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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- EXCHANGE ACT OF 1934 [FEE REQUIRED]
December 31, 1996 0-6094
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(For the fiscal year ended) (Commission file number)
NATIONAL COMMERCE BANCORPORATION
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(Exact name of registrant as specified in its charter)
Tennessee 62-0784645
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square, Memphis, Tennessee 38150 (901)523-3242
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(Address of principal executive offices) (Telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 7, 1997, was approximately $842,550,000.
The number of shares of common stock outstanding, as of March 7, 1997, was
24,537,475.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form. x
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual Proxy Statement relating to the 1997 Annual Meeting
of Shareholders of National Commerce Bancorporation are incorporated by
reference into Part III. Portions of the 1996 National Commerce Bancorporation
Annual Report are incorporated by reference into Parts I and II.
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PART I.
This Annual Report on Form 10-K may contain or incorporate by reference
statements which may constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Prospective investors are cautioned
that any such forward-looking statements are not guarantees for future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those in forward-looking statements include
significant fluctuations in interest rates, inflation, economic recession,
significant changes in the federal and state legal and regulatory environment,
significant underperformance in the Company's portfolio of outstanding loans,
and competition in the Company's markets. The Company undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
ITEM 1. BUSINESS.
NATIONAL COMMERCE BANCORPORATION:
National Commerce Bancorporation ("NCBC" or "the Company"), a Tennessee
corporation, is a bank holding company formed in February 1966 as Tennessee
Financial Corporation. The corporate name was changed to United Tennessee
Bancshares Corporation in 1970 and the present corporate name was adopted in
April 1978. The business of NCBC consists of owning all of the outstanding
capital stock of (1) National Bank of Commerce, Memphis, Tennessee ("NBC"),
(2) Nashville Bank of Commerce, Nashville, Tennessee ("Nashville"
or "the Nashville Bank"), (3) NBC Bank, FSB, Knoxville, Tennessee ("Knoxville"
or "the Knoxville Bank"), (4) NBC Bank, FSB, Belzoni, Mississippi ("Belzoni"),
(5) Commerce Capital Management, Inc., Memphis, Tennessee ("Commerce Capital"),
(6) Brooks, Montague & Associates, Inc, Chattanooga, Tennessee ("Brooks
Montague"), (7) TransPlatinum Service Corp., Nashville, Tennessee
("TransPlatinum"), (8) U.S.I. Alliance Corp. ("USI") and (9) Monroe Properties,
Inc ("Monroe"). NCBC provides NBC, Nashville, Knoxville, and Belzoni ("the
Banks"), Commerce Capital, Brooks Montague, TransPlatinum, and USI with advice
and counsel relating to financial and employee benefit matters, performs certain
record-keeping functions relating to compliance with accounting and regulatory
requirements and provides assistance in obtaining additional financing.
NBC furnishes a full range of banking and trust services through 29 branch
and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee,
two SUPER MONEY MARKET facilities located in Jackson, Tennessee, one SUPER MONEY
MARKET facility located in Cleveland, Tennessee, and one SUPER MONEY MARKET
facility located in Brownsville, Tennessee. NBC has three active, wholly owned,
non-banking subsidiaries, Commerce General Corporation ("Commerce General"),
Commerce Finance Company ("Commerce Finance"), and NBC Capital Markets Group,
Inc. ("Capital Markets"). Commerce General provides a variety of data
processing services to the Banks and other commercial enterprises. Capital
Markets was chartered as Commerce Investment Corporation in September 1986 to
serve the needs of individual investors as a broker-dealer of investment
products, including stocks, bonds, municipal obligations, mutual funds and unit
investment trusts. The name was changed to NBC Capital Markets Group, Inc.
effective January 1, 1997.
The Nashville Bank was organized in September 1985 to operate full-service
banking facilities in Kroger supermarkets within the Nashville area. The SUPER
MONEY MARKET branches offer a wide variety of personal banking services. The
Nashville Bank is a state chartered bank with 22 SUPER MONEY MARKET branch
locations and one traditional branch and has a dormant subsidiary, Commerce
Corporate Advisors, Inc. Another subsidiary, National Commerce Bank Services,
Inc. ("NCBS"), provides supermarket banking services to other financial
institutions. The Nashville Bank also operates three stand-alone automated
teller machines ("ATMs") in the Nashville area.
The Knoxville Bank was organized in June 1986 as a state chartered bank to
operate full-service SUPER MONEY MARKET banking facilities within the Knoxville
area. During 1994, the Knoxville Bank was converted to a federally chartered
savings bank and expanded into North Carolina. The Knoxville Bank has 12 SUPER
MONEY MARKET branch locations and one traditional branch location in the
Knoxville area with one branch location in Pigeon Forge, Tennessee, twelve
branch locations in the Raleigh-Durham, North Carolina area, three branches in
Greensboro, North Carolina, one branch in Greenville, North Carolina, three
branches in Winston-Salem, North Carolina, one branch location in Olive Branch,
Mississippi, one branch location in Horn Lake, Mississippi and two branches in
Calhoun, Georgia. The Knoxville Bank also operates one stand-alone ATM in the
Knoxville area. The Knoxville Bank also offers loans
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on an indirect basis through area automobile dealers. The Knoxville Bank has
two subsidiaries, Kenesaw Leasing, Inc. and J & S Leasing, Inc., both equipment
leasing firms.
On July 13, 1993, the Company acquired First Federal Savings Bank, a $4.8
million institution located in Belzoni, Mississippi. The name was changed to
NBC Bank, FSB, and its business expanded into Virginia. In addition to one
office in Belzoni, Mississippi, FSB has eight SUPER MONEY MARKET branches in the
Roanoke, Virginia area.
NCBC has executed SUPER MONEY MARKET sublicense agreements with other
financial institutions. Currently, agreements have been executed covering
locations in over 45 states and Puerto Rico, Peru, Canada, Australia, Japan,
Great Britain and Portugal. As of year end NCBC, through NCBS, has assisted
various banks with over 720 locations through either a license or consulting
relationship. The Company has one major competitor in its supermarket branch
sublicensing activity. The competitor is a non-financial institution with
nationwide operations. On November 7, 1989, the service mark Super Money Market
(Stylized) was registered on the U.S. Patent and Trademark Office Principal
Register as Reg. No. 1,565,038. This registration presently constitutes prima
facie proof that NCBC owns the mark. If certain formalities are observed, the
registration will remain in force for 20 years from the date of registration and
may be renewed for successive terms of ten years each. On April 2, 1991 the
service mark Super Money Market (non-stylized) for banking services was
registered on the Supplemental Register under Reg. No. 1,640,085. If certain
formalities are observed, registration will remain in force for ten years from
the date of registration and may be renewed for successive periods.
Commerce Capital and Brooks Montague are registered as investment advisors
with the Securities and Exchange Commission. The primary function of Monroe
Properties, Inc is to be used in connection with the acquisition of real estate
through foreclosure or deed in lieu of foreclosure.
In September of 1995, NCBC acquired 30% of TransPlatinum Service Corp.
which offers financial services to the trucking and petroleum industries and
bankcard services to merchants. TransPlatinum is located in Nashville, TN. On
February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum.
U.S.I. Alliance Corp. was organized in November, 1995, and commenced
business in July, 1996. USI primarily leases personal lockboxes in long-term
care facilities.
Substantially all employees of the Company are also employees of one or
more of its direct or indirect subsidiaries.
