ITEM 1. BUSINESS.
NATIONAL COMMERCE BANCORPORATION:
National Commerce Bancorporation ("NCBC" or "the Company"), a Tennessee corporation, is a bank holding company formed in February 1966 as Tennessee Financial Corporation. The corporate name was changed to United Tennessee Bancshares Corporation in 1970 and the present corporate name was adopted in April 1978. The business of NCBC consists of owning all of the outstanding capital stock of (1) National Bank of Commerce, Memphis, Tennessee ("NBC"), (2) NBC Bank, FSB, Knoxville, Tennessee ("Knoxville" or "the Knoxville Bank"), (3) NBC Bank, FSB, Belzoni, Mississippi ("Belzoni"), (4) Commerce Capital Management, Inc., Memphis, Tennessee ("Commerce Capital"), (5) TransPlatinum Service Corp., Nashville, Tennessee ("TransPlatinum") (6) U.S.I. Alliance Corp.
("USI"), Memphis, Tennessee and (7) National Commerce Capital Trust I ("Trust I"), Memphis, Tennessee. NCBC provides NBC, Knoxville and Belzoni ("the Banks"), Commerce Capital, TransPlatinum, USI and Trust I with advice and counsel relating to financial and employee benefit matters, performs certain record-keeping functions relating to compliance with accounting and regulatory requirements and provides assistance in obtaining additional financing.
In December 1999, the Company announced an agreement to acquire Piedmont Bancorp., Inc. of Hillsborough, North Carolina. The transaction is intended to be a tax-free exchange of shares and is intended to be accounted for as a pooling-of-interests with an expected close date late in the first quarter or early in the second quarter of 2000.
On March 19, 2000, NCBC entered into a definitive merger agreement with CCB Financial Corporation, a bank holding company based in Durham, North Carolina ("CCB"). Pursuant to the merger agreement, NCBC will issue 2.45 shares of its common stock in exchange for each share of CCB common stock outstanding. The transaction is intended to be a tax-free exchange of shares and is intended to be accounted for as a pooling-of-interests. Consummation of the merger, which is expected to occur during the third quarter of 2000, is conditioned upon customary regulatory and shareholder approvals.
National Commerce Bancorporation operates several major lines of business. The commercial banking segment includes lending and related financial services to large- and medium-sized corporations. Included among these are several specialty services such as real estate finance, asset based lending and residential construction.
The retail banking segment includes sale and distribution of financial products and services to individuals. These include loan products such as residential mortgages, home equity lending, automobile and other personal financial needs. Retail banking also offers various deposit products that are designed for customers' saving and transaction needs.
The financial services segment includes trust, asset management, insurance and brokerage activities. Financial services also includes balance sheet management activities including oversight of the investment portfolio, non- deposit based funding, interest rate risk management, income from transaction processing, in-store consulting/licensing and specialty leasing. See Note P of the Notes to Consolidated Financial Statements in the 1999 Annual Report incorporated herein by reference.
NBC furnishes a full range of banking and trust services. At December 31, 1999 NBC had 29 branch and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee, one branch facility in Somerville, Tennessee, one SUPER MONEY MARKET facility and two branches in Collierville, Tennessee, one SUPER MONEY MARKET facility, 31 branches and SUPER MONEY MARKET(R) facilities in Nashville, and three branches in West Memphis, Arkansas, and one branch in Marion, Arkansas. NBC has four active, wholly owned, non-banking subsidiaries, Commerce General Corporation ("Commerce General"), Commerce Finance Company ("Commerce Finance"), NBC Insurance Services, Inc. ("NBC Insurance") and National Commerce Bank Services, Inc. ("NCBS") and owns 80% of NBC Capital Markets Group, Inc. ("Capital Markets"). Commerce General provides a variety of data processing services to the Banks and other commercial enterprises. Commerce Finance emphasizes second-
and third-mortgage loans primarily for resale. Capital Markets was chartered as Commerce Investment Corporation in September 1986 to serve the needs of individual investors as a broker-dealer of investment products, including stocks, bonds, municipal obligations, mutual funds and unit investment trusts. The name was changed to NBC Capital Markets Group, Inc. effective January 1, 1997. NBC Insurance provides life, property and casualty insurance and annuities through NBC's in-store retail banking system. NCBS provides supermarket banking services to other financial institutions.
The Knoxville Bank was organized in June 1986 as a state chartered bank to operate full-service SUPER MONEY MARKET banking facilities within the Knoxville area. During 1994, the Knoxville Bank was converted to a federally chartered savings bank and expanded into North Carolina. At December 31, 1999 the Knoxville Bank had 13 SUPER MONEY MARKET branch locations and two traditional branch locations in the Knoxville area, 23 branch locations in Raleigh-Durham, Greensboro, and Greenville, North Carolina, one branch location in Olive Branch, Mississippi and one branch in Horn Lake, Mississippi. The Knoxville Bank had one branch each in the following Georgia locations: Adairsville, Buford, Calhoun, Canton, Cartersville, Cumming, Dalton, Ft. Oglethorpe, Gainesville, Moultrie, and Rome. The Knoxville Bank also operated one stand-alone ATM in the Knoxville area. The Knoxville Bank also offers loans on an indirect basis through area automobile dealers. The Knoxville Bank has two subsidiaries, Kenesaw Leasing, Inc. and J & S Leasing, Inc., both equipment leasing firms.
