<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 0-6094
-------
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
- ----------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation organization) Identification No.)
One Commerce Square
Memphis, Tennessee 38150
- ------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code - (901)523-3242
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $2 par value -- 99,707,902 shares as of July 30, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
--------------------
NATIONAL COMMERCE BANCORPORATION
Consolidated Balance Sheets
--------------------------------
(In Thousands)
<TABLE>
<CAPTION>
June 30 Dec. 31
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 19,140 $ 18,293
Cash and non-interest bearing deposits 205,789 206,191
Federal funds sold and securities
purchased under agreements to resell 17,088 23,009
---------- ----------
Total cash and cash equivalents 242,017 247,493
---------- ----------
Securities:
Held-to-maturity 1,131,779 1,210,071
Available-for-sale 687,151 408,083
---------- ----------
Total securities 1,818,930 1,618,154
---------- ----------
Trading account securities 67,878 98,332
Loans:
Commercial, financial and agricultural 555,411 512,534
Real estate - construction 260,483 241,334
Real estate - mortgage 922,451 781,826
Consumer 1,122,226 1,045,420
Lease financing 29,368 30,046
Unearned discounts (2,486) (2,193)
---------- ----------
Total loans 2,887,453 2,608,967
Less allowance for loan losses 45,050 43,297
---------- ----------
Net loans 2,842,403 2,565,670
---------- ----------
Premises and equipment, net 32,120 27,404
Broker/dealer customer receivables 55,615 7,695
Other assets 141,654 127,263
---------- ----------
Total assets $5,200,617 $4,692,011
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
Consolidated Balance Sheets (cont.)
- -----------------------------------
(In Thousands)
<TABLE>
<CAPTION>
June 30 Dec. 31
1998 1997
---------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing deposits $ 435,119 $ 417,748
Money market checking 317,191 286,555
Savings 102,008 83,626
Money market savings 1,031,327 943,422
Certificates of deposit less than $100,000 898,886 899,027
Certificates of deposit of $100,000 or more 631,257 620,864
---------- ----------
Total deposits 3,415,788 3,251,242
---------- ----------
Federal funds purchased and securities sold
under agreements to repurchase 477,075 423,573
Broker/dealer customer payables 0 59
Accounts payable and accrued liabilities 86,429 68,969
Federal Home Loan Bank advances 636,812 389,884
Other borrowed funds and long-term debt 156,345 156,252
---------- ----------
Total liabilities 4,772,449 4,289,979
---------- ----------
Capital trust pass-through securities 49,890 49,884
Stockholders' equity:
Common stock 99,512 97,704
Additional paid-in capital 50,753 52,524
Retained earnings 225,562 199,670
Unrealized gains (losses) on securities, net of taxes 2,451 2,250
---------- ----------
Total stockholders' equity 378,278 352,148
Total liabilities and --------- ---------
stockholders' equity $5,200,617 $4,692,011
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Income
----------------------------------
(Unaudited)
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30 ended June 30
-------------------- ------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $63,060 $55,914 $123,036 $108,929
Securities:
Taxable 27,398 25,219 52,253 48,497
Non-taxable 1,934 1,434 3,890 3,751
Trading account securities 852 519 1,579 824
Deposits at banks 248 233 462 456
Other 1,095 200 1,594 399
------- ------- -------- --------
Total interest income 94,587 83,519 182,814 162,856
------- ------- -------- --------
Interest expense:
Deposits:
Money market checking 664 883 1,503 1,826
Savings 387 408 865 790
Money market savings 10,430 10,304 20,950 20,653
Certificates of deposit less than $100,000 13,058 10,383 25,903 20,333
Certificates of deposit $100,000 or more 8,189 7,757 16,320 15,578
Federal Home Loan Bank advances 5,575 6,169 9,628 11,251
Long-term debt 2,319 2,336 4,631 4,585
Federal funds purchased and securities
sold under agreements to repurchase 6,312 5,417 11,090 10,074
------- ------- -------- --------
Total interest expense 46,934 43,657 90,890 85,090
------- ------- -------- --------
Net interest income 47,653 39,862 91,924 77,766
Provision for loan losses 2,630 3,551 3,497 7,005
------- ------- -------- --------
Net interest income after
provision for loan losses 45,023 36,311 88,427 70,761
------- ------- -------- --------
Other income:
Trust service income 2,417 2,120 5,215 4,354
Service charges on deposits 4,611 3,947 9,104 7,798
Other services charges and fees 4,042 3,711 7,670 6,855
Broker/dealer revenue 4,972 2,226 9,670 4,732
Securities gains (losses) 43 30 45 29
Other 4,862 6,816 10,249 12,677
------- ------- -------- --------
Total other income 20,947 18,850 41,953 36,445
------- ------- -------- --------
</TABLE>
3
<PAGE>
Consolidated Statements of Income (cont.)