NATIONAL BANK OF COMMERCE:
From its inception in 1873, and through the granting of its charter as a
national bank in 1933, NBC has operated a full-service commercial bank and trust
business in metropolitan Memphis, Tennessee. As of December 31, 1996, NBC
operated 13 traditional branches and 20 SUPER MONEY MARKET facilities, 16 in
metropolitan Memphis and one each in Brownsville, Tennessee and Cleveland,
Tennessee, and two in Jackson, Tennessee. At December 31, 1996, NBC had
$1,959,875,000 in deposits and was the third largest bank in the Memphis service
area (population approximately 1,000,000) and the sixth largest bank in
Tennessee, measured by deposits. Memphis is the largest city in Tennessee and
is the center of a diversified distribution, commercial and agricultural area.
NBC provides complete banking facilities and services to the Mid-South area
through various divisions and departments, described below. The retail banking
activity is carried on through the Branch Banking Division, the Money
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Market Division, the Executive Banking Division, and the Consumer Services
Division. The Bank's Commercial Banking Group is composed of seven divisions:
the Metropolitan Lending Division, the Leasing Division, the Asset Based Lending
Division, the Real Estate Lending Division, the National Accounts Division, the
Correspondent Banking Division and the Mortgage Lending Division ("NBC
Mortgage"). Trust services are provided by the Trust Division. Staff support
for the Bank is provided by its Personnel, Marketing, Operations and
Financial/Administrative Divisions.
Retail Services: NBC provides its customers with a variety of retail
banking services. Among such services are checking accounts and savings
programs, night depository services, safe deposit facilities and several
consumer loan programs, including installment loans for the purchase of consumer
goods, credit card plans and revolving lines of credit. Customers are provided
with current information regarding these services through NBC's marketing
program. NBC has installed 46 ATMs (24-hour tellers), including ATMs located at
Plough, Inc., Hickory Ridge Mall, Graceland, Methodist Hospital, Memphis
International Airport, University of Memphis campus and Rhodes College campus.
At year end, consumer loans and leasing activity accounted for approximately 51%
of NBC's outstanding loans. NBC participates in the MasterCard and Visa Card
Programs, national consumer debit and credit card plans, under which NBC
discounts sales drafts (accounts receivable arising from charges made with
MasterCard and Visa Cards), without recourse, for participating merchants. NBC
also offers a Professional Services Plan, Equity Credit Lines and other credit
services for individuals. A monthly revolving credit charge is levied on the
purchaser depending on the credit plan desired. At December 31, 1996, NBC had
credit card accounts receivable and consumer lines of credit totaling
$132,728,000.
Commercial Services: NBC provides a variety of services for commercial
enterprises, including checking accounts, certificates of deposit, cash
management services, short-term loans for seasonal or working capital purposes,
and term loans for fixed assets and expansion purposes. In addition to these
general services, NBC also provides accounts receivable and inventory financing,
commodity loans and commercial loans tailored to an individual customer's needs.
Secured and unsecured commercial loans and commodity loans, at December 31,
1996, accounted for approximately 37% of the loans made by NBC. Real estate
construction and long-term mortgage loans (including first mortgage refinance
loans) accounted for approximately 12% of NBC's outstanding loans at December
31, 1996.
Correspondent Banking: NBC has correspondent relationships with
approximately 160 banks located in Tennessee, Arkansas, Missouri, Florida,
Mississippi, Kentucky, and Alabama to which it provides a range of correspondent
banking services as well as advice in various fields of banking policy and
operations. Aggregate balances of correspondent banks at NBC averaged
approximately $37,270,000 in 1996.
Trust Services: Through its Trust Division, NBC acts as trustee, executor,
administrator, guardian, custodian and depository for a number of individuals
and corporations. The Bank offers investment advisory services to its customers
in addition to portfolio management. At December 31, 1996, the Trust Division
administered assets valued at approximately $2,217,000,000.
International Services: NBC has established 11 accounts with foreign
banks, primarily in Europe, to handle international trade relationships. Four
foreign banks have accounts with NBC for the same purpose. NBC does not now,
nor does it intend to, engage in speculative trading of foreign currencies.
Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce
General offers hospital and clinic processing to several customers. During the
year ended December 31, 1996, approximately 83% of the total revenues of
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Commerce General were derived from services provided to NBC and 17% from
services provided to other customers. NBC Capital Markets Group, Inc. (formerly
named Commerce Investment Corporation) provides investment services to
individual and institutional investors. In 1991, the institutional investor
activity of NBC's Investment Division was merged into Commerce Investment. At
December 31, 1996, Capital Market's capital totaled $14,786,000. Capital Markets
is registered as a broker-dealer with the Securities and Exchange Commission and
the National Association of Securities Dealers, Inc., and is a member of the
Security Investor Protection Corporation. Commerce Finance Company was organized
in September, 1992 and commenced business in March, 1993 in the consumer finance
segment of the retail credit industry as a subsidiary of NCBC. In 1996, the
store-front branches and most of the assets of Commerce Finance were sold and
Commerce Finance began operating on a more centralized basis with emphasis on
second-and third-mortgage loans which come from bank referrals. At December 31,
1996 Commerce Finance had two offices and employed 3 officers and 3 full-time
employees. In February, 1997, Commerce Finance became a subsidiary of NBC. NBC
Insurance Services, Inc. was organized in January, 1997 and commenced business
in March, 1997 to provide life, property and casualty insurance and annuities
through NBC's in-store retail banking system.
Territory Serviced and Competition: NBC actively competes with other
commercial banks in the Memphis trade area in providing a full range of banking
services, including demand deposits, time deposits, various types of loans,
trust services and other bank related activities. At December 31, 1996, NBC had
$2,924,981,000 in assets. According to December 31, 1996 call reports, one of
the other banks in metropolitan Memphis is 4.5 times larger and another is
approximately 2 times larger than NBC as measured by deposits. However, deposits
for that bank include statewide branches, while NBC deposits are primarily
limited to the metropolitan Memphis area. The Memphis trade area includes
western Tennessee, northern Mississippi, and eastern Arkansas, and NBC considers
commercial banks in Little Rock, Arkansas and Jackson, Mississippi, as
competitors in addition to Memphis area banks. In addition, NBC competes with
savings and loan associations, finance companies, credit unions, insurance
companies, real estate investment trusts, mortgage companies, factoring
companies, independent credit card companies and various other financial
institutions whose activities correspond with banking functions. See
"Supervision and Regulation."
Employees: As of December 31, 1996, the Bank and its subsidiaries employed
approximately 256 officers, 583 other full-time employees, 65 part -time
employees and 67 peak-time employees. Relations with employees have been good.
No employees are covered by collective bargaining agreements. All full-time
employees are afforded the benefits of group life and health insurance plans.
In addition, the Company has a non-contributory qualified retirement plan and an
Employee Stock Ownership Plan ("ESOP"). All employees who have one full year of
service are eligible to become participants in the retirement plan. The Company
also has a taxable income reduction account ("TIRA") plan which allows employees
to defer payment of taxes on an elected percentage of salary up to $9,500 by
making contributions to this plan. The Company may also make contributions to
this plan for the benefit of participating employees. During 1996, the
Company's approved a plan to merge the ESOP into the TIRA.
NASHVILLE BANK OF COMMERCE:
Nashville Bank of Commerce was organized to compete in retail banking in
the Nashville trade area. The Nashville Bank operates one traditional branch and
22 SUPER MONEY MARKET facilities located within Kroger stores and three stand-
alone ATMs in the Nashville area. At December 31, 1996, the Nashville Bank
employed 28 officers, 87 other full-time employees, 13 part-time employees and
22 peak-time employees to provide banking services during the hours when most
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grocery shopping occurs. Employees of the Nashville Bank are provided with the
same benefits that all Company employees have available to them. At December 31,
1996, the Nashville Bank had total consolidated assets of $521,108,000.
