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, 1997
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:
$98,500,000
___________________________
(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 - 4,800,000 shares outstanding as
of December 31, 1997.
Documents incorporated by reference -
Proxy statement dated September 25, 1997 - Part I, Item 4
Annual report to shareholders for 1997 - Parts II and IV
Proxy statement dated March 20, 1998 - 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, 1997, 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 1997.
NBC provides a complete line of wholesale and retail services
including mortgage loans and trusts. 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 1.2% - 1.5% and a minimum return on equity of approximately 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 as a national bank
and 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 provided for new opportunities for
growth and expansion. Tuscaloosa, Alabama, is a city that expects
future economic development. As an example, Mercedes opened an
automotive plant in the Tuscaloosa area. Management of the Company
believes this acquisition placed 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 $93 million at December 31, 1997, and reported
net income of $968 thousand for the year ended December 31, 1997.
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 approximately 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 1997 and 1996,
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, was a finance company that provided lending and
financing services to consumers. It engaged in consumer financing,
and its loans were of a smaller amount and a higher interest rate than
that of NBC. Finance was located in Philadelphia, Mississippi. In
March, 1997, substantially all of its assets were sold, and subsequently,
no significant business activity was conducted. Finance was sold due to
inadequate growth and earnings.
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 and regional 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 approxi-
mately eight other financial institutions, most of which are larger. The
other institutions range in size from approximately $35 million to $20
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 provided 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, 1997, the banking subsidiaries had available for payment
of dividends to the Company, without prior approval of their regulator,
approximately $16 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, 1997, 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, 1997, the Company's Tier 1 and total capital ratios
were 16.4% and 17.7%, 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 to 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.
On September 29, 1994, the federal government enacted the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the Interstate Banking Act). This Act became effective on September 29,
1995, and permits eligible bank holding companies in any state, with
regulatory approval, to acquire banking organizations in any other state.
Effective June 1, 1997, the Interstate Banking Act will allow banks with
different home states to merge, unless a particular state opts out of
the statute. In addition, beginning June 1, 1997, the Interstate
Banking Act will permit national and state banks to establish de novo
branches in another state if there is a law in that state which applies
equally to all banks and expressly permits all out-of-state banks to
establish such branches.
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.
CNIC is 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
borrowings 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. 55 Chairman of the Board and Chief
Chairman and Chief Executive Executive Officer, NBC Capital
Officer Corporation and NBC of Mississippi
Bobby Harper 56 Chairman of Executive Committe, NBC
Chairman of the Executive Capital Corporation and President,
Committee NBC of Mississippi, Columbus Banking
Center
Hunter M. Gholson 65 Secretary of NBC Capital Corporation
Secretary and NBC of Mississippi
Mark A. Abernathy 41 President and Chief Operating Officer,
President and Chief NBC Capital Corporation and NBC of
Operating Officer, NBC Mississippi. Prior to joining NBC in
Capital Corporation and 1994, he was Consumer Regional
NBC of Mississippi Executive Officer of Nations Bank,
Nashville, Tennessee.
Richard Haston 51 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
Joel C. Clements 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
Clifton B. Fowler 49 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC of
Corporation and President, Mississippi, Starkville Banking
NBC of Mississippi, Center.
Starkville Banking Center
Thomas J. Prince, Jr. 56 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
Thomas P. Hester 64 President and Chief Executive
President and Chief Officer, Tuscaloosa Banking Center
Executive Officer,
Tuscaloosa Banking Center
Rex D. Poole 61 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President and Trust Officer,
Vice President and Trust NBC of Mississippi
Officer, NBC of Mississippi
Donald J. Bugea, Jr. 44 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President and Investment
Vice President and Investment Officer, NBC of Mississippi.
Officer, NBC of Mississippi
Terrence Y. DeWitt 36 Executive Vice President,
Executive Vice President, Tuscaloosa Banking Center
Tuscaloosa Banking Center
Clay McWilliams 48 Senior Vice President, NBC of
Senior Vice President, Mississippi
NBC of Mississippi
Robert L. Maddox 46 Executive Vice President, Columbus
Executive Vice President Banking Center
Columbus Banking Center
Stanley P. Salter 49 President, Philadelphia Banking
President, Philadelphia Center
Banking Center
Personnel
At December 31, 1997, NBC and NBC of Tuscaloosa had 328 full-
time employees. The Company, Service and CNIC had no employees at
December 31, 1997.
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31,
1997.
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
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
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, or CNIC is a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 14, 1997, the stockholders in a special meeting approved
a proposal to amend the Company's Certificate of Incorporation to increase
the number of authorized shares from three million (3,000,000) shares to
ten million (10,000,000) shares. A proposal to provide stockholders
pre-emptive rights was also approved. Of 1,200,000 shares outstanding,
1,034,437 or 86.2% voted for the amendments to the Certificate of
Incorporation and 1,030,116 or 85.8% voted for pre-emptive rights. The
proxy statement dated September 25, 1997, (Form DEFS14A, filed
September 24, 1997) is incorporated herein by reference.
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The information titled "Market Information" and contained on
Page 45 of the Company's annual report to shareholders for the year
1997 is incorporated herein by reference in response to this item and
included in this report as Exhibit 13.a.
(b) At December 31, 1997, the Company had approximately 1,850 security
holders.
(c) Dividends on common stock were declared semiannually in June and
December of the years reported and totaled as follows:
December 31,
______________________
1997 1996
__________ __________
Dividends declared, $.61 per share $ - $2,940,000
Dividends declared, $.66 per share 3,168,000 -
__________ __________
$3,168,000 $2,940,000
========== ==========
NOTE: Per share amounts have been adjusted for the 4 for 1 stock
split in 1997.
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on
Page 46 of the Company's annual report to the shareholders for the year
1997 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 1997 1996 1995
________ ________ ________
Cash and due from banks $ 28,293 $ 25,942 $ 20,406
Securities:
Taxable 108,177 108,918 115,574
Non-taxable 66,608 66,972 68,934
________ ________ ________
Total securities 174,785 175,890 184,508
Federal funds sold and
securities purchased under
agreement to resell 16,124 6,680 6,809
Loans, net of unearned interest 390,165 364,957 338,631
Less reserve for loan losses 6,919 6,691 6,136
________ ________ ________
Net loans 383,246 358,266 332,495
Other assets 26,222 28,672 26,483
________ ________ ________
Total Assets $628,670 $595,450 $570,701
======== ======== ========
(In Thousands)
Liabilities and 1997 1996 1995
Stockholders' Equity ________ ________ ________
Deposits:
Noninterest-bearing $ 72,825 $ 71,941 $ 69,058
Interest-bearing 448,446 437,030 422,451
________ ________ ________
Total deposits 521,271 508,971 491,509
Federal funds purchased and
securities sold under
agreement to repurchase 11,749 4,087 2,185
Borrowed funds 16,991 11,674 11,670
Other liabilities 10,129 7,735 6,601
________ ________ ________
Total liabilities 560,140 532,467 511,965
Stockholders' equity 68,530 62,983 58,736
________ ________ ________
Total Liabilities and
Stockholders' Equity $628,670 $595,450 $570,701
======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of
net interest earnings, including the average amount of interest-
earning assets and interest-bearing liabilities outstanding during
the period, the interest earned or paid on such amounts, the
average yields/rates paid and the net yield on interest-earning
assets:
($ In Thousands)
Average Balance
____________________________
1997 1996 1995
________ ________ ________
EARNING ASSETS
Net loans $383,246 $358,266 $332,495
Federal funds sold and
securities purchased under
agreement to resell 16,124 6,680 6,809
Securities:
Taxable 108,177 108,918 115,574
Nontaxable 66,608 66,972 68,934
________ ________ ________
Totals 574,155 540,836 523,812
________ ________ ________
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 448,446 437,030 422,451
Borrowed funds, federal funds
purchased securities sold
under agreement to repurchase 28,740 15,761 13,855
________ ________ ________
Totals 477,186 452,791 436,306
________ ________ ________
Net Amounts $ 96,969 $ 88,045 $ 87,506
======== ======== ========
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1997 1996 1995 1997 1996 1995
_______ _______ _______ ____ ____ ____
EARNING ASSETS
Net loans $35,883 $32,913 $30,731 9.36 9.19 9.24
Federal funds sold and
securities purchased
under agreement to
resell 919 402 446 5.70 6.02 6.55
Securities:
Taxable 6,658 6,789 7,233 6.15 6.23 6.26
Nontaxable 3,660 3,741 3,840 5.50 5.59 5.57
_______ _______ _______
Totals 47,120 43,845 42,250 8.21 8.11 8.06
_______ _______ _______
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1997 1996 1995 1997 1996 1995
_______ _______ _______ ____ ____ ____
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $19,914 $18,513 $17,906 4.44 4.24 4.24
Borrowed funds, federal
funds purchased and
securities sold under
agreement to repurchase 1,502 795 779 5.23 5.04 5.62
_______ _______ _______
Totals 21,416 19,308 18,685 4.49 4.26 4.28
_______ _______ _______
Net Amounts $25,704 $24,537 $23,565
======= ======= =======
Net yield on earning assets 4.48 4.54 4.50
(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.
