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, 1998
Commission File Number 0-12885
NBC Capital Corporation
(Exact name of registrant as specified in its charter)
Mississippi 64-0694755
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NBC Plaza, Starkville, Mississippi 39759-1187
(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:
$151,350,000
___________________________
(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 - 5,664,736 shares outstanding as
of December 31, 1998.
Documents incorporated by reference -
Form S-4 filed March 30, 1999 - Part III
Annual report to shareholders for 1998 - Parts II and IV
FORM 10K
INDEX
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for the Company's Common Stock and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure Matters
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationship and Related Transactions
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
PART I
ITEM 1 - BUSINESS
NBC Capital Corporation
NBC Capital Corporation (the Company) is a bank holding company which
was organized under the laws of the State of Mississippi. On July 2, 1984,
the Company acquired all of the outstanding common stock of the National
Bank of Commerce (NBC), a national banking corporation. For the year ended
December 31, 1998, the Company's subsidiaries accounted for 100% of the
Company's consolidated income and approximately 99% of its consolidated
expenses.
National Bank of Commerce
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. In
1994, the Company acquired NBC of Tuscaloosa (formerly First State Bank
of Tuscaloosa). On December 31, 1998, the Company acquired all the
outstanding common stock of First National Corporation of West Point
("FNC") in exchange for 864,736 shares of the Company's common stock. The
acquisition was accounted for as a pooling of interest. FNC was merged
into the Company and FNC's wholly-owned subsidiary banks, First National
Bank of West Point and National Bank of the South, were merged into NBC.
Concurrently, the Company's subsidiary, NBC of Tuscaloosa, was merged into
NBC (formerly NBC of Mississippi). As a result of the acquisition and
reorganization, NBC was the resulting financial institution. Also, First
National Finance Company, a wholly-owned finance company subsidiary of FNC
became a wholly-owned subsidiary of the Company.
NBC is the largest commercial bank domiciled in the north central
area of the state known as the Golden Triangle. A total of 28 banking
facilities and an operation/administration center serves the communities
of Aberdeen, Amory, Artesia, Brooksville, Columbus, Hamilton, Maben,
Philadelphia, West Point and Starkville. This area extends into six
Mississippi counties with a radius of approximately 65 miles from the home
office in Starkville. The Bank also serves the Tuscaloosa, Alabama, area
with a main office and 5 branch locations.
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 1998.
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 one year GAP within a tolerance of -5% to 10%
of earning 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 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 1998 and 1997,
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.
First National Finance
First National Finance (Finance), a wholly-owned subsidiary of the
Company, is a finance company that provides lending and financing services
to consumers. It engages in consumer financing, and its loans are of a
smaller amount and a higher interest rate than that of NBC. Its loan
portfolio totaled approximately $1.6 million at December 31, 1998.
Finance is located in West Point, Mississippi. Finance was acquired as
part of the FNC acquisition previously mentioned.
Competition
NBC and its subsidiaries currently serve six counties and ten
municipalities in North Central Mississippi. Over this same area, the
bank competes directly with approximately 15 competing banking
institutions, numerous credit unions, finance companies, brokerage firms,
mortgage companies and insurance companies. The competing banking
institutions range in asset size from approximately $100 million to in
excess of $6 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.
In Tuscaloosa, Alabama, NBC has a main office and five branch
locations. The bank competes with approximately eight other financial
institutions, most of which are larger. The other institutions range in
size from approximately $150 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. In Tuscaloosa, NBC also competes with numerous
credit unions, finance companies, etc., many of which are branches of
nationwide companies.
Supervision and Regulation
The Company and its subsidiary bank 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 NBC. 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, 1998, NBC had
available for payment of dividends to the Company, without prior approval
of its 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 bank. 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 subsidiary's FDIC assessment, trust
services and asset/liability management. At December 31, 1998, the
Tier 1 and total capital ratios, respectively, of the Company
(consolidated) and NBC (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, 1998, the Company's Tier 1 and total capital ratios
were 16.6% and 17.9%, respectively.
Under these guidelines, banks' and bank holding companies' assets
are given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain
off-balance sheet items are given credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight
will apply. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for
first mortgage loans fully secured by residential property and, under
certain circumstances, residential construction loans, both of which
carry a 50% rating. Most investment securities are assigned to the
20% category, except for municipal or state revenue bonds, which have
a 50% rating, and direct obligations of or obligations guaranteed by
the United States Treasury or United States Government agencies, which
have a 0% rating.
The primary supervisory authority of NBC 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 may open branches throughout Mississippi
or Alabama with the prior approval of the OCC. In addition, with prior
regulatory approval, the subsidiary bank is able to acquire existing
banking operations in Mississippi and Alabama. Furthermore, federal
legislation permits interstate branching. The law also 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 allows 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 permitted 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.
A subsidiary bank of a bank holding company is subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiary, 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 subsidiary is a member of the FDIC and its 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.
The Company's common stock is registered with the SEC under the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Consequently, the Company is
subject to the information, proxy solicitation, insider trading, and other
restrictions and requirements of the SEC under the Exchange Act.
Recent Regulatory Developments
Legislation is pending in the Congress that would allow bank
holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance
activities. The expanded powers generally would be available to a bank
holding company only if the bank holding company and its bank subsidiaries
remain well-capitalized and well-managed. Additionally, the legislation is
being considered that would eliminate the federal thrift charter and merge
the FDIC's Bank Insurance Fund ("BIF") and Savings Association Insurance
Fund ("SAIF"). At this time, the Company is unable to predict whether the
proposed legislaton will be enacted and, therefore, is unable to predict
the impact such legislation may have on the operations of the Company and
the Bank.
Governmental Monetary Policies
As a bank chartered under the laws of the United States, NBC is a
member of the Federal Reserve System. Its 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 subsidiary,
NBC, are listed below. The title indicates a position held in the
Company and the bank.
Name and Title Age Five Year Experience
_____________________________ ___ ____________________________________
L. F. Mallory, Jr. 56 Chairman of the Board and Chief
Chairman and Chief Executive Executive Officer, NBC Capital
Officer, NBC Capital Corporation and NBC
Corporation and NBC
Bobby Harper 57 Chairman of Executive Committe, NBC
Chairman of the Executive Capital Corporation and President,
Committee, NBC Capital NBC, Columbus Banking Center
Corporation and Executive
Vice President, Banking
Center Administration, NBC
Hunter M. Gholson 66 Secretary of NBC Capital Corporation
Secretary and NBC
Mark A. Abernathy 42 Executive Vice President and Chief
President and Chief Operating Officer, NBC Capital
Operating Officer, NBC Corporation and NBC. Prior to
Capital Corporation and NBC joining NBC in 1994, he was Consumer
Regional Executive Officer of Nations
Bank, Nashville, Tennessee.
Richard Haston 52 Executive Vice President, CFO, and
Executive Vice President, Treasurer, NBC Capital Corporation,
CFO, and Treasurer, NBC and Executive Vice President and
Capital Corporation and Chief Financial Officer, NBC, since
Executive Vice President October 1, 1996; Executive Vice
and Chief Financial Officer, President and Chief Financial Officer
NBC of Legacy Securities Corp., Memphis,
Tennessee, April, 1996 - September,
1996; President and Chief Financial
Officer of Calibre Financial Group,
Inc., Memphis, Tennessee, June, 1993 -
March, 1996
Tommy M. Tomlinson 51 Executive Vice President and Senior
Vice President, NBC Capital Lender, NBC
Corporation and Executive
Vice President, Credit
Administration, NBC
Clifton B. Fowler 50 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC,
Corporation and President, Starkville Banking Center
NBC, Starkville Banking
Center
Thomas J. Prince, Jr. 57 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC,
Corporation and Executive Aberdeen Banking Center
Vice President, Division
Manager of Consumer Finance,
NBC
John Davis 43 Senior Vice President and Trust
Vice President, NBC Capital Officer, NBC
Corporation and Senior Vice
President and Trust Officer,
NBC
Donald J. Bugea, Jr. 45 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President and Investment
Vice President and Investment Officer, NBC
Officer, NBC
Personnel
At December 31, 1998, NBC had 383 full-time employees. Finance had
3 full-time employees. The Company, Service and CNIC had no employees at
December 31, 1998.
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31,
1998. Finance operates out of a leased office building.
The following listing describes the locations and general character of
the Bank-owned properties:
Approximate
Office Space
Type Location (Square Feet)
______________________________ _________________________ _____________
NBC:
Main Office Starkville, Mississippi 35,000
University Branch Starkville, Mississippi 1,485
Motor Branch Starkville, Mississippi 2,000
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
Westside Branch Philadelphia, Mississippi 3,250
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
Greensboro Branch Tuscaloosa, Alabama 11,000
Highway 69 South Branch Tuscaloosa, Alabama 2,000
Main Office West Point, Mississippi 18,000
Administrative Building West Point, Mississippi 1,200
East Main Branch West Point, Mississippi 1,900
Highway 45 South Branch West Point, Mississippi 1,520
Highway 45 North Branch West Point, Mississippi 825
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, Finance, Service, or CNIC is a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The information titled "Market Information" and contained on
Page 25 of the Company's annual report to shareholders for the year
1998 is incorporated herein by reference in response to this item and
included in this report as Exhibit 13.a.
(b) At December 31, 1998, the Company had approximately 2,274 security
holders.
(c) Dividends on common stock were declared semiannually in June and
December of the years reported and totaled as follows:
December 31,
______________________
1998 1997
__________ __________
Dividends declared, $.69 per share $3,907,242 $ -
Dividends declared, $.63 per share - 3,555,592
__________ __________
$3,907,242 $3,555,592
========== ==========
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on
Page 5 of the Company's annual report to the shareholders for the year
1998 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):
The following table presents, for the years indicated, condensed
daily average balance sheet information.
