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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 [FEE REQUIRED]
December 31, 1995 0-6094
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(For the fiscal year ended) (Commission file number)
NATIONAL COMMERCE BANCORPORATION
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(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square, Memphis, Tennessee 38150 (901)523-3242
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(Address of principal executive offices) (Telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 1996, was approximately $559,220,000.
The number of shares of common stock outstanding, as of March 1, 1996, was
24,846,704.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form. X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual Proxy Statement relating to the 1996 Annual Meeting
of Shareholders of National Commerce Bancorporation are incorporated by
reference into Part III. Portions of the 1995 National Commerce Bancorporation
Annual Report are incorporated by reference into Parts I and II.
PART I.
ITEM 1. BUSINESS.
NATIONAL COMMERCE BANCORPORATION:
National Commerce Bancorporation ("NCBC" or "the Company"), a Tennessee
corporation, is a bank holding company formed in February 1966 as Tennessee
Financial Corporation. The corporate name was changed to United Tennessee
Bancshares Corporation in 1970 and the present corporate name was adopted in
April 1978. The business of NCBC consists of owning all of the outstanding
capital stock of (1) National Bank of Commerce, Memphis, Tennessee ("NBC" or
"the Bank"), (2) Nashville Bank of Commerce, Nashville, Tennessee ("Nashville"
or "the Nashville Bank"), (3) NBC Bank, FSB, Knoxville, Tennessee ("Knoxville"
or "the Knoxville Bank"), (4) NBC Bank, FSB, Belzoni, Mississippi ("FSB"), (5)
Commerce Finance Company, Memphis, Tennessee ("Commerce Finance"), (6) Commerce
Capital Management, Inc., Memphis, TN ("Commerce Capital"), (7) Brooks, Montague
& Associates, Inc, Chattanooga, Tennessee ("Brooks Montague") and (8)
TransPlatinum Service Corp., Nashville, TN ("TransPlatinum"). NCBC provides NBC,
Nashville, Knoxville, and FSB ("the Banks"), Commerce Finance, Commerce Capital,
Brooks Montague, and TransPlatinum with advice and counsel relating to financial
and employee benefit matters, performs certain record-keeping functions relating
to compliance with accounting and regulatory requirements and provides
assistance in obtaining additional financing.
NBC furnishes a full range of banking and trust services through 28 branch
and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee,
one SUPER MONEY MARKET facility located in Johnson City, Tennessee, one SUPER
MONEY MARKET facility located in Kingsport, Tennessee, one SUPER MONEY MARKET
facility located in Jackson, Tennessee, and one SUPER MONEY MARKET facility
located in Cleveland, Tennessee. NBC has two active, wholly owned, non-banking
subsidiaries, Commerce General Corporation ("Commerce General") and Commerce
Investment Corporation ("Commerce Investment"). Commerce General provides a
variety of data processing services to the Banks and other commercial
enterprises. Commerce Investment was chartered in September 1986 to serve the
needs of individual investors as a broker-dealer of investment products,
including stocks, bonds, municipal obligations, mutual funds and unit investment
trusts.
The Nashville Bank was organized in September 1985 to operate full-service
banking facilities in Kroger supermarkets within the Nashville area. The SUPER
MONEY MARKET branches offer a wide variety of personal banking services. The
Nashville Bank
2
is a state chartered bank with 18 SUPER MONEY MARKET branch locations and one
traditional branch and has a dormant subsidiary, Commerce Corporate Advisors,
Inc. Another subsidiary, National Commerce Bank Services, Inc. ("NCBS"),
provides supermarket banking services to other financial institutions. The
Nashville Bank also operates three stand-alone automated teller machines
("ATMs") in the Nashville area.
The Knoxville Bank was organized in June 1986 as a state chartered bank to
operate full-service SUPER MONEY MARKET banking facilities within the Knoxville
area. During 1994, the Knoxville Bank was converted to a federally chartered
savings bank and expanded into North Carolina. The Knoxville Bank has 11 SUPER
MONEY MARKET branch locations and one traditional branch location in the
Knoxville area with eight branch locations in the Raleigh-Durham, North Carolina
area. The Knoxville Bank also operates one stand-alone ATM in the Knoxville
area. The Knoxville Bank also offers loans on an indirect basis through area
automobile dealers.
On July 13, 1993, the Company acquired First Federal Savings Bank, a $4.8
million institution located in Belzoni, Mississippi. The name was changed to NBC
Bank, FSB, and its business expanded into Virginia. In addition to one office
in Belzoni, Mississippi, FSB has seven SUPER MONEY MARKET branches in the
Roanoke, Virginia area.
NCBC has executed SUPER MONEY MARKET sublicense agreements with other
financial institutions. Currently, agreements have been executed covering
locations in over 40 states and Jamaica. As of year end NCBC, through NCBS, has
assisted various banks with over 530 locations through either a license or
consulting relationship. The Company has one major competitor in its
supermarket branch sublicensing activity. The competitor is a non-financial
institution with nationwide operations. On November 7, 1989, the service mark
Super Money Market (Stylized) was registered on the U.S. Patent and Trademark
Office Principal Register as Reg. No. 1,565,038. This registration presently
constitutes prima facie proof that NCBC owns the mark. If certain formalities
are observed, the registration will remain in force for 20 years from the date
of registration and may be renewed for successive terms of ten years each. On
April 2, 1991 the service mark Super Money Market (non-stylized) for banking
services was registered on the Supplemental Register under Reg. No. 1,640,085.
If certain formalities are observed, registration will remain in force for ten
years from the date of registration and may be renewed for successive periods.
Commerce Capital and Brooks Montague are registered as investment advisors
with the Securities and Exchange Commission.
3
Monroe Properties, Inc., a Tennessee corporation, is a wholly owned subsidiary
of NCBC. Its primary function is to be used in connection with the acquisition
of real estate through foreclosure or deed in lieu of foreclosure.
Commerce Finance was organized in September, 1992, and commenced business
in March, 1993, in the consumer finance segment of the retail credit industry.
Commerce Finance has eight branches; four in Tennessee (Memphis, Bartlett,
Nashville, and Knoxville); two in Mississippi (Amory and New Albany); and one
each in Sullivan, Missouri and Mineola, Texas.
In September of 1995, NCBC acquired 30% of Transplatinum Service Corp.
which offers financial services to the trucking and petroleum industries and
bankcard services to merchants. TransPlatinum is located in Nashville, TN. On
February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum.
Substantially all employees of the Company are also employees of one or
more of its direct or indirect subsidiaries.
NATIONAL BANK OF COMMERCE:
From its inception in 1873, and through the granting of its charter as a
national bank in 1933, NBC has operated a full-service commercial bank and trust
business in metropolitan Memphis, Tennessee. As of December 31, 1995, NBC
operated 13 traditional branches and 19 SUPER MONEY MARKET facilities, 15 in
metropolitan Memphis and one each in Johnson City, Tennessee, Kingsport,
Tennessee, Jackson, Tennessee, and Cleveland, Tennessee. At December 31, 1995,
NBC had $1,732,146,000 in deposits and was the second largest bank in the
Memphis service area (population approximately 1,000,000) and the fifth largest
bank in Tennessee, measured by deposits. Memphis is the largest city in
Tennessee and is the center of a diversified distribution, commercial and
agricultural area. NBC provides complete banking facilities and services to the
Mid-South area through various divisions and departments, described below. The
retail banking activity is carried on through the Branch Banking Division, the
Money Market Division, the Executive Banking Division, and the Consumer Services
Division. The Bank's Commercial Banking Group is composed of seven divisions:
the Metropolitan Lending Division, the Leasing Division, the Asset Based Lending
Division, the Real Estate Lending Division, the National Accounts Division, the
Correspondent Banking Division and the Mortgage Lending Division ("NBC
Mortgage"). Trust services are provided by the Trust Division. Staff support
for the Bank is provided by its Personnel, Marketing, Operations and
Financial/Administrative Divisions.
4
Retail Services: NBC provides its customers with a variety of retail
banking services. Among such services are checking accounts and savings
programs, night depository services, safe deposit facilities and several
consumer loan programs, including installment loans for the purchase of consumer
goods, credit card plans and revolving lines of credit. Customers are provided
with current information regarding these services through NBC's marketing
program. NBC has installed 40 ATMs (24-hour tellers), including ATMs located at
Plough, Inc., Hickory Ridge Mall, Graceland, Methodist Hospital, Memphis
International Airport, University of Memphis campus and Rhodes College campus.