(3) Interest income on loans includes related fees.
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)
1997 Over 1996 1996 Over 1995
______________________ ______________________
Change Due To: Change Due To:
______________________ ______________________
Total Rate Volume Total Rate Volume
______ ______ ______ ______ ______ ______
EARNING ASSETS
Net loans $2,970 $ 624 $2,346 $2,182 $ (164) $2,346
Federal funds sold and
securities purchased
under agreement to
resell 517 (20) 537 (44) (36) (8)
Securities:
Taxable (131) (86) (45) (444) (35) (409)
Nontaxable (81) (61) (20) (99) 15 (114)
______ ______ ______ ______ ______ ______
Totals $3,275 $ 457 $2,818 $1,595 $ (220) $1,815
====== ====== ====== ====== ====== ======
(In Thousands) (In Thousands)
1997 Over 1996 1996 Over 1995
______________________ ______________________
Change Due To: Change Due To:
______________________ ______________________
Total Rate Volume Total Rate Volume
______ ______ ______ ______ ______ ______
INTEREST-BEARING
LIABILITIES
Interest-bearing deposits $1,401 $ 902 $ 499 $ 607 $ - $ 607
Interest on borrowed
funds and federal funds
purchased and securities
sold under agreement to
repurchase 707 31 676 16 (47) 63
______ ______ ______ ______ ______ ______
Totals $2,108 $ 933 $1,175 $ 623 $ (47) $ 670
====== ====== ====== ====== ====== ======
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,
____________________________
1997 1996 1995
________ ________ ________
U. S. Treasury $ 31,820 $ 31,680 $ 26,039
U. S. Government agencies and
mortgage-backed securities 66,431 63,055 81,300
States and political subdivisions 81,417 67,795 66,950
Other 6,044 5,312 5,054
________ ________ ________
Total book value $185,712 $167,842 $179,343
======== ======== ========
B. The following table sets forth the maturities of investment and
mortgage-backed securities (carrying values) at December 31,
1997, and the weighted average yield of such securities:
($ In Thousands)
Weighted Average Yield
______________________________________________
0 - 1 Yield 1 - 5 Yield 5 - 10 Yield
Year (%) Years (%) Years (%)
_______ _____ _______ _____ _______ _____
Securities:
U. S. Treasury $ 5,772 5.2 $25,844 6.5 $ 204 6.4
U. S. Govern-
ment agencies 3,612 7.7 19,184 6.5 456 7.2
States and
political
subdivisions 9,648 5.3 27,290 5.3 26,528 5.6
Other 498 6.1 795 6.7 737 6.9
_______ _______ _______
Total $19,530 $73,113 $27,925
======= ======= =======
10+ Yield
Years (%)
_______ _____
States and
political
subdivisions $17,951 6.0%
Other
(including
equity
securities) 4,014 5.9%
_______
Total $21,965
=======
Book Yield
Value (%)
_______ _____
Mortgage-
backed
securities $43,179 7.0%
=======
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, 1997, there were no securities from any issues
in excess of 10% of stockholders' equity that were not securities
of the U. S. Government or U. S. Government agencies or
corporations
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 1997 1996 1995 1994 1993
______________ ________ ________ ________ ________ ________
Commercial,
financial and
agriculture $ 63,720 $ 64,604 $ 56,219 $ 51,541 $ 35,177
Real estate -
construction 14,867 13,578 11,892 12,372 2,777
Real estate -
mortgage 232,892 219,403 193,686 178,391 140,162
Installment
loans to
individuals 77,128 81,351 83,281 79,961 73,756
Other 6,203 7,582 5,989 5,297 5,654
________ ________ ________ ________ ________
Total loans 394,810 386,518 351,067 327,562 257,526
Unearned
interest (104) (903) (2,649) (4,031) (5,597)
________ ________ ________ ________ ________
$394,706 $385,615 $348,418 $323,531 $251,929
======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest
rates:
(In Thousands)
December 31, 1997
______________________________________
Maturing
______________________________________
Within 1 - 5 Over
Type 1 Year Years 5 Years Total
________________________ ________ ________ ________ ________
Commercial, financial
and agricultural $ 35,683 $ 20,581 $ 7,456 $ 63,720
Real estate -
construction 7,925 2,994 3,948 14,867
Other loans, excluding
real estate - mortgage
and installment loans 2,222 1,533 2,448 6,203
________ ________ ________ ________
$ 45,830 $ 25,108 $ 13,852 $ 84,790
======== ======== ======== ========
(In Thousands)
December 31, 1997
______________________________________
Maturing
______________________________________
Within 1 - 5 Over
Type 1 Year Years 5 Years Total
________________________ ________ ________ ________ ________
Loans with: (1)
Predetermined interest
rates $127,965 $ 40,714 $ 11,893 $180,572
Floating interest
rates 141,232 60,717 10,571 212,520
________ ________ ________ ________
$269,197 $101,431 $ 22,464 $393,092
======== ======== ======== ========
(1) Excludes nonaccrual loans of $1,718.
C. Nonperforming loans
1. The following table states the aggregate amount of loans
which were nonperforming in nature:
(In Thousands)
December 31,
______________________________________
Type 1997 1996 1995 1994 1993
__________________ ______ ______ ______ ______ ______
Loans accounted
for on a
nonaccrual basis $1,718 $1,435 $2,028 $1,397 $1,451
====== ====== ====== ====== ======
Accruing loans
past due 90 days
or more $ 623 $ 727 $ 447 $ 601 $ 484
====== ====== ====== ====== ======
Renegotiated
"troubled" debt $ 670 $ 471 $ 390 $ 306 $ 853
====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total
loans at December 31, 1997.
3. There were no outstanding foreign loans at December 31,
1997.
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 1997, 1996, and 1995.
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, 1997, 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, 1997.
