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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
December 31, 1998 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)523-3434
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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 5, 1999, was approximately $1,788,000,000.
The number of shares of common stock outstanding, as of March 5, 1999, was
101,272,004.
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 Proxy Statement relating to the 1999 Annual Meeting of
Shareholders of National Commerce Bancorporation are incorporated by reference
into Part III. Portions of the National Commerce Bancorporation Annual Report
to shareholders for the fiscal year ended December 31, 1998 are incorporated by
reference into Parts I and II.
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PART I.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
All statements in this Annual Report on Form 10-K that are not historical facts
or that express expectations and projections with respect to future matters are
"forward-looking statements" for the purpose of the safe harbor provided by the
Act. The Company cautions readers that such "forward-looking statements,"
including, without limitation, those relating to future business initiatives and
prospects, revenues, working capital, liquidity, capital needs, interest costs
and income, and "Year 2000" remediation efforts, wherever they occur in this
document or in other statements attributable to the Company, are necessarily
estimates reflecting the best judgment of the Company's senior management. Such
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the "forward-looking
statements." Such "forward-looking statements" should, therefore be considered
in light of various important factors, including those set forth in this
document. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. Other factors set
forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission should also be considered.
The Company undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
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)
TransPlatinum Service Corp., Nashville, Tennessee ("TransPlatinum") (7) U.S.I.
Alliance Corp. ("USI"), Memphis, Tennessee and (8) National Commerce Capital
Trust I ("Trust I"), Memphis, Tennessee. NCBC provides NBC, Nashville,
Knoxville and Belzoni ("the Banks"), Commerce Capital, TransPlatinum, USI and
Trust I 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.
Effective March 1, 1999, the Nashville Bank was merged into NBC and is no
longer a separate financial institution but is now operated as branches of NBC.
National Commerce Bancorporation operates several major lines of business.
The commercial banking segment includes lending and related financial services
to large- and medium-sized corporations. Included among these are several
specialty services such as real estate finance, asset based lending and
residential construction.
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The retail banking segment includes sale and distribution of financial
products and services to individuals. These include loan products such as
residential mortgages, home equity lending, automobile and other personal
financial needs. Retail banking also offers various deposit products that are
designed for customers' saving and transaction needs.
The treasury segment in comprised of balance sheet management activities
including oversight of the investment portfolio, non-deposit based funding and
interest rate risk management. The other financial services segment includes
trust, asset management, insurance and brokerage activities. Other financial
services also includes income from transaction processing, in-store
consulting/licensing and specialty leasing. See Note Q of the Notes to
Consolidated Financial Statements in the 1998 Annual Report incorporated herein
by reference.
NBC furnishes a full range of banking and trust services. At December 31,
1998 NBC had 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, one
branch facility in Somerville, Tennessee, two SUPER MONEY MARKET facilities and
two branches in Collierville, Tennessee, one SUPER MONEY MARKET facility and
three branches in West Memphis, Arkansas, and one branch in Marion, Arkansas.
NBC has four active, wholly owned, non-banking subsidiaries, Commerce General
Corporation ("Commerce General"), Commerce Finance Company ("Commerce Finance"),
NBC Insurance Services, Inc. ("NBC Insurance") and National Commerce Bank
Services, Inc. ("NCBS") and owns 80% of NBC Capital Markets Group, Inc.
("Capital Markets"). Commerce General provides a variety of data processing
services to the Banks and other commercial enterprises. Commerce Finance
emphasizes second- and third-mortgage loans primarily for resale. 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. NBC Insurance provides life, property and casualty
insurance and annuities through NBC's in-store retail banking system. NCBS
provides supermarket banking services to other financial institutions.
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. At December 31, 1998 Nashville had 23
SUPER MONEY MARKET branch locations and three traditional branches. The
Nashville Bank also operated 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. At December 31, 1998 the
Knoxville Bank had 13 SUPER MONEY MARKET branch locations and one traditional
branch location in the Knoxville area, 22 branch locations in the Raleigh-
Durham, Greensboro, Greenville, North Carolina, one branch location in Olive
Branch, Mississippi, one branch in Southaven, Mississippi, and one branch in
Paris, Tennessee. The Knoxville Bank had one branch each in the following
Georgia locations: Adairsville, Buford, Calhoun, Canton, Cartersville, Cumming,
Dalton, Ft. Oglethorpe, Gainesville, Moultrie, and Rome. The Knoxville Bank
also operated one stand-alone ATM in the Knoxville area. The Knoxville Bank
also offers loans 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.
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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 early 1998, the
Belzoni, Mississippi branch was sold and at December 31, 1998 Belzoni had nine
SUPER MONEY MARKET branches in the Roanoke, Virginia area.
NCBC, through NCBS, has executed SUPER MONEY MARKET sublicense and
consulting agreements with other financial institutions. Currently, agreements
have been executed covering locations in 50 states and foreign countries,
including Peru, Canada, Australia, Chile, Colombia, Guam and Portugal. As of
year end, NCBS has assisted various banks with over 1,000 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 is a registered investment advisor with the Securities and
Exchange Commission. Another investment advisory subsidiary, Brooks, Montague
and Associates, Inc. was sold in June 1998.
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. On February 29, 1996, NCBC acquired the
remaining 70% of TransPlatinum. TransPlatinum is located in Nashville,
Tennessee.
U.S.I. Alliance Corp. was organized in November 1995, and commenced
business in February 1996. USI primarily leases personal lockboxes in long-term
care facilities.
National Commerce Capital Trust I was organized in March 1997 as a special
purpose company to offer floating rate capital trust pass-through securities.
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, 1998, NBC had
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, one branch facility
in Somerville, Tennessee, two SUPER MONEY MARKET facilities and two branches in
Collierville, Tennessee, one SUPER MONEY MARKET facility and three branches inn
West Memphis, Arkansas, and one branch in Marion, Arkansas. At December 31,
1998, NBC had $2,607,000,000 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
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complete banking facilities and services to the Mid-South area through various
divisions and departments, described below. The retail banking activity is
carried on through the Branch Banking Division, the Money Market Division, the
Executive Banking Division, and the Consumer Services Division. NBC's Commercial
Banking Group is composed of six divisions: the Metropolitan Lending Division,
the Leasing Division, the Asset Based Lending Division, the Real Estate Lending
Division, the Correspondent Banking Division and the Mortgage Lending Division
("NBC Mortgage"). Trust services are provided by the Trust Division. Staff
support for NBC is provided by its Human Resource, 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 and revolving lines of credit. Customers are provided with current
information regarding these services through NBC's marketing program. NBC has
installed 53 ATMs (24-hour tellers), including ATMs located at Plough, Inc.,
Graceland, Methodist Hospital, Memphis International Airport, University of
Memphis campus, Southern College of Optometry, Sitel Corporation and Rhodes
College campus. At year end, consumer loans and leasing activity accounted for
approximately 31% 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, 1998, NBC had consumer lines of credit totaling $69,447,000.
NBC sold substantially all of its credit card portfolio in fourth quarter 1997
and now offers various credit card plans through MBNA Corp.
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,
1998, accounted for approximately 29% of the loans made by NBC. Real estate
construction and long-term mortgage loans (including first mortgage refinance
loans) accounted for approximately 40% of NBC's outstanding loans at December
31, 1998.
Correspondent Banking: NBC has correspondent relationships with
approximately 200 banks located in Tennessee, Arkansas, Missouri, Florida,
Mississippi, Kentucky, and Alabama to which it provides a range of financial
services as well as advice in various fields of banking policy and operations.
Aggregate balances of correspondent banks at NBC averaged approximately
$55,000,000 in 1998.
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, 1998, the Trust Division
administered assets valued at approximately $3,058,000,000.
International Services: NBC has established 6 accounts with foreign banks,
primarily in Europe, to handle international trade relationships. Two 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.
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Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce
General processes financial transactions for hospitals. During the year ended
December 31, 1998, approximately 82% of the total revenues of Commerce General
were derived from services provided to NBC and 18% 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 Capital Markets. At December 31, 1998,
Capital Market's capital totaled $12,525,000. 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. 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. National Commerce Bank Services, Inc. provides
supermarket banking services to other financial institutions.
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, 1998, NBC had
$3,925,713,000 in assets. According to December 31, 1998 call reports, one of
the other banks in metropolitan Memphis is 4.3 times larger and another is
approximately 6.3 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, 1998, NBC and its subsidiaries employed
approximately 303 officers, 639 other full-time employees, 116 part-time
employees and 45 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. 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 $10,000 by making contributions to this plan. The
Company may also make contributions to this plan for the benefit of
participating employees. The Company had an Employee Stock Ownership Plan
("ESOP") which has been merged with the TIRA into the NBC Employee Stock
Ownership Plan With 401K Provisions.
NASHVILLE BANK OF COMMERCE:
Nashville Bank of Commerce was organized to compete in retail banking in
the Nashville trade area. At December 31, 1998 the Nashville Bank operated
three traditional branches and 23 SUPER MONEY MARKET facilities located within
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Kroger stores and three stand-alone ATMs in the Nashville area. At December 31,
1998, the Nashville Bank employed 45 officers, 93 other full-time employees, 28
part-time employees and 18 peak-time employees to provide banking services
during the hours when most grocery shopping occurs. Employees of the Nashville
Bank are provided with the same benefits that all Company employees have
available to them. At December 31, 1998, the Nashville Bank had total
consolidated assets of $607,066,000. 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.
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. At December 31, 1998 the Knoxville Bank had 13 SUPER MONEY MARKET
branch locations and one traditional branch location in the Knoxville area, 22
branch locations in the Raleigh-Durham, Greensboro, and Greenville, North
Carolina areas, one branch location in Olive Branch, Mississippi, one branch in
Southaven, Mississippi, and one branch in Paris, Tennessee. The Knoxville Bank
has one branch each in the following Georgia locations: Adairsville, Buford,
Calhoun, Canton, Cartersville, Cumming, Dalton, Ft. Oglethorpe, Gainesville,
Moultrie, and Rome. Like Nashville, the Knoxville Bank employees are provided
with the same benefits that all Company employees have available to them. At
December 31, 1998, the Knoxville Bank and its subsidiaries employed 79 officers,
169 other full-time employees, 34 part-time employees and 12 peak-time
employees. At year-end 1998, the Knoxville Bank had total assets of
$1,095,196,000. 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, 1998 Kenesaw's capital totaled
$2,139,000 and J & S's capital was $1,667,000.
NBC BANK, FSB (BELZONI):
NBC Bank, FSB was acquired to expand its retail banking activities through
supermarket branches in other states. At December 31, 1998 nine SUPER MONEY
MARKET branches were located in Kroger supermarkets in Virginia. At December
31, 1998, Belzoni employed 19 officers, 34 other full-time employees, and one
part-time employee. The same Company benefits are provided to these employees.
At year-end 1998, Belzoni had total assets of $309,209,000. 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 $794,000,000. At December 31, 1998,
Commerce Capital had seven full-time employees. Commerce Capital's employees
are covered under the same Company benefits. Commerce Capital competes with a
number of other investment counselors, insurance companies, banks, and other
money managers, many of which are substantially larger.
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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,
Tennessee. On February 29, 1996, NCBC acquired the remaining 70% of
TransPlatinum. As of December 31, 1998, TransPlatinum had 7 officers, 59 full-
time employees, and 6 part-time employees. TransPlatinum competes with 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, 1998, USI had 2 officers and 1 other full-time
employee.
NATIONAL COMMERCE CAPITAL TRUST I:
National Commerce Capital Trust I was organized in March 1997 as a special
purpose company to offer floating rate capital trust pass-through securities.
At December 31, 1998, Trust I had $49,896,000 in outstanding securities issued.
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. Effective June 1, 1997, banks also
became eligible to branch across state lines by acquisition, merger or de novo
(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.
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
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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 N of the Notes to Consolidated Financial
Statements in the 1998 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 resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized", "adequately capitalized" or "significantly
undercapitalized", as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
The Community Reinvestment Act ("CRA") requires banks to help meet the
credit needs of the community. Regulatory authorities are required to consider
the CRA performance of a bank or bank holding company when reviewing regulatory
applications.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and criminal
enforcement provisions. FIRREA allows the acquisition of healthy and failed
savings and loan associations by bank holding companies, and it imposes no
interstate barriers on such acquisitions by bank holding companies. With
certain qualifications, FIRREA also allows bank holding companies to merge
acquired savings and loan associations into their existing commercial bank
subsidiaries. FIRREA also provides that a
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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. is registered with the Securities and Exchange
Commission and is an investment adviser pursuant to the Investment Advisers Act
of 1940, as amended. All regulatory agencies require periodic audits and
regularly scheduled reports of financial information.
The federal Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") imposes a liability scheme for the remediation of property where
hazardous substances have been released. The liability extends to owners and
operators of such properties which could include banks. There is proposed or
pending federal legislation that would consolidate some of the federal agencies
that regulate financial institutions.
-10-
<PAGE>
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 each of the three years in the period ended December 31, 1996 through 1998.
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>
1998 1997 1996
---------------------------- ---------------------------- ------------------------------
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) 2,883,277 261,492 9.07% 2,513,327 229,866 9.15% 2,130,810 191,860 9.00%
Taxable securities including
trading account 1,684,740 112,223 6.66 1,461,883 98,308 6.72 1,296,692 85,597 6.60
Non-taxable investment
securities(2) 146,053 12,212 8.36 138,669 11,456 8.26 143,706 11,881 8.27
Federal funds sold and
securities purchased
under agreements to resell
and other 34,938 2,885 8.26 16,500 1,049 6.36 23,388 1,425 6.09
Time deposits in other banks 19,083 1,012 5.30 18,211 974 5.35 16,984 924 5.44
--------- ------- ---- --------- -------- ---- --------- -------- ------
Total interest-earning assets 4,768,091 389,824 8.18 4,148,590 341,653 8.24 3,611,580 291,687 8.08
------- -------- --------
Non-interest earning assets:
Cash and due from banks 170,253 137,251 119,604
Premises & equipment, net 32,970 24,306 19,160
Other assets 188,987 132,827 94,020
Allowance for loan losses (46,175) (38,122) (32,250)
--------- --------- ---------
TOTAL ASSETS 5,114,126 4,404,852 3,812,114
========= ========= =========
</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 31 of the Annual Report to Shareholders for the
corresponding unadjusted amounts as presented in the financial statements.
-11-
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ------------------------------
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 322,117 3,373 1.05% 261,931 3,239 1.24% 256,561 3,963 1.54%
Savings deposits 1,162,749 45,815 3.94 1,043,212 42,672 4.09 902,148 38,301 4.25
Time deposits 1,561,417 84,998 5.44 1,321,247 73,248 5.54 1,187,861 65,701 5.53
Federal funds purchased and
securities sold under
agreements to repurchase 470,349 22,744 4.84 445,863 22,665 5.08 336,727 16,546 4.91
Federal Home Loan Bank advances 552,176 27,904 5.05 405,308 23,032 5.68 417,316 23,025 5.52
Long-term debt 103,103 6,135 5.95 156,152 9,316 5.97 60,284 3,565 5.91
--------- ------- --------- -------- ---- --------- -------- ------
Total interest bearing
liabilities 4,171,911 190,969 4.58 3,633,713 174,172 4.79 3,160,897 151,101 4.78
--------- ------- ---- --------- -------- --------- --------
Non-interest bearing liabilities:
Domestic demand deposits 413,724 328,423 305,989
Other 94,258 71,109 49,402
Capital Trust Preferred Securities 49,891 38,079 -
Stockholders' equity 384,342 333,528 295,826
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 5,114,126 4,404,852 3,812,114
========= ========= =========
Net interest earnings 198,855 167,481 140,586
========= ========= =========
Net yield on interest-earning assets 4.17% 4.04% 3.89%
==== ==== ====
</TABLE>
-12-
<PAGE>
INTEREST RATE SENSITIVITY BY REPRICING DATE
<TABLE>
<CAPTION>
After After After
3 Mos. 6 Mos. 1 Yr.
Within But But But Non
December 31, 1998 0-30 31-90 Within Within 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 929,883 84,845 97,380 280,932 1,588,576 216,057 - 3,197,673
Securities 644,337 218,149 266,734 404,524 320,149 244,477 - 2,098,370
Other earning assets 149,712 - - - - - - 149,712
Other assets - - - - - - 365,299 365,299
--------- ------- ------- ------- --------- -------- -------- ---------
Total funding uses 1,723,932 302,994 364,114 685,456 1,908,725 460,534 365,299 5,811,054
--------- ------- ------- ------- --------- -------- -------- ---------
Funding sources:
Interest-bearing deposits 786,808 234,066 410,119 447,249 1,034,174 552,961 - 3,465,377
Other borrowings 591,837 62,702 3,534 7,223 539,411 175,000 - 1,379,707
Demand deposits - - - - - - 481,898 481,898
Other liabilities - - - - - - 75,523 75,523
Interest rate swaps (110,000) - - - 110,000 - - -
Stockholders' equity - - - - - - 408,549 408,549
--------- ------- ------- ------- --------- -------- -------- ---------
Total funding sources 1,268,645 296,768 413,653 454,472 1,683,585 727,961 965,970 5,811,054
--------- ------- ------- ------- --------- -------- -------- ---------
Interest-rate sensitivity GAP 455,287 6,226 (49,539) 230,984 225,140 (267,427) (600,671)
--------- ------- ------- ------- --------- -------- --------
Cumulative interest-rate
sensitivity GAP 455,287 461,513 411,974 642,958 868,098 600,671
GAP to total assets 7.83% 0.11% (.85%) 3.97% 3.87% (4.60%) (10.34%)
Cumulative GAP to total
assets 7.83% 7.94% 7.09% 11.06% 14.94% 10.34%
</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. 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 1998,
both six-month and one-year gaps were within these parameters.
-13-
<PAGE>
CHANGES IN INTEREST INCOME AND EXPENSES
- ---------------------------------------
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>
1998 Compared to 1997 1997 Compared to 1996
Increase (decreased) Due to (1) Increase (decrease) Due to (1)
------------------------------------- ------------------------------------------
Rate/ Rate/
Volume Rate Net Volume Volume Rate Net Volume
------- ------- ------- ------- --------- --------- --------- -------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans:(2)
Domestic 33,623 (1,997) 31,626 (296) 34,777 3,228 38,006 574
Taxable securities including
trading account 14,781 (866) 13,915 (134) 11,124 1,588 12,711 198
Non-taxable securities 616 140 756 7 (411) (14) (425) 1
Federal funds sold and
securities purchased under
agreements to resell 1,650 186 1,836 350 (437) 61 (376) (19)
Time deposits in other banks 47 (9) 39 0 66 (16) 50 (1)
------ ------ ------ ------ ------ ------ ------ ----
Total interest earning assets 50,717 (2,546) 48,171 (73) 45,119 4,847 49,966 753
------ ------ ------ ------ ------ ------ ------ ----
Interest paid on:
Demand deposits 677 (543) 134 (114) 79 (803) (724) (16)
Savings deposits 4,752 (1,609) 3,143 (179) 5,849 (1,478) 4,371 (227)
Time deposits 13,045 (1,295) 11,750 (240) 7,427 120 7,547 13
Federal funds purchased and
securities sold under
agreements to repurchase 565 (486) 79 (59) 5,528 591 6,119 186
Federal Home Loan Bank advances 7,640 (2,768) 4,872 (925) (662) 669 7 (19)
Long-term debt (3,150) (31) (3,181) 11 5,715 36 5,751 58
------ ------ ------ ------ ------ ------ ------ ----
Total interest bearing
liabilities 23,529 (6,732) 16,797 (1,506) 23,936 (865) 23,071 (5)
------ ------ ------ ------ ------ ------ ------ ----
Net interest income 27,188 4,186 31,374 1,433 21,183 5,712 26,895 758
====== ====== ====== ====== ====== ====== ====== ====
</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
---------------------------------
1998 1997 1996
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Securities:
U.S. Treasury 36,621 38,589 30,234
U.S. Government agencies and
corporations 1,382,396 1,270,297 1,190,922
States of the U.S. and political
subdivisions 149,000 138,409 140,708
Other securities 530,353 170,859 156,035
--------- --------- ---------
Total 2,098,370 1,618,154 1,517,899
========= ========= =========
</TABLE>
The following table sets forth the maturities at December 31, 1998, 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
------- ------ ------- ------- --------- -------- --------- ----------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
U.S. Treasury 23,182 6.41% 13,439 6.30% - - - -
U.S. Government agencies
and corporations 38,949 6.36 82,678 6.41 895,985 6.56% 364,784 6.18%
States of the U.S. and
political subdivisions 9,060 7.93 57,436 7.30 62,608 8.26 19,896 9.22
Other 127,881 6.61 214,960 6.61 168,185 6.54 19,327 6.94
------- ---- ------- --------- --------
Total 199,072 6.60% 368,513 6.26% 1,126,778 6.24% 404,007 6.18%
======= ======= ========= ======= ========
</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
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 592,136 512,534 466,830 399,580 356,035
Real estate - construction 242,993 241,334 170,188 122,720 91,424
Real estate - mortgage 1,153,717 781,826 602,064 520,657 501,489
Consumer(1)(2) 1,181,659 1,045,420 1,086,104 871,407 630,927
Lease financing 29,568 30,046 22,790 18,678 14,818
--------- --------- --------- --------- ---------
Total 3,200,073 2,611,160 2,347,976 1,933,042 1,594,693
========= ========= ========= ========= =========
</TABLE>
(1)Included within "Consumer" loans are revolving lines of credit secured by
home equities.
(2)The Company sold approximately $63 million or substantially all of its credit
card receivables in fourth quarter 1997.
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and lease financing) outstanding as of December 31, 1998, 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 260,946 206,846 124,344 592,136
Real estate - construction 140,713 62,354 39,926 242,993
------- ------------ ------- -------
Total 401,659 269,200 164,270 835,129
======= ============ ======= =======
</TABLE>
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and lease financing) due after one year classified, according to
the sensitivity to changes in interest rates as of December 31, 1998.
<TABLE>
<CAPTION>
After 1 but After
Within 5 Yrs 5 Years
-------------- --------
(in thousands of dollars)
<S> <C> <C>
Predetermined interest rate 157,958 120,831
Floating or adjustable interest rates 111,242 43,439
------- -------
Total 269,200 164,270
======= =======
</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
-------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands of dollars)
Nonaccrual loans 533 - - - -
Accruing loans past due
90 days or more 4,218 3,134 3,482 3,252 2,432
Non-performing
restructured loans - - - - -
Performing restructured - - - - -
</TABLE>
All of the nonaccrual and restructured loans were collateralized, and there were
no significant commitments to lend any of these debtors additional funds.
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, 1998, 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, 1998. There were no foreign loans.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period 43,297 35,514 29,010 24,310 21,467
Charge-offs:
Commercial, financial,
and agricultural 522 250 12 1 442
Real estate - construction 946 95 70 199 212
Real estate - mortgage 808 222 74 97 232
Consumer 8,430 10,850 8,270 5,366 4,088
Lease financing 943 1,382 1,912 1,586 1,500
------ ------ ------ ------ ------
Total charge-offs 11,649 12,799 10,338 7,249 6,474
------ ------ ------ ------ ------
Recoveries of loans
previously charged-off:
Commercial, financial,
and agricultural 1,152 73 20 55 47
Real estate - construction 197 57 244 44 83
Real estate - mortgage 51 33 61 73 121
Consumer 2,219 2,221 1,965 1,509 1,494
Lease financing 420 560 533 518 495
------ ------ ------ ------ ------
Total recoveries 4,039 2,944 2,823 2,199 2,240
------ ------ ------ ------ ------
Net charge-offs 7,610 9,855 7,515 5,050 4,234
Increase due to acquisitions 3,836 625 288 - -
Decrease due to loan sale - - (403) - -
Provision for loan losses(1) 9,599 17,013 14,134 9,750 7,077
------ ------ ------ ------ ------
Balance at end of period 49,122 43,297 35,514 29,010 24,310
====== ====== ====== ====== ======
Ratio of net-charge-offs to
average loans outstanding
during the period .26% .39% .35% .29% .28%
</TABLE>
(1) The allowance for loan losses provides for losses inherent in the Company's
loan portfolio. Management reviews the adequacy of the allowance each
quarter. The overall allowance is evaluated based on a continuing
assessment of problem loans, historical loss experience, new lending
products, emerging credit rends, changes in the size and character of loan
categories, and other factors including its risk rating system, regulatory
guidance and economic conditions. Management has determined that the
allowances for loan losses is adequate, although financial market
volatility, economic reversals or decreased customer earnings from
operations could require an increase in the required allowance.
Management allocates the allowance for loan losses by loan category, but
even with the various methods employed by management in allocating the
allowance, certain inherent, but undetected, losses are probable within the
loan portfolio. Commercial, financial and agricultural allocations are
based on a quarterly review of individual loans outstanding and binding
commitments to lend. Reserves are allocated based on actual loss
experience and to credits with similar risk characteristics.
Real estate loan allocations are based on quarterly reviews of individual
loans and discounted cash flow analysis and independent appraisals.
Consumer loan allocations are based on an analyses of product mix, credit
scoring, migration analyses, losses from fraud, and bankruptcy experience
and historical and expected delinquency and charge off statistics.
Although the allocation of the allowance is an important management tool,
no portion of the allowance is restricted to any individual loan or group
of loans, rather the entire allowance is available to absorb losses from
the entire 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
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ----------------- ----------------- ----------------- -----------------
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 9,842 18% 8,659 20% 7,813 20% 7,264 21% 6,887 22%
Real estate:
Construction 4,420 8 4,330 9 3,196 7 3,006 6 2,731 6
Mortgage 8,335 36 6,495 30 5,327 26 3,567 27 3,352 31
Consumer 24,561 37 21,649 40 17,402 46 12,737 45 9,457 40
Lease financing 1,964 1 2,164 1 1,776 1 2,436 1 1,883 1
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total 49,122 100% 43,297 100% 35,514 100% 29,010 100% 24,310 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</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
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
Amount Rate Amount Rate Amount Rate
--------- ---- --------- ---- --------- ----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits 413,724 - 328,423 - 305,989 -
Interest bearing demand deposits 322,117 1.05% 261,931 1.24% 256,561 1.54%
Savings deposits 1,162,749 3.94 1,043,212 4.09 902,148 4.25
Time deposits 1,561,417 5.44 1,321,247 5.54 1,187,861 5.53
--------- --------- ---------
Total 3,460,007 2,954,813 2,652,559
========= ========= =========
</TABLE>
Summarized below are outstanding maturities of time deposits of $100,000 or more
issued by domestic offices (which consist entirely of time certificates of
deposit) at December 31, 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
Time remaining until maturity Amount
- ------------------------------ ------
<S> <C>
3 months or less 302,599
Over 3 through 6 months 226,375
Over 6 through 12 months 179,392
Over 12 months 180,339
-------
Total 888,705
=======
</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
----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Return on average total assets 1.66% 1.58% 1.51%
Return on average equity* 22.15% 20.92% 19.44%
Dividend payout percent** 38.55% 33.33% 34.35%
Average equity to assets percent 7.52% 7.57% 7.76%
Tier 1 capital to total assets (leverage ratio) 8.03% 8.69% 7.66%
Tier 1 capital to risk-weighted assets 11.79% 12.61% 11.05%
Total capital to risk-weighted assets 13.04% 13.86% 12.30%
</TABLE>
* exclusive of mark-to-market adjustment.
** includes special 1998 dividend increase which accompanied the 2-for-1 stock
split effective July 1, 1998.
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
---------------------------
1998 1997 1996
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase:
Balance at year-end 591,829 423,573 298,410
Weighted average interest rate
payable at year-end 4.32% 5.04% 5.09%
Maximum amount outstanding
at any month end 591,829 540,622 398,898
Average outstanding balance
(total daily outstanding
principal balance divided
by 365) 470,349 445,863 336,727
Weighted average interest rate
(related interest expense
divided by the average
outstanding balance) 4.84% 5.08% 4.91%
</TABLE>
-21-
<PAGE>
ITEM 2. PROPERTIES.
