-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RN5vHOFqJ0+s7zYA9fuPhhvjq0+gJrUgYAMDuGGw+WJDY+s0BZwHJ9P+3jp2Sf70 uhLd9BMfymAhXZnXwh9/qQ== 0000931763-96-000097.txt : 19960328 0000931763-96-000097.hdr.sgml : 19960328 ACCESSION NUMBER: 0000931763-96-000097 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMMERCE BANCORPORATION CENTRAL INDEX KEY: 0000101844 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 620784645 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06094 FILM NUMBER: 96538913 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 BUSINESS PHONE: 9015233242 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANCSHARES CORP DATE OF NAME CHANGE: 19780820 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANSHARES CORP DATE OF NAME CHANGE: 19780525 10-K 1 FOR FISCAL YEAR ENDED 12/31/95 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________ FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 __ |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - EXCHANGE ACT OF 1934 [FEE REQUIRED] December 31, 1995 0-6094 - ----------------- ------ (For the fiscal year ended) (Commission file number) NATIONAL COMMERCE BANCORPORATION -------------------------------- (Exact name of registrant as specified in its charter) Tennessee 62-0784645 - --------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One Commerce Square, Memphis, Tennessee 38150 (901)523-3242 - --------------------------------------------- ------------- (Address of principal executive offices) (Telephone number) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $2 par value -------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 1996, was approximately $559,220,000. The number of shares of common stock outstanding, as of March 1, 1996, was 24,846,704. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form. X ------ DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual Proxy Statement relating to the 1996 Annual Meeting of Shareholders of National Commerce Bancorporation are incorporated by reference into Part III. Portions of the 1995 National Commerce Bancorporation Annual Report are incorporated by reference into Parts I and II. PART I. ITEM 1. BUSINESS. NATIONAL COMMERCE BANCORPORATION: National Commerce Bancorporation ("NCBC" or "the Company"), a Tennessee corporation, is a bank holding company formed in February 1966 as Tennessee Financial Corporation. The corporate name was changed to United Tennessee Bancshares Corporation in 1970 and the present corporate name was adopted in April 1978. The business of NCBC consists of owning all of the outstanding capital stock of (1) National Bank of Commerce, Memphis, Tennessee ("NBC" or "the Bank"), (2) Nashville Bank of Commerce, Nashville, Tennessee ("Nashville" or "the Nashville Bank"), (3) NBC Bank, FSB, Knoxville, Tennessee ("Knoxville" or "the Knoxville Bank"), (4) NBC Bank, FSB, Belzoni, Mississippi ("FSB"), (5) Commerce Finance Company, Memphis, Tennessee ("Commerce Finance"), (6) Commerce Capital Management, Inc., Memphis, TN ("Commerce Capital"), (7) Brooks, Montague & Associates, Inc, Chattanooga, Tennessee ("Brooks Montague") and (8) TransPlatinum Service Corp., Nashville, TN ("TransPlatinum"). NCBC provides NBC, Nashville, Knoxville, and FSB ("the Banks"), Commerce Finance, Commerce Capital, Brooks Montague, and TransPlatinum with advice and counsel relating to financial and employee benefit matters, performs certain record-keeping functions relating to compliance with accounting and regulatory requirements and provides assistance in obtaining additional financing. NBC furnishes a full range of banking and trust services through 28 branch and SUPER MONEY MARKET(R) facilities in Memphis and Shelby County, Tennessee, one SUPER MONEY MARKET facility located in Johnson City, Tennessee, one SUPER MONEY MARKET facility located in Kingsport, Tennessee, one SUPER MONEY MARKET facility located in Jackson, Tennessee, and one SUPER MONEY MARKET facility located in Cleveland, Tennessee. NBC has two active, wholly owned, non-banking subsidiaries, Commerce General Corporation ("Commerce General") and Commerce Investment Corporation ("Commerce Investment"). Commerce General provides a variety of data processing services to the Banks and other commercial enterprises. Commerce Investment was chartered in September 1986 to serve the needs of individual investors as a broker-dealer of investment products, including stocks, bonds, municipal obligations, mutual funds and unit investment trusts. The Nashville Bank was organized in September 1985 to operate full-service banking facilities in Kroger supermarkets within the Nashville area. The SUPER MONEY MARKET branches offer a wide variety of personal banking services. The Nashville Bank 2 is a state chartered bank with 18 SUPER MONEY MARKET branch locations and one traditional branch and has a dormant subsidiary, Commerce Corporate Advisors, Inc. Another subsidiary, National Commerce Bank Services, Inc. ("NCBS"), provides supermarket banking services to other financial institutions. The Nashville Bank also operates three stand-alone automated teller machines ("ATMs") in the Nashville area. The Knoxville Bank was organized in June 1986 as a state chartered bank to operate full-service SUPER MONEY MARKET banking facilities within the Knoxville area. During 1994, the Knoxville Bank was converted to a federally chartered savings bank and expanded into North Carolina. The Knoxville Bank has 11 SUPER MONEY MARKET branch locations and one traditional branch location in the Knoxville area with eight branch locations in the Raleigh-Durham, North Carolina area. The Knoxville Bank also operates one stand-alone ATM in the Knoxville area. The Knoxville Bank also offers loans on an indirect basis through area automobile dealers. On July 13, 1993, the Company acquired First Federal Savings Bank, a $4.8 million institution located in Belzoni, Mississippi. The name was changed to NBC Bank, FSB, and its business expanded into Virginia. In addition to one office in Belzoni, Mississippi, FSB has seven SUPER MONEY MARKET branches in the Roanoke, Virginia area. NCBC has executed SUPER MONEY MARKET sublicense agreements with other financial institutions. Currently, agreements have been executed covering locations in over 40 states and Jamaica. As of year end NCBC, through NCBS, has assisted various banks with over 530 locations through either a license or consulting relationship. The Company has one major competitor in its supermarket branch sublicensing activity. The competitor is a non-financial institution with nationwide operations. On November 7, 1989, the service mark Super Money Market (Stylized) was registered on the U.S. Patent and Trademark Office Principal Register as Reg. No. 1,565,038. This registration presently constitutes prima facie proof that NCBC owns the mark. If certain formalities are observed, the registration will remain in force for 20 years from the date of registration and may be renewed for successive terms of ten years each. On April 2, 1991 the service mark Super Money Market (non-stylized) for banking services was registered on the Supplemental Register under Reg. No. 1,640,085. If certain formalities are observed, registration will remain in force for ten years from the date of registration and may be renewed for successive periods. Commerce Capital and Brooks Montague are registered as investment advisors with the Securities and Exchange Commission. 3 Monroe Properties, Inc., a Tennessee corporation, is a wholly owned subsidiary of NCBC. Its primary function is to be used in connection with the acquisition of real estate through foreclosure or deed in lieu of foreclosure. Commerce Finance was organized in September, 1992, and commenced business in March, 1993, in the consumer finance segment of the retail credit industry. Commerce Finance has eight branches; four in Tennessee (Memphis, Bartlett, Nashville, and Knoxville); two in Mississippi (Amory and New Albany); and one each in Sullivan, Missouri and Mineola, Texas. In September of 1995, NCBC acquired 30% of Transplatinum Service Corp. which offers financial services to the trucking and petroleum industries and bankcard services to merchants. TransPlatinum is located in Nashville, TN. On February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum. Substantially all employees of the Company are also employees of one or more of its direct or indirect subsidiaries. NATIONAL BANK OF COMMERCE: From its inception in 1873, and through the granting of its charter as a national bank in 1933, NBC has operated a full-service commercial bank and trust business in metropolitan Memphis, Tennessee. As of December 31, 1995, NBC operated 13 traditional branches and 19 SUPER MONEY MARKET facilities, 15 in metropolitan Memphis and one each in Johnson City, Tennessee, Kingsport, Tennessee, Jackson, Tennessee, and Cleveland, Tennessee. At December 31, 1995, NBC had $1,732,146,000 in deposits and was the second largest bank in the Memphis service area (population approximately 1,000,000) and the fifth largest bank in Tennessee, measured by deposits. Memphis is the largest city in Tennessee and is the center of a diversified distribution, commercial and agricultural area. NBC provides complete banking facilities and services to the Mid-South area through various divisions and departments, described below. The retail banking activity is carried on through the Branch Banking Division, the Money Market Division, the Executive Banking Division, and the Consumer Services Division. The Bank's Commercial Banking Group is composed of seven divisions: the Metropolitan Lending Division, the Leasing Division, the Asset Based Lending Division, the Real Estate Lending Division, the National Accounts Division, the Correspondent Banking Division and the Mortgage Lending Division ("NBC Mortgage"). Trust services are provided by the Trust Division. Staff support for the Bank is provided by its Personnel, Marketing, Operations and Financial/Administrative Divisions. 4 Retail Services: NBC provides its customers with a variety of retail banking services. Among such services are checking accounts and savings programs, night depository services, safe deposit facilities and several consumer loan programs, including installment loans for the purchase of consumer goods, credit card plans and revolving lines of credit. Customers are provided with current information regarding these services through NBC's marketing program. NBC has installed 40 ATMs (24-hour tellers), including ATMs located at Plough, Inc., Hickory Ridge Mall, Graceland, Methodist Hospital, Memphis International Airport, University of Memphis campus and Rhodes College campus. At year end, consumer loans and leasing activity accounted for approximately 41% of NBC's outstanding loans. NBC participates in the MasterCard and Visa Card Programs, national consumer debit and credit card plans, under which NBC discounts sales drafts (accounts receivable arising from charges made with MasterCard and Visa Cards), without recourse, for participating merchants. NBC also offers a Professional Services Plan, Equity Credit Lines and other credit services for individuals. A monthly revolving credit charge is levied on the purchaser depending on the credit plan desired. At December 31, 1995, NBC had credit card accounts receivable and consumer lines of credit totaling $128,424,000. Commercial Services: NBC provides a variety of services for commercial enterprises, including checking accounts, certificates of deposit, cash management services, short-term loans for seasonal or working capital purposes, and term loans for fixed assets and expansion purposes. In addition to these general services, NBC also provides accounts receivable and inventory financing, commodity loans and commercial loans tailored to an individual customer's needs. Secured and unsecured commercial loans and commodity loans, at December 31, 1995, accounted for approximately 37% of the loans made by NBC. Real estate construction and long-term mortgage loans (including first mortgage refinance loans) accounted for approximately 12% of NBC's outstanding loans at December 31, 1995. Correspondent Banking: NBC has correspondent relationships with approximately 149 banks located in Tennessee, Arkansas, Missouri, Florida, Mississippi, Kentucky, and Alabama to which it provides a range of correspondent banking services as well as advice in various fields of banking policy and operations. Aggregate balances of correspondent banks at NBC averaged approximately $39,098,000 in 1995. Trust Services: Through its Trust Division, NBC acts as trustee, executor, administrator, guardian, custodian and depository for a number of individuals and corporations. The Bank offers investment advisory services to its customers in 5 addition to portfolio management. At December 31, 1995, the Trust Division administered assets valued at approximately $1,957,000,000. International Services: NBC has established 11 accounts with foreign banks, primarily in Europe, to handle international trade relationships. Four foreign banks have accounts with NBC for the same purpose. NBC does not now, nor does it intend to, engage in speculative trading of foreign currencies. Non-Bank Subsidiaries: In addition to computer services for NBC, Commerce General offers hospital and clinic processing to several customers. During the year ended December 31, 1995, approximately 85% of the total revenues of Commerce General were derived from services provided to NBC and 15% from services provided to other customers. Commerce Investment Corporation provides investment services to individual and institutional investors. In 1991, the institutional investor activity of NBC's Investment Division was merged into Commerce Investment. At December 31, 1995, Commerce Investment's capital totaled $13,521,000. Commerce Investment is registered as a broker-dealer with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., and is a member of the Security Investor Protection Corporation. Territory Serviced and Competition: NBC actively competes with other commercial banks in the Memphis trade area in providing a full range of banking services, including demand deposits, time deposits, various types of loans, trust services and other bank related activities. At December 31, 1995, NBC had $2,690,123,000 in assets. According to December 31, 1995 call reports, one of the other banks in metropolitan Memphis is 4.5 times larger than NBC as measured by deposits. However, deposits for that bank include statewide branches, while NBC deposits are primarily limited to the metropolitan Memphis area. The Memphis trade area includes western Tennessee, northern Mississippi, and eastern Arkansas, and NBC considers commercial banks in Little Rock, Arkansas and Jackson, Mississippi, as competitors in addition to Memphis area banks. In addition, NBC competes with savings and loan associations, finance companies, credit unions, insurance companies, real estate investment trusts, mortgage companies, factoring companies, independent credit card companies and various other financial institutions whose activities correspond with banking functions. See "Supervision and Regulation." Employees: As of December 31, 1995, the Bank and its subsidiaries employed approximately 247 officers, 551 other full-time employees, 51 part-time employees and 85 peak-time employees. Relations with employees have been good. No 6 employees are covered by collective bargaining agreements. All full-time employees are afforded the benefits of group life and health insurance plans. In addition, the Company has a non-contributory qualified retirement plan and an Employee Stock Ownership Plan ("ESOP"). All employees who have one full year of service are eligible to become participants in the retirement plan. The Company also has a taxable income reduction account ("TIRA") plan which allows employees to defer payment of taxes on an elected percentage of salary up to $9,240 by making contributions to this plan. The Company may also make contributions to this plan for the benefit of participating employees. NASHVILLE BANK OF COMMERCE: Nashville Bank of Commerce was organized to compete in retail banking in the Nashville trade area. The Nashville Bank operates one traditional branch and 18 SUPER MONEY MARKET facilities located within Kroger stores and three stand-alone ATMs in the Nashville area. At December 31, 1995, the Nashville Bank employed 32 officers, 73 other full-time employees, 5 part-time employees and 23 peak-time employees to provide banking services during the hours when most grocery shopping occurs. Employees of the Nashville Bank are provided with the same benefits that all Company employees have available to them. At December 31, 1995, the Nashville Bank had total consolidated assets of $439,846,000. Nashville Bank of Commerce competes with a number of substantially larger financial institutions, both banks and savings and loans, as well as various other financial institutions whose activities correspond with banking functions. Non-Bank Subsidiaries: National Commerce Bank Services, Inc. provides supermarket banking services to other financial institutions. During 1994, the Knoxville Bank's 50% ownership was transferred to the Nashville Bank, resulting in NCBS being a wholly-owned subsidiary of the Nashville Bank. At December 31, 1995 NCBS's capital totaled $7,060,000. The Nashville Bank's other subsidiary, Commerce Corporate Advisors, Inc., is currently dormant. NBC BANK, FSB (KNOXVILLE): The Company organized NBC Bank, FSB (Knoxville) to become competitive in retail banking in the Knoxville area. After its 1994 conversion from a state chartered bank to a federally chartered savings bank, it expanded into North Carolina. The Knoxville Bank has placed in operation one traditional branch and 13 SUPER MONEY MARKET facilities located within Kroger stores and 4 stand-alone ATM in the Knoxville area and 8 SUPER MONEY MARKET facilities in the Raleigh- Durham, North Carolina area. Like 7 Nashville, the Knoxville Bank employees are provided with the same benefits that all Company employees have available to them. At December 31, 1995, the Knoxville Bank employed 29 officers, 71 other full-time employees, 2 part-time employees and 14 peak-time employees. At year-end 1995, the Knoxville Bank had total assets of $439,408,000. The Knoxville Bank competes with a number of substantially larger financial institutions, both banks and savings and loans, as well as various other financial institutions whose activities correspond with banking functions. NBC BANK, FSB (BELZONI): FSB was acquired to expand its retail banking activities through supermarket branches in other states. Seven SUPER MONEY MARKET branches are located in Kroger supermarkets in Virginia, and one office is located in Belzoni, Mississippi. At December 31, 1995, FSB employed 8 officers, 38 other full-time employees, and 3 part-time employees. The same Company benefits are provided to these employees. At year-end 1995, the FSB had total assets of $225,001,000. FSB competes with a number of substantially larger financial institutions, both banks and savings and loans, as well as various other financial institutions whose activities correspond with banking functions. COMMERCE CAPITAL MANAGEMENT, INC.: Commerce Capital was organized to provide specialized investment management services to individuals, family groups, endowment funds and corporations. Assets presently managed are approximately $750,000,000. At December 31, 1995, Commerce Capital had 10 full-time and 2 part-time employees. Commerce Capital's employees are covered under the same Company benefits. Commerce Capital competes with a number of other investment counselors, insurance companies, banks, and other money managers, many of which are substantially larger. BROOKS, MONTAGUE & ASSOCIATES, INC.: The Company acquired all of the outstanding stock of Brooks, Montague & Associates, Inc. on February 15, 1994. Brooks Montague provides specialized investment management services primarily to individuals, charitable accounts and corporate retirement plans. Assets presently managed are approximately $105,000,000. At December 31, 1995, Brooks Montague had four full-time employees. Brooks Montague's employees are covered under the same Company benefits. Brooks Montague competes primarily with other regionally based investment management firms, many of which are substantially larger. 