(In Thousands)
Assets 1998 1997 1996
________ ________ ________
Cash and due from banks $ 28,483 $ 32,056 $ 29,888
Securities:
Taxable 107,872 123,874 126,652
Non-taxable 103,961 76,785 76,208
________ ________ ________
Total securities 211,833 200,659 202,860
Federal funds sold and other
interest-bearing assets 33,272 16,720 7,717
Loans, net of unearned interest 479,817 465,777 431,199
Less reserve for loan losses 8,463 7,756 7,322
________ ________ ________
Net loans 471,354 458,020 423,877
Other assets 26,064 33,391 32,514
________ ________ ________
Total Assets $771,006 $740,846 $696,856
======== ======== ========
(In Thousands)
Liabilities and 1998 1997 1996
Stockholders' Equity ________ ________ ________
Deposits:
Noninterest-bearing $ 85,878 $ 80,486 $ 79,328
Interest-bearing 555,253 534,953 513,022
________ ________ ________
Total deposits 641,131 615,439 592,350
Federal funds purchased and
securities sold under
agreement to repurchase 12,936 14,743 5,236
Borrowed funds 19,649 21,068 15,494
Other liabilities 11,001 9,327 9,660
________ ________ ________
Total liabilities 684,717 660,577 622,740
Stockholders' equity 86,289 80,269 74,116
________ ________ ________
Total Liabilities and
Stockholders' Equity $771,006 $740,846 $696,856
======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of
net interest earnings, including the average amount of interest-
earning assets and interest-bearing liabilities outstanding during
the period, the interest earned or paid on such amounts, the
average yields/rates paid and the net yield on interest-earning
assets:
($ In Thousands)
Average Balance
____________________________
1998 1997 1996
________ ________ ________
EARNING ASSETS
Net loans $471,354 $458,020 $423,878
Federal funds sold and
other interest-bearing
assets 33,272 16,720 7,717
Securities:
Taxable 107,872 123,874 126,652
Nontaxable 103,961 76,785 76,208
________ ________ ________
Totals 716,459 675,399 634,455
________ ________ ________
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 555,253 534,953 513,022
Borrowed funds, federal funds
purchased and securities sold
under agreement to repurchase 33,383 35,811 20,730
________ ________ ________
Totals 588,636 570,764 533,752
________ ________ ________
Net Amounts $127,823 $104,635 $100,703
======== ======== ========
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1998 1997 1996 1998 1997 1996
_______ _______ _______ ____ ____ ____
EARNING ASSETS
Net loans $44,558 $43,792 $39,747 9.45 9.56 9.38
Federal funds sold and
other interest-bearing
assets 1,217 982 478 3.66 5.86 6.12
Securities:
Taxable 5,996 7,933 8,179 5.56 6.40 6.46
Nontaxable 5,620 4,122 4,261 5.41 5.37 5.59
_______ _______ _______ ____ ____ ____
Totals 57,391 56,829 52,665 8.01 8.41 8.30
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1998 1997 1996 1998 1997 1996
_______ _______ _______ ____ ____ ____
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $24,691 $23,822 $22,052 4.45 4.45 4.30
Borrowed funds, federal
funds purchased and
securities sold under
agreement to repurchase 1,822 1,877 1,040 5.46 5.24 5.02
_______ _______ _______ ____ ____ ____
Totals 26,513 25,699 23,092 4.50 4.50 4.33
_______ _______ _______
Net interest income $30,878 $31,130 $29,573
======= ======= =======
Net yield on earning assets 4.31 4.60 4.65
(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)
1998 Over 1997 1997 Over 1996
_______________________ ______________________
Change Due To: Change Due To:
_______________________ ______________________
Total Rate Volume Total Rate Volume
______ _______ ______ ______ ______ ______
EARNING ASSETS
Net loans $ 766 $ (485) $1,251 $4,045 $ 793 $3,252
Federal funds sold and
other interest-bearing
assets 235 (175) 410 488 (8) 496
Securities:
Taxable (1,937) (979) (958) (246) (68) (178)
Nontaxable 1,498 29 1,469 (139) (172) 33
______ _______ ______ ______ ______ ______
Totals $ 562 $(1,610) $2,172 $4,148 $ 545 $3,603
====== ======= ====== ====== ====== ======
(In Thousands) (In Thousands)
1998 Over 1997 1997 Over 1996
______________________ ______________________
Change Due To: Change Due To:
______________________ ______________________
Total Rate Volume Total Rate Volume
______ ______ ______ ______ ______ ______
INTEREST-BEARING
LIABILITIES
Interest-bearing deposits $ 869 $ - $ 869 $1,770 $ 809 $ 961
Interest on borrowed
funds and federal funds
purchased and securities
sold under agreement to
repurchase (55) 86 (141) 837 49 788
______ ______ ______ ______ ______ ______
Totals $ 814 $ 86 $ 728 $2,607 $ 858 $1,749
====== ====== ====== ====== ====== ======
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,
____________________________
1998 1997 1996
________ ________ ________
U. S. Treasury $ 15,987 $ 32,813 $ 32,665
U. S. Government agencies and
mortgage-backed securities 66,341 80,422 78,473
States and political subdivisions 114,786 89,153 76,657
Other 6,765 6,959 6,070
________ ________ ________
Total book value $203,879 $209,347 $193,865
======== ======== ========
B. The following table sets forth the maturities of investment and
mortgage-backed securities (carrying values) at December 31,
1998, and the weighted average yield of such securities:
($ In Thousands)
Weighted Average Yield
______________________________________________
0 - 1 Yield 1 - 5 Yield 5 - 10 Yield
Year (%) Years (%) Years (%)
_______ _____ _______ _____ _______ _____
Securities:
U. S. Treasury $ 3,289 6.4% $10,592 5.2% $ 2,106 5.6%
U. S. Govern-
ment agencies 11,824 5.8% 10,407 6.5% 8,280 6.8%
States and
political
subdivisions 6,848 5.6% 38,068 5.3% 58,701 5.3%
Other 175 6.8% 2,080 6.2% - -
_______ _______ _______
Total $22,136 $61,147 $69,087
======= ======= =======
10+ Yield
Years (%)
_______ _____
U. S. Govern-
ment agencies $ 885 6.9%
States and
political
subdivisions 11,169 6.1%
Other
(including
equity
securities) 4,510 5.9%
_______
Total $16,564
=======
Book Yield
Value (%)
_______ _____
Mortgage-
backed
securities $34,945 5.9%
=======
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.
The majority of mortgage-backed securities are backed by
U. S. agencies.
C. Investment securities in excess of 10% of stockholders' equity.
At December 31, 1998, 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 1998 1997 1996 1995 1994
______________ ________ ________ ________ ________ ________
Commercial,
financial and
agriculture $ 76,389 $ 76,542 $ 74,318 $ 65,958 $ 57,825
Real estate -
construction 24,284 25,341 24,099 16,761 13,434
Real estate -
mortgage 284,566 269,462 249,801 219,536 195,136
Installment
loans to
individuals 93,538 95,912 100,858 99,878 90,436
Other 7,526 7,155 8,813 6,589 5,495
________ ________ ________ ________ ________
Total loans 486,303 474,412 457,889 408,722 362,326
Unearned
interest (1) (317) (1,123) (3,141) (4,780)
________ ________ ________ ________ ________
$486,302 $474,095 $456,766 $405,581 $357,546
======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest
rates:
(In Thousands)
December 31, 1998
____________________________
Maturing or Repricing
____________________________
Within Over
Type 1 Year 1 Year Total
________________________ ________ ________ ________
Commercial, financial
and agricultural $ 43,276 $ 33,113 $ 76,389
Real estate -
construction 13,761 10,523 24,284
Other loans, excluding
real estate - mortgage
and installment loans 2,862 4,664 7,526
________ ________ ________
$ 59,899 $ 48,300 $108,199
======== ======== ========
(In Thousands)
December 31, 1998
____________________________
Maturing or Repricing
____________________________
Within Over
Type 1 Year 1 Year Total
________________________ ________ ________ ________
Loans with: (1)
Predetermined interest
rates $265,991 $ 965 $266,956
Floating interest
rates 171,629 46,791 218,420
________ ________ ________
$437,620 $ 47,756 $485,376
======== ======== ========
(1) Excludes nonaccrual loans of $927.
C. Nonperforming loans
1. The following table states the aggregate amount of loans
which were nonperforming in nature:
(In Thousands)
December 31,
______________________________________
Type 1998 1997 1996 1995 1994
__________________ ______ ______ ______ ______ ______
Loans accounted
for on a
nonaccrual basis $ 927 $2,648 $1,538 $2,142 $1,579
====== ====== ====== ====== ======
Accruing loans
past due 90 days
or more $1,271 $1,077 $1,408 $ 877 $1,232
====== ====== ====== ====== ======
Renegotiated
"troubled" debt $ 298 $ 670 $ 471 $ 390 $ 306
====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total
loans at December 31, 1998. However, lending activities are
affected by the economic trends within the areas served by
the Company and its subsidiaries. This, in turn, can be
influenced by the areas' larger employers, such as
Missisissippi State University, University of Alabama,
Columbus Air Force Base, and the Mercedes-Benz Automotive
Plant.
3. There were no outstanding foreign loans at December 31,
1998.
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 1998, 1997, and 1996.
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, 1998, the recorded investment in loans
identified as impaired totaled approximately $1.8 million.
The allowance for loan losses related to these loans approxi-
mated $1.3 million. The average recorded investment in
impaired loans during the year ended December 31, 1998, was
$1.1 million. Total interest recognized on impaired loans
and the amount recognized on a cash basis were not significant.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets
at December 31, 1998.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. An analysis of the loan loss experience for the periods
indicated is as follows:
($ In Thousands)
December 31,
___________________________________________
1998 1997 1996 1995 1994
_______ _______ _______ _______ _______
Beginning balance $ 7,980 $ 7,526 $ 7,116 $ 6,375 $ 5,125
_______ _______ _______ _______ _______
Charge-offs:
Domestic:
Commercial,
financial and
agricultural (575) (379) (312) (240) (96)
Real estate (451) (145) (114) (130) (244)
Installment
loans and
other (929) (954) (1,223) (516) (476)
_______ _______ _______ _______ _______
Total charge-offs (1,955) (1,478) (1,649) (886) (816)
_______ _______ _______ _______ _______
Recoveries:
Domestic:
Commercial,
financial and
agricultural 124 269 52 56 59
Real estate 76 97 68 53 44
Installment
loans and
other 160 214 262 230 195
_______ _______ _______ _______ _______
Total recoveries 360 580 382 339 298
_______ _______ _______ _______ _______
Net charge-offs (1,595) (898) (1,267) (547) (518)
_______ _______ _______ _______ _______
Reserve of
acquired bank - - - - 494
Reserve of sold
finance company - (125) - - -
Provision charged
to operations 3,187 1,477 1,677 1,288 1,274
_______ _______ _______ _______ _______
Ending balance $ 9,572 $ 7,980 $ 7,526 $ 7,116 $ 6,375
======= ======= ======= ======= =======
Ratio of net
charge-offs to
average loans
outstanding .34 .20 .30 .15 .16
Ratio of reserve
for loan losses
to loans
outstanding at
year end 1.97 1.68 1.65 1.75 1.78
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 originates loans secured by commercial real estate, one-
to-four family residential properties, and multi-family dwelling
units (5 or more units). At December 31, 1998, these loans
totaled $309 million or approximately 60% of the loan portfolio.