Nashville Bank of Commerce competes with a number of substantially larger
financial institutions, both banks and savings and loans, as well as various
other financial institutions whose activities correspond with banking functions.
Non-Bank Subsidiaries: National Commerce Bank Services, Inc. provides
supermarket banking services to other financial institutions. During 1994, the
Knoxville Bank's 50% ownership was transferred to the Nashville Bank, resulting
in NCBS being a wholly-owned subsidiary of the Nashville Bank. At December 31,
1996 NCBS's capital totaled $13,940,000. The Nashville Bank's other subsidiary,
Commerce Corporate Advisors, Inc., is currently dormant.
NBC BANK, FSB (KNOXVILLE):
The Company organized NBC Bank, FSB (Knoxville) to become competitive in
retail banking in the Knoxville area. After its 1994 conversion from a state
chartered bank to a federally chartered savings bank, it expanded into North
Carolina. The Knoxville Bank has 12 SUPER MONEY MARKET branch locations and one
traditional branch location in the Knoxville area with one branch location in
Pigeon Forge, Tennessee, twelve branch locations in the Raleigh-Durham, North
Carolina area, three branches in Greensboro, North Carolina, one branch in
Greenville, North Carolina, three branches in Winston-Salem, North Carolina, one
branch location in Olive Branch, Mississippi, one branch location in Horn Lake,
Mississippi and two branches in Calhoun, Georgia. Like Nashville, the Knoxville
Bank employees are provided with the same benefits that all Company employees
have available to them. At December 31, 1996, the Knoxville Bank employed 44
officers, 122 other full-time employees, 7 part-time employees and 12 peak-time
employees. At year-end 1996, the Knoxville Bank had total assets of
$572,804,000. The Knoxville Bank competes with a number of substantially larger
financial institutions, both banks and savings and loans, as well as various
other financial institutions whose activities correspond with banking functions.
Non-Bank Subsidiaries: Kenesaw Leasing, Inc, and J & S Leasing, Inc. are
both equipment leasing firms. At December 31, 1996 Kenesaw's capital totaled
$1,163,000. J & S was acquired effective January 1, 1997.
NBC BANK, FSB (BELZONI):
Belzoni was acquired to expand its retail banking activities through
supermarket branches in other states. Eight SUPER MONEY MARKET branches are
located in Kroger supermarkets in Virginia, and one office is located in
Belzoni, Mississippi. At December 31, 1996, Belzoni employed 7 officers, 42
other full-time employees, and 2 part-time employees. The same Company benefits
are provided to these employees. At year-end 1996, the Belzoni had total assets
of $250,841,000. Belzoni competes with a number of substantially larger
financial institutions, both banks and savings and loans, as well as various
other financial institutions whose activities correspond with banking functions.
COMMERCE CAPITAL MANAGEMENT, INC.:
Commerce Capital was organized to provide specialized investment management
services to individuals, family groups, endowment funds and corporations.
Assets presently managed are approximately $700,000,000. At December 31, 1996,
Commerce Capital had 8 full-time and 1 part-time employee. Commerce Capital's
employees are covered under the same Company benefits. Commerce Capital
competes with a number of other investment counselors, insurance companies,
banks, and other money managers, many of which are substantially larger.
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BROOKS, MONTAGUE & ASSOCIATES, INC.:
The Company acquired all of the outstanding stock of Brooks, Montague &
Associates, Inc. on February 15, 1994. Brooks Montague provides specialized
investment management services primarily to individuals, charitable accounts and
corporate retirement plans. Assets presently managed are approximately
$126,000,000. At December 31, 1996, Brooks Montague had four full-time
employees. Brooks Montague's employees are covered under the same Company
benefits. Brooks Montague competes primarily with other regionally based
investment management firms, many of which are substantially larger.
TRANSPLATINUM SERVICE CORP.:
In September of 1995, NCBC acquired 30% of TransPlatinum Service Corp.
which offers financial services to the trucking and petroleum industries and
bankcard services to merchants. TransPlatinum is located in Nashville, TN. On
February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum. As of
December 31, 1996, TransPlatinum had 3 officers, 55 full-time employees, and 14
part-time employees. TransPlatinum competes with major larger companies
offering similar services on a nation-wide basis.
U.S.I. ALLIANCE CORP.:
U.S.I. Alliance Corp. commenced formal operations in February of 1996 as a
wholly owned subsidiary of NCBC. USI operates and administers a security
program in the long-term care industry. The program activities include leasing
personal lock boxes, education and training, risk management reduction, and the
administration of an 800-number tip line and reward payment system for long-term
care facilities. USI Alliance has filed federal and state trademarks in all 50
states for the name "Senior Crimestoppers" and currently does business in all
states. At December 31, 1996, USI had 3 officers and 3 other full-time
employees.
SUPERVISION AND REGULATION
NCBC and its subsidiaries are subject to a number of federal and state laws
and regulations. As a bank holding company, NCBC is subject to regulation under
the Bank Holding Company Act of 1956, as amended (the "Act"), which is
administered by the Federal Reserve Board (the "Board"). Under the Act, the
Company is generally prohibited from directly engaging in any activities other
than banking, managing or controlling banks, and those activities that the Board
considers closely related and incidental to banking. Generally, bank holding
companies from any state can now acquire banks and bank holding companies
located in any other state, subject to certain conditions, including nationwide
and state imposed concentration limits. Effective January 1, 1991, Tennessee
amended its reciprocal interstate banking statute to allow a bank or bank
holding company in any other state to acquire a Tennessee bank or bank holding
company as long as a Tennessee bank or bank holding would have a similar
acquisition opportunity in that state. Banks also will be able to branch across
state lines by acquisition, merger or de novo, effective June 1, 1997 (unless
state law would permit such interstate branching at an earlier date), providing
certain conditions are met including that applicable state law must expressly
permit de novo interstate branching.
The Act requires that a bank holding company obtain the prior approval of
the Board before merging or consolidating with another bank holding company.
Furthermore, unless a bank holding company already owns or controls a majority
of the shares of a bank or another bank holding company, Board approval is
required for any transaction, if following such transaction, the bank holding
company directly or indirectly owns or controls more than 5% of the shares of
such bank or bank holding company. A bank holding company and its non-bank
subsidiaries must also seek the prior approval of the Board to
acquire all or substantially all of the assets of a bank.
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Under the Act, a bank holding company is required to file with the Board an
annual report and any additional information required by the Board. The Board
may examine the Company's and each of its direct subsidiaries' records,
including a review of capital adequacy in relation to guidelines issued by the
Board. If the level of capital is deemed to be inadequate, the Board may
restrict the future expansion and operations of the Company. The Board possesses
cease-and-desist powers over a bank holding company if its actions or actions of
any of its subsidiaries represent unsafe or unsound practices or violations of
law.
Federal law also regulates transactions among the Company and its
affiliates, including the amount of a banking affiliate's loans to, or
investments in, non-bank affiliates and the amount of advances to third parties
collateralized by securities of an affiliate. In addition, various requirements
and restrictions under federal and state law regulate the operations of the
Company's banking affiliates, including (1) requiring the maintenance of
reserves against deposits, (2) limiting the nature of loans and the interest
that may be charged thereon, and (3) restricting investments and other
activities. The amount of dividends that the Company's bank affiliates may
declare is also limited. Regulatory approval must be obtained before declaring
any dividends if the amount of capital, surplus and retained earnings is below
certain statutory limits. See Note M of the Notes to Consolidated Financial
Statements in the 1996 Annual Report, incorporated herein by reference.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the Federal Deposit Insurance
Corporation ("FDIC") insurance fund in the event the depository institution
becomes in danger of default or is in default. For example, under a policy of
the Board with respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions to commit resources to support such institutions in
circumstances where it might not do so absent such policy. In addition, the
"cross-guarantee" provisions of federal law require insured depository
institutions under common control to reimburse the FDIC for any loss suffered or
reasonably anticipated as a result of the default of a commonly controlled
insured depository institution or for any assistance provided by the FDIC to a
commonly controlled insured depository institution in danger of default.