On July 13, 1993, the Company acquired First Federal Savings Bank, a $4.8 million institution located in Belzoni, Mississippi. The name was changed to NBC Bank, FSB, and its business expanded into Virginia. At December 31, 1999 Belzoni had 13 SUPER MONEY MARKET branches in the Roanoke, Virginia area.
NCBC, through NCBS, has executed SUPER MONEY MARKET sublicense and consulting agreements with other financial institutions. Currently, agreements have been executed covering locations in 50 states and foreign countries, including Peru, Canada, Australia, Chile, Colombia, Guam and Portugal. As of year end, NCBS has assisted various banks with over 1,000 locations through either a license or consulting relationship. The Company has one major competitor in its supermarket branch sublicensing activity. The competitor is a non-financial institution with nationwide operations. On November 7, 1989, the service mark Super Money Market (Stylized) was registered on the U.S. Patent and Trademark Office Principal Register as Reg. No. 1,565,038. This registration presently constitutes prima facie proof that NCBC owns the mark. If certain formalities are observed, the registration will remain in force for 20 years from the date of registration and may be renewed for successive terms of ten years each. On April 2, 1991 the service mark Super Money Market (non-stylized) for banking services was registered on the Supplemental Register under Reg. No. 1,640,085. If certain formalities are observed, registration will remain in force for ten years from the date of registration and may be renewed for successive periods.
Commerce Capital is a registered investment advisor with the Securities and Exchange Commission.
In September of 1995, NCBC acquired TransPlatinum Service Corp. of Nashville, Tennessee which offers financial services to the trucking and petroleum industries and bankcard services to merchants. In December, 1999
TransPlatinum acquired Nashville-based FleetOne LLC which expanded the Company's fuel card and merchant processing to include a new line of business targeted to all commercial vehicle classes.
U.S.I. Alliance Corp. was organized in November 1995, and commenced business in February 1996. USI primarily leases personal lockboxes in long-term care facilities.
National Commerce Capital Trust I was organized in March 1997 as a special purpose entity (SPE) to offer floating rate capital trust pass-through securities.
Substantially all employees of the Company are also employees of one or more of its direct or indirect subsidiaries.
NATIONAL BANK OF COMMERCE:
From its inception in 1873, and through the granting of its charter as a national bank in 1933, NBC has operated a full-service commercial bank and trust business in metropolitan Memphis, Tennessee. At December 31, 1999 NBC had 29 branch and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee, one branch facility in Somerville, Tennessee, one SUPER MONEY MARKET facility and two branches in Collierville, Tennessee, 31 branches and SUPER MONEY MARKET(R) facilities in Nashville, and three branches in West Memphis, Arkansas, and one branch in Marion, Arkansas. At December 31, 1999, NBC had $3,563,000,000 in deposits and was the third largest bank in the Memphis service area (population approximately 1,000,000) and the sixth largest bank in Tennessee, measured by deposits. Memphis is the largest city in Tennessee and is the center of a diversified distribution, commercial and agricultural area. NBC provides complete banking facilities and services to the Mid-South area through various divisions and departments, described below. The retail banking activity is carried on through the Branch Banking Division, the Money Market Division, the Executive Banking Division, Dealer Finance and the Consumer Services Division. NBC's Commercial Banking Group is composed of the following divisions: the Metropolitan Lending Division, the Asset Based Lending Division, the Real Estate Lending Division, the Residential Constuction Division and the Correspondent Banking Division. Trust services are provided by the Trust Division. Staff support for NBC is provided by its Human Resource, Marketing, Operations and Financial/Administrative Divisions.
Retail Services: NBC provides its customers with a variety of retail banking services. Among such services are checking accounts and savings programs, night depository services, safe deposit facilities and several consumer loan programs, including installment loans for the purchase of consumer goods and revolving lines of credit. Customers are provided with current information regarding these services through NBC's marketing program. NBC has installed 86 ATMs (24-hour tellers), including ATMs located at Plough, Inc., Graceland, Methodist Hospital, Memphis International Airport, University of Memphis campus, Southern College of Optometry, Sitel Corporation and Rhodes College campus. At year end, consumer loans and leasing activity accounted for approximately 32% of NBC's outstanding loans. NBC participates in the MasterCard and Visa Card Programs, national consumer debit and credit card plans, under which NBC discounts sales drafts (accounts receivable arising from charges made with MasterCard and Visa Cards), without recourse, for participating merchants. NBC
also offers a Professional Services Plan, Equity Credit Lines and other credit services for individuals. A monthly revolving credit charge is levied on the purchaser depending on the credit plan desired. At December 31, 1999, NBC had consumer lines of credit totaling $70,738,000. NBC sold substantially all of its credit card portfolio in fourth quarter 1997 and now offers various credit card plans through MBNA Corp.