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,
___________________________________________
1997 1996 1995 1994 1993
_______ _______ _______ _______ _______
Beginning balance $ 6,778 $ 6,419 $ 5,719 $ 4,450 $ 3,204
_______ _______ _______ _______ _______
Charge-offs:
Domestic:
Commercial,
financial and
agricultural (339) (229) (237) (78) (151)
Real estate (65) (103) (109) (239) (80)
Installment
loans and
other (686) (904) (422) (392) (427)
_______ _______ _______ _______ _______
Total charge-offs (1,090) (1,236) (768) (709) (658)
_______ _______ _______ _______ _______
Recoveries:
Domestic:
Commercial,
financial and
agricultural $ 185 $ 49 $ 54 $ 48 $ 122
Real estate 30 39 40 25 97
Installment
loans and
other 138 193 209 177 116
_______ _______ _______ _______ _______
Total recoveries 353 281 303 250 269
_______ _______ _______ _______ _______
Net charge-offs (737) (955) (465) (459) (389)
_______ _______ _______ _______ _______
Reserve of
acquired bank - - - 494 -
Reserve of sold
finance company (125) - - - -
Provision charged
to operations 1,100 1,314 1,165 1,234 1,635
_______ _______ _______ _______ _______
Ending balance $ 7,016 $ 6,778 $ 6,419 $ 5,719 $ 4,450
======= ======= ======= ======= =======
Ratio of net
charge-offs to
average loans
outstanding .19 .27 .14 .15 .13
Ratio of reserve
for loan losses
to loans
outstanding at
year end 1.78 1.76 1.84 1.77 1.77
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,
1997, these loans totaled $248 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 totaled $77 million
or 20% of total loans at December 31, 1997. Consumer loans
are originated in order to provide a wide range of financial
services to customers and because the terms and normally higher
interest rates on such loans help maintain a profitable spread
between the average loan yield and the cost of funds.
In connection with consumer loan applications, the borrower's
income statement and credit bureau report are reviewed. In
addition, the relationship of the loan to the value of the
collateral is considered. All automobile loan applications
are reviewed, as well as the value of the unit which secured
the loan. NBC and NBC of Tuscaloosa intend to continue to
emphasize the origination of consumer loans. Management
believes that its loan loss experience in connection with its
consumer loan portfolio is favorable in comparison to industry
averages.
NBC and NBC of Tuscaloosa make commercial business loans on
both a secured and unsecured basis with terms which generally
do not exceed five years. Non-real estate commercial loans
primarily consist of short-term loans for working capital
purposes, inventories, seasonal loans, lines of credit and
equipment loans. A personal guaranty of payment by the
principals of any borrowing entity is often required and the
financial statements and income tax returns of the entity and
its guarantors are reviewed. At December 31, 1997, NBC and NBC
of Tuscaloosa's commercial business loans represented
approximately 15% of its total loan portfolio.
D. For the year 1998, losses for all loan categories, as a
percentage of average loans, are expected to approximate that
of 1997.
V. Deposits
($ In Thousands)
1997 1996 1995
______________ ______________ ______________
Amount Rate Amount Rate Amount Rate
________ ____ ________ ____ ________ ____
A. Average
deposits:
Domestic:
Noninterest-
bearing
deposits $ 72,825 - $ 71,941 - $ 69,058 -
Interest-
bearing
demand
deposits (1) 144,239 2.9% 154,490 2.9% 156,657 3.1%
Savings
deposits 26,827 2.2% 29,292 2.2% 32,122 2.5%
Time deposits 277,380 5.5% 253,248 5.3% 233,672 5.3%
Foreign N/A N/A N/A
________ ____ ________ ____ ________ ____
Total $521,271 $508,971 $491,509
======== ======== ========
(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, 1997:
(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 $69,203 $17,733 $12,752 $22,405 $16,280
======= ======= ======= ======= =======
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,
______________________
1997 1996 1995
______ ______ ______
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) 12.8 13.0 13.3
Dividend payout ratio (dividends per share
divided by net income per share) 36.3 35.9 36.9
Equity to asset ratio (average equity
divided by average total assets) 10.9 10.6 10.3
VII. Short-term borrowings
Federal
Funds
Purchased
And
Securities Treasury
Sold Under Tax and
Agreement to Loan Note
Repurchase Payable
____________ ____________
Balance at December 31, 1997 $ 20,021,209 $ 2,410,978
Weighted average interest rate at
December 31, 1997 4.60% 5.25%
Maximum amount outstanding at any
month end for the year 1997 20,021,209 2,581,342
Average amount outstanding during
the year 1997 11,748,632 2,021,082
Weighted average interest rate during
the year 4.48% 4.94%
VIII. Capital adequacy data
Total consolidated capital of the Company was as follows:
($ In Thousands)
December 31,
__________________
1997 1996
________ ________
Total stockholders' equity (excluding
unrealized gain) $ 70,194 $ 64,611
Allowance for loan losses 7,016 6,778
Other components of capital - -
________ ________
Total primary capital 77,210 71,389
Total secondary capital - -
________ ________
Total capital 77,210 71,389
Less intangible assets and other adjustments (3,081) (3,340)
________ ________
Total capital, as defined for regulatory
purposes $ 74,129 $ 68,049
======== ========
Tier 1 and total capital as a percentage of "risk-weighted" assets
at December 31, 1997 and 1996, are as follows:
December 31,
______________
1997 1996
______ ______
Tier 1 capital percentage 16.4% 15.6%
Total capital percentage 17.7% 16.9%
The Company's capital ratios exceed the minimum capital requirements
at December 31, 1997, 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, 1997
______________________________________
Interest Sensitive Within (Cumulative)
______________________________________
Total of
Within Within Within Interest-
3 12 5 Earning
Months Months Years Assets
________ ________ ________ ________
Interest-earning assets:
Loans $196,654 $270,915 $372,346 $394,810
Investment and
mortgage-backed
securities 14,270 112,200 119,379 185,712
Federal funds sold
and other 19,267 19,267 19,267 19,267
________ ________ ________ ________
Totals $230,191 $402,382 $510,992 $599,789
======== ======== ======== ========
Interest-bearing
liabilities:
Deposits and
borrowed funds $231,469 $419,888 $492,886 $492,886
======== ======== ======== ========
Sensitivity gap:
Dollar amount $ (1,278) $(17,506) $ 18,106
Percent of total
interest-earning
assets (.21%) (2.9%) 3.0%
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, 1997, 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 approximately
$17.5 million (cumulative), representing a negative cumulative one
year gap of 2.9% of earning assets. Management of the Company
believes this is the proper position in the current interest rate
environment.
Banking regulators have 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 40 - 45 of the Company's 1997
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 14 - 39 of the Company's 1997 annual report to
shareholders which is incorporated herein by reference and included in
this report as Exhibit 13.d.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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" and "Executive Compensation," of the Company's proxy statement
which is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" Pages 15 -
19 of the proxy statement which is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption, "Stock Ownership of Directors,
Officers, and Principal Shareholders," Pages 7 - 8 of the Company's
proxy statement which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Page 21, "Certain Relationships and Related
Transactions" 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, 1997 and 1996, together with the report of T. E.
Lott & Company, independent accountants, dated January 13,
1998, appearing on Pages 14 - 39 of the 1997 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.)
Amended Articles of Incorporation and By-Laws:
(Reference is made to Form DEFS 14A filed on
September 24, 1997, 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 45 of the
annual report to stockholders.
13.b. Selected Financial Data - Page 46 of the annual report
to stockholders.
13.c. Management's discussion and analysis of financial
condition and results of operations - Pages 40 - 45 of
the annual report to stockholders.
13.d. Consolidated financial statements - Pages 14 - 39 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, 1997.
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)
S/L. F. MALLORY, JR.
By _______________________________________
L. F. Mallory, Jr.
Chairman and Chief Executive Officer
S/RICHARD T. HASTON
By _______________________________________
Richard T. 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/ROBERT D. MILLER S/ROBERT A. CUNNINGHAM
_________________________________ _______________________________
(Director) (Director)
S/SAMMY J. SMITH S/CLIFTON B. FOWLER
_________________________________ _______________________________
(Director) (Director)
S/EDITH D. MILLSAPS S/THOMAS J. PRINCE, JR.