- ---------------------------------
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30 ended June 30
-------------------- ------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Other expenses:
Salaries and employee benefits 16,331 14,117 32,773 27,794
Occupancy expense 2,921 2,574 5,724 5,146
Furniture and equipment expenses 1,300 1,174 2,680 2,298
Other 14,296 12,602 27,812 24,230
------- ------- ------- -------
Total other expenses 34,848 30,467 68,989 59,468
------- ------- ------- -------
Income before income taxes 31,122 24,694 61,391 47,738
Income taxes 10,643 8,585 20,897 16,514
------- ------- ------- -------
Net income $20,479 $16,109 $40,494 $31,224
======= ======= ======= =======
Basic net income per share of common stock* $ .20 $ .16 $ .40 $ .32
Diluted net income per share of common stock* $ .20 $ .16 $ .40 $ .31
Dividends per share of common stock* $ .08 $ .06 $ .15 $ .11
</TABLE>
* Adjusted to reflect 2-for-1 stock split declared April 22, 1998 effective July
1, 1998.
See notes to consolidated financial statements.
4
<PAGE>
NATIONAL COMMERCE BANCORPORATION
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
---------- ----------
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 40,494 $ 31,224
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 3,497 7,005
Provision for depreciation and amortization 2,593 2,465
Amortization of security premiums and accretion
of discounts, net (1,498) 26
Deferred income taxes (credit) 1,223 (19)
(Increase) decrease in trading account securities 30,454 (15,400)
Realized securities (gains) losses (45) (29)
(Increase) decrease in broker/dealer customer receivables (47,920) (9,229)
(Increase) decrease in interest receivable (4,956) (839)
(Increase) decrease in other assets 6,187 (24,116)
Increase (decrease) in broker/dealer customer payables (59) (1,002)
Increase (decrease) in interest payable 1,324 (171)
Increase (decrease) in accounts payable and accrued expenses 20,054 19,182
--------- ---------
Net cash provided by (used in) operating activities 51,348 22,250
--------- ---------
Investing activities:
Proceeds from the maturities of securities 451,705 23,071
Proceeds from sales of securities 1,155 78,214
Purchases of securities (651,771) (200,145)
Net increase (decrease) in loans (280,230) (197,088)
Purchase of premises and equipment (7,309) (4,075)
--------- ---------
Net cash provided by (used in) investing activities (486,450) (300,653)
--------- ---------
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 154,294 (11,517)
Net increase (decrease) in certificates of deposit 10,252 32,632
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 53,502 206,006
Increase (decrease) in long-term debt 99 49,970
Increase (decrease) in Federal Home Loan Bank advances 246,928 8,615
Proceeds from exercise of stock options 2,660 2,212
Issuance of common stock 0 17
Repurchases of common stock (23,723) (4,616)
Cash dividends paid (14,386) (10,815)
--------- ---------
Net cash provided by (used in) financing activities 429,626 272,504
--------- ---------
Decrease in cash and cash equivalents (5,476) (5,899)
Cash and cash equivalents at beginning of period 247,493 195,902
--------- ---------
Cash and cash equivalents at end of period $ 242,017 $ 190,003
========= =========
Interest paid $ 92,214 $ 86,162
Income taxes paid $ 18,171 $ 16,211
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NATIONAL COMMERCE BANCORPORATION
--------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
June 30, 1998
-------------
(Unaudited)
---------
Note A - Basis of Presentation
- ------------------------------
The consolidated balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date. The accompanying unaudited
interim consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals) which are, in the opinion
of management, necessary for a fair statement of the results for the interim
periods presented. The statements should be read in conjunction with the
summary of accounting policies and notes to consolidated financial
statements included in the Registrant's annual report for the year ended
December 31, 1997. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with the
rules of the Securities and Exchange Commission.
