ERNEST C. ROESSLER - NATIONAL COMMERCE BANCORPORATION - (NCBC)
CEO Interview - published 04/09/01

DOCUMENT # MAB243

ERNEST C. ROESSLER is President and CEO of National Commerce Bancorporation. He joined Central Carolina Bank (CCB) in September 1998 as Executive Vice President and CFO and was named President and CEO in April 1993 and Chairman of the Board in April 1998. In July 2000, Mr. Roessler became President and CEO of National Commerce Bancorporation following its merger of equals with CCB. He has more than 37 years of experience in the financial industry, including one year as Senior Vice President and CFO of Lane Financial, Inc. and spent 24 years with Mellon Bank. Mr. Roessler received a BA from Dartmouth College and a MBA from the Amos Tuck School of Business Administration, concentration in finance and marketing.

Sector: Banking

TWST: Could we begin with a brief historical sketch of the company and then a picture of things as they are now?

Mr. Roessler: Our recent history dates back to about a year ago yesterday when we — Central Carolina Bank (CCB) and National Commerce Bancorporation (NCBC) — announced our merger of equals. The history of each organization goes back much further than that. NCBC was founded in Memphis, Tennessee, almost 130 years ago in 1873. It had a strong reputation for commercial lending, but in the last 20 years, it has built its reputation though a very innovative, hub-and-spoke retail franchise and successful in-store banking program. CCB was founded in Durham, North Carolina, almost 100 years ago in 1903. It had established itself as a major player in both the commercial and small business arena. CCB is an effective franchise of retail outlets through what we call the Piedmont Crescent, from Raleigh-Durham, North Carolina, to Charlotte and down into Greenville-Spartanburg, South Carolina. These are very high-growth MSAs. The excitement now is that the two companies’ business strengths and geographic locations complement each other very well. We are in the process of rapidly capitalizing on those opportunities to increase shareholder value.

TWST: What makes you different from those who might be competing with you?

Mr. Roessler: There are certainly a number of factors that make us unique. But three that stand out are our extremely efficient retail distribution system, our pristine credit quality and our entrepreneurial spirit. Our hub and spoke approach to retail banking, with one traditional branch surrounded by instore branches, allows us to quickly build and maintain our retail presence at a relatively inexpensive level compared to our competition. It also provides us with the ability to rapidly enter new markets, as we did in Richmond, Virginia, and Charleston, West Virginia. NCBC traditionally has had one of the lowest efficiency ratios in the industry, generally in the low 40s. Post-merger, our overall efficiency ratio was a very strong 49.07% for 2000. We are striving to return to NCBC’s pre-merger levels by year end. Both CCB and NCBC brought a tradition of strong credit quality to our merger. That tradition continues as was evident through the latest credit crisis du jour of syndicated loans. We will not compromise our underwriting standards no matter how competitive the market becomes. Our approach to relationship banking with our clients focuses on expanding our “wallet share” by providing a wider array of services to a strong customer base. Our company thrives on and rewards our associates for exhibiting initiative, innovation and a strong entrepreneurial spirit. It is shown through local branch employees taking ownership of customers’ problems through resolution, to identifying new high-growth lines of business and integrating them into our existing offerings. Almost a quarter of our stock is owned by “insiders” which includes employee ownership. Ownership is a powerful incentive for making sure a company succeeds. Another strength is our attractive franchises located in strong MSAs. CCB is in a contiguous connection of MSAs located primarily along the I-85 corridor from Raleigh to Greenville-Spartanburg. NCBC is in very strong MSAs as well, though unlike CCB, they are not connected. They are spread throughout Memphis, Nashville and Knoxville, Tennessee; Richmond and Roanoke, Virginia; Charleston, West Virginia; and in the Research Triangle and Greensboro-High Point-Winston Salem. Finally, the merger has created an excellent management team with good depth and breadth. This team can run not only this organization but also one that could grow from its base.

TWST: Would it retain the Southern focus?

Mr. Roessler: Yes, I think so. I just mentioned the various states in the Southeast in which we are located. There are many leverage opportunities between the organizations. Of course, there are also the expansion opportunities, both banking and non-banking. On the banking side, both the consumer and the business growth primarily would be in the Southeast. On the non-banking side, our expansion would include a broader regional or national coverage for businesses such as transaction processing for the TransPlatinum fuel card with truckers, as well as the 401(k) business we do through First Mercantile.

TWST: Would you like to say a little bit about the management teams?

Mr. Roessler: Because our merger was a story of revenue enhancements, not cost saves, we kept the top management from both organizations intact. As a result, we started from a position of strength. We are building as opposed to tearing down, cutting and eliminating. Two of the team from NCBC are running the main revenue drivers for the organization. Bill Reed is the Chief Operating Officer in charge of the entire banking group. Lewis Holland is President of the Financial Enterprises group, which includes non-banking activities such as transaction processing, asset management and National Commerce Bank Services, our consulting arm. The team from CCB includes Sheldon Fox, Chief Financial Officer, who now serves that function for the entire corporation. Scott Edwards, Chief Administrative Officer, has oversight over credit and operations. Richard Furr, who was the Chief Operating Officer for CCB, now heads up the banking operations for the Carolinas, Virginia, West Virginia, and works closely with Bill Reed. Finally, David Popwell, who was with NCBC, heads up our investment advisory business, institutional investor relations and M&A activity. There is a lot of strength in the team, with excellent chemistry.

TWST: Within the large array of things you spoke about, what is the greatest opportunity for the company over the next couple of years?

Mr. Roessler: When you combine the fourth and fifth best-performing mid-size banks in the country, there are plenty of opportunities. However, with the integration behind us, the greatest opportunities are the vertical and horizontal leveraging opportunities across the corporation. Our financial enterprises give us the power to multiply shareholder value through integration and the leveraging of opportunities from one enterprise area to another without additional operating costs. In addition, our combined banking and financial enterprise customer bases offer extensive cross-selling potential to increase fee income while reducing our dependence on interest-sensitive income. For instance, we are expanding CCB’s commercial lending and cash management, retail brokerage, trust and wealth management products into the NCBC footprint. NCBC’s asset-based lending and non-financial offerings are quickly being introduced to the CCB territory. If we are fortunate enough to have the opportunities to expand the footprint, we would likely follow NCBC’s de novo hub-and-spoke model. This is what we mean by leverage between the banks. We have two fine wholesale distribution channels in National Commerce Bank Services and in our Capital Markets Group. Through these entities, we have access to 300 financial institutions that are NCBS customers and 3,000 customers in our Capital Markets Group.

TWST: Within this very large picture, will you be able to retain some of the flavor of the community bank?

Mr. Roessler: That is essential to the overall success of the bank, and I think that is another strength. We have a very flat organization, and we delegate much through our community executives. We encourage them to be very involved in community activities, because not only is it good corporate citizenship, it is good business. Our community executives have a great deal of independence in terms of business decisions and credit decisions. We try to do as much centrally on the administrative side of operations and technology to relieve them of the administrative burdens, to give them that freedom to serve the needs of their community.

TWST: What do you do to incentivize people at every level of the company?

Mr. Roessler: Ownership is something that is unique to this company. I truly believe, as does Tom Garrott, our chairman, that owners act differently from investors — that owners have a personal stake in the business and want to continually improve it. We try to encourage ownership not only for our directors and top management, but well down through the organization. Our Share NCBC stock option program is available to all associates — full- and part-time. Through this program, an associate who buys a single share receives options for two more. Other incentives include our retail incentive program and commercial relationship officer incentive program. These programs provide quick rewards for cross-selling, and developing new and growing existing customer relationships. We have quality performance measurements that reach down to the teller level, where we want to incent them to not only do a good job, but also do more of it. When we put these programs in place, we considered best practices of the two organizations. When necessary, we had to pick a new way to do something. Those incentive programs are in place, for deposit products, loan products or non-bank products throughout the organization.

TWST: Is it possible for you to be specific about the growth that you expect to achieve or hope to achieve over the next year or two?

Mr. Roessler: Over the next few years, we have set a very audacious goal. NCBC and CCB were both top performing banks before the merger. By 2004, we would like to be ranked as the number one performing financial service company in the United States as rated by U.S. Banker. The rankings are based are based on average annual return on equity over one, three and five years and compound growth rate of earnings per share over the same periods. So, during the next three years we have much to accomplish. It is an ambitious goal, but that is what we are striving to achieve.

TWST: What could get in the way? What are the risks or difficulties?

Mr. Roessler: You can only think about outside factors like the economy or regulatory or legislative issues, but everybody has to operate in that framework. The real challenge is quickness to respond, on several fronts. One is to get management reports quickly throughout the management ranks so that we know what is going on. If something is not working well, we can immediately take steps to fix the problem. Another essential area is responsiveness to customer service issues. We obviously want to have good customer service, but there may be times when that is not taking place. We want to be very quick to find out and respond to the customer to fix it. We have to be alert and able to seize opportunities to grow or expand, and to have our entrepreneurial spirit flourish. We have to be ready to move quickly because opportunities can be fleeting, and when they do present themselves, we must seize them.

TWST: Is there any area within the company that you would like to strengthen?

Mr. Roessler: There is always room for improvement. I would not characterize any one item as a weakness. We are focusing on improving our efficiency ratio to pre- merger levels, which is a reflection of how we are running the entire organization. This is an ongoing process that has included the aggressive backoffice systems integration we have achieved. We want to move on to the leverage and expansion opportunities that brought our banks together in the first place. We really want to be post-conversion. By this, I mean that we have our reporting procedures in place, and that we have reconciled the new businesses that we have joined. In addition, while we are blessed with a lot of good people, in some areas we need more of them. When you are choosy about who you hire, it takes time to fill all the staff positions.

TWST: What is it in your training and background that led you to develop the ideas that you now express to me?

Mr. Roessler: I think experience, exposure and listening, and having a halfway-decent filter system when you listen to know what to seize on and what to pass by. It goes back to your youth and the type of environment in which you are raised. I went to business school at Amos Tuck, and that certainly helped for business analysis. I worked at Mellon Bank for 24 years in many different areas, including credit, finance, international and capital markets. I gained very broad exposure to a wide array of financial services. I joined CCB when the company was growing, and we developed a focused, strategic plan that we were able to implement. Once you can implement something that works, you gain confidence, it energizes you and you move on to new levels. You have an even broader experiential platform upon which to base new strategic plans. That is where we are today.

TWST: By the way, just how vulnerable or invulnerable are you to a real economic downturn?

Mr. Roessler: In our case, it is all relative. What is the old line? Recession is when you are out of a job and a depression is when I am out of a job. We certainly do not want to say we are insulated by being blessed with the good, high-growth MSAs and a balanced economy in our footprint. But those are certainly important factors that are to our benefit. In addition, some banks have taken a beating because of credit quality problems. One of the hallmarks of our operations is our outstanding credit quality, with extremely low charge-offs. In addition, our loan portfolio is balanced, protecting us from exposure to risk in any one area. Our non-banking businesses also provide leverage and diversification, and significant growth prospects that generate high returns. The Financial Enterprises group, which includes transaction processing, trust and asset management, consulting and capital markets businesses, continues to post good top-line growth. These non-banking businesses contribute significantly to our bottom line, and offer a buffer against some of the forces that impact profitability in traditional banking, such as compression of interest margins and a tightening economy. Finally, we have a very good efficiency in both organizations, and that gives us a cushion to be able to price effectively for people or businesses in need.

TWST: How do you feel about your current market valuation?

Mr. Roessler: Happy and disappointed in one breath. Happy because we may be a few multiples higher than the overall bank index. On the other hand, when we envision ourselves to be the best performing bank, there are a couple of banks that are trading at multiples of six or seven higher than ours. By being in that rarefied air, there is a lot of upside potential for our stock.

TWST: Could you crystallize what you’ve said and give us the two or three or four best reasons why long-term investors should consider your company?

Mr. Roessler: The past successes of each individual bank bode well. I think there was skepticism a year ago whether we could bring the two banks together. We have proven that we have been able to do so through the integration. Now through the leverage opportunities and the expansion opportunities facing us, it is a very bright future indeed. We have a proven management team guiding a very well-positioned organization in high-growth markets. The consistent high level performance can continue on into the future, and that means more shareholder value and more dividends to be able to pay out.

TWST: Thank you. (MC)

ERNEST C. ROESSLER
 President & CEO
 National Commerce Bancorporation
 One Commerce Square
 Memphis, TN 38150
 (901) 523-3434
 (901) 523-3332 - FAX
 www.ncbccorp.com
 e-mail: info@ncbccorp.com

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