The federal banking agencies have broad powers under current federal law to
take prompt corrective action to resolved problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized", "adequately capitalized" or "significantly
undercapitalized", as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
The Community Reinvestment Act ("CRA") requires banks to help meet the
credit needs of the community. Regulatory authorities are required to consider
the CRA performance of a bank or bank holding company when reviewing regulatory
applications.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and criminal
enforcement provisions. FIRREA allows the acquisition of healthy and failed
savings and loan associations by bank holding companies, and it imposes no
interstate barriers on such acquisitions by bank holding companies. With certain
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qualifications, FIRREA also allows bank holding companies to merge acquired
savings and loan associations into their existing commercial bank subsidiaries.
FIRREA also provides that a depository institution insured by the FDIC can
be held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC after August 9, 1989 in connection with (i) the default of a
commonly controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of default.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") became effective in December 1991. FDICIA revises the bank
regulatory insurance coverage and funding provisions of the Federal Deposit
Insurance Act and makes changes to the regulatory structures found in several
other banking statutes. Various sections of FDICIA are designed to recapitalize
the Bank Insurance Fund and provide for increased funding of the Bank Insurance
Fund by insured banks. The FDIC's capacity to borrow from the United States
Treasury was increased. FDICIA requires the FDIC to develop and implement a
system of risk-based premiums for federal deposit insurance under which the
semiannual rates at which a depository institution is assessed are based on the
probability that the depository institution fund will incur a loss with respect
to the institution. Various sections of FDICIA impose substantial new audit and
reporting requirements on insured depository institutions. All insured banks are
generally subject to an annual on-site examination by their primary federal
regulatory agency. The role of independent public accountants is increased, and
there are additional reporting requirements imposed on depository institutions.
The federal regulatory agency must devise rules requiring banks and thrift
institutions to disclose the fair market value of their assets. The agencies
must also devise rules for banks and thrifts to report off-balance sheet items
on financial statements. Banks are rated according to a new scheme of capital
adequacy. Better-capitalized institutions are generally subject to less onerous
regulation and supervision than poorly-capitalized institutions. Under FDICIA,
each federal banking agency must prescribe standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares, and other standards as the agency deems appropriate.
As a national bank, NBC operates under the rules and regulations of the
Comptroller of the Currency and is also a member of the Federal Reserve System,
subject to provisions of the Federal Reserve Act. The Nashville Bank is a state
non-member bank operating under the rules and regulations of the FDIC and the
Tennessee Department of Financial Institutions. NBC Bank, FSB (Knoxville) and
NBC Bank, FSB (Belzoni), are federally chartered savings banks that are
primarily regulated by the Office of Thrift Supervision. The FDIC insures the
domestic deposits of all the Banks.
Commerce Finance Company is a consumer finance company organized under the
laws of the State of Tennessee and is primarily regulated by the Consumer
Finance Division of the Tennessee Department of Financial Institutions. The
Federal Trade Commission has primary federal regulatory authority. Commerce
Capital Management, Inc. and Brooks, Montague & Associates, Inc. are registered
with the Securities and Exchange Commission and are investment advisers pursuant
to the Investment Advisers Act of 1940, as amended. All regulatory agencies
require periodic audits and regularly scheduled reports of financial
information.
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The federal Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") imposes a liability scheme for the remediation of
property where hazardous substances have been released. The liability extends
to owners and operators of such properties which could include banks. There is
proposed or pending federal legislation that would consolidate some of the
federal agencies that regulate financial institutions.
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STATISTICAL AND OTHER DATA - The following tables set forth selected
statistical and other information.
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DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY: Interest Rates
and Interest Differential
The following table sets forth the combined daily average condensed
(consolidated) balance sheets of NCBC and an analysis of net interest earnings
for the periods 1994 through 1996. Interest income and yields on non-taxable
investment securities have been calculated on a fully taxable-equivalent basis
assuming a tax rate of 35%.
1996 1995 1994
---------------------------- -------------------------- --------------------------
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) 2,130,810 191,860 9.00% 1,718,424 160,980 9.37% 1,505,716 129,340 8.59
Taxable securities including trading account 1,296,692 85,597 6.60 1,119,057 75,627 6.76 982,788 56,327 5.73
Non-taxable investment securities(2) 143,706 11,881 8.27 154,755 13,101 8.47 147,753 13,679 9.26
Federal funds sold and securities purchased
under agreements to resell 23,388 1,425 6.09 25,383 1,486 5.85 18,018 793 4.40
Time deposits in other banks 16,984 924 5.44 16,881 1,002 5.94 18,807 741 3.94
--------- ------- ---- --------- ------- ---- --------- ------- ----
Total interest-earning assets 3,611,580 291,687 8.08 3,034,500 252,196 8.31 2,673,082 200,880 7.51
--------- ------- ---- --------- ------- ---- --------- ------- ----
Non-interest earning assets:
Cash and due from banks 119,604 112,304 110,070
Premises & equipment, net 19,160 17,869 17,246
Other assets 94,020 75,448 68,013
Allowance for loan losses (32,250) (25,830) (23,276)
--------- --------- ---------
TOTAL ASSETS 3,812,114 3,214,291 2,845,135
========= ========= =========
(1) For the purposes of these computations, non-accruing loans are included in
the daily average loan amounts outstanding and income on such loans is
recognized as received. There were no foreign loans outstanding.
(2) These items are affected by fully taxable-equivalent adjustments.
Reference is made to page 27 of the Annual Report to Shareholders for the
corresponding unadjusted amounts as presented in the financial statements.