Note B - Securities Portfolio
- -----------------------------
In accordance with FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities", as of June 30, 1998 the securities in the "Available
for Sale" category included $4.0 million in unrealized gains. Accordingly,
total securities and total stockholders' equity were increased by $4.0
million and $2.5 million (net of taxes), respectively, at June 30, 1998, to
reflect the adjustment of the securities portfolio to market. The
calculation of book value per share reflects these mark-to-market unrealized
losses, whereas the calculation of ROA and ROE do not, because the
unrealized gains are not included in net income. The fair value of the
"Held to Maturity" category was $1.1 billion at June 30, 1998.
Note C - Floating Rate Capital Trust Pass-through Securities
- ------------------------------------------------------------
In March, 1997, the Company issued $49,875,000 in Floating Rate Capital
Trust Pass-through Securities ("Capital Securities"). The proceeds of this
issue are being used by the Company for general corporate purposes and may
be counted as Tier I capital.
Note D - Earnings Per Share
- ---------------------------
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
In Thousands, Except Per Share Data 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 20,479 $ 16,109 $ 40,494 $ 31,224
======== ======== ======== ========
Denominator:
Denominator for basic earnings
per share - weighted average shares 100,039 98,363 99,998 98,187
Dilutive potential common shares -
Employee stock options 2,579 3,076 2,530 3,070
-------- -------- -------- --------
Denominator for diluted earnings
per share - adjusted weighted average
and assumed conversions 102,618 101,439 102,528 101,257
======== ======== ======== ========
Basic earnings per share* $ .20 $ .16 $ .40 $ .32
Diluted earnings per share* $ .20 $ .16 $ .40 $ .31
</TABLE>
* All share and per share amounts have been retroactively restated for stock
dividends and splits declared through July 1, 1998.
6
<PAGE>
Note E - Comprehensive Income
- -----------------------------
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company's net income or
stockholders' equity. Statement 130 requires unrealized gains or losses on
the Company's available-for-sale securities, which prior to adoption were
reported separately in stockholders' equity to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the second quarter of 1998 and 1997, total comprehensive income
amounted to $20,530 and $19,018, respectively. The year-to date total
comprehensive income for 1998 and 1997 was $40,695 and $30,884,
respectively.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
The purpose of this discussion is to focus on important factors affecting the
Company's financial condition and results of operations. Reference should be
made to the consolidated financial statements (including the notes thereto) set
forth in this report for an understanding of the following discussion and
analysis. In this discussion, net interest income and net interest margin are
presented on a fully taxable equivalent basis. All per share data is adjusted
to reflect all stock dividends and stock splits declared through June 30, 1998.
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Prospective investors are cautioned that any such
forward-looking statements are not guarantees for future performance and involve
known and unknown risks and uncertainties, and that actual results may differ
materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results,
performance or achievements of the Company to differ materially from those in
forward-looking statements include significant fluctuations in interest rates,
inflation, economic recession, general economic and business conditions,
significant changes in the federal and state legal and regulatory environment,
significant underperformance in the Company's portfolio of outstanding loans,
and competition in the Company's markets. The Company undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future results over time.
Financial Condition
- -------------------
Following is a comparison of the June 30, 1998, and December 31, 1997,
consolidated balance sheets. Total deposits increased by $165 million or 5.1%,
principally as a result of an $88 million or 9.3% increase in money market
savings accounts, a $31 million or 10.7% increase in money market checking
accounts, a $10 million or 1.7% increase in certificates of deposit greater than
$100,000, and an $18 million or 22.0% increase in savings accounts. These
deposit increases are the result of new locations opened during 1998 and new
deposit gathering campaigns initiated in 1998.
