<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
December 31, 1999 0-6094
- ----------------- ------
(For the fiscal year ended) (Commission file number)
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
- --------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square, Memphis, Tennessee 38150 (901)523-3434
- --------------------------------------------- -------------
(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
--------------------------
(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
----- ----
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
-----
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 10, 2000, was approximately $1,562,000.00.
The number of shares of common stock outstanding, as of March 10, 2000, was
108,195,436.
-1-
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 2000 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, 1999 are incorporated by
reference into Parts I and II.
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, 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. During 1999, the Company acquired First Financial
Corporation of Mt. Juliet, Tennessee, and Nashville-based Southeastern Mortgage
of Tennessee. These acquisitions are incorporated into reported results. For
comparative purposes, all prior year results are "restated" to include these
events.
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)
NBC Bank, FSB, Knoxville, Tennessee ("Knoxville" or "the Knoxville Bank"), (3)
NBC Bank, FSB, Belzoni, Mississippi ("Belzoni"), (4) Commerce Capital
Management, Inc., Memphis, Tennessee ("Commerce Capital"), (5) TransPlatinum
Service Corp., Nashville, Tennessee ("TransPlatinum") (6) U.S.I. Alliance Corp.
-2-
<PAGE>
("USI"), Memphis, Tennessee and (7) National Commerce Capital Trust I ("Trust
I"), Memphis, Tennessee. NCBC provides NBC, 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.
In December 1999, the Company announced an agreement to acquire Piedmont
Bancorp., Inc. of Hillsborough, North Carolina. The transaction is intended to
be a tax-free exchange of shares and is intended to be accounted for as a
pooling-of-interests with an expected close date late in the first quarter or
early in the second quarter of 2000.
On March 19, 2000, NCBC entered into a definitive merger agreement with
CCB Financial Corporation, a bank holding company based in Durham, North
Carolina ("CCB"). Pursuant to the merger agreement, NCBC will issue 2.45 shares
of its common stock in exchange for each share of CCB common stock outstanding.
The transaction is intended to be a tax-free exchange of shares and is intended
to be accounted for as a pooling-of-interests. Consummation of the merger,
which is expected to occur during the third quarter of 2000, is conditioned upon
customary regulatory and shareholder approvals.
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 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 financial services segment includes trust, asset management, insurance
and brokerage activities. Financial services also includes balance sheet
management activities including oversight of the investment portfolio, non-
deposit based funding, interest rate risk management, income from transaction
processing, in-store consulting/licensing and specialty leasing. See Note P of
the Notes to Consolidated Financial Statements in the 1999 Annual Report
incorporated herein by reference.
NBC furnishes a full range of banking and trust services. At December 31,
1999 NBC had 29 branch and SUPER MONEY MARKET(R) facilities in Memphis and
Shelby County, Tennessee, one branch facility in Somerville, Tennessee, one
SUPER MONEY MARKET facility and two branches in Collierville, Tennessee, one
SUPER MONEY MARKET facility, 31 branches and SUPER MONEY MARKET(R) facilities in
Nashville, 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-
-3-
<PAGE>
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 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, 1999 the
Knoxville Bank had 13 SUPER MONEY MARKET branch locations and two traditional
branch locations in the Knoxville area, 23 branch locations in Raleigh-Durham,
Greensboro, and Greenville, North Carolina, one branch location in Olive Branch,
Mississippi and one branch in Horn Lake, Mississippi. 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.
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. At December 31, 1999
Belzoni had 13 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.
In September of 1995, NCBC acquired TransPlatinum Service Corp. of
Nashville, Tennessee which offers financial services to the trucking and
petroleum industries and bankcard services to merchants. In December, 1999
-4-
<PAGE>
TransPlatinum acquired Nashville-based FleetOne LLC which expanded the Company's
fuel card and merchant processing to include a new line of business targeted to
all commercial vehicle classes.
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 entity (SPE) 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. At December 31, 1999 NBC had 29
branch and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County,
Tennessee, one branch facility in Somerville, Tennessee, one SUPER MONEY MARKET
facility and two branches in Collierville, Tennessee, 31 branches and SUPER
MONEY MARKET(R) facilities in Nashville, and three branches in West Memphis,
Arkansas, and one branch in Marion, Arkansas. At December 31, 1999, NBC had
$3,563,000,000 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 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, Dealer Finance and the Consumer
Services Division. NBC's Commercial Banking Group is composed of the following
divisions: the Metropolitan Lending Division, the Asset Based Lending Division,
the Real Estate Lending Division, the Residential Constuction Division and the
Correspondent Banking Division. 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 86 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 32% 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
-5-
<PAGE>
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, 1999, NBC had
consumer lines of credit totaling $70,738,000. 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,
1999, accounted for approximately 25% of the loans made by NBC. Real estate
construction and long-term mortgage loans (including first mortgage refinance
loans) accounted for approximately 43% of NBC's outstanding loans at December
31, 1999.
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
$58,000,000 in 1999.
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, 1999, the
Trust Division administered assets valued at approximately $3,005,000,000.
International Services: NBC has established 5 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.
Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce
General processes financial transactions for hospitals. During the year ended
December 31, 1999, approximately 87% of the total revenues of Commerce General
were derived from services provided to NBC and 13% from services provided to
other customers. NBC Capital Markets Group, Inc. provides investment services
to individual and institutional investors. At December 31, 1999, Capital
Market's capital totaled $15,155,000. 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
-6-
<PAGE>
insurance and annuities through NBC's in-store retail banking system. National
Commerce Bank Services, Inc. provides supermarket banking services to other
financial institutions. In August, 1999 NBC acquired Southeastern Mortgage of
Tennessee, an independent mortgage banking company.
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, 1999, NBC had
$5,560,753,000 in assets. According to September 30, 1999 call reports, one of
the other banks in metropolitan Memphis is 3.4 times larger and another is
approximately 6.9 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 and Nashville areas. 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, 1999, NBC and its subsidiaries employed
approximately 364 officers, 858 other full-time employees, 132 part--time
employees and 57 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 was merged with the TIRA into the NBC Employee Stock Ownership
Plan With 401K Provisions.
NBC BANK, FSB (KNOXVILLE):
-7-
<PAGE>
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, 1999 the Knoxville Bank had 13 SUPER MONEY MARKET
branch locations and one traditional branch location in the Knoxville area, 23
branch locations in the Raleigh-Durham, Greensboro, and Greenville, North
Carolina areas, one branch location in Olive Branch, Mississippi, and one branch
in Horn Lake, Mississippi. 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. The Knoxville
Bank employees are provided with the same benefits that all Company employees
have available to them. At December 31, 1999, the Knoxville Bank and its
subsidiaries employed 83 officers, 196 other full-time employees, 33 part-time
employees and 5 peak-time employees. At year-end 1999, the Knoxville Bank had
total assets of $1,132,141,000. 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, 1999 Kenesaw's capital totaled
$2,826,000 and J & S's capital was $2,321,000.
NBC BANK, FSB (BELZONI):
NBC Bank, FSB was acquired to expand its retail banking activities through
supermarket branches in other states. At December 31, 1999 13 SUPER MONEY
MARKET branches were located in Kroger supermarkets in Virginia. At December
31, 1999, Belzoni employed 21 officers, 52 other full-time employees, and two
part-time employees. The same Company benefits are provided to these employees.
At year-end 1999, Belzoni had total assets of $418,262,000. 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 $916,000,000. At
December 31, 1999, Commerce Capital had eight 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.
TRANSPLATINUM SERVICE CORP.:
In September of 1995, NCBC acquired TransPlatinum Service Corp. which
offers financial services to the trucking and petroleum industries and bankcard
services to merchants. TransPlatinum is located in Nashville, Tennessee. As of
December 31, 1999, TransPlatinum had 7 officers, 85 full-time employees, and 5
part-time employees. TransPlatinum competes with larger companies offering
similar services on a nation-wide basis.
-8-
<PAGE>
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, 1999, USI had 2 officers and 2 other full-time
employees.
NATIONAL COMMERCE CAPITAL TRUST I:
National Commerce Capital Trust I was organized in March 1997 as a special
purpose entity (SPE) to offer floating rate capital trust pass-through
securities. At December 31, 1999, Trust I had $49,909,000 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
Board may examine the Company's and each of its direct subsidiaries' records,
including
-9-
<PAGE>
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 O of the Notes to Consolidated Financial
Statements in the 1999 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
-10-
<PAGE>
interstate barriers on such acquisitions by bank holding companies. With certain
qualifications, FIRREA also allows bank holding companies to merge acquired
savings and loan associations into their existing commercial bank subsidiaries.
FIRREA also provides that a depository institution insured by the 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. 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
-11-
<PAGE>
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.
-12-
<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, 1997 through 1999.
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>
1999 1998 1997
------------------------------ ---------------------------- --------------------------
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) 3,600,337 316,442 8.79% 3,040,662 277,141 9.11% 2,650,663 243,754 9.20%
Taxable securities including
trading account 2,153,350 140,876 6.54 1,719,108 114,297 6.65 1,489,969 100,155 6.72
Non-taxable investment
securities(2) 205,485 18,404 8.96 159,873 13,214 8.27 150,016 12,289 8.19
Federal funds sold and
securities purchased under
agreements to resell 67,923 4,968 7.31 44,562 3,426 7.69 23,985 1,429 5.96
Interest-bearing deposits
with other banks 24,016 953 3.97 19,326 1,619 8.38 18,456 1,287 6.97
--------- ------- --------- -------- --------- --------
Total interest-earning assets 6,051,111 481,643 7.96 4,983,531 409,697 8.22 4,333,089 358,914 8.28
------- -------- --------
Non-interest earning assets:
Cash and due from banks 179,429 178,269 142,173
Premises & equipment, net 47,043 40,238 31,147
Other assets 232,342 205,666 143,789
Allowance for loan losses (55,077) (49,718) (39,768)
--------- --------- ---------
TOTAL ASSETS 6,454,848 5,357,986 4,610,430
========= ========= =========
</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 29 of the Annual Report to Shareholders for the
corresponding unadjusted amounts as presented in the financial statements.
-13-
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- --------------------------- -------------------------
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 405,370 4,713 1.16% 348,036 4,021 1.16% 282,241 3,814 1.35%
Savings deposits 1,282,826 46,553 3.63 1,202,325 47,253 3.93 1,075,530 43,823 4.07
Time deposits 2,108,598 107,211 5.08 1,681,671 91,693 5.45 1,425,705 79,104 5.55
Short-term borrowings 686,223 31,212 4.55 476,147 23,206 4.87 452,721 23,062 5.09
Federal Home Loan Bank advances 832,206 41,432 4.98 552,176 27,904 5.05 405,308 23,032 5.68
Long-term debt 6,372 369 5.79 103,103 6,135 5.95 156,152 9,316 5.97
--------- ------- --------- -------- --------- --------
Total interest bearing
liabilities 5,321,595 231,490 4.35 4,363,458 200,212 4.59 3,797,657 182,151 4.80
--------- ------- --------- -------- --------- --------
Non-interest bearing liabilities:
Domestic demand deposits 467,645 443,395 351,882
Other 117,159 102,507 75,429
Capital Trust Preferred Securities 49,903 49,891 38,079
Stockholders' equity 498,546 398,735 347,383
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 6,454,848 5,357,986 4,610,430
========= ========= =========
Net interest earnings 250,153 209,485 176,763
======= ======= =======
Net yield on interest-earning assets 4.13% 4.20% 4.08%
==== ==== ====
</TABLE>
-14-
<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>
1999 Compared to 1998 1998 Compared to 1997
Increase (decrease) 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 49,487 (10,186) 39,301 (1,820) 35,564 (2,177) 33,387 (318)
Taxable securities including
trading account 28,436 (1,857) 26,579 (462) 15,246 (1,104) 14,142 (168)
Non-taxable securities 4,014 1,176 5,190 315 814 111 925 7
Federal funds sold and
securities purchased under
agreements to resell 1,716 (174) 1,542 (87) 1,492 505 1,997 356
Interest-bearing deposits
with other banks 328 (994) (666) (207) 63 269 332 12
------ ------- ------ ------ ------ ------ ------ ------
Total interest earning assets 83,981 (12,035) 71,947 (2,262) 53,179 (2,396) 50,783 (110)
------ ------- ------ ------ ------ ------ ------ ------
Interest paid on:
Demand deposits 666 26 692 4 810 (603) 207 (129)
Savings deposits 3,051 (3,751) (700) (242) 5,026 (1,596) 3,430 (183)
Time deposits 22,037 (6,519) 15,518 (1,571) 13,978 (1,389) 12,589 (246)
Federal funds purchased and
securities sold under
agreements to repurchase and
other short-term borrowings 9,645 (1,639) 8,006 (683) 1,165 (1,021) 144 (52)
Federal Home Loan Bank advances 13,947 (419) 13,528 (210) 7,638 (2,766) 4,872 (924)
Long-term debt (5,606) (160) (5,766) 154 (3,157) (24) (3,181) 8
------ ------- ------ ------ ------ ------ ------ ------
Total interest bearing
liabilities 43,741 (12,463) 31,278 (2,548) 25,460 (7,399) 18,061 (1,525)
------ ------- ------ ------ ------ ------ ------ ------
Net interest earnings 40,240 428 40,668 287 27,719 5,003 32,722 1,415
====== ======= ====== ====== ====== ====== ====== ======
</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.
