increase (decrease) in certificates of deposit 152,288 354,226 (22,413)
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase (106,336) 129,610 27,605
Net increase in Federal Home Loan Bank advances 23,310 51,258 151,516
Net proceeds from issuance of bank notes 149,684 --- ---
Proceeds from exercise of stock options 3,829 2,163 1,172
Cash dividends (19,367) (17,300) (15,183)
Other --- (2) 85
Repurchase of common stock (30,581) --- ---
--------- --------- ---------
Net cash provided by financing activities 422,805 586,109 399,944
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (191,853) 221,322 46,037
Cash and cash equivalents at beginning of year 387,755 166,433 120,396
--------- --------- ---------
Cash and cash equivalents at end of year $ 195,902 $ 387,755 $ 166,433
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
National Commerce Bancorporation and Subsidiaries
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, 1994 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
Change in unrealized gain 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 ($.70 per share) (17,300) (17,300)
Tax benefit of stock options exercised 1,232 1,232
Change in unrealized losses on
available-for-sale securities,
net of taxes 37,391 37,391
Other (261) (261)
---------- ------- -------- -------- -------- --------
Balance at December 31, 1995 24,834,581 49,669 80,605 161,878 4,527 296,679
Add (deduct):
Net income 57,513 57,513
Common stock issued upon
exercise of stock options 346,433 693 3,136 3,829
Cash dividends declared ($.79 per share) (19,367) (19,367)
Tax benefit of stock options exercised 2,405 2,405
Change in unrealized gain on
available-for-sale securities,
net of taxes (3,297) (3,297)
Shares repurchased/canceled (1,024,928) (2,050) (28,531) (30,581)
Common stock issued for acquisitions 229,116 458 4,148 4,606
Other 1,542 1,542
---------- ------- -------- -------- -------- --------
Balance at December 31, 1996 24,385,202 $48,770 $ 61,763 $201,566 $ 1,230 $313,329
========== ======= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements
National Commerce Bancorporation and Subsidiaries
December 31, 1996
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 or interest 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.
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 1996, 1995 and 1994, interest paid was $151,416,000, $115,533,000 and
$83,055,000, respectively. During 1996, 1995 and 1994, income taxes paid were
$27,385,000, $25,329,000 and $23,294,000, respectively.
Reclassification Certain account reclassifications have been made to the 1995
and 1994 financial statements to conform with the 1996 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.
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.
Recent Accounting Pronouncement Issued in June 1996, FAS Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," provides new accounting and reporting standards for sales,
securitizations and servicing of receivables and other financial assets and
extinguishments of liabilities. The provisions of the Statement are to be
applied to transactions occurring after December 31, 1996, even for transfers of
assets pursuant to securitization transactions that previously were established.
The Company does not believe that the adoption of this Statement will have a
material effect on its consolidated financial condition or results of
operations.
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 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
<PAGE>
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.
<TABLE>
<CAPTION>
December 31, 1996
In Thousands Carrying Amount Fair Value
--------------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 195,902 $ 195,902
Available-for-sale securities $ 700,775 $ 700,775
Held-to-maturity securities $ 817,124 $ 804,690
Trading account securities $ 31,812 $ 31,812
Net loans $2,312,459 $2,359,914
Financial liabilities:
Deposits $2,976,430 $2,975,952
Federal funds purchased $ 298,410 $ 298,410
Federal Home Loan Bank advances
and long-term debt $ 552,174 $ 534,480
Off-balance sheet financial instruments:
Interest rate swaps in net receivable
position (loss) --- ---
December 31, 1996
In Thousands Carrying Amount Fair Value
--------------- -----------
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>
<PAGE>
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, 1996 and 1995, were approximately $4,262,000 and
$9,665,000, respectively.