_________________________________ _______________________________
(Director) (Director)
S/JAMES C. GALLOWAY, JR. S/JAMES C. RATCLIFF
_________________________________ _______________________________
(Director) (Director)
S/HENRY S. WEISS S/MARK A. ABERNATHY
_________________________________ _______________________________
(Director) (Director)
S/RALPH E. POGUE S/ROBERT S. JONES
_________________________________ _______________________________
(Director) (Director)
S/BOBBY L. HARPER S/J. NUTIE DOWDLE
_________________________________ _______________________________
(Director) (Director)
Date: March 23, 1998
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 $20.75
and $23.75 during 1996, and $23.75 and $32.00 during 1997 (price per
share has been restated where necessary to reflect the 1997 stock
split). Dividends were declared semi-annually in June and December
of each of the years reported.
EXHIBIT 13.b.
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
____________ ____________ ____________ ____________ ____________
INCOME DATA
Interest and
fees on loans $ 35,882,854 $ 32,912,956 $ 30,730,631 $ 25,216,740 $ 19,097,106
Interest and
dividends on
investment
securities 10,318,062 10,530,540 11,072,491 10,338,962 11,036,898
Other interest
income 918,836 401,629 446,455 257,671 143,759
____________ ____________ ____________ ____________ ____________
Total interest
income 47,119,752 43,845,125 42,249,577 35,813,373 30,277,763
Interest
expense 21,415,861 19,308,329 18,684,733 13,545,475 11,540,090
____________ ____________ ____________ ____________ ____________
Net interest
income 25,703,891 24,536,796 23,564,844 22,267,898 18,737,673
Provision for
loan losses 1,100,000 1,314,000 1,165,000 1,234,024 1,634,960
____________ ____________ ____________ ____________ ____________
Net interest
income after
provision for
loan losses 24,603,891 23,222,796 22,399,844 21,033,874 17,102,713
____________ ____________ ____________ ____________ ____________
Service
charges on
deposit
accounts 3,869,551 3,675,581 3,382,570 3,329,928 2,606,042
Other income 3,287,947 2,965,157 2,480,667 2,394,711 2,756,746
____________ ____________ ____________ ____________ ____________
Total
noninterest
income 7,157,498 6,640,738 5,863,237 5,724,639 5,362,788
____________ ____________ ____________ ____________ ____________
Salaries and
employee
benefits 11,124,824 10,840,636 10,278,758 9,608,105 8,404,911
Occupancy and
equipment
expense 2,848,179 2,525,186 2,467,351 2,237,060 1,836,524
Other expenses 5,747,705 5,605,114 5,278,434 5,428,709 4,469,271
____________ ____________ ____________ ____________ ____________
Total
noninterest
expense 19,720,708 18,970,936 18,024,543 17,273,874 14,710,706
____________ ____________ ____________ ____________ ____________
Income before
income taxes
and
cumulative
effect of a
change in
accounting
principle 12,040,681 10,892,598 10,238,538 9,484,639 7,754,795
Income taxes 3,289,440 2,707,718 2,430,643 2,346,397 1,588,508
Cumulative
effect
(benefit) of
change in
accounting
principle - - - - (174,160)
____________ ____________ ____________ ____________ ____________
Net income $ 8,751,241 $ 8,184,880 $ 7,807,895 $ 7,138,242 $ 6,340,447
============ ============ ============ ============ ============
PER SHARE
DATA (1)
Net income $ 1.82 $ 1.71 $ 1.63 $ 1.49 $ 1.32
Dividends .66 .61 .60 .51 .44
FINANCIAL DATA
Shares
outstanding 4,800,000 1,200,000 1,200,000 1,200,000 1,200,000
Total assets $646,826,287 $614,429,599 $576,215,391 $545,404,537 $452,356,731
Net loans $387,689,856 $378,837,183 $341,998,215 $317,812,315 $247,479,066
Total deposits $529,323,735 $516,752,383 $496,783,232 $455,761,308 $383,484,153
Total
stockholders'
equity $ 70,618,602 $ 64,847,364 $ 60,272,268 $ 51,654,561 $ 49,759,895
(1) Per share data has been adjusted retroactively for stock splits.
EXHIBIT 13.c.
MANAGEMENT'S 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 summary of Selected
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.
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Since 1993, the total assets of the company have increased 43.0%. The
20.6% growth in 1994 reflects the company's acquisition of First State
Bank in Tuscaloosa, Alabama. Loans have increased 56.7% between 1993 and
1997. 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 1995, 1996 and 1997, were .14%, .18% and .19% of net loans
outstanding, respectively.
Deposits have grown 38.0% over the period 1993-1997. The 18.9% increase
in 1994 is again attributable to the First State Bank of Tuscaloosa
acquisition. During the period 1994, management had felt that it could
improve profits by allowing loans to grow faster than deposits. This
practice was modified somewhat during 1995, 1996 and 1997, 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 41.9%
since 1930. Shareholders' equity reflected an unrealized gain on
"Available-for-Sale Securities" of $906,236, $236,452 and $424,449
in 1995, 1996 and 1997, respectively, as required to be reported under
FASB 115.
Net income has increased in each of the five years reported. The total
increase since 1993 (4 years) has been 38.0%. Return on average assets
(ROA), a primary measure of earning strength, has been 1.4% in each year
since 1993, reflecting a return that has allowed the company to
consistently perform at high levels. Earnings per share have also grown
each year, increasing from $1.32 in 1993 to $1.82 in 1997. All earnings
per share amounts have been restated to reflect the 1997 stock split.
Regular cash dividends have increased in each of the years outlined in
the summary. A 10.86% stock dividend was declared in September, 1993.
Also, a special cash dividend of $.15 per share was paid in 1995 in
recognition of the company's strong earnings and equity positions. As
stated in the preceding paragraph, all per share amounts have been
restated to reflect the 1997 stock split.
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, 4.1% in 1996 and
4.8% in 1997. These increases are in contrast to the 18.8% growth in this
income component in 1994. Reduced increases in 1995, 1996 and 1997, are
attributable to the company 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
1997, the average earning assets increased by $31.8 million or 5.9%. Net
interest margin for the year decreased to 4.29% from 4.35% in 1996. The
primary reasons for this decline were a decrease in loan yields that
resulted from an overall decline in interest rates in 1997, and increased
competition for good quality loans. Also, deposit cost did not decrease
by a corresponding amount because of the competition in the market for
these dollars from other banks and from the investment community. These
factors were partially offset by the growth in average earning assets
during 1997. The growth in the company's loan portfolio during 1997
represented the key earning asset increase that held the decline in NII
to the 6 basis point decrease noted above.
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 that
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 1997, the company's balance sheet reflected $17.5
million more in rate sensitive liabilities than assets that were
scheduled to reprice within one year. This represents 2.7 % of total
assets that 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 1998 with a slight bias toward lower
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 1997 was deemed entirely adequate to cover exposure within the
company's loan portfolio. The reserve has increased 57.7% since 1993 and
stood at 1.8% of net loans at the end of 1997.
The non-interest income and non-interest expense totals 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. During 1997, the non-interest income was
increased by profit realized from the sale of the assets of Philadelphia
Finance Company, a wholly-owned subsidiary of the National Bank of
Commerce of Mississippi. The sale included the loan portfolio, as well as
the fixtures and equipment. The company remains an inactive, wholly-owned
subsidiary of the Bank. Additionally, the company settled a difference
with the IRS during 1997 that affected tax years 1993 through 1996. These
two items had a positive net impact on earnings per share in 1997, of
approximately $.01 per share. Finally, the company maintains a formal
salary administration program that 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 expense
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 was significantly
diminished during 1996 and 1997. 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
24.9% in 1996 and 27.3% in 1997.