8 COMMERCE FINANCE COMPANY: The Company organized Commerce Finance Company to enter the consumer finance market. As of December 31, 1995, Commerce Finance had eight offices opened in the Mid-South area. Commerce Finance employed 3 officers and 24 full- time employees at December 31, 1995. Financing for indirect purchases, new and used cars, home improvement and bill consolidation are available through this subsidiary. Commerce Finance competes with a number of substantially larger consumer finance companies. TRANSPLATINUM SERVICE CORP.: In September of 1995, NCBC acquired 30% of Transplatinum Service Corp. which offers financial services to the trucking and petroleum industries and bankcard services to merchants. TransPlatinum is located in Nashville, TN. On February 29, 1996, NCBC acquired the remaining 70% of TransPlatinum. As of December 31, 1995, TransPlatinum had 3 officers and 35 full-time employees. TransPlatinum competes with major larger companies offering similar services on a nation-wide basis. SUPERVISION AND REGULATION NCBC and its subsidiaries are subject to a number of federal and state laws and regulations. As a bank holding company, NCBC is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "Act"), which is administered by the Federal Reserve Board (the "Board"). Under the Act, the Company is generally prohibited from directly engaging in any activities other than banking, managing or controlling banks, and those activities that the Board considers closely related and incidental to banking. Generally,bank holding companies from any state can now acquire banks and bank holding companies located in any other state, subject to certain conditions, including nationwide and state imposed concentration limits. Effective January 1, 1991, Tennessee amended its reciprocal interstate banking statute to allow a bank or bank holding company in any other state to acquire a Tennessee bank or bank holding company as long as a Tennessee bank or bank holding would have a similar acquisition opportunity in that state. Banks also will be able to branch across state lines by acquisition, merger or de novo, effective June 1, 1997 (unless state law would permit such interstate branching at an earlier date), providing certain conditions are met including that applicable state law must expressly permit de novo interstate branching. The Act requires that a bank holding company obtain the prior approval of the Board before merging or consolidating with another bank holding company. Furthermore, unless a bank holding 9 company already owns or controls a majority of the shares of a bank or another bank holding company, Board approval is required for any transaction, if following such transaction, the bank holding company directly or indirectly owns or controls more than 5% of the shares of such bank or bank holding company. A bank holding company and its non-bank subsidiaries must also seek the prior approval of the Board to acquire all or substantially all of the assets of a bank. Under the Act, a bank holding company is required to file with the Board an annual report and any additional information required by the Board. The Board may examine the Company's and each of its direct subsidiaries' records, including a review of capital adequacy in relation to guidelines issued by the Board. If the level of capital is deemed to be inadequate, the Board may restrict the future expansion and operations of the Company. The Board possesses cease-and-desist powers over a bank holding company if its actions or actions of any of its subsidiaries represent unsafe or unsound practices or violations of law. Federal law also regulates transactions among the Company and its affiliates, including the amount of a banking affiliate's loans to, or investments in, nonbank affiliates and the amount of advances to third parties collateralized by securities of an affiliate. In addition, various requirements and restrictions under federal and state law regulate the operations of the Company's banking affiliates, including (1) requiring the maintenance of reserves against deposits, (2) limiting the nature of loans and the interest that may be charged thereon, and (3) restricting investments and other activities. The amount of dividends that the Company's bank affiliates may declare is also limited. Regulatory approval must be obtained before declaring any dividends if the amount of capital, surplus and retained earnings is below certain statutory limits. See Note M of the Notes to Consolidated Financial Statements in the 1995 Annual Report, incorporated herein by reference. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event the depository institution becomes in danger of default or is in default. For example, under a policy of the Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions to commit resources to support such institutions in circumstances where it might not do so absent such policy. In addition, the "cross-guarantee" provisions of federal law require insured depository institutions 10 under common control to reimburse the FDIC for any loss suffered or reasonably anticipated as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolved problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are "well capitalized", "adequately capitalized", or "significantly undercapitalized" as such terms are defined under uniform regulations defining such capital levels issued by each of the federal banking agencies. The Community Reinvestment Act (CRA) requires banks to help meet the credit needs of the community. Regulatory authorities are required to consider the CRA performance of a bank or bank holding company when reviewing regulatory applications. In August 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) was enacted. FIRREA contains major regulatory reforms, stronger capital standards for savings and loans and stronger civil and criminal enforcement provisions. FIRREA allows the acquisition of healthy and failed savings and loan associations by bank holding companies, and it imposes no interstate barriers on such acquisitions by bank holding companies. With certain qualifications, FIRREA also allows bank holding companies to merge acquired savings and loan associations into their existing commercial bank subsidiaries. FIRREA also provides that a depository institution insured by the Federal Deposit Insurance Corporation ("FDIC") can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") became effective in December 1991. FDICIA revises the bank regulatory insurance coverage and funding provisions of the Federal Deposit Insurance Act and makes changes to the regulatory structures found in several other banking statutes. Various sections of FDICIA are designed to recapitalize the Bank Insurance Fund and provide for increased funding of the Bank Insurance Fund by insured banks. The FDIC's capacity to borrow from the United States Treasury was increased. FDICIA requires the FDIC to develop and implement a system of risk-based premiums for federal deposit insurance under which the 11 semiannual rates at which a depository institution is assessed are based on the probability that the depository institution fund will incur a loss with respect to the institution. Various sections of FDICIA impose substantial new audit and reporting requirements on insured depository institutions. All insured banks are generally subject to an annual on-site examination by their primary federal regulatory agency. The role of independent public accountants is increased, and there are additional reporting requirements imposed on depository institutions. The federal regulatory agency must devise rules requiring banks and thrift institutions to disclose the fair market value of their assets. The agencies must also devise rules for banks and thrifts to report off-balance sheet items on financial statements. Banks are rated according to a new scheme of capital adequacy. Better-capitalized institutions are generally subject to less onerous regulation and supervision than poorly-capitalized institutions. Under FDICIA, each federal banking agency must prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares, and other standards as the agency deems appropriate. As a national bank, NBC operates under the rules and regulations of the Comptroller of the Currency and is also a member of the Federal Reserve System, subject to provisions of the Federal Reserve Act. The Nashville Bank is a state non-member bank operating under the rules and regulations of the FDIC and the Tennessee Department of Financial Institutions. NBC Bank, FSB (Knoxville) and NBC Bank, FSB (Belzoni), are federally chartered savings banks that are primarily regulated by the Office of Thrift Supervision. The FDIC insures the domestic deposits of all the Banks. Commerce Finance Company is a consumer finance company organized under the laws of the State of Tennessee and is primarily regulated by the Consumer Finance Division of the Tennessee Department of Financial Institutions. In addition to six offices in Tennessee, Commerce Finance Company also operates two offices in Mississippi. Mississippi exercises regulatory authority over those offices in their state and the Federal Trade Commission has primary federal regulatory authority. Commerce Capital Management, Inc. and Brooks, Montague & Associates, Inc. are registered with the Securities and Exchange Commission and are investment advisers pursuant to the Investment Advisers Act of 1940, as amended. All regulatory agencies require periodic 12 audits and regularly scheduled reports of financial information. The federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") imposes a liability scheme for the remediation of property where hazardous substances have been released. The liability extends to owners and operators of such properties which could include banks. There is proposed or pending federal legislation that would consolidate some of the federal agencies that regulate financial institutions. 13 STATISTICAL AND OTHER DATA - The following tables set forth selected - -------------------------- statistical and other information. Distribution of Assets, Liabilities and Stockholders' Equity: Interest Rates and Interest Differential The following table sets forth the combined daily average condensed (consolidated) balance sheets of NCBC and an analysis of net interest earnings for the periods 1993 through 1995. Interest income and yields on non-taxable investment securities have been calculated on a fully taxable-equivalent basis assuming a tax rate of 35%.
1995 1994 1993 ------- ------- ------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate --------- ------- -------- --------- -------- ------- --------- -------- ------ (In Thousands of Dollars) ASSETS Interest-earning assets: Loans:(1) Domestic(2) 1,718,424 160,980 9.37% 1,505,716 129,340 8.59% 1,258,620 108,547 8.62% Taxable securities including trading account 1,119,057 75,627 6.76 982,788 56,327 5.73 775,499 44,579 5.75 Non-taxable investment securities(2) 154,755 13,101 8.47 147,753 13,679 9.26 125,935 12,669 10.06 Federal funds sold and securities purchased under agreements to resell 25,383 1,486 5.85 18,018 793 4.40 47,405 1,431 3.02 Time deposits in other banks 16,881 1,002 5.94 18,807 741 3.94 19,718 581 3.94 --------- ------- --------- ------- --------- ------- Total interest-earning assets 3,034,500 252,196 8.31 2,673,082 200,880 7.51 2,227,177 167,807 7.53 ------- ------- ------- Non-interest earning assets: Cash and due from banks 112,304 110,070 105,690 Premises & equipment, net 17,869 17,246 13,587 Other assets 75,448 68,013 59,937 Allowance for loan losses (25,830) (23,276) (19,181) --------- --------- --------- TOTAL ASSETS 3,214,291 2,845,135 2,387,210 ========= ========= =========
(1) For the purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding and income on such loans is recognized as received. There were no foreign loans outstanding. (2) These items are affected by fully taxable-equivalent adjustments. Reference is made to page __ of the Annual Report to Shareholders for the corresponding unadjusted amounts as presented in the financial statements. 14
1995 1994 1993 ------- ------- ------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate --------- ------- -------- --------- -------- ------- --------- -------- ------ (In Thousands of Dollars) LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Demand deposits 247,002 4,843 1.96% 250,945 4,898 1.95% 206,750 3,906 1.89% Savings deposits 782,714 32,971 4.21 645,219 21,655 3.36 514,896 13,106 2.55 Time deposits 1,025,093 58,877 5.74 863,925 36,527 4.23 758,859 32,505 4.28 Federal funds purchased and securities sold under agreements to repurchase 264,214 13,482 5.10 265,191 9,737 3.67 227,223 5,977 2.63 Federal Home Loan Bank advances 294,833 15,809 5.36 262,125 11,883 4.53 139,533 6,415 4.60 Long-term debt 6,382 458 7.18 6,384 399 6.25 6,372 388 6.09 --------- ------- --------- ------- --------- ------ Total interest bearing liabilities 2,620,238 126,440 4.83 2,293,789 85,099 3.71 1,853,633 62,297 3.36 ------- ------ ------ Non-interest bearing liabilities: Domestic demand deposits 284,744 282,468 290,042 Other 36,832 28,975 32,528 Stockholders' equity 272,477 239,903 211,007 --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,214,291 2,845,135 2,387,210 ========= ========= ========= Net interest earnings 125,756 115,781 105,510 ======= ======= ======= Net yield on interest-earning assets 4.14% 4.33% 4.74% ==== ==== =====
15
INTEREST RATE SENSITIVITY TABLE BY REPRICING DATES Within After 3 Mos. After 6 Mos. After 1 Yr. Non December 31, 1995 0-30 31-90 But Within But Within But Within After Interest (In Thousands of Dollars) Days Days 6 Mos. 1 Year 5 Years 5 Years Bearing Total ---------- --------- --------- --------- -------- ------- -------- --------- Funding uses: Loans, net 633,260 46,961 57,582 112,757 591,996 488,657 - 1,931,213 Securities 740,010 55,514 47,105 108,516 223,368 104,133 - 1,278,646 Other earning assets 263,748 - - - - - - 263,748 Other assets - - - - - - 221,435 221,435 --------- -------- -------- -------- ------- ------- -------- --------- Total funding uses 1,637,018 102,475 104,687 221,273 815,364 592,790 221,435 3,695,042 --------- -------- -------- -------- ------- ------- -------- --------- Funding sources: Interest-bearing deposits 745,892 395,019 258,575 321,882 388,350 133,616 - 2,243,334 Other borrowings 606,172 9,863 6,757 12,644 122,101 26,389 - 783,926 Demand deposits - - - - - - 331,436 331,436 Other liabilities - - - - - - 39,667 39,667 Interest rate swaps (50,000) - (50,000) 100,000 - - - - Stockholders' equity - - - - - - 296,679 296,679 --------- -------- -------- -------- ------- ------- -------- --------- Total funding sources 1,302,064 404,882 215,332 434,526 510,451 160,005 667,782 3,695,042 --------- -------- -------- -------- ------- ------- -------- --------- Interest-rate sensitivity GAP 334,954 (302,407) (110,354) (213,253) 304,913 432,785 (446,347) --------- -------- -------- -------- ------- ------- -------- Cumulative interest-rate sensitivity GAP 334,954 32,547 (78,098) (291,351) 13,562 446,347 GAP to total assets 9.06% (8.18%) (2.99%) (5.77%) 8.25% 11.71% (12.08%) Cumulative GAP to total assets 9.06% .88% (2.11%) (7.88%) .37% 12.08%
The Company's Interest Rate Sensitivity Table was prepared using contractual maturities and repricing dates when they exist and are enforceable. Management adjustments have been applied to allow for prepayment or other variances from stated maturities or repricing intervals. The management adjustments have been formulated considering historical experience and market projections and will change when appropriate to allow for current and projected interest rate scenarios. Due to the historical volatility of interest rates, the Company addresses the problem with an Asset Liability Management Committee comprised of senior management personnel from each key banking function. The committee's goal is to stabilize earnings by limiting the gap position between assets and liabilities repricing within one year to 15% of assets. The committee has determined by historical experience and simulation modeling that a gap of 15% will not produce excessive earnings variances in most rate environments. The committee meets regularly to address the current gap position and evaluate the assumptions and projections used to calculate interest rate risk. 16 Changes in Interest Income and Expense - -------------------------------------- The following table sets forth for NCBC and its subsidiaries (consolidated), for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates. Interest on non-taxable investment securities has been calculated on a fully taxable-equivalent basis assuming a tax rate of 35%.
1995 Compared to 1994 1994 Compared to 1993 Increase (decrease) Due to (1) Increase (decrease) Due to (1) ----------------------------------------------- ------------------------------------------ Volume Rate Net Rate/Volume Volume Rate Net Rate/Volume --------- --------- --------- ----------- ---------- ------- ------- ----------- (In Thousands of Dollars) Interest earned on: Loans:(2) Domestic 19,282 12,358 31,640 1,655 21,227 (434) 20,793 (85) Taxable securities including trading account 8,426 10,874 19,300 1,399 11,880 (132) 11,748 (35) Non-taxable investment securities 628 (1,206) (578) (55) 2,076 (1,066) 1,010 (175) Federal funds sold and securities purchased under agreements to resell to resell 383 310 693 107 (1,122) 484 (638) (407) Time deposits in other banks (82) 343 261 (38) (28) 188 160 (9) ------ ------ ------ ----- ------ ------ ------ ------ Total interest earning assets 28,637 22,679 51,316 3,033 34,507 (960) 33,073 (711) ------ ------ ------ ----- ------ ------ ------ ------ Interest paid on: Demand deposits (77) 22 (55) 0 859 133 992 28 Savings deposits 5,156 6,160 11,316 1,177 3,782 4,767 8,549 1,057 Time deposits 7,645 14,705 22,350 2,443 4,447 (425) 4,022 (58) Federal funds purchased and securities sold under agreements to repurchase (36) 3,781 3,745 (14) 1,117 2,643 3,760 395 Federal Home Loan Bank advances 1,594 2,332 3,926 271 5,560 (92) 5,468 (79) Long-term debt - 59 59 - 1 10 11 - ------ ------ ------ ----- ------ ------ ------ ------ Total interest bearing liabilities 14,282 27,059 41,341 3,877 15,766 7,036 22,802 1,343 ------ ------ ------ ----- ------ ------ ------ ------ Net interest earnings 14,355 (4,380) 9,975 (809) 18,267 (7,996) 10,271 (2,054) ====== ====== ====== ===== ====== ====== ====== ======
(1) The change in interest due to both rate and volume has been allocated to change due to volume and change due to rate in proporation to the relationship of the absolute dollar amounts to the change in each. (2) There were no foreign loans outstanding. 17 SECURITIES PORTFOLIO The following table sets for the aggregate book value of investment securities at the dates indicated.
December 31 1995 1994 1993 -------- -------- ------ (in thousands of dollars) Securities: U.S. Treasury 18,582 120,326 49,120 U.S. Government agencies and corporations 1,027,932 844,782 773,137 States of the U.S. and political subdivisons 149,975 161,297 132,531 Other securities 82,157 29,880 17,408 --------- --------- ------- Total 1,278,646 1,156,285 972,196 ========= ========= =======
The following table sets forth the maturities at December 31, 1995, and the weighted average yields of such securities, all of which are computed on a fully taxable-equivalent basis assuming a tax rate of 35%.
Maturing -------------------------------------------------------------------------- After 1 But After 5 But After Within 1 Year Within 5 Years Within 10 Years 10 Years ---------------- ---------------- ----------------- ------------------ Amount Yield Amount Yield Amount Yield Amount Yield ------- ------- ------- ------- ------- -------- -------- --------- Securities: U.S. Treasury 2,033 5.36% 16,549 5.23% - - - - U.S. Government agencies and corporations 283,762 6.47 206,031 6.00 61,546 6.54% 476,593 6.59% States of the U.S. and political subdivisions 2,885 5.88 31,250 6.66 56,963 7.34 58,877 8.81 Other 1,258 6.47 5,033 6.47 6,292 6.47 69,574 6.35 ------- ------- ------- -------- Total 289,938 258,863 124,801 605,044 ======= ======= ======= ========
18 LOAN PORTFOLIO The following table shows the Company's gross loan distribution at the end of the last five years.
December 31 ----------------------------------------------------- 1995 1994 1993 1992 1991 --------- --------- --------- --------- --------- (in thousands of dollars) Commerce, financial, and agricultural 399,580 356,035 350,539 354,491 314,361 Real estate - construction 122,720 91,424 66,929 68,238 62,134 Real estate - mortgage 520,657 501,489 429,544 275,732 248,341 Consumer(1) 871,407 630,927 535,417 489,773 396,430 Lease financing 18,678 14,818 13,870 12,423 16,179 --------- --------- --------- --------- --------- Total 1,933,042 1,594,693 1,396,299 1,200,657 1,037,445 ========= ========= ========= ========= =========
(1) Included within "Consumer" loans are revolving lines of credit secured by home equities. The following table shows the amounts of loans (excluding real estate mortgages, consumer loans and lease financing) outstanding as of December 31, 1995, which, based on remaining scheduled repayments of principal, are due in the periods indicated.