At year end, consumer loans and leasing activity accounted for approximately 41%
of NBC's outstanding loans. NBC participates in the MasterCard and Visa Card
Programs, national consumer debit and credit card plans, under which NBC
discounts sales drafts (accounts receivable arising from charges made with
MasterCard and Visa Cards), without recourse, for participating merchants. NBC
also offers a Professional Services Plan, Equity Credit Lines and other credit
services for individuals. A monthly revolving credit charge is levied on the
purchaser depending on the credit plan desired. At December 31, 1995, NBC had
credit card accounts receivable and consumer lines of credit totaling
$128,424,000.
Commercial Services: NBC provides a variety of services for commercial
enterprises, including checking accounts, certificates of deposit, cash
management services, short-term loans for seasonal or working capital purposes,
and term loans for fixed assets and expansion purposes. In addition to these
general services, NBC also provides accounts receivable and inventory financing,
commodity loans and commercial loans tailored to an individual customer's needs.
Secured and unsecured commercial loans and commodity loans, at December 31,
1995, accounted for approximately 37% of the loans made by NBC. Real estate
construction and long-term mortgage loans (including first mortgage refinance
loans) accounted for approximately 12% of NBC's outstanding loans at December
31, 1995.
Correspondent Banking: NBC has correspondent relationships with
approximately 149 banks located in Tennessee, Arkansas, Missouri, Florida,
Mississippi, Kentucky, and Alabama to which it provides a range of correspondent
banking services as well as advice in various fields of banking policy and
operations. Aggregate balances of correspondent banks at NBC averaged
approximately $39,098,000 in 1995.
Trust Services: Through its Trust Division, NBC acts as trustee, executor,
administrator, guardian, custodian and depository for a number of individuals
and corporations. The Bank offers investment advisory services to its customers
in
5
addition to portfolio management. At December 31, 1995, the Trust Division
administered assets valued at approximately $1,957,000,000.
International Services: NBC has established 11 accounts with foreign
banks, primarily in Europe, to handle international trade relationships. Four
foreign banks have accounts with NBC for the same purpose. NBC does not now,
nor does it intend to, engage in speculative trading of foreign currencies.
Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce
General offers hospital and clinic processing to several customers. During the
year ended December 31, 1995, approximately 85% of the total revenues of
Commerce General were derived from services provided to NBC and 15% from
services provided to other customers. Commerce Investment Corporation provides
investment services to individual and institutional investors. In 1991, the
institutional investor activity of NBC's Investment Division was merged into
Commerce Investment. At December 31, 1995, Commerce Investment's capital
totaled $13,521,000. Commerce Investment is registered as a broker-dealer with
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., and is a member of the Security Investor Protection
Corporation.
Territory Serviced and Competition: NBC actively competes with other
commercial banks in the Memphis trade area in providing a full range of banking
services, including demand deposits, time deposits, various types of loans,
trust services and other bank related activities. At December 31, 1995, NBC had
$2,690,123,000 in assets. According to December 31, 1995 call reports, one of
the other banks in metropolitan Memphis is 4.5 times larger than NBC as measured
by deposits. However, deposits for that bank include statewide branches, while
NBC deposits are primarily limited to the metropolitan Memphis area. The
Memphis trade area includes western Tennessee, northern Mississippi, and eastern
Arkansas, and NBC considers commercial banks in Little Rock, Arkansas and
Jackson, Mississippi, as competitors in addition to Memphis area banks. In
addition, NBC competes with savings and loan associations, finance companies,
credit unions, insurance companies, real estate investment trusts, mortgage
companies, factoring companies, independent credit card companies and various
other financial institutions whose activities correspond with banking functions.
See "Supervision and Regulation."
Employees: As of December 31, 1995, the Bank and its subsidiaries employed
approximately 247 officers, 551 other full-time employees, 51 part-time
employees and 85 peak-time employees. Relations with employees have been good.
No
6
employees are covered by collective bargaining agreements. All full-time
employees are afforded the benefits of group life and health insurance plans.
In addition, the Company has a non-contributory qualified retirement plan and an
Employee Stock Ownership Plan ("ESOP"). All employees who have one full year of
service are eligible to become participants in the retirement plan. The Company
also has a taxable income reduction account ("TIRA") plan which allows employees
to defer payment of taxes on an elected percentage of salary up to $9,240 by
making contributions to this plan. The Company may also make contributions to
this plan for the benefit of participating employees.
NASHVILLE BANK OF COMMERCE:
Nashville Bank of Commerce was organized to compete in retail banking in
the Nashville trade area. The Nashville Bank operates one traditional branch
and 18 SUPER MONEY MARKET facilities located within Kroger stores and three
stand-alone ATMs in the Nashville area. At December 31, 1995, the Nashville
Bank employed 32 officers, 73 other full-time employees, 5 part-time employees
and 23 peak-time employees to provide banking services during the hours when
most grocery shopping occurs. Employees of the Nashville Bank are provided with
the same benefits that all Company employees have available to them. At December
31, 1995, the Nashville Bank had total consolidated assets of $439,846,000.
Nashville Bank of Commerce competes with a number of substantially larger
financial institutions, both banks and savings and loans, as well as various
other financial institutions whose activities correspond with banking functions.
Non-Bank Subsidiaries: National Commerce Bank Services, Inc. provides
supermarket banking services to other financial institutions. During 1994, the
Knoxville Bank's 50% ownership was transferred to the Nashville Bank, resulting
in NCBS being a wholly-owned subsidiary of the Nashville Bank. At December 31,
1995 NCBS's capital totaled $7,060,000. The Nashville Bank's other subsidiary,
Commerce Corporate Advisors, Inc., is currently dormant.
NBC BANK, FSB (KNOXVILLE):
The Company organized NBC Bank, FSB (Knoxville) to become competitive in
retail banking in the Knoxville area. After its 1994 conversion from a state
chartered bank to a federally chartered savings bank, it expanded into North
Carolina. The Knoxville Bank has placed in operation one traditional branch and
13 SUPER MONEY MARKET facilities located within Kroger stores and 4 stand-alone
ATM in the Knoxville area and 8 SUPER MONEY MARKET facilities in the Raleigh-
Durham, North Carolina area. Like
7
Nashville, the Knoxville Bank employees are provided with the same benefits that
all Company employees have available to them. At December 31, 1995, the
Knoxville Bank employed 29 officers, 71 other full-time employees, 2 part-time
employees and 14 peak-time employees. At year-end 1995, the Knoxville Bank had
total assets of $439,408,000. The Knoxville Bank competes with a number of
substantially larger financial institutions, both banks and savings and loans,
as well as various other financial institutions whose activities correspond with
banking functions.
NBC BANK, FSB (BELZONI):
FSB was acquired to expand its retail banking activities through
supermarket branches in other states. Seven SUPER MONEY MARKET branches are
located in Kroger supermarkets in Virginia, and one office is located in
Belzoni, Mississippi. At December 31, 1995, FSB employed 8 officers, 38 other
full-time employees, and 3 part-time employees. The same Company benefits are
provided to these employees. At year-end 1995, the FSB had total assets of
$225,001,000. FSB competes with a number of substantially larger financial
institutions, both banks and savings and loans, as well as various other
financial institutions whose activities correspond with banking functions.
COMMERCE CAPITAL MANAGEMENT, INC.:
Commerce Capital was organized to provide specialized investment management
services to individuals, family groups, endowment funds and corporations.
Assets presently managed are approximately $750,000,000. At December 31, 1995,
Commerce Capital had 10 full-time and 2 part-time employees. Commerce Capital's
employees are covered under the same Company benefits. Commerce Capital
competes with a number of other investment counselors, insurance companies,
banks, and other money managers, many of which are substantially larger.