Commercial Services: NBC provides a variety of services for commercial enterprises, including checking accounts, certificates of deposit, cash management services, short-term loans for seasonal or working capital purposes, and term loans for fixed assets and expansion purposes. In addition to these general services, NBC also provides accounts receivable and inventory financing, commodity loans and commercial loans tailored to an individual customer's needs. Secured and unsecured commercial loans and commodity loans, at December 31, 1999, accounted for approximately 25% of the loans made by NBC. Real estate construction and long-term mortgage loans (including first mortgage refinance loans) accounted for approximately 43% of NBC's outstanding loans at December 31, 1999.
Correspondent Banking: NBC has correspondent relationships with approximately 200 banks located in Tennessee, Arkansas, Missouri, Florida, Mississippi, Kentucky, and Alabama to which it provides a range of financial services as well as advice in various fields of banking policy and operations. Aggregate balances of correspondent banks at NBC averaged approximately $58,000,000 in 1999.
Trust Services: Through its Trust Division, NBC acts as trustee, executor, administrator, guardian, custodian and depository for a number of individuals and corporations. The Bank offers investment advisory services to its customers in addition to portfolio management. At December 31, 1999, the Trust Division administered assets valued at approximately $3,005,000,000.
International Services: NBC has established 5 accounts with foreign banks, primarily in Europe, to handle international trade relationships. Two foreign banks have accounts with NBC for the same purpose. NBC does not now, nor does it intend to, engage in speculative trading of foreign currencies.
Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce General processes financial transactions for hospitals. During the year ended December 31, 1999, approximately 87% of the total revenues of Commerce General were derived from services provided to NBC and 13% from services provided to other customers. NBC Capital Markets Group, Inc. provides investment services to individual and institutional investors. At December 31, 1999, Capital Market's capital totaled $15,155,000. Capital Markets is registered as a broker-dealer with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., and is a member of the Security Investor Protection Corporation. Commerce Finance Company was organized in September, 1992 and commenced business in March, 1993 in the consumer finance segment of the retail credit industry as a subsidiary of NCBC. In 1996, the store-front branches and most of the assets of Commerce Finance were sold and Commerce Finance began operating on a more centralized basis with emphasis on second- and third-mortgage loans which come from bank referrals. In February, 1997, Commerce Finance became a subsidiary of NBC. NBC Insurance Services, Inc. was organized in January, 1997 and commenced business in March, 1997 to provide life, property and casualty
insurance and annuities through NBC's in-store retail banking system. National Commerce Bank Services, Inc. provides supermarket banking services to other financial institutions. In August, 1999 NBC acquired Southeastern Mortgage of Tennessee, an independent mortgage banking company.
Territory Serviced and Competition: NBC actively competes with other commercial banks in the Memphis trade area in providing a full range of banking services, including demand deposits, time deposits, various types of loans, trust services and other bank-related activities. At December 31, 1999, NBC had $5,560,753,000 in assets. According to September 30, 1999 call reports, one of the other banks in metropolitan Memphis is 3.4 times larger and another is approximately 6.9 times larger than NBC as measured by deposits. However, deposits for that bank include statewide branches, while NBC deposits are primarily limited to the metropolitan Memphis and Nashville areas. The Memphis trade area includes western Tennessee, northern Mississippi, and eastern Arkansas, and NBC considers commercial banks in Little Rock, Arkansas and Jackson, Mississippi, as competitors in addition to Memphis area banks. In addition, NBC competes with savings and loan associations, finance companies, credit unions, insurance companies, real estate investment trusts, mortgage companies, factoring companies, independent credit card companies and various other financial institutions whose activities correspond with banking functions. See "Supervision and Regulation."
Employees: As of December 31, 1999, NBC and its subsidiaries employed approximately 364 officers, 858 other full-time employees, 132 part--time employees and 57 peak-time employees. Relations with employees have been good. No employees are covered by collective bargaining agreements. All full-time employees are afforded the benefits of group life and health insurance plans. In addition, the Company has a non-contributory qualified retirement plan. All employees who have one full year of service are eligible to become participants in the retirement plan. The Company also has a taxable income reduction account ("TIRA") plan which allows employees to defer payment of taxes on an elected percentage of salary up to $10,000 by making contributions to this plan. The Company may also make contributions to this plan for the benefit of participating employees. The Company had an Employee Stock Ownership Plan ("ESOP") which was merged with the TIRA into the NBC Employee Stock Ownership Plan With 401K Provisions.