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 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, 1996 and 1997, as loan
volume continued to grow relative to deposits, and the company's loan/
deposit ratio reached a 73% level at the end of 1997. The Consolidated
Statements of Cash Flows clearly indicated that the company has con-
sistently generated sufficient liquidity from traditional sources to take
care of its needs and actually increase cash and cash equivalents from $28
million at the end of 1995 to $43 million at the end of 1997. The company
has utilized the Federal Home Loan Bank as a source of funding for fixed
rate, term loan commitments. At the end of 1997 the company had out-
standing to the Federal Home Loan Bank $15.2 million that is scheduled to
mature over the next five 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.
The company had repurchase agreements amounting to $7.3 million and $20
million at December 31, 1996, and 1997, respectively. The level of
repurchase agreement activity is limited by the availability of invest-
ment portfolio securities to be pledged against the accounts. Management
believes that the normal sources of liquidity are sufficient to redeem
the agreement, if necessary.
The company does not have plans at this time for any discretionary
spending that would have a material impact on liquidity. Additionally,
the company has no plans for the refinancing or redemption of any
liabilities other than normal maturities and payments relating to the
borrowings from the Federal Home Loan Bank.
As mentioned previously, the company maintains a strict asset/liability
management policy. As part of this policy, the company does not engage in
currency or interest rate swaps, nor does it purchase and hold any
derivative securities. 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.
The Year 2000 issue is of great importance to the company's two banking
subsidiaries. Both banks have developed very specific plans and time-
tables for dealing with this issue. These plans have been reviewed by the
regulators and are currently scheduled for completion in accordance with
the guidelines of the regulators. They cover both the internal issues of
the banks' hardware and software programs and the external issue of
contacting the major customers that would increase the banks' risk if they
are not ready to deal with these issues on January 1, 2000. At this time,
management is of the opinion that this issue is under control and that
plans are in place to control and mitigate our risk. Also, the cost
associated with the correction of the Year 2000 issue will not have a
material impact on the future operations of the company.
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 1997, NBC maintained a 10.8% leverage ratio that 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 1997, the company had a Tier 1 ratio of 16.4% and a
total risk-based capital ratio of 17.7%, 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
41.9% since 1993 to total 10.9% of assets at the end of 1997. Management
considers this level of capital to be entirely sufficient to support the
needs of the company. There are no material commitments for the use of
capital resources that cannot be funded from normal liquidity.
EXHIBIT 13.d.
CONSOLIDATED FINANCIAL STATEMENTS
NBC CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
DECEMBER 31, 1997 AND 1996
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, 1997 and 1996,
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, 1997. 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, 1997 and
1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
T. E. LOTT & COMPANY
Certified Public Accountants
Columbus, Mississippi
January 13, 1998
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
____________ ____________
Cash and due from banks $ 23,535,966 $ 29,126,083
Interest-bearing deposits with banks 319,572 493,360
Federal funds sold 18,947,814 9,100,000
Securities (Note C) 185,712,293 167,841,660
Loans, net of reserve for loan losses of
$7,015,769 in 1997 and $6,777,637 in 1996
(Note D) 387,689,856 378,837,183
Interest receivable 6,351,764 5,755,778
Premises and equipment (Note E) 13,355,743 13,267,167
Other real estate 225,546 729,762
Intangible assets 2,554,758 2,751,506
Other assets 8,132,975 6,527,100
____________ ____________
$646,826,287 $614,429,599
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 74,083,269 $ 71,601,043
Interest-bearing deposits, $100,000
or more 69,203,315 62,090,903
Other interest-bearing deposits 386,037,151 383,060,437
____________ ____________
Total deposits 529,323,735 516,752,383
Interest payable 2,478,912 2,205,779
Federal funds purchased and securities
sold under repurchase agreements (Note F) 20,021,209 9,320,948
Other borrowed funds (Note F) 17,624,380 14,711,088
Other liabilities 6,759,449 6,592,037
____________ ____________
Total liabilities 576,207,685 549,582,235
Commitments and contingent liabilities
(Note K)
Stockholders' equity (Notes B and J):
Common stock - $1 par value, authorized
10,000,000 shares in 1997 and 3,000,000
shares in 1996; issued and outstanding
4,800,000 shares in 1997 and 1,200,000
shares in 1996 4,800,000 1,200,000
Surplus 33,002,133 33,002,133
Undivided profits 32,392,020 30,408,779
Unrealized gain on available-for-sale
securities, net of deferred income taxes 424,449 236,452
____________ ____________
70,618,602 64,847,364
____________ ____________
$646,826,287 $614,429,599
============ ============
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
____________ ____________ ____________
INTEREST INCOME
Interest and fees on loans $ 35,882,854 $ 32,912,956 $ 30,730,631
Interest and dividends on
securities:
Taxable interest and
dividends 6,657,540 6,789,316 7,232,827
Tax-exempt interest 3,660,522 3,741,224 3,839,664
Other 918,836 401,629 446,455
____________ ____________ ____________
47,119,752 43,845,125 42,249,577
INTEREST EXPENSE
Interest on time deposits of
$100,000 or more 3,863,417 3,769,263 3,418,128
Interest on other deposits 16,050,087 14,743,655 14,488,121
Interest on borrowed funds 1,502,357 795,411 778,484
____________ ____________ ____________
21,415,861 19,308,329 18,684,733
____________ ____________ ____________
Net interest income 25,703,891 24,536,796 23,564,844
Provision for loan losses
(Note D) 1,100,000 1,314,000 1,165,000
____________ ____________ ____________
Net interest income after
provision for loan losses 24,603,891 23,222,796 22,399,844
OTHER INCOME
Service charges on deposit
accounts 3,869,551 3,675,581 3,382,570
Other service charges and fees 1,676,922 1,788,744 1,663,310
Trust Department income 1,057,359 935,829 846,296
Securities (losses) gains, net (58,705) 8,574 (185,523)
Other 612,371 232,010 156,584
____________ ____________ ____________
7,157,498 6,640,738 5,863,237
____________ ____________ ____________
OTHER EXPENSE
Salaries 9,263,275 8,933,364 8,428,133
Employee benefits (Note H) 1,861,549 1,907,272 1,850,625
Net occupancy expense 1,553,957 1,501,011 1,380,148
Furniture and equipment
expense 1,294,222 1,024,175 1,087,203
Deposit insurance premiums 63,185 4,000 525,744
Other 5,684,520 5,601,114 4,752,690
____________ ____________ ____________
19,720,708 18,970,936 18,024,543
____________ ____________ ____________
Income before income taxes 12,040,681 10,892,598 10,238,538
Income taxes (Note G) 3,289,440 2,707,718 2,430,643
____________ ____________ ____________
Net income $ 8,751,241 $ 8,184,880 $ 7,807,895
============ ============ ============
Net income per share (Note B) $ 1.82 $ 1.71 $ 1.63
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Net
Unrealized
Gain (Loss)
On
Available-
Common Undivided For-Sale
Stock Surplus Profits Securities Total
__________ ___________ ___________ ___________ ___________
Balance,
January 1,
1995 $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,
$.60 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,
$.61 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
Net income
for 1997 - - 8,751,241 - 8,751,241
Cash
dividends
declared,
$.66 per
share - - (3,168,000) - (3,168,000)
Stock split
effected
in the
form of a
stock
dividend
(Note B) 3,600,000 - (3,600,000) - -
Net change
in
unrealized
gain (loss)
on
available-
for-sale
securities - - - 187,997 187,997
__________ ___________ ___________ ___________ ___________
Balance,
Decem-
ber 31,
1997 $4,800,000 $33,002,133 $32,392,020 $ 424,449 $70,618,602
========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
___________ ___________ ____________
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 8,751,241 $ 8,184,880 $ 7,807,895
Adjustments to reconcile net
income to net cash:
Depreciation and amortization 1,587,773 1,387,866 1,376,515
Deferred income taxes
(credits) (162,135) (75,785) (189,616)
Provision for loan losses 1,100,000 1,314,000 1,165,000
FHLB stock dividend (115,200) (107,700) (111,000)
Losses (gains) on sale of
securities 58,705 (8,574) 185,523
Deferred credits (122,650) (109,119) (105,214)
Increase in interest
receivable (595,986) (236,428) (1,029,340)
Increase in other assets (1,083,963) (1,564,922) (348,734)
Increase (decrease) in
interest payable 273,133 (140,365) 674,767
Increase (decrease) in other
liabilities (26,235) (130,371) 110,808
___________ ___________ ____________
Net cash provided by
operating activities 9,664,683 8,513,482 9,536,604
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchases of available-for-
sale securities (58,286,561) (27,178,274) (38,095,497)
Proceeds from sales of
available-for-sale securities 6,442,177 1,742,374 11,451,366
Proceeds from maturities and
calls of available-for-sale
securities 34,000,049 35,638,881 30,728,981
Purchases of securities to be
held-to-maturity - - (1,746,435)
Proceeds from maturities and
calls of held-to-maturity
securities 315,458 399,869 24,580
Increase in loans (9,830,023) (38,043,849) (25,245,686)
Additions to premises and
equipment (1,430,779) (1,717,660) (1,318,849)
___________ ___________ ____________
Net cash used in investing
activities (28,789,679) (29,158,659) (24,201,540)
___________ ___________ ____________
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase in deposits 12,571,352 19,969,151 41,021,924
Dividends paid on common stock (2,976,000) (2,904,000) (2,484,000)
Net increase (decrease) in
borrowed funds 13,613,553 13,906,353 (20,033,880)
___________ ___________ ____________
Net cash provided by financing
activities 23,208,905 30,971,504 18,504,044
___________ ___________ ____________
Net increase in cash and cash
equivalents 4,083,909 10,326,327 3,839,108
Cash and cash equivalents at
beginning of year 38,719,443 28,393,116 24,554,008
___________ ___________ ____________
Cash and cash equivalents at
end of year $42,803,352 $38,719,443 $ 28,393,116
=========== =========== ============
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 located in Philadelphia, Mississippi. In March, 1997,
substantially all of the assets, including the loan portfolio of
Philadelphia Finance Corporation were sold and, subsequently, no
significant business activity was conducted.