-15-
<PAGE>
SECURITIES PORTFOLIO
- --------------------
The following table sets forth the aggregate book value of investment securities
at the dates indicated.
<TABLE>
<CAPTION>
December 31
------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Held-to-maturity securities:
U.S. Treasury - 3,997 -
U.S. Government agencies and
corporations 1,322,109 564,599 471,928
States of the U.S. and political
subdivisions 5,292 80,777 71,654
Other securities 431,982 727,729 666,489
--------- --------- ---------
Total 1,759,383 1,377,102 1,210,071
========= ========= =========
Available-for-sale securities:
U.S. Treasury 28,386 35,640 45,358
U.S. Government agencies and
corporations 235,624 322,658 207,920
States of the U.S. and political
subdivisions 123,516 83,893 79,872
Other securities 166,402 335,424 114,948
--------- --------- ---------
Total 553,928 777,615 448,098
========= ========= =========
</TABLE>
The following table sets forth the maturities at December 31, 1999, 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%. Yields on available-for-
sale securities are based on amortized cost.
<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>
Held-to-maturity securities:
U.S. Treasury - - - -
U.S. Government agencies
and corporations 100,000 6.42% 60,188 6.60% 650,301 6.63% 511,620 6.53%
States of the U.S. and
political subdivisions - 270 8.05 3,363 8.43 1,659 8.69
Other 2,312 6.38 252,630 6.58 155,579 7.04 21,461 7.83
------- ------- --------- --------
Total 102,312 6.42% 313,088 6.59% 809,243 6.72% 534,740 6.59%
======= ======= ========= ========
Available-for-sale securities:
U.S. Treasury 6,414 5.61% 21,972 6.15% - -
U.S. Government agencies
and corporations 5 6.69 17,704 7.51 147,456 7.49% 70,459 6.84%
States of the U.S. and
political subdivisions 10,590 6.60 43,468 7.17 55,001 7.98 14,457 8.97
Other 64,376 11.15 38,974 7.84 63,052 7.08 -
------- ------- --------- --------
Total 81,385 10.12% 122,118 7.25% 265,509 7.50% 84,916 7.20%
======= ======= ========= ========
</TABLE>
-16-
<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
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 689,945 613,557 529,985 481,720 413,544
Real estate - construction 283,033 273,968 269,078 190,796 138,096
Real estate - mortgage 1,625,374 1,250,698 856,157 668,878 572,871
Consumer(1)(2) 1,356,824 1,207,431 1,070,754 1,108,762 891,513
Lease financing 33,405 29,805 30,448 23,244 19,257
--------- --------- --------- --------- ---------
Total 3,988,581 3,375,459 2,756,422 2,473,400 2,035,281
========= ========= ========= ========= =========
</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, 1999, 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 327,327 256,900 105,718 689,945
Real estate - construction 143,644 93,847 45,542 283,033
------- ------- ------- -------
Total 470,971 350,747 151,260 972,978
======= ======= ======= =======
</TABLE>
-17-
<PAGE>
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, 1999.
<TABLE>
<CAPTION>
After 1 but After
Within 5 Yrs 5 Years
-------------- ---------
(in thousands of dollars)
<S> <C> <C>
Predetermined interest rate 232,870 116,313
Floating or adjustable interest rates 117,877 34,947
------- -------
Total 350,747 151,260
======= =======
</TABLE>
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
---------------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- --------------------
Amount Rate Amount Rate Amount Rate
--------- ------- --------- ------- --------- -------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits 467,645 - 443,395 - 351,882 -
Interest bearing demand deposits 405,370 1.16% 348,036 1.16% 282,241 1.35%
Savings deposits 1,282,826 3.63 1,202,325 3.93 1,075,530 4.07
Time deposits 2,108,598 5.08 1,681,671 5.45 1,425,705 5.55
--------- --------- ---------
Total 4,264,439 3,675,427 3,135,358
========= ========= =========
</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, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
Time remaining until maturity Amount
- ----------------------------- -------
<S> <C>
3 months or less 787,866
Over 3 through 6 months 206,764
Over 6 through 12 months 246,285
Over 12 months 96,153
---------
Total 1,337,068
=========
</TABLE>
-18-
<PAGE>
RETURN ON EQUITY AND ON TOTAL ASSETS
- ------------------------------------
The following table shows consolidated operating ratios for the Company for each
of the last three years.
Year Ended December 31
-------------------------
1999 1998 1997
----- ----- -----
Return on average total assets 1.66% 1.64% 1.57%
Return on average equity* 22.51% 22.07% 20.86%
Dividend payout percent** 37.89% 38.55% 33.33%
Average equity to assets percent 7.72% 7.52% 7.53%
* exclusive of other comprehensive income 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 capital ratios and discussion
of minimum capital requirements.
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
--------------------------------------
1999 1998 1997
---- ---- ----
(in thousands of dollars)
<S> <C> <C> <C>
Short-term borrowings:
Balance at year-end 883,038 599,378 432,256
Weighted average interest rate payable at year-end 4.65% 4.32% 5.04%
Maximum amount outstanding at any month end
Average outstanding balance 883,038 599,378 540,622
(total daily outstanding principal balance divided by 365) 686,223 476,147 452,721
Weighted average interest rate (related interest expense
divided by the average outstanding balance) 4.55% 4.87% 5.09%
</TABLE>
-19-
<PAGE>
ITEM 2. PROPERTIES.
The Company's headquarters are located in leased space at One Commerce
Square, Memphis, Tennessee. Also, occupying space at One Commerce Square is the
Commerce Square Branch and the following subsidiaries: Commerce General
Corporation; Commerce Capital Management, Inc.; National Commerce Bank Services;
NBC Insurance Services and USI Alliance Corp.
As of December 31, 1999, the corporation operated 79 traditional and in-
store branches in Tennessee, 23 in North Carolina, 35 in Virginia, 2 in
Mississippi, 11 in Georgia, 4 in Arkansas and 8 in West Virginia. Of the above
locations, 18 traditional locations are owned; the remaining branches and all
in-store branches are leased. There are 207 ATM locations in operation, with
162 in banking offices and 45 away from the offices. The Company does not own
or lease any other properties that it considers materially important to its
financial statements.
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
<S> <C> <C>
Name Age Office Held
---- --- ---------------------------------------------------------------------------------------
Thomas M. Garrott 62 Chairman of the Board, President, Chief Executive Officer and Director of the Company
Lewis E. Holland 57 Vice Chairman, Treasurer and Chief Financial Officer of the Company
William R. Reed, Jr. 53 Vice Chairman of the Company
Gary L. Lazarini 58 Executive Vice President of the Company and Chairman of NBC Capital Markets Group, Inc.
Mackie H. Gober 53 Executive Vice President of the Company
Tom W. Scott 56 President of Commerce General Corporation
David T. Popwell 40 Executive Vice President and Secretary
</TABLE>
Of the foregoing officers, Messrs. Garrott, Holland, and Reed are also directors
of the Company.
-20-
<PAGE>
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. Lazarini was elected Executive Vice President of the Company in March
2000. He was Executive Vice President of NBC until March 2000.
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. Popwell was elected Executive Vice President of the Company in August
1998 and Secretary in October 1999. Prior to that time he was an attorney with
Baker, Donelson, Bearman and Caldwell.
-21-
<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>
1999:
High $26.44 $23.88 $25.69 $24.38
Low 21.50 20.50 21.88 17.56
Cash dividends .105 .09 .09 .09
1998:
High $19.06 $25.75 $23.38 $21.56
Low 13.94 16.50 19.69 15.13
Cash dividends* .09 .08 .08 .07
</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 March 10, 2000, there were approximately 4,000 stockholders of
record.
ITEM 6. SELECTED FINANCIAL DATA.
In Thousands of Dollars, Except Per Share and Ratio Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net interest income $ 236,538 $ 202,896 $ 171,907 $ 143,535 $ 125,887
Net income 107,234 88,020 72,454 59,886 50,848
Per common share data:*
Basic earnings per share 1.00 .85 .72 .59 .50
Diluted earnings per share .99 .83 .69 .58 .49
Cash dividends declared .375 .32 .23 .20 .18
Book value 5.15 4.06 3.62 3.21 2.97
Total average equity 498,546 398,735 347,383 307,910 282,406
Total average assets 6,454,868 5,357,986 4,610,430 3,988,379 3,361,071
Average debt:
Federal Home Loan
Bank advances 832,206 552,176 405,308 417,316 294,833
Other borrowed funds
and long term debt 9,291 103,103 163,010 65,829 11,176
Capital trust pass-
through securities 49,903 49,891 38,079 - -
Ratios:
Average equity to average assets 7.72% 7.44% 7.53% 7.72% 8.40%
Return on average equity 21.51 22.07 20.86 19.45 18.09
Return on average assets 1.66 1.64 1.57 1.50 1.52
</TABLE>
* After retroactive adjustment for all stock dividends and stock splits declared
through December 31, 1999.
-22-
<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 18 through
27 in the Registrant's 1999 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 23 of the 1999 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 28 through 46 in the Registrant's 1999 Annual
Report to Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 46 of the Registrant's 1999
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 2000 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 2000 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 2000 Annual Meeting of Shareholders is incorporated
herein by reference.
-23-
<PAGE>
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 2000 Annual
Meeting of Shareholders is incorporated herein by reference.
-24-
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2)
and (c) 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, 1999, are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Income--Years ended December 31, 1999, 1998 and
1997
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows--Years ended December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements--December 31, 1999
Report of Independent Auditors
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.
(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-Q for the quarter ended June 30, 1999 (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.
-25-
<PAGE>
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 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, 1984 (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., filed as
Exhibit 10.8 to the Registrant's Form 10-K for the year ended
December 31, 1998 (File No. 0-6094) and incorporated herein by
reference.
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, filed as
Exhibit 10.9 to the Registrant's Form 10-K for the year ended
December 31, 1998 (File No. 0-6094) and incorporated herein by
reference.
10.10 Second Amendment to Amended and Restated Agreement Respecting
Employment dated December 17, 1999 by and between National
Commerce Bancorporation and Thomas M. Garrott.
10.11 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
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, 1998 (File No. 0-6094) and incorporated herein by reference.
10.12 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
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, 1998 (File No. 0-6094) and incorporated herein by reference.
-26-
<PAGE>
10.13 First Amendment to Agreement Respecting Employment dated July
27, 1998 by and between National Commerce Bancorporation,
National Bank of Commerce and Lewis E. Holland, filed as Exhibit
10.12 to the Registrant's Form 10-K for the year ended December
31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.14 Employment Agreement dated as of August 17, 1998, by and between
National Commerce Bancorporation, National Bank of Commerce and
David T. Popwell, filed as Exhibit 10.13 to the Registrant's
Form 10-K for the year ended December 31, 1998 (File No. 0-6094)
and incorporated herein by reference.
10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to the
Registrant's Form 10-K for the year ended December 31, 1980
(File No. 0-6094) and incorporated herein by reference.
10.16 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.
10.17 1994 Stock Plan as Amended and Restated Effective as of November
1, 1996, filed as Exhibit A to the Registrant's Proxy Statement
for the 1997 Annual Meeting of Shareholders and incorporated
herein by reference.