-11-
1996 1995 1994
---------------------------- -------------------------- --------------------------
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 256,561 3,963 1.54% 247,002 4,843 1.96% 250,945 4,898 1.95%
Savings deposits 902,148 38,301 4.25 782,714 32,971 4.21 645,219 21,655 3.36
Time deposits 1,187,861 65,701 5.53 1,025,093 58,877 5.74 863,925 36,527 4.23
Federal funds purchased and
securities
sold under agreements to repurchase 336,727 16,546 4.91 264,214 13,482 5.10 265,191 9,737 3.67
Federal Home Loan Bank advances 417,316 23,025 5.52 294,833 15,809 5.36 262,125 11,883 4.53
Long-term debt 60,284 3,565 5.91 6,382 458 7.18 6,384 399 6.25
--------- ------- ---- --------- ------- ---- --------- ------ ----
Total interest bearing liabilities 3,160,897 151,101 4.78 2,620,238 126,440 4.83 2,293,789 85,099 3.71
--------- ------- ---- --------- ------- ---- --------- ------ ----
Non-interest bearing liabilities:
Domestic demand deposits 305,989 284,744 282,468
Other 49,402 36,832 28,975
Stockholders' equity 295,826 272,477 239,903
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 3,812,114 3,214,291 2,845,135
========= ========= =========
Net interest earnings 140,586 125,756 115,781
======== ======= =======
Net yield on interest-earning assets 3.89% 4.14% 4.33%
==== ==== ====
-12-
INTEREST RATE SENSITIVITY TABLE BY REPRICING DATES
Within After 3 Mos. After 6 Mos. After 1 Yr. Non
December 31, 1996 0-30 31-90 But Within But Within But Within After Interest
(In Thousands of Dollars) Days Days 6 Mos. 1 Year 5 Years 5 Years Bearing Total
--------- -------- -------- -------- --------- ------- -------- ---------
Funding uses:
Loans, net 703,794 129,925 85,541 159,923 968,497 300,293 - 2,347,973
Securities 629,901 53,754 139,178 12,699 408,076 274,291 - 1,517,899
Other earning assets 62,820 - - - - - - 62,820
Other assets - - - - - - 271,717 271,717
--------- -------- -------- -------- --------- ------- -------- ---------
Total funding uses 1,396,515 183,679 224,719 172,622 1,376,573 574,584 271,717 4,200,409
--------- -------- -------- -------- --------- ------- -------- ---------
Funding sources:
Interest-bearing deposits 477,774 325,294 337,835 331,828 1,021,105 129,918 - 2,623,754
Other borrowings 699,206 9,225 5,052 66,215 54,340 16,546 - 850,584
Demand deposits - - - - - - 352,676 352,676
Other liabilities - - - - - - 60,066 60,066
Interest rate swaps - - - - - - - -
Stockholders' equity - - - - - - 313,329 313,329
--------- -------- -------- -------- --------- ------- -------- ---------
Total funding sources 1,176,980 334,519 342,887 398,043 1,075,445 146,464 726,071 4,200,409
---------- -------- -------- -------- -------- -------- -------- ---------
Interest-rate
sensitivity GAP 219,535 (150,840) (118,168) (225,421) 301,128 428,120 (454,354)
---------- -------- -------- -------- -------- -------- --------
Cumulative interest-rate
sensitivity GAP 219,535 68,695 (49,473) (274,894) 26,234 454,354
GAP to total assets 5.23% ( 3.59%) (2.81%) (5.37%) 7.17% 10.19% (10.82%)
Cumulative GAP to total
assets 5.23% 1.64% (1.18%) (6.54%) .62% 10.82%
The Company's Interest Rate Sensitivity Table was prepared using contractual
maturities and repricing dates when they exist and are enforceable. Management
adjustments have been applied to allow for prepayment or other variances from
stated maturities or repricing intervals. The management adjustments have been
formulated considering historical experience and market projections and will
change when appropriate to allow for current and projected interest rate
scenarios.
Due to the historical volatility of interest rates, the Company addresses the
problem with an Asset Liability Management Committee comprised of senior
management personnel from each key banking function. The committee's goal is to
stabilize earnings by limiting the gap position between assets and liabilities
repricing within one year to 15% of assets. The committee has determined by
historical experience and simulation modeling that a gap of 15% will not produce
excessive earnings variances in most rate environments. The committee meets
regularly to address the current gap position and evaluate the assumptions and
projections used to calculate interest rate risk.
-13-
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%.
1996 Compared to 1995 1995 Compared to 1994
Increase (decrease) Due to (1) Increase (decrease) Due to (1)
------------------------------------------------ ----------------------------------------
Volume Rate Net Rate/Volume Volume Rate Net Rate/Volume
------ ---- --- ----------- ------ ---- --- -----------
(In Thousands of Dollars)
Interest earned on:
Loans:(2)
Domestic 36,962 (6,082) 30,880 (1,526) 19,282 12,358 31,640 1,655
Taxable securities
including
trading account 11,717 (1,747) 9,970 (284) 8,426 10,874 19,300 1,399
Non-taxable investment
securities (917) (303) (1,220) 22 628 (1,206) (578) (55)
Federal funds sold and
securities purchased
under agreements to
resell to resell (128) 67 (61) (5) 383 310 693 107
Time deposits in other
banks 6 (84) (78) (1) (82) 343 261 (38)
------ ------ ------ ------- ------ ------ ------ -----
Total interest earning
assets 47,640 (8,149) 39,491 (1,794) 28,637 22,679 51,316 3,068
------ ------ ------ ------- ------ ------ ------ -----
Interest paid on:
Demand deposits 194 (1,074) (880) (40) (77) 22 (55) 0
Savings deposits 5,017 313 5,330 48 5,156 6,160 11,316 1,177
Time deposits 8,867 (2,043) 6,824 (342) 7,645 14,705 22,350 2,443
Federal funds purchased
and securities sold under
agreements to repurchase 3,545 (481) 3,064 (138) (36) 3,781 3,745 (14)
Federal Home Loan Bank
advances 6,732 484 7,216 196 1,594 2,332 3,926 271
Long-term debt 3,173 (66) 3,107 (685) - 59 59 -
------ ------ ------ ------- ------ ------ ------ -----
Total interest bearing
liabilities 27,528 (2,867) 24,661 (961) 14,282 27,059 41,341 3,877
------ ------ ------ ------- ------ ------ ------ -----
Net interest earnings 20,112 (5,282) 14,830 833 14,355 (4,380) 9,975 (809)
====== ====== ====== ======= ====== ====== ====== =====
(1) The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the
relationship of the absolute dollar amounts to the change in each.
(2) There were no foreign loans outstanding.
-14-
SECURITIES PORTFOLIO
- --------------------
The following table sets forth the aggregate book value of investment securities
at the dates indicated.
December 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands of dollars)
Securities:
U.S. Treasury 30,234 18,582 120,326
U.S. Government agencies and
corporations 1,190,922 1,027,932 844,782
States of the U.S. and political
subdivisions 140,708 149,975 161,297
Other securities 156,035 82,157 29,408
--------- --------- ---------
Total 1,517,899 1,278,646 1,156,285
========= ========= =========
The following table sets forth the maturities at December 31, 1996, and the
weighted average yields of such securities, all of which are computed on a fully
taxable-equivalent basis assuming a tax rate of 35%.
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 10,044 5.25% 20,190 5.91% - - - -
U.S. Government agencies
and corporations 27,077 6.24 293,702 6.80 405,044 6.86% 465,099 6.44%
States of the U.S. and
political subdivisions 2,076 5.55 39,023 6.89 49,848 7.75 49,761 8.90
Other - - 55,036 6.32 52,501 6.54 48,498 6.75
------ ----- ------- ---- ------- ------- -------- --------
Total 39,197 407,951 507,393 563,358
====== ======= ======= ========
-15-
LOAN PORTFOLIO
- --------------
The following table shows the Company's gross loan distribution at the end of
the last five years.
December 31
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands of dollars)
Commercial, financial,
and agricultural 466,830 399,580 356,035 350,539 354,491
Real estate - construction 170,188 122,720 91,424 66,929 68,238
Real estate - mortgage 602,064 520,657 501,489 429,544 275,732
Consumer(1) 1,086,104 871,407 630,927 535,417 489,773
Lease financing 22,790 18,678 14,818 13,870 12,423
--------- --------- --------- --------- ---------
Total 2,347,976 1,933,042 1,594,693 1,396,299 1,200,657
========= ========= ========= ========= =========
(1)Included within "Consumer" loans are revolving lines of credit secured by
home equities.
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and lease financing) outstanding as of December 31, 1996, which,
based on remaining scheduled repayments of principal, are due in the periods
indicated.
Maturing
Within After 1 But After
1 Year Within 5 Yrs 5 Years Total
------ ------------ ------- -------
(in thousands of dollars)
Commercial, financial,
and agricultural 16,233 229,127 221,470 466,830
Real estate - construction 16,876 95,272 58,040 170,188
------ ------- ------- -------
Total 33,109 324,399 279,510 637,018
====== ======= ======= =======
The following table shows the amounts of loans (excluding real estate mortgages,
consumer loans and leasing financing) due after one year classified, according
to the sensitivity to changes in interest rates as of December 31, 1996.
