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 September 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 September 30, 1998.
PART I. - FINANCIAL INFORMATION
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME FOR
NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
(Amounts in thousands, except per share data)
1998 1997
_______ _______
INTEREST INCOME:
Interest and Fees on Loans $27,627 $26,787
Interest Income on Balances Due From Banks 65 25
Interest on U. S. Treasury Securities and
U. S. Government Agencies and Corp. 3,629 4,511
Interest on Obligation of States and
Political Subdivisions 3,868 2,701
Interest on Other Securities 87 263
Interest on Federal Funds Sold and Securities
Purchased under Agreements to Resell 654 660
_______ _______
Total Interest Income 35,930 34,947
INTEREST EXPENSE:
Interest on Time Certificates of Deposit of
$100,000 or More 2,881 2,834
Interest on Other Deposits 12,862 11,930
Interest on Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase 454 368
Interest on Demand Notes Issued to the U. S.
Treasury and on Other Borrowed Money 687 675
_______ _______
Total Interest Expense 16,884 15,807
Net Interest Income 19,046 19,140
Provision for Possible Loan Losses 780 780
_______ _______
Net Interest Income After Provision for
Loan Losses 18,266 18,360
_______ _______
NONINTEREST INCOME:
Income from Fiduciary Activities 882 825
Service Charge on Deposit Accounts 2,827 2,698
Other Noninterest Income 2,240 1,957
_______ _______
Total Noninterest Income 5,949 5,480
Gains (Losses) on Securities 42 (58)
_______ _______
NON INTEREST EXPENSE:
Salaries and Employee Benefits 8,046 7,692
Expense of Premises and Fixed Assets 2,339 2,117
Other Noninterest Expense 4,231 4,210
_______ _______
Total Noninterest Expense 14,616 14,019
_______ _______
Income Before Income Taxes 9,641 9,763
Applicable Income Taxes 2,328 2,756
_______ _______
NET INCOME $ 7,313 $ 7,007
======= =======
Net Earnings Per Share $ 1.52 $ 1.46
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 SEPTEMBER 30,
(Unaudited)
(Amounts in thousands, except per share data)
1998 1997
_______ _______
INTEREST INCOME:
Interest and Fees on Loans $ 9,328 $ 9,187
Interest Income on Balances Due From Banks 20 11
Interest on U. S. Treasury Securities and
U. S. Government Agencies and Corp. 992 1,427
Interest on Obligation of States and
Political Subdivisions 1,337 892
Interest on Other Securities 23 199
Interest on Federal Funds Sold and Securities
Purchased under Agreements to Resell 232 230
_______ _______
Total Interest Income 11,932 11,946
INTEREST EXPENSE:
Interest on Time Certificates of Deposit of
$100,000 or More 903 1,050
Interest on Other Deposits 4,329 4,048
Interest on Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase 123 143
Interest on Demand Notes Issued to the U. S.
Treasury and on Other Borrowed Money 219 275
_______ _______
Total Interest Expense 5,574 5,516
Net Interest Income 6,358 6,430
Provision for Possible Loan Losses 260 260
_______ _______
Net Interest Income After Provision for
Loan Losses 6,098 6,170
_______ _______
NONINTEREST INCOME:
Income from Fiduciary Activities 294 275
Service Charge on Deposit Accounts 972 859
Other Noninterest Income 711 638
_______ _______
Total Noninterest Income 1,977 1,772
Gains (Losses) on Securities 19 1
_______ _______
NON INTEREST EXPENSE:
Salaries and Employee Benefits 2,641 2,569
Expense of Premises and Fixed Assets 791 728
Other Noninterest Expense 1,422 1,421
_______ _______
Total Noninterest Expense 4,854 4,718
_______ _______
Income Before Income Taxes 3,240 3,225
Applicable Income Taxes 809 918
_______ _______
NET INCOME $ 2,431 $ 2,307
======= =======
Net Earnings Per Share $ .50 $ .48
NOTE: 1997 Earnings per share have been restated to reflect the
October, 1997 stock split.