10.18 Amendment Number One National Commerce Bancorporation 1994 Stock
Plan, as Amended and Restated Effective as of November 1, 1996,
filed as Exhibit 10.17 to the Registrant's Form 10-K for the
year ended December 31, 1998 (File No. 0-6094) and incorporated
herein by reference.
10.19 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.
10.20 National Commerce Bancorporation Deferred Compensation Plan
effective January 1, 1999, filed as Exhibit 10.19 to the
Registrant's Form 10-K for the year ended December 31, 1998
(File No. 0-6094) and incorporated herein by reference.
13 Registrant's 1999 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
-27-
<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 9, 2000 /s/ Thomas M. Garrott
- -------------- ----------------------------
Dated Thomas M. Garrott
Chairman of the Board
(Principal Executive Officer)
March 9, 2000 /s/ Lewis E. Holland
- -------------- ----------------------------
Dated Lewis E. Holland
Vice Chairman, Treasurer, and Chief
Financial Officer
(Principal Financial Officer)
March 9, 2000 /s/ Mark A. Wendel
- -------------- ----------------------------
Dated Mark A. Wendel
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
/s/ G. Mark Thompsom
- ----------------------------- ----------------------------
Director Director
/s/ Bruce E. Campbell, Jr. /s/ William R. Reed, Jr.
- ----------------------------- ----------------------------
Director Director
James H. Daughdrill, Jr. /s/ J. Brad Reed
- ----------------------------- ----------------------------
Director Director
/s/ W. Neely Mallory, Jr. /s/ James E. McGehee, Jr.
- ----------------------------- ----------------------------
Director Director
/s/ Thomas C. Farnsworth, Jr. /s/ R. Grattan Brown, Jr.
- ----------------------------- ----------------------------
Director Director
/s/ Lewis E. Holland
- -----------------------------
Director
-28-
<PAGE>
/s/ Frank G. Barton, Jr.
- -----------------------------
Director
/s/ Phillip H. McNeill, Sr.
- -----------------------------
Director Dated: March 9, 2000
--------------
-29-
<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-Q for the year ended June 30, 1999 (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).
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).
<PAGE>
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. filed as Exhibit 10.8 to the
Registrant's Form 10-K for the year ended December 31, 1998 (File No.
0-6094).
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 filed as Exhibit 10.9 to the
Registrant's Form 10-K for the year ended December 31, 1998 (File No.
0-6094).
10.10 Second Amendment to Amended and Restated Agreement Respecting
Employment dated December 17, 1999 by and between National Commerce
Bancorporation and Thomas M. Garrott.
10.11 First Amendment to Agreement Respecting Employment dated July 27, 1998
by and between National Commerce Bancorporation, 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, 1998 (File No.
0-6094).
10.12 First Amendment to Agreement Respecting Employment dated July 27, 1998
by and between National Commerce Bancorporation, 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, 1998 (File No.
0-6094).
10.13 First Amendment to Agreement Respecting Employment dated July 27, 1998
by and between National Commerce Bancorporation, National Bank of
Commerce, and Lewis E. Holland filed as Exhibit 10.12 to the
Registrant's Form 10-K for the year ended December 31, 1998 (File No.
0-6094).
10.14 Employment Agreement dated as of August 17, 1998, by and between
National Commerce Bancorporation, National Bank of Commerce and David
T. Popwell filed as Exhibit 10.13 to the Registrant's Form 10-K for the
year ended December 31, 1998 (File No. 0-6094).
10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to the Registrant's Form
10-K for the year ended December 31, 1980 (File No. 0-6094).
10.16 1990 Stock Plan, filed as Exhibit A to the Registrant's Proxy Statement
for the 1990 Annual Meeting of Shareholders.
10.17 1994 Stock Plan as Amended and Restated Effective November 1, 1996,
filed as Exhibit A to the Registrant's Proxy Statement for the 1997
Annual Meeting of Shareholders.
10.18 Amendment Number One National Commerce Bancorporation 1994 Stock Plan,
as Amended and Restated Effective as of November 1, 1996 filed as
Exhibit 10.17 to the Form 10-K for the year ended December 31, 1998
(File No. 0-6094).
<PAGE>
10.19 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).
10.20 National Commerce Bancorporation Deferred Compensation Plan effective
January 1, 1999 filed as Exhibit 10.19 to the Registrant's Form 10-K
for the year ended December 31, 1998 (File No. 0-6094).
13 Registrant's 1999 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.10
SECOND AMENDMENT TO AMENDED AND RESTATED AGREEMENT
RESPECTING EMPLOYMENT
This Second Amendment to Amended and Restated Agreement Respecting
Employment ("Second Amendment") dated as of the 17th day of December 1999, is
made and entered into by and between NATIONAL COMMERCE BANCORPORATION, a
Tennessee Corporation ("NCBC"), and THOMAS M. GARROTT ("Employee") and amends
certain provisions of the Amended and Restated Agreement Respecting Employment
by and between the National Bank Of Commerce ("NBC"), NCBC and Employee dated as
of September 1, 1993 (the "Employment Agreement").
WHEREAS, by an Assignment Agreement dated the 17th day of December, 1999,
NBC, with the consent of the Employee, assigned all of its rights and
responsibilities under the Employment Agreement to NCBC, and NCBC assumed all of
the rights and responsibilities of NBC under the Employment Agreement; and
WHEREAS, NCBC and Employee have determined that it is in the best interest
of the parties to amend the Employment Agreement to modify certain provisions.
NOW, THEREFORE, for valuable considerations, the receipt of which are
hereby acknowledged, the parties hereto agree as follows:
1. Section 4(C)(iii) is hereby amended by deleting "November 3, 1999" in
the second line and inserting in lieu thereof "May 3, 2001".
2. In consideration of Employee extending the date from November 3, 1999,
to May 3, 2001 upon which Employee may elect to be employed on part-
time status, employee shall be paid a lump sum payment in the amount
of $2,296,998.00. It is further provided, however, that in the event
of the termination of employment of Employee under Section 4(A)(i),
4(A)(ii) or 4(C)(iv) of the Employment Agreement, Employee agrees to
return to NCBC a pro rata portion of the $2,296,998.00 lump sum
payment. The pro rata amount of said lump sum payment to be returned
shall be determined based on the days remaining from the date of
termination of employment of Employee to the end of the 18 month
period from November 3, 1999, to May 3, 2001.
3. Section 4(D)(viii) of the Employment Agreement in hereby amended by
adding the following to the end of such section:
On an after the termination of this Employment Agreement and
Employee's retirement as an employee of NCBC or on and after the
termination of this Agreement by the election of Employee to take a
lump sum payment upon a change in control as provided in this
Employment Agreement in Section D, NCBC agrees to provide to Employee
until such time as Employee reaches age 70 with either the same or, at
NCBC's election, at a different location within the same general
geographic area, alternate office space, furnishings, facilities,
reserved parking, supplies, services, equipment, secretarial and
administrative assistance that are in each case at least commensurate
with the size and quality of that which are provided to the other
principal executive officers of NCBC. NCBC and Employee may mutually
agree upon an equivalent monthly cash allowance in lieu of the
Employment being provided
<PAGE>
all or any part of these items. NCBC shall have no obligation to
provide for or furnish these items if (i) the Employee has obtained a
full time position with another company or organization, and (ii) such
items are being furnished or provided for in comparable fashion by
such other company or organization.
4. 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 have caused this Second Amendment to be
duly executed and delivered as of the date first above written.
/s/ Thomas M. Garrott
---------------------------------------
Thomas M. Garrott, Employee
NATIONAL COMMERCE BANCORPORATION
BY: /s/ Thomas C. Farnsworth, Jr.
-----------------------------------
Thomas, C. Farnsworth, Jr. Director
<PAGE>
Exhibit 13
1999 Annual Report To Shareholders
National Commerce Bancorporation
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,
1999.
The Company completed three business combinations during 1999. Two combinations
have been accounted for as poolings of interests and, accordingly, all prior
period consolidated financial statements and selected financial data have been
restated to include the combined results of operations, financial position and
cash flows as though the companies were combined for all historical periods.
(See Note B Business Combinations on page 22.)
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 and interest costs and
income, 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.
<PAGE>
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.
RESULTS OF OPERATIONS
For the year ended December 31, 1999, net income totaled $107,234,000, a 21.8
percent increase over 1998 net income of $88,020,000. Net income increased in
1998 by $15,566,000 or 21.5 percent over 1997. Basic earnings per share were
$1.00 in 1999, compared to $.85 in 1998 and $.72 in 1997. Diluted earnings per
share were $.99 in 1999, compared to $.83 in 1998 and $.69 in 1997.
For the year ended December 31, 1999, net income (excluding $1.3 million of
after-tax [$2.1 million pre-tax] merger related expenses) totaled $108.5
million, a 23.3 percent increase over 1998 net income of $88,020,000. Diluted
earnings per share, excluding merger related expenses of $.01 per share, were
$1.00 in 1999, compared to $.83 in 1998, representing a 20.5 percent increase.
(See other expenses for further discussion of non-recurring merger related
expenses.)
For 1999, return on average assets was 1.66 percent, compared to 1.64 percent in
1998 and 1.57 percent in 1997. Return on average equity (excluding unrealized
gains or losses on investment securities) was 21.51 percent in 1999, compared to
22.07 percent in 1998 and 20.86 percent in 1997. Excluding the non-recurring
merger related expenses, returns on average assets and equity would have been
1.68 percent and 21.77 percent, respectively, for 1999.
Net interest income, the difference between interest earned on loans and
investments and interest paid on interest-bearing liabilities, increased by
$40,668,000 or 19.4 percent in 1999, increased by $32,722,000 or 18.5 percent in
1998 and increased by $27,864,000 or 18.7 percent in 1997. The increase in 1999
reflects a $71,946,000 or 17.6 percent increase in interest income and a
$31,278,000 or 15.6 percent increase in total interest expense. The increase in
interest income was the result of a $559,675,000 or 18.4 percent increase in
average loans and a $488,732,000 or 26.7 percent increase in average investment
securities, offset by a decrease in the average yield on earning assets from
8.22 percent in 1998 to 7.96 percent in 1999. The increased volume of average
earning assets positively impacted interest income by approximately $84 million,
while the decreased yield on average earning assets negatively impacted interest
income by approximately $12 million. Interest expense increased in 1999,
reflecting a $958,137,000 or 22.0 percent increase in average outstanding
interest-bearing liabilities, and a decrease in the cost of interest-bearing
liabilities from 4.59 percent in 1998 to 4.35 percent in 1999. The decrease in
the rate paid on interest-bearing liabilities reduced interest expense by
approximately $12 million and the increase in average outstandings negatively
affected interest expense by approximately $44 million. The 1998 increase in
net interest income was primarily the result of an increase in earning assets of
15.0 percent. The net interest margin (taxable equivalent net interest income as
a percentage of average earning assets) was 4.13 percent in 1999, compared to
4.20 percent in 1998 and 4.08 percent in 1997. The yield on earning assets was
7.96 percent in 1999, compared to 8.22 percent in 1998 and 8.28 percent in 1997.
The cost of interest-bearing liabilities was 4.35 percent in 1999, compared to
4.59 percent in 1998 and 4.80 percent in 1997.
2
<PAGE>
ASSET QUALITY
The Company's provision for loan losses was $15,206,000 for 1999, compared to
$10,079,000 for 1998 and $17,363,000 for 1997. The 1999 provision was primarily
the result of loan growth. Net loan charge-offs were $8,627,000 (.24 percent of
average loans, net of unearned discounts) in 1999, compared to $7,973,000 (.26
percent of average loans, net of unearned discounts) in 1998 and $10,042,000
(.38 percent of average loans, net of unearned discounts) in 1997.
The allowance for loan losses at December 31, 1999, was $59,597,000 or 1.50
percent of loans, net of unearned discounts, compared to $53,018,000 or 1.57
percent of loans at December 31, 1998, and $47,076,000 or 1.71 percent of loans
at December 31, 1997. The allowance for loan losses provides for probable
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 trends, 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
allowance 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 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 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 analysis 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.
3
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
This table summarizes the Company's loan loss experience for each of the five
years ended December 31. There were no foreign loans.