NOTE D - Securities
The following is a summary of available-for-sale securities and held-to-maturity
securities:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------
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 $521,357 $ 776 $ (2,215) $519,918
Obligations of states and
political subdivisions 67,872 1,347 (297) 68,922
Mortgage-backed securities 61,334 2,104 --- 63,438
-------- ------ -------- --------
Total debt securities 650,563 4,227 (2,512) 652,278
Equity securities 48,751 --- (254) 48,497
-------- ------ -------- --------
Total $699,314 $4,227 $ (2,766) $700,775
======== ====== ======== ========
December 31, 1996
---------------------------------------------
Held-to-maturity Securities
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
--------- ---------- ----------- ----------
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $ 48,300 --- $ (1,404) $ 46,896
Obligations of states and
political subdivisions 71,789 2,595 (201) 74,183
Other asset-based securities 107,537 --- (716) 106,821
Mortgage-backed securities 588,942 799 (12,951) 576,790
-------- ------ -------- --------
Total $816,568 $3,394 $(15,272) $804,690
======== ====== ======== ========
</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 1996 or 1995. 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. At
December 31, 1996, the net unrealized gain on the securities reclassified on
December 27, 1995, was $556,000.
<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
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
======== ====== ======= ========
<PAGE>
December 31, 1995
----------------------------------------------
Held-to-maturity Securities
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
--------- ---------- ----------- ----------
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>
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1996, 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, 1996
Available-for-sale
Securities
---------------------
Amortized Estimated
In Thousands Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less $ 11,845 $ 11,920
Due after one year through five years 241,978 242,878
Due after five years through 10 years 332,856 331,285
Due after 10 years 2,550 2,758
-------- --------
589,229 588,841
Mortgage-backed securities 61,334 63,437
Equity securities 48,751 48,497
-------- --------
Total $699,314 $700,775
======== ========
December 31, 1996
Held-to-maturity
Securities
--------------------
Amortized Estimated
In Thousands Cost Fair Value
--------- ----------
Due in one year or less $ 200 $ 200
Due after one year through five years 3,521 3,480
Due after five years through 10 years 69,364 68,429
Due after 10 years 154,541 155,791
-------- --------
227,626 227,900
Mortgage-backed securities 588,942 576,790
-------- --------
Total $816,568 $804,690
======== ========
</TABLE>
The amortized cost of securities pledged to secure repurchase agreements and
government, public and trust deposits was $992,773,000 and $915,854,000 at
December 1996 and 1995, respectively.
Note E - Loans
Analyses of loans outstanding by category were as follows:
<TABLE>
<CAPTION>
December 31
------------------------
In Thousands 1996 1995
<S> <C> <C>
Commercial, financial and agricultural $ 466,830 $ 399,580
Real estate - construction 170,188 122,720
Real estate - mortgage 602,064 520,657
Consumer 1,086,104 871,407
Lease financing 22,790 18,678
Unearned discounts (3) (1,829)
---------- ----------
2,347,973 1,931,213
Allowance for loan losses (35,514) (29,010)
---------- ----------
Net loans $2,312,459 $1,902,203
========== ==========
</TABLE>
<PAGE>
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 $44,696,000 and $31,187,000 at
December 31, 1996 and 1995, respectively. During 1996, $90,286,000 of new loans
to related parties were made and payments totaled $76,777,000.
Note F - Allowance for Loan Losses
Changes in the allowance for loans losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $29,010 $24,310 $21,467
Provision for loan losses 14,134 9,750 7,077
Increase due to acquisitions 288 --- ---
Decrease due to loan sale (403) --- ---
Loans charged off, net of recoveries of
$2,823 in 1996, $2,199 in 1995 and
$2,240 in 1994 (7,515) (5,050) (4,234)
------- ------- -------
Balance at end of year $35,514 $29,010 $24,310
======= ======= =======
</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):
December 31
-----------------
In Thousands 1996 1995
------- -------
Non-accrual loans $ --- $ ---
Other real estate owned --- 30
------- -------
Total $ --- $ 30
======= =======
There were no non-accrual loans at December 31, 1996 or 1995. There were no
restructured loans at December 31, 1996 or 1995. Accruing loans past due 90
days or more were $3,482,000 and $3,252,000 at December 31, 1996 and 1995,
respectively.