Federal funds purchased and securities sold under agreements to repurchase
increased $54 million or 12.6% from year-end 1997 levels. This category of
liabilities fluctuates with the availability of overnight funds purchased from
downstream correspondent banks.
Federal Home Loan Bank advances increased $247 million or 63.3% from
December 31, 1997. This increase is principally the result of asset/liability
management decisions related to the current interest rate environment.
Total gross loans increased by $278 million or 10.7% compared to December
31, 1997 levels. Commercial loans increased by $43 million or 8.4% and real
estate construction loans increased by $19 million or 7.9%, reflecting current
demand. Real estate mortgage loans increased by $141 million or 18.0% and
consumer loans increased $77 million or 7.3%, reflecting an increased emphasis
on promoting home equity loans and other consumer products.
Securities increased by $201 million or 12.4% from year-end 1997.
Securities held to maturity decreased by $78 million or 6.5, and securities
available for sale increased by $279 million or 68.4%, reflecting current
portfolio investment strategies, and current market conditions.
Federal funds sold and securities purchased under agreements to resell
decreased by $6 million or 25.7% from December 31, 1997 levels, reflecting
excess funds that otherwise were not employed in loans or securities at June 30,
1998.
8
<PAGE>
Trading account securities decreased by $30 million or 31.0% from year-end
1997 levels. This decrease reflects the trading activity generated by NBC
Capital Markets, Group, Inc., the Company's broker/dealer subsidiary, which
fluctuates from time to time.
Broker/dealer customer receivables increased $48 million or 622.7% and
payables decreased $59 thousand or 100.0% reflecting levels of activity.
Results of Operations
- ---------------------
Three Months Ended June 30, 1998, Compared to Three Months Ended June 30, 1997
- ------------------------------------------------------------------------------
Net income was $20,479,000 for the second quarter of 1998, a 27.1% increase
over the $16,109,000 reported for the same period a year earlier. Diluted
earnings per share were $.20, compared to $.16 per share in 1997, up 25.0%.
Basic earnings per shares were $.20, compared to $.16 per share in 1997, up
25.0%.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$7,834,000 or 19.1% for the second quarter of 1998, compared to second quarter
1997. This increase reflects an $11,111,000 or 13.1% increase in total interest
income that more than offsets a $3,277,000 or 7.5% increase in interest expense.
Interest income increased in 1998 due to an increase of $495,805,000 or 11.9% in
total average earning assets, and an increase in the yield on average earning
assets from 8.18% in the second quarter of 1997 to 8.27% in the second quarter
of 1998. The increased volume of earning assets positively impacted interest
income by approximately $10,000,000, while the increased yield positively
impacted interest income by approximately $1,000,000. Interest expense
increased in the second quarter of 1998, reflecting an increase in average
interest-bearing liabilities of $439,703,000 or 12.1%, partially offset by a
decrease in the cost of interest-bearing liabilities from 4.82% to 4.62%. The
decrease in the rate paid on interest-bearing liabilities positively affected
interest expense by approximately $2,000,000 and the increase in average
outstandings negatively affected interest expense by approximately $5,300,000.
The net interest margin (taxable equivalent net interest income as a percentage
of average earning assets) was 4.22% in second quarter 1998, compared to 3.96%
in second quarter of 1997.
The provision for loan losses in the second quarter of 1998 was $2,630,000,
versus $3,551,000 for the second quarter of 1997. Net charge-offs were
$2,223,000, or .32% of average net loans, compared to $2,480,000 or .40% of
average net loans in 1997. The allowance for loan losses totaled $45,050,000 at
June 30, 1998, representing 1.56% of quarter-end net loans, compared to
$38,110,000 or 1.50% of quarter-end net loans at June 30, 1997.