<TABLE>
<CAPTION>
In Thousands 1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $53,018 $47,076 $39,130 $32,331 $27,317
Charge-offs:
Commercial, financial and agricultural 1,004 819 323 32 25
Real estate - construction 40 946 95 70 199
Real estate - mortgage 2,346 808 257 87 97
Consumer 8,486 8,521 10,951 8,335 5,421
Lease financing 744 943 1,382 1,912 1,586
Total charge-offs 12,620 12,037 13,008 10,436 7,328
Recoveries of loans previously charged off:
Commercial, financial and agricultural 75 1,164 78 73 70
Real estate - construction 473 197 57 244 44
Real estate - mortgage 222 51 33 71 73
Consumer 2,639 2,232 2,238 1,985 1,531
Lease financing 584 420 560 533 518
Total recoveries 3,993 4,064 2,966 2,906 2,236
Net charge-offs 8,627 7,973 10,042 7,530 5,092
Increase due to acquisitions --- 3,836 625 288 ---
Decrease due to loan sale --- --- --- (403) ---
Provision for loan losses 15,206 10,079 17,363 14,444 10,106
Balance at end of period $59,597 $53,018 $47,076 $39,130 $32,331
Ratio of net charge-offs to average loans
Outstanding during the period .24% .26% .38% .34% .28%
</TABLE>
4
<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 probable losses incurred within the
following categories of loans for each of the five years ended December 31:
<TABLE>
<CAPTION>
In Thousands 1999 1998 1997 1996 1995
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
To Total To Total To Total To Total To Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $10,309 17% $ 9,637 18% $ 9,051 19% $ 7,621 19% $ 6,569 20%
Real estate - construction 4,229 7 4,303 8 4,595 10 3,018 8 2,194 7
Real estate - mortgage 24,286 41 19,645 37 14,622 31 10,582 27 9,100 28
Consumer 20,274 34 18,965 36 18,288 39 17,541 45 14,162 44
Lease financing 499 1 468 1 520 1 368 1 306 1
Total $59,597 100% $53,018 100% $47,076 100% $39,130 100% $32,331 100%
</TABLE>
5
<PAGE>
Following is a comparison of non-earning assets and accruing loans past due 90
days or more for the years ended December 31:
<TABLE>
<CAPTION>
In Thousands 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ --- $ 560 $ 481 $ 88 $ ---
Renegotiated loans --- 101 157 323 587
Other real estate owned 271 442 --- 2 335
Total non-earning assets $ 271 $1,103 $ 638 $ 413 $ 922
Accruing loans past due
90 days or more $5,470 $4,536 $3,449 $3,709 $3,331
Percentage of total loans .14% .13% .13% .15% .16%
</TABLE>
There were $271,000, $1,103,000 and $638,000 of non-performing assets at
December 31, 1999, 1998 and 1997, respectively. All of the non-accrual and
renegotiated 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 non-accrual status
if they are maintained on a cash basis because of deterioration in the financial
position of the borrower, payment in full of interest or principal is not
expected or 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 non-accrual 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.
At December 31, 1999, the Company had no problem loans for which payments are
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.
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.
Other income (excluding securities gains or losses) increased $6,535,000 or 7.4
percent in 1999, compared to $1,712,000 or 2.0 percent in 1998 and $13,369,000
or 18.4 percent in 1997. Included in other income was a pre-tax gain of
$4,009,000 related to branch transactions with First American Corp. (Tennessee).
Excluding this transaction, other income increased 2.9 percent over the 1998
total of $87,768,000. Securities losses totaled $1,789,000 in 1999, gains
totaled $224,000 in 1998 and losses totaled $127,000 in 1997.
Other expenses (excluding the provision for loan losses) increased by $6,359,000
or 4.3 percent in 1999, 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 $17,318,000 or 13.2 percent in 1998, primarily for the
same reasons.
6
<PAGE>
Other expenses (excluding merger related expenses of approximately $2,100,000)
increased $4,259,000 or 2.9 percent in 1999, compared to $17,318,000 or 13.2
percent in 1998 and $20,453,000 or 18.4 percent in 1997. The merger related
expenses were primarily incurred during the fourth quarter for professional
fees, computer system conversions, staff retention incentives, due diligence and
negotiations with acquisition candidates. The Company's efficiency ratio, the
ratio of non-interest expenses to net revenues, was 43.08 percent for the year
excluding merger related expenses (43.70 percent including the expenses)
compared to 49.28 percent in 1998 and 49.23 percent in 1997.
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:
<TABLE>
<CAPTION>
SOURCES AND USES OF FUNDS TRENDS
1998-1999 1997-1998
1999 Increase 1998 Increase 1997
Average (Decrease) Average (Decrease) Average
In Thousands Balance Amount % Balance Amount % Balance
<S> <C> <C> <C> <C> <C> <C> <C>
FUNDING USES
Interest-earning assets:
Loans, net of unearned
discounts $3,600,337 $ 559,675 18.4% $3,040,662 $ 389,999 14.7% $2,650,663
Securities:
Taxable 2,111,065 443,120 26.6 1,667,945 208,764 14.3 1,459,181
Non-taxable 205,485 45,612 28.5 159,873 9,857 6.6 150,016
Trading account securities 42,285 (8,878) (17.4) 51,163 20,375 66.2 30,788
Federal funds sold and
securities purchased under
agreements to resell 67,923 23,361 52.4 44,562 20,577 85.8 23,985
Interest-bearing deposits
with banks 24,016 4,690 24.3 19,326 870 4.7 18,456
Total interest-earning
assets 6,051,111 1,067,580 21.4 4,983,531 650,442 15.0 4,333,089
Other uses 403,737 29,282 7.8 374,455 97,114 35.0 277,341
Total funding uses $6,454,848 $1,096,862 20.5% $5,357,986 $747,556 16.2% 4,610,430
FUNDING SOURCES
Interest-bearing
liabilities:
Interest-bearing deposits $3,796,794 $ 564,762 17.5% $3,232,032 $448,556 16.1% $2,783,476
Short-term borrowings 683,304 207,157 43.5 476,147 30,284 6.8 445,863
Other borrowed funds and
long-term debt 841,497 186,218 28.4 655,279 86,961 15.3 568,318
Total interest-bearing
liabilities 5,321,595 958,137 22.0 4,363,458 565,801 14.9 3,797,657
Non-interest-bearing
deposits 467,645 24,250 5.5 443,395 91,513 26.0 351,882
Capital trust pass-through
securities 49,903 12 0.0 49,891 11,812 31.0 38,079
Stockholders' equity 498,546 99,811 25.0 398,735 51,352 14.8 347,383
Other sources 117,159 14,652 14.3 102,507 27,078 35.9 75,429
Total funding sources $6,454,848 $1,096,862 20.5% $5,357,986 $747,556 16.2% $4,610,430
</TABLE>
7
<PAGE>
Average loans, the largest use of funds, increased $560 million or 18.4 percent
in 1999 and $390 million or 14.7 percent in 1998. Increases in consumer loans,
real estate construction and mortgage loans and commercial loans were the
primary reasons for the increases in 1999 and 1998. For 1999 and 1998 the
growth in all loan categories primarily reflects increased demand and consumer
loan promotions.
Total securities (excluding the trading account), another major use of funds,
increased by $489 million or 26.7 percent in 1999. Taxable securities increased
by $443 million or 26.6 percent, reflecting increases in both fixed- and
variable-rate federal agency securities. Non-taxable securities increased by
$46 million or 28.5 percent, reflecting increased investment in bank-qualified
municipal investments. Total securities increased by $219 million or 13.6
percent in 1998. The 1998 increase reflects increases 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 decreased
the securities portfolio by $6.8 million and decreased stockholders' equity by
$4.2 million at December 31, 1999, and increased the securities portfolio by
$2.3 million and increased stockholders' equity by $1.4 million at December 31,
1998.
Trading account securities decreased by $8.9 million or 17.4 percent in 1999 and
increased $20 million or 66.2 percent in 1998. These changes are a result of
brokerage activities at NBC Capital Markets Group, Inc.
8
<PAGE>
Federal funds sold and securities purchased under agreements to resell increased
by $23.4 million or 52.4 percent in 1999 and $20.6 million or 85.8 percent in
1998, representing excess funds not otherwise employed in loans or investment
securities.
Time deposits in other banks increased by $4.7 million or 24.3 percent in 1999
and increased by $1 million or 4.7 percent in 1998. This is a readily manageable
asset and balances are maintained at levels which are based on operating needs.
Total interest-earning assets increased by $1,067.6 million or 21.4 percent in
1999, compared to an increase of $650.4 million or 15.0 percent in 1998. As
described below, the growth in 1999 and 1998 was funded primarily by increases
in interest-bearing deposits, other borrowed funds and stockholders' equity.
Total average deposits increased by $589 million or 16.0 percent in 1999,
compared to an increase of $540.1 million or 17.2 percent in 1998. Total
interest-bearing deposits increased $564.8 million or 17.5 percent and total
non-interest-bearing deposits increased $24.3 million or 5.5 percent in 1999,
reflecting current market trends, compared to an increase of $448.6 million or
16.1 percent in interest-bearing deposits and an increase of $91.5 million or
26.0 percent in non-interest-bearing deposits in 1998.
Federal funds purchased and securities sold under agreements to repurchase
increased $207.1 million or 43.5 percent in 1999, compared to an increase of
$30.3 million or 6.8 percent in 1998. 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 $186.2 million or 28.4 percent in 1999, compared to an increase of $87
million or 15.3 percent in 1998. 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.
9
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
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.
Estimating the amount of interest rate risk requires assumptions about the
future. The nature of the assumptions causes all representations of risk to be
estimates. These estimates will be different from actual results for many
reasons, including but not limited to, changes in the growth of the overall
economy which will impact volume growth in the company, changing credit spreads,
market interest rates moving in patterns other than the patterns chosen for
analysis, changes in customer preferences, changes in tactical and strategic
plans and initiatives and changes in Federal Reserve policy. Stress testing is
performed on all market risk measurement analyses to help understand the
relative sensitivity of key assumptions and thereby better understand the
Company's risk profile.
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.
10
<PAGE>
Weighted average variable rates are based on the implied forward rates in the
yield curve at the reporting date:
<TABLE>
<CAPTION>
1999 Market Risk Disclosure
In Thousands
Approximate
Principal Amount Maturing In Fair Value
2000 2001 2002 2003 2004 Thereafter Total December 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Fixed interest rate loans $ 680,181 $585,661 $556,706 $445,672 $372,717 $406,611 $3,047,550 $3,111,000
Average interest rate 8.53% 8.51% 8.44% 8.31% 8.24% 8.41% 8.43%
Variable interest rate loans $ 612,200 $ 47,192 $ 58,484 $ 42,030 $ 42,457 $138,669 $ 941,031 $ 941,000
Average interest rate 8.94% 7.22% 8.40% 8.49% 8.50% 8.50% 8.72%
Fixed interest rate
securities $ 536,974 $775,583 $454,549 $146,623 $113,208 $ 29,691 $2,056,627 $1,935,000
Average interest rate 6.92% 6.56% 6.47% 6.50% 6.54% 6.36% 6.61%
Variable interest rate
securities $ 23,712 $ 6,838 $ 6,594 $ 6,239 $ 6,066 $237,529 $ 286,978 $ 287,000
Average interest rate 6.30% 6.50% 6.50% 6.50% 6.50% 6.50% 6.48%
Rate-sensitive liabilities:
Non-interest-bearing
checking $ 274,881 $ 44,178 $ 46,675 $ 41,737 $ 46,675 $ --- $ 454,146 $ 454,000
Average interest rate --- --- --- --- --- --- ---
Savings and interest-bearing
checking $ 562,609 $285,829 $283,268 $291,122 $284,636 --- $1,707,464 $1,708,000
Average interest rate 3.10% 3.10% 3.10% 3.10% 3.10% --- 3.10%
Time deposits $1,979,762 $289,915 $ 20,681 $ 11,508 $ 4,811 $ 27,613 $2,334,290 $2,317,000
Average interest rate 5.08% 5.27% 5.69% 5.45% 5.08% 4.19% 5.10%
Fixed interest rate
borrowings $ 343,684 $324,824 $ 45,352 $ 6,847 --- --- $ 720,707 $ 719,000
Average interest rate 4.96% 5.09% 5.18% 5.37% --- --- 5.03%
Variable interest rate
borrowings $ 883,038 --- --- --- --- --- $ 883,038 $ 883,000
Average interest rate 4.66% --- --- --- --- --- 4.66%
Rate-sensitive derivative
financial instruments*:
Pay fixed/receive variable
Interest rate swaps $ 650,000
Average pay rate 4.97%
Average receive rate 5.71%
Pay variable/receive fixed
Interest rate swaps $ 40,000
Average pay rate 5.49%
Average receive rate 6.84%
</TABLE>
* Interest rate swaps are cancelable after one year.