BROOKS, MONTAGUE & ASSOCIATES, INC.:
The Company acquired all of the outstanding stock of Brooks, Montague &
Associates, Inc. on February 15, 1994. Brooks Montague provides specialized
investment management services primarily to individuals, charitable accounts and
corporate retirement plans. Assets presently managed are approximately
$105,000,000. At December 31, 1995, Brooks Montague had four full-time
employees. Brooks Montague's employees are covered under the same Company
benefits. Brooks Montague competes primarily with other regionally based
investment management firms, many of which are substantially larger.
8
COMMERCE FINANCE COMPANY:
The Company organized Commerce Finance Company to enter the consumer
finance market. As of December 31, 1995, Commerce Finance had eight offices
opened in the Mid-South area. Commerce Finance employed 3 officers and 24 full-
time employees at December 31, 1995. Financing for indirect purchases, new and
used cars, home improvement and bill consolidation are available through this
subsidiary. Commerce Finance competes with a number of substantially larger
consumer finance companies.
TRANSPLATINUM SERVICE CORP.:
In September of 1995, NCBC acquired 30% of Transplatinum Service Corp.
which offers financial services to the trucking and petroleum industries and
bankcard services to merchants. TransPlatinum is located in Nashville, TN. On
February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum. As of
December 31, 1995, TransPlatinum had 3 officers and 35 full-time employees.
TransPlatinum competes with major larger companies offering similar services on
a nation-wide basis.
SUPERVISION AND REGULATION
NCBC and its subsidiaries are subject to a number of federal and state laws
and regulations. As a bank holding company, NCBC is subject to regulation under
the Bank Holding Company Act of 1956, as amended (the "Act"), which is
administered by the Federal Reserve Board (the "Board"). Under the Act, the
Company is generally prohibited from directly engaging in any activities other
than banking, managing or controlling banks, and those activities that the Board
considers closely related and incidental to banking. Generally,bank holding
companies from any state can now acquire banks and bank holding companies
located in any other state, subject to certain conditions, including nationwide
and state imposed concentration limits. Effective January 1, 1991, Tennessee
amended its reciprocal interstate banking statute to allow a bank or bank
holding company in any other state to acquire a Tennessee bank or bank holding
company as long as a Tennessee bank or bank holding would have a similar
acquisition opportunity in that state. Banks also will be able to branch across
state lines by acquisition, merger or de novo, effective June 1, 1997 (unless
state law would permit such interstate branching at an earlier date), providing
certain conditions are met including that applicable state law must expressly
permit de novo interstate branching.
The Act requires that a bank holding company obtain the prior approval of
the Board before merging or consolidating with another bank holding company.
Furthermore, unless a bank holding
9
company already owns or controls a majority of the shares of a bank or another
bank holding company, Board approval is required for any transaction, if
following such transaction, the bank holding company directly or indirectly owns
or controls more than 5% of the shares of such bank or bank holding company. A
bank holding company and its non-bank subsidiaries must also seek the prior
approval of the Board to acquire all or substantially all of the assets of a
bank.
Under the Act, a bank holding company is required to file with the Board an
annual report and any additional information required by the Board. The Board
may examine the Company's and each of its direct subsidiaries' records,
including a review of capital adequacy in relation to guidelines issued by the
Board. If the level of capital is deemed to be inadequate, the Board may
restrict the future expansion and operations of the Company. The Board possesses
cease-and-desist powers over a bank holding company if its actions or actions of
any of its subsidiaries represent unsafe or unsound practices or violations of
law.
Federal law also regulates transactions among the Company and its
affiliates, including the amount of a banking affiliate's loans to, or
investments in, nonbank affiliates and the amount of advances to third parties
collateralized by securities of an affiliate. In addition, various requirements
and restrictions under federal and state law regulate the operations of the
Company's banking affiliates, including (1) requiring the maintenance of
reserves against deposits, (2) limiting the nature of loans and the interest
that may be charged thereon, and (3) restricting investments and other
activities. The amount of dividends that the Company's bank affiliates may
declare is also limited. Regulatory approval must be obtained before declaring
any dividends if the amount of capital, surplus and retained earnings is below
certain statutory limits. See Note M of the Notes to Consolidated Financial
Statements in the 1995 Annual Report, incorporated herein by reference.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or is in default.
For example, under a policy of the Board with respect to bank holding company
operations, a bank holding company is required to serve as a source of financial
strength to its subsidiary depository institutions to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. In addition, the "cross-guarantee" provisions of federal law require
insured depository institutions
10
under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default.
The federal banking agencies have broad powers under current federal law to
take prompt corrective action to resolved problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized", "adequately capitalized", or "significantly
undercapitalized" as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
The Community Reinvestment Act (CRA) requires banks to help meet the credit
needs of the community. Regulatory authorities are required to consider the CRA
performance of a bank or bank holding company when reviewing regulatory
applications.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 (FIRREA) was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and criminal
enforcement provisions. FIRREA allows the acquisition of healthy and failed
savings and loan associations by bank holding companies, and it imposes no
interstate barriers on such acquisitions by bank holding companies. With
certain qualifications, FIRREA also allows bank holding companies to merge
acquired savings and loan associations into their existing commercial bank
subsidiaries. FIRREA also provides that a depository institution insured by the
Federal Deposit Insurance Corporation ("FDIC") can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989 in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") became effective in December 1991. FDICIA revises the bank
regulatory insurance coverage and funding provisions of the Federal Deposit
Insurance Act and makes changes to the regulatory structures found in several
other banking statutes. Various sections of FDICIA are designed to recapitalize
the Bank Insurance Fund and provide for increased funding of the Bank Insurance
Fund by insured banks. The FDIC's capacity to borrow from the United States
Treasury was increased. FDICIA requires the FDIC to develop and implement a
system of risk-based premiums for federal deposit insurance under which the
11
semiannual rates at which a depository institution is assessed are based on the
probability that the depository institution fund will incur a loss with respect
to the institution. Various sections of FDICIA impose substantial new audit and
reporting requirements on insured depository institutions. All insured banks are
generally subject to an annual on-site examination by their primary federal
regulatory agency. The role of independent public accountants is increased, and
there are additional reporting requirements imposed on depository institutions.
The federal regulatory agency must devise rules requiring banks and thrift
institutions to disclose the fair market value of their assets. The agencies
must also devise rules for banks and thrifts to report off-balance sheet items
on financial statements. Banks are rated according to a new scheme of capital
adequacy. Better-capitalized institutions are generally subject to less onerous
regulation and supervision than poorly-capitalized institutions. Under FDICIA,
each federal banking agency must prescribe standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares, and other standards as the agency deems appropriate.
As a national bank, NBC operates under the rules and regulations of the
Comptroller of the Currency and is also a member of the Federal Reserve System,
subject to provisions of the Federal Reserve Act. The Nashville Bank is a state
non-member bank operating under the rules and regulations of the FDIC and the
Tennessee Department of Financial Institutions. NBC Bank, FSB (Knoxville) and
NBC Bank, FSB (Belzoni), are federally chartered savings banks that are
primarily regulated by the Office of Thrift Supervision. The FDIC insures the
domestic deposits of all the Banks.
Commerce Finance Company is a consumer finance company organized under the
laws of the State of Tennessee and is primarily regulated by the Consumer
Finance Division of the Tennessee Department of Financial Institutions. In
addition to six offices in Tennessee, Commerce Finance Company also operates two
offices in Mississippi. Mississippi exercises regulatory authority over those
offices in their state and the Federal Trade Commission has primary federal
regulatory authority. Commerce Capital Management, Inc. and Brooks, Montague &
Associates, Inc. are registered with the Securities and Exchange Commission and
are investment advisers pursuant to the Investment Advisers Act of 1940, as
amended. All regulatory agencies require periodic
12
audits and regularly scheduled reports of financial information.
The federal Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") imposes a liability scheme for the remediation of property where
hazardous substances have been released. The liability extends to owners and
operators of such properties which could include banks. There is proposed or
pending federal legislation that would consolidate some of the federal agencies
that regulate financial institutions.
13
STATISTICAL AND OTHER DATA - The following tables set forth selected
- --------------------------
statistical and other information. Distribution of Assets, Liabilities and
Stockholders' Equity: Interest Rates and Interest Differential The following
table sets forth the combined daily average condensed (consolidated) balance
sheets of NCBC and an analysis of net interest earnings for the periods 1993
through 1995. Interest income and yields on non-taxable investment securities
have been calculated on a fully taxable-equivalent basis assuming a tax rate of
35%.