NBC BANK, FSB (KNOXVILLE):
The Company organized NBC Bank, FSB (Knoxville) to become competitive in retail banking in the Knoxville area. After its 1994 conversion from a state chartered bank to a federally chartered savings bank, it expanded into North Carolina. At December 31, 1999 the Knoxville Bank had 13 SUPER MONEY MARKET branch locations and one traditional branch location in the Knoxville area, 23 branch locations in the Raleigh-Durham, Greensboro, and Greenville, North Carolina areas, one branch location in Olive Branch, Mississippi, and one branch in Horn Lake, Mississippi. The Knoxville Bank has one branch each in the following Georgia locations: Adairsville, Buford, Calhoun, Canton, Cartersville, Cumming, Dalton, Ft. Oglethorpe, Gainesville, Moultrie, and Rome. The Knoxville Bank employees are provided with the same benefits that all Company employees have available to them. At December 31, 1999, the Knoxville Bank and its subsidiaries employed 83 officers, 196 other full-time employees, 33 part-time employees and 5 peak-time employees. At year-end 1999, the Knoxville Bank had total assets of $1,132,141,000. The Knoxville Bank competes with a number of substantially larger financial institutions, both banks and savings and loans, as well as various other financial institutions whose activities correspond with banking functions.
Non-Bank Subsidiaries: Kenesaw Leasing, Inc, and J & S Leasing, Inc. are both equipment leasing firms. At December 31, 1999 Kenesaw's capital totaled $2,826,000 and J & S's capital was $2,321,000.
NBC BANK, FSB (BELZONI):
NBC Bank, FSB was acquired to expand its retail banking activities through supermarket branches in other states. At December 31, 1999 13 SUPER MONEY MARKET branches were located in Kroger supermarkets in Virginia. At December 31, 1999, Belzoni employed 21 officers, 52 other full-time employees, and two part-time employees. The same Company benefits are provided to these employees. At year-end 1999, Belzoni had total assets of $418,262,000. Belzoni competes with a number of substantially larger financial institutions, both banks and savings and loans, as well as various other financial institutions whose activities correspond with banking functions.
COMMERCE CAPITAL MANAGEMENT, INC.:
Commerce Capital was organized to provide specialized investment management services to individuals, family groups, endowment funds and corporations. Assets presently managed are approximately $916,000,000. At December 31, 1999, Commerce Capital had eight full-time employees. Commerce Capital's employees are covered under the same Company benefits. Commerce Capital competes with a number of other investment counselors, insurance companies, banks, and other money managers, many of which are substantially larger.
TRANSPLATINUM SERVICE CORP.:
In September of 1995, NCBC acquired TransPlatinum Service Corp. which offers financial services to the trucking and petroleum industries and bankcard services to merchants. TransPlatinum is located in Nashville, Tennessee. As of December 31, 1999, TransPlatinum had 7 officers, 85 full-time employees, and 5 part-time employees. TransPlatinum competes with larger companies offering similar services on a nation-wide basis.
U.S.I. ALLIANCE CORP.:
U.S.I. Alliance Corp. commenced formal operations in February of 1996 as a wholly owned subsidiary of NCBC. USI operates and administers a security program in the long-term care industry. The program activities include leasing personal lock boxes, education and training, risk management reduction, and the administration of an 800-number tip line and reward payment system for long-term care facilities. USI Alliance has filed federal and state trademarks in all 50 states for the name "Senior Crimestoppers" and currently does business in all states. At December 31, 1999, USI had 2 officers and 2 other full-time employees.
NATIONAL COMMERCE CAPITAL TRUST I:
National Commerce Capital Trust I was organized in March 1997 as a special purpose entity (SPE) to offer floating rate capital trust pass-through securities. At December 31, 1999, Trust I had $49,909,000 in outstanding securities issued.
SUPERVISION AND REGULATION
NCBC and its subsidiaries are subject to a number of federal and state laws and regulations. As a bank holding company, NCBC is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "Act"), which is administered by the Federal Reserve Board (the "Board"). Under the Act, the Company is generally prohibited from directly engaging in any activities other than banking, managing or controlling banks, and those activities that the Board considers closely related and incidental to banking. Generally, bank holding companies from any state can now acquire banks and bank holding companies located in any other state, subject to certain conditions, including nationwide and state imposed concentration limits. Effective January 1, 1991, Tennessee amended its reciprocal interstate banking statute to allow a bank or bank holding company in any other state to acquire a Tennessee bank or bank holding company as long as a Tennessee bank or bank holding would have a similar acquisition opportunity in that state. Effective June 1, 1997, banks also became eligible to branch across state lines by acquisition, merger or de novo (unless state law would permit such interstate branching at an earlier date), providing certain conditions are met including that applicable state law must expressly permit de novo interstate branching.