Main Office: NBC leases as its main office approximately 37% -- 172,650_
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, 1998, NBC operated 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, one branch facility in Somerville,
Tennessee, two SUPER MONEY MARKET facilities and two branches in Collierville,
Tennessee, one SUPER MONEY MARKET facility and three branches in West Memphis,
Arkansas, and one branch in Marion, Arkansas. NBC intends to continue opening
branches at such time and places as management deems prudent and feasible,
subject to approval of regulatory authorities.
Twelve of the 20 traditional branches operated by NBC are leased. In
addition, the building housing one branch is owned by NBC but subject to a
ground lease. Leases on the 13 branches have remaining terms ranging from one
month to 18 years (excluding renewal options). The average unexpired portion of
the lease terms at December 31, 1998 is 6 years, including ground leases. The
remaining four branches are owned in fee. Aggregate annual rentals on the 12
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 $3,555,000 at December 31, 1998.
Commerce General occupies approximately 9,700 square feet of NBC's space
in the Complex and pays approximately $121,000 per year for this space. Commerce
Capital leases approximately 4,000 square feet totaling approximately $49,000 in
annual rent in 1998. NBC Capital Markets Group leases approximately 17,100
square feet located at 850 Ridge Lake Boulevard, Memphis, Tennessee and paid
approximately $269,000 in 1998.
The 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 1998, Nashville paid approximately $885,000 for
licensed space and administrative office space.
The Knoxville Bank also has been granted the right to operate branches in
area Kroger stores in the Knoxville, Tennessee; Raleigh/Durham, North Carolina;
and Greensboro, North Carolina areas; and in certain areas in Georgia. Initial
terms of the license agreements are for one year, with multiple renewal options.
In 1998, Knoxville paid approximately $1,351,000 for licensed space and
administrative office space.
NBC Bank, FSB (Belzoni) 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. In
1998, Belzoni paid approximately $274,000 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 operations are 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
subsidiaries and a Company affiliate are located at 7770 Poplar Avenue. The
Bartlett Branch operation is located at 6005 Stage Road.
-22-
<PAGE>
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 61 Chairman of the Board, President, Chief
Executive Officer and Director of the
Company
Lewis E. Holland 56 Vice Chairman, Treasurer and Chief
Financial Officer of the Company
William R. Reed, Jr. 52 Vice Chairman of the Company
Gary L. Lazarini 57 Executive Vice President of NBC
and Chairman of NBC Capital
Markets Group, Inc.
Mackie H. Gober 52 Executive Vice President of the Company
Gus B. Denton 58 Secretary of the Company
Tom W. Scott 55 President of Commerce General Corporation
David T. Popwell 39 Executive Vice President
</TABLE>
Of the foregoing officers, Messrs. Garrott, Holland, and Reed are also a
directors of the Company.
The above officers have served in the capacities shown for more than five
years except for the following:
Mr. Holland was elected Vice Chairman and Director of the Company in June
1997. He was Executive Vice President of the Company from August 1995 until
June 1997. He was elected Treasurer of the Company in June 1995. He was Vice
President from July 1994 until August 1995.
Mr. Reed was elected Vice Chairman and Director of the Company in June 1997
and was Executive Vice President of the Company from August 1995 until June
1997.
Mr. Gober was elected Executive Vice President of the Company in January
1998 and was President of NBC from August 1995 until January 1998. He was
Executive Vice President and Retail Credit Group Head of NBC from January 1992
until August 1995.
Mr. Denton was elected Secretary of the Company in June 1995.
Mr. Popwell was elected Executive Vice President of the Company in August
1998. Prior to that time he was an attorney with Baker, Donelson, Bearman and
Caldwell.
-23-
<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>
1998:
High $19.06 $25.75 $23.38 $21.57
Low 13.94 16.50 19.69 15.13
Cash dividends* .09 .08 .08 .07
1997:
High $17.88 $13.82 $11.81 $11.50
Low 13.59 11.44 9.63 8.94
Cash dividends .07 .05 .06 .05
</TABLE>
* includes special dividend increase which accompanied the 2-for-1
stock split effective July 1, 1998.
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, 1998, there
were approximately 3,600 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>
1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net interest income 192,618 $ 162,821 $ 135,466 $ 120,025 $ 110,021
Net income 85,141 69,780 57,513 49,035 44,342
Per common share data:*
Basic earnings per share .85 .71 .59 .50 .46
Diluted earnings per share .83 .69 .57 .49 .44
Cash dividends declared .32 .23 .20 .18 .16
Book value 4.03 3.61 3.22 2.99 2.29
Total average equity 384,342 333,528 295,826 272,477 239,903
Total average assets 5,114,126 4,404,852 3,812,114 3,214,291 2,845,135
Average debt:
Federal Home Loan
Bank advances 552,176 405,308 417,316 294,833 262,125
Other borrowed funds
and long term debt 103,103 156,152 60,284 6,382 6,384
Capital trust pass-
through securities 49,891 38,079 - - -
Ratios:
Average equity to
average assets 7.52% 7.57% 7.76% 8.48% 8.43%
Return on average
equity 22.15 20.92 19.44 18.00 18.48
Return on average
assets 1.66 1.58 1.51 l.53 l.56
</TABLE>
* After retroactive adjustment for all stock dividends and stock splits declared
through December 31, 1998.
-24-
<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
22 through 29 in the Registrant's 1998 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information appearing under the caption "Liquidity and Interest Rate
Sensitivity Management" appearing on page 26 of the 1998 Annual
Report to Shareholders is incorporated herein by reference (see Item
7, Management's Discussion and Analysis).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and consolidated financial
statements on pages 30 through 48 in the Registrant's 1998 Annual
Report to Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 47 of the Registrant's 1998
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 1999 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 1999 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
Other Information" and "Principal Shareholders" in the Registrant's
Proxy Statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions with
Directors and Management" in the Registrant's Proxy Statement for the
1999 Annual Meeting of Shareholders is incorporated herein by
reference.
-25-
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) The response to this portion of Item
and (c) 14 is submitted as a separate section of this
report.
(a)(3) Listing of Exhibits:
Exhibit No. Description
----------- -----------
3.1 Charter of National Commerce Bancorporation as
amended and restated and filed as Exhibit 3.1 to
the Registrant's Form 10-Q for the quarter ended
June 30, 1998 (File NO. 0-6094) and incorporated
herein by reference.
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 filed as Exhibit 4.1 to
the Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 0-6094) and
incorporated herein by reference.
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 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.
10.3 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.
10.4 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Gary
L. Lazarini, filed as Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.5 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.
10.6 Deferred Compensation Agreement as of December 1,
1983, for Thomas M. Garrott, filed as
-26-
<PAGE>
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.
10.7 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.
10.8 First Amendment to Agreement Respecting Employment
dated July 27, 1998 by and between National
Commerce Bancorporation, National Bank of Commerce
and William R. Reed, Jr.
10.9 First Amendment to Agreement Respecting Employment
dated July 27, 1998 by and between National
Commerce Bancorporation, National Bank of Commerce
and Thomas M. Garrott.
10.10 First Amendment to Agreement Respecting Employment
dated July 27, 1998 by and between National
Commerce Bancorporation, National Bank of Commerce
and Gary L. Lazarini.
10.11 First Amendment to Agreement Respecting Employment
dated July 27, 1998 by and between National
Commerce Bancorporation, National Bank of Commerce
and Mackie H. Gober.
10.12 First Amendment to Agreement Respecting Employment
dated July 27, 1998 by and between National
Commerce Bancorporation, National Bank of Commerce
and Lewis E. Holland.
10.13 Employment Agreement dated as of August 17, 1998,
by and between National Commerce Bancorporation,
National Bank of Commerce and David T. Popwell.
10.14 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.
10.15 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.
10.16 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 Amendment Number One National Commerce
Bancorporation 1994 Stock Plan, as amended and
Restated Effective as of November 1, 1996.
10.18 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.
10.19 National Commerce Bancorporation Deferred
-27-
<PAGE>
Compensation Plan effective January 1, 1999
13 Registrant's 1998 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
-28-
<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 11, 1999 /s/ Thomas M. Garrott
- -------------- ----------------------------
Dated Thomas M. Garrott
Chairman of the Board
(Principal Executive Officer)
March 11, 1999 /s/ Lewis E. Holland
- -------------- ----------------------------
Dated Lewis E. Holland
Vice Chairman, Treasurer, and Chief
Financial Officer
(Principal Financial Officer)
/s/ Mark A. Wendel
March 11, 1999 ----------------------------
- -------------- Mark A. Wendel
Dated Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
/s/ Phillip H. McNeill, Sr. /s/ Thomas C. Farnsworth, Jr.
- ---------------------------- -----------------------------
Director Director
/s/ R. Grattan Brown, Jr. /s/ James E. McGehee, Jr.
- ---------------------------- -----------------------------
Director Director
/s/ J. Bradbury Reed /s/ G. Mark Thompson
- ---------------------------- -----------------------------
Director Director
/s/ Lewis E. Holland /s/ Bruce E. Campbell, Jr.
- ---------------------------- -----------------------------
Director Director
/s/ William R. Reed, Jr.
- ----------------------------
Director
Dated: March 11, 1999
--------------
-29-
<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, 1998
NATIONAL COMMERCE BANCORPORATION
MEMPHIS, TENNESSEE
-30-
<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, 1998, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Income--Years ended December 31, 1998, 1997 and
1996
Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997
and 1996
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements--December 31, 1998
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.
-31-
<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
- ------- ----------------------
3.1 Charter of National Commerce Bancorporation as amended and
restated filed as Exhibit 3.1 to the Registrant's Form 10-Q for
the quarter ended June 30, 1998 (File No. 0-6094).
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).
4.1 Specimen Stock Certificate filed as Exhibit 4.1 to the
Registrant's Form 10-K for the year ended December 31, 1996
(File No. 0-6094).
10.1 Form of Promissory Notes of National Bank of Commerce payable
to The Mallory Partners filed as Exhibit 10.1 to the
Registrant's Form 10-K for the year ended December 31, 1987
(File No. 0-6094).
10.2 Employment Agreement dated as of 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).
10.3 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).
10.4 Employment Agreement dated as of September 1, 1993, by and
between National Bank of Commerce and Gary L. Lazarini filed as
Exhibit 10.10 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-6094).
10.5 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).
<PAGE>
10.6 Deferred Compensation Agreement dated as of December 1, 1983,
for Thomas M. Garrott, filed as Exhibit 10c(2) to the
Registrant's Form 10-K for the year ended December 31, 1984
(File No. 0-6094).
10.7 Employment Agreement dated as of July 1, 1994 by National
Commerce Bancorporation and between Lewis E. Holland, filed as
Exhibit 10.14 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-6094).
10.8 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
National Bank of Commerce, and William R. Reed, Jr.
10.9 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
National Bank of Commerce, and Thomas M. Garrott.
10.10 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
National Bank of Commerce, and Gary L. Lazarini.
10.11 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
National Bank of Commerce, and Mackie H. Gober.
10.12 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
National Bank of Commerce, and Lewis E. Holland.
10.13 Employment Agreement dated as of August 17, 1998, by and
between National Commerce Bancorporation, National Bank of
Commerce and David T. Popwell.
10.14 Bonus Incentive Plan, filed as Exhibit 10c(1) to the
Registrant's Form 10-K for the year ended December 31, 1980
(File No. 0-6094).
10.15 1990 Stock Plan, filed as Exhibit A to the Registrant's Proxy
Statement for the 1990 Annual Meeting of Shareholders.
10.16 1994 Stock Plan, filed as Exhibit A to the Registrant's Proxy
Statement for the 1994 Annual Meeting of Shareholders.
10.17 Amendment Number One National Commerce Bancorporation 1994
Stock Plan, as Amended and Restated Effective as of November 1,
1996.
10.18 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).
10.19 National Commerce Bancorporation Deferred Compensation Plan
effective January 1, 1999.
13 Registrant's 1998 Annual Report to Shareholders.
<PAGE>
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.8
FIRST AMENDMENT TO
AGREEMENT RESPECTING EMPLOYMENT
THIS FIRST AMENDMENT TO AGREEMENT RESPECTING EMPLOYMENT ("First Amendment"),
dated as of the 27th of July 1998, is made and entered into by and between
National Bank of Commerce, a national banking association (the "Company"),
National Commerce Bancorporation, a Tennessee corporation ("NCBC"), and William
R. Reed, Jr. ("Employee") and amends certain provisions of the Agreement
Respecting Employment by and between the Company, NCBC and Employee, dated as of
January 1, 1992 (the "Agreement").
WHEREAS, the Company, NCBC and Employee have determined that it is in the best
interests of the parties to the Agreement to amend the Agreement to modify
certain provisions.
NOW, THEREFORE, the parties hereto agree as follows:
I . Section 3(C) of the Agreement is hereby amended by adding the following
sentence to the end of such Section:
For purposes of this Section 3(C), payments from NCBC or any affiliate or
successor of the Company or NCBC shall be treated as payments from the Company.
2. Section 3(D)(iii) of the Agreement is hereby amended by adding the
following provisions to the end of such Section:
(c) If Employee gives the Notice of Exercise, in addition to the lump sum
payment under paragraph (a) above, the Company shall pay to Employee in a lump
sum in cash within five (5) business days after the delivery of the Notice of
Exercise the aggregate of the following amounts:
(1) the sum of (A) Employee's Base Salary through the date of the Notice of
Exercise, (B) the product of (x) the highest annual bonus paid or payable,
including any bonus or portion, thereof which has been earned but deferred,
during the three year period immediately prior to the date of the Notice of
Exercise (such amount being referred to as the"Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the date of the Notice of Exercise, and the denominator of which is
365 and (C) any accrued vacation pay, in each case to the extent not theretofore
paid; and
(2) the amount equal to the excess (without any present value discount) of (A)
the actuarial equivalent of the benefit under the company=s qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions
no less favorable to Employee than those in effect under the Company's
Retirement Plan immediately prior to the Change of Control), and the National
Bank of Commerce Supplemental Employee Retirement Plans Amended and Restated
(the "SERP") which Employee would receive if Employee's employment continued for
three years after the date of the Notice of Exercise assuming for this purpose
that all accrued benefits are fully vested, and, assuming that Employee's
compensation in each of the three years is Employee's highest Base Salary during
the three year period immediately preceding the date of the Notice of Exercise
and the Highest Annual Bonus, over (B) the actuarial equivalent of Employee's
actual benefit (paid or payable), if any, under the Retirement Plan and the SERP
as of the date of the Notice of Exercise;
(d) If Employee gives the Notice of Exercise, for three years after the
date of the Notice of Exercise, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the Company shall
continue to provide welfare benefits (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to Employee and/or Employee's
eligible dependents at least equal to those provided to Employee at any time
during the 120-day period immediately preceding the Change in Control or, if
more favorable to Employee, those provided generally at any time after the
Change in Control to other peer executives of the Company and its affiliated
companies; provided, however, that if Employee becomes reemployed with another
--------
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided
<PAGE>
under such other plan during such applicable period of eligibility. For purposes
of determining eligibility (but not the time of commencement of benefits) of
Employee for retiree benefits pursuant to such plans, practices, programs and
policies, Employee shall be considered to have remained employed until three
years after the date of the Notice of Exercise and to have retired on the last
day of such period;
3. Except as expressly modified hereby, the terms and provisions of
the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed and delivered as of the date first above written.
-------------------------
William R. Reed, Jr.
NATIONAL BANK OF COMMERCE
By:
----------------------
NATIONAL COMMERCE BANCORPORATION
By:
----------------------
<PAGE>
EXHIBIT 10.9
FIRST AMENDMENT TO AMENDED AND RESTATED
AGREEMENT RESPECTING EMPLOYMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED AGREEMENT RESPECTING
EMPLOYMENT ("First Amendment"), dated as of the 27 day of July 1998, is made and
entered into by and between National Bank of Commerce, a national banking
association (the "Company"), National Commerce Bancorporation, a Tennessee
corporation (the "NCBC"), and Thomas M. Garrott ("Employee") and amends certain
provisions of the Amended and Restated Agreement Respecting Employment by and
between the Company, NCBC and Employee, dated as of September 1, 1993 (the
"Agreement").
WHEREAS, the Company, NCBC and Employee have determined that it is in the
best interests of the parties to the Agreement to amend the Agreement to modify
certain provisions.
NOW, THEREFORE, the parties hereto agree as follows:
I . Section 3(C) of the Agreement is hereby amended by adding the
following sentence to the end of such Section:
For purposes of this Section 3(C), payments from NCBC or any affiliate or
successor of the Company or NCBC shall be treated as payments from the Company.
2. Section 3(D)(ii) of the Agreement is hereby amended by amending the
first two sentences of the such Section to read in their entirety as follows:
If, while the Employee is employed by the Company on active status or
part-time status pursuant to either Section 4(C)(i), (ii) or (iii) or
Section 4(F), a Change in Control (as defined in subsection (b) of
Section 3(D)(i)) occurs, Employee may, in his sole discretion, within
eighteen (18) months after the date of the Change in Control Twelve (12)
months after the date of the Change in Control if he is on part-time
status at the time of the Change in Control), give notice to the
Secretary of the Company that he intends to elect to exercise his rights
under this Section 3(D) (the "Notice of Intention"). The right to give
such Notice of Intention to elect to receive the payment provided for in
subsection (iii) of this Section 3(D) shall continue for eighteen (18) or
twelve (12) months from the date of the Change in Control, respectively,
irrespective of any action by the Company pursuant to Section 4(A)(iii)
or Section 4(F) or by Employee pursuant to Section 4(C)(ii) or (iii)
within such eighteen (18) or twelve (12) month period.
3. Section 3(D)(iii) of the Agreement is hereby amended by adding the
following provisions to the end of such Section.
(c) If Employee gives the Notice of Exercise, in addition to the lump sum
payment under paragraph (a) above, the Company shall pay to Employee in a lump
sum in cash within five (5) business days after the date of the Notice of
Exercise the aggregate of the following amounts:
(1) the sum of (A) Employee's Base Salary through the date of the Notice of
Exercise, (B) the product of (x) the highest annual bonus paid or payable,
including any bonus or portion thereof which has been earned but deferred,
during the three year period immediately prior to the date of the Notice of
Exercise (such amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the date of the Notice of Exercise, and the denominator of which is
365 and (C) any accrued vacation pay, in each case to the extent not theretofore
paid; and
(2) the amount equal to the excess (without any present value discount) of
(A) the actuarial equivalent of the benefit under the Company's qualified
defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to Employee than those in effect under the
Company's Retirement Plan immediately prior to the Change of Control), and the
National Bank of Commerce Supplemental Employee Retirement Plan as Amended and
Restated (the "SERP") which Employee would receive if Employee's employment
continued for three years after the
<PAGE>
Notice of Exercise assuming for this purpose that all accrued benefits are fully
vested, and, assuming that Employee's compensation in each of the three years is
the Employee's highest Base Salary during the three year period immediately
preceding the date of the Notice of Exercise and the Highest Annual Bonus, over
(B) the actuarial equivalent of Employee's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP as of the Date of the date of the
Notice of Exercise; and
(d) If Employee gives the Notice of Exercise, for three years after the
date of the Notice of Exercise, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy the Company shall
continue to provide welfare benefits (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to Employee and/or Employee's
eligible dependents at least equal to those provided to Employee at any time
during the 120-day period immediately preceding the Change in Control or, if
more favorable to Employee, those provided generally at any time after the
Change in Control to other peer executives of the Company and its affiliated
companies; ided, however, that if Employee becomes reemployed with another
-------
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of Employee for retiree benefits
pursuant to such plans, practices, programs and policies, Employee shall be
considered to have remained employed until three years after the Notice of
Exercise and to have retired on the last day, if such period. In addition to,
and not in limitation of, the benefits provided by the foregoing, after
termination of Employee's employment with the Company, the Company shall at
least provide medical and dental insurance coverage for Employee and his spouse
for their lifetimes that is comparable to the medical and dental insurance
coverage provided by the Company to its principal executive officers as of
September 1, 1993, and the Company shall be entitled to credits for coverage to
Employee and his spouse provided by Medicare.
(e) If Employee gives the Notice of Exercise, Employee shall be entitled to
the provision of the benefits and services set forth in Section 4(D)(viii) of
the Agreement until the later of (a) Employee's attainment of age 65 or (b)
Employee ceasing to be on the Board of Directors of NCBC, the Company or their
successors.
4. Except as expressly modified hereby, the terms and provisions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed and delivered as of the date first above written.
---------------------------
Thomas M. Garrott
NATIONAL BANK OF COMMERCE
By:
-----------------------
NATIONAL COMMERCE BANCORPORATION
By:
----------------------
<PAGE>
EXHIBIT 10.10
FIRST AMENDMENT TO
AGREEMENT RESPECTING EMPLOYMENT
THIS FIRST AMENDMENT TO AGREEMENT RESPECTING EMPLOYMENT ("First
Amendment"), dated as of the 27th of July 1998, is made and entered into by and
between National Bank of Commerce, a national banking association (the
"Company"), National Commerce Bancorporation, a Tennessee corporation ("NCBC"),
and Gary L. Lazarini ("Employee") and amends certain provisions of the Agreement
Respecting Employment by and between the Company, NCBC and Employee, dated as of
January 1, 1992 (the "Agreement").
WHEREAS, the Company, NCBC and Employee have determined that it is in the
best interests of the parties to the Agreement to amend the Agreement to modify
certain provisions.
NOW, THEREFORE, the parties hereto agree as follows:
I . Section 3(C) of the Agreement is hereby amended by adding the
following sentence to the end of such Section:
For purposes of this Section 3(C), payments from NCBC or any affiliate or
successor of the Company or NCBC shall be treated as payments from the
Company
2. Section 3(D)(iii) of the Agreement is hereby amended by adding the
following provisions to the end of such Section:
(c) If Employee gives the Notice of Exercise, in addition to the lump sum
payment under paragraph (a) above, the Company shall pay to Employee in a lump
sum in cash within five (5) business days after the delivery of the Notice of
Exercise the aggregate of the following amounts:
(1) the sum of (A) Employee's Base Salary through the date of the Notice of
Exercise, (B) the product of (x) the highest annual bonus paid or payable,
including any bonus or portion, thereof which has been earned but deferred,
during the three year period immediately prior to the date of the Notice of
Exercise (such amount being referred to as the"Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the date of the Notice of Exercise, and the denominator of which is
365 and (C) any accrued vacation pay, in each case to the extent not theretofore
paid; and
(2) the amount equal to the excess (without any present value discount) of
(A) the actuarial equivalent of the benefit under the company=s qualified
defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to Employee than those in effect under the
Company's Retirement Plan immediately prior to the Change of Control), and the
National Bank of Commerce Supplemental Employee Retirement Plans Amended and
Restated (the "SERP") which Employee would receive if Employee's employment
continued for three years after the date of the Notice of Exercise assuming for
this purpose that all accrued benefits are fully vested, and, assuming that
Employee's compensation in each of the three years is Employee's highest Base
Salary during the three year period immediately preceding the date of the Notice
of Exercise and the Highest Annual Bonus, over (B) the actuarial equivalent of
Employee's actual benefit (paid or payable), if any, under the Retirement Plan
and the SERP as of the date of the Notice of Exercise;
(d) If Employee gives the Notice of Exercise, for three years after the
date of the Notice of Exercise, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the Company shall
continue to provide welfare benefits (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to Employee and/or Employee's
eligible dependents at least equal to those provided to Employee at any time
during the 120-day period immediately preceding the Change in Control or, if
more favorable to Employee, those provided generally at any time after the
Change in Control to other peer executives of the Company and its affiliated
companies; provided, however, that if Employee becomes reemployed with another
--------
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of
<PAGE>
determining eligibility (but not the time of commencement of benefits) of
Employee for retiree benefits pursuant to such plans, practices, programs and
policies, Employee shall be considered to have remained employed until three
years after the date of the Notice of Exercise and to have retired on the last
day of such period;
3. Except as expressly modified hereby, the terms and provisions of
the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed and delivered as of the date first above written.
------------------------------
Gary L. Lazarini
NATIONAL BANK OF COMMERCE
By:
-------------------------
NATIONAL COMMERCE BANCORPORATION
By:
-------------------------
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT TO
AGREEMENT RESPECTING EMPLOYMENT
THIS FIRST AMENDMENT TO AGREEMENT RESPECTING EMPLOYMENT ("First
Amendment"), dated as of the 27th of July 1998, is made and entered into by and
between National Bank of Commerce, a national banking association (the
"Company"), National Commerce Bancorporation, a Tennessee corporation ("NCBC"),
and Mackie H. Gober ("Employee") and amends certain provisions of the Agreement
Respecting Employment by and between the Company, NCBC and Employee, dated as of
January 1, 1992 (the "Agreement").
WHEREAS, the Company, NCBC and Employee have determined that it is in the
best interests of the parties to the Agreement to amend the Agreement to modify
certain provisions.
NOW, THEREFORE, the parties hereto agree as follows:
I . Section 3(C) of the Agreement is hereby amended by adding the
following sentence to the end of such Section:
For purposes of this Section 3(C), payments from NCBC or any affiliate or
successor of the Company or NCBC shall be treated as payments from the Company.
2. Section 3(D)(iii) of the Agreement is hereby amended by adding the
following provisions to the end of such Section:
(c) If Employee gives the Notice of Exercise, in addition to the lump sum
payment under paragraph (a) above, the Company shall pay to Employee in a lump
sum in cash within five (5) business days after the delivery of the Notice of
Exercise the aggregate of the following amounts:
(1) the sum of (A) Employee's Base Salary through the date of the Notice of
Exercise, (B) the product of (x) the highest annual bonus paid or payable,
including any bonus or portion, thereof which has been earned but deferred,
during the three year period immediately prior to the date of the Notice of
Exercise (such amount being referred to as the"Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the date of the Notice of Exercise, and the denominator of which is
365 and (C) any accrued vacation pay, in each case to the extent not theretofore
paid; and
(2) the amount equal to the excess (without any present value discount) of
(A) the actuarial equivalent of the benefit under the company=s qualified
defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to Employee than those in effect under the
Company's Retirement Plan immediately prior to the Change of Control), and the
National Bank of Commerce Supplemental Employee Retirement Plans Amended and
Restated (the "SERP") which Employee would receive if Employee's employment
continued for three years after the date of the Notice of Exercise assuming for
this purpose that all accrued benefits are fully vested, and, assuming that
Employee's compensation in each of the three years is Employee's highest Base
Salary during the three year period immediately preceding the date of the Notice
of Exercise and the Highest Annual Bonus, over (B) the actuarial equivalent of
Employee's actual benefit (paid or payable), if any, under the Retirement Plan
and the SERP as of the date of the Notice of Exercise;
(d) If Employee gives the Notice of Exercise, for three years after the
date of the Notice of Exercise, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the Company shall
continue to provide welfare benefits (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to Employee and/or Employee's
eligible dependents at least equal to those provided to Employee at any time
during the 120-day period immediately preceding the Change in Control or, if
more favorable to Employee, those provided generally at any time after the
Change in Control to other peer executives of the Company and its affiliated
companies; provided, however, that if Employee becomes reemployed with another
--------
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of
<PAGE>
determining eligibility (but not the time of commencement of benefits) of
Employee for retiree benefits pursuant to such plans, practices, programs and
policies, Employee shall be considered to have remained employed until three
years after the date of the Notice of Exercise and to have retired on the last
day of such period;
3. Except as expressly modified hereby, the terms and provisions of
the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed and delivered as of the date first above written.
--------------------------
Mackie H. Gober
NATIONAL BANK OF COMMERCE
By:
----------------------
NATIONAL COMMERCE BANCORPORATION
By:
----------------------
<PAGE>
EXHIBIT 10.12
FIRST AMENDMENT TO
AGREEMENT RESPECTING EMPLOYMENT
THIS FIRST AMENDMENT TO AGREEMENT RESPECTING EMPLOYMENT ("First
Amendment"), dated as of the 27th day of July 1998, is made and entered into by
and between National Bank of Commerce, a national banking association (the
"Company"), National Commerce Bancorporation, a Tennessee corporation (the
"NCBC"), and Lewis E. Holland ("Employee") and amends certain provisions of the
Agreement Respecting Employment by and between the Company, NCBC and Employee,
dated as of July 1, 1994 (the "Agreement").