Maturing Within After 1 But After 1 Year Within 5 Yrs 5 Years Total ------- ------------ ------- ------- (in thousands of dollars) Commercial, financial, and agricultural 95,169 160,731 143,680 399,580 Real estate - construction 41,547 40,047 41,126 122,720 ------- ------- ------- ------- Total 136,716 200,778 184,806 522,300 ======= ======= ======= =======
The following table shows the amounts of loans (excluding real estate mortgages, consumer loans and leasing financing) due after one year classified, according to the sensitivity to changes in interest rates as of December 31, 1995.
After 1 but After Within 5 Yrs 5 Years ------------ ------- (in thousands of dollars) Predetermined interest rates 107,216 80,620 Floating or adjustable interest rates 93,562 104,186 ------- ------- Total 200,778 184,806 ======= =======
19 NONACCRUAL, PAST DUE, AND RESTRUCTURED The following table summarized the Company's nonaccrual, past due, and restructured loans (all of which are domestic):
December 31 ------------------------------------ 1995 1994 1993 1992 1991 ----- ----- ----- -------- ----- (in thousands of dollars) Nonaccrual loans - - - 7,092(1) 2,270 Accruing loans past due 90 days or more 3,252 2,432 2,063 1,858 2,577 Non-performing restructured loans - - - - 773 Performing restructured - - 1,984 - -
Substantially all of the nonaccrual and restructured loans were collateralized, and there were no significant commitments to lend any of these debtors additional funds. (1) Included in the 1992 non-accrual loan totals is a loan secured by real estate of $4 million, which was current as to principal and interest and had performed as agreed since inception. It was so classified based on a highly technical interpretation of current regulations. See Note A of financial statements in the Annual Report to Shareholders for management's policy for placing loans on nonaccrual status. Loans and lease financing receivables are considered to be in nonaccrual status if: (1) they are maintained on a cash basis because of deterioration in the financial position of the borrower, (2) payment in full of interest or principal is not expected, or (3) principal or interest has been in default for a period of 90 days or more unless the obligation is both well secured and in the process of collection. A nonaccrual asset may be restored to an accrual status when none of its principal and interest is due and unpaid or when it otherwise becomes well secured and in the process of collection. Potential Problem Loans - ----------------------- At December 31, 1995, the Company had $1,136,000 in three loans for which payments presently are being made, but the borrowers currently are experiencing severe financial difficulties. Those loans are subject to constant management attention and their classification is reviewed monthly. Other Assets - ------------ During 1989, the purchase money mortgage resulting from the 1984 sale of the Company's main bank building, parking garage, and interest in Commerce Tower Joint Venture was restructured. The Company's portion of the purchase money mortgage had a book value of $8,743,000 at December 31, 1995. Interest was not received or accrued totaling approximately $568,000 in 1995 in lieu of tenant and other capital improvements to the building which totaled approximately $1,012,000 for the year. The purchase money mortgage is due in November 1996 and the Company is considering renewal or other options. The financial impact of restructuring the note is not known at this time, but is not expected to be material to the consolidated financial statements. 20 SUMMARY OF LOAN LOSS EXPERIENCE This table summarizes the Company's loan loss experience for each of the five years ended December 31, 1995. There were no foreign loans.
Year Ended December 31 ------------------------------------------------ 1995 1994 1993 1992 1991 ------- ------- ------- ---------- --------- (in thousands of dollars) Balance at beginning of period 24,310 21,467 17,356 13,254 11,313 Charge-offs: Commercial, financial, and agricultural 1 442 1,167 2,632(1) 2,263(1) Real estate - construction 199 212 652 1,163 - Real estate - mortgage 97 232 207 1,052(1) 434 Consumer 5,366 4,088 3,783 4,317 6,987(2) Lease financing 1,586 1,500 1,031 1,063 1,267 ------ ------ ------ ----- ------ Total charge-offs 7,249 6,474 6,840 10,227 10,951 ------ ------ ------ ----- ------ Recoveries of loans previously charged-off: Commercial, financial, and agricultural 55 47 420 56 24 Real estate - construction 44 83 359 268 - Real estate - mortgage 73 121 47 45 127 Consumer 1,509 1,494 1,237 1,094 1,155 Lease financing 518 495 474 323 321 ------ ------ ------ ----- ------ Total recoveries 2,199 2,240 2,537 1,786 1,627 ------ ------ ------ ----- ------ Net charge-offs 5,050 4,234 4,303 8,441 9,324 Increase due to acquisition - - 22 - - Provision for loan losses 9,750 7,077 8,392 12,543 11,265 ------ ------ ------ ------ ------ Balance at end of period 29,010 24,310 21,467 17,356 13,254 ====== ====== ====== ====== ====== Ratio of net-charge-offs to average loans outstanding during the period .29% .28% .34% .76% .95%
(1) During 1992, $2,300,000 of the charge-offs in these categories resulted from charge-offs to two local borrowers, one loan to a manufacturing concern and another to a project related to a hotel project. During 1991, $2,000,000 of the charge-offs resulted from charge-offs to two local borrowers, one loan to a remanufacturing concern and another to a project related to local government entities. (2) Of the $2.1 million increase in consumer charge-offs during 1991, approximately 50% were bank credit card related, and approximately 50% were consumer installment related. These increases are the result of a 10% growth in the average portfolios of these categories, increased personal bankruptcies, and the recessionary environment. (3) The factors which influenced management's judgment in determining the 21 amount of the provision for loan losses charged to operating expense included the results of a credit review of the loan portfolio, past loan loss experience, current economic conditions and other factors, all of which formed a basis for determining the adequacy of the allowance for loan losses. The allowance for possible loan losses is maintained at a level believed adequate by management to absorb potential losses in the loan portfolio. 22 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The allowance for loan losses has been allocated according to the amount deemed to be reasonably necessary to provide for the possibility of losses incurred within the following categories of loans for each for the five years indicated.
December 31 -------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------------- ---------------- ----------------- ---------------- ---------------- Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans Amount in each Amount in each Amount in each Amount in each Amount in each of category of category of category of category of category allow- to total allow- to total allow- to total allow- to total allow- to total ance loans ance loans ance loans ance loans ance loans ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- (in thousands of dollars) Commercial, financial, and agricultural 7,264 21% 6,887 22% 6,622 25% 4,033 29% 4,542 30% Real estate: Construction 3,006 6 2,731 6 2,644 5 2,408 6 1,973 6 Mortgage 3,567 27 3,352 31 3,277 31 2,663 23 2,174 24 Consumer 12,737 45 9,457 40 7,716 38 7,484 41 4,157 38 Lease financing 2,436 1 1,883 1 1,208 1 768 1 408 2 ------ --- ------ --- ------ --- ------ --- ------ --- Toal 29,010 100% 24,310 100% 21,467 100% 17,356 100% 13,254 100% ====== === ====== === ====== === ====== === ====== ===
23 DEPOSITS The following table sets out the average amount of deposits and the average rate paid on such deposits for the periods indicated. There were no material deposits by foreign depositors in domestic offices. There were no material deposits in foreign banking offices.
Year Ended December 31 -------------------------------------------------- 1995 1994 1993 ---------------- --------------- -------------- Amount Rate Amount Rate Amount Rate --------- ----- --------- ----- --------- ----- (in thousands of dollars) Non-interest bearing demand deposits 284,744 - 282,468 - 290,042 - Interest bearing demand deposits 247,002 1.96% 250,945 1.95% 206,750 1.89% Savings deposits 782,714 4.21 645,219 3.36 514,896 2.55 Time deposits 1,025,093 5.74 863,925 4.23 758,859 4.28 --------- --------- --------- Total 2,339,553 2,042,557 1,770,547 ========= ========= =========
At December 31, 1995, outstanding maturities of time deposits of $100,000 or more issued by domestic offices (which consist entirely of time certificates of deposit) are summarized below (in thousands of dollars):
Time remaining until maturity Amount - ----------------------------- -------- 3 months or less 179,359 Over 3 through 6 months 104,669 Over 6 through 12 months 165,073 Over 12 months 18,724 ------- Total 467,825 =======
RETURN ON EQUITY AND ON TOTAL ASSETS
The following table shows consolidated operating and capital ratios for the Company for each of the last three years. Year Ended December 31 1995 1994 1993 ------- ----- ----- Return on average total assets 1.53% 1.56% 1.65% Return on average equity* 18.00% 18.48% 18.68% Dividend payout percent 36.08% 35.03% 34.81% Average equity to assets percent 8.48% 8.43% 8.84% Tier 1 capital to total assets (leverage ratio) 7.91% 8.56% 8.62% Tier 1 capital to risk-weighted assets 12.30% 13.62% 13.77% Total capital to risk-weighted assets 13.52% 14.87% 15.02%
* exclusive of mark-to-market adjustment. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report for discussion of minimum capital requirements. 24 SHORT-TERM BORROWINGS - --------------------- The following table shows the distribution of the Company's short-term borrowings and the weighted average interest rates thereon at the end of the last three years. Also provided are the maximum amounts of borrowings and the average amounts of borrowings as well as weighted average interest rates for the reported years.
Year Ended December 31 --------------------------- 1995 1994 1993 ------- ------- ------- (In Thousands of Dollars) Federal funds purchased and securities sold under agreements to repurchase: Balance at year-end 404,746 275,136 247,531 Weighted average interest rate payable at year-end 5.46% 5.75% 2.68% Maximum amount outstanding at any month end 404,746 310,243 347,061 Average outstanding balance (total daily outstanding principal balance dividedby 365) 264,214 265,191 227,223 Weighted average interest rate (related interest expense divided by the average outstanding balance) 5.10% 3.67% 2.63%
25 ITEM 2. PROPERTIES. Main Office: NBC leases as its main office approximately 40% -- 185,271 rentable square feet -- of the Commerce Square Complex (the "Complex"), which includes a thirty-two story office building known as Commerce Square Tower, a nine-story parking garage and a building known as NBC's main office building. NBC owns two parcels of land (approximately 74.25 feet by 148.5 feet) adjacent to the Complex which house a building that is presently used by the Bank for storage. Other Offices: As of December 31, 1995, NBC operated 13 traditional branches (including the main office branch) and 15 SUPER MONEY MARKET branch facilities in Shelby County, Tennessee and one each in Johnson City, Tennessee, Kingsport, Tennessee, Jackson, Tennesee, and Cleveland, Tennessee. NBC intends to continue opening branches at such time and places as management deems prudent and feasible, subject to approval of regulatory authorities. Eight of the 13 traditional branches operated by NBC are leased. In addition, the building housing one branch is owned by NBC but subject to ground leases. Leases on the 9 branches have remaining terms ranging from one month to 22 years (excluding renewal options). The average unexpired portion of the lease terms at December 31, 1995 is 7 years, including ground leases. The remaining four branches are owned in fee. Aggregate annual rentals on the 9 leased branch properties including NBC space in Commerce Square Complex, the SUPER MONEY MARKET branch facilities and the free-standing ATM locations amounted to approximately $3,170,000 at December 31, 1995. Commerce General occupies approximately 9,700 square feet of NBC's space in the Complex and pays approximately $131,000 per year for this space. Commerce Investment occupies approximately 10,000 square feet of NBC's space in the Complex and pays approximately $242,000 per year for this space. Additionally, Commerce Capital leases approximately 2,900 square feet in the Complex totaling approximately $54,000 in annual rent in 1995. Nashville Bank has been granted the right to operate branches in area Kroger stores. Initial terms of the license agreements are for one year, with multiple renewal options. In 1995, Nashville paid approximately $599,000 for licensed space and administrative office space. Knoxville Bank also has been granted the right to operate branches in area Kroger stores in the Knoxville, Tennessee and Raleigh/Durham, North Carolina areas. Initial terms of the license agreements are for one year, with multiple renewal options. In 1995, Knoxville paid approximately $433,000 for licensed space and administrative office space. NBC Bank, FSB has been granted the right to operate branches in area Kroger stores in Roanoke, Virginia and Blacksburg, Virginia. Initial terms of the license agreements are for one 26 year, with multiple renewal options. FSB also leases space for the office in Belzoni, Mississippi. In 1995, FSB paid approximately $217,000 for licensed and leased space. Commerce Finance leases space for 8 branch locations in the Mid-South area with terms from three years to five years. In 1995, Commerce Finance paid approximately $68,000 for the leased space. NBC owns property at 1895 Union Avenue, 309 Monroe Avenue and 5049 Summer Avenue in Memphis, and 7770 Poplar Avenue in Germantown, Tennessee and 6005 Stage Road in Bartlett, Tennessee, suburbs of Memphis in Shelby County. The property at 1895 Union is the location of Union Avenue Branch operations. The Cloverleaf Branch operation is located at 5049 Summer Avenue. The Consumer Lending and Indirect Loan operations area is located at 309 Monroe, which is also being used for parking for NBC employees. The Germantown Branch operation, the operations of the construction lending and mortgage lending activities, and satellite operations of one of the Bank's subsidiaries and a Company affiliate are located at 7770 Poplar Avenue. The Bartlett Branch operation is located at 6005 Stage Road. ITEM 3. LEGAL PROCEEDINGS. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive Officers Name Age Office Held ---- --- -------------------------- Thomas M. Garrott 58 Chairman of the Board, President, Chief Executive Officer and Director of the Company and Chairman of the Board, Chief Executive Officer and Director of NBC Gary L. Lazarini 54 Executive Vice President of NBC, Investments and Chairman and President of Commerce Investment Corporation
27
Gus B. Denton 55 Secretary of the Company and Executive Vice President and Secretary of NBC, Director of Commerce General Corporation Douglas W. Ferris, Jr. 52 Senior Vice President of NBC, President of National Commerce Bank Services, Inc. Mackie H. Gober 49 President of NBC, Director of NBC, Commerce Finance Company and NCBS Lewis E. Holland 53 Executive Vice President, Treasurer and Chief Financial Officer of the Company and Director, of NBC, Chairman of the Board of Commerce Capital Management, Inc. and Commerce Acquisiton Corp. William R. Reed, Jr. 49 Executive Vice President of the Company; Director of NBC, Chairman of Nashville Bank of Commerce, NBC Bank, FSB (Knoxville); Chairman of Commerce General Corporation; Chairman and President of Commerce Finance Company and Chairman and CEO of NBC Bank, FSB (Belzoni) Tom W. Scott 52 President of Commerce General Corporation
Of the foregoing officers, Mr. Garrott is also a director of the Company. The above officers have served in the capacities shown for more than five years except for the following: Mr. Garrott became Chairman of the Board, President, and 28 Chief Executive Officer of the Company and Chairman of the Board and Chief Executive Officer of NBC in May, 1993. Prior to that time, he served as President and Chief Operating Officer of the Company and NBC. Mr. Lazarini was elected Executive Vice President of NBC in January, 1992, and prior to that time was Senior Vice President. He has served as Chairman of the Board of Commerce Investment Corporation since January, 1991 and President since January, 1995. Mr. Denton was elected Secretary of the Company in June, 1995. Mr. Gober was elected President of NBC in August, 1995. He was Executive Vice President and Retail Credit Group Head of NBC from January, 1992 until August, 1995 and prior to that time was Senior Vice President. He was President of Commerce Finance Company from September, 1992 until August, 1995. Mr. Holland was elected Executive Vice President of the Company in August, 1995; Treasurer of the Company in June, 1995 and elected Vice President and Chief Financial Officer of the Company and Director of NBC effective July, 1994. He was Vice Chairman and Chief Financial Officer of NBC from July, 1994 until August, 1995. Prior to that time, he was a partner with Ernst & Young LLP. Mr. Reed was elected Executive Vice President of the Company in August, 1995; Chairman and President of Commerce Finance Company in January, 1996. He was Vice Chairman of NBC from January, 1992 to August, 1995 and prior to that he was Executive Vice President of NBC from May, 1988. He has been Chairman of the Board and Director of NBC Bank, FSB (Knoxville) since July 1986, President since May 1988, and Chief Executive Officer from November, 1994 to May, 1995. Mr. Reed has been President and Director of Nashville Bank of Commerce since September 1985, Chairman of the Board from May, 1988 to May, 1995 and Chief Executive Officer since November, 1994. He has been Chairman and Chief Executive Officer of NBC Bank, FSB (Belzoni) since July 1994. He was President of NBC Bank, FSB (Belzoni) from July, 1994 to January, 1996. 29 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market quotations for the Company's common stock and cash dividends per shares, as restated to give retroactive recognition to all stock dividends and stock splits, are as follows:
Fourth Third Second First ------------- ------------- ----------- ----------- 1995: High $ 26.88 $ 26.13 $ 25.50 $ 25.00 Low 24.50 24.25 23.75 23.00 Cash dividends .19 .17 .17 .17 1994: High $ 24.25 $ 24.25 $ 23.50 $ 23.75 Low 21.75 21.50 21.50 20.50 Cash dividends .17 .15 .15 .15
The Company's stock is traded in the Nasdaq over-the- counter market and is quoted on its national market system. The stock prices listed in the table were obtained from Nasdaq and represent the high and low closing sales prices. At December 31, 1995, there were approximately 2,700 stockholders of record. ITEM 6. SELECTED FINANCIAL DATA. Not Covered by Auditors' Report In Thousands of Dollars, Except Per Share and Ratio Data
1995 1994 1993 1992 1991 --------- ---------- ---------- ---------- ---------- Net interest income 120,025 110,021 100,393 92,619 83,713 Net income 49,035 44,342 39,406 33,993 29,531 Per common share data: Net income 1.94 1.77 1.58 1.38 1.23 Cash dividends declared .70 .62 .55 .47 .42 Book value 11.95 9.14 9.64 8.22 7.18 Total average equity 272,477 239,903 211,077 180,690 156,561 Total average assets 3,214,291 2,845,135 2,387,210 2,135,258 2,020,756 Ratios: Average equity to average assets 8.48% 8.43% 8.84% 8.46% 7.75% Return on average equity 18.00 18.48 18.68 18.81 18.86 Return on average assets l.53 l.56 1.65 1.59 1.46
