In Stores and Restored: Wal-Mart Key for Tenn.'s National Commerce

Article excerpt

Eleven months ago National Commerce Financial Corp. of Memphis was caught in a frenzy of takeover speculation after a lackluster profit report and an overhaul of its top management.

Shares of the $22 billion-asset company fell 20% after it issued a first-quarter earnings warning because of slumping net interest income and a one-time charge to settle a lawsuit.

A month later, when National Commerce fired its CEO, investors bid the stock back up 10%, betting that the company might be forced to sell.

That never happened, in part because the new chief executive, company veteran William R. Reed, quickly addressed the problems that had left it weakened. National Commerce shares continued to rebound after Mr. Reed sold or closed unwanted branches, restructured debt, sold the merchant processing subsidiary, and replaced other top-level executives, including the chief financial officer.

National Commerce still is mentioned as a possible seller amid a new wave of bank mergers, but analysts and Mr. Reed himself say worries about a takeover have subsided.

"A year ago, we were vulnerable," the CEO said in an interview. "We were wounded, and somebody could've jumped in here and gotten us. Thank God the market was kind of unstable a year ago."

Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners LP in New York, credits Mr. Reed with turning the company around and making a sale a choice -- not a given.

"Bill Reed has done a great job and really gotten things back on track. I think it is entirely their option now, and they are dealing from a position of strength, whereas a year ago they were dealing from a position of weakness."

National Commerce is among a collection of midsize banks that argue they are big enough to compete against larger banks but also small enough to offer better service. But as they expand and target fast-growing markets, they are attracting the attention of the acquisition-minded.

Jeff Davis, at First Tennessee National Corp.'s FTN Midwest Research in Nashville, said National Commerce does not fit the profile of a seller. "NCF is a highly profitable company and it is a growth company, so right off the bat those two aspects make it much less likely to sell."

Still, the flurry of merger announcements in recent months has analysts and investment bankers contemplating other potential strategic pairings, some involving National Commerce. One of the more frequently heard ideas is that Fifth Third Bancorp of Cincinnati might buy National Commerce to expand into faster-growing markets beyond the Midwest. National Commerce executives themselves have fueled that speculation in recent years by comparing their company time and again to the $91 billion-asset Fifth Third.

In the interview, Mr. Reed steered away from questions about would-be merger partners.

"As long as we grow better than everybody else, and keep our stock price higher than everybody else, we can control our destiny," he said.

In the Aisles

Last year's troubles were unusual for National Commerce, which expanded rapidly during the 1980s and 1990s with a novel strategy stressing branches in supermarkets and Wal-Marts. Steady growth and solid shareholder returns made what was then known as National Commerce Bancorp (it took its current name in April 2001) a top pick of analysts and investors.

NCBC was just an $845 million-asset commercial bank in 1982 when it named Thomas M. Garrott president. Though he had been a board member for five years, the appointment was a career change for Mr. Garrott, then 44 years old and an executive with Malone & Hyde Inc., a Memphis food wholesaler and specialty retailer.

But right away Mr. Garrott put his grocery background to work by pioneering in-store banking -- a strategy that today is widely viewed as one of the most successful in the industry. The approach allowed National Commerce to expand quickly -- and less expensively than it could have with traditional branches -- around Tennessee and into Georgia and Virginia. …