WHEREAS, the Company, NCBC and Employee have determined that it is in the
best interests of the parties to the Agreement to amend the Agreement to modify
certain provisions.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3(C) of the Agreement is hereby amended by adding the
following sentence to the end of such Section:
For purposes of this Section 3(C), payments from NCBC or any
affiliate or successor of the Company or NCBC shall be treated as
payments from the Company.
2. Section 3 of the Agreement is hereby amended by relettering
paragraph (D) as (E) and by adding a new paragraph (D) to read in its entirety
as follows:
D. (i) Change in Control - Operation of Section 3(D).
---------------------------------------------
(a) This Section 3(D) shall be effective, but not operative,
immediately upon execution of the First Amendment to this Agreement by the
parties hereto and shall remain in effect so long as Employee remains employed
by the Company on active status or part-time status, but shall not be operative
unless and until there has been a Change in Control, as defined in subsection
(i)(b) hereof. Upon such a Change in Control, this Section 3(D) shall become
operative immediately.
(b) "Change in Control" shall mean a change in control of
the Company of the Company that shall be deemed to have occurred if
any and when, with or without the approval of the Board of Directors
of the Company incumbent prior to the occurrence,
(1) more than 25% of the outstanding securities entitled
to vote in elections of directors of the Company or of any company which
owns 25% of the voting stock of the Company ("Company's Parent") shall be
acquired by any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) other than by any
person which includes Employee; or
2) as the result of a tender offer, merger,
consolidation, sale of assets or contested election, or any
combination of such transactions, the persons who were
directors of the Company or Company's Parent immediately before
the transaction shall cease to constitute a majority of the
Board of Directors of the Company, Company's Parent or of any
successor to either.
(ii) Employee's Rights Upon Change in Control. If a Change in
----------------------------------------
Control (as defined in subsection (b) of Section 3(D)(i)) occurs, while
Employee is employed on active status by the Company, Employee may, in
his sole discretion, within eighteen (1 8) months after the date of the
Change in Control, give notice to the Secretary of the Company that he
intends to elect to exercise his rights under this Section 3(D) (the
"Notice of Intention"). If a Change in Control occurs within twelve (12)
months after Employee has been placed on part-time status pursuant to
either Section 4(C)(i) or Section 4(F), Employee may, in his sole
discretion, within twelve (12) months after the date of the Change in
Control, give notice to the Secretary of the Company that he intends to
exercise his rights under
<PAGE>
this Section 3(D) (the "Notice of Intention"). The right to give such
Notice of Intention to elect to receive the payment provided for in
subsection (iii) of this Section 3(D) shall continue for eighteen (I 8)
months or twelve (12) months, respectively, from the date of the Change
in Control irrespective of any action by the Company pursuant to Section
4(A) (iii) or Section 4(F) within such eighteen (18)or twelve (12) month
period. Within thirty (30) days after the Company's receipt of the Notice
of Intention, the Company shall provide written notice to Employee
setting forth the Company's computation of the amount that would be
payable pursuant to subsection (iii) of this Section 3(D), accompanied by
the written opinion of the Company's independent certified public
accountants confirming the Company's computation. If Employee takes
exception to the Company's computation of such amount, Employee may (but
shall not be prejudiced in his right to later contest the amount actually
paid by failure to do so) give a further written notice to the Company
setting forth in reasonable detail Employee's exceptions to the Company's
computation, accompanied by the written opinion of Employee's tax advisor
confirming the basis for such exceptions. Exercise by Employee of his
rights pursuant to this Section 3(D) shall only be made by giving further
notice to the Secretary of the Company (the "Notice of Exercise") within
six (6) months from the date of the Notice of Intention.
(iii) Payment Upon Change in Control.
------------------------------
(a) If Employee gives the Notice of Exercise described in
subsection (ii) of this Section 3(D) to the Company, the Company shall
pay employee a lump sum amount equal to three (3) times Employee's base
amount (as defined by Section 280C, of the Internal Revenue Code of 1986,
as amended the "Code"), less one dollar ($1.00 ). The Company shall,
within five (5) business days after the date of the Notice of Exercise,
deliver to Employee its cashier's check in the amount payable pursuant to
this subsection (iii)(a) of Section 3(D), and payment of such amount
shall terminate Employee's right to receive any and all other payments,
rights or benefits pursuant to Sections 3(A), 3(B), 4 and 5 of this
Agreement, other than any pavements, rights or benefits arising (x)
pursuant to Section 3(C), subsection (iii) of Section 3(D), Section 3(E)
or Section 12 of this Agreement, or (y) from any other agreement, plan or
policy which by its terms or by operation of law provides for the
continuation of such payments, rights or benefits after the termination
of Employee's relationship with the Company.
(b) Such lump sum payment shall be in addition to and shall not
be offset or reduced by any other amounts payable or that may become
payable to Employee, or his beneficiaries, by the Company, including, but
not limited to, salary, severance pay, consulting fees, disability
benefits, termination benefits, retirement benefits, life and health
insurance benefits, or any other compensation or benefit payment that is
part of any valid previous, current, or future contract, plan or
agreement, written or oral, or any indemnification payments that may be
or become payable to Employee pursuant to the provisions of the Company's
Certificate of Incorporation, By-laws or otherwise.
(c) In addition to the lump sum payment under paragraph (a)
above, the Company shall pay to Employee in a lump sum in cash within
five (5) business days after the delivery of the Notice of Exercise the
aggregate of the following amounts:
(1) the sum of (A) Employee's Base Salary through the date of the
Notice of Exercise, (B) the product of (x) the highest annual bonus paid
or payable, including any bonus or portion thereof which has been earned
but deferred, during the three year period immediately prior to the date
of the Notice of Exercise and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the date of the
Notice of Exercise, and the denominator of which is 365 and (C) any
accrued vacation pay, in each case to the extent not theretofore paid;
and
(2) the amount equal to the excess (without any present value
discount) of (A) the actuarial equivalent of the benefit under the
<PAGE>
Company's qualified defined benefit retirement plan (the "Retirement
Plan") (utilizing actuarial assumptions no less favorable to Employee
than those in effect under the Company's Retirement Plan immediately
prior to the Change in Control), and the National Bank of Commerce
Supplemental Employee Retirement Plan as Amended and Restated (the
"SERP") which Employee would receive if Employee's employment continued
for three years after the date of the Notice of Exercise assuming for
this purpose that all accrued benefits are fully vested, and, assuming
that Employee's compensation in each of the three years is the Employee's
highest Base Salary during the three year period immediately preceding
the date of the Notice of Exercise and the Highest Annual Bonus, over (B)
the actuarial equivalent of Employee's actual benefit (paid or payable),
if any, under the Retirement Plan and the SERP as of the date of the
Notice of Exercise;
(d) If Employee gives the Notice of Exercise, for three years
after Employee's Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue to provide welfare benefits
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to Employee and/or Employee's
eligible dependents at least equal to those provided to Employee at any
time during the 120-day period immediately preceding the Change in
Control or, if more favorable to Employee, those provided generally at
any time after the Change in Control to other peer executives of the
Company and its affiliated companies; provided, however, that if Employee
--------
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of Employee for retiree benefits
pursuant to such plans, practices, programs and policies, Employee shall
be considered to have remained employed until three years after the
Notice of Exercise and to have retired on the last day of such period.
In addition to, and not in limitation of, the benefits provided by the
foregoing, after termination of Employee's employment with the Company,
the Company shall at least provide medical and dental insurance coverage
for Employee and his spouse for their lifetimes that is comparable to the
medical and dental insurance coverage provided by the Company to its
principal executive officers as of July l, 1994, and the Company shall be
entitled to credits for coverage to Employee and his spouse provided by
Medicare.
(e) If, within eighteen (18) months following a Change in Control
which occurs while Employee is employed on active status by the Company,
the Company shall terminate Employee's employment other than for cause
(as defined in Section 4(A)(i) hereof) or Employee's disability, or
Employee shall terminate for good reason (as defined below), Employee
shall be entitled to receive the payments and benefits under Section
3(D)(iii)(a), 3(D)(iii)(c)(1), and 3(D)(iii)(d) and Employee shall remain
entitled to receive the pension benefit set forth in Section 4(D)(vi).
If Employee wishes to commence receiving such pension benefit prior to
age 65 (in a lump sum or otherwise) Employee will be treated as having
three (3) additional years of age and service credit and such payments
shall be the actuarial equivalent (using assumptions no less favorable to
Employee than those in effect under the Company's Retirement Plan as of
the Change in Control) of the benefits set forth in Section 4(D)(vi).
For purposes of this Section 3(D)(i)(e), "good reason" shall mean the
occurrence of any of the following events, without Employee's express
written consent: (1) the scope of the duties, and authority assignment
to Employee immediately prior to the Change in Control is significantly
diminished (without Employee's express written consent) whether or not
for cause (other than as defined in Section 4(A)(i)); or (2) a reduction
;in Employee's Base Salary. Notwithstanding the foregoing, any violation
of clause (1) above solely attributable to the fact that NCBC may no
longer be a public company or may become a subsidiary, or any transfer of
the Employee to a substantially similar position with a substantially
similar title, level of duties and responsibilities to those assigned to
Employee immediately prior to the
<PAGE>
Change in Control shall not constitute good reason.
3. Except as expressly modified hereby, the terms and provisions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered as of the date first above written.
----------------------
Lewis E. Holland
NATIONAL BANK OF COMMERCE
By:
----------------------
NATIONAL COMMERCE BANCORPORATION
By:
----------------------
<PAGE>
EXHIBIT 10.13
AGREEMENT RESPECTING EMPLOYMENT
THIS AGREEMENT ("this Agreement") entered into as of August 17th, 1998,
by and between NATIONAL COMMERCE BANCORPORATION, a Tennessee corporation
("NCBC"), NATIONAL BANK OF COMMERCE, a national banking association (the
"Bank"), and DAVID T. POPWELL (Employee).
R E C I T A L S:
NCBC recognizes the experience and expertise Employee has developed over
the past several years while engaged in the private practice of law and NCBC now
wishes to take steps to assure that NCBC will have the Employee's services
available to it by entering into this Agreement Respecting Employment.
Bank is also a party to this Agreement because Employee may also become
an executive officer of the Bank with responsibilities generally associated with
the Bank's business.
In consideration of the foregoing, the mutual provisions contained
herein, and for other good and valuable consideration, the parties agree with
each other as follows:
1. EMPLOYMENT
A. NCBC shall employ the Employee as Executive Vice President of NCBC
with such duties, powers, authority, functions and responsibilities as said
title would imply and with specific responsibility for NCBC's merger and
acquisition initiative, and the Employee hereby accepts employment upon such
terms and the conditions hereinafter set forth. The Employee may also perform
such duties, and have such comparable powers, authority, functions and
responsibilities for the Bank, particularly with respect to the Bank's Trust
Division, financial services subsidiaries, etc., as may be assigned to him.
B. The Employee shall not, during the term of his employment under this
Agreement, be engaged in any other activities if such activities interfere
materially with the Employee's current duties, authority and responsibilities
for either NCBC or the Bank, except for those other activities as shall
hereafter be carried on with NCBC's or the Bank's consent. The Employee shall be
entitled to make and manage his personal investments provided such investments
or other activities do not violate in any material respect the terms of Sections
6, 7 or 8 hereof.
2. TERM
A. Subject only to the provisions of either Section 3(D) or Section 4
hereof, the term of the Employee's employment under this Agreement shall be for
a continually renewing term of three (3) years without any further action by
either NCBC or the Employee, it being the intention of the parties that there
shall be continuously a term of three (3) years duration of the Employee's
employment under this Agreement until an event has occurred as described in, or
one of the parties shall have made an election pursuant to, the provisions of
either Section 3(D) or Section 4 of this Agreement, provided that such term
shall terminate on the date the Employee becomes age 65.
3. COMPENSATION
For all services rendered by the Employee while on active status under
this Agreement, NCBC agrees to compensate the Employee for each compensation
year (January 1 through December 31) during the term hereof, as follows:
A. Base Salary. A base salary shall be payable to the Employee by NCBC
-----------
as a guaranteed annual amount under this Agreement equal initially to the sum of
$150,000.00 per year (the "Base Salary"), which shall be payable in the
intervals consistent with NCBC=s normal payroll schedules (but in no event less
than semi-monthly). The Base Salary shall be subject to being increased (but
not decreased or adjusted other than as provided in Section 4 of this Agreement)
in the sole discretion of the Board of Directors of NCBC but only in such form
and to such extent as the Board of Directors may from time to time approve. The
official action of the Board of Directors increasing the Base Salary payable to
the Employee shall modify the amount of Base Salary stated in this Section 3(A).
<PAGE>
B. Other Compensation. The Employee shall be entitled to participate in
------------------
any incentive or supplemental compensation plan or arrangement instituted by
NCBC and covering its principal executive officers and to receive additional
compensation from NCBC in such form and to such extent, if any, as the Board of
Directors may in its sole discretion from time to time specify and determine;
provided, however, in the event the Employee shall go on part-time status for
any reason, the Employee shall nevertheless be entitled to be paid pro rata
incentive or supplemental compensation for the fiscal year ending in the
compensation year in which the Employee goes on part-time status, for the number
of calendar months during such fiscal year that Employee shall have been on
active status, at the same time, on the same basis and to the extent as any of
NCBC's principal executive officers on active status are selected by the Board
of Directors to receive any incentive or supplemental compensation award for
such fiscal year, in no event, however, shall such incentive or supplemental
compensation be less than $75,000.00 per year and pro rated for anything less
than a full calendar year. The phrase "principal executive officer" as used in
this Agreement shall mean the chief executive officer of NCBC and other
executive officers of NCBC who are from time to time designated as an executive
officer by the Board of Directors.
C. Tax Indemnity. Should any of the payments of Base Salary, other
-------------
incentive or supplemental compensation, benefits, allowances, awards, payments,
reimbursements or other perquisites (including the payments provided for under
this Section 3(C)), singly, in any combination or in the aggregate, that are
provided for hereunder to be paid to or for the benefit of the Employee
(including, without limitation, the payment provided for in Section 3(D) hereof)
or under any other plan, agreement or arrangement between the Employee and NCBC,
be determined or alleged to be subject to an excise or similar purpose tax
pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, or
any successor or other comparable federal, state or local tax laws, NCBC shall
pay to the Employee such additional compensation as is necessary (after taking
into account all federal, state and local income taxes payable by the Employee
as a result of the receipt of such additional compensation) to place the
Employee in the same after tax position (including federal, state and local
taxes) he would have been in had no such excise or similar purpose tax (or any
interest or penalties thereon) been paid or incurred. NCBC hereby agrees to pay
such additional compensation within five (5) business days after the Employee
notifies NCBC that the Employee intends to file a tax return which takes the
position that such excise or similar purpose tax is due and payable in reliance
on a written opinion of the Employee's tax counsel (such tax counsel to be
chosen solely by the Employee) that it is more likely than not that such excise
tax is due and payable. The costs of obtaining such tax counsel opinion shall
be borne by NCBC, and as long as such tax counsel was chosen by the Employee in
good faith, the conclusions reached in such opinion shall not be challenged or
disputed by NCBC. If the Employee intends to make any payment with respect to
any such excise or similar purpose tax as a result of an adjustment to the
Employee's tax liability by any federal, state or local tax authority, NCBC will
pay such additional compensation by delivering its cashier's check payable in
such amount to the Employee within five (5) business days after the Employee
notifies NCBC of his intention to make such payment. Without limiting the
obligation of NCBC hereunder, the Employee agrees, in the event the Employee
makes any payment pursuant to the preceding sentence, to negotiate with NCBC in
good faith with respect to procedures reasonably requested by NCBC which would
afford NCBC the ability to contest the imposition of such excise tax; provided,
however, that the Employee will not be required to afford NCBC any right to
contest the applicability of any such excise tax to the extent that the Employee
reasonably determines (based upon the opinion of his tax counsel) that such
contest is inconsistent with the overall tax interests of the Employee. For
purposes of this Section 3(C), payments from Bank or any affiliate or successor
of the Bank or NCBC shall be treated as payments from NCBC.
D. (i) Change of Control - Operation of Section 3(D).
---------------------------------------------
(a) This Section 3(D) shall be effective, but not operative,
immediately upon execution of this Agreement by the parties hereto and shall
remain in effect so long as the Employee remains employed by NCBC on active
status and for twelve (12) months after the Employee goes on part-time status,
but shall not be operative unless and until there has been a Change in Control,
as defined in subsection (i)(b) hereof. Upon such a Change in Control, this
Section 3(D) shall become operative immediately.
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(b) "Change in Control" shall mean a change in control of NCBC that
shall be deemed to have occurred if and when, with or without the approval of
the Board of Directors of NCBC incumbent prior to the occurrence,
(1) More than 25% of the outstanding securities entitled to
vote in an election of directors of NCBC shall be acquired by any person
(as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) other than by any person which includes
the Employee; or
(2) As the result of a tender offer, merger, consolidation,
sale of assets or contested election, or any combination of such
transactions, the persons who were directors of NCBC immediately before
the transaction shall cease to constitute a majority of the Board of
Directors of NCBC.
(ii) Employee's Rights Upon Change of Control. If a Change in Control
----------------------------------------
(as defined in subsection (b) of Section 3(D)(i)) occurs while the Employee is
employed on active status by NCBC, the Employee may in his sole discretion,
within eighteen (18) months after the date of the Change of Control, give notice
to the Secretary of NCBC that he intends to elect to exercise his rights under
this Section 3(D) (the "Notice of Intention"). If a Change of Control occurs
within twelve (12) months after the Employee has been placed on part-time status
pursuant to either Section 4(c)(i) or Section 4(F), the Employee may, in his
sole discretion, within twelve (12) months after the date of the Change of
Control, give notice to the Secretary of NCBC that he intends to elect to
exercise his rights under this Section 3(D) (the "Notice of Intention"). The
right to give such Notice of Intention to elect to receive the payment provided
for in subsection (iii) of this Section 3(D) shall continue for eighteen (18) or
twelve (12) months respectively from the date of the Change of Control
irrespective of any action by NCBC pursuant to Section 4(A)(iii) or Section 4(F)
within such eighteen (18) or twelve (12) month period. Within thirty (30) days
after NCBC's receipt of the Notice of Intention, NCBC shall provide written
notice to the Employee setting forth NCBC's computation of the amount that would
be payable pursuant to subsection (iii) of this Section 3(D), accompanied by the
written opinion of NCBC's independent certified public accountants confirming
NCBC's computation. If the Employee takes exception to NCBC's computation of
such amount, the Employee may (but shall not be prejudiced in his right to later
contest the amount actually paid by failure to do so) give a further written
notice to NCBC setting forth in reasonable detail the Employee's exceptions to
NCBC's computation, accompanied by the written opinion of the Employee's tax
advisor confirming the basis for such exceptions. Exercise by the Employee of
his rights pursuant to this Section 3(D) shall only be made by giving further
notice to the Secretary of NCBC (the "Notice of Exercise") within six (6) months
from the date of the Notice of Intention.
(iii) Payment upon Change of Control.
------------------------------
(a) If the Employee gives the Notice of Exercise
described in subsection (ii) of this Section 3(D) to NCBC, NCBC shall pay the
Employee a lump sum amount equal to three (3) times the Employee's base amount
(as defined by Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code")), less one dollar ($1.00). NCBC shall, within five (5) business
days after the date of the Notice of Exercise, deliver to the Employee its
cashier's check in the amount payable pursuant to this subsection (iii) (a) of
Section 3(D), and payment of such amount shall terminate the Employee's rights
to receive any and all other payments, rights or benefits pursuant to Sections
3(A), 3(B), 4 and 5 of this Agreement, other than any payments, rights or
benefits arising (x) pursuant to Section 3(C), subsection (iii) of Section 3(D),
Section 3(E) or Section 12 of this Agreement, or (y) from any other agreement,
plan or policy which by its terms or by operation of law provides for the
continuation of such payments, rights or benefits after the termination of the
Employee's relationship with NCBC.
(b) Such lump sum payment shall be in addition to and
shall not be offset or reduced by any other amounts payable or that may become
payable to the Employee, or his beneficiaries, by NCBC, including, but not
limited to, salary, bonus, severance pay, consulting fees, disability benefits,
termination benefits, retirement benefits, life and health insurance benefits,
or any other compensation or benefit payment that is part of any valid previous,
current, or future contract, plan
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or agreement, written or oral, or any indemnification payments that may be or
become payable to the Employee pursuant to the provisions of NCBC's Charter, By-
laws or otherwise.
(c) If Employee gives the Notice of Exercise, in
addition to the lump sum payment under paragraph (a) above, NCBC shall pay to
Employee in a lump sum in cash within five (5) business days after the delivery
of the Notice of Exercise the aggregate of the following amounts:
(1) the sum of (A) Employee's Base Salary through
the date of the Notice of Exercise, (B) the product of (x) the highest annual
bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred, during the three year period immediately prior to the date
of the Notice of Exercise (such amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the date of the Notice of Exercise, and the
denominator of which is 365 and (C) any accrued vacation pay, in each case to
the extent not theretofore paid; and
(2) The amount equal to the excess (without any
present value discount) of (A) the actuarial equivalent of the benefit under the
Bank's qualified defined benefit retirement plan (the "Retirement Plan")
(utilizing actuarial assumptions no less favorable to Employee than those in
effect under the Bank's Retirement Plan immediately prior to the Change of
Control), and the National Bank of Commerce Supplemental Employee Retirement
Plan as Amended and Restated (the "SERP") which Employee would receive if
Employee's employment continued for three years after the date of the Notice of
Exercise assuming for this purpose that all accrued benefits are fully vested,
and, assuming that Employee's compensation in each of the three years is
Employee's highest Base Salary during the three year period immediately
preceding the date of the Notice of Exercise and the Highest Annual Bonus, over
(B) the actuarial equivalent of Employee's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP as of the date of the Notice of
Exercise;
(d) If Employee gives the Notice of Exercise, for three
years after the date of the Notice of Exercise, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy, Bank
shall continue to provide welfare benefits (including, without limitation,
medical, prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to Employee and/or
Employee's eligible dependents as least equal to those provided to Employee at
any time during the 120-day period immediately preceding the Change in Control
or, if more favorable to Employee, those provided generally at any time after
the Change in Control to other peer executives of the Company and its affiliated
companies; provided, however, that if Employee becomes reemployed with another
-------- -------
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of Employee for retiree benefits
pursuant to such plans, practices, programs and policies, Employee shall be
considered to have remained employed until three years after the date of the
Notice of Exercise and to have retired on the last day of such period;
E. Employee's Expenses. All costs and expenses (including reasonable
-------------------
legal, accounting and other advisory fees) incurred by the Employee to (w)
defend the validity of this Agreement, (x) contest any determinations by NCBC
concerning the amounts payable (or reimbursable) by NCBC to the Employee under
this Agreement, (y) determine in any tax year of the Employee the tax
consequences to the Employee of any amounts payable (or reimbursable) under
Section 3(C) or (D) hereof, or (z) prepare responses to an Internal Revenue
Service audit of, and to otherwise defend, his personal income tax return for
any year which is the subject of any such audit, or an adverse determination,
administrative proceedings or civil litigation arising therefrom that is
occasioned by or related to an audit by the Internal Revenue Service of the
Bank's income tax returns, are, upon written demand by the Employee, to be
promptly advanced or reimbursed to the Employee or paid directly, on a current
basis, by NCBC or its successors.
4. TERMINATION, PART-TIME STATUS, AND REVISED COMPENSATION, DEATH,
DISABILITY
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A. Termination. The employment of the Employee under this Agreement,
------------
while the Employee is on active status, may be terminated at any time by NCBC,
acting through its Board of Directors (and not a committee thereof),
(i) For cause in the event of (x) the Employee's final conviction of a
felony crime involving moral turpitude, or (y) the Employee's deliberate and
intentional continuing refusal to substantially perform his duties and
obligations under this Agreement (except by reason of incapacity due to illness
or accident) if he shall have either failed to remedy such alleged breach within
forty-five (45) days from his receipt of written notice from the Secretary of
NCBC demanding that he remedy such alleged breach, or shall have failed to take
reasonable steps in good faith to that end during such forty-five (45) day
period and thereafter, provided that the Employee thereafter shall have received
a certified copy of a resolution of the Board of Directors of NCBC adopted by
the affirmative vote of a majority of the entire membership of the Board of
Directors at a meeting called and held for that purpose and at which the
Employee was given an opportunity to be heard, finding that the Employee was
guilty of conduct set forth in this clause, that the Employee has failed to take
reasonable steps in good faith to remedy such alleged breach, and specifying the
particulars thereof in detail,
(ii) Upon a determination that the Employee has engaged in willful
fraud or defalcation or other dishonesty involving the funds, assets or the
operation of either NCBC or the Bank (or any corporate subsidiaries thereof), or
(iii) For any reason in its sole discretion upon written notice to
the Employee effective on the date that is three (3) years after the date on
which such notice is received by the Employee.
B. Termination Payment For Cause. In the event of termination of the
------------------------------
Employee's employment under this Agreement by NCBC under Section 4(A)(i) or
(ii), the Employee shall only be entitled to receive the monthly installment of
his Base Salary being paid at the time of such termination, and, if applicable,
other compensation, due hereunder, computed on a pro rata basis, up to the
effective date of such termination.
C. (i) Part-time Status-Election by NCBC. In the event NCBC shall give
----------------------------------
Employee notice of termination of the Employee's employment under this Agreement
pursuant to Section 4(A) (iii), the Employee shall, subject to the provisions of
Section 4(D)(iii) and (v), be placed on part-time employment status for a period
of three (3) years after the date on which such notice is received by the
Employee.
(ii) Part-time Status-Election by Employee for Cause. Employee shall
-----------------------------------------------
have the right at any time during his employment on active status, at his sole
option and election, by giving written notice to the Secretary of NCBC within
six (6) months after the occurrence of the event(s) that are the basis for the
giving of such notice, to place himself on part-time employment status and to
terminate his employment under this Agreement effective on the date that is
three (3) years after the date on which such notice is given by the Employee if,
at any time,
(a) NCBC shall violate this Agreement in any material respect;
or
(b) The Employee shall not be reelected or reappointed to
(other than by his own choice) or shall be removed from (other than by reasons
justifying such action by NCBC under Sections 4(A)(i) or (ii), 4(E), or 4(F) of
this Agreement) the offices and positions in which Employee is serving on the
date of this Agreement or such higher or additional office or position to which
the Employee may subsequently be elected; or
(c) The scope of the duties, powers, and authority assigned to
the Employee (or attached to the positions specified in Section 4(C)(ii)(b)) on
the date hereof is diminished (without the Employee's express consent) whether
or not for cause (other than as defined in Section 4(A)(i) or (ii)).
(iii) Termination - Election by Employee. Employee shall have the
----------------------------------
right at any time during his employment on active status, by giving written
notice to the Secretary of NCBC to terminate the Employee's employment under
this Agreement effective ninety days (90) after the date on which such notice is
given by the Employee. In the
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event the Employee shall make such election under this Section 4(C) (iii), the
Employee shall, in addition to all other reimbursements, payments or other
allowances required to be paid under this Agreement or under any other plan,
agreement or policy which survives the termination of this Agreement, be
entitled to be paid, in addition to the Base Salary payable during such ninety
(90) day period after the giving of such notice, a lump sum payment payable by
delivery of NCBC's cashier's check within five (5) business days after the end
of such ninety (90) day period, in an amount equal to three (3) monthly
installments of the Base Salary (less required tax withholding) in effect
pursuant to Section 3(A) hereof at the time the Employee makes such election
under this Section 4(C) (iii). Thereupon, this Agreement shall terminate and
Employee shall have no further rights under or be entitled to any other benefits
of this Agreement, provided that the provisions of Sections 3(C), 3(E)(y), 6, 7,
8 and 12 shall survive such termination.