11
<PAGE>
1998 Market Risk Disclosure
In Thousands
<TABLE>
<CAPTION>
Approximate
Fair Value
Principal Amount Maturing In December 31,
1999 2000 2001 2002 2003 Thereafter Total 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 $262,082 $1,054,170 $1,106,000
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 $455,022 $ 529,433 $ 528,000
Average interest rate 6.36% 6.18% 6.18% 6.17% 6.16% 6.16% 6.17%
Rate-sensitive liabilities:
Non-interest-bearing
checking $ 291,679 $ 46,878 $ 49,527 $ 44,287 $ 49,527 42,488 $ 524,386 $ 524,000
Average interest rate --- --- --- --- --- --- --- ---
Savings and interest-bearing
checking $ 563,268 $286,164 $283,600 $291,463 $284,970 $ 77,877 $1,787,342 $1,787,000
Average interest rate 3.16% 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 $155,397 $1,883,258 $1,913,000
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 --- --- --- $ 7,549 $ 599,378 $ 599,000
Average interest rate 4.26% 5.60% --- --- --- --- 4.55% 4.55%
Rate-sensitive derivative
financial instruments*:
Pay fixed/receive variable
Interest rate swaps $ 110,000
Average pay rate 5.20%
Average receive rate 5.53%
</TABLE>
* Interest rate swaps are cancelable after one year.
12
<PAGE>
CAPITAL RESOURCES
Total average assets increased by 20.5 percent in 1999, 16.2 percent in 1998 and
15.6 percent in 1997. Correspondingly, total average equity capital increased
by 25.0 percent in 1999, 14.8 percent in 1998 and 12.8 percent in 1997. A
significant factor in the growth of realized stockholders' equity was the
successful secondary offering of 3,564,529 shares of the Company's common stock
resulting in net proceeds of $80,248,000 during the second quarter of 1999. The
sale resulted in the Company having even stronger capital ratios. (See
Consolidated Statements of Stockholders' Equity on page 30.)
The percentage of average equity capital to average assets was 7.72 in 1999,
7.44 percent in 1998 and 7.53 percent in 1997. The internal capital growth rate
was 13.55 percent in 1999, 14.16 percent in 1998 and 14.37 percent in 1997.
These growth rates are the result of a return on average equity of 21.51 percent
in 1999, 22.07 percent in 1998 and 20.86 percent in 1997. 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 1999, 1,051,500 shares of common stock were repurchased at a cost
of $22,925,000, compared to 1,856,560 shares of common stock repurchased in 1998
at a cost of $33,936,284 and 1,406,690 shares of common stock repurchased in
1997 at a cost of $18,129,000.
The Company's management plans to continue its efforts to increase the return on
average equity while maintaining a consistent dividend ratio as a percentage of
net income 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 a
decrease of $4.2 million to 1999 year-end stockholders' equity and an increase
of $1.4 million to 1998 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.
13
<PAGE>
At December 31, 1999, 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, 1999.
<TABLE>
<CAPTION>
SELECTED CAPITAL INFORMATION
December 31
In Thousands 1999 1998
<S> <C> <C>
Capital:
Stockholders' equity $ 557,378 $ 424,191
Capital trust pass-through securities 49,909 49,896
Less:
Unrealized gains (losses) in
other comprehensive income (3,238) 1,398
Goodwill and other deductions 21,168 8,604
Tier 1 capital 589,357 464,085
Qualifying allowance for loan losses 58,957 49,951
Total capital $ 648,314 $ 514,036
Total risk-weighted assets $4,715,947 $3,993,024
Ratios:
Total capital to risk-weighted assets 13.75% 12.87%
Tier 1 capital to risk-weighted assets 12.50 11.62
Tier 1 capital to total assets
(leverage ratio) 8.86 7.94
Average equity to assets 7.72 7.44
</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.
YEAR 2000
The Company developed and implemented a comprehensive action plan for
identifying and addressing the technical and business risks associated with the
century date change. The project plan followed procedures recommended by
banking regulators and addressed computer hardware, computer software,
telecommunications, business partners, funds providers, facilities and
contingency plans. Due to an early start and capable project team the plan was
successfully executed and the century date change passed without incident.
Management will continue to monitor all business processes, including
interaction with customers, vendors and other third parties to identify and
address any Year 2000 issues that may occur. Costs to be incurred for ongoing
monitoring and support activities are not expected to be material to the
consolidated results of operations or consolidated financial position.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
In Thousands 1999 1998
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Interest-bearing deposits with other banks $ 21,156 $ 20,335
Cash and non-interest-bearing deposits 179,082 236,159
Federal funds sold and securities purchased under agreements
to resell 61,058 79,368
Total cash and cash equivalents 261,296 335,862
Available-for-sale securities 553,928 777,615
Held-to-maturity securities 1,759,383 1,377,102
Trading account securities 30,294 62,737
Loans, net of unearned discounts 3,985,789 3,372,044
Less allowance for loan losses 59,597 53,018
Net loans 3,926,192 3,319,026
Premises and equipment, net 47,830 45,527
Broker/dealer customer receivables 25,047 2,505
Other assets 202,203 169,917
Total assets $6,806,173 $6,090,291
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest-bearing $ 454,146 $ 524,386
Interest-bearing 4,041,754 3,670,600
Total deposits 4,495,900 4,194,986
Short-term borrowings 883,038 599,378
Federal Home Loan Bank advances 714,335 731,610
Accounts payable and accrued liabilities 99,241 83,858
Other borrowed funds and long-term debt 6,372 6,372
Total liabilities 6,198,886 5,616,204
Off-balance sheet items, commitments and
contingent liabilities
Capital trust pass-through securities 49,909 49,896
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 108,223,286 in 1999 and 104,528,285 in 1998 216,446 209,056
Additional paid-in capital 90,230 27,322
Retained earnings 253,940 186,415
Accumulated other comprehensive income (loss) (3,238) 1,398
Total stockholders' equity 557,378 424,191
Total liabilities and stockholders' equity $6,806,173 $6,090,291
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
In Thousands, Except Per Share Amounts
<S> <C> <C> <C>
INTEREST INCOME
Loans $311,293 $275,890 $243,079
Securities:
Taxable 136,424 110,649 98,268
Non-taxable 12,108 8,451 8,038
148,532 119,100 106,306
Trading account securities 2,282 3,073 1,857
Other 5,921 5,045 2,716
Total interest income 468,028 403,108 353,958
INTEREST EXPENSE
Deposits 158,477 142,967 126,741
Short-term borrowings 31,212 23,206 23,062
Federal Home Loan Bank advances 41,432 27,904 23,032
Long-term debt 369 6,135 9,316
Total interest expense 231,490 200,212 182,151
Net interest income 236,538 202,896 171,807
Provision for loan losses 15,206 10,079 17,363
Net interest income after provision for loan losses 221,332 192,817 154,444
OTHER INCOME
Trust service income 10,139 10,135 9,284
Service charges on deposits 21,705 19,747 17,673
Other service charges and fees 20,674 17,500 13,069
Broker/dealer revenue 18,092 20,441 13,115
Realized gains (losses) on available-for-sale securities (1,789) 224 (127)
Other 23,693 19,945 32,915
Total other income 92,514 87,992 85,929
OTHER EXPENSES
Salaries and employee benefits 76,343 70,712 60,934
Occupancy expense 14,086 12,643 11,162
Furniture and equipment expense 7,500 6,265 5,356
Other 57,329 59,279 54,129
Total other expenses 155,258 148,899 131,581
Income before income taxes 158,588 131,910 108,792
Income taxes 51,354 43,890 36,338
Net income $107,234 $ 88,020 $ 72,454
Net income per common share-basic $1.00 $.85 $.72
Net income per common share-diluted $.99 $.83 $.69
Weighted average shares outstanding-basic 106,749 103,636 101,083
Weighted average shares outstanding-diluted 108,823 105,970 104,454
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Number Additional Other
of Common Paid-in Retained Comprehensive
In Thousands, Except Share Amounts Shares Stock Capital Earnings Income (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 27,470,688 $ 54,941 $ 57,339 $209,468 $ 1,230 $322,978
Add (deduct):
Net income 72,454 72,454
Net unrealized gain on available-for-sale
securities -- net of taxes of $653 1,020 1,020
Comprehensive income 73,474
Common stock issued upon
exercise of stock options 517,120 1,034 2,482 3,516
Cash dividends declared ($.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)
Other 59,020 119 134 (222) 31
2 for 1 stock split effected in the form
of a dividend 24,590,490 49,181 --- (49,181) --- ---
Balance at December 31, 1997 51,937,473 103,875 48,335 209,990 2,250 364,450
Add (deduct):
Net income 88,020 88,020
Net unrealized loss on available-for-sale
securities -- net of taxes of $(558) (852) (852)
Comprehensive income 87,168
Common stock issued upon
exercise of stock options 943,427 1,887 514 2,401
Cash dividends declared ($.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) ---
Common stock issued in connection with
immaterial poolings of interests 3,075,929 6,151 781 19,771 --- 26,703
Other 43,300 87 1,270 (306) 1,051
Balance at December 31, 1998 104,528,285 209,056 27,322 186,415 1,398 424,191
Add (deduct):
Net income 107,234 107,234
Net unrealized loss on available-for-sale
securities -- net of taxes of $(3,546) (5,566) (5,566)
Accumulated net unrealized loss on
available-for-sale securities (4,168)
April 1, 1999, cumulative effect of
adjustment for change
in accounting method, net of taxes $(277) (452)
Unrealized gain on cash flow hedging instruments --
net of taxes of $846 1,382
Accumulated net unrealized gain on cash flow
hedging instruments 930 930
Comprehensive income 102,598
Common stock issued upon
exercise of stock options 1,063,472 2,127 2,761 4,888
Stock offering 3,564,529 7,129 73,119 80,248
Cash dividends declared ($.375 per share) (39,697) (39,697)
Tax benefit of stock options exercised 6,964 6,964
Shares repurchased/cancelled (1,051,500) (2,103) (20,822) (22,925)
Other 118,500 237 886 (12) 1,111
Balance at December 31, 1999 108,223,286 $216,446 $ 90,230 $253,940 $ (3,238) $557,378
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
National Commerce Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
In Thousands 1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 107,234 $ 88,020 $ 72,454
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 15,206 10,079 17,363
Depreciation and amortization 9,996 8,240 6,006
Amortization of securities premiums and (accretion of discounts), net 154 (2,797) (847)
Deferred income taxes (1,599) (1,418) (2,345)
(Increase) decrease in trading account securities 32,443 35,595 (66,520)
Realized securities (gains) losses 1,789 (224) 127
(Increase) decrease in broker/dealer customer receivables (22,542) 5,190 4,004
(Increase) decrease in other assets (24,495) 3,523 (23,765)
Increase in accounts payable and accrued liabilities 25,299 16,552 13,806
Net cash provided by operating activities 143,485 162,760 20,283
INVESTING ACTIVITIES
Available-for-sale securities:
Proceeds from maturities of securities 130,349 546,120 352,112
Proceeds from sales of securities 265,466 224,982 88,587
Purchases of securities (183,183) (1,055,649) (117,747)
Held-to-maturity securities:
Purchases of securities (454,651) (828,168) (457,066)
Proceeds from maturities of securities 72,370 617,791 38,709
Net increase in loans (622,372) (623,051) (290,262)
Purchase of FleetOne (6,900) --- ---
Purchases of premises and equipment (10,054) (19,496) (12,757)
Net cash used in investing activities (808,975) (1,137,471) (398,424)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts and savings accounts (150,118) 497,922 66,961
Net increase in certificates of deposit 451,032 252,562 233,666
Net increase in short-term borrowings 283,660 167,122 128,818
Net increase (decrease) in Federal Home Loan Bank advances (17,275) 341,726 (6,225)
Repayment of bank notes --- (149,880) ---
Net proceeds from issuance of capital trust pass-through securities --- --- 49,884
Proceeds from exercise of stock options 4,888 2,401 3,516
Cash dividends (39,697) (31,532) (22,529)
Other 1,111 1,051 31
Repurchase of common stock (22,925) (33,936) (18,129)
Stock offering 80,248 --- ---
Net cash provided by financing activities 590,924 1,047,436 435,993
Increase (decrease) in cash and cash equivalents (74,566) 72,725 57,852
Cash and cash equivalents at beginning of year 335,862 263,137 205,285
Cash and cash equivalents at end of year $ 261,296 $ 335,862 $ 263,137
SUPPLEMENTAL DISCLOSURES
Interest paid $ 237,412 $ 192,208 $ 180,170
Income taxes paid 53,315 33,878 32,266
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
Notes To Consolidated Financial Statements
National Commerce Bancorporation and Subsidiaries
December 31, 1999
(In Thousands, Except Share Data)
Note A - Accounting Policies
Nature of Operations
National Commerce Bancorporation (NCBC or the Company) is a bank holding company
that provides diverse financial services. NCBC provides financial services
through a regional network of banking affiliates and a national network of non-
banking affiliates. NCBC operates 162 bank locations in Tennessee, North
Carolina, Virginia, West Virginia, Arkansas, Mississippi and Georgia. NCBC has
three principal lines of business: retail banking, commercial banking and
financial services. Financial services include transaction processing, in-store
licensing and consulting, capital markets, trust and asset management and
treasury services.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The consolidated group provides financial services principally
to domestic markets. All significant intercompany transactions have been
eliminated in consolidation.