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
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, 1997 and 1996.
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 depreciation
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 $196,748 for
1997, $196,145 for 1996, and $185,845 for 1995.
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 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 matching contributions of twenty-five
percent of the employee's contribution to the plan. Beginning in
1998, NBC and NBC of Tuscaloosa will make matching contributions of
fifty percent of employee contributions of six percent or less for
employees with twenty years or less of service. For employees with
service in excess of twenty years, the matching contribution is
seventy-five percent of employee contributions of six percent or less.
Employees of NBC and NBC of Tuscaloosa participate in a nonleveraged
Employee Stock Ownership 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 8,434
shares (adjusted for stock split) 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 4,800,000 shares outstanding
during each year. In February, 1997, the Financial Accounting Standards
Board (FASB) issued Statement No. 128, "Earnings Per Share" which is
effective for years ending after December 15, 1997. Under Statement
No. 128, two earnings per share (EPS) amounts are to be considered and
presented, if applicable. Basic EPS is calculated based on income
available to common shareholders by the weighted-average number of common
shares outstanding during the reporting period. Diluted EPS includes any
additional dilution from potential common stock outstanding, such as
exercise of stock options. The Corporation has no arrangements resulting
in potential common stock outstanding. Therefore, diluted EPS is not
presented.
Per share data has been adjusted for all periods presented for the
four-for-one stock split effected in the form of a 300% stock dividend
(See Note B).
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.
16. Accounting Pronouncements
In June, 1997, the FASB issued Statement No. 130, "Reporting of
Comprehensive Income." This Statement established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of financial
statements. It also requires that all items recognized under accounting
standards as components of comprehensive income be reported in the
financial statements and each be displayed with the same prominence.
This Statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required.
NOTE B - STOCK SPLIT
At a meeting of the shareholders on October 14, 1997, the authorized
shares of common stock were increased from 3,000,000 to 10,000,000 in
connection with a four-for-one common stock split effected in the form
of a 300% stock dividend. Accordingly, outstanding shares of common
stock were increased by 3,600,000. A transfer of $3,600,000,
representing the par value of additional shares issued, was made from
undivided profits to the common stock account. References in the
consolidated financial statements and notes thereto with regard to per
share and related data have been retroactively adjusted to give effect
to the transaction.
NOTE C - SECURITIES
Securities at December 31, 1997 and 1996, consisted of available-for-sale
securities with a carrying amount of $154,354,455 and $136,168,363,
respectively, and securities to be held-to-maturity with a carrying
amount of $31,357,838 and $31,673,297, respectively. The amortized cost,
gross unrealized gains, gross unrealized losses and estimated fair value
of these securities are as follows:
December 31, 1997
__________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________ __________ __________ ____________
Available-for-sale
securities:
U. S. Treasury
securities $ 31,804,235 $ 106,764 $ 91,380 $ 31,819,619
Obligations of
other U. S.
Government agencies 23,150,689 111,060 10,172 23,251,577
Obligations of
states and
municipal
subdivisions 49,734,356 358,908 33,980 50,059,284
Mortgage-backed
securities 42,924,307 306,433 51,332 43,179,408
Equity securities 3,754,900 - - 3,754,900
Other securities 2,343,175 18,115 71,623 2,289,667
____________ __________ __________ ____________
$153,711,662 $ 901,280 $ 258,487 $154,354,455
============ ========== ========== ============
Held-to-maturity
securities:
Obligations of
states and
municipal
subdivisions $ 31,357,838 $3,049,045 $ 1,860 $ 34,405,023
============ ========== ========== ============
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
============ ========== ========== ============
The scheduled maturities of securities available-for-sale and securities to
be held-to-maturity at December 31, 1997, 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 $ 19,445,223 $ 19,529,972 $ - $ -
Due after one year
through five years 68,838,715 69,104,007 4,008,998 4,178,181
Due after five years
through ten years 17,067,432 17,175,337 10,749,064 11,799,985
Due after ten years 1,354,298 1,351,408 16,599,776 18,426,857
Mortgage-backed
securities
and other
securities 47,005,994 47,193,731 - -
____________ ____________ ___________ ___________
$153,711,662 $154,354,455 $31,357,838 $34,405,023
============ ============ =========== ===========
Gross gains of $4,682, $9,599, and $14,761, and gross losses of $63,387,
$1,025, and $200,284 were realized on available-for-sale securities in
1997, 1996, and 1995, respectively.
Securities with a carrying value of $117,103,791 and $113,317,669 at
December 31, 1997 and 1996, respectively, were pledged to secure public
and trust deposits and for other purposes as required or permitted by law.
NOTE D - LOANS
Loans outstanding include the following types: (In Thousands)
December 31,
1997 1996
________ ________
Commercial, financial and agricultural $ 63,720 $ 64,604
Real estate - construction 14,867 13,578
Real estate - mortgage 232,892 219,403
Installment loans to individuals 77,128 81,351
Other 6,203 7,582
________ ________
394,810 386,518
Unearned interest (104) (903)
Reserve for loan losses (7,016) (6,778)
________ ________
$387,690 $378,837
======== ========
Transactions in the reserve for loan losses are summarized as follows:
Years Ended December 31,
1997 1996 1995
__________ __________ __________
Balance at beginning of year $6,777,637 $6,419,570 $5,719,110
Additions:
Provision for loan losses
charged to operating expense 1,100,000 1,314,000 1,165,000
Recoveries of loans previously
charged off 353,640 281,251 303,259
__________ __________ __________
8,231,277 8,014,821 7,187,369
Deductions:
Loans charged off 1,089,922 1,237,184 767,799
Reserve applicable to loans
sold of finance company 125,586 - -
__________ __________ __________
1,215,508 1,237,184 767,799
__________ __________ __________
Balance at end of year $7,015,769 $6,777,637 $6,419,570
========== ========== ==========
At December 31, 1997 and 1996, the recorded investment in loans
considered to be impaired totaled approximately $1,570,000 and
$1,400,000, respectively. The reserve for loan losses related to
these loans approximated $700,000 and $550,000 at December 31, 1997
and 1996,respectively. The average recorded investment in impaired
loans during the year ended December 31, 1997, was approximately
$1,440,000. For the years ended December 31, 1997 and 1996, the
amount of income recognized on impaired loans was immaterial.
Restructured impaired loans amounted to approximately $670,000 at
December 31, 1997 and 1996.
At December 31, 1997, there were no commitments to lend additional
funds to debtors whose loans have been restructured.
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 1997 1996
____________ ___________ ___________
Premises:
Land - $ 2,456,627 $ 2,473,102
Buildings, construction and
improvements 10 - 50 12,622,381 12,712,059
___________ ___________
15,079,008 15,185,161
Equipment 3 - 10 7,938,295 9,384,970
___________ ___________
23,017,303 24,570,131
Less accumulated depreciation
and amortization 9,661,560 11,302,964
___________ ___________
$13,355,743 $13,267,167
=========== ===========
The amount charged to operating expenses for depreciation was $1,342,203
for 1997, $1,111,343 for 1996, and $1,062,885 for 1995.
NOTE F - BORROWED FUNDS
Federal funds purchased and securities sold under repurchase agreements
consisted of the following at December 31, 1997 and 1996:
1997 1996
___________ ___________
Federal funds purchased $ - $ 2,000,000
Securities sold under agreement to
repurchase 20,021,209 7,320,948
___________ ___________
$20,021,209 $ 9,320,948
=========== ===========
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:
1997 1996
___________ ___________
Average balance during the year $11,685,255 $ 2,994,165
Average interest rate during the year 4.51% 4.53%
Maximum month-end balance during the year $20,021,209 $ 7,320,948
Securities underlying the repurchase agreements remain under the control
of NBC and NBC of Tuscaloosa.
Other borrowed funds are summarized as follows:
December 31,
________________________
1997 1996
___________ ___________
6.06% note payable to the Federal Home
Loan Bank $ - $ 2,713,089
4.78% note payable to the Federal Home
Loan Bank, due June 1, 1998 278,226 976,254
6.63% note payable to the Federal Home
Loan Bank, due January 1, 2000 2,306,976 2,477,149
5.57% note payable to the Federal Home
Loan Bank, due June 1, 2000 1,829,049 2,133,310
5.94% note payable to the Federal Home
Loan Bank, due August 1, 2000 3,050,286 -
5.90% note payable to the Federal Home
Loan Bank, due December 3, 2001 4,037,915 5,000,000
6.067% note payable to the Federal Home
Loan Bank, due August 1, 2002 3,710,950 -
Treasury tax and loan note 2,410,978 1,411,286
___________ ___________
$17,624,380 $14,711,088
=========== ===========
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. Annual principal repayment requirements on
Federal Home Loan Bank borrowings at December 31, 1997, are as follows:
Year Amount
____ __________
1998 $3,543,006
1999 3,449,300
2000 5,806,351
2001 1,883,322
2002 531,423
NOTE G - INCOME TAXES
The provision for income taxes including the tax effects of securities
transactions [1997 - ($22,014); 1996 - $3,215; 1995 - ($69,570)] is
as follows:
Years Ended December 31,
__________________________________
1997 1996 1995
__________ __________ __________
Current tax expense $3,451,575 $2,783,503 $2,620,259
Deferred tax benefit (162,135) (75,785) (189,616)
__________ __________ __________
$3,289,440 $2,707,718 $2,430,643
========== ========== ==========
Deferred tax provisions are applicable to the following items:
Years Ended December 31,
__________________________________
1997 1996 1995
__________ __________ __________
Depreciation $ 6,165 $ 57,193 $ 91,482
Loans and reserve for loan
losses (453,025) (267,870) (599,459)
Securities 79,070 86,855 90,928
Employee benefits 125,920 121,543 103,966
State net operating loss
carryforward - - 100,000
Other, net 79,735 (73,506) 23,467
__________ __________ __________
$ (162,135) $ (75,785) $ (189,616)
========== ========== ==========
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,
1997 1996 1995
__________ __________ __________
Tax on income before income taxes $4,093,832 $3,703,483 $3,481,103
Increase (decrease) resulting
from:
Tax-exempt income (1,265,895) (1,345,665) (1,345,604)
Nondeductible expenses 236,120 259,406 266,065
Tax benefit of small life
insurance company exemption - (128,336) (109,644)
State income taxes, net of
federal benefit 293,310 218,460 126,060
Other, net (67,927) 370 12,663
__________ __________ __________
$3,289,440 $2,707,718 $2,430,643
========== ========== ==========
The components of the net deferred tax asset included in other assets
as of December 31, 1997 and 1996, are as follows:
1997 1996
__________ __________
Deferred tax assets:
Reserve for loan losses $2,636,225 $2,321,070
Employee benefits 24,640 150,560
Other 124,781 167,051
__________ __________
Total deferred tax assets 2,785,646 2,638,681
__________ __________
Deferred tax liabilities:
Premises and equipment (995,375) (989,210)
Deferred loan fees/costs (191,475) (154,010)
Securities (445,200) (366,130)
Unrealized gain on available-for-sale
securities (216,449) (118,756)
Loans - (137,870)
__________ __________
Total deferred tax liabilities (1,848,499) (1,765,976)
__________ __________
Net deferred tax asset $ 937,147 $ 872,705
========== ==========
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, 1997 and 1996:
1997 1996
__________ __________
Actuarial present value of benefit
obligations:
Accumulated benefit obligation, including
vested benefits of $5,862,183 in 1997
and $4,747,982 in 1996 $5,980,795 $5,096,410
========== ==========
Projected benefit obligation for service
rendered to date $8,726,460 $7,462,565
Fair value of plan assets 9,387,721 7,657,982
__________ __________
Plan assets in excess of projected
benefit obligation 661,261 195,417
Unrecognized net gain 902,881 894,039
Unrecognized net asset at adoption of
Statement No. 87 being recognized over
employees' average remaining service life (97,709) (130,280)
Unrecognized prior service cost 57,153 63,290
__________ __________
Prepaid pension costs $1,523,586 $1,022,466
========== ==========
Net pension costs included the following components:
Years Ended December 31,
1997 1996 1995
__________ __________ __________
Service costs - benefits earned
during the period $ 488,832 $ 478,899 $ 392,933
Interest cost on projected
benefit obligation 591,719 573,199 512,274
Actual return on plan assets (1,373,973) (713,332) (846,454)
Net amortization and deferral 664,618 44,823 246,348
__________ __________ __________
$ 371,196 $ 383,589 $ 305,101
========== ========== ==========
The actuarial assumptions used in determining the actuarial present
value of the projected benefit obligation were as follows:
December 31,
Assumption 1997 1996 1995
__________ ____ ____ ____
Weighted average discount rate 8.0% 8.0% 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% 9.5% 9.0%
Contributions to the ESOP amounted to $150,000 in 1997 and $200,000 in
1996 and 1995. At December 31, 1997, the plan held 332,497 shares of
the Corporation's common stock. Contributions to the 401(k) plan
amounted to $62,410 in 1997, $63,325 in 1996, and $54,886 in 1995.
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 1997
is summarized as follows:
Loans outstanding at January 1, 1997 $ 7,732,268
New loans 11,023,770
Repayments (10,014,517)
____________
Loans outstanding at December 31, 1997 $ 8,741,521
============
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
Any dividends paid by the Corporation are provided from dividends
received from its subsidiary banks. Under regulations controlling
national banks, the payment of any dividends by a bank without prior
approval of the Comptroller of the Currency is limited to the current
year's net profits (as defined by the Comptroller of the Currency) and
retained net profits of the two preceding years.