* After retroactive adjustment for all stock dividends and stock splits declared through December 31, 1995. 30 ITEM 7. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 22 through 25 in the Registrant's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The report of independent auditors and consolidated financial statements on pages 26 through 39 in the Registrant's Annual Report to Shareholders are incorporated herein by reference. Quarterly Results of Operations on page 39 of the 1995 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. Except for information contained in Item X above pertaining to executive officers of the Registrant, the information required by Item 10 is incorporated herein by reference from the Registrant's Proxy Statement relating to the Registrant's 1996 Annual Meeting of Shareholders under the caption "Management of the Company". ITEM 11. EXECUTIVE COMPENSATION. The information under the caption "Compensation of Management" in the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the captions "Management of the Company" and "Principal Shareholders" in the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under the caption "Certain Transactions with Management" in the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders is incorporated herein by reference. 31 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) and (2) The response to this portion of Item and (c) 14 is submitted as a separate section of this report. (a)(3) Listing of Exhibits: Exhibit No. Description ------------ ---------------------- 3.1 Charter of National Commerce Bancorporation as amended and restated, filed as Exhibit 3.1 to the Registrant's Form 10-K for the year ended December 31, 1988 (File No. 0-6094) and incorporated herein by reference. 3.2 Bylaws of National Commerce Bancorporation as amended. 10.1 Form of Promissory Notes of NBC payable to The Mallory Partners, filed as Exhibit 10.1 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094) and incorporated herein by reference. 10.2 Employment Agreement as of January 1, 1986, by and between National Bank of Commerce and Bruce E. Campbell, Jr., filed as Exhibit 10.2 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094) and incorporated herein by reference. 10.3 Employment Agreement dated as of January 1, 1988, by and between National Bank of Commerce and Thomas M. Garrott, filed as Exhibit 10.3 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094) and incorporated herein by reference. 10.4 Employment Agreement dated as of September 1, 1987, by and between National Bank of Commerce and John S. Evans, filed as Exhibit 10.4 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094) and incorporated herein by reference. 32 10.5 Employment Agreement dated as of October 1, 1991, by and between National Bank of Commerce and Bruce E. Campbell, Jr., filed as Exhibit 10.5 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094) and incorporated herein by reference. 10.6 Employment Agreement dated as of January 1, 1992, by and between National Bank of Commerce and John S. Evans, filed as Exhibit 10.6 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094) and incorporated herein by reference. 10.7 Employment Agreement dated as of January 1, 1992, by and between National Bank of Commerce and William R. Reed, Jr., filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094) and incorporated herein by reference. 10.8 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Thomas M. Garrott, filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference. 10.9 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Gary L. Lazarini, filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference. 10.10 Employment Agreement dated as of September 1, 1993, by and between National Bank of Commerce and Mackie H. Gober, filed as Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference. 10.11 Employment Agreement dated as of May 1, 1993, by and between National Bank of Commerce and William T. Williams, filed as Exhibit 10.12 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference. 33 10.12 Deferred Compensation Agreement for Thomas M. Garrott, filed as Exhibit 10c(2) to the Registrant's Form 10-K for the year ended December 31, 1984 (File No. 0-6094) and incorporated herein by reference. 10.13 Employment Agreement dated as of July 1, 1994, by and between National Bank of Commerce and Lewis E. Holland filed as Exhibit 10.14 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094) and incorporated herein by reference. 10.14 Split Dollar Insurance Plan filed as Exhibit 10c(3) to the Registrant's Form 10-K for the year ended December 31, 1984 (File No. 0-6094) and incorporated herein by reference. 10.15 Bonus Incentive Plan, filed as Exhibit 10c(1) to the Registrant's Form 10-K for the year ended December 31, 1980 (File No. 0-6094) and incorporated herein by reference. 10.16 1982 Incentive Stock Option Plan, as amended. (Filed as Exhibit 10.8 to the Registrant's Form 10- K for the year ended December 31, 1988 (File No. 0- 6094)) and incorporated herein by reference. 10.17 1986 Stock Option Plan, filed as Exhibit A to the Registrant's Proxy Statement for the 1987 Annual Meeting of Shareholders and incorporated herein by reference. 10.18 1990 Stock Plan, filed as Exhibit A to the Registrant's Proxy Statement for the 1990 Annual Meeting of Shareholders and incorporated herein by reference. 10.19 Form of Amendment to 1986 Stock Option Plan, filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1988 (File No. 0-6094) and incorporated herein by reference. 10.20 1994 Stock Plan, filed as Exhibit A to the Registrant's Proxy Statement for the 1994 Annual Meeting of Shareholders and incorporated herein by reference. 34 10.30 Resolution authorizing Pension Restoration Plan, filed as Exhibit 10(c)(7) to the Registrant's Form 10-K for the year ended December 31, 1986 (File No. 0-6094) and incorporated herein by reference. 11 Statement re: Earnings Per Share. 13 Registrant's 1995 Annual Report to Shareholders. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 27 Financial Data Schedule. (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report. (d) Financial Statement Schedules: None 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL COMMERCE BANCORPORATION -------------------------------- (Registrant) By /s/ Thomas M. Garrott ------------------------------ Thomas M. Garrott Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. March 14, 1996 By /s/ Thomas M. Garrott - -------------- ------------------------------ Dated Thomas M. Garrott Chairman of the Board (Principal Executive Officer) March 14, 1996 By /s/ Lewis E. Holland - -------------- ------------------------------ Dated Lewis E. Holland Executive Vice President, Treasurer, and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Henry M. Turley, Jr. /s/ Robert M. Solmson - ------------------------ ------------------------------ Director Director /s/ R. Lee Taylor /s/ Jack R. Blair - ------------------------- ------------------------------ Director Director /s/ Lucy Y. Shaw /s/ Harry J. Phillips, Sr. - ------------------------- ------------------------------ Director Director /s/ R. Grattan Brown, Jr. /s/ Bruce E. Campbell, Jr. - ------------------------- ------------------------------ Director Director /s/ Edmond D. Cicala /s/ Thomas C. Farnsworth, Jr. - ------------------------- ------------------------------ Director Director 36 /s/ John D. Canale, III /s/ Christopher W. Canale - ------------------------- ------------------------------ Director Director /s/ Rudi E. Scheidt - ------------------------- ------------------------------ Director Director /s/ James E. McGehee, Jr. - ------------------------- ------------------------------ Director Director - ------------------------- ------------------------------ Director Director Dated: March 14, 1996 ---------------- 37 ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) and (2), and (c) LIST OF FINANCIAL STATEMENTS CERTAIN EXHIBITS YEAR ENDED DECEMBER 31, 1995 NATIONAL COMMERCE BANCORPORATION MEMPHIS, TENNESSEE 38 FORM 10-K -- ITEMS 14(a)(1) and (2) NATIONAL COMMERCE BANCORPORATION AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS The following consolidated financial statements and report of independent auditors of National Commerce Bancorporation and Subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8: Report of Independent Auditors Consolidated Balance Sheets--December 31, 1995 and 1994 Consolidated Statements of Income--Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements--December 31, 1995 Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted. 39 EXHIBIT INDEX
Sequential Page Exhibit Description of Exhibit Number - ------------------------------------------------------------------------- 3.1 Charter of National Commerce * Bancorporation as amended and restated, filed as Exhibit 3.1 to the Registrant's Form 10-K for the year ended December 31, 1988 (File No. 0-6094). 3.2 Bylaws of National Commerce 43 Bancorporation as amended. 10.1 Form of Promissory Notes of National * Bank of Commerce payable to The Mallory Partners filed as Exhibit 10.1 to the Registrant's Form 10-K for the year ended December 31, 1987 (File No. 0-6094). 10.2 Employment Agreement dated as of * October 1, 1991, by and between National Bank of Commerce and Bruce E. Campbell, Jr. filed as Exhibit 10.5 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094). 10.3 Employment Agreement dated as of * January 1, 1992, by and between National Bank of Commerce and John S. Evans filed as Exhibit 10.6 to the Registrant's Form 10-K for the year ended December 31, 1992 (File No. 0-6094). 10.4 Employment Agreement dated as of * January 1, 1992, by and between National Bank of Commerce and William R. Reed, Jr. filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1992 (File 10.5 Employment Agreement dated as of * September 1, 1993, by and between National Bank of Commerce and Thomas M. Garrott filed as Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1994
40 (File No. 0-6094). 10.6 Employment Agreement dated as of * September 1, 1993, by and between National Bank of Commerce and Gary L. Lazarini filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094). 10.7 Employment Agreement dated as of * September 1, 1993, by and between National Bank of Commerce and Mackie H. Gober filed as Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094). 10.8 Employment Agreement dated as of * May 1, 1993, by and between National Bank of Commerce and William T. Williams filed as Exhibit 10.12 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094). 10.9 Deferred Compensation Agreement * for Thomas M. Garrott, filed as Exhibit 10c(2) to the Registrant's Form 10-K for the year ended December 31, 1984 (File No. 0-6094). 10.10 Employment Agreement dated as of * July 1, 1994, by and between National Bank of Commerce and Lewis E. Holland, filed as Exhibit 10.14 to the Registrant's Form 10-K for the year ended December 31, 1994 (File No. 0-6094). 10.11 Split Dollar Insurance Plan filed * as Exhibit 10c(3) to the Registrant's Form 10-K for the year ended December 31, 1984 (File No. 0-6094). 10.12 Bonus Incentive Plan, filed as * Exhibit 10c(1) to the Registrant's Form 10-K for the year ended December 31, 1980 (File No. 0-6094). 10.13 1982 Incentive Stock Option Plan, as * amended, filed as Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1988 (File No. 0-6094).
41 10.14 1986 Stock Option Plan, filed as * Exhibit A to the Registrant's Proxy Statement for the 1987 Annual Meeting of Shareholders. 10.15 1990 Stock Plan, filed as Exhibit A * to the Registrant's Proxy Statement for the 1990 Annual Meeting of Shareholders. 10.16 Form of Amendment to 1986 Stock Option * Plan, filed as Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 1988 (File No. 0-6094). 10.17 1994 Stock Plan, filed as Exhibit A to the * Registrant's Proxy Statement for the 1994 Annual Meeting of Shareholders. 10.30 Resolution authorizing Pension Restoration * Plan, filed as Exhibit 10(c)(7) to the Registrant's Form 10-K for the year ended December 31, 1986 (File No. 0-6094). 11 Statement re: Earnings Per Share. 51 13 Registrant's 1995 Annual Report to 52 Shareholders. 21 Subsidiaries of the Registrant. 84 23 Consent of Independent Auditors. 85 27 Financial Data Schedule 86
- ---------- * incorporated herein by reference 42 EX-3.2 2 BYLAWS EXHIBIT 3.2. Bylaws of National Commerce Bancorporation As Last Amended January 18, 1996 - ----------------------------------------------------------- ARTICLE I. Identification Section 1.01. Name. The name of this Corporation shall be National Commerce Bancorporation. Section 1.02. Seal. The Corporation shall not be required to use a corporate seal. Section 1.03. Offices. The address of the principal office of the Corporation shall be One Commerce Square, Memphis, Tennessee 38150. The Corporation may also have offices at such other places as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II. Shareholders Section 2.01. Place of Meetings. Meetings of shareholders may be held at such place, either within or without the State of Tennessee, as may be set by the Board of Directors pursuant to these Bylaws. In the absence of any such provision, all meetings shall be held at the principal office of the Corporation. Section 2.02. Annual Meeting. An annual meeting of the shareholders shall be held at such time as may be set by the Board of Directors pursuant to these Bylaws. Failure to hold the annual meeting at the designated time shall not work a forfeiture or dissolution of the Corporation. Section 2.03. Special Meetings. Special meetings of shareholders may be called by the Chairman of the Board, the Board of Directors or the holders of not less than one-tenth (1/10) of all the shares entitled to vote at such meeting by giving written instructions to the Secretary of the Corporation to call such meeting, stating the purpose or purposes of the proposed meeting and identifying those persons calling the meeting. Section 2.04. Notice of Meetings; Waiver. Written or printed notice stating the place, day and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called and the person or persons calling the meeting, shall be delivered either personally or by mail by or at the direction of the Chairman of the Board or other officer or person or persons calling the meeting, to each share holder entitled to vote at the meeting. If mailed, such notice shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting and shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. If delivered personally, such notice shall be delivered not less than five (5) nor more than sixty (60) days before the date of the meeting and shall be deemed delivered when actually received by the share holder. Notice to a shareholder shall not be required if that shareholder has, before or after the meeting, submitted a signed waiver of notice. Section 2.05. Record Date. For the purpose of determining shareholders entitled to notice of or entitled to vote at any meeting of 43 shareholders, or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the stock transfer books of the Corporation shall not be closed, but, in lieu thereof, the Board shall fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. Section 2.06. Quorum. "Quorum" means a majority of the shares entitled to vote. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any of those present. The meeting may be adjourned despite the absence of a quorum. Section 2.07. Shareholder's Right to Vote. Every shareholder of record of the Corporation shall be entitled at each meeting of shareholders, and upon each proposal presented at such meeting, to one (1) vote for each share of stock standing in such shareholder's name on the books of the Corporation. Section 2.08. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Each fiduciary, including such acting as executor, administrator, guardian, committee, agent, or trustee, owning shares registered in such fiduciary's name as fiduciary, or in the name of another for the convenience of the fiduciary, may, in addition to exercising the voting rights vested in such fiduciary, waive notice of shareholders' meetings and execute and deliver or cause to be executed and delivered, a proxy or proxies in accordance with law to others for the voting of such shares. Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Section 2.09. Vote of Shareholders. Whenever any corporate action other than the election of directors is to be taken by vote of the shareholders, it shall, except as otherwise required or permitted by law, be authorized by a majority of the shares represented and entitled to vote thereon. ARTICLE III. Corporate Directors and Officers Section 3.01. Board of Directors. The business affairs of the Corporation shall be managed by the Board, each of whom shall be at least eighteen (18) years of age and not more than seventy-two (72) years of age; provided, however, a director may be nominated by management for re-election and may continue to serve as a director until the meeting of the Board of Directors in January in the year in which such director's seventy-third (73rd) birthday occurs. Directors need not be shareholders and need not be residents of the State of Tennessee. Any director who shall have become ineligible for nomination by management of the Corporation for re-election by the shareholders as herein provided and who shall not have been so re-elected, may be elected by the Board of Directors as an honorary director or director emeritus, whose past 44 service shall be duly and appropriately recognized and honored. Such honorary director shall possess none of the usual privileges, rights or emoluments of regular members of the Board, except that he shall be entitled to such life insurance benefits as may be enjoyed by the regular directors, provided he is eligible therefor. Section 3.02. Number of Directors. The Board of the Corporation shall consist of twenty-five (25) natural persons. The Board shall be divided into three (3) classes as nearly equal in number as possible with each class serving staggered three-year terms, as provided in the Charter. The Board may decrease to three (3) the number of directors by amending these Bylaws, but such amendment shall require the vote of the majority of the entire Board. No decrease in the number of directors shall shorten the term of any incumbent director. Section 3.03. Election and Term of Directors. As provided in the Charter, directors shall be elected at the annual meeting of shareholders in the year in which the term of their respective class expires for terms of three (3) years. Directors shall be elected by a plurality of the votes cast in the election. Except as provided for in Section 3.01 hereinabove, each director shall hold office until the expiration of the term for which he is elected or until a successor shall be elected and qualified. Section 3.04. Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board for any reason, including the removal of directors without cause, may be filled by vote of a majority of the directors then in office, although less than a quorum exists. Any directors so chosen shall hold office until the next election of the class for which the director shall have been chosen and until a successor shall be elected and qualified. Section 3.05. Removal of Directors. As provided in the Charter, any one (1) or more directors may be removed, either for cause or without cause, at any time, only by the affirmative vote of at least two-thirds of the entire Board of Directors. Section 3.06. Directors' and Committee Meetings; Vote of the Directors. (a) Place. Meetings of the Board, regular or special, may be held either within or without the State of Tennessee. (b) Annual Meeting. The annual meeting of the Board of Directors for the purpose of electing officers and transacting such other business as may properly be brought before the meeting shall be held each year immediately following the annual meeting of shareholders. (c) Regular Meetings. The Board of Directors may by resolution provide for the time and place of other regular meetings, and no notice of such regular meetings need be given. (d) Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or any five (5) directors. Special meetings of the Board shall be held upon notice sent by any usual means of communication not less than forty-eight (48) hours before the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not 45 lawfully called or convened. Notice of any meeting of the Board may be waived in writing signed by the person entitled to the notice, whether before or after the time of the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice or waiver of notice of such meeting. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken and if the period of adjournment does not exceed thirty (30) days in any one (1) adjournment. (e) Meeting by Telephone. Members of the Board may participate in a meeting of such Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. The directors shall be promptly furnished a copy of the minutes of the Board meetings. (f) Definition of Quorum. "Quorum" means a majority of the total number of directors then in office. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any of those present. A meeting may be adjourned despite the absence of a quorum. (g) Vote Required. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board, unless the vote of a greater number is required by law, the Charter or these Bylaws. (h) Action by Written Consent. Any action required or permitted to be taken at a meeting of the Board may be taken without a meeting if written consent, setting forth the action so taken, is signed by all the directors and filed with the minutes of the proceedings of the Board. (i) Definition of "Board". For purposes of these Bylaws, the term "Board" means the governing Board of the Corporation, and the term "entire Board" means all the members of the Board then serving. Section 3.07. Committees of the Board. The Board, by a resolution adopted by a majority of the entire Board, may designate an Executive Committee, consisting of two (2) or more directors, and other committees consisting of two (2) or more persons, who may or may not be directors and may delegate to such committee or committees all such authority of the Board that it deems desirable. The Board may designate one (1) or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board. The designation of any such committee and the delegation thereto of authority shall not relieve any director of any responsibility imposed by law. The provisions of Section 3.06 of these Bylaws relating to the conduct of meetings of the Board shall govern meetings of the Executive and other Committees. Section 3.08. Executive Committee. (a) There shall be an Executive Committee composed of the Chairman of the Board and the President, who shall serve thereon without extra compensation during their continuance in office; and further composed of five (5) or more directors to be appointed by the Board. A majority of the members of the Executive Committee shall be composed of directors who are not employees of the Corporation. 46 (b) All authority of the Board is hereby delegated to the Executive Committee except that no such committee, unless specifically so authorized by the Board, shall have and exercise the authority of the Board to: (i) Adopt, amend, or repeal the Bylaws; (ii) Submit to the shareholders any action that needs shareholder's authorization under the law; (iii) Fill vacancies in the Board or any committee; or (iv) Declare dividends or make other corporate distributions. (c) The Board shall also appoint one of the members of the Executive Committee to serve as its Chairman, who shall preside at all meetings of the Executive Committee and shall perform such other duties as may be designated by the Executive Committee. The Chairman of the Executive Committee shall designate one (1) member of the Executive Committee as Vice Chairman of the Executive Committee, who shall preside at the Executive Committee meetings in the absence of the Chairman of the Executive Committee. (d) The Executive Committee shall keep minutes of its meetings and report the same to the next meeting of the Board of Directors. The Chairman of the Executive Committee shall also report to the Board concerning any matters which the Executive Committee determines are appropriate for Board review. Section 3.09. Audit Committee. (a) There is hereby established by a majority of the entire Board of Directors an Audit Committee consisting of not less than four (4) nor more than seven (7) directors. (b) The Audit Committee shall insure that an audit of the books and affairs of the Corporation and each of its subsidiaries shall be made at such time or times as the members of the Audit Committee shall choose. (c) The Audit Committee shall elect its own Chairman, who shall preside at all meetings of the Audit Committee and shall perform such other duties as may be designated by the Audit Committee. The Chairman of the Audit Committee shall designate one (1) member of the Audit Committee as Vice Chairman of the Audit Committee, who shall preside at the Audit Committee meetings in the absence of the Chairman of the Audit Committee. (d) The Audit Committee shall keep minutes of its meetings and report the same to the next meeting of the Board of Directors. Section 3.10. Officers. (a) The Corporation's officers shall be a Chairman of the Board, President, Secretary and Treasurer and such other officers as may be deemed necessary. Any two or more offices may be held by the same person, except the offices of President and Secretary. The officers of the Corporation may be designated by such additional titles as may be provided in the Charter or in these Bylaws or by the Board. The Chairman of the Board, the President, the Secretary, and the Treasurer shall be elected by the Board, and all other officers shall be appointed by the Chairman of the Board. (b) All officers shall be elected at the meeting of the Board following the annual meeting of shareholders for terms not exceeding one (1) year. Each officer shall hold office until the expiration of the term for which 47 he is elected and thereafter until his successor has been elected or appointed and qualified. The Board may require any officer to give security for the faithful performance of his duties. (c) Any officer or agent may be removed by the Board whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3.11. Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation. He shall have general supervision over all officers and the business or affairs of the Corporation. Without limiting the generality of the foregoing, the Chairman of the Board: (a) Shall have the right to employ and discharge all officers and agents of the Corporation except those officers who are required by law or by these Bylaws to be elected by the Board; (b) Shall have the supervision of all financial matters pertaining to the Corporation and shall have the duties to prepare under his authority financial plans, budgets, reports or any other financial materials reasonably required by the business or affairs of the Corporation; (c) Shall have, whenever the Corporation is the holder of record of shares of another Corporation, the authority to vote such shares and to execute proxies and written waivers and consents in relation thereto; (d) Shall, when present, preside over the meetings of the Board; (e) Shall be an ex-officio member of all committees of the Board, except the Audit Committee, unless otherwise provided by resolution of the entire Board or by these Bylaws; and (f) Shall have authority to represent to the Board that financial statements of the Corporation are correct. Section 3.12. President. The President shall have such duties and such authority as may be delegated to him by the Chairman of the Board. The President shall report to the Chairman of the Board. The President, in the absence of the Chairman, shall preside at all meetings of the Board. Section 3.13. Secretary. Due notice of all meetings of the shareholders and directors shall be given by the Secretary or by the person or persons calling such meeting. The Secretary shall report the proceedings of all meetings and shall perform all of the other duties appertaining to his office. In the absence of a Secretary, an Assistant Secretary shall perform the duties of the Secretary. Section 3.14. Vice Presidents. There may be such number of Vice Presidents as the Chairman of the Board shall choose. The Vice Presidents shall have such duties and authorities as shall be delegated to them by the Board or by the Chairman of the Board. Section 3.15. Treasurer. The Treasurer shall have the care, custody, control and handling of the funds and assets of the Corporation and shall render a full and detailed statement of the assets, liabilities and operations of the Corporation to the Chairman of the Board and the Board of Directors at its regular meetings. Section 3.16. Indemnification of Directors and Officers. The Corporation shall indemnify any person who is made a party to a suit by or 48 in the right of the Corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation, against amounts paid in settlement and reasonable expenses including attorneys' fees actually and necessarily incurred as a result of such suit or proceeding or any appeal therein to the extent permitted by and in the manner provided by the laws of Tennessee. The Corporation shall indemnify any person made or threatened to be made a party to a suit or proceeding other than by or in the right of any corporation of any type or kind, domestic or foreign, which any director or officer of the Corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the Corporation or served such other corporation in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such suit or proceeding, or any appeal therein, if such director or officer acted in good faith for a purpose which he reasonably believed to be in the best in terest of the Corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that this conduct was un lawful, and to the extent permitted by, and in the manner provided by, the laws of Tennessee. ARTICLE IV. Capital Stock Section 4.01. Certificates Representing Shares. (a) The shares of the Corporation shall be represented by certificates signed by the Chairman of the Board and the Secretary, who are hereby designated for that purpose. Either or both of such signatures upon a certificate may be facsimiles if the certificate is counter-signed by a transfer agent, or registered by a registrar, other than an officer or employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificates shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issuance. (b) Each certificate representing shares shall include the following upon the face thereof: (i) that the Corporation is organized under the laws of the State of Tennessee; (ii) the name of the Corporation; (iii) the name of the person to whom issued; (iv) the number and class of shares, and the designation of the series, if any, which such certificate represents; (v) the par value of each share represented by such certificate. (c) Such certificate may contain such other statement as may be lawful, and such certificate shall be in such form as shall be approved by the Board. Section 4.02. Board Regulations Regarding Stock. The Board from time to time may make such rules and regulations by resolution as it may deem expedient concerning the issue, transfer, and registration of stock. ARTICLE V. Special Corporate Acts All checks, drafts, notes, bonds, bills of exchange, and orders for 49 the payment of money of the Corporation; all deeds, mortgages, and other written contracts and agreements to which the Corporation shall be a party; and all assignments or endorsements of stock certificates, registered bonds, or other securities owned by the Corporation shall, unless otherwise directed by the Board of Directors, be signed by the Chairman of the Board. The Board of Directors may, however, designate other officers, directors or employees of the Corporation to sign such instruments in the name of the Corporation and may authorize the use of facsimile signatures of any of such persons. ARTICLE VI. Fiscal Year The Corporation's fiscal year shall extend from January 1 to December 31 of each calendar year. ARTICLE VII. Amendments The Bylaws of the Corporation may be amended or repealed or additional Bylaws may be adopted by the Board by a vote of a majority of the entire Board. 50 EX-11 3 STATEMENT OF EARNINGS EXHIBIT 11. Statement Re: Earnings Per Share * National Commerce Bancorporation and Subsidiaries - --------------------------------------------------------------------------------
Year Ended December 31 --------------------------- 1995 1994 1993 ------- ------- ------- (amounts in thousands, except per share amounts) Primary: Average shares outstanding 24,690 24,476 24,292 Less leveraged ESOP shares (53) (75) - Net effect of the assumed exercise of stock options - based upon the treasury stock method using average market price 612 650 712 ------- ------- ------- Total 25,249 25,051 25,004 ======= ======= ======= Net income $49,035 $44,342 $39,406 Per share amount $ 1.94 $ 1.77 $ 1.58 Fully diluted: Average shares outstanding 24,690 24,476 24,292 Less leveraged ESOP shares (53) (75) - Net effect of the assumed exercise of stock options - based on the treasury stock method using higher of year-end or average market price 638 664 738 ------- ------- ------- Total 25,265 25,065 25,030 ======= ======= ======= Net income $49,035 $44,342 $39,406 Per share amount $ 1.94 $ 1.77 $ 1.58
*Reflects all stock splits and stock dividends declared through December 31, 1995. 51 EX-13 4 REGISTRANT'S 1995 ANNUAL REPORT EXHIBIT 13. Registrant's 1995 Annual Report to Shareholders National Commerce Bancorporation and Subsidiaries - ------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations The purpose of this discussion is to focus on important factors affecting the Company's financial condition and results of operations. Reference should be made to the consolidated financial statements (including the notes thereto), the selected financial data and other consolidated financial statements presented elsewhere in this report for an understanding of the following discussion and analysis. In this discussion, net interest income and net interest margin are presented on a fully taxable equivalent basis. All per share data is adjusted to reflect all stock dividends and stock splits declared through December 31, 1995. RESULTS OF OPERATIONS For the year ended December 31, 1995, net income totaled $49,035,000, a $4,693,000 or 10.6 percent increase over 1994 net income of $44,342,000. Net income increased by $4,936,000 or 12.5 percent in 1994. Earnings per share were $1.94 in 1995, compared to $1.77 in 1994 and $1.58 in 1993. For 1995, return on average assets was 1.53 percent, compared to 1.56 percent in 1994 and 1.65 percent in 1993. Return on average equity (excluding unrealized gains or losses on investment securities) was 18.00 percent in 1995, compared to 18.48 percent in 1994 and 18.68 percent in 1993. Net interest income, the difference between interest earned on loans and investments and interest paid on interest-bearing liabilities, increased by $9,975,000 or 8.6 percent in 1995 and increased by $10,271,000 or 9.7 percent in 1994. The increase in 1995 reflects a $51,316,000 or 25.5 percent increase in interest income, and a $41,341,000 or 48.6 percent increase in total interest expense. The increase in interest income was the result of a $212,708,000 or 14.1 percent increase in average loans, a $143,271,000 or 12.7 percent increase in average securities and an increase in the average yield on earning assets from 7.51 percent in 1994 to 8.31 percent in 1995. The increased volume of average earning assets (partially funded by an increase of $34,969,000 in average non-interest-bearing liabilities, net of non-interest-earning assets) positively impacted interest income by approximately $27.1 million, while the increased yield positively impacted interest income by approximately $24.2 million. Interest expense increased in 1995, reflecting an increase in the cost of interest-bearing liabilities from 3.71 percent in 1994 to 4.83 percent in 1995, and a $326,449,000 or 14.2 percent increase in average outstanding interest-bearing liabilities. The increase in the rate paid on interest-bearing liabilities negatively affected interest expense by approximately $29.2 million and the increase in average outstandings negatively affected interest expense by approximately $12.1 million. The 1994 increase in net interest income was primarily the result of an increase in earning assets and an increase of $5.7 million in average non-interest-bearing liabilities, net of non-interest-earning assets. The net interest margin (taxable equivalent net interest income as a percentage 52 of average earning assets) was 4.14 percent in 1995, compared to 4.33 percent in 1994 and 4.74 percent in 1993. The yield on earning assets was 8.31 percent in 1995, compared to 7.51 percent in 1994 and 7.53 percent in 1993. The cost of interest-bearing liabilities was 4.83 in 1995, compared to 3.71 percent in 1994 and 3.36 percent in 1993. The Company's provision for loan losses was $9,750,000 for 1995, compared to $7,077,000 for 1994 and $8,392,000 for 1993. The 1995 provision was primarily the result of loan growth. Net loan charge-offs were $5,050,000 (.29 percent of average loans, net of unearned discounts) in 1995, compared to $4,234,000 (.28 percent of average loans) in 1994 and $4,303,000 (.34 percent of average loans) in 1993. The allowance for loan losses at December 31, 1995, was $29,010,000 or 1.50 percent of loans, net of unearned discounts, compared to $24,310,000 or 1.53 percent of net loans at December 31, 1994, and $21,467,000 or 1.54 percent of net loans at December 31, 1993. Following is a comparison of non-earning assets and loans past due 90 days or more for the years ended December 31, 1995, 1994 and 1993:
In Thousands 1995 1994 1993 Non-accrual loans $ -- $ -- $ -- Renegotiated loans -- -- -- Other real estate owned 30 61 1,711 ------ ------ ------ Total non-earning assets $ 30 $ 61 $1,711 ====== ====== ====== Loans past due 90 days or more $3,252 $2,432 $2,063 Percentage of total loans 0.17% 0.15% 0.15% Performing restructured loans $ --- $ --- $1,984
At December 31, 1995, the allowance for loan losses was 967 times problem assets, compared to 399 times at December 31, 1994, and 126 times at December 31, 1993. Based on the regulatory definition, the Company has no "Highly Leveraged Transactions" (HLTs). The Company also has no loans involving syndicated leveraged buyouts (LBOs). Management believes that the allowance for loan losses is adequate to provide for inherent losses in the loan portfolio. Non-interest income (excluding securities gains or losses) increased $3,202,000 or 6.3 percent in 1995. The Company's broker-dealer revenue decreased $373,000 or 3.7 percent and mortgage banking origination revenue increased $472,000 or 54.9 percent, reflecting current market conditions. Other sources of non- interest income, including trust service income, service 53 charge income and in-store banking sublicense income increased a net of $3,103,000 or 7.9 percent. During the fourth quarter 1994, the Company experienced a $757,000 gain on the disposition of other real estate. The Company realized $228,000 in securities gains in 1995, versus $498,000 in securities losses in 1994 as lower-yielding, available-for-sale securities were sold and the proceeds invested in higher yields which completely recovered the losses in 1995. The 1993 securities gains were primarily the result of municipal securities called prior to maturity. Non-interest income (excluding securities gains or losses) decreased by $1,620,000 or 3.1 percent in 1994, primarily as a result of decreases in broker-dealer revenue and mortgage banking origination revenue, partially offset by increases in trust service income, service charges on deposit accounts and in-store banking sublicense income. Non-interest expenses (excluding the provision for loan losses) increased by $4,256,000 or 4.9 percent in 1995. Salaries and employee benefits increased by $1,821,000 or 4.7 percent, primarily the result of increases related to the new automobile indirect lending and corporate cash management businesses, due to normal merit increases, additional staffing and the higher cost of employee benefits. Total non-interest expenses increased by $1,492,000 or 1.7 percent in 1994, primarily due to start-up expenses at the Company's North Carolina operation of NBC Bank, FSB (Knoxville), full year expenses at the Company's Virginia operation of NBC Bank, FSB (Belzoni) and Commerce Finance Company, the Company's consumer finance subsidiary. The reduction in FDIC assessment was a result of refunds and reduced premiums in 1995 due to a change in rate schedules. FINANCIAL CONDITION The Company functions as a financial intermediary, and as such its financial condition should be examined in terms of trends in its sources and uses of funds. The following comparison of daily average balances indicates how the Company has managed its sources and uses of funds: 54 SOURCES AND USES OF FUNDS TRENDS