D. Employee's Rights on Part-time Status. During the period that the
--------------------------------------
Employee is on part-time status,
(i) NCBC shall pay Employee a guaranteed minimum annual Base Salary
from the date the Employee goes on part-time status for a period of three (3)
years in an amount equal to seventy-five percent (75%) of the average of the
total annual direct compensation paid to the Employee by NCBC (whether under
this Agreement, a predecessor agreement or otherwise) for the two (2) highest of
the three (3) compensation years immediately preceding the compensation year in
which the notice specified in Section 4(a)(iii), 4(c)(ii) or Section 4(F) of
this Agreement is given. Attached hereto as Exhibit A is a sample calculation
showing how Employee's part-time Base Salary would be calculated if Employee
went on part-time status under this Agreement during 2002.
As used in this Agreement the phrase "total annual direct
compensation" shall mean:
(a) The gross amount of Base Salary (as from time to time
adjusted) paid to the Employee during a compensation year; plus
(b) All other forms of direct compensation attributable to that
specific compensation year whether or not actually paid to the Employee during a
subsequent compensation year. Compensation with respect to this subsection (b)
shall include, but not be limited to, allowances or incentive or supplemental
compensation awards made to the Employee and any amounts paid by NCBC for the
benefit of the Employee into any savings, deferred compensation or similar NCBC-
sponsored plan or arrangement. Compensation with respect to this subsection
(b) shall not include any amounts that must be recognized as compensation in any
such compensation year as a result of the Employee's exercise of a stock option,
exercise of a stock appreciation right, disqualified disposition of stock
acquired pursuant to the exercise of an incentive or non-qualified stock option.
Compensation with respect to this subsection (b) shall also not include any
amounts received by the Employee during a compensation year which would, as
hereinabove provided, be taken into account in computing the direct compensation
for a prior compensation year.
(ii) The guaranteed minimum annual Base Salary payable by NCBC to the
Employee pursuant to this Section 4(D) shall be increased (but not decreased)
annually on the first anniversary of the date of the Employee's going on part-
time status and each anniversary thereafter, on a compound basis, by the greater
of (x) five percent (5%) or (y) the same percentage increase (if any) in the
Consumer Price Index for All Urban Consumer's - All Items Index, for
Region/population size class cross classification for South/B (or any
substantially similar index published for the same area) as published by the
U.S. Department of Labor, Bureau of Labor Statistics for the twelve (12) month
period immediately preceding the first anniversary of the date of the Employee's
going on part-time status and on each yearly anniversary thereafter;
(iii) The Employee shall continue to participate (at not less than
his highest levels of participation or coverage during the last twelve (12)
months the Employee was on active status) in NCBC's or the Bank's pension, group
life/medical/dental/accidental disability insurance, thrift, savings, deferred
compensation, stock option, unit or award plans and other NCBC or Bank benefit
plans that are from time to time available. No change from active to part-time
status by Employee pursuant to any provision of this Agreement shall be deemed
to constitute a termination or cessation of Employee's employment or a break in
Employee's continuous
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<PAGE>
employment for purposes of any stock option agreement between Employee and NCBC
under any stock option plan of NCBC. Subject to the terms of any such stock
option agreements and stock option plans, nothing in this Agreement and no
action by NCBC or Employee pursuant to any provision of this Agreement shall (1)
interrupt or prevent the orderly vesting of Employee in his stock options or
accelerate the time at which Employee would otherwise be entitled to exercise
his stock options in accordance with the terms of such stock option agreements
and stock option plans, or (2) cause Employee's stock options to expire earlier
than they otherwise would under such stock option agreements and stock option
plans;
(iv) The Employee shall not be prevented from accepting other
employment while on part-time status or engaging in (and devoting substantially
all of his time to) other business activities that are not in conflict with the
limitations set forth in Section 6 hereof;
(v) This Agreement and Employee's continuing employment on part-time
status may be terminated at any time by NCBC (x) pursuant to the provisions of
Section 4(A)(ii), or (y) if the Employee violates the provisions of Sections 6,
7 or 8, respectively;
(vi) While on part-time status and except as otherwise required
herein, the Employee shall not be required to perform any regular duties for
NCBC (except to provide such services consistent with the Employee's educational
background, experience and prior positions with NCBC, as may be acceptable to
the Employee) or to seek or accept additional employment with any other person
or firm (although the Employee shall be free to do so, so long as accepting such
additional employment or engaging in other business activity is not in conflict
in any material respect with the limitations set forth in Section 6 of this
Agreement). If the Employee, at his discretion, shall accept any such
additional employment or engage in any such other business activity consistent
with Section 6 of this Agreement, there shall be no offset, reduction or effect
upon any rights, benefits or payments to which the Employee is entitled pursuant
to this Agreement. Furthermore, the Employee shall have no obligation to account
for, remit, rebate or pay over to NCBC any compensation or other amounts earned
or derived in connection with such additional employment or business activity
consistent with Section 6 of this Agreement; and
(vii) The Employee shall, however, make himself generally available
for special projects or to consult with NCBC and its employees at such times and
at such places as may be reasonably requested by NCBC and which shall be
reasonably satisfactory to the Employee and consistent with the Employee's
regular duties and responsibilities in the course of his then new occupation or
other employment, if any.
E. Death. In the event of the Employee's death during the term of his
-----
employment hereunder, NCBC shall pay a death benefit to the Employee's surviving
spouse or to the executor or administrator of the Employee's estate (if his
spouse shall not survive him) an amount equal to two times his annual Base
Salary then payable pursuant to Sections 3(A) or 4(D), as the case may be, such
death benefit to be paid in forty-eight (48) equal monthly installments
commencing on the first day of the month following the date of death of the
Employee.
F. Disability. The Employee shall be covered by either NCBC's or the
-----------
Bank's disability benefit plan as such plan may from time to time exist. NCBC or
the Bank may eliminate or change the terms and conditions of said plan at its
discretion with no liability to the Employee other than the liability, if any,
under such plan which may have accrued up to the elimination or change of such
plan. In the event because of physical or mental illness or personal injury
while the Employee is on active status or part-time status, the Employee shall
become permanently unable or disabled such that he is unable to perform, and in
all reasonable medical likelihood, going to continue indefinitely to be unable
to perform his normal duties in his regular manner, as determined by
independent, competent medical authority,
(i) If such disability determination occurs while the Employee is on
active status, NCBC may elect (but shall not be obligated) to terminate the
Employee's employment under this Agreement on a date which is not less than
three (3) years after the date on which written notice of such termination is
received by the Employee in which event the Employee shall be placed on part-
time status, and NCBC shall pay to the
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Employee the Base Salary payable pursuant to Section 4(D)(i) for a period not
less than three (3) years thereafter; or
(ii) If such disability determination occurs while the Employee is on
part-time status pursuant to Section 4(C)(i), NCBC shall continue to pay to the
Employee the amount of his Base Salary then payable for the greater of (x) the
balance of the period remaining under the term of this Agreement, or (y) for one
(1) year; reduced, in any case however, by the amount of any payments made to
such Employee under the coverage then afforded to the Employee by any NCBC or
Bank disability benefit plan in effect at the time such disability determination
is made. The Employee shall, during such disability and until the effective
date of the termination of this Agreement and of payments hereunder by NCBC to
the Employee, continue to enjoy all other applicable benefits of employment that
would otherwise pertain to continued employment on part-time status pursuant to
this Agreement.
G. Return of Property. Upon termination of the Employee's employment
-------------------
under this Agreement, however brought about, the Employee (or his
representatives) shall promptly deliver and return to NCBC all NCBC property
including, but not limited to, credit cards, manuals, customer lists, financial
data, letters, notes, notebooks, reports and copies of any of the above, and any
Protected Information (as defined in Section 7) which is in the possession or
under the control of the Employee.
5. OTHER EMPLOYEE RIGHTS
A. The Employee shall be entitled to (i) participate in any NCBC or Bank
pension, group life/medical/dental/accidental, disability insurance, thrift,
savings, deferred compensation, incentive compensation, stock option, unit or
award plans, vacation plans, automobile allowances and all other NCBC or Bank
benefit plans, fringe benefits, allowances and accommodations of employment as
are from time to time generally available or applicable to NCBC=s principal
executive officers, and (ii) annual vacations in accordance with the vacation
policy established by NCBC or the Bank.
B. The Employee is authorized to incur reasonable business expenses
while on active status as an employee of NCBC, including expenses for meals,
hotel and air travel, telephone, automobile and similar items. NCBC shall
either pay directly or promptly reimburse the Employee for such expenses upon
the presentment by the Employee from time to time of an itemized accounting (as
required by NCBC or Bank policies) of such expenditures for which reimbursement
is sought.
C. The Employee shall, while on active status, be provided by NCBC with
office space, furnishings and facilities, parking, secretarial assistance and
equipment.
6. COVENANT NOT TO COMPETE
A. The Employee recognizes that in the highly competitive businesses in
which NCBC and are engaged, personal contact is of primary importance in
securing new customers and in retaining the accounts and goodwill of present
customers and protecting the business of NCBC. The Employee, therefore, agrees
that at all times during the term of his employment hereunder and for a period
of two (2) years after the termination of his employment hereunder, he will not,
for himself or on behalf of any person, corporation, association or other entity
other than NCBC or the Bank:
(i) Engage in the commercial banking business within Shelby County,
Tennessee, or within any other county in any state in which NCBC or any
subsidiary corporation or other entity owned or controlled by NCBC maintains an
office or is engaged in the commercial banking business that produced in excess
of 5% of the net income after tax of NCBC on a consolidated basis for the twelve
months prior to the date of termination or employment; or
(ii) Directly or indirectly solicit or attempt to solicit business
from any customer of NCBC or any subsidiary thereof existing on the date of
termination of such employment; provided, however, that this covenant not to
compete shall not apply after a termination of employment if such termination
occurs for cause under Section 4(a)(i) or (ii).
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<PAGE>
It is the intention of this section that if Employee returns to
private practice as an attorney or certified public accountant, nothing herein
shall prevent him from providing such legal or accounting services to any
person, partnership or corporation doing business with NCBC or any subsidiary
thereof.
B. If the provisions of this Section 6 are violated, in whole or in
part, NCBC shall be entitled, upon application to any court of proper
jurisdiction, to a temporary restraining order or preliminary injunction
(without the necessity of posting any bond with respect thereto) to restrain and
enjoin the Employee from such violation without prejudice to any other remedies
NCBC may have at law or in equity. Further, in the event that the provisions of
this Section 6 should ever be deemed to exceed the time, geographic or
occupational limitations permitted by the applicable laws, the Employee and NCBC
agree that such provisions shall be and are hereby reformed to the maximum time,
geographic or occupational limitations permitted by the applicable laws. The
provisions of this Section 6 shall survive the termination of the Employee's
employment or expiration or termination of this Agreement.
7. CONFIDENTIAL INFORMATION
A. The Employee recognizes and acknowledges that he has and will
continue to have access to various confidential or proprietary information
concerning NCBC, the Bank, and their respective subsidiaries, of a special and
unique value which may include, without limitation, (i) books and records
relating to operation, finance, accounting, loans, investments, personnel and
management, (ii) written policies and other printed matter relating particularly
to operations such as customer names and addresses and customer financial
information. The Employee also recognizes that a portion of NCBC's business is
dependent upon many business secrets including business opportunities, marketing
or business diversification plans, business development, methods and processes,
financial data and the like. The Employee acknowledges and agrees that
protection of this confidential information and business secrets against
unauthorized disclosure and use is of critical importance to NCBC, and the
Employee therefore agrees that he will not at any time, either while employed by
NCBC or afterwards, knowingly make any independent use of, or knowingly disclose
to any other person or organization (except as required by regulatory authority,
by a court or as authorized by NCBC) any of the confidential information or
business secrets.
B. In the event of a breach or threatened breach by the Employee of the
provisions of this Section 7, the Employee agrees that NCBC shall be entitled to
a temporary restraining order or a preliminary injunction (without the necessity
of NCBC posting any bond in connection therewith) restraining the Employee from
using or disclosing, in whole or in part, such confidential information and
business secrets. Nothing herein shall be construed as prohibiting NCBC from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from the Employee.
8. EMPLOYEE CONDUCT
A. The Employee represents and agrees with NCBC that he will not
knowingly make any disbursement or other payment of any kind or character out of
the compensation paid or expenses reimbursed to him pursuant hereto or with any
other fund, which contravene, in any material respect, any policy of NCBC or the
Bank or, in any material respect, any applicable statute or rule, regulation or
order of any jurisdiction, foreign or domestic. The Employee further agrees to
indemnify and save harmless NCBC or the Bank from any liabilities, obligations,
claims, penalties, fines or losses resulting from any unauthorized or unlawful
acts of the Employee which contravene in any material respect any policy of NCBC
or the Bank or any statute, rule, regulation or order of any jurisdiction,
foreign or domestic, applicable to the Employee, NCBC or the Bank. The
provisions of this Section 8 shall survive the dissolution or termination of the
Employee's employment under this Agreement.
B. The Employee acknowledges that he has been furnished with a current
copy of the policy and procedures manual of NCBC, dated July 1997, that he has
read and understands such policies and procedures set forth in such manual, that
he understands such policies and procedures (and will read and become familiar
with any revisions or supplements to this manual) are applicable to the Employee
in the performance of his duties and job performance for NCBC, and that he
agrees to observe in all material
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<PAGE>
respects NCBC's policies and procedures in the conduct by the Employee of his
employment duties for NCBC.
C. The Employee agrees to disclose honestly and fully all information
and documentation in his possession concerning all transactions or events
relating to or affecting NCBC or any direct or indirect subsidiary owned,
controlled by NCBC, as and to the extent such information or documentation is
requested by NCBC or the authorized representatives thereof; provided that if
the Employee indicates to NCBC that the information or documentation requested
is privileged, confidential or personally sensitive, appropriate steps will be
taken to attempt to protect such privilege, confidentiality or privacy to the
extent possible consistent with the ethical and legal obligations applicable to
NCBC, but neither such assertions by the Employee nor the undertakings attempted
by NCBC with respect thereto shall qualify the unconditional disclosure
obligation of the Employee set forth above.
9. GENERAL PROVISIONS
A. In case any one or more of the provisions of this Agreement shall,
for any reason, be held or found by final judgment of a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect (i) such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Agreement, and (ii) this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein
(except that this subsection (ii) shall not prohibit any modification allowed
under Section 6 hereof), and (iii) if the effect of a holding or finding that
any such provision is either invalid, illegal or unenforceable is to modify to
the Employee's detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Employee intended by NCBC and
Employee in entering into this Agreement, NCBC shall promptly negotiate and
enter into an agreement with the Employee containing alternative provisions
(reasonably acceptable to the Employee), that will restore to the Employee (to
the extent lawfully permissible) substantially the same economic, substantive
and income tax benefits the Employee would have enjoyed had any such provision
of this Agreement been upheld as legal, valid and enforceable. Failure to
insist upon strict compliance with any provision of this Agreement shall not be
deemed a waiver of such provision or of any other provision of this Agreement.
B. The Employee acknowledges receipt of a copy of this Agreement
(together with any attachments hereto), which has been executed in duplicate and
agrees that, with respect to the subject matter hereof, it is the entire
Agreement with NCBC. Any other oral or any written representations,
understandings or agreements with NCBC or any of its officers or representatives
covering the same subject matter which are in conflict with this Agreement are
hereby merged into and superseded by the provisions of this Agreement.
C. NCBC shall have no right of set-off or counterclaim in respect of any
debt or other obligation of the Employee to NCBC against any payment or other
obligation of NCBC to the Employee provided for in this Agreement or pursuant to
any other plan, agreement or policy.
D. No provision of this Agreement may be amended, modified or waived
unless such amendment, modification or waiver shall be agreed to in writing and
signed by the Employee and by a person duly authorized by NCBC's Board of
Directors.
E. No right to or interest in any compensation or reimbursement payable
hereunder shall be assignable or divisible by the Employee; provided, however,
that this provision shall not preclude the Employee from designating one or more
beneficiaries to receive any amount that may be payable after his death and
shall not preclude his executor or administrator from assigning any right
hereunder to the person or persons entitled thereto.
F. The headings of sections and subsections hereof are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
G. (i) NCBC consents with respect to any action, suit or other legal
proceeding pertaining directly to this Agreement or to the interpretation of or
enforcement of any of Employee's rights hereunder, to service of process in the
State
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<PAGE>
of Tennessee and service of same at One Commerce Square, Memphis, Tennessee
38150 upon any executive officer of NCBC. NCBC irrevocably (i) agrees that any
such suit, action or legal proceeding may be brought in the courts of such state
or the courts of the United States for such state, (ii) consents to the
jurisdiction of each such court in any such suit, action or legal proceeding and
(iii) waives any objection it may have to the laying of venue of any such suit,
action or legal proceeding in any of such courts.
(ii) This Agreement shall be construed in accordance with and governed
for all purposes by the laws of the State of Tennessee.
H. This Agreement may not be assigned, partitioned, subdivided, pledged,
or hypothecated in whole or in part without the express prior written consent of
the Employee and NCBC. This Agreement shall not be terminated either by the
voluntary or involuntary dissolution or the winding up of the affairs of NCBC,
or by any merger or consolidation wherein NCBC is not the surviving corporation,
or by any transfer of all or substantially all of NCBC's assets on a
consolidated basis. In the event of any such merger, consolidation or transfer
of assets, the provisions of this Agreement shall be binding upon and shall
inure to the benefit of the surviving corporation or to the corporation to which
such assets shall be transferred. In the event of such a merger, consolidation
or transfer of assets and NCBC is not the surviving corporation, notice is
deemed to have been given if delivered to the Secretary of NCBC's corporate
successor in the manner described in Section 11.
I. If any amounts which are required or determined to be paid or payable
or reimbursed or reimbursable to the Employee under this Agreement (or under any
other plan, agreement, policy or arrangement with NCBC) are not so paid promptly
at the times provided herein or therein, such amounts shall accrue interest
compounded daily at the annual percentage rate which is two percentage points
(2%) above the interest rate which is established by the Bank, from time to
time, as its Prime Rate, from the date such amounts were required or determined
to have been paid or payable or reimbursed or reimbursable to the Employee until
such amounts and any interest accrued thereon are finally and fully paid,
provided, however, that in no event shall the amount of interest contracted for,
charged or received hereunder exceed the maximum non-usurious amount of interest
allowed by applicable law.
J. NCBC agrees with the Employee that, except to the extent required by
law, it will not make or publish, without the express prior written consent of
the Employee, any written or oral statement concerning the terms of the
Employee's employment relationship with NCBC and will not, if the Employee goes
on part-time status for any reason or severs his employment with NCBC, make or
publish any written or oral statement concerning the Employee including, without
limitation, his work-related performance or the reasons or basis for the
Employee going on part-time status or otherwise severing his employment
relationship with NCBC.
10. TERMINATION OF PRIOR AGREEMENTS
This Agreement shall terminate and supersede any and all prior written or
oral agreements or understandings existing between NCBC and the Employee with
respect to employment or compensation, and NCBC and the Employee hereby mutually
release and discharge each other from any further obligation, liability or
responsibility under any of the foregoing.
11. NOTICES
Any notice required or permitted to be given under this Agreement shall
be in writing and shall be deemed to have been given when delivered in person or
when deposited in the U.S. mail, registered or certified, postage prepaid, and
mailed to the respective addresses set forth herein.
12. DISPUTES; PAYMENT OF ATTORNEYS' FEES
If at any time during the term of this Agreement or afterwards there
should arise any dispute as to the validity, interpretation or application of
any term or condition of this Agreement, NCBC agrees to pay the Employee's
reasonable attorneys' fees (including expenses of investigation) incurred by the
Employee in connection with any such dispute or litigation provided that the
Employee shall be the prevailing
-26-
<PAGE>
party. The provisions of this Section 12 shall survive the expiration or
termination of this Agreement and of the Employee's employment hereunder.
IN WITNESS WHEREOF, the parties have executed and delivered this Amended
and Restated Agreement as of the day and year indicated above.
/s/ David T. Popwell
---------------------------------------
DAVID T. POPWELL
Employee's Permanent Address:
Print:
---------------------------------
(Street)
----------------------------------------
(City) (State) (Zip)
NATIONAL COMMERCE BANCORPORATION
By:/s/ Thomas M. Garrott
----------------------------------
Thomas M. Garrott, Chairman of the
Board and Chief Executive Officer
/s/Harry J. Phillips, Sr.
-------------------------
Harry J. Phillips, Sr.
Chairman of the NCBC Compensation/Benefits Committee
NATIONAL BANK OF COMMERCE
By:/s/ Lewis E. Holland
--------------------------------
Lewis E. Holland, Chief Financial Officer
EXHIBIT A
David T. Popwell
----------------
Sample Computation of Part-Time Base Salary Under 4(D)(i) assuming the
notice specified in Section 4(a)(iii), 4(c)(ii) or Section 4(F) was given in
2002. (This computation also assumes a 10% increase per year in compensation)
Formula: 75% of the average of the total annual direct compensation paid
-------
to Employee for the two (2) highest of the three (3)
compensation years immediately preceding 2002.
<TABLE>
<CAPTION>
<S> <C> <C>
1999: $150,000 Base Salary
----
75,000 Bonus
--------
$225,000
2000: $165,000 Base Salary
----
82,500 Bonus
--------
$247,500
</TABLE>
-19-
<PAGE>
<TABLE>
<S> <C> <C>
2001: $181,500 Base Salary
----
90,750 Bonus
--------
$272,250
</TABLE>
The two highest years were 2000 and 2001.
$247,500 + 272,250 = 519,750
$519,750 + 2 = 259,875.00
$259,875 x 75% = 194,906.25
Part-Time Base Salary = 194,906.25
-19-
<PAGE>
EXHIBIT 10.17
AMENDMENT NUMBER ONE
NATIONAL COMMERCE BANCORPORATION
1994 STOCK PLAN, AS AMENDED AND RESTATED
EFFECTIVE AS OF NOVEMBER 1, 1996
The National Commerce Bancorporation 1994 Stock Plan, as amended and
restated effective as of November 1, 1996 is hereby amended as follows:
(S) 1.
(S) 2.3 Change in Control, hereby is amended as of the effective date of
-----------------
the Amendment Number One in its entirety to read as follows:
"Change in Control" shall mean a change in control of NCBC that shall
-----------------
be deemed to have occurred if and when, with or without the approval
of the Board incumbent prior to the occurrence:
(1) more than 25% of the outstanding securities entitled to
vote in an election of Directors of NCBC shall be
acquired by any person (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended); or
(2) as a result of a tender offer, merger, consolidation,
sale of assets or contested election, or any combination
of such transactions, the persons who were Directors of
NCBC immediately before the transaction shall cease to
constitute a majority of the Board.
(S) 2.
(S) 7.1 hereby is amended effective retroactively to July 1, 1998 by adding
the following to the end of (S) 7.1:
"Finally, the 60,000 and 100,000 share grant caps set forth in this
(S)7.1 shall not apply to an Options granted to an individual not
previously employed by NCBC to induce the individual to become an
employee of NCBC."
(S) 3.
(S) 10, Nontransferability, hereby is amended as of the effective date of
this Amendment Number One in its entirety to read as follows:
"(a) ISOs. No Option granted under this Plan which is an ISO and no
----
surrender right granted under (S) 11 as part of such Option shall be
transferable by a Key Employee other than by will or by the laws of
descent and distribution, and any such Option and any such surrender
right shall be exercisable during the lifetime of a Key Employee only
by such Key Employee.
(b) NQO's and Restricted Stock. No Option granted under this Plan
--------------------------
which is an NQO and no surrender right granted under (S) 11 as part
of such Option and no Restricted Stock grant shall be transferable by
a Key Employee other than by will or by the laws of descent and
distribution except to the extent expressly provided in the related
Option Agreement or Restricted Stock Agreement.
(c) Conditions. A Key Employee's right to effect any transfer under
----------
(S) 10(b) shall be subject to the condition that (1) there is a form
on which to register the related shares of Stock for issuance and
resale under the applicable securities laws which is acceptable to
NCBC (acting in its absolute discretion) or an exemption from such
registration which is acceptable to NCBC (acting in its absolute
discretion) and (2) the transfer has no effect whatsoever on the
terms and conditions to the exercise of the Option or any
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<PAGE>
related surrender right or on the terms and conditions of any
Restricted Stock grant."
(S) 4.
By amending (S) 17, Sale, Merger or Change in Control, as of the
---------------------------------
effective date of this Amendment Number One in its entirety to read as follows:
(S) Sale, Merger or Change in Control
(a) Effective Date. The rules in this (S) 17 automatically shall
--------------
apply on the earlier of the date that NCBC agrees to a transaction
which will result in a Change in Control or on the date a tender
offer is made which could lead to a Change in Control.
(b) Stock Options and Restricted Stock.
----------------------------------
(1) Any and all conditions to the exercise of each Option
which is outstanding on the date the rules in this (S) 17
become applicable automatically shall be waived on such date
and each Key Employee shall (subject to (S) 17(b)(3)) have the
right on and after such date to exercise 100% of the shares of
Stock subject to each such Option,
(2) any and all restrictions on each grant of Restricted Stock
which is outstanding on the date the rules in this (S) 17
become applicable automatically shall lapse and shall be of no
further force or effect on or after such date, and
(3) the Board shall have the right to cancel each such Option
and each such Restricted Stock grant after giving each Key
Employee a reasonable period (which shall not be less than a 30
day period) to exercise each such Option in full and to take
such other action as necessary or appropriate to receive the
Stock subject to each such Restricted Stock grant.
(c) ShareNCBC Program.
-----------------
(1) The Committee on the date the rules in this (S) 17 become
applicable shall grant an Option to each Key Employee who on
such date has satisfied the Stock purchase requirements under
the ShareNCBC Program as implemented by the Committee pursuant
to (S) 7.3 and who on such date remains eligible for the grant
of an Option under the terms of the ShareNCBC Program which
respect to such shares,
(2) each such Option shall be granted as if the Key Employee
as of such date in fact had satisfied all of the conditions for
the grant of an Option under the ShareNCBC Program,
(3) each such Option shall be granted without any conditions
on the exercise of such Option, and
(4) each such Option shall remain 100% exercisable for a
reasonable period (which shall not be less than a 30 day
period) and thereafter shall be treated the same as any other
Option described in (S) 17(b) which was outstanding on the date
the rules in this (S) 17 become applicable.
This Amendment Number One shall be effective on the date NCBC's Board of
Directors adopts this Amendment Number One.
NATIONAL COMMERCE BANCORPORATION
BY:
--------------------------
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<PAGE>
NATIONAL COMMERCE BANCORPORATION
Deferred Compensation Plan
Effective January 1, 1999
<PAGE>
ARTICLE I
PURPOSE AND EFFECTIVE DATE
--------------------------
The purpose of the National Commerce Bancorporation Deferred Compensation Plan
(hereinafter referred to as the "Plan") is to aid National Commerce
Bancorporation and its subsidiaries in retaining and attracting executive
employees and directors by providing them with savings and tax deferral
opportunities. The Plan shall be effective for deferral elections made
hereunder on or after January 1, 1999.
ARTICLE II
DEFINITIONS
-----------
For the purposes of this Plan, the following words and phrases shall have
the meanings indicated, unless the context clearly indicates otherwise:
Section 2.01 Administrative Committee. "Administrative Committee" means
------------
the committee as appointed by the Compensation/Benefits Committee of the Board
of Directors.
Section 2.02 Base Salary. "Base Salary" means the base rate of cash
------------
compensation paid by the Company to or for the benefit of a Participant for
services rendered or labor performed while a Participant, including base pay a
Participant could have received in cash in lieu of (A) deferrals pursuant to
Section 4.02 and (B) contributions made on his behalf to any qualified plan
maintained by the Company or to any cafeteria plan under Section 125 of the
Internal Revenue Code maintained by the Company.
Section 2.03 Base Salary Deferral. "Base Salary Deferral" means the
------------
amount of a Participant's Base Salary which the Participant elects to have
withheld on a pre-tax basis from his Base Salary and credited to his Deferral
Account pursuant to Section 4.02.