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
Sep.30,1998 Dec.31,1997
ASSETS (Unaudited) (Audited)
Cash and Balances Due From Banks:
Noninterest-Bearing Balances $ 27,037 $ 23,536
Interest-Bearing Balances 123 319
________ ________
Total Cash and Due From Banks 27,160 23,855
Held-To-Maturity Securities (Market Value
of $34,433 at September 30, 1998 and
$34,405 at December 31, 1997) 31,148 31,358
Available-For-Sale Securities
Mortgage-Backed Securities 25,243 43,179
All Other Available-For-Sale Securities 114,780 111,175
________ ________
Total Securities 171,171 185,712
Federal Funds Sold and Securities Purchased
Under Agreements to Resell 18,774 18,948
Other Earning Assets 2,831 0
Loans 408,364 394,810
Less: Unearned Interest 88 (104)
Less: Reserve for Loan Losses (7,016) (7,016)
________ ________
Net Loans 401,436 387,690
Bank Premises and Equipment (Net) 12,949 13,356
Interest Receivable 6,453 6,352
Other Real Estate Owned 316 225
Other Assets 12,598 10,688
________ ________
TOTAL ASSETS $653,688 $646,826
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-Interest Bearing $ 70,715 $ 74,083
Interest-Bearing Time, $100,000 or More 89,732 69,204
Other Interest-Bearing 379,912 386,037
________ ________
Total Deposits 540,359 529,324
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 11,900 20,021
Demand Notes Issued to the U. S. Treasury 2,391 2,411
Other Borrowed Funds 12,508 15,213
Interest Payable 2,043 2,479
Other Liabilities 6,402 6,760
________ ________
TOTAL LIABILITIES 575,603 576,208
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 39,177 32,392
Accumulated Other Comprehensive Income 1,106 424
________ ________
TOTAL STOCKHOLDERS' EQUITY 78,085 70,618
________ ________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $653,688 $646,826
======== ========
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
(Amounts in thousands)
1998 1997
________ ________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,313 $ 7,007
Adjustments to reconcile net income to net cash
Depreciation and Amortization 1,336 1,149
Deferred Income Taxes (Credits) (40) (153)
Provision for Loan Losses 780 780
Loss (Gain) on Sale of Securities (42) 58
(Increase) Decrease in Interest Receivable (101) 14
(Increase) Decrease in Other Assets (5,310) (1,315)
Increase (Decrease) in Interest Payable (436) (35)
Increase (Decrease) in Other Liabilities (356) (3,411)
________ ________
Net Cash Provided by Operating Activities 3,144 4,094
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Securities 34,992 23,455
Proceeds from Sale of Securities 22,989 5,573
Purchase of Securities (42,365) (38,510)
(Increase) Decrease in Loans (14,527) (12,305)
Additions to Bank Premises and Equipment (763) (1,280)
________ ________
Net Cash Used in Investing Activities 326 (23,067)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Deposits 11,035 2,084
Dividend Paid on Common Stock (528) (480)
Increase (Decrease) in Borrowed Funds (10,847) 14,079
________ ________
Net Cash Provided by Financing Activities (340) 15,683
Net Increase (decrease) in Cash and Cash
Equivalents 3,130 (3,290)
Cash and Cash Equivalents at Beginning of Year 42,804 48,719
________ ________
Cash and Cash Equivalents at End of the nine
month period $ 45,934 $ 35,429
======== ========
Cash Paid during Year for:
Interest $ 17,319 $ 15,841
Income Taxes 2,086 2,377
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
First three quarters of 1998 compared to the first three quarters of 1997
Earnings for the first three quarters of 1998 grew 4.4% to $7.31 million
or $1.52 per share. This compares to $7.01 million or $1.46 per share for
the first three quarters 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 three quarters of 1998 was $19.05
million compared to $19.14 million in 1997. This represents a decrease
of .5%. This decrease resulted from a twenty-nine (29) basis point
decline in the net interest margin and a $33.7 million increase in
earning assets.
Non-interest income grew 8.6% paced by a 6.9% increase in income from the
Company's Trust and Financial Management activities and a 7.6% 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 $42,000 were generated during the first
three quarters 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 4.3% 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.
Third quarter of 1998 compared to the third quarter of 1997
Earnings for the third quarter of 1998 were $2.43 million or $.50 per
share compared to $2.31 million or $.48 per share for the comparable
quarter of 1997. This represents a 5.4% increase.
Net interest income for the third quarter of 1998 was $6.36 million
compared to $6.43 million for the third quarter of 1997. This represents
a decrease of 1.1%. This decrease resulted from a decline in net
interest margin of approximately twenty-three (23) basis points. This
was partially offset by an increase in earning assets of 3.7% when
comparing the third quarter of 1998 to the same quarter of 1997.
Non-interest income for the third quarter of 1998 was 11.6% greater than
for the same quarter of 1997. This increase resulted from a 6.9%
increase in Trust and Financial Management activities, a 13.5% increase
in income from deposit accounts and a 123.1% increase in Mortgage Loan
income.
Security gains of approximately $19,000 were generated during the third
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 third quarter of 1998 increased 2.9% 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 third quarter of 1997.
FINANCIAL CONDITION
The Company's balance sheet continues to show steady growth as total
assets increased from $647 million to $654 million during the first three
quarters of 1998. Deposits increased $11.0 million while Securities Sold
Under Agreements to Repurchase and borrowed funds decreased $10.8
million. A $14.5 reduction in the investment securities portfolio was
used to fund a $13.6 million increase in the loan portfolio. Loan quality
remains good and management is committed to not relaxing its underwriting
standards.
Shareholders' equity increased from $70.6 million to $78.1 million during
the first three quarters of 1998. This represented a 10.6% increase.
During this period there was an increase in the market value of the
investment securities portfolio. This resulted in the accumulated other
comprehensive income (unrealized gain on the available for sale
securities) component of Shareholders' Equity increasing from $424,000 at
December 31, 1997, to $1,106,000 at September 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 September 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
September 30, 1998, this amounted to approximately $17,613,000. 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 three quarters 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 completed by December 31, 1998. This date is consistent
with current FFIEC guidelines.
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 be
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 under-
writing 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 are being utilized to address the Year
2000 problem. A budget of $1.8 million has been completed and approved by
the Board of Directors. 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 fifteen 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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(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 nine month period ended September 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
November 5, 1998 /s/ Richard T. Haston
Date Richard T. Haston
Treasurer and Assistant
Secretary
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