1995 1994 1993
------- ------- -------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- ------- -------- --------- -------- ------- --------- -------- ------
(In Thousands of Dollars)
ASSETS
Interest-earning assets:
Loans:(1)
Domestic(2) 1,718,424 160,980 9.37% 1,505,716 129,340 8.59% 1,258,620 108,547 8.62%
Taxable securities including trading
account 1,119,057 75,627 6.76 982,788 56,327 5.73 775,499 44,579 5.75
Non-taxable investment securities(2) 154,755 13,101 8.47 147,753 13,679 9.26 125,935 12,669 10.06
Federal funds sold and securities
purchased under agreements to
resell 25,383 1,486 5.85 18,018 793 4.40 47,405 1,431 3.02
Time deposits in other banks 16,881 1,002 5.94 18,807 741 3.94 19,718 581 3.94
--------- ------- --------- ------- --------- -------
Total interest-earning assets 3,034,500 252,196 8.31 2,673,082 200,880 7.51 2,227,177 167,807 7.53
------- ------- -------
Non-interest earning assets:
Cash and due from banks 112,304 110,070 105,690
Premises & equipment, net 17,869 17,246 13,587
Other assets 75,448 68,013 59,937
Allowance for loan losses (25,830) (23,276) (19,181)
--------- --------- ---------
TOTAL ASSETS 3,214,291 2,845,135 2,387,210
========= ========= =========
(1) For the purposes of these computations, non-accruing loans are included in
the daily average loan amounts outstanding and income on such loans is
recognized as received. There were no foreign loans outstanding.
(2) These items are affected by fully taxable-equivalent adjustments.
Reference is made to page __ of the Annual Report to Shareholders for the
corresponding unadjusted amounts as presented in the financial statements.
14
1995 1994 1993
------- ------- -------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- ------- -------- --------- -------- ------- --------- -------- ------
(In Thousands of Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits 247,002 4,843 1.96% 250,945 4,898 1.95% 206,750 3,906 1.89%
Savings deposits 782,714 32,971 4.21 645,219 21,655 3.36 514,896 13,106 2.55
Time deposits 1,025,093 58,877 5.74 863,925 36,527 4.23 758,859 32,505 4.28
Federal funds purchased and
securities
sold under agreements to repurchase 264,214 13,482 5.10 265,191 9,737 3.67 227,223 5,977 2.63
Federal Home Loan Bank advances 294,833 15,809 5.36 262,125 11,883 4.53 139,533 6,415 4.60
Long-term debt 6,382 458 7.18 6,384 399 6.25 6,372 388 6.09
--------- ------- --------- ------- --------- ------
Total interest bearing liabilities 2,620,238 126,440 4.83 2,293,789 85,099 3.71 1,853,633 62,297 3.36
------- ------ ------
Non-interest bearing liabilities:
Domestic demand deposits 284,744 282,468 290,042
Other 36,832 28,975 32,528
Stockholders' equity 272,477 239,903 211,007
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 3,214,291 2,845,135 2,387,210
========= ========= =========
Net interest earnings 125,756 115,781 105,510
======= ======= =======
Net yield on interest-earning assets 4.14% 4.33% 4.74%
==== ==== =====
15
INTEREST RATE SENSITIVITY TABLE BY REPRICING DATES
Within After 3 Mos. After 6 Mos. After 1 Yr. Non
December 31, 1995 0-30 31-90 But Within But Within But Within After Interest
(In Thousands of Dollars) Days Days 6 Mos. 1 Year 5 Years 5 Years Bearing Total
---------- --------- --------- --------- -------- ------- -------- ---------
Funding uses:
Loans, net 633,260 46,961 57,582 112,757 591,996 488,657 - 1,931,213
Securities 740,010 55,514 47,105 108,516 223,368 104,133 - 1,278,646
Other earning assets 263,748 - - - - - - 263,748
Other assets - - - - - - 221,435 221,435
--------- -------- -------- -------- ------- ------- -------- ---------
Total funding uses 1,637,018 102,475 104,687 221,273 815,364 592,790 221,435 3,695,042
--------- -------- -------- -------- ------- ------- -------- ---------
Funding sources:
Interest-bearing deposits 745,892 395,019 258,575 321,882 388,350 133,616 - 2,243,334
Other borrowings 606,172 9,863 6,757 12,644 122,101 26,389 - 783,926
Demand deposits - - - - - - 331,436 331,436
Other liabilities - - - - - - 39,667 39,667
Interest rate swaps (50,000) - (50,000) 100,000 - - - -
Stockholders' equity - - - - - - 296,679 296,679
--------- -------- -------- -------- ------- ------- -------- ---------
Total funding sources 1,302,064 404,882 215,332 434,526 510,451 160,005 667,782 3,695,042
--------- -------- -------- -------- ------- ------- -------- ---------
Interest-rate
sensitivity GAP 334,954 (302,407) (110,354) (213,253) 304,913 432,785 (446,347)
--------- -------- -------- -------- ------- ------- --------
Cumulative interest-rate
sensitivity GAP 334,954 32,547 (78,098) (291,351) 13,562 446,347
GAP to total assets 9.06% (8.18%) (2.99%) (5.77%) 8.25% 11.71% (12.08%)
Cumulative GAP to total
assets 9.06% .88% (2.11%) (7.88%) .37% 12.08%
The Company's Interest Rate Sensitivity Table was prepared using contractual
maturities and repricing dates when they exist and are enforceable. Management
adjustments have been applied to allow for prepayment or other variances from
stated maturities or repricing intervals. The management adjustments have been
formulated considering historical experience and market projections and will
change when appropriate to allow for current and projected interest rate
scenarios.
Due to the historical volatility of interest rates, the Company addresses the
problem with an Asset Liability Management Committee comprised of senior
management personnel from each key banking function. The committee's goal is to
stabilize earnings by limiting the gap position between assets and liabilities
repricing within one year to 15% of assets. The committee has determined by
historical experience and simulation modeling that a gap of 15% will not produce
excessive earnings variances in most rate environments. The committee meets
regularly to address the current gap position and evaluate the assumptions and
projections used to calculate interest rate risk.
16
Changes in Interest Income and Expense
- --------------------------------------
The following table sets forth for NCBC and its subsidiaries
(consolidated), for the periods indicated, a summary of the changes in interest
earned and interest paid resulting from changes in volume and changes in rates.
Interest on non-taxable investment securities has been calculated on a fully
taxable-equivalent basis assuming a tax rate of 35%.
1995 Compared to 1994 1994 Compared to 1993
Increase (decrease) Due to (1) Increase (decrease) Due to (1)
----------------------------------------------- ------------------------------------------
Volume Rate Net Rate/Volume Volume Rate Net Rate/Volume
--------- --------- --------- ----------- ---------- ------- ------- -----------
(In Thousands of Dollars)
Interest earned on:
Loans:(2)
Domestic 19,282 12,358 31,640 1,655 21,227 (434) 20,793 (85)
Taxable securities including
trading account 8,426 10,874 19,300 1,399 11,880 (132) 11,748 (35)
Non-taxable investment
securities 628 (1,206) (578) (55) 2,076 (1,066) 1,010 (175)
Federal funds sold and
securities purchased
under agreements to
resell to resell 383 310 693 107 (1,122) 484 (638) (407)
Time deposits in other
banks (82) 343 261 (38) (28) 188 160 (9)
------ ------ ------ ----- ------ ------ ------ ------
Total interest earning
assets 28,637 22,679 51,316 3,033 34,507 (960) 33,073 (711)
------ ------ ------ ----- ------ ------ ------ ------
Interest paid on:
Demand deposits (77) 22 (55) 0 859 133 992 28
Savings deposits 5,156 6,160 11,316 1,177 3,782 4,767 8,549 1,057
Time deposits 7,645 14,705 22,350 2,443 4,447 (425) 4,022 (58)
Federal funds purchased
and securities sold under
agreements to repurchase (36) 3,781 3,745 (14) 1,117 2,643 3,760 395
Federal Home Loan Bank
advances 1,594 2,332 3,926 271 5,560 (92) 5,468 (79)
Long-term debt - 59 59 - 1 10 11 -
------ ------ ------ ----- ------ ------ ------ ------
Total interest bearing
liabilities 14,282 27,059 41,341 3,877 15,766 7,036 22,802 1,343
------ ------ ------ ----- ------ ------ ------ ------
Net interest earnings 14,355 (4,380) 9,975 (809) 18,267 (7,996) 10,271 (2,054)
====== ====== ====== ===== ====== ====== ====== ======
(1) The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proporation to the
relationship of the absolute dollar amounts to the change in each.