Following is a comparison of non-earning assets and loans past due 90 days
or more for the quarters ended June 30, 1998, March 31, 1998 and June 30, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
6-30-98 3-31-98 6-30-97
-------- -------- --------
<S> <C> <C> <C>
Non-accrual loans $ 543 $ 0 $ 0
Renegotiated loans 0 0 0
Other real estate 263 217 0
-------- -------- ------
Total non-earning assets $ 806 $ 217 $ 0
======== ======== ======
Loans past due 90 days or more $ 3,050 $ 4,602 $4,196
Percentage of total loans .11% .17% .17%
</TABLE>
Non-interest income, excluding securities transactions, totaled $20,904,000
for the quarter, an increase of $2,084,000, or 11.1%, from last year's second
9
<PAGE>
quarter. Securities gains totaled $43,000 in second quarter, 1998, compared to
$30,000 in 1997.
Non-interest expenses (excluding the provision for loan losses) increased by
$4,381,000 or 14.4% in second quarter, 1998, primarily reflecting increased
employment and occupancy expenses relating to new products and locations and
increased promotional expenses of new loan and deposit gathering campaigns.
The Company's return on average assets and return on average equity were
1.64% and 21.54% respectively, for second quarter of 1998. These compared with
1997 second quarter returns of 1.46% and 19.38%, respectively.
Six Months Ended June 30, 1998, Compared to Six Months Ended June 30, 1997
- --------------------------------------------------------------------------
For the six months ended June 30, 199, net income totaled $40,494,000, a
29.7% increase over the $31,224,000 for the first six months of 1997. Diluted
earnings per share were $.40, compared to $.31 for the same period in 1997, a
29.0% increase. Basic earnings per share were $.40 compared to $.32 in 1997, a
25.0% increase. For the six-month period, return on average assets and return
on average stockholders' equity were $1.67% and 21.65% respectively. These
compared with 1997 six month returns of 1.45% and 19.21%.
Net interest income increased by $14,231,000 or 17.8% for the first six
months of 1998. This increase reflects a $20,031,000 or 12.1% increase in total
income that more than offsets a $5,800,000 or 6.8% increase in interest
expense. Interest income increased in 1998 due to an increase of $447,190,000
or 11.0% in total average earning assets and an increase in the yield on average
earning assets from 8.19% in 1997 to 8.27% in 1998. The increased volume of
earning assets positively impacted interest income by approximately $18,000,000,
and the increased yield positively impacted interest income by approximately
$2,000,000. Interest expense increased in the first six months of 1998,
reflecting an increase in average interest-bearing liabilities of $356,986,000
or 10.0%, with the cost of interest-bearing liabilities decreasing from 4.80% to
4.66% in 1998. The increase in average outstandings negatively impacted
interest expense by approximately $8,500,000 while the decreased rate positively
impacted interest expense by approximately $2,750,000. The net interest margin
was 4.21% in the first six months of 1998, compared to 3.97% in the first six
months of 1997.
The provision for loan losses for the first six months of 1998 was
$3,497,000, versus $7,005,000 for the first six months of 1997. Net charge-offs
were $2,985,000, or .22% of average net loans compared to $5,034,000, or .41% of
average net loans in 1997.
Non-interest income, excluding securities transactions, totaled $41,908,000
for the first six months of 1998, compared to a total of $36,416,000 for the
first six months of 1997, an increase of 15.1%. Securities gains totaled
$45,000 in 1998, compared to $29,000 in 1997.
Non-interest expenses (excluding the provision for loan losses) increased by
$9,521,000 or 16.0% for the first six months of 1998. Increased employment and
occupancy expenses relating to new products and locations, and increased
promotional expenses of new loan and deposit gathering campaigns were the
primary reasons for the increase.
Liquidity and Capital Resources
- -------------------------------
Interest-bearing bank balances, federal funds sold, trading account
securities, and securities available for sale are the principal sources of
short-term asset liquidity. Other sources of short-term liquidity include
federal funds purchased and repurchase agreements, credit lines with other
banks, and borrowings from the Federal Reserve Bank and the Federal Home Loan
Bank. Maturing loans and securities are the principal sources of long-term
asset liquidity.