The Act requires that a bank holding company obtain the prior approval of the Board before merging or consolidating with another bank holding company. Furthermore, unless a bank holding company already owns or controls a majority of the shares of a bank or another bank holding company, Board approval is required for any transaction, if following such transaction, the bank holding company directly or indirectly owns or controls more than 5% of the shares of such bank or bank holding company. A bank holding company and its non-bank subsidiaries must also seek the prior approval of the Board to acquire all or substantially all of the assets of a bank.
Under the Act, a bank holding company is required to file with the Board an annual report and any additional information required by the Board. The Board may examine the Company's and each of its direct subsidiaries' records, including
a review of capital adequacy in relation to guidelines issued by the Board. If the level of capital is deemed to be inadequate, the Board may restrict the future expansion and operations of the Company. The Board possesses cease-and- desist powers over a bank holding company if its actions or actions of any of its subsidiaries represent unsafe or unsound practices or violations of law.
Federal law also regulates transactions among the Company and its affiliates, including the amount of a banking affiliate's loans to, or investments in, non-bank affiliates and the amount of advances to third parties collateralized by securities of an affiliate. In addition, various requirements and restrictions under federal and state law regulate the operations of the Company's banking affiliates, including (1) requiring the maintenance of reserves against deposits, (2) limiting the nature of loans and the interest that may be charged thereon, and (3) restricting investments and other activities. The amount of dividends that the Company's bank affiliates may declare is also limited. Regulatory approval must be obtained before declaring any dividends if the amount of capital, surplus and retained earnings is below certain statutory limits. See Note O of the Notes to Consolidated Financial Statements in the 1999 Annual Report, incorporated herein by reference.
There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the Federal Deposit Insurance Corporation ("FDIC") insurance fund in the event the depository institution becomes in danger of default or is in default. For example, under a policy of the Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions to commit resources to support such institutions in circumstances where it might not do so absent such policy. In addition, the "cross-guarantee" provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.
The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are "well capitalized", "adequately capitalized" or "significantly undercapitalized", as such terms are defined under uniform regulations defining such capital levels issued by each of the federal banking agencies.
The Community Reinvestment Act ("CRA") requires banks to help meet the credit needs of the community. Regulatory authorities are required to consider the CRA performance of a bank or bank holding company when reviewing regulatory applications.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms, stronger capital standards for savings and loans and stronger civil and criminal enforcement provisions. FIRREA allows the acquisition of healthy and failed savings and loan associations by bank holding companies, and it imposes no
interstate barriers on such acquisitions by bank holding companies. With certain qualifications, FIRREA also allows bank holding companies to merge acquired savings and loan associations into their existing commercial bank subsidiaries. FIRREA also provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") became effective in December 1991. FDICIA revises the bank regulatory insurance coverage and funding provisions of the Federal Deposit Insurance Act and makes changes to the regulatory structures found in several other banking statutes. Various sections of FDICIA are designed to recapitalize the Bank Insurance Fund and provide for increased funding of the Bank Insurance Fund by insured banks. The FDIC's capacity to borrow from the United States Treasury was increased. FDICIA requires the FDIC to develop and implement a system of risk-based premiums for federal deposit insurance under which the semiannual rates at which a depository institution is assessed are based on the probability that the depository institution fund will incur a loss with respect to the institution. Various sections of FDICIA impose substantial new audit and reporting requirements on insured depository institutions. All insured banks are generally subject to an annual on-site examination by their primary federal regulatory agency. The role of independent public accountants is increased, and there are additional reporting requirements imposed on depository institutions. The federal regulatory agency must devise rules requiring banks and thrift institutions to disclose the fair market value of their assets. The agencies must also devise rules for banks and thrifts to report off-balance sheet items on financial statements. Banks are rated according to a new scheme of capital adequacy. Better-capitalized institutions are generally subject to less onerous regulation and supervision than poorly-capitalized institutions. Under FDICIA, each federal banking agency must prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares, and other standards as the agency deems appropriate.
As a national bank, NBC operates under the rules and regulations of the Comptroller of the Currency and is also a member of the Federal Reserve System, subject to provisions of the Federal Reserve Act. NBC Bank, FSB (Knoxville) and NBC Bank, FSB (Belzoni), are federally chartered savings banks that are primarily regulated by the Office of Thrift Supervision. The FDIC insures the domestic deposits of all the Banks.
Commerce Finance Company is a consumer finance company organized under the laws of the State of Tennessee and is primarily regulated by the Consumer Finance Division of the Tennessee Department of Financial Institutions. The Federal Trade Commission has primary federal regulatory authority. Commerce Capital Management, Inc. is registered with the Securities and Exchange Commission and is an investment adviser pursuant to the Investment Advisers Act of 1940, as amended. All regulatory agencies require periodic audits and regularly scheduled
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.