After 1 but After
Within 5 Yrs 5 Years
-------------- ---------
(in thousands of dollars)
Predetermined interest rates 115,025 138,786
Floating or adjustable interest rates 209,374 140,724
------- -------
Total 324,399 279,510
======= =======
-16-
NONACCRUAL, PAST DUE, AND RESTRUCTURED
- --------------------------------------
The following table summarizes the Company's nonaccrual, past due, and
restructured loans (all of which are domestic):
December 31
------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- --------
(in thousands of dollars)
Nonaccrual loans - - - - 7,092(1)
Accruing loans past due
90 days or more 3,482 3,252 2,432 2,063 1,848
Non-performing
restructured loans - - - - -
Performing restructured - - - 1,984 -
Substantially all of the nonaccrual and restructured loans were collateralized,
and there were no significant commitments to lend any of these debtors
additional funds.
(1)Included in the 1992 non-accrual loan totals is a loan secured by real estate
of $4 million, which was current as to principal and interest and had performed
as agreed since inception. It was so classified based on a highly technical
interpretation of current regulations. See Note A of financial statements in
the Annual Report to Shareholders for management's policy for placing loans on
nonaccrual status.
Loans and lease financing receivables are considered to be in nonaccrual status
if: (1) they are maintained on a cash basis because of deterioration in the
financial position of the borrower, (2) payment in full of interest or principal
is not expected, or (3) principal or interest has been in default for a period
of 90 days or more unless the obligation is both well secured and in the process
of collection. A nonaccrual asset may be restored to an accrual status when
none of its principal and interest is due and unpaid or when it otherwise
becomes well secured and in the process of collection.
Potential Problem Loans
- -----------------------
At December 31, 1996, the Company had no problem loans for which payments were
being made, but the borrowers currently were experiencing severe financial
difficulties. Any such loans would be subject to constant management attention
and their classification would be reviewed monthly.
-17-
SUMMARY OF LOAN LOSS EXPERIENCE
- -------------------------------
This table summarizes the Company's loan loss experience for each of the five
years ended December 31, 1996. There were no foreign loans.
Year Ended December 31
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
(in thousands of dollars)
Balance at beginning
of period 29,010 24,310 21,467 17,356 13,254
Charge-offs:
Commercial, financial,
and agricultural 12 1 442 1,167 2,632 (1)
Real estate - construction 70 199 2122 652 1,163
Real estate - mortgage 74 97 232 207 1,052 (1)
Consumer 8,270 5,366 4,088 3,783 4,317
Lease financing 1,912 1,586 1,500 1,0131 1,063
------ ------ ------ ------ ------
Total charge-offs 10,338 7,249 6,474 6,840 10,227
------ ------ ------ ------ ------
Recoveries of loans
previously charged-off:
Commercial, financial,
and agricultural 20 55 47 420 56
Real estate - construction 244 44 83 359 268
Real estate - mortgage 61 73 121 47 45
Consumer 1,965 1,509 1,494 1,237 1,094
Lease financing 533 518 495 474 323
------ ------ ------ ------ ------
Total recoveries 2,823 2,199 2,240 2,537 1,786
------ ------ ------ ------ ------
Net charge-offs 7,515 5,050 4,234 4,303 8,441
Increase due to acquisition 288 - - 22 -
Decrease due to loan sale (403) - - - -
Provision for loan losses(2) 14,134 9,750 7,077 8,392 12,543
------ ------ ------ ------ ------
Balance at end of period 35,514 29,010 24,310 21,467 17,356
====== ====== ====== ====== ======
Ratio of net-charge-offs to
average loans outstanding
during the period .35% .29% .28% .34% .76%
(1) During 1992, $2,300,000 of the charge-offs in these categories resulted from
charge-offs to two local borrowers, one loan to a manufacturing concern and
another to a project related to a hotel project.
During 1991, $2,000,000 of the charge-offs resulted from charge-offs to two
local borrowers, one loan to a remanufacturing concern and another to a
project related to local government entities.
(2) The factors which influenced management's judgment in determining the amount
of the provision for loan losses charged to operating expense included the
results of a credit review of the loan portfolio, past loan loss experience,
current economic conditions and other factors, all of which formed a basis
for determining the adequacy of the allowance for loan losses. The allowance
for loan losses is maintained at a level believed adequate by management to
absorb potential losses in the loan portfolio.
-18-
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
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
Amount in each Amount in each Amount in each Amount in each Amount in each
of category of category of category of category of category
allow- to total allow- to total allow- to total allow- to total allow- to total
ance loans ance loans ance loans ance loans ance loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(in thousands of dollars)
Commercial, financial,
and agricultural 7,813 20% 7,264 21% 6,887 22% 6,622 25% 4,033 29%
Real estate:
Construction 3,196 7 3,006 6 2,731 6 2,644 5 2,408 6
Mortgage 5,327 26 3,567 27 3,352 31 3,277 31 2,663 23
Consumer 17,402 46 12,737 45 9,457 40 7,716 38 7,484 41
Lease financing 1,776 1 2,436 1 1,883 1 1,208 1 768 1
------ --- ------ --- ------ --- ------ --- ------ ---
Total 35,514 100% 29,010 100% 24,310 100% 21,467 100% 17,356 100%
====== === ====== === ====== === ====== === ====== ===
-19-
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
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
Amount Rate Amount Rate Amount Rate
--------- ----- --------- ----- --------- -----
(in thousands of dollars)
Non-interest bearing demand deposits 305,989 - 284,744 - 282,468 -
Interest bearing demand deposits 256,561 1.54% 247,002 1.96% 250,945 1.95%
Savings deposits 902,148 4.25 782,714 4.21 645,219 3.36
Time deposits 1,187,861 5.53 1,025,093 5.74 863,925 4.23
--------- ---- --------- ---- --------- ----
Total 2,652,559 2,339,553 2,042,557
========= ========= =========
At December 31, 1996, outstanding maturities of time deposits of $100,000 or
more issued by domestic offices (which consist entirely of time certificates of
deposit) are summarized below (in thousands of dollars):
Time remaining until maturity Amount
- ----------------------------------------------------------------------------
3 months or less 255,692
Over 3 through 6 months 172,588
Over 6 through 12 months 132,917
Over 12 months 8,400
-------
Total 569,597
=======
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
-----------------------
1996 1995 1994
----- ---- ----
Return on average total assets 1.51% 1.53% 1.56%
Return on average equity* 19.44% 18.00% 18.48%
Dividend payout percent 34.35% 36.08% 35.03%
Average equity to assets percent 7.76% 8.48% 8.43%
Tier 1 capital to total assets (leverage ratio) 7.33% 7.91% 8.56%
Tier 1 capital to risk-weighted assets 11.05% 12.30% 13.62%
Total capital to risk-weighted assets 12.30% 13.52% 14.87%
* exclusive of mark-to-market adjustment.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Registrant's Annual Report for discussion of minimum capital
requirements.
-20-
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
----------------------------
1996 1995 1994
-------- -------- -------
(In Thousands of Dollars)
Federal funds purchased and securities
sold under agreements to repurchase:
Balance at year-end 298,410 404,746 275,136
Weighted average interest rate
payable at year-end 5.09% 5.46% 5.75%
Maximum amount outstanding
at any month end 398,898 404,746 310,243
Average outstanding balance
(total daily outstanding
principal balance divided
by 365) 336,727 264,214 265,191
Weighted average interest rate
(related interest expense
divided by the average
outstanding balance) 4.91% 5.10% 3.67%
-21-
ITEM 2. PROPERTIES.
Main Office: NBC leases as its main office approximately 40% -- 187,500
rentable square feet -- of the Commerce Square Complex (the "Complex"), which
includes a thirty-two story office building known as Commerce Square Tower, a
nine-story parking garage and a building known as NBC's main office building.