Section 2.04 Beneficiary. "Beneficiary" means the person, persons or
------------
entity designated by the Participant to receive any benefits payable under the
Plan pursuant to Article IX.
Section 2.05 Bonus Compensation. "Bonus Compensation" means the amount
------------
awarded to a Participant for a Plan Year under any incentive plan maintained by
the Company.
Section 2.06 Bonus Deferral. "Bonus Deferral" means the amount of a
------------
Participant's Bonus Compensation which the Participant elects to have withheld
on a pretax basis from his Bonus Compensation and credited to his account
pursuant to Section 4.02.
Section 2.07 Board. "Board" means the Board of Directors of National
------------
Commerce Bancorporation.
Section 2.08 Change of Control. For purposes of this Plan, a "Change of
------------
Control" shall be deemed to have occurred if:
(i) there is an acquisition, in any one transaction or a series of
transactions, other than from National Commerce Bancorporation, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), of
beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the
Exchange Act) of 20% or more of either the then outstanding shares of Common
Stock or the combined voting power of the then outstanding voting securities of
National Commerce Bancorporation entitled to vote generally in the election of
directors, but excluding, for this purpose, any such acquisition by National
Commerce Bancorporation or any of its subsidiaries, or any employee benefit plan
(or related trust) of National Commerce Bancorporation or its subsidiaries, or
any corporation with respect
1
<PAGE>
to which, following such acquisition, more than 50% of the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by the individuals and entities who were the beneficial owners,
respectively, of the common stock and voting securities of National Commerce
Bancorporation immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of the
then outstanding shares of Common Stock or the combined voting power of the then
outstanding voting securities of National Commerce Bancorporation entitled to
vote generally in the election of directors, as the case may be; or
(ii) individuals who, as of January 1, 1999, constitute the Board (as of
such date, the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to January 1, 1999, whose election, or nomination for election by
National Commerce Bancorporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of National Commerce Bancorporation (as such
terms are used in Rule 14(a)(11) or Regulation 14A promulgated under the
Exchange Act); or
(iii) there occurs either (A) the consummation of a reorganization,
merger or consolidation, in each case, with respect to which the individuals and
entities who were the respective beneficial owners of the common stock and
voting securities of National Commerce Bancorporation immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation, or (B) an approval
by the shareholders of National Commerce Bancorporation of a complete
liquidation of dissolution of National Commerce Bancorporation or of the sale or
other disposition of all or substantially all of the assets of National Commerce
Bancorporation.
Section 2.09 Commission. "Commission" means the amount awarded to a
------------
Participant for a Plan Year under any commission plan maintained by the Company.
Section 2.10 Commission Deferral. "Commission Deferral" means the amount
------------
of Commission which the Participant elects to have withheld on a pre-tax basis
from his Commission and credited to his Deferral Account pursuant to Section
4.02 and Section 6.01.
Section 2.11 Common Stock. "Common Stock" means the common stock of
------------
National Commerce Bancorporation.
Section 2.12 Company. "Company" means National Commerce Bancorporation,
------------
its successors, any subsidiary or affiliated organizations authorized by the
Board or the Compensation/Benefits Committee to participate in the Plan and any
organization into which or with which National Commerce Bancorporation may merge
or consolidate or to which all or substantially all of its assets may be
transferred.
Section 2.13 Compensation/Benefits Committee. "Compensation/Benefits
------------
Committee" means the Compensation and Benefits Committee of the Board.
Section 2.14 Consideration Shares. "Consideration Shares" means shares
------------
of Common Stock owned by a Participant for six months or longer.
Section 2.15 Date of Exercise. The "Date of Exercise" means date on
------------
which Options are exercised by the Participant.
Section 2.16 Deferral Account. "Deferral Account" means the account
------------
maintained on the books of the Administrative Committee for each Participant
pursuant to Article VII.
Section 2.17 Deferral Period. "Deferral Period" is defined in Section
------------
4.02.
2
<PAGE>
Section 2.18 Deferred Amount. "Deferred Amount" is defined in Section
------------
4.02.
Section 2.19 Director. "Director" means a member of the Board of
------------
Directors of National Commerce Bancorporation, National Bank of Commerce or its
affiliates.
Section 2.20 Directors Compensation. "Directors Compensation" means
------------
all fees and/or other compensation or retainers paid in respect of their duties
performed for or on behalf of the Company.
Section 2.21 Directors Compensation Deferral. "Directors Compensation
------------
Deferral" means the amount of the Directors compensation which the Participant
elects to have withheld on a pretax basis from his compensation as a director
and credited to his account pursuant to Section 4.02.
Section 2.22 Disability. "Disability" means eligibility for disability
------------
benefits under the terms of the Company's Long-Term Disability Plan as in effect
from time to time.
Section 2.23 Eligible Compensation. "Eligible Compensation" means any
------------
Base Salary, Commissions or Bonus Compensation otherwise payable with respect to
a Plan Year.
Section 2.24 ERISA. "ERISA" means the Employee Retirement Income
------------
Security Act of 1974, as amended.
Section 2.25 Fair Market Value. "Fair Market Value" of a share of
------------
Common Stock means the closing price of the Common Stock on the New York Stock
Exchange on the most recent day on which the Common Stock was so traded that
precedes the date as of which Fair Market Value is to be determined. The
definition of Fair Market Value in this Section shall be exclusively used to
determine the values of a Participant's interest in the National Commerce
Bancorporation Share Fund (defined in Section 7.02(b)) for all relevant purposes
under the Plan.
Section 2.26 Form of Payment. "Form of Payment" means payment in one
------------
lump sum or in installments of 5, 10 or 15 years.
Section 2.27 Gain Shares. "Gain Shares" means the shares of Common
------------
Stock so determined under Section 5.05 as resulting from the exercise of any
option pursuant to Article V.
Section 2.28 Gain Share Account. "Gain Share Account" means the account
------------
maintained on the books by the Administrative Committee for the Participant of
the number of Phantom Share Units related to Gain Shares, adjusted for
hypothetical gains, earnings dividends, losses, distribution, withdrawals and
other similar activity.
Section 2.29 Matching Contribution. "Matching Contribution" means the
------------
amount of annual matching contribution that the Company will make to the plan.
Section 2.30 Option. "Option" means an option to acquire shares of
------------
Common Stock granted pursuant to the National Commerce Bancorporation Amended
and Restated Stock Plan or any predecessor or successor thereto.
Section 2.31 Option Expiration Date. "Option Expiration Date" means
------------
the date on which an Option expires under the terms of the National Commerce
Bancorporation Amended and Restated Stock Plan.
Section 2.32 Option Share. "Option Share" means a share of Common Stock
------------
acquired (or deferred hereunder) pursuant to the exercise of an Option.
Section 2.33 Participant. "Participant" means any individual who is
------------
eligible to participate in this Plan and who elects to participate by filing a
Participation Agreement as provided in Article IV.
Section 2.34 Participation Agreement. "Participation Agreement"
------------
means an agreement filed by a Participant in accordance with Article IV.
3
<PAGE>
Section 2.35 Phantom Share Units. "Phantom Share Units" means units of
------------
deemed investment in shares of National Commerce Bancorporation Common Stock so
determined under Section 5.06.
Section 2.36 Plan Year. "Plan Year" means a twelve-month period
------------
beginning January 1 and ending the following December 31.
Section 2.37 Retirement. "Retirement" means retirement of a
------------
Participant from the Company after attaining age 65 or age 55 with at least ten
years of service (in accordance with the method of determining service under the
National Commerce Bancorporation Pension Plan) or in the case of a director the
year in which the director is no longer a member of the board.
Section 2.38 Stock Option Gain Agreement. "Stock Option Gain
------------
Agreement" means an agreement filed by a participant in accordance with Article
V to defer taxation of the gain from the exercise of an Option.
Section 2.39 Termination of Employment. "Termination of Employment"
------------
means the cessation of a Participant's services as a full-time employee of the
Company and its affiliates for any reason other than Retirement.
Section 2.40 Trust. "Trust" means an irrevocable trust which is
------------
intended to be a grantor trust, of which Company is the grantor, within the
meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the
Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
The principal of the Trust, and any earnings thereon shall be held separate and
apart from other funds of Company and shall be used exclusively for the uses and
purposes of Plan participants and general creditors as herein set forth. Plan
participants and their beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plan(s) and this Trust Agreement shall be mere unsecured contractual
rights of Plan participants and their beneficiaries against Company. Any assets
held by the Trust will be subject to the claims of Company's general creditors
under federal and state law in the event of Insolvency. Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code, whereby
Trustee shall cease payment of benefits to plan participants and their
beneficiaries.
Section 2.41 Trustee. "Trustee" means the party appointed by the
------------
Administrative Committee to perform all of the duties set forth in the Trust
Agreement.
Section 2.42 Unforeseeable Emergency. "Unforeseeable Emergency" means
------------
severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or a dependent of the
Participant, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant.
Section 2.43 Valuation Date. "Valuation Date" means the last day of
------------
each calendar month or such other date as the Administrative Committee in its
sole discretion may determine.
ARTICLE III
ADMINISTRATION
--------------
Section 3.01 Compensation/Benefits and Administrative Committees;
------------
Duties. This Plan shall be administered by the Compensation/Benefits Committee.
A majority of the members of the Compensation/Benefits Committee shall
constitute a quorum for the transaction of business. All resolutions or other
action taken by the Compensation/Benefits Committee shall be by a vote of a
majority of its members present at any meeting or, without a meeting, by an
instrument in writing signed by all its members. Members of the
Compensation/Benefits Committee may participate in a meeting of such committee
by means of a conference telephone or similar communications equipment that
enables all persons participating in the meeting to hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
4
<PAGE>
The Compensation/Benefits Committee shall be responsible for the administration
of this Plan and shall have all powers necessary to administer this Plan,
including discretionary authority to determine eligibility for benefits and to
decide claims under the terms of this Plan including the power necessary to
appoint a trustee of the irrevocable trust, except to the extent that any such
powers are vested in any other person administering this Plan by the
Compensation/Benefits Committee. The Compensation/Benefits Committee may from
time to time establish rules for the administration of this Plan, and it shall
have the exclusive right to interpret this Plan and to decide any matters
arising in connection with the administration and operation of this Plan. All
rules, interpretations and decisions of the Compensation/Benefits Committee
shall be conclusive and binding on the Company, Participants and Beneficiaries.
The Compensation/Benefits Committee has delegated to the Administrative
Committee responsibility for performing certain administrative and ministerial
functions under this Plan. The Administrative Committee shall be responsible
for determining in the first instance issues related to eligibility, investment
benchmarks, distribution of Deferred Amounts, determination of account balances,
crediting of hypothetical earnings and of Deferred Amounts and debiting of
hypothetical losses and of distributions, in-service withdrawals, deferral
elections and any other duties concerning the day-to-day operation of this Plan.
The Compensation/Benefits Committee shall have discretion to delegate to the
Administrative Committee such additional duties as it may determine. The
Administrative Committee may designate one of its members as a chairperson and
may retain and supervise outside providers and professionals (including in-house
professionals) to perform any or all of the duties delegated to it hereunder.
Neither the Compensation/Benefits Committee nor a member of the Board nor any
member of the Administrative Committee shall be liable for any act or action
hereunder, whether of omission or commission, by any other member or employee or
by any agent to whom duties in connection with the administration of this Plan
have been delegated or for anything done or omitted to be done in connection
with this Plan. The Compensation/Benefits Committee and the Administrative
Committee shall keep records of all of their respective proceedings and the
Administrative Committee shall keep records of all payments made to Participants
or Beneficiaries and payments made for expenses or otherwise.
The Company shall, to the fullest extent permitted by law, indemnify each
director, officer or employee of the Company (including the heirs, executors,
administrators and other personal representatives of such person) each member of
the Compensation/Benefits Committee and Administrative Committee against
expenses (including attorneys' fees), judgments, fines, amounts paid in
settlement, actually and reasonably incurred by such person in connection with
any threatened, pending or actual suit, action or proceeding (whether civil,
criminal, administrative or investigative in nature or otherwise) in which such
person may be involved by reason of the fact that he or she is or was serving
this Plan in any capacity at the request of the Company.
Any expense incurred by the Company, the Compensation/Benefits Committee or the
Administrative Committee relative to the administration of this Plan shall be
paid by the Company.
Section 3.02 Claim Procedure. If a Participant or Beneficiary makes
------------
a written request alleging a right to receive payments under this Plan or
alleging a right to receive an adjustment in benefits being paid under this
Plan, such actions shall be treated as a claim for benefits. All claims for
benefits under this Plan shall be sent to the Administrative Committee. If the
Administrative Committee determines that any individual who has claimed a right
to receive benefits, or different benefits, under this Plan is not entitled to
receive all or any part of the benefits claimed, the Administrative Committee
shall inform the claimant in writing of such determination and the reasons
therefor in terms calculated to be understood by the claimant. The notice shall
be sent within 90 days of the claim unless the Administrative Committee
determines that additional time, not exceeding 90 days, is needed. The notice
shall make specific reference to the pertinent Plan provisions on which the
denial is based, and shall describe any additional material or information that
is necessary. Such notice shall, in addition, inform the claimant of the
procedure that the claimant should follow to take advantage of the review
procedures set forth below in the event the claimant desires to contest the
denial of the claim. The claimant may within 90 days thereafter submit in
writing to the Administrative Committee a notice that the claimant contests the
denial of his or her claim and desires a further review by the
Compensation/Benefits Committee. The Compensation/Benefits Committee shall
within 60 days thereafter review the claim and authorize the claimant to review
pertinent documents and submit issues and comments relating to the claim to the
Compensation/Benefits Committee. The Compensation/Benefits Committee will
render a final decision on behalf of the Company with specific reasons therefor
in writing and will transmit it to the claimant within 60 days of the written
request for review, unless the Chairperson of the Compensation/Benefits
Committee determines that additional time, not exceeding 60 days, is needed, and
so notifies the
5
<PAGE>
Participant. If the Committee fails to respond to a claim filed in accordance
with the foregoing within 60 days or any such extended period, the Company shall
be deemed to have denied the claim.
ARTICLE IV
PARTICIPATION
-------------
Section 4.01 Participation. Participation in the Plan shall be limited
------------
to executives and Directors who (i) meet such eligibility criteria as the
Compensation/Benefits Committee shall establish from time to time, and (ii)
elect to participate in this Plan by filing a Participation Agreement with the
Administrative Committee. A Participation Agreement must be filed prior to the
December 31st immediately preceding the Plan Year for which it is effective.
The Administrative Committee shall have the discretion to establish special
deadlines regarding the filing of Participation Agreements for specified groups
of Participants.
Section 4.02 Contents of Participation Agreement. Subject to Article
------------
VIII, each Participation Agreement shall set forth: (i) the amount of Eligible
Compensation for the Plan Year or performance period to which the Participation
Agreement relates that is to be deferred under the Plan (the "Deferred Amount"),
expressed as either a dollar amount or a percentage of the Base Salary, Bonus
Compensation and Director Compensation for such Plan Year or performance period;
provided, that the minimum Deferred Amount for any Plan Year or performance
- --------
period shall not be less than $2,000; (ii) the period after which payment of the
Deferred Amount is to be made or begin to be made (the "Deferral Period"), which
shall be the earlier of (A) a number of full years, not less than three, and (B)
the period ending upon the Retirement or prior termination of employment of the
Participant, and (iii) the form in which payments are to be made, which may be a
lump sum or in substantially equal annual installments.
Section 4.03 Modification or Revocation of Election by Participant. A
------------
Participant may not change the amount of his Base Salary Deferrals during a Plan
Year. However, a Participant may discontinue a Base Salary Deferral election at
any time by filing, on such forms and subject to such limitations and
restrictions as the Administrative Committee may prescribe in its discretion, a
revised Participation Agreement with the Administrative Committee. If approved
by the Administrative Committee, revocation shall take effect as of the first
payroll period next following its filing. If a Participant discontinues a Base
Salary Deferral election during a Plan Year, he will not be permitted to elect
to make Base Salary Deferrals again until the later of the next Plan Year or six
months from the date of discontinuance. In addition, the Deferral Period may be
extended if an amended Participation Agreement is filed with the Administrative
Committee at least one full calendar year before the Deferral Period (as in
effect before such amendment) ends; provided, that only one such amendment may
be filed with respect to each Deferred Amount. Under no circumstances may a
Participant's Participation Agreement be made, modified or revoked
retroactively.
ARTICLE V
STOCK OPTION GAIN DEFERRALS
---------------------------
Section 5.01 In General: Subject to provisions of this Article V,
------------
Participants may elect to defer receipt and distribution of the gain related to
Gain Shares until the end of an elected Deferral Period by filing with the
Administrative Committee a Stock Option Gain Agreement. The stock option gain
deferral features of the Plan are effective for deferral elections made on or
after January 1, 1999.
Section 5.02 Timing of Filing Stock Option Gain Agreement. A Stock
------------
Option Gain Agreement must be filed at least six months prior to the Date of
Exercise, prior to the calendar year in which occurs the Date of Exercise and no
later than the day before the first day of the six month period ending on the
Option Expiration Date. An Option with respect to which a Stock Option Gain
Agreement has been filed may not be exercised prior to the dates specified in
the preceding sentence.
Section 5.03 Contents of Stock Option Gain Agreement. Each Stock
------------
Option Gain Agreement shall set forth: (i) the number of Options to be exercised
in connection with the deferrals hereunder; (ii) the date of grant of the
Options; (iii) the Deferral Period, which is not to be less than three years;
(iv) any other item determined to be appropriate by the Administrative
6
<PAGE>
Committee. A Participant may elect to defer gain on Option Shares in increments
of 25%, 50%, 75% or 100% of the number of Options awarded on a particular date
of grant.
Section 5.04 Manner of Exercising Option Shares. A Participant who
------------
desires to exercise an Option and to defer current receipt and distribution of
the gain related to Gain Shares must follow the procedures and requirements that
are applicable to the Option under the National Commerce Bancorporation Stock
Plan, including the procedures and requirements relating to the exercise of an
Option; provided, however, that in the case of a deferral of Gain Shares under
this Plan, the Participant shall only be permitted to tender Consideration
Shares to pay the entire exercise price for any exercised Option.
Notwithstanding the foregoing, the Administrative Committee may in its
discretion accept the Participant's attestation that he or she owns the number
of Consideration Shares necessary to effectuate the stock swap contemplated
hereunder. The attestation method or any other procedure accepted by the
Administrative Committee shall be consistent with applicable legal authority
regarding the tax-free treatment of such a transaction.
Section 5.05 Determination of Gain Shares. Upon exercise of an Option,
------------
the gain of which the Participant has elected to defer hereunder, Gain Shares
resulting from such exercise shall be determined as follows: (i) the aggregate
exercise price for all exercised Option Shares shall be determined; (ii) the
number of Consideration Shares needed to pay the exercise price for such Option
Shares shall be determined; (iii) the difference between the number of exercised
Option Shares and the number of Consideration Shares shall be the number of Gain
Shares resulting from such exercise. Any fractional Gain Share that results
from the computations hereunder shall be rounded up to the nearest whole number.
Section 5.06 Conversion of Gain Shares to Phantom Share Units. As of
------------
the Date of Exercise, Gain Shares shall be Phantom Share Units by dividing the
amount of the aggregate Fair Market Value of the Gain Shares as of the Date of
Exercise by the Fair Market Value of one share of Common Stock as of the Date of
Exercise. The resulting number of Phantom Share Units shall be credited to the
Participant's Gain Share Account. Any fractional Phantom Share Unit that results
from the computations hereunder shall be rounded up to the nearest whole number.
Section 5.07 Changes to the Stock Option Gain Agreement. A Stock
------------
Option Gain Agreement may not be amended or revoked after the day on which it is
filed with the Administrative Committee, except that the Deferral Period may be
extended if an amended Stock Option Gain Agreement is filed with the
Administrative Committee at least one full calendar year before the Deferral
Period (as in effect before such amendment) ends; provided, that only one such
amendment may be filed with respect to each Stock Option Gain Agreement.
Section 5.08 Failure to Properly Exercise. If a Participant makes a
------------
valid election under this Article V to defer the gain related to Gain Shares and
if the Option expires without a proper exercise of the Option by the Participant
or if the Participant fails to properly tender the Consideration Shares by the
last day of the Option term, the Participant shall forfeit any opportunity to
exercise the option and the Option shall be canceled as of the end of the last
business day of the Option term.
ARTICLE VI
DEFERRED BONUS AND COMMISSION COMPENSATION
------------------------------------------
Section 6.01 Elective Deferred Bonus and Commission Compensation. The
------------
Deferred Amount of a Participant with respect to each Plan Year of participation
in the Plan shall be credited by the Administrative Committee to the
Participant's Deferral Account as and when such Deferred Amount would otherwise
have been paid to the Participant. To the extent that the Company is required
to withhold any taxes or other amounts from the Deferred Amount pursuant to any
state, Federal or local law, such amounts shall be taken out of compensation to
the Participant that is not deferred under this Plan.
7
<PAGE>
ARTICLE VII
MAINTENANCE AND INVESTMENT OF ACCOUNTS
--------------------------------------
Section 7.01 Maintenance of Accounts. Separate Deferral Accounts shall
------------
be maintained for each Participant. More than one Deferral Account may be
maintained for a Participant as necessary to reflect (a) various investment
benchmarks and/or (b) separate Participation Agreements specifying different
Deferral Periods and/or forms of payment. A Participant's Deferral Account(s)
shall be utilized solely as a device for the measurement and determination of
the amounts to be paid to the Participant pursuant to this Plan, and shall not
constitute or be treated as a trust fund of any kind. The Administrative
Committee shall determine the balance of each Deferral Account, as of each
Valuation Date, by adjusting the balance of such Deferral Account as of the
immediately preceding Valuation Date to reflect changes in the value of the
deemed investments thereof, credits and debits pursuant to Section 6.01 and
Section 7.02 and distributions pursuant to Article VIII with respect to such
Deferral Account since the preceding Valuation Date.
Section 7.02 Investment Benchmarks. (a) Each Participant shall be
------------
entitled to direct the manner in which his/her Deferral Accounts will be deemed
to be invested, selecting among the investment benchmarks specified in Appendix
A hereto, as amended by the Compensation/Benefits Committee from time to time,
and in accordance with such rules, regulations and procedures as the
Compensation/Benefits Committee may establish from time to time. Notwithstanding
anything to the contrary herein, earnings and losses based on a Participant's
investment elections shall begin to accrue as of the date such Participant's
Deferral Amounts are credited to his/her Deferral Accounts.
(b) (i) The investment benchmarks available for Deferral Accounts from
time to time may include a "National Commerce Bancorporation Share Fund." The
National Commerce Bancorporation Share Fund shall consist of deemed investments
in shares of National Commerce Bancorporation Common Stock. Deferred Amounts
that are deemed to be invested in the National Commerce Bancorporation Share
Fund shall be converted into deemed shares based upon the Fair Market Value of
the Common Stock as of the date(s) the Deferred Amounts are to be credited to a
Deferral Account. The portion of any Deferral Account that is invested in the
National Commerce Bancorporation Share Fund shall be credited, as of each
Valuation Date, with additional shares of Common Stock with respect to cash
dividends paid on the Common Stock with record dates during the period beginning
on the day after the most recent preceding Valuation Date and ending on such
Valuation Date, as follows. The credit shall be for a number of additional
deemed shares of Common Stock having a Fair Market Value, as of the payment date
for a cash dividend, equal to the dollar amount of such cash dividend paid with
respect to a number of actual shares of Common Stock equal to the number of
deemed shares in such Deferral Account as of such Valuation Date minus the
number of such deemed shares that were distributed to the Participant before
such Valuation Date but after the most recent prior Valuation Date.
(ii) When a deemed reinvestment or a distribution of all or a portion of
a Gain Share Account that is invested in the National Commerce Bancorporation
Share Fund is to be made, the balance in such a Deferral Account shall be
determined by reference to the Fair Market Value of the Common Stock on the most
recent Valuation Date preceding the date of such reinvestment or distribution.
Upon a lump sum distribution, the amounts in the National Commerce
Bancorporation Share Fund shall be distributed in the form of cash having a
value equal to the Fair Market Value of the deemed shares being distributed,
actual shares of Common Stock, or a combination thereof, as determined by the
Compensation/Benefits Committee.
(iii) In the event of a stock dividend, split-up or combination of the
Common Stock, merger, consolidation, reorganization, recapitalization, or other
change in the corporate structure or capitalization affecting the Common Stock,
such that an adjustment is determined by the Compensation/Benefits Committee to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under this Plan, then the
Compensation/Benefits Committee may make appropriate adjustments to the number
of deemed shares credited to any Deferral Account. The determination of the
Compensation/Benefits Committee as to such adjustments, if any, to be made shall
be conclusive.
(iv) Notwithstanding any other provision of this Plan, the
Compensation/Benefits Committee shall adopt such procedures as it may determine
are necessary to ensure that with respect to any Participant who is actually or
potentially subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, the crediting of deemed shares to his or her Deferral Account is not
deemed to be a non-exempt purchase for purposes of such Section 16(b), including
without limitation requiring that no
8
<PAGE>
shares of Common Stock or cash relating to such deemed shares may be distributed
for six months after being credited to such Deferral Account.
Section 7.03 Statement of Accounts. The Administrative Committee shall
------------
submit to each Participant quarterly statements of his/her Deferral Account(s)
and Gain Share Accounts(s), in such form as the Administrative Committee deems
desirable, setting forth the balance to the credit of such Participant in
his/her Deferral Account(s) and Gain Share Accounts as of the end of the most
recently completed quarter.
ARTICLE VIII
BENEFITS
--------
Section 8.01 Time and Form of Payment. At the end of the Deferral
Period for each Deferral Account, the Company shall pay to the Participant the
balance of such Deferral Account at the time or times elected by the Participant
in the applicable Participation Agreement; provided that if the Participant has
elected to receive payments from a Deferral Account in a lump sum, the Company
shall pay the balance in such Deferral Account (determined as of the most recent
Valuation Date preceding the end of the Deferral Period) in a lump sum in cash
(plus any shares of Common Stock that the Compensation/Benefits Committee elects
to deliver from any investment in the National Commerce Bancorporation Share
Fund) as soon as practicable after the end of the Deferral Period. If the
Participant has elected to receive payments from a Deferral Account in
installments, the Company shall make annual cash only payments from such
Deferral Account, each of which shall consist of an amount equal to (i) the
balance of such Deferral Account as of the most recent Valuation Date preceding
the payment date times (ii) a fraction, the numerator of which is one and the
denominator of which is the number of remaining installments (including the
installment being paid). The first such installment shall be paid as soon as
practicable after the end of the Deferral Period and each subsequent installment
shall be paid on or about the anniversary of such first payment. Each such
installment shall be deemed to be made on a pro rata basis from each of the
different deemed investments of the Deferral Account (if there is more than one
such deemed investment). At the end of the Deferral Period for each Gain Share
Account, the Company shall pay to the Participant the balance of such Gain Share
Account at the time or times elected by the Participant in the applicable Stock
Option Gain Agreement in shares of Common Stock.
Section 8.02 Matching Contribution. Each Participant who elects to
------------
make deferrals of Eligible Compensation to the Plan will receive a Matching
Contribution equal to 50% of the first 6% of that Participant's Deferred Amount.
Matching Contributions will be credited to the Participant's Deferral Account as
of the date Company matching contributions would be contributed to the Company's
qualified 401(k) plan account and shall follow the Participant's investment
benchmarks for the deferral of the Eligible Compensation to which it relates.
The amount of the Matching Contribution may vary from payroll period to payroll
period throughout the Plan Year, may be based on a formula which takes into
account a Participant's overall compensation, and otherwise may be subject to
maximum or minimum limitations. The Matching Contribution shall be invested
among the same investment benchmarks as defined in 7.02 in the same proportion
as the elections made by the participant governing the deferrals of the
participant. The Matching Contribution shall be distributed to the participant
according to the election made by the participant governing his/her deferrals
and will vest according to the provisions governing matching contributions in
the Company's qualified 401(k) plan.