1994-1995 1993-1994 1995 Increase 1994 Increase 1993 Average (Decrease) Average (Decrease) Average In Thousands Balance Amount % Balance Amount % Balance FUNDING USES Interest-earning assets: Loans, net of unearned discounts $1,718,424 $212,708 14.1% $1,505,716 $247,096 19.6% $1,258,620 Securities: Taxable 1,100,339 142,454 14.9 957,885 215,080 29.0 742,805 Non-taxable 154,755 7,002 4.7 147,753 21,818 17.3 125,935 Trading account securities 18,718 (6,185) (24.8) 24,903 (7,791) (23.8) 32,694 Federal funds sold and securities purchased under agreements to resell 25,383 7,365 40.9 18,018 (29,387) (62.0) 47,405 Time deposits in banks 16,881 (1,926) (10.2) 18,807 (911) (4.6) 19,718 ---------- -------- --------- ---------- -------- --------- ---------- Total interest-earning assets 3,034,500 361,418 13.5 2,673,082 445,905 20.0 2,227,177 Other uses 179,791 7,738 4.5 172,053 12,020 7.5 160,033 ---------- -------- --------- ---------- -------- --------- ---------- Total funding uses $3,214,291 $369,156 13.0% $2,845,135 $457,925 19.2% $2,387,210 ========== ======== ========= ========== ======== ========= ========== FUNDING SOURCES Interest-bearing liabilities: Interest-bearing deposits $2,054,809 $294,720 16.7% $1,760,089 $279,584 18.9% $1,480,505 Federal funds purchased and securities sold under agreements to repurchase 264,214 (977) (0.4) 265,191 37,968 16.7 227,223 Other borrowed funds and long-term debt 301,215 32,706 12.2 268,509 122,604 84.0 145,905 ---------- -------- --------- ---------- -------- --------- ---------- Total interest-bearing liabilities 2,620,238 326,449 14.2 2,293,789 440,156 23.7 1,853,633 Non-interest-bearing deposits 284,744 2,276 0.8 282,468 (7,574) (2.6) 290,042 Stockholders' equity 272,477 32,574 13.6 239,903 28,896 13.7 211,007 Other sources 36,832 7,857 27.1 28,975 (3,553) (10.9) 32,528 ---------- -------- --------- ---------- -------- --------- ---------- Total funding sources $3,214,291 $369,156 13.0% $2,845,135 $457,925 19.2% $2,387,210 ========== ======== ========= ========== ======== ========= ==========
55 Average loans, the largest use of funds, increased $213 million or 14.1 percent in 1995 and $247 million or 19.6 percent in 1994. Increases in consumer loans and real estate construction loans were the primary reasons for the increases in 1995, and increases in real estate mortgage loans and consumer loans were the primary reasons for the 1994 loan increase. For 1995 the growth in real estate construction loans reflects increased demand. The 1994 growth in real estate mortgage loans reflects growth in first mortgage refinancing loans. The growth in consumer loans reflects increased indirect installment loan activity in both years. Total securities (excluding the trading account), another major use of funds, increased by $149 million or 13.5 percent in 1995. Taxable securities increased by $142 million or 14.9 percent, reflecting increases in both fixed and variable rate federal agency securities. Non-taxable securities increased by $7 million or 4.7 percent, reflecting increased investment in bank-qualified municipal investments. Total securities increased by $237 million or 27.3 percent in 1994. The 1994 increase reflects increases in both fixed and variable rate federal agency securities and non-taxable securities. Effective December 31, 1993, the Company early adopted Financial Accounting Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which resulted in the adjustment of the securities portfolio to market value for those designated as available for sale. This year-end adjustment increased the securities portfolio by $7.4 million and increased stockholders' equity by $4.5 million at December 31, 1995, and decreased the securities portfolio by $53.9 million and decreased stockholders' equity by $32.9 million at December 31, 1994. Trading account securities decreased by $6 million or 24.8 percent in 1995 and decreased by $8 million or 23.8 percent in 1994. These decreases are a result of trading inventory levels needed by Commerce Investment Corporation. Federal funds sold and securities purchased under agreements to resell increased by $7 million or 40.9 percent in 1995, and decreased by $29 million or 62.0 percent in 1994, representing excess funds not otherwise employed in loans or investment securities. Time deposits in other banks decreased by $2 million or 10.2 percent in 1995, and decreased by $911,000 or 4.6 percent in 1994. This is a readily manageable asset and balances are maintained at levels which are based on operating needs. Total interest-earning assets increased by $361 million or 13.5 percent in 1995, compared to an increase of $446 million or 20.0 percent in 1994. As described below, the growth in 1995 and 1994 was funded primarily by increases in interest-bearing deposits, other borrowed funds and stockholders' equity in 1995 and 1994. Total average deposits increased by $297 million or 14.5 percent in 1995, compared to an increase of $272 million or 15.4 percent in 1994. Total interest-bearing deposits increased $295 million or 16.7 percent and total 56 non-interest-bearing deposits increased $2 million or 0.8 percent in 1995, reflecting current market trends, compared to an increase of $280 million or 18.9 percent in interest-bearing deposits and a decrease of $8 million or 2.6 percent in non-interest-bearing deposits in 1994. Federal funds purchased and securities sold under agreements to repurchase decreased $1 million or 0.4 percent in 1995, compared to an increase of $38 million or 16.7 percent in 1994. These changes were primarily the result of the availability of overnight funds purchased from downstream correspondent banks. Other borrowed funds, primarily Federal Home Loan Bank advances, increased $33 million or 12.2 percent in 1995, compared to an increase of $123 million or 84.0 percent in 1994. These advances are partially the result of asset/liability management decisions matching certain earning assets (first mortgage and consumer installment loans) against these advances at positive rate spreads. For 1996, the Company anticipates loan demand similar to that which occurred in 1995 and deposit growth due to continued expansion into Virginia, North Carolina and Mississippi. Above normal operating expense increases are expected in the Company's thrift subsidiaries due to planned continued expansion. However, the Company expects continued back-office expense control and continued increases in non-interest income. The resulting pre-tax income should be sufficient to realize the benefits of the Company's deferred tax assets referenced in Note P. LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT The primary functions of asset/liability management are to assure adequate liquidity and to maintain an appropriate balance between interest-earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid rapidly fluctuating net interest margins and to promote consistent growth of net income through periods of changing interest rates. Cash and bank balances, federal funds sold, trading account securities and securities available for sale are the principal sources of short-term asset liquidity. Other sources of short-term liquidity include federal funds purchased and repurchase agreements, credit lines with other banks and borrowings from the Federal Home Loan Bank. Maturing loans and securities are the principal sources of long-term asset liquidity. Automobile, home equity and credit card loans are secondary liquidity sources as a result of active securitizations based on these procducts. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds, on which 57 rates change daily, and loans which are tied to the Prime rate are much more interest rate sensitive than long-term, fixed-rate securities and fixed-rate loans. Similarly, time deposits of $100,000 and over and money market certificates and accounts are much more interest rate sensitive than savings accounts. The shorter term interest rate sensitivities are the key to measurement of the interest sensitivity gap, or difference between interest- sensitive-earning assets or interest-sensitive-bearing liabilities or vice versa. Trying to minimize this gap is a continual challenge in a changing interest rate environment and one of the objectives of the Company's asset/liability management strategy. Company policy states that the six-month cumulative gap shall be no more than 12 percent of total assets and the one-year cumulative gap, no more than 15 percent. At year-end 1995, both six-month and one-year cumulative gaps were within these parameters. CAPITAL RESOURCES Total average assets increased by 13.0 percent in 1995, 19.2 percent in 1994 and 11.8 percent in 1993. Correspondingly, total average equity capital increased by 13.6 percent in 1995, 13.7 percent in 1994 and 16.8 percent in 1993. The percentage of average equity capital to average assets was 8.48 percent in 1995, 8.43 percent in 1994 and 8.84 percent in 1993. The internal capital growth rate was 11.65 percent in 1995, 12.16 percent in 1994 and 12.33 percent in 1993. These growth rates are the result of a return on average equity of 18.00 percent in 1995, 18.48 percent in 1994 and 18.68 percent in 1993. In early 1996, the Company announced a share repurchase program which authorizes the purchase, over the next two years, of up to 2,000,000 shares of its common stock with the objective of increasing per share returns and funding stock-based employee benefits plans. The Company's management plans to continue its efforts to increase the return on average equity while maintaining a consistent dividend ratio in order to achieve continued internal capital growth. As previously disclosed, the Company early adopted FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on December 31, 1993. This resulted in an increase of $4.5 million to 1995 year-end stockholders' equity and a decrease of $32.9 million to 1994 year-end stockholders' equity. The following ratios in the table on selected capital information do not include the effect of FAS No. 115 on Tier 1 capital, total capital or total risk- weighted assets. At December 31, 1995, the Company did not have any material commitments which would require an expenditure of capital funds. However, there are regulatory constraints placed on the Company's capital. The FDIC Improvement Act (FDICIA), effective December 19, 1992, established capital levels for the five capital categories created by the law. These capital categories range from the highest category, well-capitalized institutions, to the lowest category, critically under-capitalized institutions. The federal banking 58 regulatory agencies each issued substantially the same regulations on a joint basis to establish a uniform approach to the capital categories and supervisory procedures. Well-capitalized institutions are required to maintain a total capital to risk-weighted assets ratio of at least 10 percent, a Tier 1 capital to risk-weighted assets ratio of at least 6 percent and a Tier 1 capital to total assets (leverage) ratio of at least 5 percent. As indicated in the table of selected capital information, the Company and its banking subsidiaries exceeded all minimum required capital ratios for well-capitalized institutions at December 31, 1995. SELECTED CAPITAL INFORMATION
December 31 In Thousands 1995 1994 Capital: Stockholders' equity $ 296,679 $ 224,419 Less: Unrealized gains (losses) on securities, net of taxes 4,527 (32,864) Goodwill 9 9 ---------- ---------- Tier 1 capital 292,143 257,274 Qualifying allowance for loan losses 29,010 23,629 ---------- ---------- Total capital $ 321,153 $ 280,903 ========== ========== Total risk-weighted assets $2,374,668 $1,889,613 Ratios: Total capital to risk-weighted assets 13.52% 14.87% Tier 1 capital to risk-weighted assets 12.30 13.62 Tier 1 capital to total assets (leverage ratio) 7.91 8.56 Average equity to assets 8.48 8.43
IMPACT OF INFLATION AND CHANGING PRICES The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Another significant effect of inflation is on other expenses, which tend to rise during periods of general inflation. Management believes the most significant impact on financial results is the Company's ability to react to changes in interest rates. As discussed previously, management is attempting to maintain an essentially balanced position between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations. 59 CONSOLIDATED BALANCE SHEETS National Commerce Bancorporation and Subsidiaries
December 31 Dollar Amounts in Thousands 1995 1994 ASSETS Cash and cash equivalents: Interest-bearing deposits with other banks $ 16,660 $ 17,620 Cash and non-interest-bearing deposits 144,166 123,138 Federal funds sold and securities purchased under agreements to resell 226,929 25,675 ---------- ---------- Total cash and cash equivalents 387,755 166,433 Available-for-sale securities (amortized cost - $509,759 at December 31, 1995, and $926,249 at December 31, 1994) 516,623 872,379 Held-to-maturity securities (market value - $765,142 at December 31, 1995, and $269,043 at December 31, 1994) 762,023 283,906 Trading account securities 20,159 13,507 Loans, net of unearned discounts of $1,829 at December 31, 1995, and $1,887 at December 31, 1994 1,931,213 1,592,806 Less allowance for loan losses 29,010 24,310 ---------- ---------- Net loans 1,902,203 1,568,496 Premises and equipment, net 18,382 17,729 Broker/dealer customer receivables 13,444 1,130 Other assets 74,453 82,229 ---------- ---------- Total assets $3,695,042 $3,005,809 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Non-interest-bearing $ 331,436 $ 306,684 Interest-bearing 2,243,334 1,847,706 ---------- ---------- Total deposits 2,574,770 2,154,390 Federal funds purchased and securities sold under agreements to repurchase 404,746 275,136 Broker/dealer customer payables 1,271 399 Accounts payable and accrued liabilities 38,396 23,541 Federal Home Loan Bank advances 372,799 321,541 Long-term debt 6,381 6,383 ---------- ---------- Total liabilities 3,398,363 2,781,390 ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock, no par value -- authorized 5,000,000 shares, none issued Common stock, par value $2 per share - authorized 75,000,000 shares, issued and outstanding 24,834,581 shares in 1995 and 24,547,121 in 1994 49,669 49,094 Additional paid-in capital 80,605 77,785 Retained earnings 161,878 130,404 Unrealized gains (losses) on securities, net of taxes 4,527 (32,864) ---------- ---------- Total stockholders' equity 296,679 224,419 ---------- ---------- Total liabilities and stockholders' equity $3,695,042 $3,005,809 ========== ==========
- -------- See notes to consolidated financial statements. 60 CONSOLIDATED STATEMENTS OF INCOME National Commerce Bancorporation and Subsidiaries
Year Ended December 31 In Thousands, Except Per Share Amounts 1995 1994 1993 INTEREST INCOME Loans $159,816 $128,297 $107,673 Securities: Taxable 74,365 54,836 42,794 Non-taxable 8,556 8,982 8,451 -------- -------- -------- 82,921 63,818 51,245 Trading account securities 1,240 1,471 1,760 Other 2,488 1,534 2,012 -------- -------- -------- Total interest income 246,465 195,120 162,690 -------- -------- -------- INTEREST EXPENSE Deposits 96,691 63,080 49,517 Short-term borrowings 13,482 9,737 5,977 Federal Home Loan Bank advances 15,809 11,883 6,415 Long-term debt 458 399 388 -------- -------- -------- Total interest expense 126,440 85,099 62,297 -------- -------- -------- Net interest income 120,025 110,021 100,393 Provision for loan losses 9,750 7,077 8,392 -------- -------- -------- Net interest income after provision for loan losses 110,275 102,944 92,001 -------- -------- -------- OTHER INCOME Trust service income 8,296 7,967 6,897 Service charges on deposits 13,519 14,359 14,362 Other service charges and fees 5,264 4,386 4,707 Broker/dealer revenue 9,840 10,213 17,342 Investment securities gains (losses) 228 (498) 231 Other 16,721 13,513 8,750 -------- -------- -------- Total other income 53,868 49,940 52,289 -------- -------- -------- OTHER EXPENSES Salaries and employee benefits 40,935 39,114 36,800 Occupancy expense 8,665 7,447 7,146 Furniture and equipment expense 3,510 3,301 2,865 FDIC assessment 2,725 4,375 3,862 Other 35,995 33,337 35,409 -------- -------- -------- Total other expenses 91,830 87,574 86,082 -------- -------- -------- Income before income taxes 72,313 65,310 58,208 Income taxes 23,278 20,968 18,802 -------- -------- -------- Net income $ 49,035 $ 44,342 $ 39,406 ======== ======== ======== Net income per common share $1.94 $1.77 $1.58 Average shares outstanding 25,249 25,051 25,004
See notes to consolidated financial statements. 61 CONSOLIDATED STATEMENTS OF CASH FLOWS National Commerce Bancorporation and Subsidiaries
For Year Ended December 31 In Thousands 1995 1994 1993 OPERATING ACTIVITIES Net income $ 49,053 $ 44,342 $ 39,406 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 9,750 7,077 8,392 Provision for depreciation and amortization 4,249 3,359 3,455 Amortization of securities premiums and (accretion of discounts), net (460) 409 1,283 Deferred income taxes (1,866) (1,008) (1,579) (Increase) decrease in trading account securities (6,652) 49,617 (26,841) Realized securities (gains) losses (228) 498 (231) (Increase) decrease in broker/dealer customer receivables (12,314) 22,515 (22,503) Increase in interest receivable (5,532) (4,438) (1,287) Increase in other assets (6,363) (5,673) (2,874) Increase (decrease) in broker/dealer customer payables 872 (13,219) 12,491 Increase in interest payable 10,907 2,044 1,692 Increase in accounts payable and accrued liabilities 2,368 417 4,589 --------- --------- --------- Net cash provided by operating activities 43,766 105,940 15,993 INVESTING ACTIVITIES Available-for-sale securities: Proceeds from maturities of securities 101,157 213,724 342,062 Proceeds from sales of securities 512,112 82,936 20,157 Purchases of securities (276,553) (283,964) (636,555) Held-to-maturity securities: Purchases of securities (406,827) (266,452) (7,077) Proceeds from maturities of securities 9,731 --- --- Net increase in loans (343,718) (200,785) (201,214) Purchases of premises and equipment (4,455) (5,306) (5,564) --------- --------- --------- Net cash used in investing activities (408,553) (459,847) (488,191) FINANCING ACTIVITIES Net increase in demand deposits, NOW accounts, and savings accounts 66,154 257,162 36,023 Net increase (decrease) in certificates of deposit 354,226 (22,413) 112,448 Net increase in federal funds purchased and securities sold under agreements to repurchase 129,610 27,605 31,084 Net increase in Federal Home Loan Bank advances 51,258 151,516 98,926 Proceeds from exercise of stock options 2,163 1,172 1,413 Other (2) 85 626 Cash dividends (17,300) (15,183) (13,394) --------- --------- --------- Net cash provided by financing activities 586,109 399,944 267,126 --------- --------- --------- Increase (decrease) in cash and cash equivalents 221,322 46,037 (205,072) Cash and cash equivalents at beginning of year 166,433 120,396 325,468 --------- --------- --------- Cash and cash equivalents at end of year $ 387,755 $ 166,433 $ 120,396 ========= ========= =========