STATISTICAL AND OTHER DATA - The following tables set forth selected statistical and other information. - -------------------------------------------------------------------------------- DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY: Interest Rates and Interest Differential
The following table sets forth the combined daily average condensed (consolidated) balance sheets of NCBC and an analysis of net interest earnings for each of the three years in the period ended December 31, 1997 through 1999. Interest income and yields on non-taxable investment securities have been calculated on a fully taxable-equivalent basis assuming a tax rate of 35%.
(1) For the purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding and income on such loans is recognized as received. There were no foreign loans outstanding.
(2) These items are affected by fully taxable-equivalent adjustments. Reference is made to page 29 of the Annual Report to Shareholders for the corresponding unadjusted amounts as presented in the financial statements.
CHANGES IN INTEREST INCOME AND EXPENSES - ---------------------------------------
The following table sets forth for NCBC and its subsidiaries (consolidated), for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates. Interest on non- taxable investment securities has been calculated on a fully taxable-equivalent basis assuming a tax rate of 35%.
(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.
SECURITIES PORTFOLIO - -------------------- The following table sets forth the aggregate book value of investment securities at the dates indicated.
The following table sets forth the maturities at December 31, 1999, and the weighted average yields of such securities, all of which are computed on a fully taxable-equivalent basis assuming a tax rate of 35%. Yields on available-for- sale securities are based on amortized cost.
LOAN PORTFOLIO - -------------- The following table shows the Company's gross loan distribution at the end of the last five years.
(1) Included within "Consumer" loans are revolving lines of credit secured by home equities. (2) The Company sold approximately $63 million or substantially all of its credit card receivables in fourth quarter 1997.
The following table shows the amounts of loans (excluding real estate mortgages, consumer loans and lease financing) outstanding as of December 31, 1999, which, based on remaining scheduled repayments of principal, are due in the periods indicated.
The following table shows the amounts of loans (excluding real estate mortgages, consumer loans and lease financing) due after one year classified, according to the sensitivity to changes in interest rates as of December 31, 1999.
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.
Summarized below are outstanding maturities of time deposits of $100,000 or more issued by domestic offices (which consist entirely of time certificates of deposit) at December 31, 1999 (in thousands of dollars):
RETURN ON EQUITY AND ON TOTAL ASSETS - ------------------------------------ The following table shows consolidated operating ratios for the Company for each of the last three years.
Year Ended December 31 ------------------------- 1999 1998 1997 ----- ----- -----
Return on average total assets 1.66% 1.64% 1.57% Return on average equity* 22.51% 22.07% 20.86% Dividend payout percent** 37.89% 38.55% 33.33% Average equity to assets percent 7.72% 7.52% 7.53%
* exclusive of other comprehensive income adjustment. ** includes special 1998 dividend increase which accompanied the 2-for-1 stock split effective July 1, 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report for capital ratios and discussion of minimum capital requirements.
SHORT-TERM BORROWINGS - ---------------------
The following table shows the distribution of the Company's short-term borrowings and the weighted average interest rates thereon at the end of the last three years. Also provided are the maximum amounts of borrowings and the average amounts of borrowings as well as weighted average interest rates for the reported years.
ITEM 2.
ITEM 2. PROPERTIES.
The Company's headquarters are located in leased space at One Commerce Square, Memphis, Tennessee. Also, occupying space at One Commerce Square is the Commerce Square Branch and the following subsidiaries: Commerce General Corporation; Commerce Capital Management, Inc.; National Commerce Bank Services; NBC Insurance Services and USI Alliance Corp.
As of December 31, 1999, the corporation operated 79 traditional and in- store branches in Tennessee, 23 in North Carolina, 35 in Virginia, 2 in Mississippi, 11 in Georgia, 4 in Arkansas and 8 in West Virginia. Of the above locations, 18 traditional locations are owned; the remaining branches and all in-store branches are leased. There are 207 ATM locations in operation, with 162 in banking offices and 45 away from the offices. The Company does not own or lease any other properties that it considers materially important to its financial statements.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT.
Of the foregoing officers, Messrs. Garrott, Holland, and Reed are also directors of the Company.
The above officers have served in the capacities shown for more than five years except for the following:
Mr. Holland was elected Vice Chairman and Director of the Company in June 1997. He was Executive Vice President of the Company from August 1995 until June 1997. He was elected Treasurer of the Company in June 1995. He was Vice President from July 1994 until August 1995.
Mr. Reed was elected Vice Chairman and Director of the Company in June 1997 and was Executive Vice President of the Company from August 1995 until June 1997.
Mr. Lazarini was elected Executive Vice President of the Company in March 2000. He was Executive Vice President of NBC until March 2000.
Mr. Gober was elected Executive Vice President of the Company in January 1998 and was President of NBC from August 1995 until January 1998. He was Executive Vice President and Retail Credit Group Head of NBC from January 1992 until August 1995.
Mr. Popwell was elected Executive Vice President of the Company in August 1998 and Secretary in October 1999. Prior to that time he was an attorney with Baker, Donelson, Bearman and Caldwell.
