UNITED STATES
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
For the fiscal year ended December 31, 1996
Commission File Number 0-12885
NBC Capital Corporation
(Exact name of registrant as specified in its charter)
Delaware 64-0694755
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NBC Plaza, Starkville, Mississippi 39759
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(601) 323-1341
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $1 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
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 registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to the Form 10-K. ( X )
Aggregate market value of the voting stock held by nonaffiliates was
approximately:
$65,164,000
___________________________
(based on most recent sale)
Indicate the number of shares outstanding of each of the issuers'
classes of common stock as of the latest practicable date:
Common Stock, $1 par value - 1,200,000 shares outstanding as
of December 31, 1996.
Documents incorporated by reference -
Annual report to shareholders for 1996 - Parts II and IV
Proxy statement dated March 17, 1997 - Part III
PART I
ITEM 1 - BUSINESS
NBC Capital Corporation
NBC Capital Corporation (the Company) is a multi-bank holding
company which was organized under the laws of the State of Mississippi
in 1984 and was reorganized in 1987 under the laws of the State of
Delaware. On July 2, 1984, the Company acquired all of the outstanding
common stock of the National Bank of Commerce of Mississippi (NBC), a
national banking corporation. On January 1, 1994, the Company acquired
more than 99% of the outstanding common stock of NBC of Tuscaloosa
(formerly First State Bank of Tuscaloosa). For the year ended
December 31, 1996, these financial institutions and their subsidiaries
accounted for 100% of the Company's consolidated income and approximately
99% of its consolidated expenses.
National Bank of Commerce of Mississippi
NBC was originally formed through a series of mergers which began
in 1972 and concluded on October 1, 1974. In March, 1991, NBC acquired
the assets and assumed the liabilities of the Bank of Philadelphia, a
$75 million institution. NBC operates under the original Federal
Charter granted to the First National Bank of Monroe County in 1887.
NBC is the largest commercial bank domiciled in the eastern area
of the state known as the Golden Triangle. A total of 25 banking
facilities and an operations center serve the communities of Aberdeen,
Amory, Artesia, Brooksville, Columbus, Hamilton, Maben, Philadelphia
and Starkville. This area extends into five Mississippi counties with
a radius of approximately 65 miles from the home office in Starkville.
NBC is engaged in the general banking business and activities
closely related to banking as authorized by the banking laws and
regulations of the United States. There were no significant changes
in the business activities of NBC during 1996.
NBC provides a complete line of wholesale and retail services
including mortgage loans and trust. The customer base is well
diversified and consists of business, industry, agriculture,
government, education and individual accounts. Profitability and
growth have been consistent throughout the history of the bank.
NBC utilizes a written Asset/Liability Management Policy which
calls for maintaining the 24 month GAP within a tolerance of + 5% -
10% of total assets. The financial plan calls for a return on assets
of 1.5% and a minimum return on equity of 10%.
NBC is operated in a conservative fashion while meeting the
needs of the community. There has been no disposition of any material
amounts of assets nor has there been a material change in the mode of
conducting business. No major changes in operation are planned for
the near future.
NBC of Tuscaloosa
NBC of Tuscaloosa was organized in 1968 and as a national bank
operates under the regulations of the Office of the Comptroller of
the Currency ("OCC").
NBC of Tuscaloosa is located in Tuscaloosa, Alabama, a city with
a population of approximately 85,000 people. It was acquired by the
Company on January 1, 1994. Management of the Company is of the
opinion that this acquisition provides for new opportunities for
growth and expansion. Tuscaloosa, Alabama, is a city that expects
future economic development. As an example, Mercedes has recently
completed construction of an automotive plant in the Tuscaloosa area.
Management of the Company believes the acquisition places the Company
in a position to participate in the economic development.
NBC of Tuscaloosa competes with many other financial institutions
in the Tuscaloosa area, most of which are larger. NBC of Tuscaloosa
had total assets of $85 million at December 31, 1996, and reported net
income of $842 thousand for the year ended December 31, 1996. The
bank's history has been one of moderate growth and average earnings
when compared to its peer group.
NBC of Tuscaloosa is engaged in the general banking business and
activities closely related to banking as authorized by current laws
and regulations.
NBC of Tuscaloosa provides a complete line of wholesale and
retail services, including mortgage loans. The customer base consists
principally of business, industry and individual accounts.
The Company operates NBC of Tuscaloosa in a conservative fashion
while meeting the needs of the community.
NBC of Tuscaloosa has adopted the asset/liability management
policy of NBC. The financial plan calls for a return on assets of
1% and a minimum return on equity (net of goodwill) of 9%.
NBC Service Corporation
NBC Service Corporation (Service) is a wholly-owned subsidiary
of NBC and was formed to provide additional financial services that
otherwise might not be provided by NBC. For the years 1996 and 1995,
its primary activity was limited to its investment in Commerce National
Insurance Company (CNIC) of which Service owns 79%. Commerce National
Insurance Company is a credit life insurance company whose primary
source of income is from premiums on credit life insurance on loans
issued by NBC.
Philadelphia Finance Corporation
Philadelphia Finance Corporation (Finance), a wholly-owned
subsidiary of NBC, is a finance company that provides lending and
financing services to consumers. It engages in consumer financing,
and its loans are of a smaller amount and a higher interest rate than
that of NBC. Finance has one office located in Philadelphia,
Mississippi.
Competition
NBC and its subsidiaries currently serve five counties and nine
municipalities in North Mississippi. Over this same area, the bank
competes directly with approximately 15 competing banking institutions,
credit unions, finance companies, brokerage firms, mortgage companies
and insurance companies. The institutions range in asset size from
approximately $100 million to in excess of $5 billion. NBC is the
largest bank domiciled in its immediate service area. Asset size of
competitive banks depends on whether the reference is made to the
branch banks or to their parent banks. Several other competitors are
branches or divisions of nationwide companies with more resources than
the Company and its subsidiaries.
NBC of Tuscaloosa is located in Tuscaloosa, Alabama, and has a
main office and three branch locations. The bank competes with
approximately eight other financial institutions, most of which are
larger. The other institutions range in size from approximately $20
million to $15 billion. Asset size of the competitive banks depends
on whether reference is made to the branch banks or to their parent
bank. NBC of Tuscaloosa also competes with numerous credit unions,
finance companies, etc., many of which are branches of nationwide
companies. The acquisition of NBC of Tuscaloosa by the Company
provides NBC of Tuscaloosa with access to resources, products, and
services previously unavailable, thereby improving its competitive
position.
Supervision and Regulation
The Company and its subsidiaries are subject to state and federal
banking laws and regulations which impose specific requirements or
restrictions on and provide for general regulatory oversight with
respect to virtually all aspects of operations. These laws and
regulations are generally intended to protect depositors, not
shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions.
Any change in applicable laws or regulations may have a material
effect on the business and prospects of the Company. Beginning with
the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and following with Federal Deposit
Insurance Corporation Improvement Act (FDICIA), which was enacted in
1991, numerous additional regulatory requirements have been placed on
the banking industry, and additional changes have been proposed. The
operations of the Company and its subsidiaries may be affected by
legislative changes and the policies of various regulatory authorities.
The Company is unable to predict the nature or the extent of the effect
on its business and earnings that fiscal or monetary policies, economic
control, or new federal or state legislation may have in the future.
The Company is a bank holding company within the meaning of the
Bank Holding Company Act of 1956 (the Act) and is registered as such
with the Board of Governors of the Federal Reserve System (the Federal
Reserve Board). As a bank holding company, the Company is required
to file with the Federal Reserve Board an annual report and such other
information as may be required. The Federal Reserve Board may also
make examinations of the Company. In addition, the Federal Reserve
Board has the authority to regulate provisions of certain bank holding
company debt.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially
all the assets of or direct or indirect ownership or control of more
than 5% of the voting shares of any bank which is not already
majority-owned. The Act also prohibits a bank holding company, with
certain exceptions, from engaging in or acquiring direct or indirect
control of more than 5% of the voting shares of any company engaged in
non-banking activities. One of the principal exceptions to these
prohibitions is for engaging in or acquiring shares of a company
engaged in activities found by the Federal Reserve Board by order or
regulation to be so closely related to banking or managing banks as to
be a proper incident thereto. The Act prohibits the acquisition by a
bank holding company of more than 5% of the outstanding voting shares
of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted, unless such an
acquisition is specifically authorized by statute of the state in
which the bank to be acquired is located. The Act and regulations of
the Federal Reserve Board also prohibit a bank holding company and its
subsidiaries from engaging in certain tie-in arrangements in connection
with any extension of credit or provision of any property or services.
As a bank holding company, the Company is required to give the
Federal Reserve prior written notice of any purchase or redemption of
its outstanding equity securities if the gross consideration for the
purchase or redemption, when combined with the net consideration paid
for all such purchases or redemptions during the preceding 12 months,
is equal to 10% or more of the Company's consolidated net worth. The
Federal Reserve may disapprove such a purchase or redemption if it
determines that the proposal constitutes an unsafe or unsound practice,
would violate any law, regulation, Federal Reserve order or directive
or any condition imposed by, or written agreement with, the Federal
Reserve.
In accordance with Federal Reserve Board policy, the Company is
expected to act as a source of financial strength to the subsidiaries.
The Federal Reserve Board may require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve
Board's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal
bank regulatory authorities have additional discretion to require a
bank holding company to divest itself of any bank or nonbank subsidiary
if the agency determines that divestiture may aid the depository
institution's financial condition.
Dividends paid by the Company are substantially provided from
dividends from the banking subsidiaries. Generally, the approval of the
OCC is required if the total of all dividends declared by a bank in any
calendar year exceeds the total of its net profits for that year
combined with its retained net profits of the preceding two years. At
December 31, 1996, the banking subsidiaries had available for payment
of dividends to the Company, without prior approval of their regulator,
approximately $10 million.
The Federal Reserve Board, FDIC and OCC have established risk-based
capital guidelines for holding companies, such as the Company, and its
subsidiary banks. The capital-based regulatory framework contains five
categories of compliance with regulatory capital requirements, including
"well capitalized," adequately capitalized," undercapitalized,"
significantly undercapitalized," and critically undercapitalized." The
Company's strategy related to risk-based capital is to maintain capital
levels which will be sufficient to qualify the Company's banking
subsidiaries for the "well capitalized" category under the guidelines
set forth by the FDICIA. Maintaining capital ratios at the "well
capitalized" level avoids certain restrictions which, for example,
could impact the Company's banking subsidiaries' FDIC assessment, trust
services and asset/liability management. At December 31, 1996, the
tier I and total capital ratios, respectively, of the Company
(consolidated) and its subsidiary banks (individually) were well above
the minimum 6% and 10% levels required to be categorized as a "well
capitalized" insured depository institution.
The FDIC, OCC and Federal Reserve Board have historically had
common capital adequacy guidelines involving minimum (a) leverage
capital and (b) risk-based capital requirements:
(a) The first requirement establishes a minimum ratio of capital
as a percentage of total assets. The FDIC, OCC, and Federal Reserve
Board require institutions to maintain a minimum leverage ratio of
Tier 1 capital (as defined) to total average assets based on the
institution's rating under the regulatory CAMEL rating system.
Institutions with CAMEL ratings of one that are not anticipating or
experiencing significant growth and have well-diversified risk are
required to maintain a minimum leverage ratio of 3 percent. An
additional 100 to 200 basis points are required for all but these
most highly rated institutions.
(b) The second requirement also establishes a minimum ratio of
capital as a percentage of total assets, but gives weight to the
relative risk of each asset. The FDIC, OCC, and Federal Reserve Bank
require institutions to maintain a minimum ratio of Tier 1 capital to
risk-weighted assets of 4.0 percent. Banks must also maintain a
minimum ratio of total capital to risk-weighted assets of 8.0 percent.
At December 31, 1996, the Company's Tier 1 and total capital ratios
were 15.6% and 16.9%, respectively.
Under these guidelines, banks' and bank holding companies' assets
are given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain
off-balance sheet items are given credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight
will apply. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for
first mortgage loans fully secured by residential property and, under
certain circumstances, residential construction loans, both of which
carry a 50% rating. Most investment securities are assigned to the
20% category, except for municipal or state revenue bonds, which have
a 50% rating, and direct obligations of or obligations guaranteed by
the United States Treasury or United States Government agencies, which
have a 0% rating.
The primary supervisory authority of NBC and NBC of Tuscaloosa is
the OCC. The OCC regulates or monitors virtually all areas of
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings,
deposits, mergers, issuances of securities, payment of dividends,
interest rates payable on deposits, interest rates or fees chargeable
on loans, establishment of branches, corporate reorganizations,
maintenance of books and records, and adequacy of staff training to
carry on safe lending and deposit gathering practices. The OCC also
imposes limitations on the aggregate investment in real estate, bank
premises, and furniture and fixtures. In addition to regular
examinations, the institution must furnish to its regulator quarterly
reports containing a full and accurate statement of its affairs.
Banks are subject to the provisions of Section 23A of the Federal
Reserve Act, which place limits on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with,
affiliates and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. The aggregate of all
covered transactions is limited in amount, as to any one affiliate, to
10% of the bank's capital and surplus and, as to all affiliates combined,
to 20% of the bank's capital and surplus. Furthermore, within the
foregoing limitations as to amount, each covered transaction must meet
specified collateral requirements. Compliance is also required with
certain provisions designed to avoid the taking of low quality assets.
Banks are also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution
from engaging in certain transactions with certain affiliates unless the
transactions are on terms substantially the same, or at least as
favorable to such institution or its subsidiaries, as those prevailing
at the time for comparable transactions with non-affiliated companies.
The Bank is subject is certain restrictions on extensions of credit to
executive officers, directors, certain principal shareholders, and their
related interests. Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third
parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
National banks are required by the National Bank Act to adhere to
branch office banking law. NBC and NBC of Tuscaloosa may open branches
throughout Mississippi or Alabama with the prior approval of the OCC.
In addition, with prior regulatory approval, the subsidiary banks are
able to acquire existing banking operations in Mississippi and Alabama.
Furthermore, federal legislation has recently been passed which permits
interstate branching. The new law permits out of state acquisitions
by bank holding companies (subject to veto by new state law),
interstate branching by banks if allowed by state law, interstate
merging by banks, and de novo branching by national banks if allowed by
state law.
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their respective
jurisdictions, the Federal Reserve, the FDIC, or the OCC shall evaluate
the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions.
These factors are also considered in evaluating mergers, acquisitions,
and applications to open a branch or facility.
Interest and certain other charges collected or contracted by Banks
are often subject to state usuary laws and certain federal laws
concerning interest rates. The loan operations are also subject to
certain federal laws applicable to credit transactions, such as the
federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers; the Home Mortgage Disclosure Act of 1975, requiring
financial institutions to provide information to enable the public and
public officials to determine whether a financial institution will be
fulfilling its obligation to help meet the housing needs of the community
it serves; the Equal Credit Opportunity Act, prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending
credit; the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies; the Fair Debt
Collection Act, governing the manner in which consumer debts may be
collected by collection agencies; and the rules and regulations of the
various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations also are subject to the Right
to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records, and
the Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve Board to implement that act, which governs automatic deposits to
and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or any of its subsidiaries, on
investments in stock or other securities thereof and on the taking of
such stock or securities as collateral for loans to any borrower.
The bank subsidiaries are members of the FDIC and their deposits are
insured as provided by law.
Finance and CNIC are subject to regulation by the applicable state
agencies. These agencies set reserve requirements, reporting standards,
and establish regulations, all of which affect business operations.
Governmental Monetary Policies
As banks chartered under the laws of the United States, NBC and NBC
of Tuscaloosa are members of the Federal Reserve System. Their earnings
are affected by the fiscal and monetary policies of the Federal Reserve
System which regulates the national money supply in order to mitigate
recessionary and inflationary pressures. The techniques used by the
Federal Reserve System include setting the reserve requirements of
depository institutions and establishing the discount rate on member
bank borrowings. The Federal Reserve System also conducts open market
operations in United States Government securities.
The policies of the Federal Reserve System and other regulatory
agencies have a direct effect on the amount of bank loans and deposits,
and the interest rates charged and paid thereon. While the impact these
policies may have upon the future business and earnings of the financial
institutions cannot be accurately predicted, such policies can materially
affect the earnings of commercial banks.
Sources and Availability of Funds
The materials essential to the business of the Company and its
subsidiaries consist primarily of funds derived from deposits and other
borrowing in the financial markets. The availability of funds is
primarily dependent upon the economic policies of the government, the
economy in general and the institution's ability to compete in the market
place.
Seasonability
Neither the Company nor any of its subsidiaries are dependent upon
any seasons.
Dependence Upon A Single Customer
Neither the Company nor any of its subsidiaries are dependent upon
a single customer or very few customers.
Executive Officers
The executive officers of the Company and its bank subsidiaries,
National Bank of Commerce of Mississippi and NBC of Tuscaloosa are
listed below. The title indicates a position held in the Company and
the bank subsidiaries.
Name and Title Age Five Year Experience
_____________________________ ___ ____________________________________
L. F. Mallory, Jr. 54 Chairman of the Board, President and
Chairman, President and Chief Executive Officer, NBC
Chief Executive Office Capital Corporation and NBC of
Mississippi
Bobby Harper 55 Chairman of Executive Committe, NBC
Chairman of the Executive Capital Corporation and NBC of
Committee Mississippi, Columbus Banking
Center
Hunter M. Gholson 64 Secretary of NBC Capital Corporation
Secretary and NBC of Mississippi
Mark A. Abernathy 40 Executive Vice President and Chief
Executive Vice President and Operating Officer, NBC Capital
Chief Operating Officer, NBC Corporation and NBC of Mississippi.
Capital Corporation and NBC Prior to joining NBC in 1994, he
of Mississippi was Consumer Regional Executive
Officer of Nations Bank, Nashville,
Tennessee.
Richard Haston 50 Treasurer and Assistant Secretary,
Treasurer and Assistant NBC Capital Corporation, and
Secretary, NBC Capital Executive Vice President and
Corporation and Executive Chief Financial Officer, NBC of
Vice President and Chief Mississippi since October 1, 1996;
Financial Officer, NBC of Executive Vice President and Chief
Mississippi Financial Officer of Legacy
Securities Corp., Memphis,
Tennessee, March, 1996 -
September, 1996; President and Chief
Financial Officer of Calabare
Financial Group, Inc., Memphis,
Tennessee, June, 1993 -
February, 1996
Carl M. Holloway 50 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation, and Executive President, NBC of Mississippi
Vice President, NBC of
Mississippi
Joel C. Clements 49 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President, NBC of Mississippi
Vice President, NBC of
Mississippi
Clifton B. Fowler 48 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC of
Corporation and President, Mississippi, Starkville Banking
NBC of Mississippi, Center. Has held current position
Starkville Banking Center since November, 1990. Prior to
joining NBC was with Trustmark
National Bank.
Thomas J. Prince, Jr. 55 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC
Corporation and President, of Mississippi, Aberdeen
NBC of Mississippi, Aberdeen Banking Center
Banking Center
Kenneth A. Madison 64 Vice President, NBC Capital
Vice President, NBC Capital Corporation, and President,
Corporation and President, NBC of Mississippi,
NBC of Mississippi, Philadelphia Banking Center. Has
Philadelphia Banking Center held current position since March,
1991. Prior to joining NBC was
President and C/E/O of Bank of
Philadelphia, Philadelphia,
Mississippi
Thomas P. Hester 63 President and other positions of
President, NBC of Tuscaloosa NBC of Tuscaloosa
Rex D. Poole 59 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Senior Vice
Corporation and Senior Vice President and Trust Officer,
President and Trust Officer, NBC of Mississippi
NBC of Mississippi
Donald J. Bugea, Jr. 43 Executive Vice President and
Executive Vice President and Investment Officer, NBC of
Investment Officer, NBC of Mississippi. Has held current
Mississippi position since January, 1992.
Prior to joining NBC was Senior
Vice President and Cashier,
NBC of Baton Rouge, Louisiana
Terrence Y. Dewitt 35 Executive Vice President and other
Executive Vice President, positions of NBC of Tuscaloosa
NBC of Tuscaloosa
Personnel
At December 31, 1996, NBC and NBC of Tuscaloosa had 337 full-
time employees. The Company, Service and CNIC had no employees at
December 31, 1996. The finance company had three employees.
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31,
1996.
The following listing describes the locations and general character of
the Bank-owned properties:
Approximate
Office Space
Type Location (Square Feet)
______________________________ _________________________ _____________
NBC of Mississippi:
Main Office Starkville, Mississippi 35,000
University Branch Starkville, Mississippi 1,485
Motor Branch Starkville, Mississippi 2,000
82 Branch Starkville, Mississippi 2,077
Operations Center Starkville, Mississippi 16,500
Starkville Crossing Starkville, Mississippi 2,000
Main Office Columbus, Mississippi 36,000
North Columbus Branch Columbus, Mississippi 1,440
Fairlane Branch Columbus, Mississippi 2,400
Gardner Blvd. Branch Columbus, Mississippi 1,156
Bluecutt Road Branch Columbus, Mississippi 3,200
Main Office Aberdeen, Mississippi 11,026
Maple Street Branch Aberdeen, Mississippi 998
Highway 45 North Branch Aberdeen, Mississippi 1,205
Main Office Amory, Mississippi 8,550
Medical and Industrial
Center Branch Amory, Mississippi 950
Main Office Artesia, Mississippi 1,500
Main Office Brooksville, Mississippi 3,000
Main Office Hamilton, Mississippi 1,800
Main Office Maben, Mississippi 4,000
Main Office Philadelphia, Mississippi 6,000
Northside Branch Philadelphia, Mississippi 300
Courtside Branch Philadelphia, Mississippi 400
Southside Branch Philadelphia, Mississippi 450
Operations Center Philadelphia, Mississippi 6,600
Westside Branch Philadelphia, Mississippi 3,250
NBC of Tuscaloosa:
Main Office Tuscaloosa, Alabama 6,400
Northport Branch Tuscaloosa, Alabama 3,018
University Branch Tuscaloosa, Alabama 2,480
North Tuscaloosa Branch Tuscaloosa, Alabama 3,250
Finance operates out of NBC's building located in Philadelphia,
Mississippi.
In the opinion of management, all properties are in good condition
and are adequate to meet the needs of the communities they serve.
ITEM 3 - LEGAL PROCEEDINGS
There are no pending proceedings of a material nature to which the
Company, NBC, NBC of Tuscaloosa, Service, Finance, or CNIC is a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The information titled "Market Information" and contained on
Page 34 of the Company's annual report to shareholders for the year
1996 is incorporated herein by reference in response to this item and
included in this report as Exhibit 13.a.
(b) At December 31, 1996, the Company had approximately 1,800 security
holders.
(c) Dividends on common stock were declared semiannually in June and
December of the years reported and totaled as follows:
December 31,
______________________
1996 1995
__________ __________
Dividends declared, $2.45 per share $2,940,000 $ -
Dividends declared, $2.40 per share - 2,880,000
__________ __________
$2,940,000 $2,880,000
========== ==========
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on
Page 34 of the Company's annual report to the shareholders for the year
1996 is incorporated herein by reference in response to this item and
included in this report as Exhibit 13.b.
SUPPLEMENTAL STATISTICAL INFORMATION
I. Distribution of Assets, Liabilities, and Stockholders' Equity;
Interest Rates and Interest Differential
A. Average balance sheets (consolidated):
(In Thousands)
Assets 1996 1995 1994
________ ________ ________
Cash and due from banks $ 25,942 $ 20,406 $ 19,515
Securities:
Taxable 108,918 115,574 120,870
Non-taxable 66,972 68,934 57,649
________ ________ ________
Total securities 175,890 184,508 178,519
Federal funds sold and
securities purchased under
agreement to resell 6,680 6,809 4,882
Loans, net of unearned interest 364,957 338,631 306,702
Less reserve for loan losses 6,691 6,136 5,488
________ ________ ________
Net loans 358,266 332,495 301,214
Other assets 28,672 26,483 23,582
________ ________ ________
Total Assets $595,450 $570,701 $527,712
======== ======== ========
Liabilities and
Stockholders' Equity
Deposits:
Noninterest-bearing $ 71,941 $ 69,058 $ 65,010
Interest-bearing 437,030 422,451 386,000
________ ________ ________
Total deposits 508,971 491,509 451,010
Federal funds purchased and
securities sold under
agreement to repurchase 4,087 2,185 5,557
Borrowed funds 11,674 11,670 13,367
Other liabilities 7,735 6,601 5,111
________ ________ ________
Total liabilities 532,467 511,965 475,045
Stockholders' equity 62,983 58,736 52,667
________ ________ ________
Total Liabilities and
Stockholders' Equity $595,450 $570,701 $527,712
======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of
net interest earnings, including the average amount of interest-
earning assets and interest-bearing liabilities outstanding during
the period, the interest earned or paid on such amounts, the
average yields/rates paid and the net yield on interest-earning
assets:
($ In Thousands)
Average Balance
____________________________
1996 1995 1994
________ ________ ________
EARNING ASSETS
Net loans $358,266 $332,495 $301,214
Federal funds sold and
securities purchased under
agreement to resell 6,680 6,809 4,882
Securities:
Taxable 108,918 115,574 120,870
Nontaxable 66,972 68,934 57,649
________ ________ ________
Totals 540,836 523,812 484,615
________ ________ ________
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 437,030 422,451 386,000
Borrowed funds, federal funds
purchased securities sold
under agreement to repurchase 15,761 13,855 18,924
________ ________ ________
Totals 452,791 436,306 404,924
________ ________ ________
Net Amounts $ 88,045 $ 87,506 $ 79,691
======== ======== ========
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1996 1995 1994 1996 1995 1994
_______ _______ _______ ____ ____ ____
EARNING ASSETS
Net loans $32,913 $30,731 $25,217 9.19 9.24 8.37
Federal funds sold and
securities purchased
under agreement to
resell 402 446 258 6.02 6.55 5.28
Securities:
Taxable 6,789 7,233 7,231 6.23 6.26 5.98
Nontaxable 3,741 3,840 3,107 5.59 5.57 5.39
_______ _______ _______
Totals 43,845 42,250 35,813 8.11 8.06 7.39
_______ _______ _______
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits 18,513 17,906 12,747 4.24 4.24 3.30
Borrowed funds,
federal funds
purchased securities
sold under agreement
to repurchase 795 779 798 5.04 5.62 4.22
_______ _______ _______
Totals 19,308 18,685 13,545 4.26 4.28 3.35
_______ _______ _______
Net Amounts $24,537 $23,565 $22,268
======= ======= =======
Net yield on earning assets 4.54 4.50 4.59
(1) Interest and yields on tax-exempt obligations are not on a
fully taxable equivalent basis.
(2) For the purpose of these computations, nonaccruing loans
are included in the average loan balances outstanding.
C. Increase (Decrease) in Interest Income and Interest Expense
The following table analyzes the changes in both the rate and volume
components of net interest revenue:
(In Thousands) (In Thousands)
1996 Over 1995 1995 Over 1994
______________________ ______________________
Change Due To: Change Due To:
______________________ ______________________
Total Rate Volume Total Rate Volume
______ ______ ______ ______ ______ ______
EARNING ASSETS
Net loans $2,182 $ (164) $2,346 $5,514 $2,757 $2,757
Federal funds sold and
securities purchased
under agreement to
resell (44) (36) (8) 188 71 117
Securities:
Taxable (444) (35) (409) 2 32 (30)
Nontaxable (99) 15 (114) 733 107 626
______ ______ ______ ______ ______ ______
Totals $1,595 $ (220) $1,815 $6,437 $2,967 $3,470
====== ====== ====== ====== ====== ======
INTEREST-BEARING
LIABILITIES
Interest-bearing deposits $ 607 $ - $ 607 $5,159 $3,874 $1,285
Interest on borrowed
funds and federal funds
purchased and securities
sold under agreement to
repurchase 16 (47) 63 (19) 80 (99)
______ ______ ______ ______ ______ ______
Totals $ 623 $ (47) $ 670 $5,140 $3,954 $1,186
====== ====== ====== ====== ====== ======
NOTE: (1) Change in volume is the change in volume times the previous
year's rate.
(2) Change in rate is the change in rate times the previous year's
balance.
(3) The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of change to each.
II. INVESTMENT PORTFOLIO
A. The following tables present the book values of securities as of the
dates indicated:
(In Thousands)
December 31,
____________________________
1996 1995 1994
________ ________ ________
U. S. Treasury $ 31,680 $ 26,039 $ 23,907
U. S. Government agencies and
mortgage-backed securities 63,055 81,300 76,779
States and political subdivisions 67,795 66,950 70,917
Other 5,312 5,054 4,543
________ ________ ________
Total book value $167,842 $179,343 $176,146
======== ======== ========
B. The following table sets forth the maturities of investment and
mortgage-backed securities (carrying values) at December 31,
1996, and the weighted average yield of such securities:
($ In Thousands)
Weighted Average Yield
______________________________________________
0 - 1 Yield 1 - 5 Yield 5 - 10 Yield
Year (%) Years (%) Years (%)
_______ _____ _______ _____ _______ _____
Securities:
U. S. Treasury $ 4,017 6.6% $27,458 6.1% $ 205 6.4%
U. S. Govern-
ment agencies 7,838 7.1% 16,141 6.4% 205 7.5%
States and
political
subdivisions 6,764 4.5% 29,942 4.9% 7,764 6.3%
Other 85 7.5% 773 6.3% 546 7.3%
_______ _______ _______
Total $18,704 $74,314 $ 8,720
======= ======= =======
10+ Yield
Years (%)
_______ _____
States and
political
subdivisions $23,325 6.3%
Other (equity
securities) 3,908 5.9%
_______
Total $27,233
=======
Book Yield
Value (%)
_______ _____
Mortgage-
backed
securities $38,871 6.4%
=======
NOTE: Interest and yields on tax-exempt obligations are not on
a taxable equivalent basis.
Average yield on floating rate securities was determined
using the current yield.
C. Investment securities in excess of 10% of stockholders' equity.
At December 31, 1996, there were no securities from any issues
in excess of 10% of stockholders' equity.
III. LOAN PORTFOLIO
A. Type of loans
The amount of loans outstanding by type at the indicated dates
are shown in the following table:
(In Thousands)
December 31,
________________________________________________
Type 1996 1995 1994 1993 1992
______________ ________ ________ ________ ________ ________
Commercial,
financial and
agriculture $ 64,604 $ 56,219 $ 51,541 $ 35,177 $ 33,814
Real estate -
construction 13,578 11,892 12,372 2,777 3,491
Real estate -
mortgage 219,403 193,686 178,391 140,162 123,535
Installment
loans to
individuals 81,351 83,281 79,961 73,756 66,211
Other 7,582 5,989 5,297 5,654 5,522
________ ________ ________ ________ ________
Total loans 386,518 351,067 327,562 257,526 232,573
Unearned
interest (903) (2,649) (4,031) (5,597) (5,600)
________ ________ ________ ________ ________
$385,615 $348,418 $323,531 $251,929 $226,973
======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest rates:
(In Thousands)
December 31, 1996
______________________________________
Maturing
______________________________________
Within 1 - 5 Over
Type 1 Year Years 5 Years Total
________________________ ________ ________ ________ ________
Commercial, financial
and agricultural $ 51,448 $ 11,756 $ 1,400 $ 64,604
Real estate -
construction 13,503 43 32 13,578
Other loans, excluding
real estate - mortgage
and installment loans 6,697 885 - 7,582
________ ________ ________ ________
$ 71,648 $ 12,684 $ 1,432 $ 85,764
======== ======== ======== ========
Loans with: (1)
Predetermined interest
rates $ 46,021 $ 97,279 $ 20,049 $163,349
Floating interest
rates 221,259 456 19 221,734
________ ________ ________ ________
$267,280 $ 97,735 $ 20,068 $385,083
======== ======== ======== ========
(1) Excludes nonaccrual loans of $1,435.
C. Nonperforming loans
1. The following tables states the aggregate amount of loans
which were nonperforming in nature:
(In Thousands)
December 31,
______________________________________
Type 1996 1995 1994 1993 1992
__________________ ______ ______ ______ ______ ______
Loans accounted
for on a
nonaccrual basis $1,435 $2,028 $1,397 $1,451 $1,442
====== ====== ====== ====== ======
Accruing loans
past due 90 days
or more $ 727 $ 447 $ 601 $ 484 $ 794
====== ====== ====== ====== ======
Renegotiated
"troubled" debt $ 471 $ 390 $ 306 $ 853 $ 632
====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total
loans at December 31, 1996.
3. There were no outstanding foreign loans at December 31,
1996.
4. Loans classified for regulatory purposes or for internal
credit review purposes that have not been disclosed in the
above table do not represent or result from trends or
uncertainties that management expects will materially
impact the financial condition of the Company or its
subsidiary banks, or their future operating results,
liquidity, or capital resources.
5. If all nonaccrual loans had been current throughout their
terms, interest income would have not been significantly
different for the years ended 1996, 1995, and 1994.
6. Management stringently monitors loans that are classified
as nonperforming. Nonperforming loans include nonaccrual
loans, loans past due 90 days or more, and loans renegotiated
or restructured because of a debtor's financial difficulties.
Loans are generally placed on nonaccrual status if any of the
following events occur: 1) the classification of a loan as
nonaccrual internally or by regulatory examiners,
2) delinquency on principal for 90 days or more unless
management is in the process of collection, 3) a balance
remains after repossession of collateral, 4) notification
of bankruptcy, or 5) management's judgment that nonaccrual
is appropriate.
7. At December 31, 1996, management was not aware of any
potential problem loans not previously disclosed.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets
at December 31, 1996.
IV. Summary of Loan Loss Experience
A. An analysis of the loan loss experience for the periods
indicated is as follows:
($ In Thousands)
December 31,
___________________________________________
1996 1995 1994 1993 1992
_______ _______ _______ _______ _______
Beginning balance $ 6,419 $ 5,719 $ 4,450 $ 3,204 $ 2,796
_______ _______ _______ _______ _______
Charge-offs:
Domestic:
Commercial,
financial and
agricultural (229) (237) (78) (151) (743)
Real estate (103) (109) (239) (80) (413)
Installment
loans and
other (904) (422) (392) (427) (822)
_______ _______ _______ _______ _______
Total charge-offs (1,236) (768) (709) (658) (1,978)
_______ _______ _______ _______ _______
Recoveries:
Domestic:
Commercial,
financial and
agricultural 49 54 48 122 79
Real estate 39 40 25 31 97
Installment
loans and
other 193 209 177 116 181
_______ _______ _______ _______ _______
Total recoveries 281 303 250 269 357
_______ _______ _______ _______ _______
Net charge-offs (955) (465) (459) (389) (1,621)
_______ _______ _______ _______ _______
Reserve of
acquired bank - - 494 - -
Provision charged
to operations 1,314 1,165 1,234 1,635 2,029
_______ _______ _______ _______ _______
Ending balance $ 6,778 $ 6,419 $ 5,719 $ 4,450 $ 3,204
======= ======= ======= ======= =======
Ratio of net
charge-offs to
average loans
outstanding .27 .14 .15 .13 .75
Ratio of reserve
for loan losses
to loans
outstanding at
year end 1.76 1.84 1.77 1.77 1.41
B. Determination of Reserve for Loan Losses
The information contained in Note A-6 to the financial statements
of the annual report to shareholders is incorporated herein by
reference and included in this report as Exhibit 13.d.
C. Loans and Risk Descriptions
Real Estate Loans
NBC and NBC of Tuscaloosa originate loans secured by commercial
real estate, one-to-four family residential properties, and
multi-family dwelling units (5 or more units). At December 31,
1996, these loans totaled $220 million or approximately 60% of
the loan portfolio.
NBC and NBC of Tuscaloosa originate commercial real estate loans
up to 80% of the appraised value. Currently, it is the
philosophy to originate these loans only to selected known
borrowers and on properties in the market area.
Of primary concern in commercial real estate lending is the
borrower's credit worthiness and the feasibility and cash flow
potential of the project. To monitor cash flows of borrowers,
annual financial statements are obtained from the borrower and
loan guarantors, if any. Although many banks have had
significant losses in commercial real estate lending, NBC and
NBC of Tuscaloosa have sustained few losses, and those losses
were not significant relative to the size of the entire
commercial real estate loan portfolio at the time.
NBC and NBC of Tuscaloosa originate loans secured by first and
junior liens on one-to-four family residences in their lending
areas. Typically, such loans are single family homes that
serve as the primary residence of the borrower. Generally,
these loans are originated in amounts up to 80% of the appraised
value or selling price of the property. In the past, very few
losses from these types of loans have been experienced.
Loans for multi-family (5 or more) residential properties are
generally secured by apartment buildings. Loans secured by
income properties are generally larger and involve greater risk
than residential loans because payments are often dependent on
the successful operation or management of the properties. As a
result, these types of loans may be more sensitive to adverse
conditions in the real estate market or the economy. Cash flow
and financial statements are obtained from the borrowers and any
guarantors. Also, rent rolls are often obtained.
Consumer and Other Loans
NBC and NBC of Tuscaloosa offer consumer loans in the form of
home improvement loans, mobile home loans, automobile loans
and unsecured personal loans. These loans totalled $81 million
or 21% of total loans at December 31, 1996. Consumer loans
are originated in order to provide a wide range of financial
services to customers and because the terms and normally higher
interest rates on such loans help maintain a profitable spread
between the average loan yield and the cost of funds.
In connection with consumer loan applications, the borrower's
income statement and credit bureau report are reviewed. In
addition, the relationship of the loan to the value of the
collateral is considered. All automobile loan applications
are reviewed, as well as the value of the unit which secured
the loan. NBC and NBC of Tuscaloosa intend to continue to
emphasize the origination of consumer loans. Management
believes that its loan loss experience in connection with its
consumer loan portfolio is favorable in comparison to industry
averages.
NBC and NBC of Tuscaloosa make commercial business loans on
both a secured and unsecured basis with terms which generally
do not exceed five years. Non-real estate commercial loans
primarily consist of short-term loans for working capital
purposes, inventories, seasonal loans, lines of credit and
equipment loans. A personal guaranty of payment by the
principals of any borrowing entity is often required and the
financial statements and income tax returns of the entity and
its guarantors are reviewed. At December 31, 1996, NBC and NBC
of Tuscaloosa's commercial business loans represented
approximately 13% of its total loan portfolio.
D. For the year 1997, losses for all loan categories, as a
percentage of average loans, are expected to approximate that
of 1996.
V. Deposits
($ In Thousands)
1996 1995 1994
______________ ______________ ______________
Amount Rate Amount Rate Amount Rate
________ ____ ________ ____ ________ ____
A. Average
deposits:
Domestic:
Noninterest-
bearing
deposits $ 71,941 - $ 69,058 - $ 65,010 -
Interest-
bearing
demand
deposits (1) 154,490 2.9% 156,657 3.1% 141,988 2.3%
Savings
deposits 29,292 2.2% 32,122 2.5% 30,717 2.5%
Time deposits 253,248 5.3% 233,672 5.3% 213,295 4.0%
Foreign N/A N/A N/A
________ ____ ________ ____ ________ ____
Total $508,971 $491,509 $451,010
======== ======== ========
(1) Includes Money Market accounts
B. Other categories
None
C. Foreign deposits
Not material
D. Time certificate of deposit of $100,000 or more and maturities at
December 31, 1996:
(In Thousands)
3 6
Months Months
3 Through Through Over
Months 6 12 12
Total Or Less Months Months Months
_______ _______ _______ _______ _______
Time certificates
of deposit of
$100,000 or more $62,091 $35,122 $ 7,104 $ 9,770 $10,095
======= ======= ======= ======= =======
E. Foreign office time deposits of $100,000 or more
Not applicable
VI. Return on Equity and Assets
The following financial ratios are presented for analytical
purposes:
December 31,
______________________
1996 1995 1994
______ ______ ______
Return on assets (net income divided by
total average assets) 1.4 1.4 1.4
Return on equity (net income divided by
average equity) 13.0 13.3 13.6
Dividend payout ratio (dividends per share
divided by net income per share) 35.9 36.9 34.4
Equity to asset ratio (average equity
divided by average total assets) 10.6 10.3 10.0
VII. Short-term borrowings
Federal
Funds
Purchased
And
Securities
Sold Under Treasury
Agreement Tax and
Agreement to Loan Note
Repurchase Payable
____________ ____________
Balance at December 31, 1996 $ 9,320,948 $ 1,411,286
Weighted average interest rate at
December 31, 1996 5.41% 4.78%
Maximum amount outstanding at any
month end for the year 1996 9,320,948 2,705,264
Average amount outstanding during
the year 1996 3,404,820 1,303,635
Weighted average interest rate during
the year 4.65% 4.47%
VIII. Capital adequacy data
Total capital of the Company as a percentage of total adjusted assets
was as follows:
($ In Thousands)
December 31,
__________________
1996 1995
________ ________
Total assets $614,430 $576,215
Allowance for loan losses 6,778 6,419
________ ________
Total adjusted assets $621,208 $582,634
======== ========
Total stockholders' equity (excluding
unrealized loss) $ 64,611 $ 59,366
Allowance for loan losses 6,778 6,419
Other components of capital - -
________ ________
Total primary capital 71,389 65,785
Total secondary capital - -
________ ________
Total capital $ 71,389 $ 65,785
======== ========
Ratio of total capital to total
adjusted assets 11.5% 11.3%
Tier 1 and total capital as a percentage of "risk-weighted" assets
at December 31, 1996 and 1995, are as follows:
December 31,
______________
1996 1995
______ ______
Tier 1 capital percentage 15.6% 16.4%
Total capital percentage 16.9% 17.6%
The Company's capital ratios exceed the minimum capital requirements
at December 31, 1996, and management expects this to continue.
IX. Interest Sensitivity Analysis
The following table reflects the year-end position of the Company's
interest-earning assets and interest-bearing liabilities which can
either reprice or mature within the designated time period. The
interest rate sensitivity gaps can vary from day-to-day and are not
necessarily a reflection of the future. In addition, certain assets
and liabilities within the same designated time period may
nonetheless reprice at different times and at different levels.
($ In Thousands)
December 31, 1996
______________________________________
Interest Sensitive Within (Cumulative)
______________________________________
Total of
Within Within Within Interest-
3 12 5 Earning
Months Months Years Assets
________ ________ ________ ________
Interest-earning assets:
Loans $194,559 $271,168 $366,450 $386,518
Investment and
mortgage-backed
securities 20,511 46,274 141,922 167,842
Federal funds sold
and other 9,573 9,593 9,593 9,593
________ ________ ________ ________
Totals $224,663 $327,035 $517,965 $563,953
======== ======== ======== ========
Interest-bearing
liabilities:
Deposits and
borrowed funds $243,122 $352,440 $469,183 $469,183
======== ======== ======== ========
Sensitivity gap:
Dollar amount $(18,459) $(25,405) $ 48,782
Percent of total
interest-earning
assets (8.2%) (7.8%) 9.4%
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning
assets anticipated, based upon certain assumptions, to mature or
reprice within that time period. A gap is considered positive when
the amount of interest rate sensitive assets maturing within a
specific time frame exceeds the amount of interest rate sensitive
liabilities maturing within that same time frame. During a period
of falling interest rates, a negative gap would tend to result in
an increase in net interest income while a positive gap would tend
to adversely affect net interest income. In a rising interest rate
environment, an institution with a positive gap would generally be
expected, absent the effects of other factors, to experience a
greater increase in the yield of its assets relative to the costs
of its liabilities and thus an increase in the institution's net
interest income would result whereas an institution with a negative
gap could experience the opposite results.
At December 31, 1996, total interest-earning assets maturing or
repricing within one year was less than interest-bearing liabilities
maturing or repricing within the same time period by $25 million
(cumulative), representing a negative cumulative one year gap of 8%
of earning assets. Management of the Company believes this is the
proper position in the current interest rate environment.
Banking regulators have recently issued advisories concerning the
management of interest rate risk (IRR). The regulators consider
that effective interest rate management is an essential component
of safe and sound banking practices. To monitor its IRR, the
Company's risk management practices include (a) Risk Management,
(b) Risk Monitoring and (c) Risk Control. Risk Management consists
of a system in which a measurement is taken of the amount of
earnings at risk when interest rates change. The Company does this
by first preparing a "base strategy" which is the position of the
bank and its forecasted earnings based upon the current interest
rate environment or, most likely, interest rate environment. The
IRR is then measured based upon hypothetical changes in interest
rates by measuring the impact such a change will have on the "base
strategy."
Risk monitoring consists of evaluating the "base strategy" and the
assumptions used in its development based upon the current interest
rate environment. This evaluation is performed quarterly by
management or more often in a rapidly changing interest rate
situation and monitored by an Asset/Liability Management Committee.
Risk control is utilized based upon the setting of guidelines as to
the tolerance for interest rate exposure. These guidelines are set
by senior management and approved by the board of directors.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained on Pages 31 - 33 of the Company's 1996
annual report to shareholders is incorporated herein by reference in
response to this item and included in this report as Exhibit 13.c.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with
the report thereon of T. E. Lott & Company, independent accountants, are
set forth on Pages 9 - 30 of the Company's 1996 annual report to
shareholders which is incorporated herein by reference and included in
this report as Exhibit 13.d.
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to the material under the captions, "Election of
Directors", "Executive Compensation and Other Information," of the
Company's proxy statement which is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation and Other
Information" Pages 8 - 13 of the proxy statement which is incorporated
herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to Pages 2 - 7 of the Company's proxy statement
which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Pages 13 - 14, "Other Information" of the
Company's proxy statement which is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The consolidated financial statements for the years ended
December 31, 1996 and 1995, together with the report of T. E.
Lott & Company, independent accountants, dated January 23,
1997, appearing on Pages 9 - 30 of the 1996 annual report to
shareholders, are attached as Exhibit 13.d. to this Form 10K
Annual Report.
2. Financial Statement Schedules
Schedules not included have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
1. - 2. None
3. Articles of Incorporation and By-Laws:
(Reference is made to Exhibits 3.1 and 3.2 of the
Company's Registration Statement on Form S-14 filed
on April 5, 1984, with the Securities and Exchange
Commission.)
4. - 9. None
10.1 Acquisition agreement between National Bank of Commerce
of Mississippi and Bank of Philadelphia filed as an
exhibit to Form 8K in October, 1990.
Purchase agreement between NBC Capital Corporation and
Charter Holding Company, Inc., filed as an exhibit to
Form 8K in August, 1993.
11. - 12. None
13. Annual report to shareholders - deemed filed herewith
only to the extent it is incorporated elsewhere
herein.
13.a. Market for Company's common stock - Page 34 of the
annual report to stockholders.
13.b. Selected Financial Data - Page 34 of the annual report
to stockholders.
13.c. Management's discussion and analysis of financial
condition and results of operations - Pages 31 - 33 of
the annual report to stockholders.
13.d. Consolidated financial statements - Pages 9 - 30 of
the annual report to stockholders.
14. - 21. None
22. Subsidiaries of Company
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
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.
NBC CAPITAL CORPORATION
(Registrant)
By S/L. F. Mallory, Jr.
L. F. Mallory, Jr.
Chairman, President and Chief Executive
Officer
By S/Richard Haston
Richard Haston
Treasurer and Assistant Secretary
(Chief Financial and Accounting Officer)
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 capacity and on the dates indicated.
S/Mark A. Abernathy S/Robert A. Cunningham
(Director) (Director)
S/Thomas J. Prince S/Sammy J. Smith
(Director) (Director)
S/J. R. Scribner, Jr. S/Allen B. Puckett, III
(Director) (Director)
S/Ralph E. Pogue S/Carl M. Holloway
(Director) (Director)
S/Edith D. Millsaps S/Hunter M. Gholson
(Director) (Director)
S/Kenneth A. Madison S/Robert S. Jones
(Director) (Director)
S/James C. Ratcliff
(Director)
Date: March 12, 1997
EXHIBIT 13.a.
MARKET INFORMATION
Common Stock
The Company's common stock is traded primarily in Monroe, Lowndes,
Clay, Oktibbeha, Neshoba, and Noxubee Counties in Mississippi
and Tuscaloosa County in Alabama. Market prices are the estimates of
management based on transactions of which they had knowledge.
Quarterly high and low sale prices are not available; however,
the approximate ranges in which the stock traded were between $71.50
and $81.00 during 1995 and $81.00 and $95.00 during 1996. Dividends
were declared semi-annually in June and December of each of the
years reported.
EXHIBIT 13.b.
SELECTED FINANCIAL DATA
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended December 31,
________________________________________________________________
1996 1995 1994 1993 1992
____________ ____________ ____________ ____________ ____________
INCOME DATA
Interest and fees
on loans $ 32,912,956 $ 30,730,631 $ 25,216,740 $ 19,097,106 $ 18,816,616
Interest and
dividends on
investment
securities 10,530,540 11,072,491 10,338,962 11,036,898 13,346,320
Other interest
income 401,629 446,455 257,671 143,759 132,378
____________ ____________ ____________ ____________ ____________
Total interest
income 43,845,125 42,249,577 35,813,373 30,277,763 32,295,314
Interest expense 19,308,329 18,684,733 13,545,475 11,540,090 13,882,619
____________ ____________ ____________ ____________ ____________
Net interest
income 24,536,796 23,564,844 22,267,898 18,737,673 18,412,695
Provision for
loan losses 1,314,000 1,165,000 1,234,024 1,634,960 2,028,689
____________ ____________ ____________ ____________ ____________
Net interest
income after
provision for
loan losses 23,222,796 22,399,844 21,033,874 17,102,713 16,384,006
Service charges
on deposit
accounts 3,675,581 3,382,570 3,329,928 2,606,042 2,616,082
Other income 2,965,157 2,480,667 2,394,711 2,756,746 2,648,656
____________ ____________ ____________ ____________ ____________
Total noninterest
income 6,640,738 5,863,237 5,724,639 5,362,788 5,264,738
____________ ____________ ____________ ____________ ____________
Salaries and
employee benefits 10,840,636 10,278,758 9,608,105 8,404,911 7,755,953
Occupancy and
equipment expense 2,525,186 2,467,351 2,237,060 1,836,524 1,829,379
Other expenses 5,605,114 5,278,434 5,428,709 4,469,271 4,702,472
____________ ____________ ____________ ____________ ____________
Total non-
interest
expense 18,970,936 18,024,543 17,273,874 14,710,706 14,287,804
____________ ____________ ____________ ____________ ____________
Income before
income taxes and
cumulative effect
of a change in
accounting
principle 10,892,598 10,238,538 9,484,639 7,754,795 7,360,940
Income taxes 2,707,718 2,430,643 2,346,397 1,588,508 1,610,869
Cumulative effect
(benefit) of
change in
accounting
principle - - - (174,160) -
____________ ____________ ____________ ____________ ____________
Net Income $ 8,184,880 $ 7,807,895 $ 7,138,242 $ 6,340,447 $ 5,750,071
============ ============ ============ ============ ============
PER SHARE DATA (1)
Net income $ 6.82 $ 6.51 $ 5.95 $ 5.28 $ 4.79
Dividends 2.45 2.40 2.05 1.75 1.76
FINANCIAL DATA
Shares outstanding 1,200,000 1,200,000 1,200,000 1,200,000 1,082,425
Total assets $614,429,599 $576,215,391 $545,404,537 $452,356,731 $444,406,921
Net loans $378,837,183 $341,998,215 $317,812,315 $247,479,066 $223,768,751
Total deposits $516,752,383 $496,783,232 $455,761,308 $383,484,153 $379,949,418
Total stockholders'
equity $ 64,847,364 $ 60,272,268 $ 51,654,561 $ 49,759,895 $ 45,516,867
(1) Per share data has been adjusted retroactively for a 1993 stock
dividend.
</TABLE>
EXHIBIT 13.c.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NBC CAPITAL CORPORATION
The following discussion is intended to further explain financial
information outlined in the accompanying five year listing of
certain financial data. Information contained in this data summary
depicts selected totals from the company's balance sheet and
operating results for the past five years. Your attention is also
directed to management's letter to shareholders at the beginning of
this Annual Report. This letter further explains significant changes
that occurred in the company's operation during the past year.
Since 1992 total assets of the company have increased 38.3%. The 20.6%
growth in 1994 reflects the company's acquisition of First State Bank
in Tuscaloosa, Alabama. The more modest asset growth noted in 1993
is attributable to an economy throughout the company's markets which
was growing at a somewhat slower pace than 1994-1996 and the
company's unwillingness at that time to incur an increased cost of funds
to encourage deposit growth when sufficient funds were already available
to accommodate such growth. Loans have increased 69.3% between 1992
and 1996. Loan growth has been consistent in each of the years noted
in the schedule. The quality of the portfolio remains excellent. Net
charge-offs for 1994 and 1995 were .14% of net loans outstanding and
.18% for 1996.
Deposits have grown 36.0% over the period 1992-1996. The 18.9%
increase in 1994 is again attributable to the First State Bank of
Tuscaloosa acquisition. As mentioned previously, the modest growth
in deposit in 1993 resulted from the company's unwillingness to
reduce interest margins by paying premium rates for deposits
when sufficient funds were already on hand to fund loan growth. In
fact, during the period 1992-1994, management had felt that it could
improve profits by allowing loans to grow faster than deposits. This
practice was modified somewhat during 1995 and 1996 as loans reached
more optimum levels relative to outstanding deposits.
Shareholders' equity, particularly as it relates to assets, has
represented a consistent strength of the company throughout the years
noted in the summary data. Shareholders' equity has increased 42.5%
since 1992. Shareholders' equity in 1995 reflected a $906,236
unrealized gain on "Available for Sale Securities" and a similar gain
of $236,452 in 1996, as required to be reported under FASB 115.
Net income has increased in each of the five years reported. Earnings
have increased 42.5% since 1992 (4 years). Return on average assets
(ROA), a primary measure of earning strength, has exceeded 1.3% in each
of the years noted. ROA since 1993 has been 1.4%, reflecting a
return which has allowed the company to consistently perform at
high levels. Earnings per share have also grown each year, increasing
from $4.79 in 1992 to $6.82 in 1996.
Regular cash dividends have increased in each of the years outlined in
the summary. Special cash dividends of $.25 and $.15 per share in 1992
and 1995 respectively were paid in recognition of the company's strong
earnings and equity positions. Also, a 10.86% stock dividend was
declared in September 1993. Per share data in the accompanying five
year summary has been adjusted to reflect retroactively the 1993
stock dividend.
Net interest income (NII), the primary source of earnings for the
company, has increased in each of the years noted. This income
component represents income generated from earning assets less the
interest expense of funding those assets. NII increased 5.8% in 1995
and 4.1% in 1996. These increases are in contrast to the 18.8% growth
in this income component in 1994. Reduced increases in 1995 and 1996
are attributable to the company's being less aggressive in passing
reduced asset yields to the deposit side of the balance sheet since
these deposits were increasingly needed to fund loan growth. Changes
in NII may be divided into two components, the change in average
earning assets (volume component) and the change in the net interest
margin (rate component). Net interest margin represents the
difference between yields on earning assets and rates paid on
interest bearing liabilities. During 1996, average earning assets
increased $22.3 million or 4.3%. Net interest margin for the
year decreased slightly to 4.53% from 4.57% in 1995.
Evaluating these components of change, 1996's improvement in NII
resulted exclusively from an increase in average earning assets.
Although rates paid on deposits decreased slightly during 1996,
yields on earning assets declined by a somewhat greater amount,
thus reducing net interest margin. The growth in the company's loan
portfolio during 1996 represented the key earning asset increase
which allowed for an increase in net interest income for the year.
The company has also maintained a consistent and disciplined
asset/liability management policy during each of the years noted in
the summary. This policy focuses on interest rate risk and rate
sensitivity. The primary objective of rate sensitivity management is
to maintain interest income growth while reducing exposure to adverse
fluctuations in rates. The company utilizes an Asset/Liability
Management Committee which evaluates and analyzes the company's
pricing, asset/liability maturities and growth, and balance sheet mix
strategies in an effort to make informed decisions that will increase
income and limit interest rate risk. The committee uses simulation
modeling as a guide for its decision-making. Modeling techniques are
also utilized to forecast changes in net income and the economic value
of equity under assumed fluctuations in interest rate levels.
Due to the potential volatility of interest rates, NBC's goal is to
stabilize the net interest margin by maintaining a neutral rate
sensitive position. At year-end 1996, the company's balance sheet
reflected $25.4 million more in rate sensitive liabilities than
assets that were scheduled to reprice within one year. This represents
4.1% of total assets which would be considered an essentially neutral
rate sensitive position. It is felt that the company's position places
it in a low interest rate risk posture. Management has adopted a
basically neutral position regarding interest rates in 1997 with a
slight bias toward higher rates during the second half of the year.
Management has never felt that speculating on changes in interest rate
levels warranted moving the company from a neutral position in its
rate sensitive asset/liability relationships. Although earnings could
be enhanced if predictions were correct, they could also be put at
significant risk if a neutral position is deliberately avoided and
interest rates move against predictions.
The company's Provision for Loan and Lease Losses is utilized to
replenish its Reserve for Loan and Lease Losses on its balance sheet.
The reserve is maintained at a level deemed adequate by the Board of
Directors after the Board's evaluation of the risk exposure contained
in the company's loan portfolio. The reserve amount maintained at the
end of 1996 was deemed entirely adequate to cover exposure within the
company's loan portfolio. The reserve has increased 111.5% since 1992
and stood at 1.8% of net loans at the end of 1996.
Non-interest income and non-interest expense totals each reflect the
impact of the First State Bank of Tuscaloosa acquisition in 1994.
Non-interest income includes various service charges, fees, and
commissions collected by the company. Non-interest expense represents
ordinary overhead expenses to include salaries, bonuses, and benefits.
Non-interest expenses were assisted during 1996 with the virtual
elimination of Bank Insurance Fund premiums. Finally, the company
maintains a formal salary administration program which considers
extensive comparative salary data and other indexes supplied by a
leading outside consulting firm. This data is utilized to assure that
salaries are in line and competitive to comparable jobs in the
marketplace. Incentive bonuses were expensed in each of the years
noted and were paid to employees based on the attainment of
predetermined profit goals.
Growth in the company's income tax expense generally parallels income
gains. High quality, tax free municipal bonds are added to the
portfolio as deemed prudent in an effort to minimize tax liabilities.
Large purchases of municipal securities in December 1994 and
January 1995 at attractive rates have assisted in reducing the
company's effective tax rate. However, the ability to significantly
reduce income tax expenses through this investment choice is limited by
the Alternative Minimum Tax Provision and the company's normal
liquidity and balance sheet structure requirements. Also, the
availability of these securities at acceptable spreads to comparable
U.S. Treasury taxable rates were significantly diminished during 1996.
The company received a $174,160 tax benefit in 1993 resulting from a
change in accounting principles regarding deferred income taxes.
The company's effective tax rate was 23.7% in 1995 and 24.9% in 1996.
LIQUIDITY, ASSET/LIABILITY MANAGEMENT
Liquidity may be defined as the ability of the company to meet cash
flow requirements created by decreases in deposits and/or other sources
of funds or increases in loan demand. The company has experienced no
problem with liquidity over any of the years noted and anticipates that
all liquidity requirements will be met comfortably in the foreseeable
future. The company's traditional sources of funds from deposit
increases, maturing loans and investments, and earnings have allowed it
to consistently generate sufficient funds for liquidity needs. The
company experienced fewer periods of excess liquidity during 1995 and
1996 as loan volume continued to grow relative to deposits, and the
company's loan/deposit ratio reached a 73% level at the end of 1996.
The company has utilized the Federal Home Loan Bank as a source of
funding for fixed rate, term loan commitments. At the end of 1996
the company had outstanding to the Federal Home Loan Bank $13.3
million which is scheduled to mature over the next 3-5 years. The
company expects normal earnings and other cash flows to allow it to
retire these funding lines with no adverse effect on liquidity.
The company also began offering repurchase agreements on a more
aggressive basis to accommodate excess funds of some of its larger
depositors during 1996. Management felt it was important to stabilize
these traditional deposit sources as opposed to risking the potential
loss of these funds to alternative investment arrangements.
As mentioned previously, the company maintains a strict asset/liability
management policy. The adherence to such a policy has an obvious
material effect on the structure of the company's balance sheet, and, to
a degree, on its liquidity positions.
CAPITAL
Retained earnings have served as the company's exclusive source of
capital growth over the five years noted in the financial summary.
Shareholders' equity, as stated previously, has grown consistently
over this period and relates quite favorably to the company's assets.
Current regulatory requirements call for a basic leverage ratio of 5.0%
for a bank to be considered as "well capitalized." At the end of 1996,
NBC maintained a 10.6% leverage ratio which obviously allowed it to
significantly exceed the ratio required for a "well capitalized"
institution.
Regulatory authorities also evaluate a financial institution's capital
under certain risk weighted formulas (high risk assets would require
a higher capital allotment, lower risk assets a lower capital
allotment). In this context, a "well capitalized" bank is required to
have a Tier 1 risk based capital ratio (excludes reserve for loan
losses) of 6.0% and a total risk based capital ratio (includes reserve
for loan losses) of 10.0%. At the end of 1996, the company had a
Tier 1 ratio of 15.6% and a total risk based capital ratio of 16.9%,
once again placing the company well above the level required for a
"well capitalized" institution.
The company's capital position obviously exceeds regulatory
requirements, even for "well capitalized" institutions. Equity
capital has increased 42.5% since 1992 to total 10.6% of assets at
the end of 1996. Management considers this level of capital to be
entirely sufficient to support the needs of the company.
EXHIBIT 13.d.
CONSOLIDATED FINANCIAL STATEMENTS
NBC CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
DECEMBER 31, 1996 AND 1995
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
NBC Capital Corporation
We have audited the accompanying consolidated balance sheets of NBC
Capital Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Corporation'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
audits 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 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 NBC Capital Corporation and subsidiaries as of December 31, 1996
and 1995, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
T. E. Lott & Company
Columbus, Mississippi
January 23, 1997
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
____________ ____________
Cash and due from banks $ 29,126,083 $ 23,992,273
Interest-bearing deposits with banks 493,360 800,843
Federal funds sold 9,100,000 3,600,000
Securities (Note C) 167,841,660 179,343,452
Loans, net of reserve for loan losses
of $6,777,637 in 1996 and $6,419,570
in 1995 (Note D) 378,837,183 341,998,215
Interest receivable 5,755,778 5,519,350
Premises and equipment (Note E) 13,267,167 12,660,850
Other real estate 729,762 117,500
Intangible assets (Note B) 2,751,506 2,806,519
Other assets 6,527,100 5,376,389
____________ ____________
$614,429,599 $576,215,391
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 71,601,043 $ 70,360,220
Interest-bearing deposits, $100,000
or more 62,090,903 67,526,490
Other interest-bearing deposits 383,060,437 358,896,522
____________ ____________
Total deposits 516,752,383 496,783,232
Interest payable 2,205,779 2,346,144
Federal funds purchased and securities
sold under repurchase agreements
(Note F) 9,320,948 99,744
Other borrowed funds (Note F) 14,711,088 10,025,939
Other liabilities 6,592,037 6,688,064
____________ ____________
Total liabilities 549,582,235 515,943,123
____________ ____________
Commitments and contingent liabilities
(Note K)
Stockholders' equity (Note J):
Common stock - $1 par value,
authorized 3,000,000 shares, issued
and outstanding 1,200,000 shares 1,200,000 1,200,000
Surplus 33,002,133 33,002,133
Undivided profits 30,408,779 25,163,899
Net unrealized gain on available-
for-sale securities, net of tax
of $122,524 in 1996 and $468,360
in 1995 236,452 906,236
____________ ____________
64,847,364 60,272,268
____________ ____________
$614,429,599 $576,215,391
============ ============
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
___________ ___________ ___________
INTEREST INCOME
Interest and fees on loans $32,912,956 $30,730,631 $25,216,740
Interest and dividends on
securities:
Taxable interest and dividends 6,789,316 7,232,827 7,231,495
Tax-exempt interest 3,741,224 3,839,664 3,107,467
Other 401,629 446,455 257,671
___________ ___________ ___________
43,845,125 42,249,577 35,813,373
___________ ___________ ___________
INTEREST EXPENSE
Interest on time deposits of
$100,000 or more 3,769,263 3,418,128 2,366,527
Interest on other deposits 14,743,655 14,488,121 10,380,965
Interest on borrowed funds 795,411 778,484 797,983
___________ ___________ ___________
19,308,329 18,684,733 13,545,475
___________ ___________ ___________
Net interest income 24,536,796 23,564,844 22,267,898
Provision for loan losses
(Note D) 1,314,000 1,165,000 1,234,024
___________ ___________ ___________
Net interest income after
provision for loan losses 23,222,796 22,399,844 21,033,874
___________ ___________ ___________
OTHER INCOME
Service charges on deposit
accounts 3,675,581 3,382,570 3,329,928
Other service charges and fees 1,788,744 1,663,310 1,597,220
Trust Department income 935,829 846,296 751,079
Securities (losses) gains, net 8,574 (185,523) (155,887)
Other 232,010 156,584 202,299
___________ ___________ ___________
6,640,738 5,863,237 5,724,639
___________ ___________ ___________
OTHER EXPENSE
Salaries 8,933,364 8,428,133 7,851,474
Employee benefits (Note H) 1,907,272 1,850,625 1,756,631
Net occupancy expense 1,501,011 1,380,148 1,322,977
Furniture and equipment expense 1,024,175 1,087,203 914,083
Deposit insurance premiums 4,000 525,744 991,642
Other 5,601,114 4,752,690 4,437,067
___________ ___________ ___________
18,970,936 18,024,543 17,273,874
___________ ___________ ___________
Income before income taxes 10,892,598 10,238,538 9,484,639
Income taxes (Note G) 2,707,718 2,430,643 2,346,397
___________ ___________ ___________
Net income $ 8,184,880 $ 7,807,895 $ 7,138,242
=========== =========== ===========
Net income per share $ 6.82 $ 6.51 $ 5.95
=========== =========== ===========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net
Unrealized
Gain (Loss)
On
Available-
Common Undivided For-Sale
Stock Surplus Profits Securities Total
__________ ___________ ___________ ___________ ___________
Balance,
January 1,
1994 $1,200,000 $33,002,133 $15,557,762 $ - $49,759,895
Cumulative
effect of
change in
accounting
for
securities - - - 2,066,307 2,066,307
Net income
for 1994 - - 7,138,242 - 7,138,242
Cash
dividends
declared,
$2.05 per
share - - (2,460,000) - (2,460,000)
Net change
in
unrealized
gain (loss)
on
available-
for-sale
securities,
net of tax - - - (4,849,883) (4,849,883)
__________ ___________ ___________ ___________ ___________
Balance,
Decem-
ber 31,
1994 1,200,000 33,002,133 20,236,004 (2,783,576) 51,654,561
Net income
for 1995 - - 7,807,895 - 7,807,895
Cash
dividends
declared,
$2.40 per
share - - (2,880,000) - (2,880,000)
Net change
in
unrealized
gain (loss)
on
available-
for-sale
securities,
net of tax - - - 3,689,812 3,689,812
__________ ___________ ___________ ___________ ___________
Balance,
Decem-
ber 31,
1995 1,200,000 33,002,133 25,163,899 906,236 60,272,268
Net income
for 1996 - - 8,184,880 - 8,184,880
Cash
dividends
declared,
$2.45 per
share - - (2,940,000) - (2,940,000)
Net change
in
unrealized
gain (loss)
on
available-
for-sale
securities,
net of tax - - - (669,784) (669,784)
__________ ___________ ___________ ___________ ___________
Balance,
Decem-
ber 31,
1996 $1,200,000 $33,002,133 $30,408,779 $ 236,452 $64,847,364
========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
___________ ___________ ___________
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 8,184,880 $ 7,807,895 $ 7,138,242
Adjustments to reconcile net
income to net cash:
Depreciation and amortization 1,387,866 1,376,515 1,276,023
Deferred income taxes (credits) (75,785) (189,616) (286,884)
Provision for loan losses 1,314,000 1,165,000 1,234,024
FHLB stock dividend (107,700) (111,000) (76,900)
Losses (gains) on sale of
securities (8,574) 185,523 155,887
Deferred credits (109,119) (105,214) (47,919)
Increase in interest receivable (236,428) (1,029,340) (622,506)
Increase in other assets (1,564,922) (348,734) (216,860)
Increase (decrease) in interest
payable (140,365) 674,767 192,967
Increase (decrease) in other
liabilities (130,371) 110,808 26,387
___________ ___________ ___________
Net cash provided by operating
activities 8,513,482 9,536,604 8,772,461
___________ ___________ ___________
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash paid in excess of cash and
cash equivalents of acquired bank - - (2,183,033)
Purchases of available-for-sale
securities (27,178,274) (38,095,497) (60,225,100)
Proceeds from sales of available-
for-sale securities 1,742,374 11,451,366 21,990,387
Proceeds from maturities and
calls of available-for-sale
securities 35,638,881 30,728,981 57,044,849
Purchases of securities to be
held-to-maturity - (1,746,435) (21,904,571)
Proceeds from maturities and
calls of held-to-maturity
securities 399,869 24,580 -
Increase in loans (38,043,849) (25,245,686) (30,830,314)
Additions to premises and
equipment (1,717,660) (1,318,849) (801,146)
___________ ___________ ___________
Net cash used in investing
activities (29,158,659) (24,201,540) (36,908,928)
___________ ___________ ___________
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in deposits 19,969,151 41,021,924 17,149,474
Dividends paid on common stock (2,904,000) (2,484,000) (396,000)
Net increase (decrease) in
borrowed funds 13,906,353 (20,033,880) 14,527,931
___________ ___________ ___________
Net cash provided by financing
activities 30,971,504 18,504,044 31,281,405
___________ ___________ ___________
Net increase in cash and
cash equivalents 10,326,327 3,839,108 3,144,938
Cash and cash equivalents at
beginning of year 28,393,116 24,554,008 21,409,070
___________ ___________ ___________
Cash and cash equivalents at end
of year $38,719,443 $28,393,116 $24,554,008
=========== =========== ===========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES
NBC Capital Corporation (the "Corporation"), and its subsidiaries,
follow generally accepted accounting principles, including, where
applicable, general practices within the banking industry.
1. Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and the following:
National Bank of Commerce of Mississippi (NBC), a wholly-owned
subsidiary of the Corporation,
NBC of Tuscaloosa, a 99.3% owned subsidiary of the
Corporation,
NBC Service Corporation, a wholly-owned subsidiary of NBC,
Philadelphia Finance Corporation, a wholly-owned subsidiary
of NBC, and
Commerce National Insurance Company, a 79%-owned subsidiary
of NBC Service Corporation.
Significant intercompany accounts and transactions have been
eliminated.
NBC and NBC of Tuscaloosa account for approximately 99% of the assets
included in the consolidated financial statements.
2. Nature of Operations
The Corporation is a multi-bank holding company. Its primary asset is
its investment in its subsidiary banks. NBC and NBC of Tuscaloosa provide
full banking services, including trust services. The banks operate under
national bank charters and are subject to regulation of the Office of
the Comptroller of the Currency. The area served by NBC is the North
Central region of Mississippi with locations in nine communities. NBC of
Tuscaloosa serves the Tuscaloosa, Alabama area. The primary asset of NBC
Service Corporation is its investment in Commerce National Insurance
Company, a life insurance company. Philadelphia Finance Corporation is a
finance company with an office located in Philadelphia, Mississippi.
3. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
4. Securities
On January 1, 1994, the Corporation and its subsidiaries adopted
Financial Accounting Standards Board (FASB) Statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." In accordance with
FASB Statement No. 115, investments in securities are classified into three
categories and are accounted for as follows:
Available-for-Sale Securities
Securities classified as available-for-sale are those securities that
are intended to be held for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors, including movements
in interest rates, liquidity needs, security risk assessments, changes in
the mix of assets and liabilities and other similar factors. These
securities are carried at their estimated fair value, and the net
unrealized gain or loss is reported in stockholders' equity, net of tax,
until realized. Premiums and discounts are recognized in interest income
using the interest method.
Gains and losses on the sale of available-for-sale securities are
determined using the adjusted cost of the specific security sold.
Securities to be Held-to-Maturity
Securities classified as held-to-maturity are those securities for
which there is a positive intent and ability to hold to maturity.
These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method.
Trading Account Securities
Trading account securities are those securities which are held for the
purpose of selling them at a profit. There were no trading account
securities on hand at December 31, 1996 and 1995.
5. Loans
Loans are carried at the principal amount outstanding, net of unearned
interest. Interest income on installment loans is recognized using a
method which approximates the interest method. Interest income on all
other loans is recognized based on the principal balance outstanding
and the stated rate of the loan.
Loans are generally placed on a nonaccrual status when principal or
interest is past due ninety days, or when specifically determined to be
impaired. When a loan is placed on nonaccrual status, interest accrued
but not received is generally reversed against interest income. If
collectibility is in doubt, cash receipts on nonaccrual loans are used
to reduce principal rather than recorded as interest income.
Loan origination fees and certain direct origination costs are
capitalized
and recognized as an adjustment of the yield on the related loan.
6. Reserve for Loan Losses
For financial reporting purposes, the provision for loan losses
charged to operations is based upon management's estimations of the
amount necessary to maintain the reserve at an adequate level,
considering past loan loss experience, current economic conditions,
credit reviews of the loan portfolio, changes in the size and character
of the loan portfolio and other factors warranting consideration.
Reserves for any impaired loans are generally determined based on
collateral values. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the
principal is unlikely. The reserve is maintained at a level believed
adequate by management to absorb potential loan losses.
7. Premises and Equipment
Premises and equipment are stated at cost, less accumulated deprecia-
tion and amortization. Depreciation and amortization are determined
using the straight-line method at rates calculated to depreciate or
amortize the cost of assets over their estimated useful lives.
Maintenance and repairs of property and equipment are charged to
operations, and major improvements are capitalized. Upon retirement,
sale, or other disposition of property and equipment, the cost and
accumulated depreciation are eliminated from the accounts, and any
gains or losses are included in operations.
8. Other Real Estate
Other real estate consists of properties acquired through foreclosure
and is recorded at the lower of cost or current appraisal less estimated
costs to sell. Any write-down from the cost to fair value required at the
time of foreclosure is charged to the reserve for loan losses. Subsequent
gains or losses on other real estate are reported in other operating income
or expenses.
9. Intangible Assets
Intangible assets consisting principally of goodwill associated with
acquisitions are being amortized to expense using the straight-line
method over a fifteen year period. Amortization expense was $196,145 for
1996, $185,845 for 1995, and $182,625 for 1994.
10. Income Taxes
Income taxes are provided for the tax effects of the transactions
reported in the consolidated financial statements and consist of taxes
currently payable, plus deferred taxes related primarily to differences
between the basis of securities, reserve for loan losses, premises and
equipment, other real estate and prepaid or accrued employee benefits
for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax consequences of those differences,
which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
The Corporation and its subsidiaries (except for Commerce National
Insurance Company) file consolidated income tax returns. The
subsidiaries provide for income taxes on a separate return basis and
remit to the Corporation amounts determined to be payable.
11. Trust Assets
Assets of the Trust Department, other than cash on deposit, are not
included in the accompanying balance sheets, since such items are not
assets of the banks.
12. Employee Benefits
NBC and NBC of Tuscaloosa maintain a noncontributory defined benefit
pension plan covering substantially all full-time employees. The plan
calls for benefits to be paid to eligible employees at retirement based
primarily upon years of service and compensation. Contributions to the
plan reflect benefits attributed to employees' services to date, as well
as services expected to be earned in the future. The annual pension
cost charged to expense is actuarially determined in accordance with the
provisions of Statement of Financial Accounting No. 87, "Employers'
Accounting for Pensions."
NBC and NBC of Tuscaloosa provide a deferred compensation arrangement
(401(k) plan) whereby employees contribute a percentage of their
compensation. For employee contributions of five percent or less, NBC
and NBC of Tuscaloosa contribute twenty-five percent of the employee's
contribution to the plan.
Employees of NBC and NBC of Tuscaloosa participate in a nonleveraged
Employee Stock Option Plan (ESOP) through which common stock of the
Corporation is purchased at its market price for the benefit of
employees. Contributions are made at the discretion of the Board of
Directors and are expensed in the applicable year. The ESOP is
accounted for in accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans."
NBC makes available a deferred income plan to certain employees and
directors. Costs are accrued and charged to expense in amounts
sufficient to equal the present value of benefits due at the
participant's full eligibility date.
The Corporation provides an employee stock benefit plan whereby 2,109
shares of the Corporation's stock have been assigned for the benefit
of certain key employees. Under the terms of the plan, retirement or
similar payments will be equal to the fair market value of the stock
plus all cash dividends paid since the adoption of the agreement.
Compensation expense was recorded at the establishment date based on the
market value of the stock. The difference between any increase or
decrease in the value of the stock is recorded annually as an adjustment
to salaries.
13. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold.
Generally, federal funds are sold for a one-day period.
14. Per Share Data
The computation of per share data is based on 1,200,000 shares
outstanding during each year.
15. Off-Balance Sheet Financial Instruments
In the ordinary course of business, the financial institution
subsidiaries enter into off-balance sheet financial instruments
consisting of commitments to extend credit, credit card lines,
commercial and similar letters of credit and commitments to
purchase securities. Such financial instruments are recorded in
the financial statements when they are exercised.
NOTE B - ACQUISITION
On January 1, 1994, the Corporation acquired for cash all of the
outstanding common stock of Charter Holding Company, Inc. (Charter),
the parent holding company of NBC of Tuscaloosa (formerly First State
Bank of Tuscaloosa). Charter had no business activity other than its
80% ownership of the Bank's common stock and was liquidated after the
acquisition. The Corporation subsequently obtained an additional 19.3%
of common stock for cash bringing its total ownership to 99.3%. The
total acquisition cost was approximately $9.1 million. The excess of
the acquisition cost over the fair value of the net assets acquired
(goodwill) is included in intangible assets in the consolidated
financial statements. The acquisition has been accounted for as a
purchase, and the results of operations of NBC of Tuscaloosa since
January 1, 1994, are included in the consolidated financial statements.
NOTE C - SECURITIES
Securities at December 31, 1996 and 1995, consisted of available-for-
sale securities with a carrying amount of $136,168,363 and $147,270,286,
respectively, and securities to be held-to-maturity with a carrying
amount of $31,673,297, and $32,073,166, respectively. The amortized
cost, gross unrealized gains, gross unrealized losses and estimated
fair value of these securities are as follows:
December 31, 1996
__________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________ __________ __________ ____________
Available-for-sale
securities:
U. S. Treasury
securities $ 31,832,127 $ 120,665 $ 272,745 $ 31,680,047
Obligations of
other U. S.
Government
agencies 23,980,838 252,428 49,845 24,183,421
Obligations of
states and
municipal
subdivisions 35,923,313 319,214 120,999 36,121,528
Mortgage-backed
securities 38,709,897 313,099 152,003 38,870,993
Equity securities 3,639,700 - - 3,639,700
Other securities 1,724,954 11,518 63,798 1,672,674
____________ __________ __________ ____________
$135,810,829 $1,016,924 $ 659,390 $136,168,363
============ ========== ========== ============
Held-to-maturity
securities:
Obligations of
states and
municipal
subdivisions $ 31,673,297 $2,959,565 $ - $ 34,632,862
============ ========== ========== ============
December 31, 1995
__________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________ __________ __________ ____________
Available-for-sale
securities:
U. S. Treasury
securities $ 25,732,454 $ 334,508 $ 27,708 $ 26,039,254
Obligations of
other U. S.
Government
agencies 25,412,659 539,807 110,237 25,842,229
Obligations of
states and
municipal
subdivisions 34,500,845 508,672 132,450 34,877,067
Mortgage-backed
securities 55,151,360 588,052 281,815 55,457,597
Equity securities 3,258,000 - - 3,258,000
Other securities 1,842,219 19,103 65,183 1,796,139
____________ __________ __________ ____________
$145,897,537 $1,990,142 $ 617,393 $147,270,286
============ ========== ========== ============
Held-to-maturity
securities:
Obligations of
states and
municipal
subdivisions $ 32,073,166 $3,160,999 $ - $ 35,234,165
============ ========== ========== ============
The scheduled maturities of securities available-for-sale and securities
to be held-to-maturity at December 31, 1996, are as follows:
Available-for-Sale Held-to-Maturity
___________________________ ________________________
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
____________ ____________ ___________ ___________
Due in one year or
less $ 18,580,324 $ 18,703,867 $ - $ -
Due after one year
through five
years 70,773,658 70,820,747 3,492,832 3,657,564
Due after five
years through ten
years 3,132,366 3,214,910 5,504,890 6,005,309
Due after ten years 648,096 649,975 22,675,575 24,969,989
Mortgage-backed
securities and
other securities 42,676,385 42,778,864 - -
____________ ____________ ___________ ___________
$135,810,829 $136,168,363 $31,673,297 $34,632,862
============ ============ =========== ===========
Gross gains of $9,599 and $14,761, and gross losses of $1,025 and
$200,284 were realized on available-for-sale securities in 1996 and 1995,
respectively.
Securities with a carrying value of $113,317,669 and $96,913,000 at
December 31, 1996 and 1995, respectively, were pledged to secure public
and trust deposits and for other purposes as required or permitted by
law.
Banking regulations define "high-risk mortgage securities" as mortgage
derivative products that are determined through testing to have more
volatility, particularly price volatility, than a benchmark mortgage
pass-through security. It is the policy of the Corporation and its
subsidiaries not to invest in "high-risk mortgage securities." If,
subsequent to its purchase, the security through testing is
identified as high-risk, the policy is for the security to be sold.
At December 31, 1996 and 1995, securities included no "high-risk
mortgage securities."
NOTE D - LOANS
Loans outstanding include the following types:
(In Thousands)
December 31,
__________________
1996 1995
________ ________
Commercial, financial and agricultural $ 64,604 $ 56,219
Real estate - construction 13,578 11,892
Real estate - mortgage 219,403 193,686
Installment loans to individuals 81,351 83,281
Other 7,582 5,989
________ ________
386,518 351,067
Unearned interest (903) (2,649)
Reserve for loan losses (6,778) (6,420)
________ ________
$378,837 $341,998
======== ========
Loans on which the accrual of interest has been discontinued amounted
to $1,435,352 at December 31, 1996, and $2,027,895 at December 31, 1995.
Restructured loans amounted to approximately $672,000 and $910,000 at
December 31, 1996 and 1995, respectively. The income effect of
nonaccrual loans and restructured loans was not significant for each
of the three years ended December 31, 1996.
At December 31, 1996, there were no commitments to lend additional
funds to debtors whose loans have been modified.
Transactions in the reserve for loan losses are summarized as follows:
Years Ended December 31,
_____________________________________
1996 1995 1994
___________ ___________ ___________
Balance at beginning of year $ 6,419,570 $ 5,719,110 $ 4,450,355
Additions:
Provision for loan losses
charged to operating expense 1,314,000 1,165,000 1,234,024
Recoveries of loans previously
charged off 281,251 303,259 250,015
Reserve applicable to loans of
acquired bank - - 493,878
___________ ___________ ___________
8,014,821 7,187,369 6,428,272
Deductions:
Loans charged off 1,237,184 767,799 709,162
___________ ___________ ___________
Balance at end of year $ 6,777,637 $ 6,419,570 $ 5,719,110
=========== =========== ===========
At December 31, 1996 and 1995, the recorded investment in loans
considered to be impaired totaled approximately $1,400,000. The
reserve for loan losses related to these loans approximated $550,000
at December 31, 1996 and 1995. The average recorded investment in
impaired loans during the year ended December 31, 1996, was approximately
$1,800,000. For the years ended December 31, 1996 and 1995, the amount
of income recognized on impaired loans was immaterial.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization as follows:
Estimated December 31,
Useful Lives ________________________
In Years 1996 1995
____________ ___________ ___________
Premises:
Land - $ 2,473,102 $ 2,299,972
Buildings, construction and
improvements 10 - 50 12,712,059 12,318,470
___________ ___________
15,185,161 14,618,442
Equipment 3 - 10 9,384,970 8,397,970
__________ ___________
24,570,131 23,016,412
Less accumulated depreciation
and amortization 11,302,964 10,355,562
___________ ___________
$13,267,167 $12,660,850
=========== ===========
The amount charged to operating expenses for depreciation was $1,111,343
for 1996, $1,062,885 for 1995, and $981,690 for 1994.
NOTE F - BORROWED FUNDS
Federal funds purchased and securities sold under repurchase agreements
consisted of the following at December 31, 1996 and 1995:
1996 1995
___________ ___________
Federal funds purchased $ 2,000,000 $ -
Securities sold under agreement to repurchase 7,320,948 99,744
___________ ___________
$ 9,320,948 $ 99,744
=========== ===========
Federal funds purchased and securities sold under agreements to
repurchase generally mature within one to four days from the
transaction date. Information concerning securities sold under
agreement to repurchase is summarized as follows:
1996 1995
___________ ___________
Average balance during the year $ 2,994,165 $ 82,403
Average interest rate during the year 4.53% 6.74%
Maximum month-end balance during the year $ 7,320,948 $ 101,084
Securities underlying the agreements at
year end:
Carrying value 8,554,679 99,744
Estimated fair value 8,554,679 99,744
Other borrowed funds are summarized as follows:
December 31,
________________________
1996 1995
___________ ___________
6.06% note payable to the Federal Home Loan
Bank, due January 1, 1998 $ 2,713,089 $ 3,042,140
4.78% note payable to the Federal Home Loan
Bank, due June 1, 1998 976,254 1,539,360
6.63% note payable to the Federal Home Loan
Bank, due January 1, 2000 2,477,149 2,611,920
5.57% note payable to the Federal Home Loan
Bank, due June 1, 2000 2,133,310 2,376,835
5.90% note payable to the Federal Home Loan
Bank, due December 3, 2001 5,000,000 -
Treasury tax and loan note 1,411,286 455,684
___________ ___________
$14,711,088 $10,025,939
=========== ===========
The notes payable to the Federal Home Loan Bank are collateralized by
first mortgage loans, Federal Home Loan Bank capital stock, and amounts
on deposit with the Federal Home Loan Bank.
The treasury tax and loan note generally matures within one to sixty
days from the transaction date. Interest is paid at an adjustable rate
as set by the U. S. Government.
NOTE G - INCOME TAXES
The provision for income taxes including the tax effects of securities
transactions [1996 - $3,215; 1995 - ($69,570); 1994 - ($53,002)] is
as follows:
Years Ended December 31,
__________________________________
1996 1995 1994
__________ __________ __________
Current tax expense $2,783,503 $2,620,259 $2,633,281
Deferred tax expense (benefit) (75,785) (189,616) (286,884)
__________ __________ __________
$2,707,718 $2,430,643 $2,346,397
========== ========== ==========
Deferred tax provisions are applicable to the following items:
Years Ended December 31,
__________________________________
1996 1995 1994
__________ __________ __________
Depreciation $ 57,193 $ 91,482 $ (16,084)
Loans and reserve for loan
losses (267,870) (599,459) (404,902)
Securities 86,855 90,928 (43,550)
Employee benefits 121,543 103,966 (46,874)
State net operating loss
carryforward - 100,000 199,400
Other, net (73,506) 23,467 25,126
__________ __________ __________
$ (75,785) $ (189,616) $ (286,884)
========== ========== ==========
The difference between the total expected tax expense at the federal
tax rate of 34% and the reported income tax expense is as follows:
Years Ended December 31,
_____________________________________
1996 1995 1994
___________ ___________ ___________
Tax on income before income
taxes $ 3,703,483 $ 3,481,103 $ 3,224,777
Increase (decrease) resulting
from:
Tax-exempt income (1,345,665) (1,345,604) (1,060,562)
Goodwill amortization 79,235 75,733 74,640
Other nondeductible expenses 180,171 190,332 158,585
Tax benefit of small life
insurance company exemption (128,336) (109,644) (129,628)
State income taxes, net of
federal benefit 218,460 126,060 58,428
Other, net 370 12,663 20,157
___________ ___________ ___________
$ 2,707,718 $ 2,430,643 $ 2,346,397
=========== =========== ===========
For income tax reporting purposes, NBC of Tuscaloosa retained its tax
basis for its assets and liabilities. As a result, the amortization of
the goodwill associated with the acquisition is not deductible.
The components of the net deferred tax asset included in other assets
as of December 31, 1996 and 1995, are as follows:
1996 1995
___________ ___________
Deferred tax assets:
Reserve for loan losses $ 2,321,070 $ 2,016,430
Employee benefits 150,560 272,103
Other 167,051 51,865
___________ ___________
Total deferred tax assets 2,638,681 2,340,398
___________ ___________
Deferred tax liabilities:
Premises and equipment (989,210) (932,017)
Deferred loan fees/costs (154,010) (112,330)
Securities (366,130) (279,275)
Unrealized gain on available-for-sale
securities (118,756) (464,592)
Loans (137,870) (101,100)
___________ ___________
Total deferred tax liabilities (1,765,976) (1,889,314)
___________ ___________
Net deferred tax asset $ 872,705 $ 451,084
=========== ===========
The IRS has proposed adjustments to the Corporation's consolidated
federal income tax returns for 1993 and 1994. The Corporation is
contesting certain proposed adjustments and, based upon consultation
with special tax counsel, management is of the opinion that any
additional taxes that may result will not be material. Additional
taxes resulting from uncontested adjustments were not significant.
NOTE H - EMPLOYEE BENEFITS
The following table sets forth the defined benefit plan's funded
status and amounts recognized in the Corporation's consolidated
financial statements at December 31, 1996 and 1995:
1996 1995
___________ ___________
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$4,747,982 in 1996 and
$4,406,220 in 1995 $ 5,096,410 $ 4,971,473
=========== ===========
Projected benefit obligation for
service rendered to date $ 7,462,565 $ 7,513,552
Fair value of plan assets 7,657,982 6,890,838
___________ ___________
Plan assets in excess of (less than)
projected benefit obligation 195,417 (622,714)
Unrecognized net gain 894,039 1,303,292
Unrecognized net asset at adoption of
Statement No. 87 being recognized
over employees' average remaining
service life (130,280) (162,851)
Unrecognized prior service cost 63,290 26,761
___________ ___________
Prepaid pension costs $ 1,022,466 $ 544,488
=========== ===========
Net pension costs included the following components:
Years Ended December 31,
_______________________________
1996 1995 1994
_________ _________ _________
Service costs - benefits earned
during the period $ 478,899 $ 392,933 $ 406,355
Interest cost on projected benefit
obligation 573,199 512,274 472,230
Actual return on plan assets (713,332) (846,454) (370,788)
Net amortization and deferral 44,823 246,348 (245,531)
_________ _________ _________
$ 383,589 $ 305,101 $ 262,266
========= ========= =========
The actuarial assumptions used in determining the actuarial present
value of the projected benefit obligation were as follows:
December 31,
______________________
Assumption 1996 1995 1994
__________ ______ ______ ______
Weighted average discount rate 8.0% 7.5% 7.5%
Rate of increase in future compensation
levels 5.0% 5.0% 5.0%
Expected long-term rate of return on
plan assets 9.5% 9.0% 9.5%
Contributions to the ESOP amounted to $200,000 in 1996 and 1995 and
$187,100 in 1994. At December 31, 1996, the plan held 81,991 shares
of the Corporation's common stock. Contributions to the 401(k) plan
amounted to $63,325 in 1996, $54,886 in 1995, and $54,180 in 1994.
NOTE I - RELATED PARTY TRANSACTIONS
In the normal course of business, loans are made to directors and
executive officers and to companies in which they have a significant
ownership interest. In the opinion of management, these loans are
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other parties, and are consistent with sound banking
practices and are within applicable regulatory and lending limitations.
The activity in loans to directors, executive officers, and their
affiliates during 1996 is summarized as follows:
Loans outstanding at January 1, 1996 $ 7,004,084
New loans 3,544,036
Repayments (2,885,804)
___________
Loans outstanding at December 31, 1996 $ 7,662,316
===========
Also, in the normal course of business NBC and NBC of Tuscaloosa
entered into transactions for services with companies and firms whose
principals are directors and stockholders.
NOTE J - REGULATORY MATTERS
Dividends paid by the Corporation are provided from dividends received
from its subsidiary banks. The amount of dividends that can be paid by
banks without prior approval of banking regulators is subject to
maintaining minimum financial standards and capital ratios. The Board
of Directors of each bank may, subject to these regulatory limitations,
declare dividends of so much of the bank's net retained profits as
determined to be expedient.
The Corporation and its subsidiary banks are subject to regulatory
capital requirements administered by federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Corporations'
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and
its subsidiary banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative
judgment by regulators about components, risk weightings, and other
related factors.
To ensure capital adequacy, quantitative measures have been
established by regulators and these require the Corporation and its
bank subsidiaries to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined) to
risk-weighted assets (as defined), and of Tier I capital to adjusted
total assets (leverage). Management believes, as of December 31,
1996, that the Corporation and its subsidiary banks exceed all capital
adequacy requirements.
At December 31, 1996, NBC and NBC of Tuscaloosa were categorized by
regulators as well-capitalized under the regulatory framework for
prompt corrective action. A financial institution is considered to
be well-capitalized if it has total risk-based capital of 10% or more,
has a Tier I risk-based ratio of 6% or more, and has a Tier I leverage
capital ratio of 5% or more. There are no conditions or anticipated
events that, in the opinion of management, would change the
categorization.
The actual capital amounts and ratios at December 31, 1996 and 1995,
are presented in the following table. No amount was deducted from
capital for interest-rate risk exposure:
($ In Thousands)
Subsidiary Banks
NBC Capital ______________________________
Corporation NBC
(Consolidated) NBC Of Tuscaloosa
______________ ______________ ______________
Amount Ratio Amount Ratio Amount Ratio
_______ _____ _______ _____ _______ _____
December 31, 1996:
Total risk-based $68,049 16.9% $58,952 17.0% $ 9,025 16.6%
Tier I risk-based 62,982 15.6% 54,610 15.8% 8,341 15.3%
Tier I leverage 62,982 10.5% 54,610 10.4% 8,341 10.5%
December 31, 1995:
Total risk-based $61,864 17.6% $53,919 17.6% $ 7,967 17.5%
Tier I risk-based 57,643 16.4% 50,092 16.4% 7,397 16.2%
Tier I leverage 57,643 9.9% 50,092 9.9% 7,397 9.8%
The minimum amounts of capital and ratios as established by banking
regulators at December 31, 1996 and 1995, were as follows:
($ In Thousands)
Subsidiary Banks
NBC Capital ______________________________
Corporation NBC
(Consolidated) NBC Of Tuscaloosa
______________ ______________ ______________
Amount Ratio Amount Ratio Amount Ratio
_______ _____ _______ _____ _______ _____
December 31, 1996:
Total risk-based $32,295 8.0% $27,670 8.0% $ 4,356 8.0%
Tier I risk-based 16,148 4.0% 25,835 4.0% 2,178 4.0%
Tier I leverage 17,974 3.0% 15,714 3.0% 2,379 3.0%
December 31, 1995:
Total risk-based $28,160 8.0% $24,498 8.0% $ 3,646 8.0%
Tier I risk-based 14,080 4.0% 12,249 4.0% 1,823 4.0%
Tier I leverage 17,395 3.0% 15,122 3.0% 2,266 3.0%
The Corporation is required to maintain average reserve balances with
the Federal Reserve Bank. The reserve balance varies depending upon
the types and amounts of deposits. At December 31, 1996, the reserve
balance with the Federal Reserve Bank was approximately $3,500,000.
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES
The consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal
course of banking business and which involve elements of credit risk,
interest rate risk, and liquidity risk. The commitments and
contingent liabilities are commitments to extend credit, credit card
lines, and commercial and similar letters of credit. A summary of
commitments and contingent liabilities at December 31, 1996 and 1995,
is as follows:
(In Thousands)
Contractual Amount
__________________
1996 1995
________ ________
Commitments to extend credit $ 46,983 $ 42,924
Credit card lines 2,549 2,540
Commercial and similar letters of credit 5,669 3,189
Commitments to extend credit, credit card lines, and commercial and
similar letters of credit include some exposure to credit loss in the
event of nonperformance of the customer. The credit policies and
procedures for such commitments are the same as those used for lending
activities. Because these instruments have fixed maturity dates and
because a number expire without being drawn upon, they generally do
not present any significant liquidity risk. No significant losses on
commitments were incurred in 1996 or 1995, nor are any significant
losses as a result of these transactions anticipated.
NBC is defendant in various pending and threatened legal actions
arising in the normal course of business. In the opinion of management,
based upon the advice of legal counsel, the ultimate disposition of
these matters will not have a material effect on the Corporation's
consolidated financial statements.
NOTE L - CONCENTRATIONS OF CREDIT
Most of the loans, commitments and letters of credit of NBC and NBC of
Tuscaloosa have been granted to customers in their market areas.
Generally, such customers are also depositors. Investments in state
and municipal securities also involve governmental entities within the
banks' market areas. The concentrations of credit by type of loan are
set forth in Note D. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Letters of credit
were granted primarily to commercial borrowers.
NOTE M - SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
_____________________________________
1996 1995 1994
___________ ___________ ___________
Cash paid during the year for:
Interest $19,448,694 $18,009,966 $13,352,508
Income taxes 2,866,222 2,339,441 3,287,937
Transactions related to the acquisition of NBC of Tuscaloosa during the
year ended December 31, 1994, were as follows:
Fair value of assets acquired other than cash
and cash equivalents $59,421,478
Liabilities assumed 57,238,445
___________
Cash paid in excess of cash and cash equivalents
acquired $ 2,183,033
===========
NOTE N - FINANCIAL INSTRUMENTS
Disclosures about financial instruments at December 31, 1996 and 1995,
are presented, as required by FASB Statement No. 107. The Corporation
and its subsidiaries are not holders of derivative financial instruments
as defined by FASB Statement No. 119, nor are there any off-balance
sheet risks associated with these types of instruments. The following
information does not purport to represent the aggregate consolidated
fair value of the Corporation.
The carrying amounts presented are the amounts at which the financial
instruments are reported in the consolidated financial statements.
Cash and Cash Equivalents
The balance sheets carrying amounts for cash and due from banks and
short-term investments (interest-bearing deposits and federal funds
sold) approximate the fair values of such assets. At December 31,
1996 and 1995, the carrying amount of cash and due from banks and
short-term investments was $38,719,443 and $28,393,116, respectively.
Securities
The estimated fair value of securities is based on quoted market
prices, if available. The estimated fair value is based on quoted
market prices of comparable instruments, if quoted market prices are
not available.
Estimated
Carrying Fair
Date Amount Value
_________________ ____________ ____________
December 31, 1996 $167,841,660 $170,801,225
============ ============
December 31, 1995 $179,343,452 $182,504,451
============ ============
Loans
For variable rate loans that reprice frequently and entail no
significant changes in credit use, estimated fair values are based
on the carrying amounts. The estimated fair value of all other loans
is estimated based on discounted cash flow analysis using interest
rates currently offered for loans with similar terms.
The carrying amounts and estimated fair value of loans consisted of
the following (in thousands):
December 31, 1996 December 31, 1995
____________________ ____________________
Estimated Estimated
Carrying Fair Carrying Carrying
Amount Value Amount Value
_________ _________ _________ _________
Commercial, financial
and agricultural $ 64,604 $ 64,940 $ 56,219 $ 55,402
Real estate -
construction 13,578 13,696 11,892 11,675
Real estate - mortgage 219,403 220,764 193,686 190,727
Installment loans to
individuals 81,351 81,664 83,281 81,763
Other 7,582 7,529 5,989 5,879
_________ _________ _________ _________
386,518 388,593 351,067 345,446
Unearned interest (903) (903) (2,649) (2,649)
Reserve for loan losses (6,778) - (6,420) -
_________ _________ _________ _________
Net Loans $ 378,837 $ 387,690 $ 341,998 $ 342,797
========= ========= ========= =========
Deposit Liabilities
Fair values of demand deposits and savings accounts are defined by FASB
Statement No. 107 as the amounts payable. The fair value of fixed
rate certificates of deposit is estimated using a discounted cash flow
calculation that applies interest rates currently being offered. The
carrying amount of variable rate certificates of deposit approximates
their fair value at the reporting date.
December 31, 1996 December 31, 1995
__________________________ __________________________
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
____________ ____________ ____________ ____________
Noninterest-
bearing demand $ 71,601,043 $ 71,601,043 $ 70,360,220 $ 70,360,220
Interest-bearing
demand 78,953,909 78,953,909 78,971,282 78,971,282
Savings and money
market accounts 91,302,843 91,302,843 97,946,567 97,946,567
Time deposits 274,894,588 273,967,972 249,505,163 250,627,159
____________ ____________ ____________ ____________
$516,752,383 $515,825,767 $496,783,232 $497,905,228
============ ============ ============ ============
FASB Statement No. 107 prohibits adjustment for any value derived from
the expected retention of deposits for a future time period. That value,
often referred to as a core deposit intangible, is neither included in
the fair value amounts nor recorded as an intangible asset in the
consolidated balance sheets.
Borrowed Funds
The carrying amounts of federal funds purchased, securities sold under
agreement to repurchase and other short-term borrowings approximate
their fair value. At December 31, 1996 and 1995, the carrying amounts
were $10,732,234 and $555,428, respectively.
The fair values of long-term borrowings are estimated using discounted
cash flow analysis, based upon NBC's current incremental borrowing rates
for similar types of borrowing arrangements.
December 31, 1996 December 31, 1995
________________________ ________________________
Carrying Estimated Carrying Estimated
Payable To Amount Fair Value Amount Fair Value
_________________ ___________ ___________ ___________ ___________
Federal Home Loan
Bank $13,299,802 $13,134,983 $ 9,570,255 $ 9,617,026
=========== =========== =========== ===========
Off-Balance Sheet Financial Instruments
Off-balance sheet financial instruments consist of commitments to
extend credits, letters of credit, credit card lines, etc. Generally,
these instruments have a term of thirty days to one year. Management
is of the opinion the estimated fair value is not significantly
different than the contractual or notational amounts. At December 31,
1996 and 1995, these instruments totaled $55,201,000 and $48,653,000,
respectively.
NOTE O - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of December 31, 1996 and 1995, and statements of
income and cash flows for the years ended December 31, 1996, 1995
and 1994, of NBC Capital Corporation (parent company only) are
presented below:
BALANCE SHEETS
1996 1995
____________ ____________
Assets
Cash $ 104,142 $ 110,344
Investment in bank subsidiaries 64,869,018 60,295,510
Other assets 2,583,536 2,572,343
____________ ____________
$ 67,556,696 $ 62,978,197
============ ============
Liabilities and Stockholders' Equity
Other liabilities $ 2,709,332 $ 2,705,931
Stockholders' equity 64,847,364 60,272,266
____________ ____________
$ 67,556,696 $ 62,978,197
============ ============
STATEMENTS OF INCOME
Years Ended December 31,
_____________________________________
1996 1995 1994
___________ ___________ ___________
Income
Dividends from NBC $ 2,940,000 $ 2,880,000 $11,706,226
Other 64,715 - -
___________ ___________ ___________
3,004,715 2,880,000 11,706,226
Expense 44,450 89,361 74,053
___________ ___________ ___________
Income before income taxes
and equity in undistributed
earnings of subsidiaries 2,960,265 2,790,639 11,632,173
Income tax benefit (expense) (7,545) 38,075 25,178
___________ ___________ ___________
Income before equity in
undistributed earnings
of subsidiary 2,952,720 2,828,714 11,657,351
Equity in earnings in excess
of dividends 5,232,160 4,979,181 -
Equity in dividends in excess
of earnings - - (4,519,109)
___________ ___________ ___________
Net income $ 8,184,880 $ 7,807,895 $ 7,138,242
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
_____________________________________
1996 1995 1994
___________ ___________ ___________
Cash Flows From Operating
Activities
Net income $ 8,184,880 $ 7,807,895 $ 7,138,242
Equity in subsidiaries
earnings in excess of
dividends (5,232,160) (4,979,181) -
Equity in subsidiaries
dividends received
in excess of earnings - - 2,455,109
Other, net (54,922) 29,494 11,171
___________ ___________ ___________
Net cash provided by operating
activities 2,897,798 2,858,208 9,604,522
___________ ___________ ___________
Cash Flows Used in Investing
Activities
Investment in NBC of Tuscaloosa - - (9,131,967)
Cash Flows From Financing
Activities
Dividends paid on common stock (2,904,000) (2,880,000) (396,000)
___________ ___________ ___________
Net cash used in financing
activities (2,904,000) (2,880,000) (396,000)
___________ ___________ ___________
Net increase (decrease) in
cash and cash equivalents (6,202) (21,792) 76,555
Cash and cash equivalents at
beginning of year 110,344 132,136 55,581
___________ ___________ ___________
Cash and cash equivalents at
end of year $ 104,142 $ 110,344 $ 132,136
=========== =========== ===========
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
National Bank of Commerce of Mississippi, home office in Starkville,
Mississippi, and incorporated under the national banking laws of the
United States is a wholly-owned subsidiary of NBC Capital Corp.
National Bank of Commerce of Tuscaloosa, home office in Tuscaloosa,
Alabama, is a 99.3% owned subsidiary of NBC Capital Corp. Also,
included in the consolidated financial statements are subsidiaries of
the National Bank of Commerce of Mississippi at December 31, 1996.
These were its wholly-owned subsidiaries, Philadelphia Finance
Corporation, NBC Service Corporation, and Commerce National Insurance
Company, which is a 79% owned subsidiary of NBC Service Corporation.
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,126
<INT-BEARING-DEPOSITS> 493
<FED-FUNDS-SOLD> 9,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 136,169
<INVESTMENTS-CARRYING> 31,673
<INVESTMENTS-MARKET> 34,633
<LOANS> 385,615
<ALLOWANCE> 6,778
<TOTAL-ASSETS> 614,430
<DEPOSITS> 516,752
<SHORT-TERM> 10,732
<LIABILITIES-OTHER> 8,799
<LONG-TERM> 13,300
0
0
<COMMON> 1,200
<OTHER-SE> 63,647
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<INCOME-PRE-EXTRAORDINARY> 8,185
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<NET-INCOME> 8,185
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<EPS-DILUTED> 6.82
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<LOANS-NON> 1,435
<LOANS-PAST> 727
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<ALLOWANCE-CLOSE> 6,778
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