(2) There were no foreign loans outstanding.
17
SECURITIES PORTFOLIO
The following table sets for the aggregate book value of investment securities
at the dates indicated.
December 31
1995 1994 1993
-------- -------- ------
(in thousands of dollars)
Securities:
U.S. Treasury 18,582 120,326 49,120
U.S. Government agencies and
corporations 1,027,932 844,782 773,137
States of the U.S. and political
subdivisons 149,975 161,297 132,531
Other securities 82,157 29,880 17,408
--------- --------- -------
Total 1,278,646 1,156,285 972,196
========= ========= =======
The following table sets forth the maturities at December 31, 1995, and the
weighted average yields of such securities, all of which are computed on a fully
taxable-equivalent basis assuming a tax rate of 35%.
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
------- ------- ------- ------- ------- -------- -------- ---------
Securities:
U.S. Treasury 2,033 5.36% 16,549 5.23% - - - -
U.S. Government agencies
and corporations 283,762 6.47 206,031 6.00 61,546 6.54% 476,593 6.59%
States of the U.S. and
political subdivisions 2,885 5.88 31,250 6.66 56,963 7.34 58,877 8.81
Other 1,258 6.47 5,033 6.47 6,292 6.47 69,574 6.35
------- ------- ------- --------
Total 289,938 258,863 124,801 605,044
======= ======= ======= ========
18
LOAN PORTFOLIO
The following table shows the Company's gross loan distribution at the end
of the last five years.
December 31
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(in thousands of dollars)
Commerce, financial,
and agricultural 399,580 356,035 350,539 354,491 314,361
Real estate - construction 122,720 91,424 66,929 68,238 62,134
Real estate - mortgage 520,657 501,489 429,544 275,732 248,341
Consumer(1) 871,407 630,927 535,417 489,773 396,430
Lease financing 18,678 14,818 13,870 12,423 16,179
--------- --------- --------- --------- ---------
Total 1,933,042 1,594,693 1,396,299 1,200,657 1,037,445
========= ========= ========= ========= =========
(1) Included within "Consumer" loans are revolving lines of credit secured by
home equities.
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and lease financing) outstanding as of December 31, 1995, which,
based on remaining scheduled repayments of principal, are due in the periods
indicated.
Maturing
Within After 1 But After
1 Year Within 5 Yrs 5 Years Total
------- ------------ ------- -------
(in thousands of dollars)
Commercial, financial,
and agricultural 95,169 160,731 143,680 399,580
Real estate - construction 41,547 40,047 41,126 122,720
------- ------- ------- -------
Total 136,716 200,778 184,806 522,300
======= ======= ======= =======
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and leasing financing) due after one year classified, according
to the sensitivity to changes in interest rates as of December 31, 1995.
After 1 but After
Within 5 Yrs 5 Years
------------ -------
(in thousands of dollars)
Predetermined interest rates 107,216 80,620
Floating or adjustable interest rates 93,562 104,186
------- -------
Total 200,778 184,806
======= =======
19
NONACCRUAL, PAST DUE, AND RESTRUCTURED
The following table summarized the Company's nonaccrual, past due, and
restructured loans (all of which are domestic):
December 31
------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- -------- -----
(in thousands of dollars)
Nonaccrual loans - - - 7,092(1) 2,270
Accruing loans past due
90 days or more 3,252 2,432 2,063 1,858 2,577
Non-performing
restructured loans - - - - 773
Performing restructured - - 1,984 - -
Substantially all of the nonaccrual and restructured loans were collateralized,
and there were no significant commitments to lend any of these debtors
additional funds.
(1) Included in the 1992 non-accrual loan totals is a loan secured by real
estate of $4 million, which was current as to principal and interest and had
performed as agreed since inception. It was so classified based on a highly
technical interpretation of current regulations. See Note A of financial
statements in the Annual Report to Shareholders for management's policy for
placing loans on nonaccrual status.
Loans and lease financing receivables are considered to be in nonaccrual status
if: (1) they are maintained on a cash basis because of deterioration in the
financial position of the borrower, (2) payment in full of interest or principal
is not expected, or (3) principal or interest has been in default for a period
of 90 days or more unless the obligation is both well secured and in the process
of collection. A nonaccrual asset may be restored to an accrual status when
none of its principal and interest is due and unpaid or when it otherwise
becomes well secured and in the process of collection.
Potential Problem Loans
- -----------------------
At December 31, 1995, the Company had $1,136,000 in three loans for which
payments presently are being made, but the borrowers currently are experiencing
severe financial difficulties. Those loans are subject to constant management
attention and their classification is reviewed monthly.
Other Assets
- ------------
During 1989, the purchase money mortgage resulting from the 1984 sale of the
Company's main bank building, parking garage, and interest in Commerce Tower
Joint Venture was restructured. The Company's portion of the purchase money
mortgage had a book value of $8,743,000 at December 31, 1995. Interest was not
received or accrued totaling approximately $568,000 in 1995 in lieu of tenant
and other capital improvements to the building which totaled approximately
$1,012,000 for the year. The purchase money mortgage is due in November 1996 and
the Company is considering renewal or other options. The financial impact of
restructuring the note is not known at this time, but is not expected to be
material to the consolidated financial statements.
20
SUMMARY OF LOAN LOSS EXPERIENCE
This table summarizes the Company's loan loss experience for each of the five
years ended December 31, 1995. There were no foreign loans.
Year Ended December 31
------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ---------- ---------
(in thousands of dollars)
Balance at beginning
of period 24,310 21,467 17,356 13,254 11,313
Charge-offs:
Commercial, financial,
and agricultural 1 442 1,167 2,632(1) 2,263(1)
Real estate - construction 199 212 652 1,163 -
Real estate - mortgage 97 232 207 1,052(1) 434
Consumer 5,366 4,088 3,783 4,317 6,987(2)
Lease financing 1,586 1,500 1,031 1,063 1,267
------ ------ ------ ----- ------
Total charge-offs 7,249 6,474 6,840 10,227 10,951
------ ------ ------ ----- ------
Recoveries of loans
previously charged-off:
Commercial, financial,
and agricultural 55 47 420 56 24
Real estate - construction 44 83 359 268 -
Real estate - mortgage 73 121 47 45 127
Consumer 1,509 1,494 1,237 1,094 1,155
Lease financing 518 495 474 323 321
------ ------ ------ ----- ------
Total recoveries 2,199 2,240 2,537 1,786 1,627
------ ------ ------ ----- ------
Net charge-offs 5,050 4,234 4,303 8,441 9,324
Increase due to acquisition - - 22 - -
Provision for loan losses 9,750 7,077 8,392 12,543 11,265
------ ------ ------ ------ ------
Balance at end of period 29,010 24,310 21,467 17,356 13,254
====== ====== ====== ====== ======
Ratio of net-charge-offs to
average loans outstanding
during the period .29% .28% .34% .76% .95%
(1) During 1992, $2,300,000 of the charge-offs in these categories resulted
from charge-offs to two local borrowers, one loan to a manufacturing
concern and another to a project related to a hotel project. During 1991,
$2,000,000 of the charge-offs resulted from charge-offs to two local
borrowers, one loan to a remanufacturing concern and another to a project
related to local government entities.
(2) Of the $2.1 million increase in consumer charge-offs during 1991,
approximately 50% were bank credit card related, and approximately 50% were
consumer installment related. These increases are the result of a 10%
growth in the average portfolios of these categories, increased personal
bankruptcies, and the recessionary environment.
(3) The factors which influenced management's judgment in determining the
21
amount of the provision for loan losses charged to operating expense included
the results of a credit review of the loan portfolio, past loan loss experience,
current economic conditions and other factors, all of which formed a basis for
determining the adequacy of the allowance for loan losses. The allowance for
possible loan losses is maintained at a level believed adequate by management to
absorb potential losses in the loan portfolio.