Business Combinations
All prior period consolidated financial statements have been restated to reflect
material business combinations accounted for as poolings of interests and,
accordingly, the financial position, results of operations and cash flows are
presented as though the companies were combined for all historical periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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 are excluded from earnings and reported 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 fair value with changes in fair value
recorded in earnings. Broker/dealer revenue 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.
19
<PAGE>
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs and the allowance for loan
losses. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest method.
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days past delinquent unless the credit is well secured and
in processs of collection. Consumer and other retail loans are typically
charged off no later than 120 days past due. In all cases, loans are placed on
non-accrual or charged off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual
or charged off is reversed against interest income. The interest for these
loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb probable losses in the loan portfolio. The allowance for
loan losses is evaluated based on a continuing assessment of problem loans,
historical loss experience, new lending products, emerging credit trends,
changes in the size and character of loan categories and other factors,
including its risk rating system, regulatory guidance and economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due, according to the contractual terms of the loan
agreement. Impairment is measured on a loan-by-loan basis for commercial and
construction loans by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is collateral dependent.
When the ultimate collectibility of an impaired loan's principal is in doubt,
wholly or partially, all cash receipts are applied to principal. Once the
recorded balance has been reduced to zero, future cash receipts are applied to
interest income, to the extent any interest has been foregone, and then are
recorded as recoveries of any amounts previously charged off. Large groups of
smaller balance, homogeneous loans are evaluated collectively for impairment.
20
<PAGE>
Derivatives and Hedging Activities
The Company records derivatives at fair value in other assets (other
liabilities) depending on whether the fair value is an unrealized gain or loss.
Derivatives that are not hedges are adjusted to fair value through income. If
the derivative is a hedge, depending on the nature of the hedge, changes in fair
value of the derivatives are either offset through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company's derivatives are interest rate swaps
utilized to hedge exposure to interest rate risk. Net interest received or paid
on an interest rate agreement is recognized over the life of the contract as an
adjustment to interest income (expense) of the hedged financial instrument.
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.
Income Taxes
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. Each subsidiary provides
for income taxes based on its contribution to income taxes (benefit) of the
consolidated group. The Company and its subsidiaries file a consolidated tax
return.
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, 1999.
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.
Cash and Cash Equivalents
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.
Reclassification
Certain account reclassifications have been made to the 1998 and 1997 financial
statements to conform with the 1999 presentation, none of which are material.
21
<PAGE>
Note B - Business Combinations
On August 4, 1999, NCBC completed its merger with First Financial Corporation
(FFC) of Mt. Juliet, Tennessee, in a transaction accounted for as a pooling of
interests. Under the terms of the merger agreement, FFC shareholders received
2.8502 shares of NCBC stock for each share of FFC stock held. Approximately 2.9
million shares of NCBC common stock were issued in exchange for all of the FFC
common stock outstanding.
On August 20, 1999, NCBC completed its merger with Southeastern Mortgage of
Tennessee, Inc. (SMTI) of Nashville, Tennessee, in a transaction accounted for
as a pooling of interests. Under the terms of the merger agreement, SMTI
shareholders received 99.625 shares of NCBC stock for each share of SMTI stock
held. Approximately 200,000 shares of NCBC common stock were issued in exchange
for all of the SMTI common stock outstanding.
On December 31, 1999, NCBC completed the cash acquisition of FleetOne, LLC from
Nashville-based Mapco, Inc. through NCBC's Nashville-based subsidiary
TransPlatinum Service Corp.
The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow. Certain
reclassifications were made to the FFC and SMTI financial statements to conform
to NCBC's presentations.
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended Year Ended Year Ended
June 30, 1999 December 31, 1998 December 31, 1997
<S> <C> <C> <C>
Net Interest Income
NCBC $106,934 $192,618 $162,821
FFC 5,722 10,039 8,915
SMTI 79 239 71
$122,735 $202,896 $171,807
Other Income
NCBC $ 43,840 $ 84,118 $ 82,405
FFC 1,345 2,524 2,043
SMTI 994 1,350 1,481
$ 46,179 $87,992 $85,929
Net Income
NCBC $ 48,895 $ 85,141 $ 69,780
FFC 1,441 2,848 2,604
SMTI 167 31 70
$ 50,503 $88,020 $72,454
</TABLE>
During 1998, the Company acquired four financial institutions with combined
total assets of approximately $290,000. The Company accounted for these
transactions as poolings of interests. However, due to the immaterial amount of
the transactions, the Company's prior period financial statements were not
restated to include the combined results of operations, financial position and
cash flows of these entities. The Company issued 3,075,929 shares of common
stock in connection with these acquisitions.
22
<PAGE>
NOTE C - Securities
The following is a summary of available-for-sale securities and held-to-maturity
securities:
December 31, 1999
Available-for-sale Securities
<TABLE>
<CAPTION>
Net Unrealized
Gains
Fair Value (Losses)
<S> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 104,487 $ (400)
Obligations of states and
political subdivisions 123,516 1,441
Mortgage-backed securities 261,408 (5,574)
Total debt securities 489,411 (4,533)
Other 64,517 ---
Total $ 553,928 $(4,533)
</TABLE>
December 31, 1999
Held-to-maturity Securities
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains (Losses) Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $1,025,735 $ --- $(59,262) $ 966,473
Obligations of states and
political subdivisions 5,292 146 (13) 5,425
Other asset-backed securities 82,666 --- (7,037) 75,629
Mortgage-backed securities 645,690 4 (25,638) 620,056
Total $1,759,383 $ 150 $(91,950) $1,667,583
</TABLE>
23
<PAGE>
December 31, 1998
Available-for-sale Securities
<TABLE>
<CAPTION>
Net
Unrealized
Fair Value Gains
<S> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 328,543 $ 189
Obligations of states and
political subdivisions 83,893 1,244
Mortgage-backed securities 306,274 816
Total debt securities 718,710 2,249
Equity securities 58,905 30
Total $ 777,615 $ 2,279
</TABLE>
December 31, 1998
Held-to-maturity Securities
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
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>
24
<PAGE>
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1999, 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, 1999
Available-for-sale Securities
Amortized
Cost Fair Value
<S> <C> <C>
Due in one year or less $ 16,977 $ 17,004
Due after one year through five years 65,643 65,541
Due after five years through 10 years 130,047 131,101
Due after 10 years 14,424 14,486
227,091 228,132
Mortgage-backed securities 266,982 261,408
Equity securities 64,388 64,388
Total $ 558,461 $ 553,928
December 31, 1999
Held-to-maturity Securities
Amortized
Cost Fair Value
<S> <C> <C>
Due in one year or less $ 100,000 $ 95,000
Due after one year through five years 28,972 28,247
Due after five years through 10 years 575,681 548,556
Due after 10 years 409,040 375,724
1,113,693 1,047,527
Mortgage-backed securities 645,690 620,056
Total $1,759,383 $1,667,583
</TABLE>
The amortized cost of securities pledged to secure repurchase agreements and
government, public and trust deposits was $1,914,616 and $1,484,527 at December
1999 and 1998, respectively.
At December 31, 1999, the remaining net unrealized holding loss on securities
reclassified from available for sale to held to maturity was $2,300. Consistent
with the requirements of SFAS No. 115, the difference between the amortized cost
of the security and its fair value at the date of transfer is amortize as a
yield adjustment in accordance with SFAS No. 91.
25
<PAGE>
Note D - Loans and Allowance for Loan Losses
Analyses of loans outstanding by category were as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
<S> <C> <C>
Commercial, financial and agricultural $ 689,945 $ 613,557
Real estate - construction 283,033 273,968
Real estate - mortgage 1,625,374 1,250,698
Consumer 1,356,824 1,207,431
Lease financing 33,405 29,805
Unearned discounts (2,792) (3,415)
3,985,789 3,372,044
Allowance for loan losses 59,597 53,018
Net loans $3,926,192 $3,319,026
</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 $54,780 and $40,049 at December
31, 1999 and 1998, respectively. During 1999, $112,047 of new loans to related
parties were made and payments totaled $97,316.
Changes in the allowance for loans losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year $ 53,018 $ 47,076 $ 39,130
Provision for loan losses 15,206 10,079 17,363
Increase due to acquisitions --- 3,836 625
Loans charged off (12,620) (12,037) (13,008)
Recoveries of loans previously charged off 3,993 4,064 2,966
Balance at end of year $ 59,597 $ 53,018 $ 47,076
</TABLE>
26
<PAGE>
Note E - Derivatives and Hedging Activities
On April 1, 1999, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company records the fair value of
interest rate swaps designated as cash flow hedges in other assets or other
liabilities with the offset to the other comprehensive income (OCI) component of
stockholders' equity. The Company records the fair value of interest rate swaps
used as fair value hedges in other assets or other liabilities with the offset
to other income or other expenses The Company also marks the hedged item to
market on the balance sheet with the offset to other income or other expenses.
At adoption, the Company recorded its interest rate swaps designated as cash
flow hedges with a fair value of $729 in other liabilities. OCI was reduced
$452, net of taxes of $277, as a cumulative effect adjustment for an accounting
change. The Company transferred approximately $302,000, par value, of held-to-
maturity securities to the available-for-sale securities category with an
unrealized gain of $7,622 as permitted by the statement upon adoption.
The Company utilizes interest rate swap agreements to provide an exchange of
interest payments computed on notional amounts that will offset any undesirable
change in cash flows or fair value resulting from market rate changes on
designated hedged transactions or items. The Company limits the credit risks of
the interest rate agreements by initiating the transactions with counterparties
with significant financial positions.
The Company's interest rate agreements designated as cash flow hedges modify the
interest payment characteristics of its outstanding debt and large time deposits
(designated hedged transaction) from a floating- to a fixed-rate basis. These
agreements involve the receipt of floating-rate amounts in exchange for fixed-
rate payments over the life of the agreement without exchange of the underlying
principal amount. The differential to be paid or received is accrued as
interest rates change and is recognized as an adjustment to interest expense
related to the item specifically designated as being hedged at the start of the
agreement. The related amount payable or receivable from counterparties is
included in other liabilities or other assets. The fair value of interest rate
swaps designated as cash flow hedges at December 31, 1999, was $1,499 and
recorded in other assets. The offset was $930, net of taxes of $569, recorded
in OCI. At December 31, 1999, the notional amounts of interest rate agreements
designated as cash flow hedges were $650,000. At December 31, 1998, the
notional amount of interest rate agreements were $110,000.