NBC originates 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 has
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 originates 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 offers consumer loans in the form of home improvement loans,
mobile home loans, automobile loans and unsecured personal loans.
These loans totaled $77 million or 20% of total loans at
December 31, 1998. Consumer loans are originated in order to
provide a wide range of financial services to customers and
because the terms and normally higher interest rates on such
loans help maintain a profitable spread between the average loan
yield and the cost of funds.
In connection with consumer loan applications, the borrower's
income statement and credit bureau report are reviewed. In
addition, the relationship of the loan to the value of the
collateral is considered. All automobile loan applications
are reviewed, as well as the value of the unit which secured
the loan. NBC intends to continue to emphasize the origination
of consumer loans. Management believes that its loan loss
experience in connection with its consumer loan portfolio is
favorable in comparison to industry averages.
NBC makes commercial business loans on both a secured and
unsecured basis with terms which generally do not exceed five
years. Non-real estate commercial loans primarily consist of
short-term loans for working capital purposes, inventories,
seasonal loans, lines of credit and equipment loans. A personal
guaranty of payment by the principals of any borrowing entity is
often required and the financial statements and income tax returns
of the entity and its guarantors are reviewed. At December 31,
1998, NBC's commercial business loans represented approximately
15% of its total loan portfolio.
D. For the year 1999, losses for all loan categories, as a
percentage of average loans, are expected to approximate that
of 1998.
V. DEPOSITS
($ In Thousands)
1998 1997 1996
______________ ______________ ______________
Amount Rate Amount Rate Amount Rate
________ ____ ________ ____ ________ ____
A. Average
deposits:
Domestic:
Noninterest-
bearing
deposits $ 85,878 - $ 80,486 - $ 79,328 -
Interest-
bearing
demand
deposits (1) 192,848 2.6% 172,901 2.9% 182,696 3.0%
Savings
deposits 29,077 2.3% 32,047 2.2% 34,688 2.2%
Time deposits 333,328 5.7% 330,005 5.5% 295,638 5.4%
Foreign N/A N/A N/A
________ ____ ________ ____ ________ ____
Total $641,131 $615,439 $592,350
======== ======== ========
(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, 1998:
(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 $69,649 $22,748 $12,692 $16,754 $17,455
======= ======= ======= ======= =======
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,
______________________
1998 1997 1996
______ ______ ______
Return on assets (net income divided by
total average assets) 1.1 1.3 1.4
Return on equity (net income divided by
average equity) 9.8 12.4 12.7
Dividend payout ratio (dividends per share
divided by net income per share) 46.0 36.0 34.9
Equity to asset ratio (average equity
divided by average total assets) 11.2 10.8 10.6
VII. SHORT-TERM BORROWINGS
Federal
Funds
Purchased
And
Securities Treasury
Sold Under Tax and
Agreement to Loan Note
Repurchase Payable
____________ ____________
Balance at December 31, 1998 $ 10,463,833 $ 591,817
Weighted average interest rate at
December 31, 1998 4.89% 4.26%
Maximum amount outstanding at any
month end for the year 1998 15,188,036 2,544,408
Average amount outstanding during
the year 1998 12,936,434 1,536,351
Weighted average interest rate during
the year 4.31% 4.88%
VIII. CAPITAL ADEQUACY DATA
Total consolidated capital of the Company was as follows:
($ In Thousands)
December 31,
__________________
1998 1997
________ ________
Total stockholders' equity (excluding
unrealized gain) $ 86,872 $ 82,291
Allowance for loan losses 6,379 6,196
Other components of capital - -
________ ________
Total primary capital 93,251 88,487
Total secondary capital - -
________ ________
Total capital 93,251 88,487
Less intangible assets and other adjustments (2,198) (1,679)
________ ________
Total capital, as defined for regulatory
purposes $ 91,053 $ 86,808
======== ========
Tier 1 and total capital as a percentage of "risk-weighted" assets
at December 31, 1998 and 1997, are as follows:
December 31,
______________
1998 1997
______ ______
Tier 1 capital percentage 16.6% 16.3%
Total capital percentage 17.9% 17.5%
The Company's capital ratios exceed the minimum capital requirements
at December 31, 1998, 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, 1998
______________________________________
Interest Sensitive Within (Cumulative)
______________________________________
Total of
Within Within Within Interest-
3 12 5 Earning
Months Months Years Assets
________ ________ ________ ________
Interest-earning assets:
Loans $201,122 $437,620 $478,207 $486,302
Investment and
mortgage-backed
securities 18,107 43,634 168,393 203,879
Federal funds sold
and other 26,460 26,460 26,460 26,460
________ ________ ________ ________
Totals $245,689 $507,714 $673,060 $716,641
======== ======== ======== ========
Interest-bearing
liabilities:
Deposits and
borrowed funds $165,809 $520,440 $585,583 $586,438
======== ======== ======== ========
Sensitivity gap:
Dollar amount $ 79,880 $(12,726) $ 87,477
Percent of total
interest-earning
assets 23.1% (1.8%) 12.2%
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, 1998, 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
$12.7 million (cumulative), representing a negative cumulative one
year gap of 1.8% 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 22 - 25 of the Company's 1998
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 6 - 21 of the Company's 1998 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 NBC
Directors" and "Executive Compensation," of Form S-4, filed March 30, 1999,
which is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" of Form S-4,
filed March 30, 1999,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," of the Company's Form S-4 filed
March 30, 1999, which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to, "Certain Relationships and Related Transactions"
of the Company's Form S-4 filed March 30, 1999, 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, 1998 and 1997, together with the report of T. E.
Lott & Company, independent accountants, dated January 27, 1999
(Except for Note R, as to which the date is February 3, 1999),
appearing on Pages 6 - 21 of the 1998 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:
(Incorporated by reference to Exhibit B to NBC
Capital Corporation's Definitive Proxy Statement,
dated March 20, 1998.)
By-Laws:
(Incorporated by reference to Exhibit 3(b) of
Form S-4/A, filed November 4, 1998.)
4. - 9. None
10.1 Definitive Agreement and Plan of Reorganization and
Merger by and between NBC Capital Corporation and First
National Corporation of West Point dated as of July 24,
1998 (incorporated by reference to Exhibit 2.1 of
Form 8-K filed January 15, 1999).
Employment Agreement dated January 31, 1991, between
National Bank of Commerce and L. F. Mallory, Jr., as
previously filed.
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 25 of the
annual report to stockholders.
13.b. Selected Financial Data - Page 5 of the annual report
to stockholders.
13.c. Management's discussion and analysis of financial
condition and results of operations - Pages 22 - 25 of
the annual report to stockholders.
13.d. Consolidated financial statements - Pages 6 - 21 of
the annual report to stockholders.
14. - 20. None
21. Subsidiaries of Company
27. Financial Data Schedule (Electronic Filing Only) -
years ended December 31, 1998, 1997, and 1996
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
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
Executive Vice President, CFO, and
Treasurer (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/ David Byars /S/ Mark A. Abernathy
_________________________________ _______________________________
(Director) (Director)
/S/ Sammy J. Smith /S/ Henry S. Weiss
_________________________________ _______________________________
(Director) (Director)
/S/ James C. Galloway, Jr. /S/ Clifton B. Fowler
_________________________________ _______________________________
(Director) (Director)
/S/ H. Stokes Smith /S/ Bobby L. Harper
_________________________________ _______________________________
(Director) (Director)
/S/ Robert L. Calvert, III /S/ Thomas J. Prince
_________________________________ _______________________________
(Director) (Director)
/S/ Ralph E. Pogue /S/ Robert S. Jones
_________________________________ _______________________________
(Director) (Director)
/S/ Edith D. Millsaps /S/ Allen Puckett, III
_________________________________ _______________________________
(Director) (Director)
Date: March 26, 1999
EXHIBIT 13.a.
MARKET INFORMATION
Historically, the Company's common stock has traded primarily in Monroe,
Lowndes, Clay, Oktibbeha, Neshoba and Noxubee Counties in Mississippi and
Tuscaloosa County in Alabama. Market prices were the estimates of
management based on the transactions of which they had knowledge.
Effective October 1, 1998, the Company outsourced its stock transfer
activity to SunTrust Bank, Atlanta. Also, as of that date, the Company
designated two brokerage firms as Market Makers for its common stock.
Currently, the stock is traded in the NASDAQ Inter-Dealer Market under the
symbol NBCA. Quarterly high and low sales prices are not available, except
for the fourth quarter of 1998 when the price ranged from a low of $37 per
share to a high of $39.75 per share. On an annual basis, the stock traded
in a range between $23.75 and $32.00 during 1997, and $32.00 and $39.75
during 1998. Dividends were declared semi-annually in June and December of
each of the years reported.
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
____________ ____________ ____________ ____________ ____________
INCOME DATA
Interest and fees on
loans $ 44,557,755 $ 43,791,813 $ 39,747,322 $ 35,675,640 $ 28,138,802
Interest and dividends
on investment securi-
ties 11,615,578 12,055,346 12,439,923 13,551,509 12,949,135
Other interest income 1,217,475 980,986 477,850 616,142 379,203
____________ ____________ ____________ ____________ ____________
Total interest income 57,390,808 56,828,145 52,665,095 49,843,291 41,467,140
Interest expense 26,513,182 25,698,623 23,092,563 22,120,922 15,567,725
____________ ____________ ____________ ____________ ____________
Net interest income 30,877,626 31,129,522 29,572,532 27,722,369 25,899,415
Provision for loan
losses 3,187,261 1,477,466 1,676,801 1,288,450 1,274,024
____________ ____________ ____________ ____________ ____________
Net interest income
after provision for
loan losses 27,690,365 29,652,056 27,895,731 26,433,919 24,625,391
Service charges on
deposit accounts 4,403,245 4,355,118 4,146,179 3,778,455 3,748,161
Other income 4,434,481 3,422,029 3,181,035 2,679,356 2,526,380
____________ ____________ ____________ ____________ ____________
Total non-interest
income 8,837,726 7,777,147 7,327,214 6,457,811 6,274,541
____________ ____________ ____________ ____________ ____________
Salaries and employee
benefits 14,176,843 13,161,603 12,671,463 11,953,088 11,004,917
Occupancy and
equipment expense 3,562,507 3,376,790 2,971,382 2,914,659 2,598,590
Other expenses 8,316,324 7,229,930 7,018,543 6,556,831 6,529,188
____________ ____________ ____________ ____________ ____________
Total non-interest
expense 26,055,674 23,768,323 22,661,388 21,424,578 20,132,695
____________ ____________ ____________ ____________ ____________
Income before income
taxes 10,472,417 13,660,880 12,561,557 11,467,152 10,767,237
Income taxes 1,978,707 3,742,580 3,141,273 2,691,980 2,611,885
____________ ____________ ____________ ____________ ____________
Net income $ 8,493,710 $ 9,918,300 $ 9,420,284 $ 8,775,172 $ 8,155,352
============ ============ ============ ============ ============
PER SHARE DATA
Net income $1.50 $1.75 $1.66 $1.55 $1.44
Dividends .69 .63 .58 .57 .49
FINANCIAL DATA
Shares outstanding 5,664,736 5,664,736 5,664,736 5,664,736 5,664,736
Total assets $777,032,491 $762,531,227 $720,006,137 $673,706,870 $630,979,544
Net loans 476,730,469 466,115,033 449,241,672 399,161,270 351,826,645
Total deposits 651,214,587 626,295,180 605,777,096 578,922,637 528,481,117
Total stockholders'
equity 88,293,867 82,904,140 76,709,025 71,522,345 60,775,788
(1) Financial data includes accounts of pooled acquisition for all years
presented.