Section 8.03 Retirement. Subject to Section 8.01 and Section 8.04
------------
hereof, if a Participant has elected to have the balance of his/her Deferral
Account or Gain Share Account distributed upon Retirement, the account balance
of the Participant (determined as of the most recent Valuation Date preceding
such Retirement) shall be distributed upon Retirement in installments or a lump
sum in accordance with the Plan and as elected in the Participant Agreement.
Section 8.04 In-Service Distributions. Subject to Section 8.01 and
------------
Section 8.04 hereof, if a Participant has elected to defer Eligible Compensation
under the Plan for a stated number of years, the account balance of the
Participant (determined as of the most recent Valuation Date preceding such
Deferral Period) shall be distributed in installments or a lump sum in
accordance with the Plan and as elected in the Participant Agreement.
9
<PAGE>
Section 8.05 Other Than Retirement. Notwithstanding the provisions of
------------
Section 8.02 and Section 8.03 hereof and any Participation Agreement, if a
Participant dies, has a Termination of Employment or Disability prior to
Retirement and prior to receiving full payment of his/her Deferral Account(s),
the Company shall pay the remaining balance (determined as of the most recent
Valuation Date preceding such event) to the Participant or the Participant's
Beneficiary or Beneficiaries (as the case may be) in a lump sum in cash only or
in Common Stock with respect to payment of Gain Share Accounts and amounts
invested in the National Commerce Bancorporation Stock Fund (notwithstanding
Section 8.01 hereof) as soon as practicable following the occurrence of such
event, unless the Administrative Committee in its sole discretion determines
otherwise. Subject to Section 7.02(a) hereof, the amount distributable under
the preceding sentence of this Section 8.04 shall be based on the Participant's
investments elections.
Section 8.06 Hardship Withdrawals. Notwithstanding the provisions of
------------
Section 8.01 and any Participation Agreement, a Participant shall be entitled to
early payment of all or part of the balance in his/her Deferral Account(s) in
the event of an Unforeseeable Emergency, in accordance with this Section 8.05.
A distribution pursuant to this Section 8.05 may only be made to the extent
reasonably needed to satisfy the Unforeseeable Emergency need, and may not be
made if such need is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the Participant's
assets to the extent such liquidation would not itself cause severe financial
hardship, or (iii) by cessation of participation in the Plan. An application
for an early payment under this Section 8.05 shall be made to the Administrative
Committee in such form and in accordance with such procedures as the
Administrative Committee shall determine from time to time. The determination
of whether and in what amount and form a distribution will be permitted pursuant
to this Section 8.05 shall be made by the Administrative Committee.
Section 8.07 Voluntary Early Withdrawal. Notwithstanding the
------------
provisions of Section 8.01 and any Participation Agreement, a Participant shall
be entitled to elect to withdraw all of the balance in his/her Deferral
Account(s) in accordance with this Section 8.06 by filing with the
Administrative Committee such forms, in accordance with such procedures, as the
Administrative Committee shall determine from time to time. As soon as
practicable after receipt of such form by the Administrative Committee, the
Company shall pay an amount equal to ninety percent of the balance in such
Participant's Deferral Account(s) (determined as of the most recent Valuation
Date preceding the date such election is filed) to the electing Participant in a
lump sum in cash, and the Participant shall forfeit the remainder of such
Deferral Account(s). All Participation Agreements previously filed by a
Participant who elects to make a withdrawal under this Section 8.06 shall be
null and void after such election is filed (including without limitation
Participation Agreements with respect to Plan Years or performance periods that
have not yet been completed), and such a Participant shall not thereafter be
entitled to file any Participation Agreements under the Plan with respect to the
first Plan Year that begins after such election is made.
Section 8.08 Change of Control. In the event of a Change of Control
------------
that is recommended for approval to the shareholders by the Board, no immediate
special payment shall be made to any Participant and the terms and conditions of
the Plan shall remain in full force and effect. Notwithstanding anything
contained in this Plan to the contrary, upon a hostile Change of Control, the
Company shall immediately pay to each Participant in a lump sum in cash or in
Common Stock with respect to payment of Gain Share Accounts and amounts invested
in the National Commerce Bancorporation Stock Fund the balance in his/her
Deferral Account(s) (determined as of the most recent Valuation Date preceding
the Change of Control). Hostile Change of Control is defined as a Change of
Control of the Company which is not recommended for approval to the shareholders
by the Board.
Section 8.09 Withholding of Taxes. Notwithstanding any other provision
------------
of this Plan, the Company shall withhold from payments made hereunder any
amounts required to be so withheld by any applicable law or regulation.
ARTICLE IX
BENEFICIARY DESIGNATION
-----------------------
Section 9.01 Beneficiary Designation. Each Participant shall have the
------------
right, at any time, to designate any person, persons or entity as his
Beneficiary or Beneficiaries. A Beneficiary designation shall be made, and may
be amended, by the
10
<PAGE>
Participant by filing a written designation with the Administrative Committee,
on such form and in accordance with such procedures as the Administrative
Committee shall establish from time to time.
Section 9.02 No Beneficiary Designation. If a Participant fails to
------------
designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then the Participant's Beneficiary shall be deemed
to be the Participant's estate.
ARTICLE X
VESTING OF DEFERRAL ACCOUNT
---------------------------
Section 10.01 Vesting of Deferral Account. Except as provided in
-------------
Section 8.02 and Section 8.06, a Participant shall be 100% vested in his/her
Deferral Account at all times.
ARTICLE XI
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
Section 11.01 Amendment. The Board or the Compensation/Benefits
-------------
Committee may at any time amend this Plan in whole or in part, provided,
however, that no amendment shall be effective to decrease the balance in any
Deferral Account as accrued at the time of such amendment, nor shall any
amendment otherwise have a retroactive effect.
Section 11.02 Company's Right to Terminate. The Board or the
-------------
Compensation/Benefits Committee may at any time terminate the Plan with respect
to future Participation Agreements. The Board or the Compensation/Benefits
Committee may also terminate the Plan in its entirety at any time for any
reason, including without limitation if, in its judgment, the continuance of the
Plan, the tax, accounting, or other effects thereof, or potential payments
thereunder would not be in the best interests of the Company, and upon any such
termination, the Company shall immediately pay to each Participant in a lump sum
the accrued balance in his Deferral Account (determined as of the most recent
Valuation Date preceding the termination date).
ARTICLE XI
MISCELLANEOUS
-------------
Section 12.01 Unfunded Plan. This Plan is intended to be an unfunded
-------------
plan maintained primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees, within the meaning
of Sections 201, 301 and 401 of ERISA. All payments pursuant to the Plan shall
be made from the general funds of the Company and no special or separate fund
shall be established or other segregation of assets made to assure payment. No
Participant or other person shall have under any circumstances any interest in
any particular property or assets of the Company as a result of participating in
the Plan. Notwithstanding the foregoing, the Company may (but shall not be
obligated to) create one or more grantor trusts, the assets of which are subject
to the claims of the Company's creditors, to assist it in accumulating funds to
pay its obligations under the Plan.
Section 12.02 Nonassignability. Except as specifically set forth in the
-------------
Plan with respect to the designation of Beneficiaries, neither a Participant nor
any other person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or
convey in advance of actual receipt the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are, expressly declared to
be unassignable and non-transferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure or sequestration for the payment
of any debts, judgments, alimony or separate maintenance owed by a Participant
or any other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
11
<PAGE>
Section 12.03 Validity and Severability. The invalidity or
-------------
unenforceability of any provision of this Plan shall not affect the validity or
enforceability of any other provision of this Plan, which shall remain in full
force and effect, and any prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 12.04 Governing Law. The validity, interpretation,
-------------
construction and performance of this Plan shall in all respects be governed by
the laws of the State of domicile of National Commerce Bancorporation, without
reference to principles of conflict of law, except to the extent preempted by
federal law.
Section 12.05 Employment Status. This Plan does not constitute a
-------------
contract of employment or impose on the Partici pant or the Company any
obligation for the Participant to remain an employee of the Company or change
the status of the Participant's employment or the policies of the Company and
its affiliates regarding termination of employment.
Section 12.06 Underlying Bonus Plans and Programs. Nothing in this Plan
-------------
shall prevent the Company from modifying, amending or terminating the
compensation or the bonus plans and programs pursuant to which cash bonuses are
earned and which are deferred under this Plan.
Section 12.07 Severance. Notwithstanding anything to the contrary
-------------
herein the Compensation/Benefits Committee may, in its sole and exclusive
discretion, determine that the Deferral Account of a Participant who has
incurred a Termination of Employment and who receives or will receive severance
payments from the Company shall be paid in installments, at such intervals as
the Compensation/Benefits Committee may decide.
IN WITNESS WHEREOF, the Company has caused this Plan to be properly executed on
the ______ day of _________________, 1999.
National Commerce Bancorporation
(Corporate Seal) By:______________________________
Its:______________________________
Attested to:
____________________________________
Secretary
12
<PAGE>
APPENDIX A
----------
TIRA Money Market Fund
TIRA Fixed Income Fund
TIRA Equity Fund
NCBC Stock Fund
13
<PAGE>
EXHIBIT 13
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The purpose of this discussion is to focus on important factors affecting
the Company's financial condition and results of operations. Reference
should be made to the consolidated financial statements (including the
notes thereto), the selected financial data and other consolidated
financial statements presented elsewhere in this report for an
understanding of the following discussion and analysis. In this discussion,
net interest income and net interest margin are presented on a fully
taxable equivalent basis. All per share data is adjusted to reflect all
stock dividends and stock splits declared through December 31, 1998.
RESULTS OF OPERATIONS
For the year ended December 31, 1998, net income totaled $85,141,000, a
$15,361,000 or 22.0 percent increase over 1997 net income of $69,780,000.
Net income increased by $12,267,000 or 21.3 percent in 1997. Basic earnings
per share were $.85 in 1998, compared to $.71 in 1997 and $.59 in 1996.
Diluted earnings per share were $.83 in 1998, compared to $.69 in 1997 and
$.57 in 1996. For 1998, return on average assets was 1.66 percent, compared
to 1.58 percent in 1997 and 1.51 percent in 1996. Return on average equity
(excluding unrealized gains or losses on investment securities) was 22.15
percent in 1998, compared to 20.92 percent in 1997 and 19.44 percent in
1996.
Net interest income, the difference between interest earned on loans
and investments and interest paid on interest-bearing liabilities,
increased by $31,374,000 or 18.7 percent in 1998, increased by $26,895,000
or 19.1 percent in 1997 and increased by $14,830,000 or 11.8 percent in
1996. The increase in 1998 reflects a $48,171,000 or 14.1 percent increase
in interest income and a $16,797,000 or 9.6 percent increase in total
interest expense. The increase in interest income was the result of a
$369,950,000 or 14.7 percent increase in average loans and a $209,866,000
or 13.4 percent increase in average investment securities, offset by a
decrease in the average yield on earning assets from 8.24 percent in 1997
to 8.18 percent in 1998. The increased volume of average earning assets
(partially funded by an increase of $171,076,000 in average non-interest-
bearing liabilities, net of non-interest-earning assets) positively
impacted interest income by approximately $50 million, while the decreased
yield on average earning assets negatively impacted interest income by
approximately $2 million. Interest expense increased in 1998, reflecting a
$538,198,000 or 14.8 percent increase in average outstanding interest-
bearing liabilities, and a decrease in the cost of interest-bearing
liabilities from 4.79 percent in 1997 to 4.58 percent in 1998. The decrease
in the rate paid on interest-bearing liabilities reduced interest expense
by approximately $7 million and the increase in average outstandings
negatively affected interest expense by approximately $24 million. The 1997
increase in net interest income was primarily the result of an increase in
earning assets and an increase of $64,194,000 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 4.17 percent in 1998, compared to 4.04 percent in 1997
and 3.89 percent in 1996. The yield on earning assets was 8.18 percent in
1998, compared to 8.24 percent in 1997 and 8.08 percent in 1996. The cost
of interest-bearing liabilities was 4.58 in 1998, compared to 4.79 percent
in 1997 and 4.78 percent in 1996.
The Company's provision for loan losses was $9,599,000 for 1998,
compared to $17,013,000 for 1997 and $14,134,000 for 1996. The 1998
provision was primarily the result of loan growth. Net loan charge-offs
were $7,610,000 (.26 percent of average loans, net of unearned discounts)
in 1998, compared to $9,855,000 (.39 percent of average loans, net of
unearned discounts) in 1997, and $7,515,000 (.35 percent of average loans,
net of unearned discounts) in 1996.
The allowance for loan losses at December 31, 1998, was $49,122,000 or
1.54 percent of loans, net of unearned discounts, compared to $43,297,000
or 1.66 percent of loans at December 31, 1997, and $35,514,000 or 1.51
percent of net loans at December 31, 1996.
[GRAPH APPEARS HERE]
[GRAPH APPEARS HERE]
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Management's Discussion continued
Following is a comparison of non-earning assets and accruing loans past due 90
days or more for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
In Thousands 1998 1997 1996
- -------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Non-accrual loans $ 533 $ -- $ --
Renegotiated loans 0 -- --
Other real estate owned 442 -- --
- ------------------------------------------------------- ------ ------
Total non-earning assets $ 975 $ -- $ --
======================================================= ====== ======
Accruing loans past due 90 days or more $4,218 $3,134 $3,482
Percentage of total loans 0.13% 0.12% 0.15%
</TABLE>
There were no non-performing assets at December 31, 1997 or 1996. 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
$2,189,000 or 2.7 percent in 1998. Non-interest income increased $12,853,000 or
18.5 percent in 1997. Included in 1997 non-interest income was a net gain of $8
million relating to the sale of substantially all of the Company's credit card
receivables. The net income impact of the credit card sale was an after-tax gain
of $1,784,000 ($.02 per share) for the year and the fourth quarter of 1997. All
other sources of non-interest income including broker-dealer revenue, trust
service income, service charge income, fuel card processing income and in-store
banking licensing income increased a net of $10,766,000 or 16.9 percent.
Securities gains totaled $197,000 in 1998, and securities losses totaled $80,000
in 1997.
Non-interest expenses (excluding the provision for loan losses) increased
by $16,844,000 or 13.6 percent in 1998, 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 $19,585,000 or 18.9 percent in 1997,
primarily for the same reasons.
[GRAPH APPERS HERE]
[GRAPH APPERS HERE]
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Management's Discussion continued
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:
SOURCES AND USES OF FUNDS TRENDS
<TABLE>
<CAPTION>
1998 1997-1998 1997 1996-1997 1996
Average Increase (Decrease) Average Increase (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 $2,883,277 $369,950 14.7% $2,513,327 $382,517 18.0% $2,130,810
Securities:
Taxable 1,633,577 202,482 14.1 1,431,095 163,560 12.9 1,267,535
Non-taxable 146,053 7,384 5.3 138,669 (5,037) (3.5) 143,706
Trading account securities 51,163 20,375 66.2 30,788 1,631 5.6 29,157
Federal funds sold and
securities purchased under
agreements to resell 34,938 18,438 111.7 16,500 (6,888) (29.5) 23,388
Time deposits in banks 19,083 872 4.8 18,211 1,227 7.2 16,984
- -------------------------------- ----------- ---------- ---------- ----------- --------- ------ ----------
Total interest-earning assets 4,768,091 619,501 14.9 4,148,590 537,010 14.9 3,611,580
Other uses 346,035 89,773 35.0 256,262 55,728 27.8 200,534
- -------------------------------- ----------- ---------- ---------- ----------- --------- ------ ----------
Total funding uses $5,114,126 $709,274 16.1% $4,404,852 $592,738 15.5% $3,812,114
============================================= ========== ========== =========== ========= ====== ==========
Funding Sources
Interest-bearing liabilities:
Interest-bearing deposits $3,046,283 $419,893 16.0% $2,626,390 $279,820 11.9% $2,346,570
Federal funds purchased and
securities sold under
agreements to repurchase 470,349 24,486 5.5 445,863 109,136 32.4 336,727
Other borrowed funds and
long-term debt 655,279 93,819 16.7 561,460 83,860 17.6 477,600
- -------------------------------- ----------- ---------- ---------- ----------- --------- ------ ----------
Total Interest-bearing
liabilities 4,171,911 538,198 14.8 3,633,713 472,816 15.0 3,160,897
Non-interest-bearing deposits 413,724 85,301 26.0 328,423 22,434 7.3 305,989
Capital trust pass-through
securities 49,891 11,812 31.0 38,079 38,079 100.0 -
Stockholders' equity 384,342 50,814 15.2 333,528 37,702 12.7 295,826
Other sources 94,258 23,149 32.6 71,109 21,707 43.9 49,402
- -------------------------------- ----------- ---------- ---------- ----------- --------- ------ ----------
Total funding sources $5,114,126 $709,274 16.1% $4,404,852 $592,738 15.5% $3,812,114
============================================= ========== ========== =========== ========= ====== ==========
</TABLE>
Average loans, the largest use of funds,
increased $370 million or 14.7 percent in 1998 and
$383 million or 18.0 percent in 1997. Increases in
consumer loans, real estate construction and
mortgage loans and commercial loans were the primary
reasons for the increases in 1998 and 1997. For 1998
and 1997 the growth in all loan categories reflects
increased demand and consumer loan promotions.
Total securities (excluding the trading
account), another major use of funds, increased by
$210 million or 13.4 percent in 1998. Taxable
securities increased by $202 million or 14.1
percent, reflecting increases in both fixed- and
variable-rate federal agency securities. Non-taxable
securities increased by $7 million or 5.3 percent,
reflecting decreased investment in bank-qualified
municipal investments. Total securities increased by
$158 million
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Management's Discussion continued
or 11.2 percent in 1997. The 1997 increase reflects increa ses in both
fixed-and variable-rate federal agency securities and non-taxable
securities. The Company accounts for securities in accordance with SFAS 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 $2.3 million and increased stockholders' equity by $1.4
million at December 31, 1998, and increased the securities portfolio by
$3.7 million and increased stockholders' equity by $2.3 million at December
31, 1997.
Trading account securities increased by $20 million or 66.2 percent in
1998 and $2 million or 5.6 percent in 1997. These changes are a result of
brokerage activities at NBC Capital Markets Group, Inc.
Federal funds sold and securities purchased under agreements to resell
increased by $18 million or 111.7 percent in 1998 and decreased by $7
million or 29.5 percent in 1997, representing excess funds not otherwise
employed in loans or investment securities.
Time deposits in other banks increased by $1 million or 4.8 percent in
1998 and increased by $1 million or 7.2 percent in 1997. This is a readily
manageable asset and balances are maintained at levels which are based on
operating needs. Total interest-earning assets increased by $620 million or
14.9 percent in 1998, compared to an increase of $537 million or 14.9
percent in 1997. As described below, the growth in 1998 and 1997 was funded
primarily by increases in interest-bearing deposits, other borrowed funds
and stockholders' equity.
Total average deposits increased by $505 million or 17.1 percent in
1998, compared to an increase of $302 million or 11.4 percent in 1997.
Total interest-bearing deposits increased $419 million or 16.0 percent and
total non-interest-bearing deposits increased $85 million or 26.0 percent
in 1998, reflecting current market trends, compared to an increase of $280
million or 11.9 percent in interest-bearing deposits and an increase of
$22 million or 7.3 percent in non-interest-bearing deposits in 1997.
Federal funds purchased and securities sold under agreements to
repurchase increased $24 million or 5.5 percent in 1998, compared to an
increase of $109 million or 32.4 percent in 1997. 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 $94 million or 16.7 percent in 1998, compared to an
increase of $84 million or 17.6 percent in 1997. 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.
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 1 capital.
For 1999, the Company anticipates loan demand and deposit growth
similar to that which occurred in 1998 due to expansion in existing markets
in Tennessee, Virginia, North Carolina, Arkansas, Mississippi and Georgia.
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 R.
[GRAPH APPEARS HERE]
<PAGE>
NATIONAL COMMERCE BANCORPORTION AND SUBSIDIARIES
Management's Discussion continued
Liquidity And Interest Rate Sensitivity Management
Weighted average variable rates are based on the implied forward rates in
the yield curve at the reporting date:
1998 Market Risk Disclosure
<TABLE>
<CAPTION> Principal Amount Maturing in Fair Value
---------------------------------------------------------------------------------------------------
Dollar Amounts in Thousands 1999 2000 2001 2002 2003 Thereafter Total Dec 31, 1998
- ----------------------------------------- --------- -------- --------- -------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS:
Fixed interest rate loans $ 514,196 $458,567 $481,546 $358,591 $369,870 $135,104 $2,317,874 $2,407,000
Average interest rate 8.56% 8.95% 8.75% 8.76% 8.38% 8.40% 8.67%
Variable interest rate loans $ 592,424 $ 51,002 $ 43,138 $ 48,510 $ 57,014 $ 86,755 $ 878,843 $ 883,000
Average interest rate 8.25% 7.75% 7.75% 7.75% 7.75% 7.75% 8.09%
Fixed interest rate
securities $ 1,060,661 $ 64,198 $100,429 $ 85,502 $ 70,017 $244,477 $1,625,284 $1,631,000
Average interest rate 6.55% 6.10% 6.17% 6.59% 6.23% 6.26% 6.45%
Variable interest rate
securities $ 26,493 $ 13,514 $ 13,364 $ 11,028 $ 10,012 $398,671 $ 473,082 $ 472,000
Average interest rate 6.36% 6.18% 6.18% 6.17% 6.16% 6.16% 6.17%
RATE-SENSITIVE ASSETS:
Non-interest-bearing
checking $ 291,679 $ 46,878 $ 49,527 $ 44,287 $ 49,527 -- $ 481,898 $ 482,000
Average interest rate -- -- -- -- -- -- -- --
Savings and interest-bearing
checking $ 563,268 $286,164 $283,600 $291,463 $284,970 -- $1,709,465 $1,709,000
Average interest rate 3.16% 3.16% 3.16% 3.16% 3.16% -- 3.16%
Time deposits $ 1,337,339 $356,798 $ 17,106 $ 10,094 $ 6,524 $ 28,051 $1,755,912 $1,783,000
Average interest rate 5.30% 5.67% 5.83% 5.93% 5.71% 4.70% 5.35%
Fixed interest rate
borrowings $ 17,199 $ 12,624 $ 9,824 $ 10,352 $ 6,611 $681,372 $ 737,982 $ 738,000
Average interest rate 5.46% 5.41% 5.40% 5.40% 5.37% 4.94% 4.98%
Variable interest rate
borrowings $ 441,829 $150,000 -- -- -- -- $ 591,829 $ 592,000
Average interest rate 4.26% 5.60% -- -- -- -- 4.55%
RATE-SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Pay fixed/receive variable
Interest rate swaps $ 110.00
Average pay rate 5.20%
Average receive rate 5.53%
* Interest rate swaps are cancelable after one year.
</TABLE>
1997 Market Risk Disclosure
<TABLE>
<CAPTION>
Principal Amount Maturing in Fair Value
---------------------------------------------------------------------------------------------------
Dollar Amounts in Thousands 1998 1999 2000 2001 2002 Thereafter Total Dec 31, 1997
- ----------------------------------------- --------- -------- ---------- -------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS:
Fixed interest rate loans $ 333,371 $381,479 $292,494 $209,302 $160.438 $417,861 $1,794,945 $1,825,000
Average interest rate 9.06% 8.71% 9.02% 9.04% 8.98% 8.97% 8.95%
Variable interest rate loans $ 556,264 $ 49,570 $ 19,555 $ 21,738 $ 47,402 $109,493 $ 814.022 $ 817,000
Average Interest rate 9.03% 8.50% 8.42% 8.50% 8.50% 8.50% 8.87%
Fixed Intrest rate securities $ 730,655 $107,697 $ 29,666 $ 24,512 $ 33,765 $196,261 $1,122,556 $1,127,000
Average Interest rate 6.94% 6.60% 6.08% 5.75% 5.86% 6.00% 6.67%
variable interest rate
securities $ 8,656 $ 7,623 $ 6,483 $ 5,148 $ 5,419 $462,269 $ 495,598 $ 490,000
Average interest rate 6.52% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
Other interest-bearing
assets $ 139,634 -- -- -- -- -- $ 139,634 $ 139,000
Average interest rate 6.32% -- -- -- -- -- 6.32%
RATE-SENSITIVE LIABILITIES:
Non-interest-bearing checking $ 296,107 $ 36,000 $ 38,000 $ 34,000 $ 13,641 -- $ 417,748 $ 401,000
Average interest rate -- -- -- -- -- -- --
Savings and interest-bearing
checking $ 433,489 $220,000 $218,000 $224,000 $218,114 -- $1,313,603 $1,264,000
Average Interest rate 3.24% 3.24% 3.24% 3.24% 3.24% -- 3.24%
Time deposits $ 1,347,990 $129,831 $ 18,930 $ 10,387 $ 6,282 $ 6,471 $1,519,891 $1,502,000
Average interest rate 5.52% 6.18% 6.31% 6.01% 5.78% 5.90% 5.59%
Fixed Interest rate
borrowings $ 16,997 $ 74,797 $ 12,651 $ 9,828 $ 10,442 $ 6,169 $ 130,884 $ 131,000
Average Interest rate 5.48% 5.85% 5.60% 5.40% 5.40% 5.37% 5.69%
Variable Interest rate
borrowings $ 888,709 -- -- -- -- -- $ 888,709 $ 870,000
Average Interest rate 5.40% -- -- -- -- -- 5.40%
</TABLE>
<PAGE>
Due to the Company not utilizing significant derivative positions to manage
interest rate risk, the Company manages interest rate risk with an
Asset/Liability Management Committee comprised of senior management
personnel from each key banking function.
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 due from 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 and home equity 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 1998 and 1997, both six-month and one-year cumulative gaps were within
these parameters.
The adjacent market risk tables provide information about the
Company's financial instruments used for purposes other than trading that
are sensitive to changes in interest rates. For loans, securities and
liabilities with contractual maturities, the tables present principal cash
flows and related weighted average interest rates by contractual maturities
as well as the Company's historical experience of the impact of interest
rate fluctuations on the prepayment of residential and home equity loans
and mortgage-backed securities. For core deposits (e.g. DDA, interest
checking, savings and money market deposits) that have no contractual
maturity the tables present principal cash flows and, as applicable,
related weighted average interest rates based on the Company's historical
experience, management's judgment and statistical analysis, as applicable,
concerning their most likely withdrawal behaviors.
CAPITAL RESOURCES
Total average assets increased by 16.1 percent in 1998, 15.5 percent in
1997 and 18.6 percent in 1996. Correspondingly, total average equity
capital increased by 15.2 percent in 1998, 12.7 percent in 1997 and 8.6
percent in 1996.
The percentage of average equity capital to average assets was 7.52
percent in 1998, 7.57 percent in 1997 and 7.76 percent in 1996. The
internal capital growth rate was 13.95 percent in 1998, 14.17 percent in
1997 and 12.89 percent in 1996. These growth rates are the result of a
return on average equity of 22.15 percent in 1998, 20.92 percent in 1997
and 19.44 percent in 1996. A stock repurchase program was authorized in
1996 for 8 million shares over two years and in 1997 for 6 million shares
over the two years ended 1998 and 1999 for purposes of offsetting stock
issuances planned for stock option and other employee benefit plans. During
1998, 1,856,560 shares of common stock were repurchased at a cost of
$34,023,284, compared to 1,406,690 shares of common stock repurchased in
1997 at a cost of $18,129,000 and 4,099,712 shares repurchased in 1996 at a
cost of $30,581,000.
[GRAPH APPEARS HERE]
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Managament's Discussion continued
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 SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
resulted in an increase of $1.4 million to 1998 year-end stockholders'
equity and an increase of $2.3 million to 1997 year-end stockholders'
equity.
The following ratios in the table on selected capital information do
not include the effect of SFAS No. 115 on Tier 1 capital, total capital or
total risk-weighted assets.
At December 31, 1998, 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, 1998.