NBC owns two parcels of land (approximately 74.25 feet by 148.5 feet) adjacent
to the Complex which house a building that is presently used by the Bank for
storage.
Other Offices: As of December 31, 1996, NBC operated 13 traditional
branches (including the main office branch) and 16 SUPER MONEY MARKET branch
facilities in Shelby County, Tennessee and one each in Johnson City, Tennessee;
Kingsport, Tennessee; Brownsville, Tennessee; and Cleveland, Tennessee and two
in Jackson, Tennessee. NBC intends to continue opening branches at such time
and places as management deems prudent and feasible, subject to approval of
regulatory authorities.
Eight of the 13 traditional branches operated by NBC are leased. In
addition, the building housing one branch is owned by NBC but subject to ground
leases. Leases on the 9 branches have remaining terms ranging from one month to
21 years (excluding renewal options). The average unexpired portion of the
lease terms at December 31, 1996 is 7 years, including ground leases. The
remaining four branches are owned in fee. Aggregate annual rentals on the 9
leased branch properties including NBC space in Commerce Square Complex, the
SUPER MONEY MARKET branch facilities and the free-standing ATM locations
amounted to approximately $3,346,000 at December 31, 1996.
Commerce General occupies approximately 9,700 square feet of NBC's space in
the Complex and pays approximately $131,000 per year for this space. Commerce
Investment occupies approximately 10,000 square feet of NBC's space in the
Complex and pays approximately $251,000 per year for this space. Additionally,
Commerce Capital leases approximately 2,900 square feet in the Complex totaling
approximately $61,600 in annual rent in 1996. Brooks Montague leases
approximately 1,200 square feet in a Chattanooga building totaling approximately
$14,000 in annual rent in 1996.
Nashville Bank has been granted the right to operate branches in area
Kroger stores. Initial terms of the license agreements are for one year, with
multiple renewal options. In 1996, Nashville paid approximately $710,000 for
licensed space and administrative office space.
Knoxville Bank also has been granted the right to operate branches in area
Kroger stores in the Knoxville, Tennessee; Raleigh/Durham, North Carolina;
Greensboro, North Carolina; Winston-Salem, North Carolina; and North Georgia
areas. Initial terms of the license agreements are for one year, with multiple
renewal options. In 1996, Knoxville paid approximately $677,000 for licensed
space and administrative office space.
NBC Bank, FSB has been granted the right to operate branches in area Kroger
stores in Roanoke, Virginia and Blacksburg, Virginia. Initial terms of the
license agreements are for one year, with multiple renewal options. FSB also
leases space for the office in Belzoni, Mississippi. In 1996, FSB paid
approximately $232,000 for licensed and leased space.
NBC owns property at 1895 Union Avenue, 309 Monroe Avenue and 5049 Summer
Avenue in Memphis, and 7770 Poplar Avenue in Germantown, Tennessee and 6005
Stage Road in Bartlett, Tennessee, suburbs of Memphis in Shelby County. The
property at 1895 Union is the location of Union Avenue Branch operations. The
Cloverleaf Branch operation is located at 5049 Summer Avenue. The Consumer
Lending and Indirect Loan operations area is located at 309 Monroe, which is
also being used for parking for NBC employees. The Germantown Branch operation,
the operations of the residential and commercial construction lending, mortgage
lending, aircraft lending areas and satellite operations of one of the Bank's
-22-
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 59 Chairman of the Board, President, Chief
Executive Officer and Director of the Company
and Chairman of the Board, Chief Executive
Officer and Director of NBC, National
Commerce Bank Services, Inc., Commerce
Capital, Commerce General, and Brooks
Montague
Gary L. Lazarini 55 Executive Vice President of NBC, Investments
and Chairman and President of NBC Capital
Markets Group, Inc., Director of Commerce
Capital
Gus B. Denton 56 Secretary of the Company and Executive Vice
President and Secretary of NBC, Director of
Commerce General Corporation
Mackie H. Gober 50 President of NBC, Director of NBC,
Commerce Finance Company and NCBS
Lewis E. Holland 54 Executive Vice President, Treasurer and Chief
Financial Officer of the Company and Director
of NBC, Chairman of the Board of Commerce
Capital Management, Inc. and Commerce
Acquisition Corp., Director of Brooks
Montague, National Commerce Bank Services,
NBC Capital Markets and Kenesaw Leasing, Inc.
-23-
William R. Reed, Jr. 50 Executive Vice President of the Company;
Director of NBC and National Commerce Bank
Services, Inc., Chairman of Nashville Bank of
Commerce, NBC Bank, FSB (Knoxville); Chairman
of Commerce General Corporation; Chairman and
President of Commerce Finance Company and
Chairman and CEO of NBC Bank, FSB (Belzoni),
Director of Kenesaw Leasing
Tom W. Scott 53 President of Commerce General Corporation,
Director of TransPlatinum Service Corp.
Of the foregoing officers, Mr. Garrott is also a director of the Company.
The above officers have served in the capacities shown for more than five
years except for the following:
Mr. Garrott became Chairman of the Board, President, and Chief Executive
Officer of the Company and Chairman of the Board and Chief Executive Officer of
NBC in May, 1993. Prior to that time, he served as President and Chief Operating
Officer of the Company and NBC.
Mr. Lazarini was elected Executive Vice President of NBC in January, 1992,
and prior to that time was Senior Vice President. He has served as Chairman of
the Board of Commerce Investment Corporation since January, 1991 and President
since January, 1995.
Mr. Denton was elected Secretary of the Company in June, 1995.
Mr. Gober was elected President of NBC in August, 1995. He was Executive
Vice President and Retail Credit Group Head of NBC from January, 1992 until
August, 1995 and prior to that time was Senior Vice President. He was President
of Commerce Finance Company from September, 1992 until August, 1995.
Mr. Holland was elected Executive Vice President of the Company in August,
1995; Treasurer of the Company in June, 1995 and elected Vice President and
Chief Financial Officer of the Company and Director of NBC effective July, 1994.
He was Vice Chairman and Chief Financial Officer of NBC from July, 1994 until
August, 1995. Prior to that time, he was a partner with Ernst & Young LLP.
Mr. Reed was elected Executive Vice President of the Company in August,
1995; Chairman and President of Commerce Finance Company in January, 1996. He
was Vice Chairman of NBC from January, 1992 to August, 1995 and prior to that he
was Executive Vice President of NBC from May, 1988. He has been Chairman of the
Board and Director of NBC Bank, FSB (Knoxville) since July 1986, President since
May 1988, and Chief Executive Officer from November, 1994 to May, 1995. Mr.
Reed has been President and Director of Nashville Bank of Commerce since
September 1985, Chairman of the Board from May, 1988 to May, 1995 and Chief
Executive Officer since November, 1994. He has been Chairman and Chief
Executive Officer of NBC Bank, FSB (Belzoni) since July 1994. He was President
of NBC Bank, FSB (Belzoni) from July, 1994 to January, 1996.
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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:
Fourth Third Second First
------ ------ ------ ------
1996:
High $38.38 $33.50 $31.75 $31.00
Low 33.25 31.00 29.75 25.50
Cash dividends .22 .19 .19 .19
1995:
High $26.88 $26.13 $25.50 $25.00
Low 24.50 24.25 23.75 23.00
Cash dividends .19 .17 .17 .17
The Company's stock is traded over-the-counter on the Nasdaq National
Market tier and is quoted under the trade symbol NCBC. The stock prices
listed in the table were obtained from Nasdaq and represent the high and
low closing sales prices. At December 31, 1996, there were approximately
2,700 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA.