Note H - Premises and Equipment
The following is a summary of the premises and equipment accounts:
<TABLE>
<CAPTION>
December 31
----------------
In Thousands 1996 1995
------- -------
<S> <C> <C>
Land $ 2,240 $ 2,240
Premises 2,364 2,364
Furniture and equipment 29,828 22,780
Leasehold improvements 13,839 13,262
Construction in progress 146 846
------- -------
48,417 41,492
Less accumulated depreciation and amortization 26,618 23,110
------- -------
Premises and equipment, net $21,799 $18,382
======= =======
</TABLE>
<PAGE>
Note I - Deposits
Analyses of deposits outstanding by category were as follows:
<TABLE>
<CAPTION>
December 31
----------------------
In Thousands 1996 1995
---------- ----------
<S> <C> <C>
Non-interest-bearing $ 352,676 $ 331,436
Money market checking 275,471 274,876
Savings 79,599 86,989
Money market savings 970,838 735,911
Certificates of deposit less than $100,000 728,249 677,733
Certificates of deposit $100,000 and over 569,597 467,825
---------- ----------
Total $2,976,430 $2,574,770
========== ==========
</TABLE>
The time deposit maturities at December 31 for the next five years
and thereafter are as follows:
(In thousands)
1997 $1,173,842
1998 65,413
1999 21,022
2000 12,205
2001 9,030
Thereafter 16,334
----------
$1,297,846
==========
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 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Minimum rentals $5,024 $4,456 $3,996
Contingent rentals 852 823 848
------ ------ ------
Total $5,876 $5,279 $4,844
====== ====== ======
</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-cancellable
operating leases with initial or remaining terms of one year or more, consisted
of the following at December 31, 1996:
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1997 $ 4,567
1998 3,890
1999 3,651
2000 3,197
2001 2,845
Thereafter 16,863
-------
Total minimum lease payments $35,013
=======
</TABLE>
The various leases on the land and bank premises may be renewed for periods of
five to 70 years upon the expiration of the respective leases.
Note K - Credit Facilities
During 1996, the Company obtained numerous advances from the Federal Home Loan
Bank totaling $280 million. The advances ranged from $20 million to $50 million
at floating interest rates equal to one month LIBOR, which ranged from 5.38
percent to 5.56 percent. Maturity dates ranged from January 26, 1998, until
November 6, 1998. At December 31, 1996, the Company had pledged as collateral
$277,725,000 of its loans secured by mortgages on one-to-four family residential
properties and certain securities totaling $305,916,000. 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. 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, 1996:
<PAGE>
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1997 $165,225
1998 177,002
1999 14,822
2000 12,647
2001 9,837
Thereafter 16,577
--------
Total $396,110
========
</TABLE>
Long-term debt at December 31, 1996 and 1995, consisted primarily of the
following unsecured term notes of the Company's lead subsidiary National Bank of
Commerce (NBC):
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, 1996, 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, 1996, the rates ranged
from 7.57 percent to 7.69 percent, maturing December 3 and
December 17, 2007. $1,025
------
Total $6,372
======
On August 24, 1996, NBC issued $150 million in regular floating-rate bank notes
due August 24, 1998, which are included in long-term debt. Interest is payable
monthly on the 24/th/ day of each month. The interest rate for each interest
period will be reset monthly based on the one-month London interbank offered
rate plus a spread of .09 percent. The rates ranged from 5.52 percent to 5.75
percent during the year. This rate was approximately 5.75 percent at December
31, 1996. The notes are not redeemable or repayable prior to maturity.
At December 31, 1996, 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, 1997, and a $2 million line of credit which expires
June 29, 1997. There were no borrowings against these lines during 1996.
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 (the 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 committee recently authorized a one million share addition to
the option reserve, pending shareholder approval in April 1997. The following
amounts reflect the effect of all stock dividends and splits declared through
1996:
1996 1995
Weighted Weighted
average average
exercise exercise
Options price Options price
--------- ------- --------- -------
Outstanding January 1 1,721,516 $16.999 1,856,224 $15.313
Granted 266,413 $30.263 237,806 $24.572
Exercised (356,795) $ 9.125 (318,871) $ 9.189
Cancelled (48,582) $22.518 (53,643) $14.861
--------- ------- --------- -------
Outstanding December 31 1,582,552 $19.408 1,721,516 $16.999
========= ======= ========= =======
Exercisable at year end 983,297 $18.448 1,137,336 $16.097
Unoptioned shares 61,890 328,928
Total shares reserved 1,644,442 2,050,444
Weighted average fair
value of options granted
during the year $ 8.19 $ 4.52
Exercise prices for options outstanding as of December 31, 1996, ranged from
$8.66 to $36.00. The weighted average remaining contractual life of those
options is approximately six and one-half years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issues to Employees" (APB No. 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-based Compensation," requires use of
<PAGE>
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1996
and 1995, respectively: risk-free interest rates of 6.5 percent and 6.0 percent;
dividend yields of 2.3 percent and 2.9 percent; volatility factors of the
expected market price of the Company's common stock of .30 and .18; and a
weighted average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
In thousands, except per share data
1996 1995
------- -------
Pro forma net income $57,255 $48,969
Pro forma earnings
per share:
Primary $ 2.29 $ 1.94
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, 1996, $39,108,000 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, 1996, 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.