22
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses has been allocated according to the amount deemed
to be reasonably necessary to provide for the possibility of losses incurred
within the following categories of loans for each for the five years indicated.
December 31
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- ----------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
Amount in each Amount in each Amount in each Amount in each Amount in each
of category of category of category of category of category
allow- to total allow- to total allow- to total allow- to total allow- to total
ance loans ance loans ance loans ance loans ance loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(in thousands of dollars)
Commercial, financial,
and agricultural 7,264 21% 6,887 22% 6,622 25% 4,033 29% 4,542 30%
Real estate:
Construction 3,006 6 2,731 6 2,644 5 2,408 6 1,973 6
Mortgage 3,567 27 3,352 31 3,277 31 2,663 23 2,174 24
Consumer 12,737 45 9,457 40 7,716 38 7,484 41 4,157 38
Lease financing 2,436 1 1,883 1 1,208 1 768 1 408 2
------ --- ------ --- ------ --- ------ --- ------ ---
Toal 29,010 100% 24,310 100% 21,467 100% 17,356 100% 13,254 100%
====== === ====== === ====== === ====== === ====== ===
23
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.
Year Ended December 31
--------------------------------------------------
1995 1994 1993
---------------- --------------- --------------
Amount Rate Amount Rate Amount Rate
--------- ----- --------- ----- --------- -----
(in thousands of dollars)
Non-interest bearing demand deposits 284,744 - 282,468 - 290,042 -
Interest bearing demand deposits 247,002 1.96% 250,945 1.95% 206,750 1.89%
Savings deposits 782,714 4.21 645,219 3.36 514,896 2.55
Time deposits 1,025,093 5.74 863,925 4.23 758,859 4.28
--------- --------- ---------
Total 2,339,553 2,042,557 1,770,547
========= ========= =========
At December 31, 1995, outstanding maturities of time deposits of $100,000 or
more issued by domestic offices (which consist entirely of time certificates of
deposit) are summarized below (in thousands of dollars):
Time remaining until maturity Amount
- ----------------------------- --------
3 months or less 179,359
Over 3 through 6 months 104,669
Over 6 through 12 months 165,073
Over 12 months 18,724
-------
Total 467,825
=======
RETURN ON EQUITY AND ON TOTAL ASSETS
The following table shows consolidated operating and capital ratios for the Company for each
of the last three years.
Year Ended December 31
1995 1994 1993
------- ----- -----
Return on average total assets 1.53% 1.56% 1.65%
Return on average equity* 18.00% 18.48% 18.68%
Dividend payout percent 36.08% 35.03% 34.81%
Average equity to assets percent 8.48% 8.43% 8.84%
Tier 1 capital to total assets (leverage ratio) 7.91% 8.56% 8.62%
Tier 1 capital to risk-weighted assets 12.30% 13.62% 13.77%
Total capital to risk-weighted assets 13.52% 14.87% 15.02%
* exclusive of mark-to-market adjustment.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Registrant's Annual Report for discussion of minimum capital
requirements.
24
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.
Year Ended December 31
---------------------------
1995 1994 1993
------- ------- -------
(In Thousands of Dollars)
Federal funds purchased and securities
sold under agreements to repurchase:
Balance at year-end 404,746 275,136 247,531
Weighted average interest rate
payable at year-end 5.46% 5.75% 2.68%
Maximum amount outstanding
at any month end 404,746 310,243 347,061
Average outstanding balance
(total daily outstanding
principal balance dividedby 365) 264,214 265,191 227,223
Weighted average interest rate
(related interest expense
divided by the average
outstanding balance) 5.10% 3.67% 2.63%
25
ITEM 2. PROPERTIES.
Main Office: NBC leases as its main office approximately 40% -- 185,271
rentable square feet -- of the Commerce Square Complex (the "Complex"), which
includes a thirty-two story office building known as Commerce Square Tower, a
nine-story parking garage and a building known as NBC's main office building.
NBC owns two parcels of land (approximately 74.25 feet by 148.5 feet) adjacent
to the Complex which house a building that is presently used by the Bank for
storage.
Other Offices: As of December 31, 1995, NBC operated 13 traditional
branches (including the main office branch) and 15 SUPER MONEY MARKET branch
facilities in Shelby County, Tennessee and one each in Johnson City, Tennessee,
Kingsport, Tennessee, Jackson, Tennesee, and Cleveland, Tennessee. NBC intends
to continue opening branches at such time and places as management deems prudent
and feasible, subject to approval of regulatory authorities.
Eight of the 13 traditional branches operated by NBC are leased. In
addition, the building housing one branch is owned by NBC but subject to ground
leases. Leases on the 9 branches have remaining terms ranging from one month to
22 years (excluding renewal options). The average unexpired portion of the
lease terms at December 31, 1995 is 7 years, including ground leases. The
remaining four branches are owned in fee. Aggregate annual rentals on the 9
leased branch properties including NBC space in Commerce Square Complex, the
SUPER MONEY MARKET branch facilities and the free-standing ATM locations
amounted to approximately $3,170,000 at December 31, 1995.
Commerce General occupies approximately 9,700 square feet of NBC's space in
the Complex and pays approximately $131,000 per year for this space. Commerce
Investment occupies approximately 10,000 square feet of NBC's space in the
Complex and pays approximately $242,000 per year for this space. Additionally,
Commerce Capital leases approximately 2,900 square feet in the Complex totaling
approximately $54,000 in annual rent in 1995.
Nashville Bank has been granted the right to operate branches in area
Kroger stores. Initial terms of the license agreements are for one year, with
multiple renewal options. In 1995, Nashville paid approximately $599,000 for
licensed space and administrative office space.
Knoxville Bank also has been granted the right to operate branches in area
Kroger stores in the Knoxville, Tennessee and Raleigh/Durham, North Carolina
areas. Initial terms of the license agreements are for one year, with multiple
renewal options. In 1995, Knoxville paid approximately $433,000 for licensed
space and administrative office space.
NBC Bank, FSB has been granted the right to operate branches in area Kroger
stores in Roanoke, Virginia and Blacksburg, Virginia. Initial terms of the
license agreements are for one
26
year, with multiple renewal options. FSB also leases space for the office in
Belzoni, Mississippi. In 1995, FSB paid approximately $217,000 for licensed and
leased space.
Commerce Finance leases space for 8 branch locations in the Mid-South area
with terms from three years to five years. In 1995, Commerce Finance paid
approximately $68,000 for the leased space.
NBC owns property at 1895 Union Avenue, 309 Monroe Avenue and 5049 Summer
Avenue in Memphis, and 7770 Poplar Avenue in Germantown, Tennessee and 6005
Stage Road in Bartlett, Tennessee, suburbs of Memphis in Shelby County. The
property at 1895 Union is the location of Union Avenue Branch operations. The
Cloverleaf Branch operation is located at 5049 Summer Avenue. The Consumer
Lending and Indirect Loan operations area is located at 309 Monroe, which is
also being used for parking for NBC employees. The Germantown Branch operation,
the operations of the construction lending and mortgage lending activities, and
satellite operations of one of the Bank's subsidiaries and a Company affiliate
are located at 7770 Poplar Avenue. The Bartlett Branch operation is located at
6005 Stage Road.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive Officers
Name Age Office Held
---- --- --------------------------
Thomas M. Garrott 58 Chairman of the Board,
President, Chief Executive
Officer and Director of the
Company and Chairman of the
Board, Chief Executive Officer
and Director of NBC
Gary L. Lazarini 54 Executive Vice President of NBC,
Investments and Chairman and
President of Commerce Investment
Corporation
27
Gus B. Denton 55 Secretary of the
Company and Executive
Vice President and
Secretary of NBC,
Director of Commerce
General Corporation
Douglas W. Ferris, Jr. 52 Senior Vice President
of NBC, President of
National Commerce Bank
Services, Inc.
Mackie H. Gober 49 President of NBC,
Director of NBC,
Commerce Finance
Company and NCBS
Lewis E. Holland 53 Executive Vice
President, Treasurer
and Chief Financial
Officer of the
Company and Director,
of NBC, Chairman of the
Board of Commerce
Capital Management,
Inc. and Commerce
Acquisiton Corp.