PART II.
ITEM 5.
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:
* includes special dividend increase which accompanied the 2-for-1 stock split effective July 1, 1998.
The Company's stock is traded over-the-counter on the Nasdaq National Market tier and is quoted under the trade symbol NCBC. The stock prices listed in the table were obtained from Nasdaq and represent the high and low closing sales prices. At March 10, 2000, there were approximately 4,000 stockholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA. In Thousands of Dollars, Except Per Share and Ratio Data
* After retroactive adjustment for all stock dividends and stock splits declared through December 31, 1999.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 through 27 in the Registrant's 1999 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information appearing under the caption "Liquidity and Interest Rate Sensitivity Management" appearing on page 23 of the 1999 Annual Report to Shareholders is incorporated herein by reference (see Item 7, Management's Discussion and Analysis).
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and consolidated financial statements on pages 28 through 46 in the Registrant's 1999 Annual Report to Shareholders are incorporated herein by reference.
Quarterly Results of Operations on page 46 of the Registrant's 1999 Annual Report to Shareholders are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Except for information contained in Item X above pertaining to executive officers of the Registrant, the information required by Item 10 is incorporated herein by reference from the Registrant's Proxy Statement relating to the Registrant's 2000 Annual Meeting of Shareholders under the caption "Management of the Company".
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Compensation of Management" in the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Management of the Company and Other Information" and "Principal Shareholders" in the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions with Directors and Management" in the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders is incorporated herein by reference.
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) and (c) LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements and report of independent auditors of National Commerce Bancorporation and Subsidiaries, included in the Annual Report of the Registrant to its shareholders for the year ended December 31, 1999, are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Income--Years ended December 31, 1999, 1998 and
Consolidated Statements of Stockholders' Equity--Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows--Years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements--December 31, 1999
Report of Independent Auditors
Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
(a)(3) Listing of Exhibits:
Exhibit No. Description ----------- -----------
3.1 Charter of National Commerce Bancorporation as amended and restated and filed as Exhibit 3.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1998 (File NO. 0-6094) and incorporated herein by reference.
3.2 Bylaws of National Commerce Bancorporation as amended filed as Exhibit 3.2 to the Registrant's Form 10-K for the year ended December 31, 1995 (File No. 0-6094) and incorporated herein by reference.
4.1 Specimen Stock Certificate filed as Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1999 (File No. 0-6094) and incorporated herein by reference.
10.1 Form of Promissory Notes of NBC payable to The Mallory Partners, filed as Exhibit 10.1 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094) and incorporated herein by reference.
10.2 Employment Agreement dated as of January 1, 1992, by and between National Bank of Commerce and William R. Reed, Jr., filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094) and incorporated herein by reference.
10.3 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Thomas M. Garrott, filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference.
10.4 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Gary L. Lazarini, filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference.
10.5 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Mackie H. Gober, filed as Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference.
10.6 Deferred Compensation Agreement as of December 1, 1983, for Thomas M. Garrott, filed as Exhibit 10c(2) to the Registrant's Form 10-K for the year ended December 31, 1984 (File No. 0-6094) and incorporated herein by reference.
10.7 Employment Agreement dated as of July 1, 1994, by and between National Bank of Commerce and Lewis E. Holland, filed as Exhibit 10.14 to the Registrant's Form 10-K for the year ended December 31, 1984 (File No. 0-6094) and incorporated herein by reference.
10.8 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce and William R. Reed, Jr., filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.9 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce and Thomas M. Garrott, filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.10 Second Amendment to Amended and Restated Agreement Respecting Employment dated December 17, 1999 by and between National Commerce Bancorporation and Thomas M. Garrott.
10.11 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce and Gary L. Lazarini, filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.12 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce and Mackie H. Gober, filed as Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.13 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce and Lewis E. Holland, filed as Exhibit 10.12 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.14 Employment Agreement dated as of August 17, 1998, by and between National Commerce Bancorporation, National Bank of Commerce and David T. Popwell, filed as Exhibit 10.13 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to the Registrant's Form 10-K for the year ended December 31, 1980 (File No. 0-6094) and incorporated herein by reference.
10.16 1990 Stock Plan, filed as Exhibit A to the Registrant's Proxy Statement for the 1990 Annual Meeting of Shareholders and incorporated herein by reference.
10.17 1994 Stock Plan as Amended and Restated Effective as of November 1, 1996, filed as Exhibit A to the Registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders and incorporated herein by reference.
10.18 Amendment Number One National Commerce Bancorporation 1994 Stock Plan, as Amended and Restated Effective as of November 1, 1996, filed as Exhibit 10.17 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
10.19 Resolution authorizing Pension Restoration Plan, filed as Exhibit 10(c)(7) to the Registrant's Form 10-K for the year ended December 31, 1986 (File No. 0-6094) and incorporated herein by reference.