SELECTED CAPITAL INFORMATION
<TABLE>
<CAPTION>
December 31
-------------------------
In Thousands 1998 1997
- ---------------------------------------------- ----------- -----------
<S> <C> <C>
CAPITAL:
Stockholders' equity $ 408,549 $ 352,148
Capital trust pass-through securities 49,896 49,884
Less:
Unrealized gains on securities, net of taxes 1,398 2,250
Goodwill and other deductions 8,604 8,670
- ---------------------------------------------- ----------- -----------
Tier 1 capital 448,443 391,112
Qualifying allowance for loan losses 47,549 38,824
- ---------------------------------------------- ----------- -----------
Total capital $ 495,992 $ 429,936
============================================== ========== ==========
Total risk-weighted assets $3,802,356 $3,101,457
============================================== ========== ==========
RATIOS:
Total capital to risk-weighted assets 13.04% 13.86%
Tier 1 capital to risk-weighted assets 11.79 12.61
Tier 1 capital to total assets
(leverage ratio) 8.03 8.69
Average equity to assets 7.52 7.57
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth
of total assets in the banking industry and the resulting need to increase
equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Another significant effect of inflation
is on other expenses, which tend to rise during periods of general
inflation.
Management believes the most significant impact on financial results
is the Company's ability to react to changes in interest rates. As
discussed previously, management'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>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIAIRIES
Management's Discussion continued
YEAR 2000 READINESS
The "Year 2000 issue" is a term used to describe the problems created by
computer systems that are unable to accurately interpret dates after
December 31, 1999. It arises because many software programs use only two
digits to specify the year rather than four. Unless modified, such programs
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send statements or engage in similar
normal business activities.
Management recognized the unique worldwide challenge of the Year 2000
issue several years ago, and in 1996 appointed a task force of senior
officers to develop and oversee execution of a comprehensive action plan
for identifying and addressing the technical and business risks associated
with the century date change. The resultant project plan incorporates
procedures recommended by the Federal Financial Institutions Examination
Council and is employed throughout the organization. The Year 2000 project
has been assigned highest priority. The audit committee of the board of
directors is regularly advised of the status of the Company's Year 2000
readiness efforts.
The Company engages the services of third-party software vendors and
service providers for most of its mission critical business applications.
In addressing the Year 2000 issue, the Company's plan analyzes how the Year
2000 will impact its operations, including monitoring the status of its
service providers and evaluating alternatives. Most of the Company's major
vendors and service providers have completed Year 2000 renovation and
provided compliant versions of mission critical systems. It is anticipated
that the Company's implementation and validation of these systems will be
substantially complete by March 31, 1999.
The Company's Year 2000 plan also includes assessing risks associated
with its major borrowers, funds providers and other external counterparties
who may encounter Year 2000 related problems. Questionnaires, letters,
verbal communication and published readiness statements are being used to
evaluate exposure. These assessment efforts and the evaluation of
alternatives will continue through the remainder of 1999.
The Company has business continuity plans in place that cover its
current operations. As part of its Year 2000 preparations, the plans are
being expanded to address reasonably likely failure scenarios for critical
information systems, external relationships and the embedded systems in its
critical facilities. These plans are designed to provide methods of
returning to normal activities while minimizing the impact of any
disruptions on operations. The Company expects Year 2000 contingency
planning to be substantially complete by June 30, 1999.
Given the Company's significant use of third-party software vendors,
incremental costs of the Year 2000 project, which exclude the costs to
upgrade and replace systems in the ordinary course of business, are not
expected to be material to the consolidated results of operations or
financial position. The Company has reallocated some internal resources
from non-critical activities to assist with the Year 2000 project. These
reallocations are not expected to have a material impact on the Company's
ongoing business operations. No mission critical information technology
projects have been deferred due to Year 2000 efforts.
Management believes the efforts described above will provide
reasonable assurance that Year 2000 issues will be addressed successfully
and without adverse impact on our customers, shareholders and business
partners.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the
Company. All statements in this annual report that are not historical facts
or that express expectations and projections with respect to future matters
are "forward-looking statements" for the purpose of the safe harbor
provided by the Act.
The Company cautions readers that such forward-looking statements,
including, without limitation, those relating to future business
initiatives and prospects, revenues, working capital, liquidity, capital
needs, interest costs and income and Year 2000 remediation efforts,
wherever they occur in this document or in other statements attributable to
the Company, are necessarily estimates reflecting the best judgment of the
Company's senior management. Such statements involve a number of risks and
uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements.
Such forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth in this
document. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking
statements include significant fluctuations in interest rates, inflation,
economic recession, significant changes in the federal and state legal and
regulatory environment, significant underperformance in the Company's
portfolio of outstanding loans and competition in the Company's markets.
Other factors set forth from time to time in the Company's reports and
registration statements filed with the Securities and Exchange Commission
should also be considered.
The Company undertakes no obligation to update or revise forward-
looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
------------------------------
Dollar Amounts in Thousands 1998 1997
- -------------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Interest-bearing deposits with other bank $ 20,092 $ 18,293
Cash and non-interest-bearing deposits 224,875 206,191
Federal funds sold and securities purchased under agreements to resell 66,883 23,009
- -------------------------------------------------------------------------------------------------- ----------
Total cash and cash equivalents 311,850 247,493
Available-for-sale securities (amortized cost - $718,989
at December 31, 1998, and $404,745 at December 31, 1997) 721,268 408,083
Held-to-maturity securities (market value - $1,381,692
at December 31, 1998, and $1,208,922 at December 31, 1997) 1,377,102 1,210,071
Trading account securities 62,737 98,332
Loans, net of unearned discounts 3,197,673 2,608,967
Less allowance for loan losses 49,122 43,297
- -------------------------------------------------------------------------------------------------- ----------
Net loans 3,148,551 2,565,670
Premises and equipment, net 37,382 27,404
Broker/dealer customer receivables 2,505 7,695
Other assets 149,659 127,263
- -------------------------------------------------------------------------------------------------- ----------
Total assets $5,811,054 $4,692,011
- -------------------------------------------------------------------------------------------------- ----------
Liabilities and Stockholders' Equity
LIABILITIES
Deposits:
Non-interest-bearing $ 481,898 $ 417,748
Interest-bearing 3,465,377 2,833,494
- -------------------------------------------------------------------------------------------------- ----------
Total deposits 3,947,275 3,251,242
Federal funds purchased and securities sold under agreements to repurchase 591,829 423,573
Broker/dealer customer payables 714 59
Accounts payable and accrued liabilities 74,809 68,969
Federal Home Loan Bank advances 731,610 389,884
Other borrowed funds and long-term debt 6,372 156,252
- -------------------------------------------------------------------------------------------------- ----------
Total liabilities 5,352,609 4,289,979
Capital trust pass-through securities 49,896 49,884
STOCKHOLDERS' EQUITY
Preferred stock, no par value -- authorized 5,000,000 shares, none issued
Common stock, par value $2 per share - authorized 175,000,000 shares, issued
and outstanding 101,442,799 in 1998 and 48,851,987 in 1997 202,885 97,704
Additional paid-in capital 30,744 52,524
Retained earnings 173,522 199,670
Accumulated other comprehensive income 1,398 2,250
- -------------------------------------------------------------------------------------------------- ----------
Total stockholders' equity 408,549 352,148
- -------------------------------------------------------------------------------------------------- ----------
Total liabilities and stockholders' equity $5,811,054 $4,692,011
- -------------------------------------------------------------------------------------------------- ----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
In Thousands, Except Per Share Amounts 1998 1997 1996
- ----------------------------------------------------------------------------------------- -------- ---------
<S> <C> <C> <C>
Interest Income
Loans $260,253 $229,204 $190,879
Securities:
Taxable 108,575 96,421 83,797
Non-taxable 7,789 7,488 7,765
- ----------------------------------------------------------------------------------------- -------- --------
116,364 103,909 91,562
Trading account securities 3,073 1,857 1,777
Other 3,897 2,023 2,349
- ----------------------------------------------------------------------------------------- -------- --------
Total interest income 383,587 336,993 286,567
- ----------------------------------------------------------------------------------------- -------- --------
Interest Expense
Deposits 134,186 119,159 107,965
Short-term borrowings 22,744 22,665 16,546
Federal Home Loan Bank advances 27,904 23,032 23,025
Long-term debt 6,135 9,316 3,565
- ----------------------------------------------------------------------------------------- -------- --------
Total interest expense 190,969 174,172 151,101
- ----------------------------------------------------------------------------------------- -------- --------
Net interest income 192,618 162,821 135,466
Provision for loan losses 9,599 17,013 14,134
- ----------------------------------------------------------------------------------------- -------- --------
Net interest income after provision for loan losses 183,019 145,808 121,332
- ----------------------------------------------------------------------------------------- -------- --------
Other Income
Trust service income 10,135 9,284 8,719
Service charges on deposits 18,716 16,664 14,292
Other service charges and fees 17,997 12,819 10,902
Broker/dealer revenue 20,441 13,115 10,079
Investment securities gains (losses) 197 (80) 3
Other 17,385 30,603 25,640
- ----------------------------------------------------------------------------------------- -------- --------
Total other income 84,871 82,405 69,635
- ----------------------------------------------------------------------------------------- -------- --------
Other Expenses
Salaries and employee benefits 65,550 56,501 48,468
Occupancy expense 11,966 10,552 8,517
Furniture and equipment expense 5,605 4,851 3,848
Other 57,183 51,556 43,042
- ----------------------------------------------------------------------------------------- -------- --------
Total other expenses 140,304 123,460 103,875
- ----------------------------------------------------------------------------------------- -------- --------
Income before income taxes 127,586 104,753 87,092
Income taxes 42,445 34,973 29,579
- ----------------------------------------------------------------------------------------- -------- --------
Net income $ 85,141 $ 69,780 $ 57,513
- ----------------------------------------------------------------------------------------- -------- --------
Net income per common share-basic $ .85 $ .71 $ .59
- ----------------------------------------------------------------------------------------- -------- --------
Net income per common share-diluted $ .83 $ .69 $ .57
- ----------------------------------------------------------------------------------------- -------- --------
Weighted average shares outstanding-basic 100,551 97,997 98,188
- ----------------------------------------------------------------------------------------- -------- --------
Weighted average shares outstanding-diluted 102,884 101,369 100,196
- ----------------------------------------------------------------------------------------- -------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net income $ 85,141 $ 69,780 $ 57,513
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 9,599 17,013 14,134
Provision for depreciation and amortization 7,584 5,453 3,227
Amortization of securities premiums and (accretion of discounts), net (2,683) (422) 11
Deferred income taxes (1,384) (2,363) (1,079)
(Increase) decrease in trading account securities 35,595 (66,520) (11,653)
Realized securities (gains) losses (197) 80 (3)
Decrease in broker/dealer customer receivables 5,190 4,004 1,745
(Increase) decrease in interest receivable (12,800) 1,690 1,838
(Increase) decrease in other assets 19,081 (18,300) (28,429)
Increase (decrease) in broker/dealer customer payables 655 (943) (269)
Increase (decrease) in interest payable 8,266 1,765 (315)
Increase in accounts payable and accrued liabilities 6,018 12,784 23,388
- ------------------------------------------------------------------------------------------- --------- ---------
Net cash provided by operating activities 160,065 24,021 60,108
Investing Activities
Available-for-sale securities:
Proceeds from maturities of securities 530,760 347,836 78,456
Proceeds from sales of securities 223,463 81,351 289,492
Purchases of securities (1,022,592) (109,081) (557,647)
Held-to-maturity securities:
Purchases of securities (828,168) (457,066) (149,707)
Proceeds from maturities of securities 617,791 38,709 94,738
Net increase in loans (592,480) (270,224) (422,848)
Purchases of premises and equipment (17,562) (10,499) (6,644)
- ------------------------------------------------------------------------------------------- --------- ---------
Net cash used in investing activities (1,088,788) (378,974) (674,160)
Financing Activities
Net increase in demand deposits, NOW accounts and savings accounts 460,012 52,767 249,372
Net increase in certificates of deposit 236,021 222,045 152,288
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase 168,256 125,163 (106,336)
Net increase (decrease) in Federal Home Loan Bank advances 341,726 (6,225) 23,310
Issuance (repayment) of bank notes (149,868) --- 149,684
Net proceeds from issuance of capital trust pass-through securities --- 49,884 ---
Proceeds from exercise of stock options 2,401 3,516 3,829
Cash dividends (31,532) (22,529) (19,367)
Other --- 52 ---
Repurchase of common stock (33,936) (18,129) (30,581)
- ------------------------------------------------------------------------------------------- --------- ---------
Net cash provided by financing activities 993,080 406,544 422,199
- ------------------------------------------------------------------------------------------- --------- ---------
Increase (decrease) in cash and cash equivalents 64,357 51,591 (191,853)
Cash and cash equivalents at beginning of year 247,493 195,902 387,755
- ------------------------------------------------------------------------------------------- --------- ---------
Cash and cash equivalents at end of year $ 311,850 $ 247,493 $ 195,902
- ------------------------------------------------------------------------------------------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Number of Common Paid-in Retained Comprehensive
Dollar Amounts in Thousands Shares Stock Capital Earnings Income Total
- ------------------------------------------------------------- -------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 24,834,581 $ 49,669 $ 80,605 $161,878 $ 4,527 $296,679
- ----------------------------------------------- ----------- -------- -------- -------- ------------- ---------
Add (deduct):
Net income 57,513 57,513
Unrealized loss on available-for-sale
securities, net of taxes (3,297) (3,297)
---------
Comprehensive income 54,216
---------
Common stock issued upon
exercise of stock options 346,433 693 3,136 3,829
Cash dividends declared ($.20 per share) (19,367) (19,367)
Tax benefit of stock options exercised 2,405 2,405
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
- ----------------------------------------------- ----------- -------- -------- -------- ------------- --------
Add (deduct):
Net income 69,780 69,780
Unrealized gain on available-for-sale
securities, net of taxes 1,020 1,020
--------
Comprehensive income 70,800
--------
Common stock issued upon
exercise of stock options 517,120 1,034 2,482 3,516
Cash dividends declared ($.23 per share) (22,529) (22,529)
Tax benefit of stock options exercised 5,109 5,109
Shares repurchased/cancelled (699,845) (1,400) (16,729) (18,129)
2 for 1 stock split effected in the form
of a dividend 24,590,490 49,181 (49,181)
Other 59,020 119 (101) 34 52
- ----------------------------------------------- ----------- -------- -------- -------- ------------- --------
Balance at December 31, 1997 48,851,987 97,704 52,524 199,670 2,250 352,148
Restatement for poolings of interests 3,075,929 6,151 781 19,771 26,703
- ----------------------------------------------- ----------- -------- -------- -------- ------------- --------
Restated balance at December 31, 1997 51,927,916 103,855 53,305 219,441 2,250 378,851
- ----------------------------------------------- ----------- -------- -------- -------- ------------- --------
Add (deduct):
Net income 85,141 85,141
Unrealized loss on available-for-sale
securities, net of taxes (852) (852)
--------
Comprehensive income 84,289
--------
Common stock issued upon
exercise of stock options 943,427 1,887 514 2,401
Cash dividends declared ($.32 per share) (31,532) (31,532)
Tax benefit of stock options exercised 7,886 7,886
Shares repurchased/cancelled (1,236,030) (2,472) (31,464) (33,936)
2 for 1 stock split effected in the
form of a dividend 49,764,186 99,528 (99,528)
Other 43,300 87 503 590
- ----------------------------------------------- ----------- -------- -------- -------- ------------- --------
Balance at December 31, 1998 101,442,799 $202,885 $ 30,744 $173,522 $ 1,398 $408,549
- ----------------------------------------------- ----------- -------- -------- -------- ------------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 1998
Note A. Significant Accounting Policies
BASIS OF PRESENTATION The accounting and reporting policies of the Company
conform to generally accepted accounting principles and general practices within
the financial services industry. 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.
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 Statement of Financial Accounting Standards
(SFAS) 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 other
comprehensive income. 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.
EARNINGS PER SHARE All earnings per share amounts for all periods have been
presented to conform to the Financial Accounting Standards Board (FASB)
Statement No. 128 earnings per share requirements. In addition, all share and
per share amounts have been retroactively restated for all stock dividends and
splits declared through December 31, 1998.
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 SFAS 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 1998, 1997 and 1996, interest paid was $183,003,000, $172,407,000
and $151,416,000, respectively. During 1998, 1997 and 1996, income taxes paid
were $32,305,000, $30,783,000 and $27,385,000, respectively.
RECLASSIFICATION Certain account reclassifications have been made to the
1997 and 1996 financial statements to conform with the 1998 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 Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and, accordingly, recognizes no compensation
expense for the stock option grants.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998 the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Because of the limited use of derivatives, the
Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
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 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) and certain 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 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, 1998
-----------------------------------
In Thousands Carrying Amount Fair Value
- -------------------------------------------------- --------------- -----------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 311,850 $ 311,850
Available-for-sale securities $ 721,268 $ 721,268
Held-to-maturity securities $1,377,102 $1,381,692
Trading account securities $ 62,737 $ 62,737
Net loans $3,148,551 $3,289,838
Financial liabilities:
Deposits $3,947,275 $3,974,728
Federal funds purchased $ 591,829 $ 591,829
Federal Home Loan Bank advances,
other borrowed funds
and long-term debt $ 737,982 $ 737,909
Capital trust pass-through securities $ 49,896 $ 49,896
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------
In Thousands Carrying Amount Fair Value
- -------------------------------------------------- --------------- -----------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 247,493 $ 247,493
Available-for-sale securities $ 408,083 $ 408,083
Held-to-maturity securities $1,210,071 $1,208,922
Trading account securities $ 98,332 $ 98,332
Net loans $2,565,670 $2,654,364
Financial liabilities:
Deposits $3,251,242 $3,233,920
Federal funds purchased $ 423,573 $ 423,573
Federal Home Loan Bank advances, other borrowed
funds and long-term debt $ 546,136 $ 530,473
Capital trust pass-through securities $ 49,884 $ 49,884
</TABLE>
Note C - Restrictions on Cash and Due From Banks
The Company's lead bank subsidiary is required to maintain reserve balances with
the Federal Reserve Bank. The average amounts of those reserve balances for the
years ended December 31, 1998 and 1997, were approximately $9,253,000 and
$4,131,000, respectively.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
NOTE D - Securities
The following is a summary of available-for-sale securities and held-to-maturity
securities:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
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 $ 318,000 $ 716 $ (527) $ 318,189
Obligations of states and
political subdivisions 67,083 1,273 (29) 68,327
Mortgage-backed securities 275,703 869 (53) 276,519
- ------------------------------- ---------- ------ ------- ----------
Total debt securities 660,786 2,858 (609) 663,035
Equity securities 58,203 30 --- 58,233
- ------------------------------- ---------- ------ ------- ----------
Total $ 718,989 $2,888 $ (609) $ 721,268
=============================== ========== ====== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
Held-to-maturity Securities
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
- -------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $ 568,596 $ 140 $ (400) $ 568,336
Obligations of states and
political subdivisions 80,777 4,849 (12) 85,614
Other asset-based securities 68,039 1,598 (378) 69,259
Mortgage-backed securities 659,690 2,687 (3,894) 658,483
- ------------------------------- ---------- ------ ------- ----------
Total $1,377,102 $9,274 $(4,684) $1,381,692
=============================== ========== ====== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------
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 $ 226,676 $ 829 $ (543) $ 226,962
Obligations of states and
political subdivisions 65,275 1,544 (64) 66,755
Mortgage-backed securities 57,796 2,025 (11) 59,810
- ------------------------------- ---------- ------ ------- ----------
Total debt securities 349,747 4,398 (618) 353,527
Other 54,998 188 (630) 54,556
- ------------------------------- ---------- ------ ------- ----------
Total $ 404,745 $4,586 $(1,248) $ 408,083
=============================== ========== ====== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------
Held-to-maturity Securities
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
In Thousands Cost Gains Losses Fair Value
- -------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies
and corporations $ 471,928 $ 198 $ (445) $ 471,681
Obligations of states and
political subdivisions 71,654 4,373 (40) 75,987
Other asset-backed securities 116,731 285 (134) 116,882
Mortgage-backed securities 549,758 3,255 (8,641) 544,372
- ------------------------------- ---------- ------ ------- ----------
Total $1,210,071 $8,111 $(9,260) $1,208,922
=============================== ========== ====== ======= ==========
</TABLE>
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1998, 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, 1998
-----------------------------
Available-for-sale Securities
-----------------------------
Amortized Estimated
In Thousands Cost Fair Value
- ------------------------------------------------------ ----------
<S> <C> <C>
Due in one year or less $ 23,783 $ 24,099
Due after one year through five years 71,641 72,833
Due after five years through 10 years 83,788 83,983
Due after 10 years 205,871 205,601
- ---------------------------------------- ---------- ----------
385,083 386,516
Mortgage-backed securities 275,703 276,519
Equity securities 58,203 58,233
- ---------------------------------------- ---------- ----------
Total $ 718,989 $ 721,268
======================================== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
Available-for-sale Securities
-----------------------------
Amortized Estimated
In Thousands Cost Fair Value
- ------------------------------------------------------ ----------
<S> <C> <C>
Due in one year or less $ 5,469 $ 5,498
Due after one year through five years 11,948 12,171
Due after five years through 10 years 487,359 491,401
Due after 10 years 212,636 214,139
- ---------------------------------------- ---------- ----------
717,412 723,209
Mortgage-backed securities 659,690 658,483
- ---------------------------------------- ---------- ----------
Total $1,377,102 $1,381,692
======================================== =========== ==========
</TABLE>
The amortized cost of securities pledged to secure repurchase agreements and
government, public and trust deposits was $1,467,233,000 and $1,255,126,000 at
December 1998 and 1997, respectively.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
Note E. Loans
Analyses of loans outstanding by category were as follows:
<TABLE>
<CAPTION>
December 31
------------------------
In Thousands 1998 1997
- ------------------------------------------------------- ----------
<S> <C> <C>
Commercial, financial and agricultural $ 592,136 $ 512,534
Real estate - construction 242,993 241,334
Real estate - mortgage 1,153,717 781,826
Consumer 1,181,659 1,045,420
Lease financing 29,568 30,046
Unearned discounts (2,400) (2,193)
- ----------------------------------------- ---------- ----------
3,197,673 2,608,967
Allowance for loan losses (49,122) (43,297)
- ----------------------------------------- ---------- ----------
Net loans $3,148,551 $2,565,670
========================================= ========== ==========
</TABLE>
The Company and its subsidiaries have granted loans to officers and
directors of the Company and its subsidiaries and to their associates. Related
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of these loans was $78,940,000 and $66,910,000 at
December 31, 1998 and 1997, respectively. During 1998, $56,610,000 of new loans
to related parties were made and payments totaled $44,580,000.
Note F. Allowance for Loan Losses
Changes in the allowance for loans losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $43,297 $35,514 $29,010
Provision for loan losses 9,599 17,013 14,134
Increase due to acquisitions 3,836 625 288
Decrease due to loan sale --- --- (403)
Loans charged off, net of recoveries of $4,039 in
1998, $2,944 in 1997 and $2,823 in 1996 (7,610) (9,855) (7,515)
- --------------------------------------------------- ------- ------- -------
Balance at end of year $49,122 $43,297 $35,514
=================================================== ======= ======= =======
</TABLE>
Note G. Non-performing Assets and Past Due Loans
There was $533,000 in non-accrual loans at December 31, 1998, and none at
December 31, 1997. There were no restructured loans at December 31, 1998 or
1997. Accruing loans past due 90 days or more were $4,218,000 and $3,134,000 at
December 31, 1998 and 1997, respectively.
Note H. Premises and Equipment
The following is a summary of the premises and equipment accounts:
<TABLE>
<CAPTION>
December 31
------------------------
In Thousands 1998 1997
- -------------------------------------------------------------------- -----------
<S> <C> <C>
Land $ 4,963 $ 2,911
Premises 5,543 2,364
Furniture and equipment 42,148 35,140
Leasehold improvements 21,695 18,340
Construction in progress 1,837 161
- ------------------------------------------------------- ---------- ----------
76,186 58,916
Less accumulated depreciation
and amortization 38,804 31,512
- ------------------------------------------------------- ---------- ----------
Premises and equipment, net $ 37,382 $ 27,404
======================================================= ========== ==========
</TABLE>
Note I. Deposits
Analyses of deposits outstanding by category were as follows:
<TABLE>
<CAPTION>
December 31
------------------------
In Thousands 1998 1997
- --------------------------------------------------------------------- -----------
<S> <C> <C>
Non-interest-bearing $ 481,898 $ 417,748
Money market checking 415,815 286,555
Savings 109,094 83,626
Money market savings 1,184,556 943,422
Certificates of deposit less than $100,000 867,207 899,027
Certificates of deposit $100,000 and over 888,705 620,864
- -------------------------------------------------------- ---------- ----------
Total $3,947,275 $3,251,242
======================================================== ========== ==========
</TABLE>
The time deposit maturities at December 31 for the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
In Thousands
- -------------------------------------------------------- ----------
<S> <C>
1999 $1,337,339
2000 356,798
2001 17,106
2002 10,094
2003 6,524
Thereafter 28,051
- -------------------------------------------------------- ----------
Total $1,755,912
======================================================== ==========
</TABLE>
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
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 1998 1997 1996
- --------------------- ------ ------ ------
<S> <C> <C> <C>
Minimum rentals $6,702 $6,043 $5,024
Contingent rentals 292 155 852
- --------------------- ------ ------ ------
Total $6,994 $6,198 $5,876
===================== ====== ====== ======
</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, 1998:
<TABLE>
<CAPTION>
In Thousands
- --------------------------------------------------
<S> <C>
1999 $ 6,370
2000 5,799
2001 5,218
2002 4,388
2003 3,483
Thereafter 13,550
- ---------------------------------------- -------
Total $38,808
======================================== =======
</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 1998, the Company obtained numerous advances from the Federal Home Loan
Bank totaling $675 million. The individual advances ranged from $10 million to
$100 million. They bear interest at a fixed rate for the first year after their
issue date, and thereafter may be converted, at the option of the Federal Home
Loan Bank, to a floating rate equal to three-month LIBOR. During 1998, the
fixed rates ranged from 4.73 percent to 5.15 percent, and the three-month LIBOR
rate ranged from 5.07 percent to 5.72 percent. Maturity dates ranged from
January 29, 2008, to July 22, 2013. At December 31, 1998, the Company had
pledged as collateral $567,761,000 of its loans secured by mortgages on one-to-
four family residential properties and certain securities totaling $467,660,000.
During 1997, the Company obtained numerous advances from the Federal Home
Loan Bank totaling $384 million. The advances ranged from $15 million to $130
million at floating interest rates equal to one-month LIBOR, which ranged from
5.38 percent to 5.94 percent. Maturity dates ranged from January 14, 1998, until
March 24, 2000. At December 31, 1997, the Company had pledged as collateral
$346,489,000 of its loans secured by mortgages on one-to-four family residential
properties and certain securities totaling $245,683,000.
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, 1998:
<TABLE>
<CAPTION>
In Thousands
- ----------------------------------------- --------
<S> <C>
1999 $ 14,725
2000 12,244
2001 9,906
2002 10,453
2003 5,329
Thereafter 678,953
- ----------------------------------------- --------
Total $731,610
========================================= ========
</TABLE>
Other borrowed funds and long-term debt at December 31, 1998 and 1997,
consisted primarily of the following unsecured term notes of the Company's lead
subsidiary National Bank of Commerce (NBC):
<TABLE>
<CAPTION>
In Thousands
- ----------------------------------------------------------------- -----------
<S> <C>
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 2000. At December 31, 1998, the
rates ranged from 5.63 percent to 5.81 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 2000. At December 31, 1998, the rates
ranged from 5.67 percent to 5.74 percent, maturing December 3 and December
17, 2007. $1,025
- ----------------------------------------------------------------- -----------
Total $6,372
================================================================= ===========
</TABLE>
On August 24, 1996, NBC issued $150 million in regular floating-rate bank
notes which were due August 24, 1998. Interest was payable monthly on the 24/th/
day of each month. The interest rate for each interest period was reset monthly
based on the one-month LIBOR rate plus a spread of .09 percent. The rates ranged
from 5.06 percent to 6.03 percent during the year. The notes were paid off in
full at the maturity date.