William R. Reed, Jr. 49 Executive Vice President
of the Company; Director
of NBC, Chairman of
Nashville Bank of Commerce,
NBC Bank, FSB (Knoxville);
Chairman of Commerce General
Corporation; Chairman and
President of Commerce Finance
Company and Chairman and CEO
of NBC Bank, FSB (Belzoni)
Tom W. Scott 52 President of Commerce
General Corporation
Of the foregoing officers, Mr. Garrott is also a director of the Company.
The above officers have served in the capacities shown for
more than five years except for the following:
Mr. Garrott became Chairman of the Board, President, and
28
Chief Executive Officer of the Company and Chairman of the Board and Chief
Executive Officer of NBC in May, 1993. Prior to that time, he served as
President and Chief Operating Officer of the Company and NBC.
Mr. Lazarini was elected Executive Vice President of NBC in January, 1992,
and prior to that time was Senior Vice President. He has served as Chairman of
the Board of Commerce Investment Corporation since January, 1991 and President
since January, 1995.
Mr. Denton was elected Secretary of the Company in June, 1995.
Mr. Gober was elected President of NBC in August, 1995. He was Executive
Vice President and Retail Credit Group Head of NBC from January, 1992 until
August, 1995 and prior to that time was Senior Vice President. He was President
of Commerce Finance Company from September, 1992 until August, 1995.
Mr. Holland was elected Executive Vice President of the Company in August,
1995; Treasurer of the Company in June, 1995 and elected Vice President and
Chief Financial Officer of the Company and Director of NBC effective July, 1994.
He was Vice Chairman and Chief Financial Officer of NBC from July, 1994 until
August, 1995. Prior to that time, he was a partner with Ernst & Young LLP.
Mr. Reed was elected Executive Vice President of the Company in August,
1995; Chairman and President of Commerce Finance Company in January, 1996. He
was Vice Chairman of NBC from January, 1992 to August, 1995 and prior to that he
was Executive Vice President of NBC from May, 1988. He has been Chairman of the
Board and Director of NBC Bank, FSB (Knoxville) since July 1986, President since
May 1988, and Chief Executive Officer from November, 1994 to May, 1995. Mr.
Reed has been President and Director of Nashville Bank of Commerce since
September 1985, Chairman of the Board from May, 1988 to May, 1995 and Chief
Executive Officer since November, 1994. He has been Chairman and Chief
Executive Officer of NBC Bank, FSB (Belzoni) since July 1994. He was President
of NBC Bank, FSB (Belzoni) from July, 1994 to January, 1996.
29
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market quotations for the Company's common stock and cash dividends per shares,
as restated to give retroactive recognition to all stock dividends and stock
splits, are as follows:
Fourth Third Second First
------------- ------------- ----------- -----------
1995:
High $ 26.88 $ 26.13 $ 25.50 $ 25.00
Low 24.50 24.25 23.75 23.00
Cash dividends .19 .17 .17 .17
1994:
High $ 24.25 $ 24.25 $ 23.50 $ 23.75
Low 21.75 21.50 21.50 20.50
Cash dividends .17 .15 .15 .15
The Company's stock is traded in the Nasdaq over-the-
counter market and is quoted on its national market
system. The stock prices listed in the table were
obtained from Nasdaq and represent the high and low
closing sales prices. At December 31, 1995, there were
approximately 2,700 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA.
Not Covered by Auditors' Report
In Thousands of Dollars, Except Per
Share and Ratio Data
1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ----------
Net interest income 120,025 110,021 100,393 92,619 83,713
Net income 49,035 44,342 39,406 33,993 29,531
Per common share data:
Net income 1.94 1.77 1.58 1.38 1.23
Cash dividends declared .70 .62 .55 .47 .42
Book value 11.95 9.14 9.64 8.22 7.18
Total average equity 272,477 239,903 211,077 180,690 156,561
Total average assets 3,214,291 2,845,135 2,387,210 2,135,258 2,020,756
Ratios:
Average equity to
average assets 8.48% 8.43% 8.84% 8.46% 7.75%
Return on average
equity 18.00 18.48 18.68 18.81 18.86
Return on average
assets l.53 l.56 1.65 1.59 1.46
* After retroactive adjustment for all stock dividends and stock splits
declared through December 31, 1995.
30
ITEM 7. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 22
through 25 in the Registrant's 1995 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and consolidated financial
statements on pages 26 through 39 in the Registrant's Annual Report
to Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 39 of the 1995 Annual Report
to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Except for information contained in Item X above pertaining to
executive officers of the Registrant, the information required by Item
10 is incorporated herein by reference from the Registrant's Proxy
Statement relating to the Registrant's 1996 Annual Meeting of
Shareholders under the caption "Management of the Company".
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Compensation of Management" in the
Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Management of the Company" and
"Principal Shareholders" in the Registrant's Proxy Statement for the
1996 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions with
Management" in the Registrant's Proxy Statement for the 1996 Annual
Meeting of Shareholders is incorporated herein by reference.
31
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) The response to this portion of Item
and (c) 14 is submitted as a separate section of this report.
(a)(3) Listing of Exhibits:
Exhibit No. Description
------------ ----------------------
3.1 Charter of National Commerce Bancorporation as
amended and restated, filed as Exhibit 3.1 to the
Registrant's Form 10-K for the year ended
December 31, 1988 (File No. 0-6094) and
incorporated herein by reference.
3.2 Bylaws of National Commerce Bancorporation as
amended.
10.1 Form of Promissory Notes of NBC payable to The
Mallory Partners, filed as Exhibit 10.1 to the
Registrant's Form 10-K for the year ended December
31, 1987 (File No. 0-6094) and incorporated herein
by reference.
10.2 Employment Agreement as of January 1, 1986, by and
between National Bank of Commerce and Bruce E.
Campbell, Jr., filed as Exhibit 10.2 to the
Registrant's Form 10-K for the year ended December
31, 1987 (File No. 0-6094) and incorporated herein
by reference.
10.3 Employment Agreement dated as of January 1, 1988, by
and between National Bank of Commerce and Thomas M.
Garrott, filed as Exhibit 10.3 to the Registrant's
Form 10-K for the year ended December 31, 1987 (File
No. 0-6094) and incorporated herein by reference.
10.4 Employment Agreement dated as of September 1, 1987,
by and between National Bank of Commerce and John S.
Evans, filed as Exhibit 10.4 to the Registrant's
Form 10-K for the year ended December 31, 1987 (File
No. 0-6094) and incorporated herein by reference.
32
10.5 Employment Agreement dated as of October 1, 1991,
by and between National Bank of Commerce and Bruce
E. Campbell, Jr., filed as Exhibit 10.5 to the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-6094) and incorporated herein
by reference.
10.6 Employment Agreement dated as of January 1, 1992,
by and between National Bank of Commerce and John
S. Evans, filed as Exhibit 10.6 to the Registrant's
Form 10-K for the year ended December 31, 1992
(File No. 0-6094) and incorporated herein by
reference.
10.7 Employment Agreement dated as of January 1, 1992,
by and between National Bank of Commerce and
William R. Reed, Jr., filed as Exhibit 10.8 to the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-6094) and incorporated herein
by reference.
10.8 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Thomas
M. Garrott, filed as Exhibit 10.9 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.9 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Gary
L. Lazarini, filed as Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.10 Employment Agreement dated as of September 1, 1993,
by and between National Bank of Commerce and Mackie
H. Gober, filed as Exhibit 10.11 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
10.11 Employment Agreement dated as of May 1, 1993, by
and between National Bank of Commerce and William
T. Williams, filed as Exhibit 10.12 to the
Registrant's Form 10-K for the year ended December
31, 1994 (File No. 0-6094) and incorporated herein
by reference.
33
10.12 Deferred Compensation Agreement for Thomas M.
Garrott, filed as Exhibit 10c(2) to the
Registrant's Form 10-K for the year ended December
31, 1984 (File No. 0-6094) and incorporated herein
by reference.
10.13 Employment Agreement dated as of July 1, 1994, by
and between National Bank of Commerce and Lewis E.
Holland filed as Exhibit 10.14 to the Registrant's
Form 10-K for the year ended December 31, 1994
(File No. 0-6094) and incorporated herein by
reference.