The Company's interest rate agreements designated as fair value hedges help
manage exposure of its outstanding fixed-rate, large time deposits (designated
hedged item) to change in fair value. These agreements involve the receipt of
fixed-rate amounts in exchange for floating-rate payments over the life of the
agreement without exchange of the underlying principal amount. The differential
to be paid or received is accrued as interest rate change and is recognized as
an adjustment to interest expense related to the item specifically designated as
being hedged at the start of the agreement. The related amount payable or
receivable from counterparties is included in other liabilities or other assets.
The fair value of interest rate swaps designated as fair value hedges at
December 31, 1999, was $850 and was recorded in other liabilities and other
expenses. The offset was the reduction in the fair value of the designated
large time deposits and other income. At December 31, 1999, the notional
amounts of interest rate agreements designated as fair value hedges were
$40,000.
27
<PAGE>
Note F - Time Deposits
The aggregate amount of time deposits in denominations of $100 or more at
December 31, 1999 and 1998, were $1,337,068 and $925,005, respectively.
The time deposit maturities at December 31, 1999, for the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $1,829,763
2001 439,915
2002 20,681
2003 11,508
2004 4,811
Thereafter 27,612
Total $2,334,290
</TABLE>
Note G - Credit Facilities
During 1999, the Company obtained numerous advances from the Federal Home Loan
Bank totaling $475,000. The individual advances ranged from $25,000 to
$150,000. They bear interest at either a variable rate equal to one-month
Libor, or at a fixed rate for the first year after 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 1999, the one-month Libor rate ranged
from 4.8375 percent to 6.4275 percent. During 1999, the fixed rates ranged from
4.55 percent to 5.39 percent, and the three-month Libor rate ranged from 4.904
percent to 6.160 percent. Maturity dates ranged from October 25, 2000, to
August 24, 2009. At December 31, 1999, the Company had pledged as collateral
$897,232 of its loans secured by mortgages on one-to-four family residential
properties and certain securities totaling $344,081.
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 of its loans secured by mortgages on one-to-four
family residential properties and certain securities totaling $467,660.
28
<PAGE>
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, 1999:
<TABLE>
<CAPTION>
<S> <C>
2000 $114,273
2001 9,947
2002 10,875
2003 4,054
2004 76
Thereafter 575,110
Total $714,335
</TABLE>
Short-term borrowings consist primarily of federal funds purchased and
securities sold under agreements to repurchase which totaled $883,038 and
$591,829 at December 31, 1999 and 1998, respectively.
Other borrowed funds and long-term debt at December 31, 1999 and 1998, consisted
primarily of the following unsecured term notes of the Company's lead subsidiary
National Bank of Commerce (NBC):
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, 1999, 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, 1999, the rates ranged from 5.67 percent to
5.74 percent, maturing December 3 and December 17, 2007.
$1,025
Total $6,372
At December 31, 1999, the Company had available $27 million in unsecured lines
of credit with other financial institutions consisting of a $25 million line of
credit which is contractual in nature and requires no compensating balances or
fees and expires September, 30, 2000, and a $2 million line of credit which
expires June 30, 2000. There were no borrowings against these lines during
1999.
Note H - 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 (6.98
percent and 6.05 percent at December 31, 1999 and 1998, 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.
29
<PAGE>
Note I - Other Non-interest Expenses
Components of other non-interest expense which exceed 1 percent of total
revenues for the three years ended December 31, 1999, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Non-interest expense
Broker/dealer commissions $ 6,677 $ 6,879 $2,818
Sales promotion expense $ 2,314 $2,495 $4,607
</TABLE>
Note J - Income Taxes
The components of the provision for income taxes for the three
years ended December 31 were:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Federal:
Current $51,159 $43,799 $37,196
Deferred (credits) (1,599) (1,418) (2,345)
49,560 42,381 34,851
State 1,794 1,509 1,487
Income taxes $51,354 $43,890 $36,338
</TABLE>
Significant components of the Company's net deferred tax assets
and liabilities are summarized as follows:
December 31
1999 1998
Deferred tax assets:
Allowance for loan losses $22,821 $20,302
Net unrealized loss on
available-for-sale securities 2,665 ---
Other 320 838
Total deferred tax assets 25,806 21,140
Deferred tax liabilities:
Net unrealized gain on
available-for-sale securities --- 881
Interest rate swaps 569 ---
Pension costs 2,630 2,261
SFAS No. 91 net deferred costs 2,811 3,368
Other 3,069 2,478
Total deferred tax liabilities 9,079 8,988
Net deferred tax asset $16,727 $12,152
30
<PAGE>
Income taxes varied from the amount computed at the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
at statutory rate $55,506 35.00% $46,168 35.00% $38,077 35.00%
Add (deduct):
State income taxes, net
of federal tax benefits 1,166 .74% 983 .75 967 .89
Non-taxable interest
income (2,426) (1.53) (2,863) (2.17) (2,649) (2.43)
Other items, net (2,892) (1.82) (398) (.30) (57) (.05)
Income taxes $51,354 32.39% $43,890 33.28% $36,338 33.41%
</TABLE>
Income taxes (credits) applicable to securities gains (losses) for 1999, 1998
and 1997 which are included in the provision for income taxes were $680, $86 and
($41), respectively.
Note K - 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 of commitments at December 31 was
as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Loan commitments $947,068 $925,631
Standby letters of credit 72,733 43,665
Commercial letters of credit 888 2,286
</TABLE>
31
<PAGE>
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>
1999 1998
<S> <C> <C>
Forward contracts:
Commitments to purchase $241,358 $280,840
Commitments to sell $247,987 $282,280
When issued contracts:
Commitments to purchase $ 7,066 $ 1,500
Commitments to sell $ 8,713 ---
Option contracts:
Written option contracts $ 3,000 $ 8,000
Purchased option contracts $ 3,000 $ 8,000
</TABLE>
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Although the ultimate
outcome cannot be ascertained at this time, it is the opinion of management
(based on advice of legal counsel) that all litigation and claims should be
resolved without material effect on the Company's financial position or results
of operations.
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
1999 1998 1997
<S> <C> <C> <C>
Minimum rentals $7,485 $6,947 $6,219
Contingent rentals 424 292 155
Total $7,909 $7,239 $6,374
</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, 1999:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 6,854
2001 6,181
2002 5,073
2003 4,113
2004 3,484
Thereafter 11,395
Total $37,100
</TABLE>
The various leases on the land and bank premises may be renewed for periods of
five to 20 years upon the expiration of the respective leases.
32
<PAGE>
Note L - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Numerator:
Net income $107,234 $ 88,020 $ 72,454
Denominator:
Denominator for basic earnings per share --
weighted average shares 106,749 103,636 101,083
Effect of dilutive securities:
Employee stock options 2,074 2,334 3,371
Denominator for diluted earnings per share --
adjusted weighted-average shares and
assumed conversions 108,823 105,970 104,454
Basic earnings per share $ 1.00 $ .85 $ .72
Diluted earnings per share $ .99 $ .83 $ .69
</TABLE>
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. 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. During 1999, the Company acquired First
Financial Corporation, Mt. Juliet, Tennessee, and the following amounts are
restated to reflect that company's options which were converted to NCBC options.
The following amounts reflect the effect of all stock dividends and splits
declared through 1999:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 5,572,863 $ 8.482 6,543,042 $ 6.412 6,655,216 $4.812
Granted 1,101,100 $ 16.493 1,013,846 $ 16.201 1,658,813 $9.587
Exercised (1,380,322) $ 6.680 (1,640,197) $ 4.830 (1,629,063) $4.285
Cancelled (140,100) $ 14.076 (343,828) $ 9.262 (141,924) $6.490
Outstanding at end of year 5,153,541 $ 10.525 5,572,863 $ 8.482 6,543,042 $6.412
Exercisable at year end 3,232,541 $ 7.690 3,285,972 $ 6.586 3,886,925 $6.237
Unoptioned shares 772,026 1,764,926 2,429,244
Total shares reserved 5,925,567 7,337,789 8,972,286
Weighted average fair
value of options granted
during the year $6.360 $5.580 $ 5.540
</TABLE>
33
<PAGE>
Exercise prices for options outstanding as of December 31, 1999, ranged from
$2.556 to $26.125. The weighted average remaining contractual life of those
options is approximately five years.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-based Compensation," 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 all years presented: risk-free
interest rates of 6.0 percent; dividend yields of 2.0 percent; volatility
factors of the expected market price of the Company's common stock of .35; 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 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Pro forma net income $102,660 $85,600 $71,384
Pro forma earnings
per share:
Basic $ .96 $ .83 $ .71
Diluted $ .94 $ .81 $ .68
</TABLE>
34
<PAGE>
Note N - 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. Included in the assets of the plan
as of December 31, 1999, were 417,428 shares of common stock of the Company with
a market value of $9,470.
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.
The following tables set forth the plan's status and amounts recognized in the
Company's consolidated financial statements:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $54,919 $50,211 $ 2,587 $ 2,593
Service cost 1,778 1,663 23 20
Interest cost 3,589 3,515 161 169
Actuarial loss (gains) 6,857 2,142 596 (208)
Benefits paid (9,463) (5,841) (346) (120)
Assumptions change (8,978) 1,625 428 133
Plan merger --- 1,604 --- ---
Benefit obligation at end of year 48,702 54,919 3,449 2,587
Change in plan assets:
Fair value of plan assets at beginning of year 59,114 59,076 --- ---
Actual return on plan assets 5,093 (346) --- ---
Employer contributions 384 4,214 --- ---
Plan merger --- 2,011 --- ---
Benefits paid (9,463) (5,841) --- ---
Fair value of plan assets at end of year 55,128 59,114 --- ---
Prepaid (accrued) benefits cost:
Funded status of the plan (underfunded) 6,426 4,195 (3,449) (2,587)
Unrecognized net loss 10,832 12,972 1,654 651
Unrecognized transition (asset) liability (20) (34) 263 283
Unrecognized prior service cost (859) (1,426) (507) (549)
Prepaid (accrued) benefit cost $16,379 $15,707 $(2,039) $(2,202)
Pension Benefits Other Benefits
1999 1998 1999 1998
Weighted average assumptions
as of December 31:
Discount rate 8.25% 6.75% 8.25% 6.75%
Expected return on plan assets 11.00 11.00 n/a n/a
Rate of compensation increase 3.50 3.50 n/a n/a
</TABLE>
35
<PAGE>
Components of net periodic benefit cost (income) were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,778 $ 1,663 $ 1,496 $ 23 $ 20 $ 18
Interest cost 3,589 3,515 3,386 161 169 181
Expected return on plan assets (5,093) 346 (13,548) --- --- ---
Net amortization and deferral (756) (7,130) 8,302 (1) (2) 11
Net periodic benefit cost (income) $ (482) $(1,606) $ (364) $ 183 $ 187 $ 210
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 9.0 percent for 1999 and
1998. 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 Point Increase 1 Percentage Point Decrease
<S> <C> <C>
Effect on total of service and interest
cost components in 1999 $23 $(18)
Effect on post-retirement benefit
obligation as of 1999 $344 $(285)
</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. The Company matches participants' basic contributions up to a specified
percentage of basic contributions.
Note O - 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,
1999, that the Company exceeds all capital adequacy requirements to which it is
subject.
36
<PAGE>
As of December 31, 1999, the most recent regulatory notification categorized the
Company and its banking subsidiaries as well capitalized. Well-capitalized
institutions are required to maintain a total capital to risk-weighted assets
ratio of at least 10 percent, a Tier 1 capital to risk-weighted assets ratio of
at least 6 percent and a Tier 1 capital to total assets (leverage ratio) of at
least 5 percent. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Company and NBC's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
The Company NBC
Actual Actual
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
As of December 31, 1999
Total capital (to risk-
weighted assets) $648,314 13.75% $427,735 11.67%
Tier 1 capital (to risk-
weighted assets) $589,357 12.50% $384,195 10.48%
Tier 1 capital (to total
assets) $589,357 8.86% $384,195 7.03%
As of December 31, 1998
Total capital (to risk-
weighted assets) $514,036 12.87% $292,263 11.84%
Tier 1 capital (to risk-
weighted assets) $464,085 11.62% $262,987 10.65%
Tier 1 capital (to total
assets) $464,085 7.94% $262,987 6.71%
</TABLE>
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, 1999, $51,723 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, 1999, the
maximum amount available for transfer from the banking subsidiaries to the
Company in the form of loans approximated 10.08 percent of consolidated net
assets. There were no loans from the subsidiaries to the Company at December
31, 1999.