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 average total assets
(leverage). Management believes, as of December 31, 1997, that the
Corporation and its subsidiary banks exceed all capital adequacy
requirements.
At December 31, 1997, 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 categoriza-
tion.
The actual capital amounts and ratios at December 31, 1997 and 1996, 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 of
(Consolidated) NBC Tuscaloosa
______________ ______________ ______________
Amount Ratio Amount Ratio Amount Ratio
_______ _____ _______ _____ _______ _____
December 31, 1997:
Total risk-based $74,129 17.7% $63,668 17.9% $10,354 16.0%
Tier I risk-based 68,859 16.4% 59,223 16.7% 9,543 14.8%
Tier I leverage 68,869 10.8% 59,223 10.8% 9,543 10.7%
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%
The minimum amounts of capital and ratios as established by banking
regulators at December 31, 1997 and 1996, were as follows:
($ In Thousands)
Subsidiary Banks
NBC Capital ______________________________
Corporation NBC of
(Consolidated) NBC Tuscaloosa
______________ ______________ ______________
Amount Ratio Amount Ratio Amount Ratio
_______ _____ _______ _____ _______ _____
December 31, 1997:
Total risk-based $33,585 8.0% $28,325 8.00% $ 5,173 8.00%
Tier I risk-based 16,792 4.0% 14,163 4.00% 2,586 4.00%
Tier I leverage 19,046 3.0% 16,468 3.00% 2,675 3.00%
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% 13,835 4.0% 2,178 4.0%
Tier I leverage 17,974 3.0% 15,714 3.0% 2,379 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, 1997, the reserve balance
with the Federal Reserve Bank was approximately $1,430,000.
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, 1997 and 1996, is as follows:
(In Thousands)
Contractual Amount
1997 1996
_______ _______
Commitments to extend credit $57,198 $46,983
Credit card lines 3,019 2,549
Commercial and similar letters of credit 4,789 5,669
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 1997 or 1996, 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,
____________________________________
1997 1996 1995
___________ ___________ ___________
Cash paid during the year for:
Interest $21,142,728 $19,448,694 $18,009,966
Income taxes 3,342,417 2,866,222 2,339,441
NOTE N - FINANCIAL INSTRUMENTS
Disclosures about financial instruments at December 31, 1997 and 1996, 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, 1997 and
1996, the carrying amount of cash and due from banks and short-term
investments was $42,803,352 and $38,719,443, 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, 1997 $185,712,293 $188,759,478
============ ============
December 31, 1996 $167,841,660 $170,801,225
============ ============
Loans
For variable rate loans that reprice frequently and entail no significant
changes in credit terms, 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, 1997 December 31, 1996
____________________ ____________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
_________ _________ _________ _________
Commercial, financial and
agricultural $ 63,720 $ 63,153 $ 64,604 $ 64,940
Real estate - construction 14,867 14,857 13,578 13,696
Real estate - mortgage 232,892 232,440 219,403 220,764
Installment loans to
individuals 77,128 77,157 81,351 81,664
Other 6,203 6,099 7,582 7,529
_________ _________ _________ _________
394,810 393,706 386,518 388,593
Unearned interest (104) (104) (903) (903)
Reserve for loan losses (7,016) - (6,778) -
_________ _________ _________ _________
Net Loans $ 387,690 $ 393,602 $ 378,837 $ 387,690
========= ========= ========= =========
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, 1997 December 31, 1996
__________________________ __________________________
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
____________ ____________ ____________ ____________
Noninterest-
bearing demand $ 74,083,269 $ 74,083,269 $ 71,601,043 $ 71,601,043
Interest-bearing
demand 79,469,515 79,469,515 78,953,909 78,953,909
Savings and
money market
accounts 92,576,984 92,576,984 91,302,843 91,302,843
Time deposits 283,193,967 281,684,820 274,894,588 273,967,972
____________ ____________ ____________ ____________
$529,323,735 $527,814,588 $516,752,383 $515,825,767
============ ============ ============ ============
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, 1997 and 1996, the carrying amounts were
$22,432,187 and $10,732,234, 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, 1997 December 31, 1996
________________________ ________________________
Carrying Estimated Carrying Estimated
Payable To Amount Fair Value Amount Fair Value
______________________ ___________ ___________ ___________ ___________
Federal Home Loan Bank $15,213,402 $14,783,118 $13,299,802 $13,134,983
=========== =========== =========== ===========
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, 1997 and 1996,
these instruments totaled $65,006,000 and $55,201,000, respectively.
NOTE O - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of December 31, 1997 and 1996, and statements of income
and cash flows for the years ended December 31, 1997, 1996 and 1995, of
NBC Capital Corporation (parent company only) are presented below:
BALANCE SHEETS
1997 1996
___________ ___________
Assets
Cash $ 139,132 $ 104,142
Investment in bank subsidiaries 70,619,051 64,869,018
Other assets 2,834,396 2,583,536
___________ ___________
$73,592,579 $67,556,696
=========== ===========
Liabilities and Stockholders' Equity
Other liabilities $ 2,973,977 $ 2,709,332
Stockholders' equity 70,618,602 64,847,364
___________ ___________
$73,592,579 $67,556,696
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
_____________________________________
1997 1996 1995
___________ ___________ ___________
Income
Dividends from NBC $ 3,228,000 $ 2,940,000 $ 2,880,000
Other 28,550 64,715 -
___________ ___________ ___________
3,256,550 3,004,715 2,880,000
Expense 104,066 44,450 89,361
___________ ___________ ___________
Income before income taxes and
equity in undistributed
earnings of subsidiaries 3,152,484 2,960,265 2,790,639
Income tax benefit (expense) 38,814 (7,545) 38,075
___________ ___________ ___________
Income before equity in
undistributed earnings of
subsidiary 3,191,298 2,952,720 2,828,714
Equity in undistributed
earnings of subsidiaries 5,559,943 5,232,160 4,979,181
___________ ___________ ___________
Net income $ 8,751,241 $ 8,184,880 $ 7,807,895
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
_____________________________________
1997 1996 1995
___________ ___________ ___________
Cash Flows From Operating
Activities
Net income $ 8,751,241 $ 8,184,880 $ 7,807,895
Equity in subsidiaries'
earnings in excess of
dividends (5,559,943) (5,232,160) (4,979,181)
Other, net (180,308) (54,922) (366,506)
___________ ___________ ___________
Net cash provided by operating
activities 3,010,990 2,897,798 2,462,208
___________ ___________ ___________
Cash Flows From Financing
Activities
Dividends paid on common stock $(2,976,000) $(2,904,000) $(2,484,000)
___________ ___________ ___________
Net cash used in financing
activities (2,976,000) (2,904,000) (2,484,000)
___________ ___________ ___________
Net increase (decrease) in cash
and cash equivalents 34,990 (6,202) (21,792)
Cash and cash equivalents at
beginning of year 104,142 110,344 132,136
___________ ___________ ___________
Cash and cash equivalents at
end of year $ 139,132 $ 104,142 $ 110,344
=========== =========== ===========
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, 1997.
These were its wholly-owned subsidiaries, Philadelphia Finance
Corporation (inactive at December 31, 1997), NBC Service Corporation,
and Commerce National Insurance Company, which is a 79% owned subsidiary
of NBC Service Corporation.
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,536
<INT-BEARING-DEPOSITS> 320
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 154,354
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<ALLOWANCE> 7,016
<TOTAL-ASSETS> 646,826
<DEPOSITS> 529,324
<SHORT-TERM> 22,432
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<COMMON> 4,800
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