(2) Per share and common stock data has been adjusted retroactively for
stock splits.
(3) Merger-related expenses amounted to $1,844,677 after tax in 1998.
</TABLE>
EXHIBIT 13.c.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NBC Capital Corporation
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial condition.
This discussion should be read in conjunction with the consolidated
financial statements and the supplemental financial data included elsewhere
in this report, including the five-year summary of Selected Financial Data
and management's letter to shareholders at the beginning of this Annual
Report.
Certain information included in this discussion contains forward-looking
statements and information that are based on Management's conclusions,
drawn from certain assumptions and information currently available to
Management. The Private Securities Litigation Act of 1995 encourages the
disclosure of forward-looking information by Management by providing safe
harbor for such information. Specifically, this discussion contains
forward-looking statements with respect to the adequacy of the Allowance
for Loan Losses, Year 2000 compliance issues and market and credit risk
disclosures. Although management believes that the expectations reflected
in such forward-looking statements are reasonable and based on Management's
best judgements, it can give no assurance that such expectations will prove
to be correct. Such forward-looking statements are subject to certain risk
that assumptions will change and uncertainties will materialize. Should
this happen, then underlying assumptions may prove to be significantly
different and actual results may vary materially from those anticipated or
projected.
BUSINESS COMBINATIONS
On December 31, 1998, the Company ("NBC") acquired all the outstanding
common stock of First National Corporation of West Point ("FNC") in
exchange for 864,736 shares of NBC's common stock. The acquisition was
accounted for as a pooling of interest and accordingly, all prior financial
statements have been restated to include the consolidated accounts and
consolidated operations of FNC and its subsidiaries from the beginning of
the earliest period reported. See Note B to the Consolidated Financial
Statements for additional information.
Merger related expenses associated with the FNC acquisition of $2,930,054
($1,844,677 after tax) are included in the consolidated statement of income
for the year ended December 31, 1998. This impacted 1998 earnings per
share by approximately $.33 per share.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since 1994, the total assets of the company have increased 23.1%. Loans
have increased 35.5% between 1994 and 1998. Loan growth has continued in
each of the years noted in the summary of Selected Financial Data; however,
it has slowed during the last two years because of the increased
competition for good quality credits. The quality of the portfolio
remains excellent. Net charge-offs for 1997 and 1998, were .19% and .33% of
net loans outstanding, respectively.
Deposits have grown 23.2% over the period 1994-1998. During 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. In 1998, Management felt that slowing deposit growth and funding
loan growth by reallocating lower yielding assets could enhance
profitability. However, with the slow down in loan growth resulting from
the increased competition for good quality credits, deposits actually grew
more than loans.
Stockholders' equity has represented a consistent strength of the company
throughout the years noted in the summary of Selected Financial Data.
Stockholders' equity has increased 45.3% since 1994. Stockholders' equity
reflected an Accumulated Other Comprehensive Income composed of unrealized
gain on "Available-for-Sale Securities" of $613,132 and $1,422,157 in 1997
and 1998, respectively, as required to be reported under FASB 115.
Net income increased each year from 1994 through 1997. In 1998,
consolidated net income declined by $1,424,590. However, as mentioned
previously in this discussion, 1998 contains $1,844,677 of merger related
expenses (net of taxes) associated with the acquisition of FNC. Return on
average assets (ROA), a primary measure of earning strength, was 1.3% and
1.1% in 1997 and 1998, respectively. Earnings per share have also grown
from $1.44 in 1994 to $1.75 in 1997. In 1998, earnings per share was $1.50,
after being impacted by approximately $.33 for the above mentioned merger
expenses. All earnings per share amounts have been restated to reflect
the 1997 stock split and the 1998 merger with FNC.
Regular cash dividends have increased in each of the years outlined in the
summary of Selected Financial Data. Also, a special cash dividend of
approximately $.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 and the 1998 merger with FNC.
Net interest income ("NII"), the primary source of earnings for the
company, represents income generated from earning assets less the interest
expense of funding those assets. NII increased 7.0% in 1995, 6.7% in 1996
and 5.3% in 1997. In 1998, NII declined by 0.9%. Changes in NII may be
divided into two components; first, the change in average earning assets
(volume component) and second, 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. Net interest
margin for 1998 decreased to 4.19% from 4.45% in 1997. The primary reason
for this decline was a decrease in loan yields that resulted from an
overall decline in interest rates in 1998 and increased competition for
good quality loans. Also, deposit cost did not decrease by a corresponding
amount because of the competition in the market from other banks and from
the investment community. These factors were partially offset by the
growth in average earning assets of $33.2 million or 4.9% during 1998.
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 1998, the company's balance sheet reflected
approximately $12.7 million more in rate sensitive liabilities than assets
that were scheduled to reprice within one year. This represents 2.2% of
total assets and 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 1999 with a slight bias toward higher
rates during the second half of the year. Management has never felt that
speculating on changes in interest rate levels warranted moving the company
from a neutral position in its rate sensitive asset/liability
relationships. Although earnings could be enhanced if predictions were
correct, they could also be put at significant risk if a neutral position
is deliberately avoided and interest rates move against predictions.
The company's Provision for Loan Losses is utilized to replenish its
Reserve for Loan Losses on its balance sheet. The reserve is maintained at
a level deemed adequate by the Board of Directors after its evaluation of
the risk exposure contained in the company's loan portfolio. The reserve
amount maintained at the end of 1998 was deemed entirely adequate to cover
exposure within the company's loan portfolio. The reserve has increased
34.5% since 1995 and stood at 2.0% of net loans at the end of 1998.
Non-interest income includes various service charges, fees, and commissions
collected by the company. During 1998, non-interest income increased by
13.6%. This increase was due to an increase in Trust Department Income of
17.9% resulting from an overall growth in trust-related activities and a
99.2% increase in mortgage loan fee income. This increase resulted from a
very favorable interest rate environment that increased both the number of
new home purchases and the refinancing of existing mortgages. 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. 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.
Non-interest expense represents ordinary overhead expenses, including
salaries, bonuses and benefits. 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. Overall non-interest expense increased in 1998
by approximately 9.6%. Of this increase, salaries accounted for
approximately 4.1% and other expenses accounted for approximately 4.6%.
The increase in salaries resulted from normal raises, positions added to
accommodate the Company's growth and from salaries and bonuses paid that
related to the merger with FNC. Of the total increase in other expenses,
approximately 80% were related to merger expenses incurred in connection
with the acquisition of FNC.
Changes in the company's income tax expense have generally paralleled
income gains. The company's effective tax rate was 25.0% in 1996, 27.4% in
1997 and 18.9% in 1998. The large decline in the effective rate in 1998 was
the result of a management decision to add high quality, tax-free municipal
bonds to the portfolio in an effort to minimize tax liabilities. The
company's ability to further 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.
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 generally allowed it to consistently generate
sufficient funds for liquidity needs. The company's loan/deposit ratio has
remained steady during the last two years, closing 1997 at 75.7% and 1998
at 74.7%. The Consolidated Statements of Cash Flows clearly indicated that
the company has consistently generated sufficient liquidity from
traditional sources to take care of its needs and actually increase cash
and cash equivalents from $42 million at the end of 1996 to $54 million at
the end of 1998. The company has utilized the Federal Home Loan Bank as a
source of funding for fixed rate, term loan commitments. At the end of
1998, the company had $14.6 million outstanding to the Federal Home Loan
Bank 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 offers
repurchase agreements to accommodate excess funds of some of its larger
depositors. Management believes that it is 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 $10.5 million and $20 million at
December 31, 1998, and 1997, respectively. The level of repurchase
agreement activity is limited by the availability of investment 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.
CAPITAL
Retained earnings have served as the company's exclusive source of capital
growth over the five years noted in the summary of Selected Financial Data.
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 1998, NBC
maintained an 11.0% 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 1998, the company had a Tier 1 ratio of 16.6% and a total
risk-based capital ratio of 17.9%, once again placing the company well
above the level required for a "well-capitalized" institution.
The company's capital position obviously exceeds regulatory requirements,
even for "well-capitalized" institutions. Capital has increased 45.3% since
1994 to total 11.4% of assets at the end of 1998. 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 can not be funded from normal liquidity.
YEAR 2000 COMPLIANCE
During 1998, the Company has continued its efforts to prepare for January
1, 2000. All levels of the Company's management and its Board of Directors
are aware of the seriousness of this issue and the effects it may have on
the Company and its customers. The Company has a Year 2000 Steering
Committee under the leadership of the President and Chief Operating Officer
to guide it through its action plan for compliance. The committee has been
organized into three major areas, with a senior officer directly
responsible for each of the respective areas. The committee reports
monthly to the Board of Directors.
The first major area of risk relates to the Company's internal hardware and
software programs. The Company does not write its source programming code
and therefore is dependent upon external vendors and service providers.
The Company developed a plan for testing all these systems and began the
testing process during 1998. As of December 31,1998, the testing phase was
approximately 95% completed. Management considers the testing to have been
successful. Where problems have been found, steps have been taken to make
the appropriate corrections. At this time, the testing of two mission
critical systems have not been completed. These tests were delayed past
the initial deadline because of scheduling issues with the respective
vendors. These tests are scheduled to be completed by April 30, 1999.
The second major area relates to external factors involving customers,
vendors and outside service providers. The risks associated with this
issue go beyond the Company's own ability to solve Year 2000 problems.