Note N - Employee Benefit Plans
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:
December 31
----------------------
In Thousands 1996 1995
--------- ---------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $37,413 at December 31, 1996, and
$37,031 at December 31, 1995 $ 39,020 $ 39,713
Projected benefit obligation for services rendered
to date (45,274) $(45,148)
Plan assets at fair value (stocks and bonds) 48,243 43,491
======== ========
Plan assets in excess of (under) projected
benefit obligation 2,969 (1,657)
Unrecognized net assets (1,696) (2,074)
Unrecognized net loss 7,676 12,287
Unrecognized prior service cost (1,731) (1,604)
-------- --------
Prepaid pension cost included in other assets $ 7,218 $ 6,952
======== ========
In Thousands 1996 1995 1994
------- -------- --------
Net pension cost included the
following components:
Service cost - benefits earned
during the period $ 1,499 $ 1,210 $ 1,607
Interest cost on projected
benefit obligation 3,088 2,941 2,652
Actual return on plan assets
(gain) loss (7,944) (6,254) 787
Net amortization and deferral 3,438 2,193 (4,911)
------- -------- --------
Net periodic pension expense $ 81 $ 90 $ 135
======= ======== ========
<PAGE>
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 7.75 percent and 4.25 percent, respectively, at December 31,
1996, and 7.25 percent and 4.25 percent, respectively, at December 31, 1995.
The expected long-term rate of return on plan assets was 10.25 percent in 1996
and 1995. The assumed normal retirement age was 64 in 1996 and 1995.
The Company and its subsidiaries previously maintained an Employee Stock
Ownership Plan (ESOP) which was generally available to all full-time employees.
Annual contributions to this plan, which were discretionary, were $400,000 in
both 1995 and 1994. During 1996, the Company approved a plan to merge the ESOP
into the Company's Taxable Income Retirement Account Plan (TIRA).
TIRA 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 TIRA Plan and the Retirement Plan net assets include equity
securities of the Company.
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 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $(2,778) $(3,217) $(2,919)
Fully eligible active plan participants --- (91) (62)
Other active plan participants --- (2,265) (1,552)
------- ------- -------
Postretirement benefit obligation in excess
of plan assets (2,778) (5,573) (4,533)
Unrecognized transition obligation 324 3,003 3,180
Unrecognized net (gain) or loss 1,114 1,047 372
Unrecognized prior service cost (634) --- ---
------- ------- -------
Accrued expense $(1,974) $(1,523) $ (981)
======= ======= =======
</TABLE>
Both the retiree medical and life insurance plans were amended during 1996. The
amendment to the retiree medical plan reduced the APBO by $2,872,000. This
amount was used to offset the unrecognized transition obligation of $2,238,000
and the remaining amount of $634,000 will be amortized as negative prior service
cost beginning in 1997. The retiree life insurance benefit was eliminated for
retirements after December 31, 1996.
Net periodic postretirement benefits costs include the following components:
<TABLE>
<CAPTION>
In Thousands 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost $ 189 $ 142 $ 149
Interest cost 414 387 330
Net amortization and deferral 211 191 202
----- ----- -----
Net periodic postretirement benefits cost $ 814 $ 720 $ 681
===== ===== =====
</TABLE>
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 1996 and
1995 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, 1996, by approximately
$96,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit costs for 1996 by approximately $235,000. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50 percent at December 31, 1996 and
1995.
The Company also provides healthcare and various other benefits primarily to its
full-time employees through its Flex-Ability plan. This plan allows employees
to choose the coverages they desire. The costs of these benefits are shared
between the Company and the employee. This is accomplished by giving flex
credits to participating employees to help reduce their costs.
Expenses exceeding 1 percent of total revenue which are included in other
expenses are broker-dealer commissions of $3,446,000, $3,484,000 and $3,874,000
<PAGE>
paid to employees for the years ended December 31, 1996, 1995 and 1994,
respectively, and 1996 sales promotion expense of $5,900,000.