See notes to consolidated financial statements. 62 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY National Commerce Bancorporation and Subsidiaries
Unrealized Additional Securities Number of Common Paid-in Retained Gains Dollar Amounts in Thousands Shares Stock Capital Earnings (Losses) Total Balance at January 1, 1993 16,120,046 $32,240 $73,900 $ 92,520 $198,660 Add (deduct): Net income 39,406 $ 39,406 Common stock issued upon exercise of stock options 137,789 276 1,137 1,413 Cash dividends declared ($.55 per share) (13,394) (13,394) 3-for-2 stock split 8,113,506 16,227 (16,227) Tax benefit of stock options exercised 762 762 Unrealized gains on available-for-sale securities, net of taxes 9,084 9,084 ESOP loan (1,706) (1,706) Other 21,240 42 584 226 852 ---------- ------- ------- -------- -------- ------- Balance at December 31, 1993 24,392,581 48,785 76,383 100,825 9,084 235,077 Add (deduct): Net income 44,342 44,342 Common stock issued upon exercise of stock options 128,066 256 916 1,172 Cash dividends declared ($.62 per share) (15,183) (15,183) Tax benefit of stock options exercised 459 459 Unrealized losses on available-for-sale securities, net of taxes (41,948) (41,948) Other 26,474 53 27 420 500 ---------- ------- ------- -------- -------- ------- Balance at December 31, 1994 24,547,121 49,094 77,785 130,404 (32,864) 224,419 Add (deduct): Net income 49,035 49,035 Common stock issued upon exercise of stock options 287,460 575 1,588 2,163 Cash dividends declared ($.70 per share) (17,300) (17,300) Tax benefit of stock options exercised 1,232 1,232 Unrealized gain on available-for-sale securities, net of taxes 37,391 37,391 ESOP loan (261) (261) ---------- ------- ------- -------- -------- ------- Balance at December 31, 1995 24,834,581 $49,669 $80,605 $161,878 $ 4,527 $296,679 ========== ======= ======= ======== ======== ========
63 Notes To Consolidated Financial Statements National Commerce Bancorporation and Subsidiaries December 31, 1995 Note A - Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of National Commerce Bancorporation and its subsidiaries (the Company). The consolidated group provides financial services principally to domestic markets. All significant intercompany transactions have been eliminated in consolidation. Securities In accordance with Financial Accounting Statement (FAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," securities available for sale are carried at market. The amortized cost of debt securities classified as available for sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Unrealized gains or losses on these securities are included in stockholders' equity net of tax. Securities which the Company intends to hold until maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. Trading account securities consist of securities inventories held for the purpose of brokerage activities and are carried at market. Trading account income includes the effects of adjustments to market values. The adjusted cost of the specific securities sold is used to compute gains or losses on the sale of securities. Interest Rate Swaps Net interest received or paid on an interest rate agreement that is a hedge against interest rate risks is recognized over the life of the contract as an adjustment to interest income (expense) of the hedged financial instrument. Interest Income Interest on loans is accrued and credited to operations based upon the principal amount outstanding. Generally, the accrual of income is discontinued when the full collection of principal is in doubt or when the payment of principal or interest has become contractually 90 days past due unless the obligation is both well secured and in the process of collection. When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the allowance for loan losses. Loan Fees and Costs Loan origination and commitment fees and certain direct costs are deferred and the net amount amortized as an adjustment of the related loans' yields, generally over the contractual life, or estimated economic life if shorter, of the related loans. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation. The provision for depreciation is computed generally by use of the straight-line method. Leasehold improvements are amortized over the period of the leases or the estimated lives of the improvements, whichever period is shorter. Provision for Loan Losses For financial reporting purposes, the provision for loan losses charged to operating expense is based upon a credit review of the loan portfolio, past loan loss experience, current economic conditions and other pertinent factors which form a basis for determining the adequacy of the allowance for loan losses. The allowance is maintained at a level believed adequate by management to absorb potential losses in the loan portfolio. 64 Net Income Per Common Share The number of shares used to compute net income per common share is determined by use of the weighted average method including shares issuable under the stock option plans, when dilutive, and excluding leveraged shares under the Company's Employee Stock Ownership Plan (ESOP), all of which are adjusted retroactively for stock dividends and splits. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. Each subsidiary provides for income taxes on a separate- return basis and remits to or receives from the Company amounts currently payable or receivable. Income taxes have been provided using the liability method in accordance with FAS No. 109, "Accounting for Income Taxes." Cash Flow Information Cash equivalents include cash, due from banks, federal funds sold and securities purchased under agreements to resell. Generally, federal funds are sold for one-day periods and securities purchased under agreements to resell are for periods of less than two weeks. During 1995, 1994 and 1993, interest paid was $115,533,000, $83,055,000 and $60,605,000, respectively. During 1995, 1994 and 1993, income taxes paid were $25,329,000, $23,294,000 and $18,922,000, respectively. Reclassification Certain account reclassifications have been made to the 1994 financial statements to conform with the 1995 presentation, none of which are material. Stock-based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock option grants. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation," which provides an alternative to APB Opinion No. 25 in accounting for stock-based compensation issued to employees. The statement allows for a fair value based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under Opinion No. 25, FAS No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements. These disclosure requirements are effective for fiscal years beginning after December 15, 1995. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note B - Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. These fair values are provided for disclosure purposes only, and do not impact carrying values of financial statement 65 amounts. Cash and Cash Equivalents The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Securities (Including Mortgage-backed Securities) Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Trading Account Assets Fair values for the Company's trading account assets (including off-balance-sheet instruments), which also are the amounts recognized in the balance sheet, are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans Receivable For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans (e.g., one-to-four family residential), credit card loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value. Deposit Liabilities The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term Borrowings The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other short-term borrowings approximate their fair values. Long-term Borrowings The fair values of the Company's long-term borrowings (other than deposits) are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Off-balance-sheet Instruments Fair values for the Company's swaps are based on current settlement values. The Company has commitments to extend credit and standby letters of credit. These types of credit are made at market rates; therefore, there would be no market risk associated with these credits which would create a significant fair value liability for the Company. 66 December 31, 1995 In Thousands Carrying Amount Fair Value Financial assets: Cash and cash equivalents $ 387,755 $ 387,755 Available-for-sale securities $ 516,623 $ 516,623 Held-to-maturity securities $ 762,023 $ 765,142 Trading account securities $ 20,159 $ 20,159 Net loans $1,902,203 $1,958,071 Financial liabilities: Deposits $2,574,770 $2,578,229 Federal funds purchased $ 404,746 $ 404,746 Federal Home Loan Bank advances and long-term debt $ 379,180 $ 409,045 Off-balance sheet financial instruments: Interest rate swaps in net payable position (loss) $ 13 $ (116)
December 31, 1994 In Thousands Carrying Amount Fair Value Financial assets: Cash and cash equivalents $ 166,433 $ 166,433 Available-for-sale securities $ 872,379 $ 872,379 Held-to-maturity securities $ 283,906 $ 269,043 Trading account securities $ 13,507 $ 13,507 Net loans $1,568,496 $1,559,661 Financial liabilities: Deposits $2,154,390 $2,152,521 Federal funds purchased $ 275,136 $ 275,136 Federal Home Loan Bank advances and long-term debt $ 327,924 $ 317,353 Off-balance sheet financial instruments: Interest rate swaps in net receivable position (loss) $ 78 $ (3,172)
Note C - Restrictions on Cash and Due From Banks The Company's lead bank subsidiary is required to maintain reserve balances with the Federal Reserve Bank. The average amounts of those reserve balances for the years ended December 31, 1995 and 1994, were approximately $9,665,000 and $15,148,000, respectively. NOTE D - Securities The following is a summary of available-for-sale securities and held-to-maturity securities:
December 31, 1995 ----------------- Available-for-sale Securities Gross Gross Amortized Unrealized Unrealized Estimated In Thousands Cost Gains Losses Fair Value -------- ------ ---------- -------- U.S. Treasury securities and obligations of U.S. government agencies and corporations $114,624 $ 661 $ --- $115,285
67 Obligations of states and political subdivisions 78,100 1,955 (289) 79,766 Mortgage-backed securities 281,098 5,592 (1,045) 285,645 Total debt securities 473,822 8,208 (1,334) 480,696 Equity securities 35,937 --- (10) 35,927 -------- ------ ---------- -------- Total $509,759 $8,208 $(1,344) $516,623 ======== ====== ========== ========
December 31, 1995 ----------------- Held-to-maturity Securities Gross Gross Amortized Unrealized Unrealized Estimated In Thousands Cost Gains Losses Fair Value -------- ------ ---------- -------- U.S. Treasury securities and obligations of U.S. government agencies and corporations $131,289 $ 270 $ --- $131,559 Obligations of states and political subdivisions 71,722 3,035 (283) 74,474 Mortgage-backed securities 512,222 3,082 (2,466) 512,838 Total debt securities 715,233 6,387 (2,749) 718,871 Equity securities 46,231 40 --- 46,271 -------- ------ ---------- -------- Total $761,464 $6,427 $(2,749) $765,142 ======== ====== ========== ========
On December 27, 1995, the Company reclassified securities with an amortized cost of $415,469,000 (market value $418,061,000) from held to maturity to available for sale. The Company also reclassified securities with an amortized cost of $495,870,000 (market value $496,429,000) from available for sale to held to maturity. The reclassification was made pursuant to a reassessment of the securities portfolio based on the Financial Accounting Standards Board "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with the provisions in the special report, the Company was allowed a one-time reclassification of the securities portfolio between the special report date of November 15, 1995, and December 31, 1995. There were no sales of held-to-maturity securities in 1995 or 1994. At December 31, 1995, the net unrealized gain on the securities reclassified was $559,000. Consistent with the requirements of FAS No. 115, the write-ups (downs) on the reclassified securities are being accreted back to the amortized cost of each specific security based upon its estimated average life. 68
December 31, 1994 ----------------- Available-for-sale Securities ---------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated In Thousands Cost Gains Losses Fair Value --------- ---------- ---------- ---------- U.S. Treasury securities and obligations of U.S. government agencies and corporations $115,684 $ 200 $ (2,495) $113,389 Obligations of states and political subdivisions 99,219 1,273 (4,825) 95,667 Mortgage-backed securities 681,459 1,104 (49,120) 633,443 -------- ------ --------- -------- Total debt securities 896,362 2,577 (56,440) 842,499 Equity securities 29,887 --- (7) 29,880 -------- ------ -------- -------- Total $926,249 $2,577 $(56,447) $872,379 ======== ====== ======== ========
December 31, 1994 ----------------- Held-to-maturity Securities ---------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated In Thousands Cost Gains Losses Fair Value --------- ---------- ---------- ---------- U.S. Treasury securities and obligations of U.S. government agencies and corporations $ 6,937 $ --- $ (17) $ 6,920 Obligations of states and political subdivisions 65,630 --- (3,476) 62,154 Mortgage-backed securities 211,339 --- (11,370) 199,969 -------- ------ --------- -------- Total $283,906 $ --- $(14,863) $269,043 -------- ------ -------- --------
The amortized cost and estimated fair value of debt and marketable equity securities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
December 31, 1995 ----------------- Available-for-sale Securities ----------------------------- Amortized Estimated In Thousands Cost Fair Value Due in one year or less $ 63,751 $ 63,847 Due after one year through five years 81,222 82,731 Due after five years through 10 years 45,202 45,673 Due after 10 years 2,549 2,800 -------- -------- 192,724 195,051
69 Mortgage-backed securities 281,098 285,645 Equity securities 35,937 35,927 -------- -------- Total $509,759 $516,623 ======== ======== December 31, 1995 --------------------------- Held-to-maturity Securities --------------------------- Amortized Estimated In Thousands Cost Fair Value ------------ ------------ Due in one year or less $131,288 $131,559 Due after one year through five years 2,841 2,809 Due after five years through 10 years 11,290 11,469 Due after 10 years 103,823 106,467 -------- -------- 249,242 252,304 Mortgage-backed securities 512,222 512,838 -------- -------- Total $761,464 $765,142 ======== ========
The amortized cost of securities pledged to secure repurchase agreements and government, public and trust deposits was $915,854,000 and $729,483,000 at December 1995 and 1994, respectively. Note E - Loans Analyses of loans outstanding by category were as follows:
December 31 In Thousands 1995 1994 ---------- ---------- Commercial, financial and agricultural $ 399,580 $ 356,035 Real estate - construction 122,720 91,424 Real estate - mortgage 520,657 501,489 Consumer 871,407 630,927 Lease financing 18,678 14,818 Unearned discounts (1,829) (1,887) ---------- ---------- 1,913,213 1,592,806 Allowance for loan losses (29,010) (24,310) ---------- ---------- Net loans $1,902,203 $1,568,496 ========== ==========
The Company and its subsidiaries have granted loans to officers and directors of the Company and its subsidiaries and to their associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $31,187,000 and $31,970,000 at December 31, 1995 and 1994, respectively. During 1995, $24,848,000 of new loans to related parties 70 were made and payments totaled $25,631,000. Note F - Allowance for Loan Losses Changes in the allowance for loans losses were as follows:
Year Ended December 31 In Thousands 1995 1994 1993 Balance at beginning of year $24,310 $21,467 $17,356 Provision for loan losses 9,750 7,077 8,392 Loans charged off, net of recoveries of $2,199 in 1995, $2,240 in 1994 and $2,538 in 1993 (5,050) (4,234) (4,281) ------- ------- ----------- Balance at end of year $29,010 $24,310 $21,467 ======= ======= ===========
Note G - Non-performing Assets and Past Due Loans The following table summarizes the Company's non-performing assets (all of which are domestic):
December 31 In Thousands 1995 1994 Non-accrual loans $ -- $ -- Other real estate owned 30 61 - --- -- Total $ 30 $ 61 ======= =======
During 1993, the Company early adopted FAS No. 114, "Accounting by Creditors for Impairment of a Loan." The early adoption had no effect on either the balance sheet or income statement. In summary, the statement calls for reducing the value of impaired loans either to the present value of expected future cash flows, discounted at the loan's effective interest rate, the market price of the loan or fair value of the underlying collateral if the loan is collateral dependent. There were no non-accrual loans at December 31, 1995 or 1994. There were no restructured loans at December 31, 1995 or 1994. Accruing loans past due 90 days or more were $3,252,000 and $2,432,000 at December 31, 1995 and 1994, respectively. Note H - Premises and Equipment The following is a summary of the premises and equipment accounts: December 31 In Thousands 1995 1994 Land $ 2,240 $ 2,240 Premises 2,364 2,364 Furniture and equipment 22,780 20,821 Leasehold improvements 13,262 10,720 Construction in progress 846 1,309 ------- ------- 41,492 37,454 71 Less accumulated depreciation and amortization 23,110 19,725 ---------- ---------- Premises and equipment,net $ 18,382 $ 17,729 ========== ========== Note I - Deposits Analyses of deposits outstanding by category were as follows: December 31 In Thousands 1995 1994 Non-interest-bearing $ 331,436 $ 306,684 Money market checking 274,876 257,729 Savings 86,989 93,094 Money market savings 735,911 705,551 Certificates of deposit less than $100,000 677,733 511,772 Certificates of deposit $100,000 and over 467,825 279,560 ---------- ---------- Total $2,574,770 $2,154,390 ========== ==========
Note J - Lease Commitments The Company leases land, certain bank premises and equipment. Total rental expense for all operating leases is as follows:
Year Ended December 31 In Thousands 1995 1994 1993 Minimum rentals $4,456 $3,996 $3,860 Contingent rentals 823 848 671 ------ ------ ------ Total $5,279 $4,844 $4,531 ====== ====== ======
The contingent rentals are based on additional usage of equipment in excess of a specified minimum. Also, for land and bank premises, contingent rentals are based on escalation and parity clauses for real estate. Future minimum payments, by year and in the aggregate, under non-cancelable operating leases with initial or remaining terms of one year or more, consisted of the following at December 31, 1995:
In Thousands 1996 $ 3,968 1997 3,472 1998 3,033 1999 2,799 2000 2,392 Thereafter 2,578 ------- Total minimum lease payments $18,242 =======
The various leases on the land and bank premises may be renewed for periods 72 of five to 70 years upon the expiration of the respective leases. Note K - Credit Facilities During 1995, the Company obtained numerous advances from the Federal Home Loan Bank totaling $394 million. The advances ranged from $19 million to $50 million with interest rates from 5.50 percent to 5.94 percent. Maturity dates ranged from July 18, 1997, until August 18, 2000. At December 31, 1995, the Company had pledged as collateral $237,333,000 of its loans secured by mortgages on one- to-four family residential properties and certain securities totaling $233,407,000. During 1994, the Company obtained numerous advances from the Federal Home Loan Bank totaling $205 million. The advances ranged from $1.6 million to $50 million with interest rates from 3.95 percent to 6.8 percent. Maturity dates ranged from February 9, 1995, until September 23, 2004. At December 31, 1994, the Company had pledged as collateral $222,958,000 of its loans secured by mortgages on one-to-four family residential properties and certain securities totaling $223,454,000. Future minimum payments, by year and in the aggregate, related to the advances with initial or remaining terms of one year or more, consisted of the following at December 31, 1995:
In Thousands ------------ 1996 $ 26,690 1997 195,225 1998 67,002 1999 14,822 2000 42,647 Thereafter 26,413 -------- Total $372,799 ========
Long-term debt at December 31, 1995 and 1994, consisted primarily of the following unsecured term notes of a subsidiary of the Company: In Thousands Term notes originated October 23 and December 11, 1987, bearing interest payable at calendar quarters with a variable rate which is repriced every three years based on the yield on three-year United States Treasury notes. The next reprice date for the notes is 1997. At December 31, 1995, the rates ranged from 7.04 percent to 7.66 percent, maturing October 23 and December 11, 2007. $5,347 Term notes originated December 3 and December 17, 1987, bearing interest payable at calendar quarters with a variable rate which is repriced every three years based on the yield on United States Treasury notes. The next reprice date for the notes is 1997. At December 31, 1995, the rates ranged from 7.57 percent to 7.69 percent, maturing December 3 and December 17, 2007. $1,025 ------ Total $6,372 ====== At December 31, 1995, the Company had available $7 million in unsecured lines of credit with other financial institutions consisting of a $5 million line of credit which is contractual in nature and requires no compensating balances or fees and expires May 31, 1996, and a $2 million 73 line of credit which expires June 29, 1996. There were no borrowings against these lines during 1995. Note L - Stock Options During 1994, the shareholders approved the Company's 1994 Stock Plan, which reserved an additional 1,050,000 shares of the Company's common stock for use under the Plan. Options become exercisable in equal parts over the succeeding five years from the date of grant. Unoptioned shares under previous plans were transferred to reserved shares for the 1994 Plan. The 1990 Stock Plan reserved an additional 675,000 shares of the Company's common stock for the granting of options and restricted stock to key employees. The 1990 Plan amended the Company's 1986 Stock Option Plan and the 1982 Incentive Stock Option Plan and merged such amended and restated plans into the 1990 Stock Plan. Options became exercisable six months subsequent to the date of grant under the 1982 Plan and became exercisable in equal parts over the succeeding five to 10 years under the 1986 and 1990 Plans. At the discretion of the 1982 Plan's administering committee, stock appreciation rights were attached to some of the options, whereby the optionee may receive cash for the difference between the exercise price of the related option and the fair market value of the Company's common stock. The Plans are restricted to eligible officers and key employees. The following amounts reflect the effect of all stock dividends and splits declared through 1995:
December 31 ------------------------------ 1995 1994 -------------- -------------- Options outstanding 1,592,690 1,764,704 Price/share range $6.68 - $24.63 $5.26 - $23.25 Options exercised during the year 317,871 132,525 Price/share range $5.25 - $22.67 $3.15 - $21.00 Stock appreciation rights exercised 1,000 500 Price/share range $ 18.39 $ 17.98 Exercisable options 1,008,510 1,228,537 Unoptioned shares 328,928 477,285 Total shares reserved 1,921,618 2,241,989
Note M - Debt and Dividend Restrictions In accordance with federal banking laws, certain restrictions exist regarding the ability of the banking subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. The approval of certain regulatory authorities is required to pay dividends in excess of earnings retained in the current year plus retained net earnings for the preceding two years. As of December 31, 1995, $58,487,000 of undistributed earnings of the banking subsidiaries, included in consolidated retained earnings, was available for distribution to the Company as dividends without prior regulatory approval. For the thrift subsidiaries the undistributed earnings are such that any dividend restrictions would not prevent the payment of routine dividends. Under Federal Reserve regulations, the banking subsidiaries are also limited as to the amount they may loan to affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31, 1995, the maximum amount available for transfer from the banking subsidiaries to the Company in the form of loans approximated 11 percent of consolidated net assets. 74 Note N - Employee Benefits The Company has a defined benefit non-contributory pension plan covering substantially all of its full-time employees who have served continuously for one year. Amounts determined under ERISA are funded annually. Benefits are based on compensation and years of service. The following tables set forth the plan's status and amounts recognized in the Company's consolidated financial statements:
December 31 In Thousands 1995 1994 -------- -------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $37,031 at December 31, 1995, and $29,850 at December 31, 1994 $ 39,713 $ 32,053 ======== ======== Projected benefit obligation for services rendered to date $(45,148) $(36,485) Plan assets at fair value (stocks and bonds) 43,491 38,237 -------- -------- Plan assets in excess of (under) projected benefit obligation (1,657) 1,752 Unrecognized net assets (2,074) (2,038) Unrecognized net loss 12,287 9,105 Unrecognized prior service cost (1,604) (1,711) -------- -------- Prepaid pension cost included in other assets $ 6,952 $ 7,108 ======= ======== In Thousands 1995 1994 1993 ------- -------- -------- Net pension cost included the following components: Service cost - benefits earned during the period $ 1,210 $ 1,607 $ 1,478 Interest cost on projected benefit obligation 2,941 2,652 2,521 Actual return on plan assets (gain) loss (6,254) 787 (5,074) Net amortization and deferral 2,193 (4,911) 1,448 ------- -------- -------- Net periodic pension expense $ 90 $ 135 $ 373 ======= ======== ========
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.25 percent and 4.25 percent, respectively, at December 31, 1995, and 8.25 percent and 4.25 percent, respectively, at December 31, 1994. The expected long-term rate of return on plan assets was 10.25 percent in 1995 and 10 percent in 1994. The assumed normal retirement age was 64 in 1995 and 1994. The Company and its subsidiaries maintain an Employee Stock Ownership Plan which is generally available to all full-time employees. Annual contributions to this plan, which are discretionary, were $400,000 in both 1995 and 1994 and $425,000 in 1993. 75 The Company and its subsidiaries also maintain a Taxable Income Reduction Account Plan. Participants can elect to defer a percentage of their annual earnings, subject to the maximum amount allowed of $9,240. The Company matches participants' basic contributions up to a specified percentage of basic contributions. The Taxable Income Reduction Account Plan, Employee Stock Ownership Plan and the Retirement Plan net assets include equity securities of the Company. Included in other expenses are broker-dealer commissions of $3,484,000, $3,874,000 and $6,955,000 paid to employees for the years ended December 31, 1995, 1994 and 1993, respectively. Note O - Other Employee Benefits In addition to the Company's defined benefit pension plan, the Company sponsors retirement medical and life insurance plans that provide postretirement healthcare and life insurance benefits. Employees must retire under the pension plan with at least 15 years of service and must have participated in the active medical plan for at least 10 years prior to retirement to be eligible for retiree medical plan benefits. The plan is contributory and contains other cost-sharing features such as deductibles and coinsurance. The Company's policy to fund the cost of medical benefits to employees varies by age and service at retirement. Employees must retire under the pension plan to be eligible for retiree life insurance benefits. The following table represents the plan's funded status reconciled with amounts recognized in the Company's statement of income:
December 31 --------------------------- In Thousands 1995 1994 1993 ------- ------- ------- Accumulated postretirement benefit obligation: Retirees $(3,217) $(2,919) $(2,496) Fully eligible active plan participants (91) (62) (32) Other active plan participants (2,265) (1,552) (1,842) ------- ------- ------- Postretirement benefit obligation in excess of plan assets (5,573) (4,533) (4,367) Unrecognized transition obligation 3,003 3,180 3,356 Unrecognized net (gain) or loss 1,047 372 624 ------- ------- ------- Accrued expense $(1,523) $ (981) $ (387) ======= ======= =======
Net periodic postretirement benefits costs include the following components:
In Thousands 1995 1994 1993 ------- ------- ------- Service cost $ 142 $ 149 $ 111 Interest cost 387 330 285 Net amortization and deferral 191 202 177 ------- ------- ------- Net periodic postretirement benefits cost $ 720 $ 681 $ 573 ======= ======= =======
76 The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., healthcare cost trend rate) is 10 percent for 1995 and 12 percent for 1994 and is assumed to decrease gradually to 5.5 percent for 2005 and thereafter. The healthcare cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed healthcare cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995, by $687,595 and the aggregate of the service and interest cost components of net periodic postretirement benefit costs for 1995 by $83,156. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent at December 31, 1995, and 8.50 percent at December 31, 1994. Note P - Income Taxes The Company accounts for income taxes using the liability method required by FAS No. 109, "Accounting for Income Taxes." The components of the provision for income taxes for the three years ended December 31 were:
In Thousands 1995 1994 1993 ------- ------- ------- Federal: Current $23,008 $19,107 $16,763 Deferred (credits) (1,866) (1,008) (1,579) ------- ------- ------- 21,142 18,099 15,184 State 2,136 2,869 3,618 ------- ------- ------- Income taxes $23,278 $20,968 $18,802 ======= ======= =======
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred tax liabilities and assets are summarized as follows:
December 31 ---------------- In Thousands 1995 1994 ------- ------- Deferred tax liabilities: Net unrealized gains on available-for- sale securities $ 2,896 $ --- Pension costs 1,895 1,812 FAS No. 91 net deferred costs 2,264 2,324 Other 1,791 1,784 ------- ------- Total deferred tax liabilities 8,846 5,920 ------- ------- Deferred tax assets: Net unrealized losses on available-for-sale securities --- 21,009 Provision for loan losses over charge-offs 11,285 9,417 Other 1,620 1,592 ------- ------- Total deferred tax assets 12,905 32,018 ------- ------- Net deferred tax assets $ 4,059 $26,098 ======= =======
77 Income taxes varied from the amount computed at the statutory federal income tax rate as follows:
1995 1994 1993 ----- ------ ------ In Thousands Amount % Amount % Amount % ------- ----- ------- ----- ------- ----- Federal income tax at statutory rate $25,310 35.00 $22,858 35.00 $20,372 35.00 Add (deduct): State income taxes net of federal tax benefits 1,388 1.92 1,865 2.85 2,352 4.04 Non-taxable interest income (3,700) (5.12) (3,586) (5.49) (3,457) (5.94) Other items - net 280 .39 (169) (.25) (465) (.80) ------- ----- ------- ----- ------- ----- Income taxes $23,278 32.19 $20,968 32.11 $18,802 32.30 ======= ===== ======= ===== ======= =====
Income taxes (credits) applicable to securities gains (losses) for 1995, 1994 and 1993 which are included in the provision for income taxes were $89,000, $(194,000) and $90,000, respectively. 78 Note Q - Commitments and Contingent Liabilities For purposes other than trading, the Company and its subsidiaries have various commitments and contingent liabilities, such as commitments to extend credit, letters of credit, guarantees and liability for assets held in trust, which arise in the normal course of business. Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Commercial letters of credit are issued to facilitate the purchase of foreign and domestic merchandise. Both types of letters of credit have credit risk essentially the same as that involved in extending loans to customers and are subject to the bank's normal credit policies. Collateral primarily consists of securities, cash, receivables, inventory and equipment. It is obtained based on management's credit assessment of the customer. Management does not anticipate any significant losses as a result of these transactions. The Company's maximum exposure to credit loss at December 31 was as follows:
In Thousands 1995 1994 -------- -------- Loan commitments $789,210 $635,440 Standby letters of credit $ 20,792 $ 26,394 Commercial letters of credit $ 3,696 $ 2,826
Interest rate agreements are designed to provide an exchange of interest payments computed on notional amounts that will offset all or part of any undesirable change in cash flows resulting from market rate changes on designated (hedged) transactions. The Company limits the credit risks of the interest rate agreements by initiating the transactions with counter parties with significant financial positions. The Company's agreements modify the interest characteristics of its outstanding debt from a fixed to a floating rate basis. These agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of the swap agreements are not recognized in the financial statements. The Company's broker-dealer subsidiary, for trading purposes, enters into transactions involving financial instruments with off-balance sheet risk in order to meet the financing and hedging needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include forward contracts, when issued contracts and options written. All such contracts are for United States Treasury, federal agency or municipal securities. These financial instruments involve varying degrees of credit and market risk. The contract amounts of those instruments reflect the extent of involvement in particular classes of financial instruments. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in securities' market values and interest rates. The extent of the Company's involvement in financial instruments with off-balance sheet risk as of 79 December 31, 1995, was as follows:
In Thousands 1995 1994 -------- -------- Forward contracts: Commitments to purchase $212,836 $ 28,798 Commitments to sell $217,847 $ 31,512 When issued contracts: Commitments to purchase $ 10,388 $ 10,379 Commitments to sell $ 10,633 $ 12,926 Interest rate agreements (Notional amount) $150,000 $100,000 Option contracts: Written option contracts $ 2,000 $ 92,000 Purchased option contracts $ 2,000 $ 1,000
The Company and its subsidiaries are involved in certain legal actions and claims arising in the ordinary course of business. Although the ultimate outcome cannot be ascertained at this time, it is the opinion of management (based on advice of legal counsel) that all litigation and claims should be resolved without material effect on the Company's financial position or results of operations. Note R - National Commerce Bancorporation Financial Information (Patent Company Only)
Balance Sheets December 31 ---------------------- In Thousands 1995 1994 -------- -------- Assets Cash* $ 2,261 $ 852 Investments in: Bank subsidiaries* 267,749 184,863 Non-bank subsidiaries* 26,403 38,706 Other 1,606 896 -------- -------- Total assets $298,019 $225,317 ======== ======== Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $ 1,340 $ 898 Stockholders' equity 296,679 224,419 -------- -------- Total liabilities and stockholders' equity $298,019 $225,317 ======== ========
*Eliminated in consolidation. 80 Statements of Income
Year Ended December 31 In Thousands 1995 1994 1993 -------- -------- -------- Income: Dividends from bank and thrift subsidiaries* $ 26,330 $ 32,938 $ 13,376 Dividends from non-bank subsidiaries* 2,500 3,500 --- Income from bank subsidiaries* 132 154 672 Other --- 321 --- -------- -------- -------- 28,962 36,913 14,048 Expenses: Salaries and employee benefits 50 65 74 Other 2,138 774 561 ======== ======== ======== 2,188 839 635 Income before income taxes (credits) and equity in undistributed earnings of subsidiaries 26,774 36,074 13,413 Income taxes (credits) (808) (142) 13 -------- -------- -------- 27,582 36,216 13,400 Equity in undistributed net income of: Bank and thrift subsidiaries 15,653 6,066 20,241 Non-bank subsidiaries 5,800 2,060 5,765 -------- -------- -------- Net income $ 49,035 $ 44,342 $ 39,406 ======== ======== ========
*Eliminated in consolidation. Statements of Cash Flows
Year Ended December 31 In Thousands 1995 1994 1993 -------- -------- -------- Operating activities: Net income $ 49,035 $ 44,342 $ 39,406 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiaries (21,453) (8,126) (26,006) Decrease in other assets 522 1,914 2,592 Increase (decrease) in liabilities 442 (795) (545) -------- -------- -------- Net cash provided by operating activities 28,546 37,335 15,447 Investing activities: Investment in subsidiaries (12,000) (26,298) (9,577) Financing activities: Proceeds from exercise of stock options 2,163 1,172 1,413 Cash dividends paid (17,300) (15,183) (13,394) Other --- 75 626 -------- -------- -------- Net cash used in financing activities (15,137) (13,936) (11,355) -------- -------- -------- Increase (decrease) in cash 1,409 (2,899) (5,485) Cash at beginning of year 852 3,751 9,236 -------- -------- -------- Cash at end of year $ 2,261 $ 852 $ 3,751 ======== ======== ========
81 Note S - Quarterly Results of Operations (Unaudited)
Quarter In Thousands, Except Per Share Data First Second Third Fourth -------- -------- -------- ------- 1995: Interest income $ 55,828 $ 57,042 $ 64,307 $69,288 Interest expense 28,031 28,669 32,987 36,753 Net interest income 27,797 28,373 31,320 32,535 Provision for loan losses 1,708 1,685 3,011 3,346 Other income 12,455 14,430 13,310 13,445 Securities gains 53 115 51 9 Other expenses 22,064 23,686 22,317 23,763 Income before income taxes 16,533 17,547 19,353 18,880 Income taxes 5,313 5,684 6,587 5,694 Net income $ 11,220 $ 11,863 $ 12,766 $13,186 Net income per common share $.45 $.47 $.51 $.52 1994: Interest income $ 43,685 $ 46,993 $ 50,166 $54,276 Interest expense 17,438 19,289 22,573 25,799 Net interest income 26,247 27,704 27,593 28,477 Provision for loan losses 1,661 2,399 1,554 1,463 Other income 11,343 12,801 12,745 13,549 Securities gains (losses) 335 34 --- (867) Other expenses 21,131 21,875 21,895 22,673 Income before income taxes 15,133 16,265 16,889 17,023 Income taxes 4,978 5,495 5,621 4,874 Net income $ 10,155 $ 10,770 $ 11,268 $12,149 Net income per common share $.41 $.43 $.45 $.48
82 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders National Commerce Bancorporation We have audited the accompanying consolidated balance sheets of National Commerce Bancorporation and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Commerce Bancorporation and Subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Notes A, O and P to the consolidated financial statements, the Company changed its methods of accounting for certain securities, postretirement benefits other than pensions and income taxes in the year ended December 31, 1993. Memphis, Tennessee February 5, 1996 EX-27 5 FDS ARTICLE 9
9 9-MOS 9-MOS DEC-31-1995 DEC-31-1994 JAN-01-1995 JAN-01-1994 DEC-31-1995 DEC-31-1994 144,166 123,138 16,660 17,620 226,929 25,675 20,159 13,507 516,623 872,379 762,023 283,906 765,142 269,043 1,931,213 1,592,806 29,010 24,310 3,695,042 3,005,809 2,574,770 2,154,390 431,427 326,070 39,667 23,940 352,499 276,990 0 0 0 0 296,679 224,419 0 0 3,695,042 3,005,809 159,816 128,297 82,921 63,818 3,728 3,005 246,465 195,120 96,691 63,080 126,440 85,099 120,025 110,021 9,750 7,077 228 (498) 91,830 87,574 72,313 65,310 72,313 65,310 0 0 0 0 49,035 44,342 1.94 1.77 1.94 1.77 4.14 4.33 0 0 3,252 2,432 0 0 1,136 1,443 24,310 21,467 7,249 6,475 2,199 2,241 29,010 24,310 29,010 24,310 0 0 0 0
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