Should significant commercial customers fail to address these issues
effectively, their ability to meet debt service requirement could be
impaired resulting in increased credit risk and increased loan charge-offs.
Should suppliers of critical services fail in their efforts to become Year
2000 compliant, or if significant third party interfaces fail to be
compatible with the Company or fail to be Year 2000 compliant, it could
have significant adverse affects on the operations and financial results of
the Company. The Company has identified its major commercial customers and
developed plans for educating and monitoring, on an individual account
basis, the adequacy of the customers actions to address the Year 2000
issues. The assessment of these customers was risk rated and is being used
as a factor in analyzing the allowance for loan losses. This assessment
has also become a part of the overall credit underwriting process.
Currently, management believes that the reserve for loan losses is adequate
to cover the identified risk in the loan portfolio related specifically to
this issue. However, this will be an on-going evaluation and this
situation could change as the Company moves through 1999.
As vendors of critical services and products were reviewed, management
attempted to prioritize these product and services and to determine the
worst case scenarios, assuming that these parties are unable to provide
normal services. Management is currently in process of preparing
contingency plans to cover these scenarios. These plans will be tested, if
possible, during 1999. All contingency plans and procedures are due to be
completed in March 31, 1999.
Both internal and external resources are being utilized to address the Year
2000 problem. A budget of $1.8 million has been completed and approved by
the Board of Directors. Approximately 60% of this total will be from the
allocation of the salary and benefits of current employees assigned to work
on this project. Another 4% will be spent on items that will be
capitalized and amortized or depreciated over future periods. During 1998,
the company incurred approximately $276,000 in both allocated and direct
expenses relating to Year 2000. The remaining portion of the budget is
expected to be spent during 1999 and has been incorporated into the overall
company budget. This expenditure is not expected to have a material impact
on the financial performance of the Company.
Year 2000 cost and the date on which the Year 2000 modifications are
expected to be completed are based on management's estimates, which were
derived utilizing numerous assumptions of future events including the
availability of certain resources, third party modifications and other
factors. Although Management believes that the desired results will be
attained, there are no guarantees that these estimates will be achieved and
actual results could differ materially from planned results.
EXHIBIT 13.d.
CONSOLIDATED FINANCIAL STATEMENTS
NBC CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
DECEMBER 31, 1998 AND 1997
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, 1998 and 1997, 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,
1998. 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, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/S/ T. E. LOTT & COMPANY
Columbus, Mississippi
January 27, 1999 (Except for Note R,
as to which the date is February 3, 1999)
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1997
ASSETS 1998 (Note B)
____________ ____________
Cash and due from banks (Note L) $ 27,872,990 $ 28,386,410
Interest-bearing deposits with banks 232,974 398,518
Federal funds sold 26,227,547 21,747,814
Total cash and cash equivalents 54,333,511 50,532,742
Securities available-for-sale (Note D) 172,723,122 177,989,430
Securities held-to-maturity (Note D)
(estimated fair value of $34,444,212
in 1998 and $34,405,023 in 1997) 31,155,694 31,357,838
Total securities 203,878,816 209,347,268
Loans (Note E) 486,302,137 474,094,821
Less allowances for loan losses 9,571,668 7,979,788
Net loans 476,730,469 466,115,033
Interest receivable 8,122,914 7,561,269
Premises and equipment (Note F) 15,020,558 15,954,364
Intangible assets 3,517,734 3,849,408
Other assets 15,428,489 9,171,143
____________ ____________
$777,032,491 $762,531,227
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 91,289,898 $ 82,898,313
Interest-bearing deposits, $100,000 or more 69,649,206 81,714,919
Other interest-bearing deposits 490,275,483 461,681,948
____________ ____________
Total deposits 651,214,587 626,295,180
Interest payable 2,673,902 3,121,466
Federal funds purchased and securities
sold under repurchase agreements (Note G) 10,463,833 20,021,209
Other borrowed funds (Note G) 16,048,387 23,068,701
Other liabilities 8,337,915 7,120,531
Total liabilities 688,738,624 679,627,087
____________ ____________
Commitments and contingent liabilities (Note M)
Stockholders' equity (Notes B, C and L):
Common stock - $1 par value, authorized
10,000,000 shares in 1998 and 1997;
issued and outstanding 5,664,736 shares
in 1998 and 1997 5,664,736 5,664,736
Surplus 38,461,098 38,466,864
Undivided profits 42,745,876 38,159,408
Accumulated other comprehensive income (Note H) 1,422,157 613,132
____________ ____________
88,293,867 82,904,140
____________ ____________
$777,032,491 $762,531,227
============ ============
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1997 1996
1998 (Note B) (Note B)
___________ ___________ ___________
INTEREST INCOME
Interest and fees on loans $44,557,755 $43,791,813 $39,747,322
Interest and dividends on
securities:
Taxable interest and dividends 5,995,992 7,933,494 8,179,238
Tax-exempt interest 5,619,586 4,121,852 4,260,685
Other 1,217,475 980,986 477,850
___________ ___________ ___________
57,390,808 56,828,145 52,665,095
___________ ___________ ___________
INTEREST EXPENSE
Interest on time deposits of
$100,000 or more 4,428,717 4,535,668 4,295,731
Interest on other deposits 20,262,776 19,286,281 17,756,427
Interest on borrowed funds 1,821,689 1,876,674 1,040,405
___________ ___________ ___________
26,513,182 25,698,623 23,092,563
Net interest income 30,877,626 31,129,522 29,572,532
Provision for loan losses (Note E) 3,187,261 1,477,466 1,676,801
Net interest income after provision
for loan losses 27,690,365 29,652,056 27,895,731
OTHER INCOME
Service charges on deposit accounts 4,403,245 4,355,118 4,146,179
Other service charges and fees 2,085,599 1,790,657 1,921,276
Trust Department income 1,251,412 1,061,554 937,619
Securities (losses) gains, net 109,940 (51,051) 71,023
Other 987,530 620,869 251,117
___________ ___________ ___________
8,837,726 7,777,147 7,327,214
OTHER EXPENSE
Salaries 11,967,829 11,002,759 10,506,214
Employee benefits (Note J) 2,209,014 2,158,844 2,165,249
Net occupancy expense 1,829,694 1,782,436 1,699,585
Furniture and equipment expense 1,732,813 1,594,354 1,271,797
Other 8,316,324 7,229,930 7,018,543
___________ ___________ ___________
26,055,674 23,768,323 22,661,388
___________ ___________ ___________
Income before income taxes 10,472,417 13,660,880 12,561,557
Income taxes (Note I) 1,978,707 3,742,580 3,141,273
___________ ___________ ___________
Net income $ 8,493,710 $ 9,918,300 $ 9,420,284
=========== =========== ===========
Basic and diluted income per share $1.50 $1.75 $1.66
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other
Compre- Compre-
hensive Common Undivided hensive
Income Stock Surplus Profits Income Total
___________ ___________ ___________ ___________ ___________ ___________
Balance, December 31,
1995, as previously
reported $ 1,200,000 $33,002,133 $25,163,899 $ 906,236 $60,272,268
Stock split in 1997
effected in the
form of a stock
dividend 3,600,000 - (3,600,000) - -
Equity from acquisi-
tion accounted
for as a pooling
of interests
(Note B) 864,736 5,464,731 4,123,186 372,194 10,824,847
___________ ___________ ___________ ___________ ___________ ___________
Balance, December 31,
1995, as restated 5,664,736 38,466,864 25,687,085 1,278,430 71,097,115
Comprehensive income:
Net income for 1996 $ 9,420,284 - - 9,420,284 - 9,420,284
Net change in
unrealized gains
(losses) on
securities avail-
able-for-sale, net
of tax (922,935) - - - (922,935) (922,935)
___________
Comprehensive income $ 8,497,349
===========
Cash dividends
declared, $.58 per
share - - (3,310,669) - (3,310,669)
___________ ___________ ___________ ___________ ___________ __________
Balance, December 31,
1996 5,664,736 38,466,864 31,796,700 355,495 76,283,795
Comprehensive income:
Net income for 1997 $ 9,918,300 - - 9,918,300 - 9,918,300
Net change in
unrealized gains
(losses) on
securities avail-
able-for-sale, net
of tax 257,637 - - - 257,637 257,637
___________
Comprehensive income $10,175,937
===========
Cash dividends
declared, $.63 per
share - - (3,555,592) - (3,555,592)
___________ ___________ ___________ ___________ ___________
Balance, December 31,
1997 5,664,736 38,466,864 38,159,408 613,132 82,904,140
Comprehensive income:
Net income for 1998 $ 8,493,710 - - 8,493,710 - 8,493,710
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax 809,025 - - - 809,025 809,025
___________
Comprehensive income $ 9,302,735
===========
Purchase of fractional
shares - (5,766) - - (5,766)
Cash dividends
declared, $.69
per share - - (3,907,242) - (3,907,242)
___________ ___________ ___________ ___________ ___________
Balance, December 31,
1998 $ 5,664,736 $38,461,098 $42,745,876 $ 1,422,157 $88,293,867
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
(Note B) (Note B)
____________ ____________ ____________
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 8,493,710 $ 9,918,300 $ 9,420,284
Adjustments to reconcile net
income to net cash:
Depreciation and amortization 2,206,421 2,022,903 1,768,321
Deferred income taxes (credits) (1,304,053) (228,159) (98,365)
Provision for loan losses 3,187,261 1,477,466 1,676,801
FHLB stock dividend (123,900) (138,800) (125,700)
Losses (gains) on sale of
securities (109,940) 51,051 (71,023)
Deferred credits (80,193) (122,650) (109,119)
Increase in interest receivable (561,645) (607,491) (135,586)
Increase in other assets (5,522,168) (1,349,092) (1,426,410)
Increase (decrease) in interest
payable (447,564) 326,897 (120,831)
Increase (decrease) in other
liabilities 887,208 46,340 (224,556)
____________ ____________ ____________
Net cash provided by operating
activities 6,625,137 11,396,765 10,553,816
____________ ____________ ____________
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of securities
available-for-sale (85,173,809) (63,705,612) (33,526,468)
Proceeds from sales of
securities available-for-sale 29,199,636 9,843,386 8,722,708
Proceeds from maturities and
calls of securities
available-for-sale 62,702,758 38,543,233 41,190,756
Proceeds from maturities and
calls of securities
held-to-maturity 202,144 315,458 399,869
Increase in loans (13,722,504) (18,228,177) (52,345,274)
Additions to premises and
equipment (765,037) (1,928,019) (2,226,619)
____________ ____________ ____________
Net cash used in investing
activities (7,556,812) (35,159,731) (37,785,028)
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in deposits 24,919,407 20,518,084 26,854,459
Dividends paid on common stock (3,609,273) (3,164,186) (3,274,669)
Net increase (decrease) in
borrowed funds (16,577,690) 15,045,603 14,569,123
Other - (425,230) -
____________ ____________ ____________
Net cash provided by financing
activities 4,732,444 31,974,271 38,148,913
____________ ____________ ____________
Net increase in cash and cash
equivalents 3,800,769 8,211,305 10,917,701
Cash and cash equivalents at
beginning of year 50,532,742 42,321,437 31,403,736
____________ ____________ ____________
Cash and cash equivalents at
end of year $ 54,333,511 $ 50,532,742 $ 42,321,437
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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
National Bank of Commerce (NBC), a wholly-owned subsidiary of the
Corporation,
First National Finance Company, a wholly-owned subsidiary of the
Corporation,
NBC Service 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.