10.14 Split Dollar Insurance Plan filed as Exhibit 10c(3)
to the Registrant's Form 10-K for the year ended
December 31, 1984 (File No. 0-6094) and
incorporated herein by reference.
10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to
the Registrant's Form 10-K for the year ended
December 31, 1980 (File No. 0-6094) and
incorporated herein by reference.
10.16 1982 Incentive Stock Option Plan, as amended.
(Filed as Exhibit 10.8 to the Registrant's Form 10-
K for the year ended December 31, 1988 (File No. 0-
6094)) and incorporated herein by reference.
10.17 1986 Stock Option Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1987 Annual
Meeting of Shareholders and incorporated herein by
reference.
10.18 1990 Stock Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1990 Annual
Meeting of Shareholders and incorporated herein by
reference.
10.19 Form of Amendment to 1986 Stock Option Plan, filed
as Exhibit 10.10 to the Registrant's Form 10-K for
the year ended December 31, 1988 (File No. 0-6094)
and incorporated herein by reference.
10.20 1994 Stock Plan, filed as Exhibit A to the
Registrant's Proxy Statement for the 1994 Annual
Meeting of Shareholders and incorporated herein by
reference.
34
10.30 Resolution authorizing Pension Restoration Plan,
filed as Exhibit 10(c)(7) to the Registrant's Form
10-K for the year ended December 31, 1986 (File No.
0-6094) and incorporated herein by reference.
11 Statement re: Earnings Per Share.
13 Registrant's 1995 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last quarter
of the period covered by this report.
(d) Financial Statement Schedules:
None
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Registrant)
By /s/ Thomas M. Garrott
------------------------------
Thomas M. Garrott
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
March 14, 1996 By /s/ Thomas M. Garrott
- -------------- ------------------------------
Dated Thomas M. Garrott
Chairman of the Board
(Principal Executive Officer)
March 14, 1996 By /s/ Lewis E. Holland
- -------------- ------------------------------
Dated Lewis E. Holland
Executive Vice President,
Treasurer, and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Henry M. Turley, Jr. /s/ Robert M. Solmson
- ------------------------ ------------------------------
Director Director
/s/ R. Lee Taylor /s/ Jack R. Blair
- ------------------------- ------------------------------
Director Director
/s/ Lucy Y. Shaw /s/ Harry J. Phillips, Sr.
- ------------------------- ------------------------------
Director Director
/s/ R. Grattan Brown, Jr. /s/ Bruce E. Campbell, Jr.
- ------------------------- ------------------------------
Director Director
/s/ Edmond D. Cicala /s/ Thomas C. Farnsworth, Jr.
- ------------------------- ------------------------------
Director Director
36
/s/ John D. Canale, III /s/ Christopher W. Canale
- ------------------------- ------------------------------
Director Director
/s/ Rudi E. Scheidt
- ------------------------- ------------------------------
Director Director
/s/ James E. McGehee, Jr.
- ------------------------- ------------------------------
Director Director
- ------------------------- ------------------------------
Director Director
Dated: March 14, 1996
----------------
37
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), and (c)
LIST OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1995
NATIONAL COMMERCE BANCORPORATION
MEMPHIS, TENNESSEE
38
FORM 10-K -- ITEMS 14(a)(1) and (2)
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements and report of independent
auditors of National Commerce Bancorporation and Subsidiaries, included in the
annual report of the registrant to its shareholders for the year ended December
31, 1995, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1995 and 1994
Consolidated Statements of Income--Years ended December 31, 1995, 1994
and 1993
Consolidated Statements of Stockholders' Equity--Years ended December
31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements--December 31, 1995
Schedules to the consolidated financial statements required by Article
9 of Regulation S-X are not required under the related instructions or
are inapplicable, and therefore have been omitted.
39
EXHIBIT INDEX
Sequential
Page
Exhibit Description of Exhibit Number
- -------------------------------------------------------------------------
3.1 Charter of National Commerce *
Bancorporation as amended and
restated, filed as Exhibit 3.1 to
the Registrant's Form 10-K for the
year ended December 31, 1988
(File No. 0-6094).
3.2 Bylaws of National Commerce 43
Bancorporation as amended.
10.1 Form of Promissory Notes of National *
Bank of Commerce payable to The Mallory
Partners filed as Exhibit 10.1 to
the Registrant's Form 10-K for the
year ended December 31, 1987
(File No. 0-6094).
10.2 Employment Agreement dated as of *
October 1, 1991, by and between
National Bank of Commerce and
Bruce E. Campbell, Jr. filed as
Exhibit 10.5 to the Registrant's Form
10-K for the year ended December 31, 1992
(File No. 0-6094).
10.3 Employment Agreement dated as of *
January 1, 1992, by and between
National Bank of Commerce and
John S. Evans filed as Exhibit 10.6
to the Registrant's Form 10-K for the
year ended December 31, 1992
(File No. 0-6094).
10.4 Employment Agreement dated as of *
January 1, 1992, by and between
National Bank of Commerce and
William R. Reed, Jr. filed as
Exhibit 10.8 to the Registrant's Form 10-K
for the year ended December 31, 1992 (File
10.5 Employment Agreement dated as of *
September 1, 1993, by and between
National Bank of Commerce and
Thomas M. Garrott filed as Exhibit 10.9
to the Registrant's Form 10-K for the
year ended December 31, 1994
40
(File No. 0-6094).
10.6 Employment Agreement dated as of *
September 1, 1993, by and between
National Bank of Commerce and
Gary L. Lazarini filed as Exhibit 10.10
to the Registrant's Form 10-K for the
year ended December 31, 1994
(File No. 0-6094).
10.7 Employment Agreement dated as of *
September 1, 1993, by and between
National Bank of Commerce and
Mackie H. Gober filed as Exhibit 10.11
to the Registrant's Form 10-K for the
year ended December 31, 1994
(File No. 0-6094).
10.8 Employment Agreement dated as of *
May 1, 1993, by and between
National Bank of Commerce and
William T. Williams filed as Exhibit 10.12
to the Registrant's Form 10-K for the
year ended December 31, 1994
(File No. 0-6094).
10.9 Deferred Compensation Agreement *
for Thomas M. Garrott, filed as
Exhibit 10c(2) to the Registrant's
Form 10-K for the year ended
December 31, 1984 (File No. 0-6094).
10.10 Employment Agreement dated as of *
July 1, 1994, by and between
National Bank of Commerce and
Lewis E. Holland, filed as
Exhibit 10.14 to the Registrant's
Form 10-K for the year ended
December 31, 1994 (File No. 0-6094).
10.11 Split Dollar Insurance Plan filed *
as Exhibit 10c(3) to the Registrant's
Form 10-K for the year ended
December 31, 1984 (File No. 0-6094).
10.12 Bonus Incentive Plan, filed as *
Exhibit 10c(1) to the Registrant's
Form 10-K for the year ended
December 31, 1980 (File No. 0-6094).
10.13 1982 Incentive Stock Option Plan, as *
amended, filed as Exhibit 10.8 to the
Registrant's Form 10-K for the year
ended December 31, 1988
(File No. 0-6094).
41
10.14 1986 Stock Option Plan, filed as *
Exhibit A to the Registrant's Proxy
Statement for the 1987 Annual Meeting
of Shareholders.
10.15 1990 Stock Plan, filed as Exhibit A *
to the Registrant's Proxy Statement
for the 1990 Annual Meeting of
Shareholders.
10.16 Form of Amendment to 1986 Stock Option *
Plan, filed as Exhibit 10.10 to the
Registrant's Form 10-K for the year
ended December 31, 1988 (File No. 0-6094).
10.17 1994 Stock Plan, filed as Exhibit A to the *
Registrant's Proxy Statement for the 1994
Annual Meeting of Shareholders.
10.30 Resolution authorizing Pension Restoration *
Plan, filed as Exhibit 10(c)(7) to the
Registrant's Form 10-K for the year
ended December 31, 1986 (File No. 0-6094).
11 Statement re: Earnings Per Share. 51
13 Registrant's 1995 Annual Report to 52
Shareholders.
21 Subsidiaries of the Registrant. 84
23 Consent of Independent Auditors. 85
27 Financial Data Schedule 86
- ----------
* incorporated herein by reference
42