At December 31, 1998, 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
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
in nature and requires no compensating balances or fees and expires May 31,
1999, and a $2 million line of credit which expires June 30, 1999. There were no
borrowings against these lines during 1998.
Note L. Floating Rate Capital Trust Pass-through Securities
On March 20, 1997, National Commerce Trust I (the "Trust"), a Delaware business
trust wholly owned by the Company, completed its sale of $50 million of Floating
Rate Capital Trust Pass-through Securities (the "Capital Securities") which bear
interest at a variable annual rate equal to LIBOR plus 0.98 percent (6.05
percent and 6.79 percent at December 31, 1998 and 1997, respectively).
The Trust used the net proceeds from the sale of the Capital Securities to
purchase a like amount of Floating Rate Junior Subordinated Deferred Interest
Debentures due 2027 (the "Subordinated Debt Securities") of the Company. The
Subordinated Debt Securities, which also bear interest at a variable annual rate
equal to LIBOR plus 0.98 percent, are the sole assets of the Trust and are
eliminated, along with the related income statement effects, in the consolidated
financial statements. The Company is using the proceeds from the sale of the
Subordinated Debt Securities for general corporate purposes.
The Company has fully and unconditionally guaranteed all of the obligations
of the Trust. The guarantee covers the distributions and payments on liquidation
or redemption of the Capital Securities but only to the extent of funds held by
the Trust.
The Subordinated Debt Securities mature and become due and payable,
together with any accrued and unpaid interest, if any, on April 1, 2027. The
Subordinated Debt Securities are unsecured and are effectively subordinated to
all existing and future liabilities of the Company. The Company has the right,
at any time, so long as no event of default has occurred, to defer payments of
interest on the Subordinated Debt Securities for a period not to exceed 20
consecutive quarters.
The proceeds from the Capital Securities qualify as Tier 1 capital with
respect to the Company under the risk-based capital guidelines established by
the Federal Reserve.
Note M. Stock Options
The Company's 1994 Stock Plan has reserved 8,200,000 shares of the Company's
common stock for use under the Plan for the granting of options and restricted
stock to key employees. 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 upon its approval.
Under the ShareNCBC program of the 1994 Stock Plan, eligible officers may buy
shares from the Company's discount brokerage subsidiary to qualify to
participate in the program. If the officer holds the qualifying shares and
remains employed for two years, such officer receives two options for each share
purchased which become fully exercisable at the end of the two-year period. The
following amounts reflect the effect of all stock dividends and splits declared
through 1998:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -----------------------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
- ------------------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Outstanding January 1 6,188,984 $ 6.525 6,330,208 $2.048
Granted 1,008,146 $16.227 1,621,760 $9.626
Exercised (1,627,317) $ 4.839 (1,621,060) $4.286
Cancelled (343,828) $ 9.262 (141,924) $6.490
- ------------------------------------------- ---------------- --------------- ----------------
Outstanding December 31 5,225,985 $ 8.740 6,188,984 $6.525
=========================================== ================ =============== ================
Exercisable at year end 3,116,149 $ 6.716 3,745,772 $6.237
Unoptioned shares 1,764,926 2,429,244
Total shares reserved 6,990,911 8,618,228
Weighted average fair value of
options granted during the year $ 5.590 $3.175
</TABLE>
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
Exercise prices for options outstanding as of December 31, 1998, ranged
from $2.556 to $25.563. The weighted average remaining contractual life of those
options was approximately five years. Exercise prices for options outstanding as
of December 31, 1997, ranged from $2.333 to $17.813. The weighted average
remaining contractual life of those options is approximately five and one-
quarter years.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock-based Compensation,"
requires use of 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 SFAS No. 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 1998, 1997 and 1996, respectively: risk-free interest rates of
6.0 percent, 6.0 percent and 6.5 percent; dividend yields of 2.0 percent, 2.0
percent and 2.3 percent; volatility factors of the expected market price of the
Company's common stock of .35, .35 and .30; 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 for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
In Thousands, Except Per Share Amounts 1998 1997 1996
- --------------------------------------------------- ------- -------
<S> <C> <C> <C>
Pro forma net income $82,848 $68,684 $57,255
Pro forma earnings
per share:
Basic $ .82 $ .70 $ .59
Diluted $ .81 $ .68 $ .57
</TABLE>
Note N. 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, 1998, $24,317,000 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,
1998, 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. There were no loans from the subsidiaries to the Company at December 31,
1998.
Note O. Pensions and Other Post-retirement Benefits
The Company has a defined benefit non-contributory pension plan covering
substantially all of its full-time employees who have served continuously for
one year. Amounts determined under ERISA are funded annually. Benefits are
based on compensation and years of service.
In addition to the defined benefit pension plan, the Company sponsors
retirement medical and life insurance plans that provide post-retirement
healthcare and life insurance benefits. This 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 retiree life insurance benefit
was eliminated for retirements after December 31, 1996.
The following tables set forth the plan's status and amounts recognized in
the Company's consolidated financial statements:
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- -----------------------
(In Thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year $50,211 $ 45,274 $ 2,593 $ 2,778
Service cost 1,663 1,496 20 18
Interest cost 3,515 3,386 169 181
Actuarial losses (gains) 2,142 3,394 (208) (336)
Benefits paid (5,841) (3,339) (120) (48)
Assumptions change 1,625 --- 133 ---
Plan merger 1,604 --- --- ---
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
Benefit obligation at end of year $54,919 $ 50,211 $ 2,587 $ 2,593
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 59,076 48,243 --- ---
Actual gain (loss) on plan assets (346) 13,548 --- ---
Company contributions 4,214 624 --- ---
Plan merger 2,011 --- --- ---
Benefits paid (5,841) (3,339) --- ---
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
Fair value of plan assets at end of year 59,114 59,076 --- ---
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
Funded status of the plan (underfunded) 4,195 8,865 (2,587) (2,593)
Unrecognized net losses 12,972 2,225 651 746
Unrecognized transition obligation (34) --- 283 304
Unrecognized prior service cost (1,426) (1,580) (549) (592)
Unrecognized net assets --- (633) --- ---
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
Prepaid (accrued) benefit cost $15,707 $ 8,877 $(2,202) $(2,135)
==================================================================== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- -----------------------
1998 1997 1998 1997
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 1998
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 11.00 11.00 n/a n/a
Rate of compensation increase 3.50 4.50 n/a n/a
</TABLE>
Components of net periodic benefit cost (income) were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(In Thousands) 1998 1997 1996 1998 1997 1996
- ------------------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,663 $ 1,496 $ 1,499 $ 20 $ 18 $ 189
Interest cost 3,515 3,386 3,088 169 181 414
Net amortization and deferral (7,130) 8,302 3,438 (2) 11 211
Actual (gains) losses on plan assets 346 (13,548) (7,944) --- --- ---
- ------------------------------------------- ------- ------- ------- ------- ------- -------
Net periodic benefit cost (income) $(1,606) $ (364) $ 81 $ 187 $ 210 $ 814
=========================================== ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 6.75 percent and 7.25
percent for 1998 and 1997, respectively. It is assumed to decrease gradually to
5.5 percent for 2005 and remain at that level thereafter. The assumed health
care cost trend rate has a significant effect on the amounts reported. A 1
percentage point change in the assumed health care cost trend rate would have
the following effects:
<TABLE>
<CAPTION>
1 Percentage 1 Percentage
In thousands Point Increase Point Decrease
- ------------------------------------------ --------------------------- ---------------------------
<S> <C> <C>
Effect on total of service and
interest cost components in 1998 $ 177 $ (137)
Effect on post-retirement benefit
obligation as of 1998 $2,318 $(1,838)
</TABLE>
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.
Taxable Income Reduction Account (TIRA) Plan participants can elect to
defer a percentage of their annual earnings, subject to the maximum amount
allowed of $10,000. 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 P - Other Non-interest Expenses
Components of other non-interest expense which exceed 1 percent of total
revenues for the three years ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
In Thousands 1998 1997 1996
- ------------------------------ ------ ------ ------
<S> <C> <C> <C>
Non-interest expense
Broker/dealer commissions $6,879 $2,818 $3,446
Sales promotion expense $2,495 $4,607 $5,900
</TABLE>
Note Q. Segment Information
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established standards for the
reporting of financial information from operating segments in annual and interim
financial statements. The Statement requires that financial information be
reported on the same basis that is reported internally for evaluating segment
performance and allocating resources to segments. Because SFAS No. 131
addresses how supplemental financial information is disclosed in annual and
interim reports, its adoption in 1998 had no impact on the financial condition
or operating results of the Company.
National Commerce Bancorporation operates several major lines of business.
The commercial banking segment includes lending and related financial services
to large and medium sized corporations. Included among these are several
specialty services such as real estate finance, asset based lending and
residential construction.
The retail banking segment includes sales and distribution of financial
products and services to individuals. These include loan products such as
residential mortgages, home equity lending, automobile and other personal
financing needs. Retail banking also offers various deposit products that are
designed for customers'saving and transaction needs.
The treasury segment is comprised of balance sheet management activities
including oversight of the investment portfolio, non-deposit based funding and
interest rate risk management. The other financial services segment includes
trust, asset management, insurance and brokerage activities. Other financial
services also includes income from transaction processing, in-store
consulting/licensing and specialty leasing.
The accounting policies of the individual segments are the same as those of
the Company described in Note A. Transactions between business segments are
conducted at fair value and are eliminated for reporting consolidated financial
position and results of operations.
Each segment's balance sheet is adjusted to reflect its net funding
position. Assets are increased if excess funds are provided; liabilities are
increased if funds are needed to support assets. Each segment's net interest
income is affected by the internal transfer rate assigned to its net funding
position. Interest income for tax-exempt loans and securities is adjusted to a
taxable equivalent basis.
Expenses for centrally provided services such as deposit servicing, data
processing, technology and loan servicing and underwriting are allocated to each
segment based upon various statistical information. Other indirect costs, such
as management overhead and corporate support, are also allocated to each segment
based upon various statistical information. The portion of the provision for
loan losses that is not related to specific net charge-offs is allocated to the
segment based upon loan growth. There are no significant intersegment revenues.
Performance is assessed primarily on net interest margin by the chief
operating decision makers.
The following tables present condensed income statements and average assets
for each reportable segment:
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
Commercial Retail Other
In Thousands Banking Banking Treasury Financial Services Total
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Net interest margin $ 48,946 $ 112,491 $ 24,167 $ 13,251 $ 198,855
Provision for loan losses (1,010) (8,397) 0 (192) (9,599)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net interest income after provision 47,936 104,094 24,167 13,059 189,256
Non-interest income 2,732 15,523 12,641 53,975 84,871
Non-interest expense (12,329) (73,784) (11,442) (42,749) (140,304)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net income before taxes 38,339 45,833 25,366 24,285 133,823
Income taxes (13,947) (16,673) (9,227) (8,835) (48,682)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net income $ 24,392 $ 29,160 $ 16,139 $ 15,450 $ 85,141
====================================== =========== =========== =========== =================== ===========
Average assets $877,400 $2,257,048 $1,688,154 $291,524 $5,114,126
</TABLE>
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Commercial Retail Other
In Thousands Banking Banking Treasury Financial Services Total
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Net interest margin $ 40,128 $ 99,521 $ 20,424 $ 7,408 $ 167,481
Provision for loan losses (4,751) (11,988) 0 (274) (17,013)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net interest income after provision 35,377 87,533 20,424 7,134 150,468
Non-interest income 2,661 19,416 11,037 49,291 82,405
Non-interest expense (10,244) (63,378) (14,436) (35,402) (123,460)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net income before taxes 27,794 43,571 17,025 21,023 109,413
Income taxes (10,068) (15,782) (6,167) (7,616) (39,633)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net income $ 17,726 $ 27,789 $ 10,858 $ 13,407 $ 69,780
====================================== =========== =========== =========== =================== ===========
Average assets $739,836 $1,958,365 $1,488,546 $218,105 $4,404,852
</TABLE>
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Commercial Retail Other
In Thousands Banking Banking Treasury Financial Services Total
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Net interest margin $ 33,589 $ 93,993 $ 10,342 $ 2,662 $ 140,586
Provision for loan losses (1,096) (12,804) 0 (234) (14,134)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net interest income after provision 32,493 81,189 10,342 2,428 126,452
Non-interest income 2,294 12,703 8,667 45,971 69,635
Non-interest expense (11,881) (59,902) (4,293) (27,799) (103,875)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net income before taxes 22,906 33,990 14,716 20,600 92,212
Income taxes (8,620) (12,790) (5,538) (7,751) (34,699)
- -------------------------------------- ----------- ----------- ----------- ------------------- -----------
Net income $ 14,286 $ 21,200 $ 9,178 $ 12,849 $ 57,513
====================================== =========== =========== =========== =================== ===========
Average assets $610,316 $1,677,811 $1,373,502 $150,485 $3,812,114
</TABLE>
Note R. Income Taxes
The Company accounts for income taxes using the liability method required by
SFAS 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 1998 1997 1996
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
Federal:
Current $42,588 $36,077 $28,116
Deferred (credits) (1,384) (2,363) (1,079)
- ----------------------- ------- ------- -------
41,204 33,714 27,037
State 1,241 1,259 2,542
- ----------------------- ------- ------- -------
Income taxes $42,445 $34,973 $29,579
======================= ======= ======= =======
</TABLE>
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
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:
<TABLE>
<CAPTION>
December 31
-----------------------
In Thousands 1998 1997
- ------------------------------------------------------------------------------------------------------------ --------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses over charge-offs $18,912 $16,669
Other 711 1,741
- --------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 19,623 18,410
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Net unrealized gains on available-for-sale securities 881 1,439
Pension costs 2,261 2,036
SFAS No. 91 net deferred costs 3,368 3,299
Other 2,211 2,676
- ------------------------------------------------------------------------------------------------------------ --------
Total deferred tax liabilities 8,721 9,450
- ------------------------------------------------------------------------------------------------------------ --------
Net deferred tax assets $10,90 $ 8,960
============================================================================================================ ========
</TABLE>
Income taxes varied from the amount computed at the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
In Thousands Amount % Amount % Amount %
- ------------------------------------------------------- ----------- ---------- --------- --------- ----------
Federal income tax at statutory rate $44,655 35.00% $36,665 35.00% $30,482 35.00%
Add (deduct):
State income taxes, net of federal
tax benefits 807 .63 820 .78 1,652 1.90
Non-taxable interest income (2,660) (2.08) (2,480) (2.37) (2,677) (3.07)
Other items, net (357) (.28) (32) (.02) 122 .13
- ------------------------------------------------------- ----------- ---------- --------- --------- ----------
Income taxes $42,445 33.27% $34,973 33.39% $29,579 33.96%
======================================================== =========== ========== ========= ========= ==========
</TABLE>
Income taxes (credits) applicable to securities gains (losses) for 1998, 1997
and 1996 which are included in the provision for income taxes were $76,000,
($30,800) and $1,000, respectively.
Note S. Commitments and Contingent Liabilities
For purposes other than trading, the Company and its subsidiaries have various
commitments and contingent liabilities, such as commitments to extend credit,
letters of credit, guarantees and liability for assets held in trust, which
arise in the normal course of business. Loan commitments are made to
accommodate the financial needs of the Company's customers. Standby letters of
credit commit the Company to make payments on behalf of customers when certain
specified future events occur. Commercial letters of credit are issued to
facilitate the purchase of foreign and domestic merchandise.
Both types of letters of credit have credit risk essentially the same as
that involved in extending loans to customers and are subject to the bank's
normal credit policies. Collateral primarily consists of securities, cash,
receivables, inventory and equipment. It is obtained based on management's
credit assessment of the customer. Management does not anticipate any
significant losses as a result of these transactions.
The Company's maximum exposure to credit loss at December 31 was as
follows:
<TABLE>
<CAPTION>
In Thousands 1998 1997
- ------------------------------- -------- --------
<S> <C> <C>
Loan commitments $925,631 $669,307
Standby letters of credit 43,665 39,465
Commercial letters of credit 2,286 2,064
</TABLE>
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
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 counterparties 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. At December 31, 1998 and 1997,
the notional amounts of interest rate agreements were $110 million and $60
million, respectively.
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 counterparties 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 was as follows:
<TABLE>
<CAPTION>
In Thousands 1998 1997
- ------------------------------- -------- --------
<S> <C> <C>
Forward contracts:
Commitments to purchase $280,840 $ 93,475
Commitments to sell $282,280 $170,549
When issued contracts:
Commitments to purchase $ 1,500 $ 7,799
Commitments to sell --- $ 5,819
Option contracts:
Written option contracts $ 8,000 $ 5,500
Purchased option contracts $ 8,000 $ 5,500
</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 T. 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,
1998, that the Company exceeds all capital adequacy requirements to which it is
subject.
As of December 31, 1998, 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:
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
<TABLE>
<CAPTION>
The Company NBC
Actual Actual
------------------------ --------------------------
In Thousands Amount Ratio Amount Ratio
- --------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
As of December 31, 1998
Total capital (to risk-weighted assets) $495,992 13.04% $292,263 11.84%
Tier 1 capital (to risk-weighted assets) $448,443 11.79% $262,987 10.65%
Tier 1 capital (to total assets) $448,443 8.03% $262,987 6.71%
As of December 31, 1997
Total capital (to risk-weighted assets) $429,936 13.86% $265,883 12.43%
Tier 1 capital (to risk-weighted assets) $391,112 12.61% $239,114 11.18%
Tier 1 capital (to total assets) $391,112 8.69% $239,114 7.50%
</TABLE>
Note U. National Commerce Bancorporation Financial Information (Parent Company
Only)
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31
--------------------------------
In Thousands 1998 1997
- ------------------------------------------------------------------------- ---------
<S> <C> <C>
ASSETS
Cash* $ 4,125 $ 3,036
Securities available for sale 25,626 29,414
Investments in :
Bank subsidiaries* 404,875 354,678
Non-bank subsidiaries* 5,356 4,580
Other 22,045 16,343
- ---------------------------------------------------- ------- --------
Total assets $462,027 $408,051
==================================================== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and
accrued liabilities $ 3,582 $ 6,028
Debenture payable 49,896 49,875
Stockholders' equity 408,549 352,148
- ---------------------------------------------------- ------- --------
Total liabilities and stockholders' equity $462,027 $408,051
==================================================== ======= ========
</TABLE>
*Eliminated in consolidation.
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Year Ended December 31
--------------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Income:
Dividends from bank and thrift subsidiaries* $67,402 $30,331 $ 47,045
Dividends from non-bank subsidiaries* 1,000 --- 5,500
Interest and other income from bank subsidiaries 19 1,412 50
Other 2,909 311 (250)
- ---------------------------------------------------- ------- ------- --------
71,330 32,054 52,345
Expenses:
Salaries and employee benefits 52 47 63
Interest on debenture 3,362 2,626 ---
Other 4,050 1,176 (567)
- ---------------------------------------------------- ------- ------- --------
7,464 3,849 (504)
Income before income taxes (credits) and
equity in undistributed earnings
of subsidiaries 63,866 28,205 52,849
Income taxes (credits) (1,379) (706) 116
- ---------------------------------------------------- ------- ------- --------
65,245 28,911 52,733
Equity in undistributed net income of:
Bank and thrift subsidiaries 18,865 29,290 (1,457)
Non-bank subsidiaries 1,031 11,579 6,237
- ---------------------------------------------------- ------- ------- --------
Net income $85,141 $69,780 $ 57,513
==================================================== ======= ======= ========
</TABLE>
*Eliminated in consolidation.
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31
---------------------------------
In Thousands 1998 1997 1996
- ---------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income $ 85,141 $ 69,780 $ 57,513
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiaries (19,896) (18,645) (4,780)
(Increase) decrease in other assets 2,270 (9,313) 1,438
Increase (decrease) in liabilities (2,446) 10,607 (810)
Realized securities losses 1,845 --- ---
- ---------------------------------------------------------- -------- -------- --------
Net cash provided by operating activities 66,914 52,429 53,361
Investing activities:
Investment in subsidiaries (4,600) (32,766) (9,298)
Proceeds from sale of available-for-sale securities 1,842 (29,617) ---
-------- -------- --------
Net cash used in investing activities (2,758) (62,383) (9,298)
Financing activities:
Proceeds from debenture --- 49,875 ---
Cash used to repurchase/retire stock (33,936) (18,129) (30,581)
Proceeds from exercise of stock options 2,401 3,516 3,829
Cash dividends paid (31,532) (22,529) (19,367)
Other --- 52 ---
- ---------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) financing activities (63,067) 12,785 (46,119)
- ---------------------------------------------------------- -------- -------- --------
Increase (decrease) in cash 1,089 2,831 (2,056)
Cash at beginning of year 3,036 205 2,261
- ---------------------------------------------------------- -------- -------- --------
Cash at end of year $ 4,125 $ 3,036 $ 205
========================================================== ======== ======== ========
</TABLE>
Note V - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter
----------------------------------------------
In Thousands,
Except Per Share Amounts First Second Third Fourth
- --------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C> <C>
1998:
Interest income $ 88,227 $ 94,587 $ 97,393 $103,380
Interest expense 43,956 46,934 47,970 52,109
Net interest income 44,271 47,653 49,423 51,271
Provision for loan losses 867 2,630 2,962 3,140
Other income 21,004 20,904 21,280 21,486
Securities gains 2 43 113 39
Other expenses 34,141 34,848 35,691 35,624
Income before income taxes 30,269 31,122 32,163 34,032
Income taxes 10,254 10,643 10,299 11,249
Net income $ 20,015 $ 20,479 $ 21,864 $ 22,783
Net income per
common share:
Basic $0.20 $0.20 $0.22 $ 0.23
Diluted $0.19 $0.20 $0.21 $ 0.22
- --------------------------------------------------------------------- -------- -------- --------
1997:
Interest income $ 79,337 $ 83,519 $ 87,138 $ 86,999
Interest expense 41,434 43,656 45,115 43,967
Net interest income 37,903 39,863 42,023 43,032
Provision for loan losses 3,454 3,551 4,280 5,728
Other income 17,596 18,820 20,010 26,059
Securities gains (losses) (1) 30 2 (111)
Other expenses 29,000 30,468 30,535 33,457
Income before income taxes 23,044 24,694 27,220 29,795
Income taxes 7,929 8,585 9,175 9,284
Net income $ 15,115 $ 16,109 $ 18,045 $ 20,511
Net income per
common share:
Basic $0.16 $0.16 $0.18 $ 0.21
Diluted $0.15 $0.16 $0.18 $ 0.20
- ---------------------------------------------------------- -------- -------- -------- --------
</TABLE>
<PAGE>
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
Notes continued
Note W. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
In Thousands, Except Per Share Amounts 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net income $ 85,141 $ 69,780 $ 57,513
=================================================== ======== ======== ========
DENOMINATOR:
Denominator for basic earnings per share --
weighted average shares 100,551 97,997 98,188
Effect of dilutive securities:
Employee stock options 2,333 3,372 2,448
Leveraged ESOP shares --- --- (440)
- ---------------------------------------------------------------------------------------
Dilutive potential common shares 2,333 3,372 2,008
- ---------------------------------------------------------------------------------------
Denominator for diluted earnings per share --
adjusted weighted-average shares and
assumed conversions 102,884 101,369 100,196
=======================================================================================
Basic earnings per share $ 0.85 $ 0.71 $ 0.59
=======================================================================================
Diluted earnings per share $ 0.83 $ 0.69 $ 0.57
=======================================================================================
</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, 1998.
<TABLE>
<CAPTION>
of Voting
Name Jurisdiction Securities
of of Owned by
Subsidiary Organization Parent Parent
- ---------- ------------ ------ -----------
<S> <C> <C> <C>
National Bank of Commerce United States NCBC 100.00%
Commerce General Corporation Tennessee NBC 100.00
NBC Capital Markets Group, Inc. Tennessee NBC 80.00
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
National Commerce Bank Tennessee NBC 100.00
Services, Inc.
Commerce Finance Company Tennessee NBC 100.00
NBC Bank, FSB (Belzoni) Mississippi NCBC 100.00
TransPlatinum Service Corp. Tennessee NCBC 100.00
Kenesaw Leasing, Inc. Tennessee Knoxville 100.00
J&S Leasing, Inc. Tennessee Knoxville 100.00
National Commerce Capital Trust I Delaware NCBC 100.00
</TABLE>
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 19, 1999,
included in the 1998 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 1990 and
1994 Stock Plans (Form S-8 No. 33-38552 and Form S-8 No. 33-88440), pertaining
to the National Bank of Commerce Taxable Income Reduction Account Plan (Form S-8
No. 33-23100) in the Registration Statement (Form S-3 No. 333-53587) and the
related prospectus of National Commerce Bancorporation for the registration of
278,791 shares of its common stock and in the Registration Statement (Form S-3
No. 333-60953) and the related prospectus of National Commerce Bancorporation
for the registration of 534,531 shares of its common stock, of our report dated
February 19, 1999, with respect to the consolidated financial statements of
National Commerce Bancorporation and subsidiaries incorporated herein by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1998.
/s/ Ernst & Young LLP
---------------------
Memphis, Tennessee
March 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 224,875 206,191 164,894 144,166
<INT-BEARING-DEPOSITS> 20,092 18,293 17,789 16,660
<FED-FUNDS-SOLD> 66,883 23,009 13,219 226,929
<TRADING-ASSETS> 62,737 98,332 31,812 20,159
<INVESTMENTS-HELD-FOR-SALE> 721,268 408,083 700,775 516,623
<INVESTMENTS-CARRYING> 1,377,102 1,210,071 817,124 762,023
<INVESTMENTS-MARKET> 1,381,692 1,208,922 804,690 765,142
<LOANS> 3,197,673 2,608,967 2,347,973 1,931,213
<ALLOWANCE> 49,122 43,297 35,514 29,010
<TOTAL-ASSETS> 5,811,054 4,692,011 4,200,409 3,695,042
<DEPOSITS> 3,947,275 3,251,242 2,976,430 2,574,770
<SHORT-TERM> 592,386 515,570 499,633 431,427
<LIABILITIES-OTHER> 75,523 69,028 60,066 39,667
<LONG-TERM> 787,321 504,023 350,951 352,499
0 0 0 0
0 0 0 0
<COMMON> 408,549 352,148 313,329 296,679
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 5,811,054 4,692,011 4,200,409 3,695,042
<INTEREST-LOAN> 260,253 229,204 190,879 159,816
<INTEREST-INVEST> 116,364 103,909 91,562 82,921
<INTEREST-OTHER> 6,970 3,880 4,126 3,728
<INTEREST-TOTAL> 383,587 336,993 286,567 246,465
<INTEREST-DEPOSIT> 134,186 119,159 107,965 96,691
<INTEREST-EXPENSE> 190,967 174,172 151,101 126,440
<INTEREST-INCOME-NET> 192,618 162,821 135,466 120,025
<LOAN-LOSSES> 9,599 17,013 14,134 9,750
<SECURITIES-GAINS> 197 (80) 3 228
<EXPENSE-OTHER> 140,304 123,460 103,875 91,830
<INCOME-PRETAX> 127,586 104,753 87,092 72,313
<INCOME-PRE-EXTRAORDINARY> 127,586 104,753 87,092 72,313
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 85,141 69,780 57,513 49,035
<EPS-PRIMARY> .85 .71 .59 .50
<EPS-DILUTED> .83 .69 .58 .49
<YIELD-ACTUAL> 4.17 4.04 3.89 4.14
<LOANS-NON> 533 0 0 0
<LOANS-PAST> 4,218 3,134 3,482 3,252
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 43,297 35,514 29,010 24,310
<CHARGE-OFFS> 11,649 12,799 10,338 7,249
<RECOVERIES> 4,039 2,944 2,823 2,199
<ALLOWANCE-CLOSE> 49,122 43,297 35,514 29,010
<ALLOWANCE-DOMESTIC> 49,122 43,297 35,514 29,010
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