2. Nature of Operations
The Corporation is a bank holding company. Its primary asset is its
investment in its subsidiary bank. NBC provides full banking services,
including trust services. The bank operates under a national bank charter
and is 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 ten communities and the Tuscaloosa, Alabama
area. The primary asset of NBC Service Corporation is its investment in
Commerce National Insurance Company, a life insurance company. First
National Finance Company is a finance company located in West Point,
Mississippi.
3. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
4. Securities
Investments in securities are classified into three categories and are
accounted for as follows:
Securities Available-for-Sale
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 as accumulated other comprehensive
income, net of tax, until realized. Premiums and discounts are recognized
in interest income using the interest method.
Gains and losses on the sale of securities available-for-sale are
determined using the adjusted cost of the specific security sold.
Securities 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, 1998 and 1997.
5. Loans
Loans are carried at the principal amount outstanding. Interest income on
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. Allowance 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 allowance at an adequate level, considering past loan loss
experience, current economic conditions, the value of any underlying
collateral, credit reviews of the loan portfolio, changes in the size and
character of the loan portfolio and other factors warranting consideration.
Allowances for any impaired loans are generally determined based on
collateral values. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is
unlikely. The allowance 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 allowance 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 $331,673 for 1998,
$310,148 for 1997, and $309,545 for 1996.
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, allowance 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 bank.
12. Employee Benefits
NBC maintains 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 Financial Accounting
Standards Board (FASB) Statement No. 87, "Employers' Accounting for
Pensions."
NBC provides a deferred compensation arrangement (401(k) plan) whereby
employees contribute a percentage of their compensation. For employee
contributions of five percent or less, NBC contributes matching
contributions of twenty-five percent of the employee's contribution to the
plan. Beginning in 1998, NBC made 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 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."
The Corporation and its subsidiary bank have various deferred income and
supplemental retirement plans for certain directors and key executive and
senior officers. Life insurance contracts have been purchased which may be
used to fund payments under the plans. The estimated present value of the
projected payments under the plans is being accrued to expense over the
remaining expected term of each participant's active employment.
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 as an adjustment
to salaries.
13. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks, interest-bearing deposits with
banks, and federal funds sold. Generally, federal funds are sold for one
to seven day periods.
14. Common Stock and Per Share Data
The computation of per share data is based on 5,664,736 shares outstanding
during each year. In February, 1997, the FASB issued Statement No. 128,
"Earnings Per Share." Under Statement No. 128, two earnings per share
(EPS) amounts are to be considered and presented. 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 dilutive common stock outstanding.
Common stock and per share data have been adjusted for all periods
presented for the 1997 four-for-one stock split effected in the form of a
300% stock dividend.
15. Off-Balance Sheet Financial Instruments
In the ordinary course of business, NBC enters 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. 131, "Disclosures about
Segments of an Enterprise and Related Information." Among other things,
Statement No. 131 requires public companies to report (i) certain financial
and descriptive information about their reportable operating segments (as
defined), and (ii) certain enterprise-wide financial information about
products and services, geographic areas and major customers. The required
segment financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets in annual and interim
financial statements. Management believes that the Corporation and its
subsidiary operate under one segment, commercial banking, and additional
disclosure is not required.
In February, 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." Statement
No. 132 standardizes disclosure requirements for pensions and other
postretirement benefits. The Corporation adopted Statement No. 132 in 1998
and applied its requirements retroactively. Statement No. 132 does not
change the recognition or measurement of pensions and other postretirement
benefits and, therefore, its adoption had no effect on the Corporation's
consolidated condition or consolidated results of operations.
In June, 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and for Hedging Activities." Statement No. 133
requires all derivatives to be recorded on the balance sheet at fair value.
Statement No. 133 is effective for fiscal periods beginning after June 15,
1999, and is not expected to have a material effect on the Corporation's
consolidated financial statements.
NOTE B - ACQUISITION AND REORGANIZATION
On December 31, 1998, the Corporation acquired all of the outstanding
common stock of First National Corporation of West Point ("First National")
in exchange for 864,736 shares of the Corporation's common stock and a
nominal amount of cash in lieu of fractional shares. Immediately following
the merger, First National's wholly-owned subsidiaries, First National Bank
of West Point and National Bank of the South were merged into NBC of
Mississippi and NBC of Tuscaloosa, respectively. Concurrently, the
Corporation's subsidiary, NBC of Tuscaloosa, was merged into NBC of
Mississippi. NBC of Mississippi was the surviving institution and its name
changed to NBC. First National Finance Company, a wholly-owned finance
company subsidiary of First National, became a wholly-owned subsidiary of
the Corporation. The acquisition of First National and its subsidiaries
has been accounted for as a pooling of interests and, accordingly, all
prior financial statements have been restated to include the consolidated
accounts and consolidated operations of First National and its
subsidiaries. The effect of the pooling of interests on reported
operations follows:
First
National
Corporation
NBC Capital Of Currently
Corporation West Point Reported
___________ ___________ ___________
1998:
Net interest income $25,474,495 $ 5,403,131 $30,877,626
Provision for loan losses 1,040,000 2,147,261 3,187,261
Other income 8,294,897 542,829 8,837,726
Other expense 20,827,115 5,228,559 26,055,674
Net income (loss) 9,256,680 (762,970) 8,493,710
1997:
Net interest income $25,703,891 $ 5,425,631 $31,129,522
Provision for loan losses 1,100,000 377,466 1,477,466
Other income 7,157,498 619,649 7,777,147
Other expense 19,720,708 4,047,615 23,768,323
Net income 8,751,241 1,167,059 9,918,300
1996:
Net interest income $24,536,796 $ 5,035,736 $29,572,532
Provision for loan losses 1,314,000 362,801 1,676,801
Other income 6,640,738 686,476 7,327,214
Other expense 18,970,936 3,690,452 22,661,388
Net income 8,184,880 1,235,404 9,420,284
Merger-related expenses associated with the First National acquisition of
$2,930,054 ($1,844,677 after tax) are included in the consolidated
statement of income for the year ended December 31, 1998.
NOTE C - STOCK SPLIT
At a meeting of the shareholders on October 14, 1997, the authorized
shares of common stock of the Corporation were increased from 3,000,000 to
10,000,000 in connection with the 1997 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 common
stock, per share, and related data have been retroactively adjusted to
give effect to the transaction.
NOTE D - SECURITIES
A summary of amortized cost and estimated fair value of securities
available-for-sale and securities held-to-maturity at December 31, 1998 and
1997, follows:
December 31, 1998
__________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________ __________ __________ ____________
Securities available-
for-sale:
U. S. Treasury
securities $ 15,813,389 $ 173,281 $ - $ 15,986,670
Obligations of
other U.S.
Government agencies 31,130,595 281,025 15,982 31,395,638
Obligations of
states and
municipal
subdivisions 82,130,001 1,547,933 48,102 83,629,832
Mortgage-backed
securities 34,704,828 327,464 86,833 34,945,459
Equity securities 4,239,600 - - 4,239,600
Other securities 2,547,597 37,279 58,953 2,525,923
____________ __________ __________ ____________
$170,566,010 $2,366,982 $ 209,870 $172,723,122
============ ========== ========== ============
Securities held-
to-maturity:
Obligations of
states and
municipal
subdivisions $ 31,155,694 $3,288,518 $ - $ 34,444,212
============ ========== ========== ============
December 31, 1997
__________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________ __________ __________ ____________
Securities available-
for-sale:
U. S. Treasury
securities $ 32,803,200 $ 106,764 $ 96,905 $ 32,813,059
Obligations of
other U. S.
Government
agencies 36,679,877 173,207 77,218 36,775,866
Obligations of
states and
municipal
subdivisions 57,176,019 655,030 35,499 57,795,550
Mortgage-backed
securities 43,389,084 308,136 51,332 43,645,888
Equity securities 4,669,400 - - 4,669,400
Other securities 2,343,175 18,115 71,623 2,289,667
____________ __________ __________ ____________
$177,060,755 $1,261,252 $ 332,577 $177,989,430
============ ========== ========== ============
Securities held-
to-maturity:
Obligations of
states and
municipal
subdivisions $ 31,357,838 $3,049,045 $ 1,860 $ 34,405,023
============ ========== ========== ============
The scheduled maturities of securities available-for-sale and securities
held-to-maturity at December 31, 1998, 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 $ 21,786,044 $ 21,886,444 $ 250,000 $ 253,498
Due after one year
through five years 55,132,757 56,020,899 5,125,507 5,402,058
Due after five years
through ten years 51,164,941 52,052,043 17,034,509 18,959,221
Due after ten years 3,211,054 3,307,849 8,745,678 9,829,435
Mortgage-backed
securities and
other securities 39,271,214 39,455,887 - -
____________ ____________ ___________ ___________
$170,566,010 $172,723,122 $31,155,694 $34,444,212
============ ============ =========== ===========
Equity securities consist of stock in the Federal Reserve Bank and the
Federal Home Loan Bank (FHLB). The transferability of this stock is
restricted.
Gross gains of $131,332, $21,899, and $77,944, and gross losses of $21,392,
$72,950, and $6,921, were realized on securities available-for-sale in
1998, 1997, and 1996, respectively.
Securities with a carrying value of $124,301,601 and $124,199,619 at
December 31, 1998 and 1997, respectively, were pledged to secure public and
trust deposits and for other purposes as required or permitted by law.