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, 1999 and 1998, were approximately $5,484 and $9,253,
respectively.
37
<PAGE>
Note P - Segment Information
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 financial services segment includes trust, asset management, insurance and
brokerage activities. Financial services also includes balance sheet management
activities including oversight of the investment portfolio, non-deposit based
funding and interest rate risk management and 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.
38
<PAGE>
The following tables present condensed income statements and average assets for
each reportable segment. This presentation reflects management's determination
that it operates in three separate business segments. Management has determined
that treasury, which has previously been reported as a separate segment, should
be combined with the financial services segment.
<TABLE>
<CAPTION>
National Commerce Bancorporation
Year Ended December 31, 1999
Commercial Retail Financial
Banking Banking Services Total
<S> <C> <C> <C> <C>
Net interest income $ 52,424 $ 105,584 $ 92,145 $ 250,153
Provision for loan losses (1,830) (12,983) (393) (15,206)
Net interest income after provision
for loan losses 50,594 92,601 91,752 234,947
Other income 3,773 11,755 76,986 92,514
Other expenses (15,108) (41,026) (99,124) (155,258)
Income before income taxes 39,259 63,330 69,614 172,203
Income taxes (13,220) (23,483) (28,266) (64,969)
Net income $ 26,039 $ 39,847 $ 41,348 $ 107,234
Average assets $1,039,745 $2,851,995 $2,563,108 $6,454,848
Year Ended December 31, 1998
Commercial Retail Financial
Banking Banking Services Total
<S> <C> <C> <C> <C>
Net interest income $ 52,489 $ 116,034 $ 40,962 $ 209,485
Provision for loan losses (1,250) (8,637) (192) (10,079)
Net interest income after provision
for loan losses 51,239 107,397 40,770 199,406
Other income 3,772 16,563 67,657 87,992
Other expenses (15,194) (76,649) (57,056) (148,899)
Income before income taxes 39,817 47,311 51,371 138,499
Income taxes (14,546) (17,272) (18,661) (50,479)
Net income $ 25,271 $ 30,039 $ 32,710 $ 88,020
Average assets $ 932,829 $2,382,985 $2,042,172 $5,357,986
Year Ended December 31, 1997
Commercial Retail Financial
Banking Banking Services Total
Net interest income $ 43,222 $ 102,615 $ 30,926 $ 176,763
Provision for loan losses (4,926) (12,163) (274) (17,363)
Net interest income after provision
for loan losses 38,296 90,452 30,652 159,400
Other income 3,836 20,591 61,502 85,929
Other expenses (12,951) (66,085) (52,545) (131,581)
Income before income taxes 29,181 44,958 39,609 113,748
Income taxes (10,622) (16,336) (14,336) (41,294)
Net income $ 18,559 $ 28,622 $ 25,273 $ 72,454
Average assets $ 787,187 $2,067,638 $1,755,605 $4,610,430
</TABLE>
39
<PAGE>
Note Q - 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.
40
<PAGE>
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, 1999
Carrying Amount Fair Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 261,296 $ 261,296
Available-for-sale securities $ 553,928 $ 553,928
Held-to-maturity securities $1,759,383 $1,667,583
Trading account securities $ 30,294 $ 30,294
Net loans $3,926,192 $3,992,208
Financial liabilities:
Deposits $4,495,900 $4,478,706
Short-term borrowings $ 883,038 $ 883,038
Federal Home Loan Bank advances, other borrowed
funds and long-term debt $ 720,707 $ 718,918
Capital trust pass-through securities $ 49,909 $ 49,909
December 31, 1998
Carrying Amount Fair Value
Financial assets:
Cash and cash equivalents $ 335,862 $ 335,862
Available-for-sale securities $ 777,615 $ 777,615
Held-to-maturity securities $1,377,102 $1,381,692
Trading account securities $ 62,737 $ 62,737
Net loans $3,319,026 $3,460,042
Financial liabilities:
Deposits $4,194,986 $4,223,537
Short-term borrowings $ 599,378 $ 599,378
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>
Note R - National Commerce Bancorporation Financial Information
(Parent Company Only)
Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
<S> <C> <C>
Assets
Cash* $ 22,511 $ 4,125
Securities available for sale 25,570 25,626
Investments in:
Bank subsidiaries* 502,067 420,517
Non-bank subsidiaries* 14,035 5,356
Other 48,324 22,045
Total assets $ 612,507 $ 477,669
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ 5,220 $ 3,582
Debenture payable 49,909 49,896
Stockholders' equity 557,378 424,191
Total liabilities and stockholders' equity $ 612,507 $ 477,669
</TABLE>
*Eliminated in consolidation.
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Income:
Dividends from bank and thrift subsidiaries* $ 59,843 $ 67,402 $ 30,331
Dividends from non-bank subsidiaries* 1,001 1,000 ---
Interest and other income from bank subsidiaries 1,338 19 1,412
Other 3,153 2,909 311
65,335 71,330 32,054
Expenses:
Salaries and employee benefits 54 52 47
Interest on debenture 3,236 3,362 2,626
Other 1,449 4,050 1,176
4,739 7,464 3,849
Income before income taxes (credits) and
equity in undistributed earnings
of subsidiaries 60,596 63,866 28,205
Income taxes (credits) (104) (1,379) (706)
60,700 65,245 28,911
Equity in undistributed net income of:
Bank and thrift subsidiaries 44,755 21,744 31,964
Non-bank subsidiaries 1,779 1,031 11,579
Net income $ 107,234 $ 88,020 $ 72,454
</TABLE>
*Eliminated in consolidation.
41
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Operating activities:
Net income $ 107,234 $ 88,020 $ 72,454
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiaries (46,534) (22,775) (21,319)
(Increase) decrease in other assets (13,201) 2,270 (9,313)
Increase (decrease) in liabilities 1,638 (2,446) 10,607
Realized securities losses 69 1,845 ---
Net cash provided by operating activities 49,206 66,914 52,429
Investing activities:
Investment in subsidiaries (48,331) (4,600) (32,766)
Proceeds from sale of available-for-sale securities (6,114) 1,842 (29,617)
Net cash used in investing activities (54,445) (2,758) (62,383)
Financing activities:
Stock offering 80,248 --- ---
Proceeds from debenture --- --- 49,875
Cash used to repurchase/retire stock (22,925) (33,936) (18,129)
Proceeds from exercise of stock options 4,888 2,401 3,516
Cash dividends paid (39,697) (31,532) (22,529)
Other 1,111 --- 52
Net cash provided by (used in) financing activities 23,625 (63,067) 12,785
Increase in cash 18,386 1,089 2,831
Cash at beginning of year 4,125 3,036 205
Cash at end of year $ 22,511 $ 4,125 $ 3,036
</TABLE>
Note S - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
1999:
Interest income $ 109,229 $ 112,970 $ 120,515 $ 125,314
Interest expense 53,854 55,610 60,067 61,959
Net interest income 55,375 57,360 60,448 63,355
Provision for loan losses 2,539 3,985 4,378 4,304
Other income 21,593 26,619 22,847 23,244
Securities gains (losses) 2 (2,035) 20 224
Other expenses 37,605 39,813 37,686 40,154
Income before income taxes 36,826 38,146 41,251 42,365
Income taxes 11,937 12,532 13,092 13,793
Net income $ 24,889 $ 25,614 $ 28,159 $ 28,572
Net income per common share:
Basic $.24 $.24 $.26 $ .26
Diluted $.23 $.24 $.26 $ .26
1998:
Interest income $ 92,761 $ 99,387 $ 102,371 $ 108,589
Interest expense 46,138 49,255 50,310 54,509
Net interest income 46,623 50,132 52,061 54,080
Provision for loan losses 987 2,750 3,082 3,260
Other income 22,037 22,008 21,813 21,910
Securities gains 2 43 137 42
Other expenses 36,422 37,166 37,383 37,928
Income before income taxes 31,253 32,267 33,546 34,844
Income taxes 10,536 10,986 10,702 11,666
Net income $ 20,717 $ 21,281 $ 22,844 $ 23,178
Net income per common share:
Basic $.20 $.21 $.22 $ .22
Diluted $.20 $.20 $.22 $ .22
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
National Commerce Bancorporation
We have audited the accompanying consolidated balance sheets of National
Commerce Bancorporation and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Commerce
Bancorporation and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Memphis, Tennessee Ernst & Young LLP
January 27, 2000
43
<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>
Percentage
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
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
Southeastern Mortgage of Tennessee Tennessee Knoxville 100.00
</TABLE>
All of the above subsidiaries are included in the consolidated financial
statements con-tained 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 January 27, 2000,
included in the 1999 Annual Report to Shareholders of National Commerce
Bancorporation.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8: Nos. 33-23100, 33-38552 and 33-88440; Form S-3: Nos 333-53587, 333-
60953 and 333-76499 and Form S-4: No. 333-30746) of National Commerce
Bancorporation and in the related Prospectuses of our report dated January 27,
2000, with respect to the consolidated financial statements of National Commerce
Bancorporation incorporated by reference in this Annual Report (Form 10-K) for
the year ended December 31, 1999.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Memphis, Tennessee
March 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998<F1> DEC-31-1997<F2> DEC-31-1996<F3>
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 179,082 236,159 212,291 170,306
<INT-BEARING-DEPOSITS> 21,156 20,335 18,537 18,035
<FED-FUNDS-SOLD> 61,058 79,368 32,309 16,944
<TRADING-ASSETS> 30,294 62,737 98,332 31,812
<INVESTMENTS-HELD-FOR-SALE> 553,928 777,615 448,098 743,246
<INVESTMENTS-CARRYING> 1,759,383 1,377,102 1,210,071 817,126
<INVESTMENTS-MARKET> 1,557,583 1,381,692 1,208,922 804,690
<LOANS> 3,985,789 3,372,044 2,753,130 2,472,285
<ALLOWANCE> 59,597 53,018 47,076 39,130
<TOTAL-ASSETS> 6,806,173 6,090,291 4,912,965 4,388,853
<DEPOSITS> 4,495,900 4,194,986 3,444,502 3,143,875
<SHORT-TERM> 986,365 599,935 524,253 504,661
<LIABILITIES-OTHER> 106,880 83,858 75,737 66,388
<LONG-TERM> 667,289 787,321 504,023 350,951
0 0 0 0
0 0 0 0
<COMMON> 557,378 424,191 364,450 322,978
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 6,806,173 6,090,291 4,912,965 4,388,853
<INTEREST-LOAN> 311,293 275,890 243,079 202,891
<INTEREST-INVEST> 148,532 119,100 106,306 94,034
<INTEREST-OTHER> 8,203 8,118 4,573 4,635
<INTEREST-TOTAL> 468,028 403,108 353,958 301,560
<INTEREST-DEPOSIT> 158,477 142,967 126,741 114,423
<INTEREST-EXPENSE> 73,013 57,245 55,410 43,602
<INTEREST-INCOME-NET> 236,538 202,896 171,807 143,535
<LOAN-LOSSES> 15,206 10,079 17,363 14,444
<SECURITIES-GAINS> (1,789) 224 (127) 14
<EXPENSE-OTHER> 155,258 148,899 131,581 111,128
<INCOME-PRETAX> 158,588 131,910 108,792 90,664
<INCOME-PRE-EXTRAORDINARY> 158,588 131,910 108,792 90,664
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 107,234 88,020 72,454 59,886
<EPS-BASIC> 1.00 .85 .72 .59
<EPS-DILUTED> .99 .83 .69 .58
<YIELD-ACTUAL> 4.13 4.20 4.08 3.95
<LOANS-NON> 0 560 481 88
<LOANS-PAST> 5,470 4,536 3,449 3,709
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 53,018 47,076 39,130 32,331
<CHARGE-OFFS> 12,620 12,037 13,008 10,436
<RECOVERIES> 3,993 4,064 2,966 2,906
<ALLOWANCE-CLOSE> 59,597 53,018 47,076 39,130
<ALLOWANCE-DOMESTIC> 59,597 53,018 47,076 39,130
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
<FN>
<F1>Restated for 1998
<F2>Restated for 1997
<F3>Restated for 1996
</FN>
</TABLE>