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 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current $28,116 $23,008 $19,107
Deferred (credits) (1,079) (1,866) (1,008)
------- ------- -------
27,037 21,142 18,099
State 2,542 2,136 2,869
------- ------- -------
Income taxes $29,579 $23,278 $20,968
======= ======= =======
</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 assets and liabilities are summarized as
follows:
December 31
----------------------
In Thousands 1996 1995
-------- --------
Deferred tax assets:
Provision for loan losses over charge-offs $13,450 $11,285
Other 2,049 1,620
------- -------
Total deferred tax assets 15,499 12,905
------- -------
Deferred tax liabilities:
Net unrealized gains on available-for-
sale securities $ 786 $ 2,896
Pension costs 1,885 1,895
FAS No. 91 net deferred costs 2,755 2,264
Other 2,825 1,791
------- -------
Total deferred tax liabilities 8,251 8,846
------- -------
Net deferred tax assets $ 7,248 $ 4,059
======= =======
Income taxes varied from the amount computed at the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ----------------- -----------------
In Thousands AMOUNT % Amount % Amount %
------- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
at statutory rate $30,482 35.00% $25,310 35.00% $22,858 35.00%
Add (deduct):
State income taxes net
of federal tax benefits 1,652 1.90 1,388 1.92 1,865 2.85
Non-taxable interest
income (2,677) (3.07) (3,700) (5.12) (3,586) (5.49)
Other items, net 122 .13 280 .39 (169) (.25)
------- ----- ------- ------- ------- -------
Income taxes $29,579 33.96% $23,278 32.19% $20,968 32.11%
======= ===== ======= ======= ======= =======
</TABLE>
Income taxes (credits) applicable to securities gains (losses) for 1996, 1995
and 1994 which are included in the provision for income taxes were $1,000,
$89,000 and $(194,000), respectively.
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.
<PAGE>
The Company's maximum exposure to credit loss at December 31 was as follows:
<TABLE>
<CAPTION>
In Thousands 1996 1995
-------- --------
<S> <C> <C>
Loan commitments $560,095 $789,210
Standby letters of credit $ 41,428 $ 20,792
Commercial letters of credit $ 3,691 $ 3,696
</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 December 31, 1996, was as follows:
<TABLE>
<CAPTION>
In Thousands 1996 1995
------- --------
<S> <C> <C>
Forward contracts:
Commitments to purchase $44,373 $212,836
Commitments to sell $45,976 $217,847
When issued contracts:
Commitments to purchase $15,778 $ 10,388
Commitments to sell $17,287 $ 10,633
Interest rate agreements
(Notional amount) --- $150,000
Option contracts:
Written option contracts --- $ 2,000
Purchased option contracts --- $ 2,000
</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 - Line of Business - Services Offered
The Company is engaged in a single line of business as a bank holding company.
This encompasses several significant classes of services including traditional
banking, investment services, trust services, investment advice, in-store
banking to licensed banks, electronic payment systems and data processing
services. The various services contributed to other income as follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Banking $23,917 $19,970 $19,681
In-store banking to
licensed banks 18,590 14,424 10,487
Investment services
(broker/dealer) 10,079 9,840 10,213
Trust and investment advice 8,719 8,296 7,967
Electronic payment, data
processing and card services 4,392 --- ---
Other 5,232 1,338 1,592
------- ------- -------
$70,929 $53,868 $49,940
======= ======= =======
</TABLE>
Note S - Regulatory Matters
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital (as defined) to total assets (as defined) of 8 percent, 4
percent and 4 percent, respectively. Management believes, as of December 31,
1996, that the Company exceeds all capital adequacy requirements to which it is
subject.
<PAGE>
As of December 31, 1996, the most recent regulatory notification categorized the
Company and its banking subsidiaries as well capitalized. 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. There are no conditions or events since that notification
that management believes have changed the institution's category.