NOTE E - LOANS
Loans outstanding include the following types: (In Thousands)
December 31,
__________________
1998 1997
________ ________
Commercial, financial and agricultural $ 76,389 $ 76,542
Real estate - construction 24,284 25,341
Real estate - mortgage 284,566 269,462
Installment loans to individuals 93,537 95,595
Other 7,526 7,155
________ ________
486,302 474,095
Allowance for loan losses (9,572) (7,980)
________ ________
$476,730 $466,115
======== ========
Transactions in the allowance for loan losses are summarized as follows:
Years Ended December 31,
_____________________________________
1998 1997 1996
___________ ___________ ___________
Balance at beginning of year $ 7,979,788 $ 7,525,267 $ 7,116,760
Additions:
Provision for loan losses
charged to operating expense 3,187,261 1,477,466 1,676,801
Recoveries of loans previously
charged off 359,788 581,882 381,758
___________ ___________ ___________
11,526,837 9,584,615 9,175,319
Deductions:
Loans charged off 1,955,169 1,479,241 1,650,052
Allowance applicable to loans
sold of finance company - 125,586 -
___________ ___________ ___________
Balance at end of year $ 9,571,668 $ 7,979,788 $ 7,525,267
=========== =========== ===========
At December 31, 1998 and 1997, the recorded investment in loans considered
to be impaired totaled approximately $1,850,000 and $2,500,000,
respectively. The allowance for loan losses related to these loans
approximated $ 1,280,000 and $825,000 at December 31, 1998 and 1997,
respectively. The average recorded investment in impaired loans during the
year ended December 31, 1998, was approximately $1,155,000. For the years
ended December 31, 1998 and 1997, the amount of income recognized on
impaired loans was immaterial.
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization as follows:
Estimated December 31,
Useful Lives ___________________________
In Years 1998 1997
____________ _____________ ____________
Premises:
Land - $ 2,847,117 $ 2,901,617
Buildings, construction
and improvements 10 - 50 14,846,717 14,792,239
_____________ ____________
17,693,834 17,693,856
Equipment 3 - 10 10,926,358 10,321,807
_____________ ____________
28,620,192 28,015,663
Less accumulated depreciation
and amortization 13,599,634 12,061,299
_____________ ____________
$ 15,020,558 $ 15,954,364
============= ============
The amount charged to operating expenses for depreciation was $1,698,843
for 1998, $1,651,403 for 1997, and $1,364,569 for 1996.
NOTE G - BORROWED FUNDS
Federal funds purchased and securities sold under repurchase agreements
consisted of the following at December 31, 1998 and 1997:
1998 1997
___________ ___________
Federal funds purchased $ - $ -
Securities sold under agreement
to repurchase 10,463,833 20,021,209
___________ ___________
$10,463,833 $20,021,209
=========== ===========
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to seven days from the transaction date.
Information concerning securities sold under agreement to repurchase is
summarized as follows:
1998 1997
___________ ___________
Average balance during the year $12,936,484 $11,685,255
Average interest rate during the year 4.31% 4.51%
Maximum month-end balance during the year $15,188,036 $20,021,209
Securities underlying the repurchase agreements remain under the control
of NBC.
Other borrowed funds consisted of the following at December 31,:
1998 1997
________________________ _______________________
Average Average
Rate Amount Rate Amount
___________ ___________ __________ ___________
FHLB advances
maturing in:
1998 - $ - 4.78% $ 278,226
1999 6.23% 3,428,699 5.86% 1,540,000
2000 5.78% 3,456,036 6.07% 7,186,311
2001 5.91% 3,312,652 5.90% 4,256,915
2002 6.08% 3,258,285 6.08% 4,057,781
2004 6.63% 1,020,362 6.63% 1,169,186
2005 6.22% 980,534 6.22% 1,019,304
Notes payable to a
correspondent bank - - 7.87% 1,150,000
Treasury tax and
loan note Adjustable 591,819 Adjustable 2,410,978
___________ ___________
$16,048,387 $23,068,701
=========== ===========
The advances due to the FHLB are collateralized by first mortgage loans,
FHLB capital stock, and amounts on deposit with the FHLB. 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 borrowings with initial or
remaining terms of one year or more at December 31, 1998, are as follows:
Year Amount
__________ ___________
1999 $ 6,988,910
2000 4,125,541
2001 2,436,282
2002 790,592
2003 259,917
Thereafter 855,326
___________
$15,456,568
===========
NOTE H - COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation and its subsidiaries adopted FASB
Statement No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income
and its components in the financial statements. Unrealized gains and
losses on securities available-for-sale, which prior to adoption were
reported separately in stockholders' equity, are required to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement No. 130. The
adoption of this statement had no impact on net income or stockholders'
equity.
In the calculation of comprehensive income, certain reclassification
adjustments are made to avoid double counting amounts that are displayed as
part of net income for a period that also had been displayed as part of
other comprehensive income. The disclosure of the reclassification amounts
are as follows:
Years Ended December 31,
______________________________
1998 1997 1996
________ ________ _________
Unrealized gains (losses) on securities
available-for-sale, net of tax, arising
during year $877,765 $225,998 $(876,360)
Less reclassification adjustment for
(gains) losses included in net income,
net of tax (68,740) 31,639 (46,575)
________ ________ _________
Net change in unrealized gains (losses)
on securities available-for-sale, net
of tax $809,025 $257,637 $(922,935)
======== ======== =========
NOTE I - INCOME TAXES
The provision for income taxes including the tax effects of securities
transactions [1998 - $41,200; 1997 - ($19,412); 1996 - $24,448] is as
follows:
Years Ended December 31,
_____________________________________
1998 1997 1996
___________ ___________ ___________
Current tax expense $ 3,282,760 $ 3,970,739 $ 3,239,638
Deferred tax benefit (1,304,053) (228,159) (98,365)
___________ ___________ ___________
$ 1,978,707 $ 3,742,580 $ 3,141,273
=========== =========== ===========
Deferred tax provisions are applicable to the following items:
Years Ended December 31,
_____________________________________
1998 1997 1996
___________ ___________ ___________
Depreciation $ (18,047) $ 3,291 $ 67,118
Loans and allowance for loan
losses (608,081) (534,162) (321,920)
Securities (83,628) 90,437 86,250
Employee benefits (361,238) 125,920 121,543
Deferred loan fees/costs 12,705 37,465 41,680
Other, net (245,764) 48,890 (93,036)
___________ ___________ ___________
$(1,304,053) $ (228,159) $ (98,365)
=========== =========== ===========
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,
_____________________________________
1998 1997 1996
___________ ___________ ___________
Tax on income before income
taxes $ 3,560,622 $ 4,644,700 $ 4,270,931
Increase (decrease)
resulting from:
Tax-exempt income (2,030,076) (1,421,755) (1,520,945)
Nondeductible expenses 317,456 263,337 285,256
State income taxes, net of
federal benefit 320,292 293,310 218,460
Other, net (189,587) (37,012) (112,429)
___________ ___________ ___________
$ 1,978,707 $ 3,742,580 $ 3,141,273
=========== =========== ===========
The components of the net deferred tax asset included in other assets as of
December 31, 1998 and 1997, are as follows:
1998 1997
___________ ___________
Deferred tax assets:
Allowance for loan losses $ 3,518,221 $ 2,910,140
Employee benefits 385,878 24,640
Other 378,545 132,781
___________ ___________
Total deferred tax assets 4,282,644 3,067,561
Deferred tax liabilities:
Premises and equipment (1,029,125) (1,047,172)
Deferred loan fees/costs (204,180) (191,475)
Securities (398,700) (482,328)
Unrealized gain on securities
available-for-sale (725,727) (313,649)
___________ ___________
Total deferred tax liabilities (2,357,732) (2,034,624)
___________ ___________
Net deferred tax asset $ 1,924,912 $ 1,032,937
=========== ===========
NOTE J - 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, 1998 and 1997:
1998 1997
___________ ___________
Change in benefit obligation:
Benefit obligation at beginning of year $ 8,726,460 $ 7,462,565
Service cost 410,062 488,832
Interest cost 560,420 591,719
Actuarial loss 490,758 699,894
Amendments (995,687) -
Benefits paid (824,727) (516,550)
___________ ___________
Benefit obligation at end of year 8,367,286 8,726,460
___________ ___________
Change in plan assets:
Fair value of plan assets at beginning
of year $ 9,387,721 $ 7,657,982
Expected return on plan assets 842,600 1,390,601
Employer contributions - 872,316
Benefits paid (824,727) (516,550)
Asset gains deferred for later
recognition 582,888 (16,628)
___________ ___________
Fair value of plan assets at end of year 9,988,482 9,387,721
___________ ___________
Funded status 1,621,196 661,261
Unrecognized net asset at adoption of
Statement No. 87 being recognized over
employees' remaining service life (65,138) (97,709)
Unrecognized net actuarial loss 790,009 902,881
Unrecognized prior service cost (868,080) 57,153
___________ ___________
Prepaid benefit cost $ 1,477,987 $ 1,523,586
=========== ===========
Weighted average assumptions:
Discount rate 7.00% 7.50%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 5.00% 5.00%
Components of net periodic benefit cost:
Service cost $ 410,062 $ 488,832
Interest cost 560,420 591,719
Expected return on plan assets (842,600) (706,228)
Amortization of prior service costs (70,454) 6,137
Amortization of transition obligation (32,571) (32,571)
Recognized net actuarial gain 20,742 23,307
___________ ___________
$ 45,599 $ 371,196
=========== ===========
Contributions to the ESOP amounted to $80,000 in 1998, $150,000 in 1997,
and $200,000 in 1996. At December 31, 1998, the plan held 332,497 shares
of the Corporation's common stock. Contributions to the 401(k) plan
amounted to $264,866 in 1998, $133,899 in 1997, and $116,935 in 1996.
Expenses under the deferred income and supplemental retirement plans, net
of increases in the cash surrender value of life insurance contracts, were
not material for 1998, 1997, and 1996.
NOTE K - 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 1998 is
summarized as follows:
Loans outstanding at January 1, 1998 $ 8,399,005
New loans 8,360,730
Repayments (8,364,925)
_____________
Loans outstanding at December 31, 1998 $ 8,394,810
=============
Also, in the normal course of business, the Corporation and NBC enter into
transactions for services with companies and firms whose principals are
directors and stockholders.
NOTE L - REGULATORY MATTERS
Any dividends paid by the Corporation are provided from dividends received
from its subsidiary bank. 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 bank 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 Corporation's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Corporation and its subsidiary bank 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 subsidiary 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, 1998, that the Corporation and its subsidiary
bank exceed all capital adequacy requirements.
At December 31, 1998, NBC was categorized by regulators as well-capitalized
under the regulatory framework for prompt corrective action. A financial
institution is considered to be well-capitalized if it has total risk-based
capital of 10% or more, has a Tier I risk-based ratio of 6% or more, and
has a Tier I leverage capital ratio of 5% or more. There are no conditions
or anticipated events that, in the opinion of management, would change the
categorization.