10
<PAGE>
Total realized stockholders' equity increased by $25,929,000 from December
31, 1997. Retained earnings accounted for the majority of the increase.
Through June 30, 1998, 6.74 million shares had been repurchased and cancelled
under a stock repurchase program initiated in January, 1996, and extended in
December, 1997.
The following capital ratios do not include the effect of FAS No. 115 on
Tier I capital, total capital, or total risk-weighted assets.
As indicated in the following table, the Company and its banking
subsidiaries exceeded all minimum required capital ratios for well-capitalized
institutions at June 30, 1998.
<TABLE>
<CAPTION>
6-30-98 3-31-98 6-30-97
------- ------- -------
<S> <C> <C> <C>
Total capital to risk-weighted assets 13.47% 14.07% 13.91%
Tier I capital to risk-weighted assets 12.22% 12.82% 12.65%
Tier I capital to assets (leverage ratio) 8.32% 8.89% 8.58%
</TABLE>
Year 2000 Preparations
- ----------------------
Management has developed a plan to modify the Company's information
technology and equipment to recognize the year 2000 and has begun converting
critical data processing systems. The Company has also initiated discussions
with its significant vendors to ensure that those parties have appropriate plans
to remediate year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable and developing contingency plans should
those organizations fail to remediate their systems properly. This project is
not expected to have a significant effect of the Company's business operations.
Currently, management expects the project to be substantially complete by
early 1999. Incremental costs, which exclude the costs to upgrade and replace
systems in the ordinary course of business, are not expected to be material to
the Company's consolidated results of operations or financial position.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
No significant changes since December 31, 1997. See Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations.
11
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's Annual Meeting of Shareholders held April 22, 1998, the
following proposals were approved by the shareholders of the Company:
The following individuals were elected to serve as directors of the Company
for terms that expire at the Annual Meeting of Shareholders to be held in 2001:
R. Grattan Brown, Jr.; Bruce E. Campbell, Jr.; Thomas M. Garrott; and Harry J.
Phillips, Sr. (35,958,194 shares in favor of the slate of directors; 49,413
withheld and 8,298 exceptions),
The appointment of Ernst & Young LLP as auditors of the Company for 1998 was
ratified. (35,912,449 shares in favor; 61,075 against; and 42,381 abstained).
The Company's charter was amended to authorize an increase in the number of
authorized shares of common stock, par value $2.00 per share, to 175,000,000.
(15,763,895 shares in favor; 39,865 against; and 15,544 abstained).
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a. Exhibits
3.l. Charter of National Commerce Bancorporation as amended and
restated.
27. Financial Data Schedule
b. Reports on Form 8-K
The Registrant did not file any reports on Form 8-K
during the quarter ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
(Registrant)
By /s/ Lewis E. Holland
--------------------------------------
Lewis E. Holland
Vice Chairman, Treasurer and
Chief Financial Officer
(Authorized Officer)
(Principal Financial Officer)
Date August 7, 1998
--------------------
12
<PAGE>
EXHIBIT 3.1. Charter of National Commerce Bancorporation as amended and
restated
- -------------------------------------------------------------------------
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,
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
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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
particular, 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 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
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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
175,000,000 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
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
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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 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.
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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 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.
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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 provision 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 consideration 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 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.
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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.
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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
unlawful distributions under Section 48-18-304 of the Tennessee
Business Corporation Act.
NATIONAL COMMERCE BANCORPORATION
By:
---------------------------------
- ---------------------------------- Gus B. Denton, Secretary
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 205,789 147,431
<INT-BEARING-DEPOSITS> 19,140 17,933
<FED-FUNDS-SOLD> 17,088 24,639
<TRADING-ASSETS> 67,878 34,059
<INVESTMENTS-HELD-FOR-SALE> 687,151 733,615
<INVESTMENTS-CARRYING> 1,131,779 882,584
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<LOANS> 2,887,453 2,540,652
<ALLOWANCE> 45,050 38,110
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<INTEREST-TOTAL> 182,814 162,856
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