10.20 National Commerce Bancorporation Deferred Compensation Plan effective January 1, 1999, filed as Exhibit 10.19 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094) and incorporated herein by reference.
13 Registrant's 1999 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report.
(d) Financial Statement Schedules:
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL COMMERCE BANCORPORATION
-------------------------------- (Registrant)
/s/ Thomas M. Garrott ---------------------------- Thomas M. Garrott Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
March 9, 2000 /s/ Thomas M. Garrott - -------------- ---------------------------- Dated Thomas M. Garrott Chairman of the Board (Principal Executive Officer)
March 9, 2000 /s/ Lewis E. Holland - -------------- ---------------------------- Dated Lewis E. Holland Vice Chairman, Treasurer, and Chief Financial Officer (Principal Financial Officer)
March 9, 2000 /s/ Mark A. Wendel - -------------- ---------------------------- Dated Mark A. Wendel Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
/s/ G. Mark Thompsom - ----------------------------- ---------------------------- Director Director
/s/ Bruce E. Campbell, Jr. /s/ William R. Reed, Jr. - ----------------------------- ---------------------------- Director Director
James H. Daughdrill, Jr. /s/ J. Brad Reed - ----------------------------- ---------------------------- Director Director
/s/ W. Neely Mallory, Jr. /s/ James E. McGehee, Jr. - ----------------------------- ---------------------------- Director Director
/s/ Thomas C. Farnsworth, Jr. /s/ R. Grattan Brown, Jr. - ----------------------------- ---------------------------- Director Director
/s/ Lewis E. Holland - ----------------------------- Director
/s/ Frank G. Barton, Jr. - ----------------------------- Director
/s/ Phillip H. McNeill, Sr. - ----------------------------- Director Dated: March 9, 2000 --------------
EXHIBIT INDEX
Exhibit Description of Exhibit - ------- ----------------------
3.1 Charter of National Commerce Bancorporation as amended and restated filed as Exhibit 3.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1998 (File No. 0-6094).
3.2 Bylaws of National Commerce Bancorporation as amended filed as Exhibit 3.2 to the Registrant's Form 10-K for the year ended December 31, 1995 (File No. 0-6094).
4.1 Specimen Stock Certificate filed as Exhibit 4.1 to the Registrant's Form 10-Q for the year ended June 30, 1999 (File No. 0-6094).
10.1 Form of Promissory Notes of National Bank of Commerce payable to The Mallory Partners filed as Exhibit 10.1 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094).
10.2 Employment Agreement dated as of January 1, 1992, by and between National Bank of Commerce and William R. Reed, Jr. filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094).
10.3 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Thomas M. Garrott filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094).
10.4 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Gary L. Lazarini filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094).
10.5 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Mackie H. Gober filed as Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094).
10.6 Deferred Compensation Agreement dated as of December 1, 1983, for Thomas M. Garrott, filed as Exhibit 10c(2) to the Registrant's Form 10- K for the year ended December 31, 1984 (File No. 0-6094).
10.7 Employment Agreement dated as of July 1, 1994 by National Commerce Bancorporation and between Lewis E. Holland, filed as Exhibit 10.14 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094).
10.8 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce, and William R. Reed, Jr. filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.9 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce, and Thomas M. Garrott filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.10 Second Amendment to Amended and Restated Agreement Respecting Employment dated December 17, 1999 by and between National Commerce Bancorporation and Thomas M. Garrott.
10.11 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce, and Gary L. Lazarini filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.12 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce, and Mackie H. Gober filed as Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.13 First Amendment to Agreement Respecting Employment dated July 27, 1998 by and between National Commerce Bancorporation, National Bank of Commerce, and Lewis E. Holland filed as Exhibit 10.12 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.14 Employment Agreement dated as of August 17, 1998, by and between National Commerce Bancorporation, National Bank of Commerce and David T. Popwell filed as Exhibit 10.13 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to the Registrant's Form 10-K for the year ended December 31, 1980 (File No. 0-6094).
10.16 1990 Stock Plan, filed as Exhibit A to the Registrant's Proxy Statement for the 1990 Annual Meeting of Shareholders.
10.17 1994 Stock Plan as Amended and Restated Effective November 1, 1996, filed as Exhibit A to the Registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders.
10.18 Amendment Number One National Commerce Bancorporation 1994 Stock Plan, as Amended and Restated Effective as of November 1, 1996 filed as Exhibit 10.17 to the Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
10.19 Resolution authorizing Pension Restoration Plan, filed as Exhibit 10(c)(7) to the Registrant's Form 10-K for the year ended December 31, 1986 (File No. 0-6094).
10.20 National Commerce Bancorporation Deferred Compensation Plan effective January 1, 1999 filed as Exhibit 10.19 to the Registrant's Form 10-K for the year ended December 31, 1998 (File No. 0-6094).
13 Registrant's 1999 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule