UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 1998
Commission File Number 2-89900
NBC CAPITAL CORPORATION
(Exact name of registrant as specified in its charter.)
Mississippi 64-0694775
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
NBC Plaza, P. O. Box 1187, Starkville, Mississippi 39760
(Address of principal executive offices) (Zip Code)
Registrants's telephone number, including area code: (601) 323-1341
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $1 Par Value - 4,800,000 shares as of June 30, 1998.
PART I. - FINANCIAL INFORMATION
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME FOR
SIX MONTHS ENDED JUNE 30,
(Unaudited)
(Amounts in thousands, except per share data)
1998 1997
_______ _______
INTEREST INCOME:
Interest and Fees on Loans $18,299 $17,600
Interest Income on Balances Due From Banks 45 14
Interest on U. S. Treasury Securities and
U. S. Government Agencies and Corp. 2,637 3,084
Interest on Obligation of States and
Political Subdivisions 2,531 1,809
Interest on Other Securities 64 64
Interest on Federal Funds Sold and Securities
Purchased under Agreements to Resell 422 430
_______ _______
Total Interest Income 23,998 23,001
INTEREST EXPENSE:
Interest on Time Certificates of Deposit of
$100,000 or More 1,978 1,784
Interest on Other Deposits 8,533 7,882
Interest on Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase 331 225
Interest on Demand Notes Issued to the U. S.
Treasury and on Other Borrowed Money 468 400
_______ _______
Total Interest Expense 11,310 10,291
Net Interest Income 12,688 12,710
Provision for Possible Loan Losses 520 520
_______ _______
Net Interest Income After Provision for
Loan Losses 12,168 12,190
_______ _______
NONINTEREST INCOME:
Income from Fiduciary Activities 588 550
Service Charge on Deposit 1,855 1,839
Other Noninterest Income 1,529 1,319
_______ _______
Total Noninterest Income 3,972 3,708
Gains (Losses) on Securities 23 (59)
_______ _______
NONINTEREST EXPENSE:
Salaries and Employee Benefits 5,405 5,123
Expense of Premises and Fixed Assets 1,548 1,389
Other Noninterest Expense 2,809 2,789
_______ _______
Total Noninterest Expense 9,762 9,301
_______ _______
Income Before Income Taxes 6,401 6,538
Applicable Income Taxes 1,519 1,838
_______ _______
NET INCOME $ 4,882 $ 4,700
======= =======
Net Earnings Per Share 1.02 .98
NOTE: 1997 Earnings per share have been restated to reflect the October,
1997 stock split.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME FOR THE
QUARTER ENDED JUNE 30,
(Unaudited)
(Amounts in thousands, except per share data)
1998 1997
_______ _______
INTEREST INCOME:
Interest and Fees on Loans $ 9,248 $ 8,927
Interest Income on Balances Due From Banks 22 8
Interest on U. S. Treasury Securities and
U. S. Government Agencies and Corp. 1,283 1,568
Interest on Obligation of States and
Political Subdivisions 1,343 894
Interest on Other Securities 32 37
Interest on Federal Funds Sold and Securities
Purchased under Agreements to Resell 156 234
_______ _______
Total Interest Income 12,084 11,668
INTEREST EXPENSE:
Interest on Time Certificates of Deposit of
$100,000 or More 996 967
Interest on Other Deposits 4,333 3,950
Interest on Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase 169 119
Interest on Demand Notes Issued to the U. S.
Treasury and on Other Borrowed Money 226 198
_______ _______
Total Interest Expense 5,724 5,234
Net Interest Income 6,360 6,434
Provision for Possible Loan Losses 260 260
_______ _______
Net Interest Income After Provision for
Loan Losses 6,100 6,174
_______ _______
NONINTEREST INCOME:
Income from Fiduciary Activities 294 275
Service Charge on Deposit Accounts 943 934
Other Noninterest Income 716 580
_______ _______
Total Noninterest Income 1,953 1,789
Gains (Losses) on Securities 47 (4)
_______ _______
NON INTEREST EXPENSE:
Salaries and Employee Benefits 2,726 2,497
Expense of Premises and Fixed Assets 763 702
Other Noninterest Expense 1,377 1,443
_______ _______
Total Noninterest Expense 4,866 4,642
_______ _______
Income Before Income Taxes 3,234 3,317
Applicable Income Taxes 731 931
_______ _______
NET INCOME $ 2,503 $ 2,386
======= =======
Net Earnings Per Share .52 .50
NOTE: 1997 Earnings per share have been restated to reflect the October,
1997 stock split.
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) Jun.30,1998 Dec.31,1997
________ ________
ASSETS (Unaudited) (Audited)
Cash and Balances Due From Banks:
Noninterest-Bearing Balances $ 25,760 $ 23,536
Interest-Bearing Balances 112 319
________ ________
Total Cash and Due From Banks 25,872 23,855
Held-To-Maturity Securities (Market Value of
$34,036 at March 31, 1997 and $34,633 at
December 31, 1996) 31,141 31,358
Available-For-Sale Securities
Mortgage-Backed Securities 32,769 43,179
All Other Available-For-Sale Securities 129,340 111,175
________ ________
Total Securities 193,250 185,712
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 6,942 18,948
Other Earning Assets 2,832 0
Loans 402,961 394,810
Less: Unearned Interest 43 (104)
Less: Reserve for Loan Losses (6,934) (7,016)
________ ________
Net Loans 396,070 387,690
Bank Premises and Equipment (Net) 13,125 13,356
Interest Receivable 6,692 6,352
Other Real Estate Owned 278 225
Other Assets 13,930 10,688
TOTAL ASSETS $658,991 $646,826
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-Interest Bearing $ 74,968 $ 74,083
Interest-Bearing Time, $100,000 or More 95,401 69,204
Other Interest-Bearing 378,618 386,037
________ ________
Total Deposits 548,987 529,324
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 10,717 20,021
Demand Notes Issued to the U. S. Treasury 2,536 2,411
Other Borrowed Funds 13,329 15,213
Interest Payable 2,337 2,479
Other Liabilities 6,098 6,760
________ ________
TOTAL LIABILITIES 584,004 576,208
Stockholders' Equity:
Common Stock $1 par value, Authorized
10,000,000 shares, Issued and Outstanding
4,800,000 4,800 4,800
Surplus 33,002 33,002
Undivided Profits 36,747 32,392
Accumulated other comprehensive income 438 424
________ ________
TOTAL STOCKHOLDERS' EQUITY 74,987 70,618
________ ________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $658,991 $646,826
======== ========
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
(Amounts in thousands)
1998 1997
_______ _______
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,882 $ 4,700
Adjustments to reconcile net income to net cash
Depreciation and Amortization 878 752
Deferred Income Taxes (Credits) (37) (114)
Provision for Loan Losses 520 520
Loss (Gain) on Sale of Securities (23) 58
(Increase) Decrease in Interest Receivable (340) 102)
(Increase) Decrease in Other Assets (6,204) (1,542)
Increase (Decrease) in Interest Payable (142) 72
Increase (Decrease) in Other Liabilities (662) (1,796)
_______ _______
Net Cash Provided by Operating Activities (1,128) 2,548
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Securities 22,257 15,371
Proceeds from Sale of Securities 13,168 5,576
Purchase of Securities (42,918) (24,400)
(Increase) Decrease in Loans (8,900) (5,682)
Additions to Bank Premises and Equipment (542) (1,154)
_______ _______
Net Cash Used in Investing Activities (16,935) (10,289)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Deposits 19,664 6,492
Dividend Paid on Common Stock (528) (480)
Increase (Decrease) in Borrowed Funds (11,063) 5,854
_______ _______
Net Cash Provided by Financing Activities 8,073 11,866
Net Increase (decrease) in Cash and Cash
Equivalents (9,990) 4,125
Cash and Cash Equivalents at Beginning of Year 42,804 38,719
_______ _______
Cash and Cash Equivalents at End of the six
month period $32,814 $42,844
======= =======
Cash Paid during Year for:
Interest $11,453 $10,219
Income Taxes 1,303 1,490
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 1998
RESULTS OF OPERATIONS
First two quarters of 1998 compared to the first two quarters of 1997
Earnings for the first half of 1998 grew 3.9% to $4.88 million or $1.02 per
share. This compares to $4.70 million or $.98 per share for the first half
of 1997. These 1998 totals equate to a 1.5% return on average assets and
13.4% return on average equity.
Net interest income for the first half of 1998 was $12.69 million compared
to $12.71 million in 1997. This represents a decrease of .2%. This
decrease resulted from a thirty-two (32) basis point decline in the net
interest margin and a $39.9 million increase in earning assets.
Non-interest income grew 7.1% paced by a 6.9% increase in income from the
Company's Trust and Financial Management activities and a 0.9% increase in
income from deposit accounts. Approximately $.025 per share was included in
the first half of 1997 from the sale of the assets of the Company's finance
company subsidiary.
Security gains of approximately $23,000 were generated during the first
half of 1998, as the Company sold lower yielding securities and re-invested
proceeds at higher yields. The impact of these transactions will produce
increased investment portfolio income for the Company over the long term.
The Company also sold a block of securities to take advantage of an
increase in bond prices and to provide increased liquidity at the time of
the sale.
Non-interest expense increased 5.0% for the period reported. This increase
resulted from additional depreciation and amortization expense associated
with an upgrade in the mainframe computer and the purchase of the equipment
and software relating to the imaging of checks and statements. These
expenditures were incurred during the last three quarters of 1997. Also,
salaries and employee benefits increased as a result of normal salary
increases for the year and the filling of certain staff positions that were
vacant during 1997.
Second quarter of 1998 compared to the second quarter of 1997
Earnings for the second quarter of 1998 were $2.50 million or $.52 per
share compared to $2.39 million or $.50 per share for the comparable
quarter of 1997. This represents a 4.6% increase.
Net interest income for the second quarter of 1998 was $6.36 million
compared to $6.43 million for the second quarter of 1997. This represents
a decrease of 1.2%. This decrease resulted from a decline in net interest
margin of approximately forty (40) basis points. This was partially offset
by an increase in earning assets during the second quarter of $6.31
million.
Non-interest income for the second quarter of 1998 was 12.6% greater than
for the same quarter of 1997. This increase resulted from a 6.9% increase
in Trust and Financial Management activities, a 49.2% increase in Mortgage
loan income and a 26.4% increase in credit life income.
Security gains of approximately $47,000 were generated during the second
quarter of 1998. The Company took advantage of an increase in bond prices
and sold certain blocks of securities to take some of the unrealized
profits from the portfolio and to provide additional liquidity at the time
of the sale. These funds were invested in higher yielding assets and will
increase the Company's interest income over future periods.
Non-interest expenses for the second quarter of 1998 increased 9.2% over
the comparable quarter of 1997. This increase resulted from additional
depreciation and amortization expenses associated with the upgrade in the
mainframe computer and the purchase of the equipment and software relating
to the imaging of checks and statements. Also, salaries and employee
benefits increased as a result of normal salary increases for the year and
the filling of certain staff position that were vacant during the second
quarter of 1997.
FINANCIAL CONDITION
The Company's balance sheet continues to show steady growth as total assets
increased from $647 million to $659 million during the first half of 1998.
Deposits increased $19.7 million while Securities Sold Under Agreements to
Repurchase and borrowed funds decreased $9.3 million. This net increase in
available funds, along with a $12.0 reduction in the amount of Fed Funds
Sold, were used to fund an increase in the investment securities portfolio
of $7.58 million and an increase in net loans of $8.15 million. Loan
quality remains good and management is committed to not relaxing its
underwriting standards.
Shareholders' equity increased from $70.6 million to $75.0 million during
the first half of 1998. This represented a 6.2% increase. During the
period there was an increase in the market value of the investment
securities portfolio. This resulted in the accumulated other comprehensive
income component of Shareholders' Equity increasing from $424,000 at
December 31, 1997, to $438,000 at June 30, 1998.
The Company's bank subsidiaries are required to maintain minimum amounts of
capital to total risk weighted assets as defined by the banking regulators.
At June 30, 1998, the banks' Tier I, Tier II and Total Capital Ratios
exceeded the well capitalized standards developed under the referenced
regulatory guidelines.
Dividends paid by the Company are provided from dividends received from the
subsidiary banks. Under the regulations controlling national banks, the
payment of dividends by the banks without prior approval from the
Comptroller of the Currency is limited in amount to the current year's net
profit and the retained net earnings of the two preceding years. At June
30, 1998, this amounted to approximately $15,183,000. Also, under
regulations controlling national banks, the banks are limited in the
amounts they can lend to the Company and such loans are required to be on a
fully secured basis.
During the first half of 1998, the Company has continued its efforts to
prepare for January 1,2000. All levels of the Company's management and its
Board of Directors are aware of the seriousness of this issue and the
effects it may have on the Company and its customers. The Company has a
Year 2000 Steering Committee under the leadership of the Chief Operating
Officer to guide it through its action plan for compliance. The committee
has been organized into three major areas, with a senior officer directly
responsible for each respective area. Beginning in July of 1998, the
committee's reporting to the Board of Directors was changed from quarterly
to monthly.
The first major area of risk relates to the Company's internal hardware and
software programs. The Company does not write its source programming code
and therefore is dependent upon external vendors and service providers.
The Company began the process of reviewing the compliance of all programs
in use and in 1997, began developing a plan to test these systems and all
related system interfaces. The Company has followed the guidelines
established by its regulators and has completed the initial phases of this
part of the process. It is currently in the testing phase and plans to
have the testing substantially completed by December 31, 1998. This date
is consistent with current banking policy as promulgated by banking
regulators.
The second major area relates to external factors involving customers,
vendors and outside service providers. The risk associated with this issue
go beyond the Company's own ability to solve Year 2000 problems. Should
significant commercial customers fail to address these issues effectively,
their ability to meet debt service requirements could by impaired resulting
in increased credit risk and increased loan charge-offs. Should suppliers
of critical services fail in their efforts to become Year 2000 compliant,
or if significant third party interfaces fail to be compatible with the
Company or fail to be Year 2000 compliant, it could have significant
adverse affects on the operations and financial results of the Company. At
this time, the Company is in the process of identifying these major
commercial customers and developing plans for educating, assessing and
monitoring, on an individual account basis, the adequacy of the customers
actions to address the Year 2000 issues. This assessment will be risk
rated and will become a factor used in underwriting credit and analyzing
the adequacy of the allowance for loan losses. All vendors of critical
services and products are being reviewed and contingency plans are being
developed and tested, where possible, in case these parties are unable to
provide normal services.
Both internal and external resources will be utilized to address the Year
2000 problem. The budget is currently in process of review and approval;
however, it appears that the total cost of this project will be
approximately $1.8 million. Approximately 60% of this total will be from
the allocation of the salary and benefits of current employees assigned to
work on this project. Another 4% will be spent on items that will be
capitalized and amortized or depreciated over future periods. The
remaining 36% will be expended over the next eighteen months and should not
have a material impact on the financial performance of the Company.
Year 2000 cost and the date on which the Year 2000 modifications are
expected to be complete are based on management's estimates, which were
derived utilizing numerous assumptions of future events including the
availability of certain resources, third party modifications and other
factors. However, there are no guarantees that these estimates will be
achieved and actual results could differ materially from those plans.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Debt
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) April 14, 1998, 1998 Annual Meeting of Shareholders
(b) A vote was taken on a proposal to change the state of
incorporation of the Company from the State of Delaware to
the State of Mississippi by adopting an Agreement and Plan
of Merger dated March 11, 1998, providing for the merger of
the Company into its wholly-owned subsidiary Incorporated
under the laws of the state of Mississippi.
(c) The proposal was passed, with the vote being as follow:
For 4,236,058
Against 4,435
Abstentions 5,640
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
99 Press Release regarding the acquisition
of First National Corporation Of West
Point by NBC Capital Corporation, dated
July 27, 1998.
(b) Form 8-K
None
The financial information furnished herein has not been audited by
independent accountants; however, in the opinion of management, all
adjustments necessary for a fair presentation on the results of operation
for the six month period ended June 30, 1998, have been included.
NBC CAPITAL CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities and 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
August 5, 1998 /s/ Richard T. Haston
Date Richard T. Haston
Treasurer and Assistant Secretary
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<PERIOD-END> JUN-30-1998
<CASH> 25,760
<INT-BEARING-DEPOSITS> 112
<FED-FUNDS-SOLD> 6,942
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 162,109
<INVESTMENTS-CARRYING> 31,141
<INVESTMENTS-MARKET> 34,107
<LOANS> 403,004
<ALLOWANCE> 6,934
<TOTAL-ASSETS> 658,991
<DEPOSITS> 548,987
<SHORT-TERM> 13,253
<LIABILITIES-OTHER> 8,435
<LONG-TERM> 13,329
0
0
<COMMON> 4,800
<OTHER-SE> 70,187
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<INTEREST-LOAN> 18,299
<INTEREST-INVEST> 5,232
<INTEREST-OTHER> 467
<INTEREST-TOTAL> 23,998
<INTEREST-DEPOSIT> 10,511
<INTEREST-EXPENSE> 11,310
<INTEREST-INCOME-NET> 12,688
<LOAN-LOSSES> 520
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 9,762
<INCOME-PRETAX> 6,401
<INCOME-PRE-EXTRAORDINARY> 4,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,882
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 4.21
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<CHARGE-OFFS> 768
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EXHIBIT 99
NBC CAPITAL CORPORATION
FOR IMMEDIATE RELEASE
DATE: July 27, 1998
CONTACTS: NBC Capital Corporation
L. F. Mallory, Jr. Chairman of the Board and
Chief Executive Officer (601-324-4777)
Richard Haston, Executive Vice President and
Chief Financial Officer (601-324-4258)
First National Corporation
Robert Calvert, Chairman of the Board (601-494-7101)
Pete Hodo, III, President (601-494-1411)
NBC CAPITAL CORPORATION
Starkville, Mississippi
FIRST NATIONAL CORPORATION OF WEST POINT
West Point, Mississippi
STARKVILLE - The Boards of Directors of NBC Capital Corporation and First
National Corporation of West Point have jointly announced that they have
reached an agreement to merge the two companies whereby NBC would acquire
the assets and assume the liabilities of First National Bank of West Point
and their affiliate, National Bank of the South, located in Tuscaloosa,
Alabama. First National Bank of West Point is the state's oldest national
bank having its charter dated in 1884.
NBC Capital Corporation, with approximately $660 million in assets
currently operates 27 banking offices in East Mississippi and in
Tuscaloosa, Alabama. First National Corporation has assets of $115 million
and operates seven (7) banking offices in West Point, Mississippi and in
Tuscaloosa, Alabama. The resulting entity will have assets in excess of
$775 million.
Under the terms of the agreement, approximately $32.5 million of NBC common
stock will be exchanged for the outstanding shares of First National. The
transaction will be a tax free exchange and accounted for as a pooling of
interest. The transaction, which is pending shareholder and regulatory
approval, is expected to be completed in late 1998 or early 1999.
"We look forward to continuing and enhancing the fine tradition of service
that both of these banks have afforded their customers," stated L. F.
Mallory, Jr., Chairman and CEO of NBC Capital Corporation. "Our
organizations have much in common. We share similar philosophies and
cultures," stated Mallory. "We consider it a privilege to participate in
the West Point community with this fine bank and to further our presence in
Tuscaloosa," concluded Mallory.
"We are pleased to unite with NBC," agreed Robert Calvert, Chairman of the
First National Corporation of West Point. "Their company shares our values
and our strong commitment of service to our customers and communities. We
believe our coming together represents a tremendous opportunity for each of
our companies," concluded Calvert.