The actual capital amounts and ratios at December 31, 1998 and 1997, are
presented in the following table. No amount was deducted from capital for
interest-rate risk exposure:
($ In Thousands)
NBC Capital
Corporation
(Consolidated) NBC
______________ ______________
Amount Ratio Amount Ratio
_______ _____ _______ _____
December 31, 1998:
Total risk-based $91,053 17.9% $90,878 17.9%
Tier I risk-based 84,674 16.6% 84,487 16.6%
Tier I leverage 84,674 11.0% 84,487 10.9%
December 31, 1997:
Total risk-based $86,808 17.5% $85,590 17.2%
Tier I risk-based 80,580 16.3% 79,423 16.0%
Tier I leverage 80,580 10.8% 79,423 10.6%
The minimum amounts of capital and ratios as established by banking
regulators at December 31, 1998 and 1997, were as follows:
($ In Thousands)
NBC Capital
Corporation
(Consolidated) NBC
Amount Ratio Amount Ratio
_______ _____ _______ _____
December 31, 1998:
Total risk-based $40,826 8.0% $40,654 8.0%
Tier I risk-based 20,412 4.0% 20,327 4.0%
Tier I leverage 23,310 3.0% 23,296 3.0%
December 31, 1997:
Total risk-based $39,718 8.0% $39,606 8.0%
Tier I risk-based 19,858 4.0% 19,803 4.0%
Tier I leverage 22,350 3.0% 22,260 3.0%
NBC 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, 1998, the required reserve balance
with the Federal Reserve Bank was approximately $3,550,000.
NOTE M - 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, 1998 and 1997, is as follows:
(In Thousands)
Contractual Amount
__________________
1998 1997
_______ _______
Commitments to extend credit $51,644 $63,725
Credit card lines 1,932 3,019
Commercial and similar letters of credit 3,523 4,788
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 1998 or 1997, 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 N - CONCENTRATIONS OF CREDIT
Most of the loans, commitments and letters of credit of NBC have been
granted to customers in its market areas. Generally, such customers are
also depositors. Investments in state and municipal securities also
involve governmental entities within the bank's market areas. The
concentrations of credit by type of loan are set forth in Note E. The
distribution of commitments to extend credit approximates the distribution
of loans outstanding. Letters of credit were granted primarily to
commercial borrowers.
NOTE O - SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
____________________________________
1998 1997 1996
___________ ___________ ___________
Cash paid during the year for:
Interest $26,950,746 $25,352,192 $23,213,348
Income taxes 3,529,736 3,710,556 3,318,717
NOTE P - DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with FASB Statement No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated
fair value amounts have been determined using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that could be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For such short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Securities - For securities held as investments, fair value equals market
price, if available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
Loans - The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposits - The fair values of demand deposits are, as required by Statement
No. 107, equal to the carrying value of such deposits. Demand deposits
include noninterest bearing demand deposits, savings accounts, NOW
accounts, and money market demand accounts. The fair value of variable
rate term deposits, those repricing within six months or less, approximates
the carrying value of these deposits. Discounted cash flows have been used
to value fixed rate term deposits and variable rate term deposits repricing
after six months. The discount rate used is based on interest rates
currently being offered on comparable deposits as to amount and term.
Short-Term Borrowings - The carrying value of federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximates their carrying values.
FHLB and Other Borrowings - The fair value of the fixed rate borrowings are
estimated using discounted cash flows, based on current incremental
borrowing rates for similar types of borrowing arrangements. The carrying
amount of variable rate borrowings approximates their fair values.
Off-Balance Sheet Instruments - Generally, commitments to extend credit and
letters of credit are for a term of thirty days to ninety days. Management
is of the opinion the estimated fair value is not significantly different
from the contractual or notational amounts.
(In Thousands)
December 31, 1998 December 31, 1997
______________________ ______________________
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
__________ __________ __________ __________
Financial Instruments:
Assets:
Cash and cash
equivalents $ 54,334 $ 54,334 $ 50,533 $ 50,533
Investment securities
available-for-sale 172,723 172,723 177,989 177,989
Investment securities
held-to-maturity 31,156 34,444 31,358 34,405
Loans 476,730 476,350 466,115 472,778
Liabilities:
Noninterest bearing
deposits 91,290 91,290 82,898 82,898
Interest bearing
deposits 559,925 560,316 543,397 544,036
Federal funds
purchased and
securities sold under
agreements to
repurchase 10,464 10,464 20,021 20,021
FHLB and other
borrowings 16,048 15,986 23,069 22,638
Off-balance sheet
instruments 57,099 57,099 71,622 71,622
NOTE Q - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of December 31, 1998 and 1997, and statements of income
and cash flows for the years ended December 31, 1998, 1997 and 1996, of NBC
Capital Corporation (parent company only) are presented below:
BALANCE SHEETS
1998 1997
___________ ___________
ASSETS
Cash $ 45,100 $ 566,115
Investment in subsidiaries 88,962,574 83,469,294
Other assets 3,857,071 3,192,115
___________ ___________
$92,864,745 $87,227,524
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable and other liabilities $ 4,570,878 $ 4,323,384
Stockholders' equity 88,293,867 82,904,140
___________ ___________
$92,864,745 $87,227,524
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
__________________________________
1998 1997 1996
__________ __________ __________
INCOME
Dividends from subsidiaries $4,373,376 $4,378,000 $4,122,483
Other 16,587 51,115 86,717
__________ __________ __________
4,389,963 4,429,115 4,209,200
EXPENSE 852,832 245,357 156,370
__________ __________ __________
Income before income taxes and equity
in undistributed earnings of
subsidiaries 3,537,131 4,183,758 4,052,830
Income tax benefit 287,629 76,014 26,455
Income before equity in undistributed
earnings of subsidiaries 3,824,760 4,259,772 4,079,285
Equity in undistributed earnings of
subsidiaries 4,668,950 5,658,528 5,340,999
__________ __________ __________
Net income $8,493,710 $9,918,300 $9,420,284
========== ========== ==========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
__________________________________
1998 1997 1996
__________ __________ __________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $8,493,710 $9,918,300 $9,420,284
Equity in subsidiaries' earnings in
excess of dividends (4,668,950) (5,658,528) (5,340,999)
Other, net (586,502) (191,045) (50,563)
__________ __________ __________
Net cash provided by operating
activities 3,238,258 4,068,727 4,028,722
__________ __________ __________
Cash Flows From Investing Activities - (38,320) (534,179)
__________ __________ __________
Cash Flows From Financing Activities
Dividends paid on common stock (3,609,273) (3,164,186) (3,274,669)
Other (150,000) (625,230) (450,000)
__________ __________ __________
Net cash used in financing activities (3,759,273) (3,789,416) (3,724,669)
__________ __________ __________
Net increase (decrease) in cash and
cash equivalents (521,015) 240,991 (230,126)
Cash and cash equivalents at beginning
of year 566,115 325,124 555,250
__________ __________ __________
Cash and cash equivalents at end
of year $ 45,100 $ 566,115 $ 325,124
========== ========== ==========
NOTE R - SUBSEQUENT EVENT
On February 3, 1999, the Corporation entered into an Agreement and Plan of
Merger ("Plan") with FFBS Bancorp, Inc. ("FFBS"). Under the terms of the
Plan, FFBS will be merged into the Corporation through the exchange of FFBS
common stock for common stock of the Corporation. Each share of FFBS common
stock will be exchanged for .7702 shares of the Corporation's common stock.
The wholly-owned subsidiary of FFBS, First Federal Bank for Savings, will
be merged into NBC. The merger, which is dependent upon receiving
regulatory and stockholder approval, is expected to be a tax-free
transaction accounted for as a pooling of interests.
NBC CAPITAL CORPORATION
EXHIBIT 21
SUBSIDIARY OF NBC CAPITAL CORPORATION
State of %
Subsidiary Incorporation Business Ownership
_________________ _____________ _____________________ _________
National Bank of
Commerce Mississippi Financial Institution 100%
First National
Finance Company Mississippi Finance Company 100%
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The amounts for the years ended December 31, 1997 and 1996, have been
restated to reflect the pooled acquisition of First National Corporation
of West Point.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 27,873 28,386 33,976
<INT-BEARING-DEPOSITS> 233 399 526
<FED-FUNDS-SOLD> 26,228 21,748 11,900
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 172,723 177,989 159,803
<INVESTMENTS-CARRYING> 31,156 31,358 31,673
<INVESTMENTS-MARKET> 34,444 34,405 34,633
<LOANS> 486,302 474,095 456,767
<ALLOWANCE> 9,572 7,980 7,525
<TOTAL-ASSETS> 777,032 762,531 720,006
<DEPOSITS> 651,215 626,295 605,777
<SHORT-TERM> 10,464 20,021 9,320
<LIABILITIES-OTHER> 11,012 10,242 9,457
<LONG-TERM> 16,048 23,069 18,743
0 0 0
0 0 0
<COMMON> 5,665 5,665 5,665
<OTHER-SE> 82,629 77,239 71,044
<TOTAL-LIABILITIES-AND-EQUITY> 777,032 762,531 720,006
<INTEREST-LOAN> 44,558 43,792 39,747
<INTEREST-INVEST> 11,616 12,055 12,440
<INTEREST-OTHER> 1,217 981 478
<INTEREST-TOTAL> 57,391 56,828 52,665
<INTEREST-DEPOSIT> 24,691 23,822 22,052
<INTEREST-EXPENSE> 26,513 25,699 23,093
<INTEREST-INCOME-NET> 30,877 31,129 29,572
<LOAN-LOSSES> 3,187 1,477 1,677
<SECURITIES-GAINS> 110 (51) 71
<EXPENSE-OTHER> 26,056 23,768 22,661
<INCOME-PRETAX> 10,472 13,661 12,562
<INCOME-PRE-EXTRAORDINARY> 10,472 13,661 12,562
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,494 9,918 9,420
<EPS-PRIMARY> 1.50 1.75 1.66
<EPS-DILUTED> 1.50 1.75 1.66
<YIELD-ACTUAL> 4.31 4.60 4.65
<LOANS-NON> 927 2,648 1,538
<LOANS-PAST> 1,271 1,077 1,408
<LOANS-TROUBLED> 298 670 471
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 7,980 7,525 7,117
<CHARGE-OFFS> 1,955 1,479 1,650
<RECOVERIES> 360 582 382
<ALLOWANCE-CLOSE> 9,572 7,980 7,525
<ALLOWANCE-DOMESTIC> 3,187 1,477 1,677
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