Not Covered by Auditors' Report
In Thousands of Dollars, Except Per Share and Ratio Data
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Net interest income 135,466 120,025 110,021 100,393 92,619
Net income 57,513 49,035 44,342 39,406 33,993
Per common share data:*
Net income 2.30 1.94 1.77 1.58 1.38
Cash dividends declared .79 .70 .62 .55 .47
Book value 12.85 11.95 9.14 9.64 8.22
Total average equity 295,826 272,477 239,903 211,007 180,690
Total average assets 3,812,114 3,214,291 2,845,135 2,387,210 2,135,258
Ratios:
Average equity to
average assets 7.76% 8.48% 8.43% 8.84% 8.46%
Return on average
equity 19.44 18.00 18.48 18.68 18.81
Return on average
assets 1.51 l.53 l.56 1.65 1.59
* After retroactive adjustment for all stock dividends and stock splits
declared through December 31, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 20
through 25 in the Registrant's 1996 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and consolidated financial
statements on pages 26 through 43 in the Registrant's Annual Report to
Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 42 of the 1996 Annual Report
to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Except for information contained in Item X above pertaining to
executive officers of the Registrant, the information required by Item
10 is incorporated herein by reference from the Registrant's Proxy
Statement relating to the Registrant's 1997 Annual Meeting of
Shareholders under the caption "Management of the Company".
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Compensation of Management" in the
Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Management of the Company" and
"Principal Shareholders" in the Registrant's Proxy Statement for the
1997 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions with
Management" in the Registrant's Proxy Statement for the 1997 Annual
Meeting of Shareholders is incorporated herein by reference.
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) The response to this portion of Item 14
and (c) is submitted as a separate section of this report.
(a)(3) Listing of Exhibits:
Exhibit No. Description
- ----------- -----------
3.1 Charter of National Commerce Bancorporation as amended and
restated.
3.2 Bylaws of National Commerce Bancorporation as amended filed as
Exhibit 3.2 to the Registrant's Form 10-K for the year ended
December 31, 1995 (File No. 0-6094) and incorporated herein by
reference.
4.1 Specimen Stock Certificate
10.1 Form of Promissory Notes of NBC payable to The Mallory Partners,
filed as Exhibit 10.1 to the Registrant's Form 10-K for the year
ended December 31, 1987 (File No. 0-6094) and incorporated herein
by reference.
10.2 Employment Agreement as of October 1, 1991, by and between
National Bank of Commerce and Bruce E. Campbell, Jr., filed as
Exhibit 10.5 to the Registrant's Form 10-K for the year ended
December 31, 1987 (File No. 0-6094) and incorporated herein by
reference.
10.3 Employment Agreement dated as of January 1, 1992, by and between
National Bank of Commerce and John S. Evans, filed as Exhibit
10.6 to the Registrant's Form 10-K for the year ended
December 31, 1992 (File No. 0-6094) and incorporated herein by
reference.
10.4 Employment Agreement dated as of January 1, 1992, by and between
National Bank of Commerce and William R. Reed, Jr., filed as
Exhibit 10.8 to the Registrant's Form 10-K for the year ended
December 31, 1992 (File No. 0-6094) and incorporated herein by
reference.
10.5 Employment Agreement dated as of September 1, 1993, by and
between National Bank of Commerce and Thomas M. Garrott, filed as
Exhibit 10.9 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-6094) and incorporated herein by
reference.
10.6 Employment Agreement dated as of September 1, 1993, by and
between National Bank of Commerce and Gary L. Lazarini, filed as
Exhibit 10.10 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-6094) and incorporated herein by
reference.
-27-
10.7 Employment Agreement dated as of September 1, 1993, by and
between National Bank of Commerce and Mackie H. Gober, filed as
Exhibit 10.11 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-6094) and incorporated herein by
reference.
10.8 Deferred Compensation Agreement for Thomas M. Garrott, filed as
Exhibit 10c(2) to the Registrant's Form 10-K for the year ended
December 31, 1984 (File No. 0-6094) and incorporated herein by
reference.
10.9 Employment Agreement dated as of July 1, 1994, by and between
National Bank of Commerce and Lewis E. Holland filed as
Exhibit 10.14 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-6094) and incorporated herein by
reference.
10.10 Split Dollar Insurance Plan filed as Exhibit 10c(3) to the
Registrant's Form 10-K for the year ended December 31, 1984 (File
No. 0-6094) and incorporated herein by reference.
10.11 Bonus Incentive Plan, filed as Exhibit 10c(1) to the Registrant's
Form 10-K for the year ended December 31, 1980 (File No. 0-6094)
and incorporated herein by reference.
10.12 1982 Incentive Stock Option Plan, as amended. (filed as
Exhibit 10.8 to the Registrant's Form 10-K for the year ended
December 31, 1988 (File No. 0-6094)) and incorporated herein by
reference.
10.13 1986 Stock Option Plan, filed as Exhibit A to the Registrant's
Proxy Statement for the 1987 Annual Meeting of Shareholders and
incorporated herein by reference.
10.14 1990 Stock Plan, filed as Exhibit A to the Registrant's Proxy
Statement for the 1990 Annual Meeting of Shareholders and
incorporated herein by reference.
10.15 Form of Amendment to 1986 Stock Option Plan, filed as
Exhibit 10.10 to the Registrant's Form 10-K for the year ended
December 31, 1988 (File No. 0-6094) and incorporated herein by
reference.
10.16 1994 Stock Plan, filed as Exhibit A to the Registrant's Proxy
Statement for the 1994 Annual Meeting of Shareholders and
incorporated herein by reference.
10.17 Resolution authorizing Pension Restoration Plan, filed as
Exhibit 10(c)(7) to the Registrant's Form 10-K for the year ended
December 31, 1986 (File No. 0-6094) and incorporated herein by
reference.
-28-
11 Statement re: Earnings Per Share.
13 Registrant's 1996 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last quarter
of the period covered by this report.
(d) Financial Statement Schedules:
None
-29-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
--------------------------------
(Registrant)
/s/ Thomas M. Garrott
--------------------------------
Thomas M. Garrott
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
March 14, 1997 /s/ Thomas M. Garrott
- -------------- ----------------------------
Dated Thomas M. Garrott
Chairman of the Board
(Principal Executive Officer)
March 14, 1997 /s/ Lewis E. Holland
- -------------- ----------------------------
Dated Lewis E. Holland
Executive Vice President, Treasurer,
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ John D. Canale, III /s/ Frank G. Barton, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ Rudi E. Scheidt /s/ R. Grattan Brown, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ G. Mark Thompson /s/ Bruce E. Campbell, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ James E. McGehee, Jr. /s/ Edmond D. Cicala
- ----------------------------- -----------------------------
Director Director
/s/ Thomas C. Farnsworth, Jr. /s/ W. Neely Mallory, Jr.
- ----------------------------- -----------------------------
Director Director
/s/ R. Lee Jenkins /s/ Harry J. Phillips, Sr.
- ----------------------------- -----------------------------
Director Director
/s/ Sidney A. Stewart, Jr.
- -----------------------------
Dated: March 14, 1997
--------------
-30-
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), and (c)
LIST OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1996
NATIONAL COMMERCE BANCORPORATION
MEMPHIS, TENNESSEE
-31-
FORM 10-K -- ITEMS 14(a)(1) and (2)
NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements and report of independent
auditors of National Commerce Bancorporation and Subsidiaries, included in the
annual report of the registrant to its shareholders for the year ended December
31, 1996, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income--Years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements--December 31, 1996
Schedules to the consolidated financial statements required by Article 9
of Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
-32-