The Company and NBC's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
The Company NBC
Actual Actual
----------------------- -------------------
Amount Ratio Amount Ratio
------------ --------- --------- --------
<S> <C> <C> <C> <C>
As of December 31, 1996
(in thousands)
Total capital (to risk-
weighted assets) $342,828 12.30% $231,066 11.48%
Tier 1 capital (to risk-
weighted assets) $307,981 11.05% $206,223 10.24%
Tier 1 capital (to total
assets) $307,981 7.33% $206,223 7.15%
As of December 31, 1995
Total capital (to risk-
weighted assets) $321,153 13.52% $228,265 12.56%
Tier 1 capital (to risk-
weighted assets) $292,143 12.30% $207,203 11.41%
Tier 1 capital (to total
assets) $292,143 7.91% $207,203 8.06%
</TABLE>
Note T - National Commerce Bancorporation Financial Information
(Parent Company Only)
Balance Sheets
December 31
In Thousands 1996 1995
-------- --------
ASSETS
Cash* $ 205 $ 2,261
Investments in:
Bank subsidiaries* 273,541 267,749
Non-bank subsidiaries* 33,083 26,403
Other 7,030 1,606
-------- --------
Total assets $313,859 $298,019
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 530 $ 1,340
Stockholders' equity 313,329 296,679
-------- --------
Total liabilities and stockholders' equity $313,859 $298,019
======== ========
*Eliminated in consolidation.
<PAGE>
<TABLE>
<CAPTION>
Statements of Income
Year Ended December 31
In Thousands 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income:
Dividends from bank and thrift subsidiaries* $ 47,045 $ 26,330 $ 32,938
Dividends from non-bank subsidiaries* 5,500 2,500 3,500
Income from bank subsidiaries* 50 132 154
Other (250) --- 321
-------- -------- --------
52,345 28,962 36,913
Expenses:
Salaries and employee benefits 63 50 65
Other (567) 2,138 774
-------- -------- --------
(504) 2,188 839
Income before income taxes (credits) and
equity in undistributed earnings
of subsidiaries 52,849 26,774 36,074
Income taxes (credits) 116 (808) (142)
-------- -------- --------
52,733 27,582 36,216
Equity in undistributed net income of:
Bank and thrift subsidiaries (1,457) 15,653 6,066
Non-bank subsidiaries 6,237 5,800 2,060
-------- -------- --------
Net income $ 57,513 $ 49,035 $ 44,342
======== ======== ========
</TABLE>
*Eliminated in consolidation.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
In Thousands 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income $ 57,513 $ 49,035 $ 44,342
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiaries (4,780) (21,453) (8,126)
Decrease in other assets 1,438 522 1,914
Increase (decrease) in liabilities (810) 442 (795)
-------- -------- --------
Net cash provided by operating
activities 53,361 28,546 37,335
Investing activities:
Investment in subsidiaries (9,298) (12,000) (26,298)
Financing activities:
Cash used to repurchase/retire stock (30,581) --- ---
Proceeds from exercise of stock options 3,829 2,163 1,172
Cash dividends paid (19,367) (17,300) (15,183)
Other --- --- 75
-------- -------- --------
Net cash used in financing activities (46,119) (15,137) (13,936)
Increase (decrease) in cash (2,056) 1,409 (2,899)
Cash at beginning of year 2,261 852 3,751
-------- -------- --------
Cash at end of year $ 205 $ 2,261 $ 852
======== ======== ========
</TABLE>
Note U - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter
----------------------------------------
In Thousands, Except Per Share Data First Second Third Fourth
-------- -------- -------- -------
<S> <C> <C> <C> <C>
1996:
Interest income $ 67,250 $ 70,445 $ 72,420 $76,452
Interest expense 34,919 36,615 39,026 40,541
Net interest income 32,331 33,830 33,394 35,911
Provision for loan losses 2,842 4,453 4,149 2,690
Other income 14,931 19,118 18,654 18,223
Securities gains (losses) 25 (257) 194 41
Other expenses 24,421 27,356 25,579 27,813
Income before income taxes 20,024 20,882 22,514 23,672
Income taxes 6,748 7,119 7,789 7,923
Net income $ 13,276 $ 13,763 $ 14,725 $15,749
Net income per common share $.53 $.55 $.59 $ .63
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
</TABLE>
<PAGE>
EXHIBIT 21. Parent and Subsidiaries
National Commerce Bancorporation and Subsidiaries
- -------------------------------------------------
The following table shows the subsidiaries of NCBC, their jurisdiction of
organization, and the percentage of voting securities owned by each subsidiary's
parent as of December 31, 1996.
%
of Voting
Name Jurisdiction Securities
of of Owned by
Subsidiary Organization Parent Parent
- ------------------------------------------------------------------------
National Bank of Commerce United States NCBC 100.00%
Commerce General Corporation Tennessee NBC 100.00
NBC Capital Markets Group, Inc. Tennessee NBC 100.00
Nashville Bank of Commerce Tennessee NCBC 100.00
NBC Bank, FSB (Knoxville) Tennessee NCBC 100.00
Commerce Capital Management,
Inc. Tennessee NCBC 100.00
Monroe Properties, Inc. Tennessee NCBC 100.00
Commerce Corporate Advisors, Inc. Tennessee Nashville 100.00
National Commerce Bank Tennessee Nashville 100.00
Services, Inc.
Commerce Finance Company Tennessee NCBC 100.00
Commerce Acquisition Corp Tennessee NCBC 100.00
NBC Bank, FSB (Belzoni) Mississippi CAC 100.00
Brooks, Montague &
Associates, Inc. Tennessee NCBC 100.00
TransPlatinum Service Corp. Tennessee NCBC 100.00
Kenesaw Leasing, Inc. Tennessee Knoxville 100.00
All of the above subsidiaries are included in the consolidated financial
statements contained in the report.
<PAGE>
EXHIBIT 23. Consent of Independent Auditors
National Commerce Bancorporation and Subsidiaries
- -------------------------------------------------
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of National Commerce Bancorporation of our report dated February 14, 1997,
included in the 1996 Annual Report to Shareholders of National Commerce
Bancorporation.
We also consent to the incorporation by reference in the Registration Statements
pertaining to the National Commerce Bancorporation 1986, 1990 and 1994 Stock
Plans (Form S-8 No. 33-25917, Form S-8 No. 33-38552, Form S-8 No. 33-88440) and
pertaining to the National Bank of Commerce Taxable Income Reduction Account
Plan (Form S-8 No. 33-23100) of our report dated February 14, 1997, with respect
to the consolidated financial statements of National Commerce Bancorporation
incorporated herein by reference.
/s/ Ernst & Young LLP
---------------------
Memphis, Tennessee
March 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 164,683 144,166
<INT-BEARING-DEPOSITS> 17,789 16,660
<FED-FUNDS-SOLD> 13,219 226,929
<TRADING-ASSETS> 31,812 20,159
<INVESTMENTS-HELD-FOR-SALE> 700,775 516,623
<INVESTMENTS-CARRYING> 817,124 762,023
<INVESTMENTS-MARKET> 804,690 765,142
<LOANS> 2,347,973 1,931,213
<ALLOWANCE> 35,514 29,010
<TOTAL-ASSETS> 4,200,409 3,695,042
<DEPOSITS> 2,976,430 2,574,770
<SHORT-TERM> 499,633 431,427
<LIABILITIES-OTHER> 60,066 39,667
<LONG-TERM> 350,951 352,499
0 0
0 0
<COMMON> 313,329 296,679
<OTHER-SE> 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 4,200,409 3,695,042
<INTEREST-LOAN> 190,879 159,816
<INTEREST-INVEST> 91,562 82,921
<INTEREST-OTHER> 4,126 3,728
<INTEREST-TOTAL> 286,567 246,465
<INTEREST-DEPOSIT> 107,965 96,691
<INTEREST-EXPENSE> 151,101 126,440
<INTEREST-INCOME-NET> 135,466 120,025
<LOAN-LOSSES> 14,134 9,750
<SECURITIES-GAINS> 3 228
<EXPENSE-OTHER> 105,169 91,830
<INCOME-PRETAX> 87,092 72,313
<INCOME-PRE-EXTRAORDINARY> 87,092 72,313
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 57,513 49,035
<EPS-PRIMARY> 2.30 1.94
<EPS-DILUTED> 2.29 1.94
<YIELD-ACTUAL> 3.89 4.14
<LOANS-NON> 0 0
<LOANS-PAST> 3,482 3,252
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 1,136
<ALLOWANCE-OPEN> 29,010 24,310
<CHARGE-OFFS> 10,338 7,249
<RECOVERIES> 2,823 2,199
<ALLOWANCE-CLOSE> 35,514 29,010
<ALLOWANCE-DOMESTIC> 35,514 29,010
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
