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, 1999
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. ( )
Aggregate market value of the voting stock held by nonaffiliates as of
February 29, 2000, was approximately:
$134,005,900
___________________________
(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 - 7,212,662 shares outstanding as
of February 29, 2000.
Documents incorporated by reference -
Portions of the Proxy Statement dated March 17, 2000,
are incorporated by reference into Part III.
Annual report to shareholders for 1999 - 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 7.A. Quantitative and Qualitative Disclosures About
Market Risk
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
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I
ITEM 1 - BUSINESS
Forward Looking Statements
From time to time, NBC Capital Corporation (the Company) may publish
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply
with terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect
the operations, performances, development and results of the Company's
business include, but are not limited to, the following: risks from
changes in economic and industry conditions; changes in interest rates;
risks inherent in making loans including repayment risks and value of
collateral; dependence on senior management; and recently-enacted or
proposed legislation. Statements contained in this filing regarding the
demand for the Company and its subsidiaries' products and services, changing
economic conditions, interest rates, and numerous other factors, may be
forward-looking statements and are subject to uncertainties and risks.
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, 1999, the
Company's subsidiaries accounted for approximately 99% of the Company's
consolidated income and 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. On August 31, 1999, the
Company acquired all the outstanding stock of FFBS Bancorp, Inc. (FFBS).
FFBS was the holding company of its wholly-owned savings bank, First
Federal Bank for Savings (First Federal), Columbus, Mississippi. The
Company exchanged 1,396,162 shares of its common stock and a nominal amount
of cash in lieu of fractional shares for each common share of FFBS. First
Federal was merged into NBC with NBC as the surviving institution. The
transaction was accounted for as a pooling of interests and historical
financial statements of the Company were restated to give effect of the
acquisition. On September 30, 1999, NBC acquired the insurance agencies of
Galloway-Wiggers Insurance Agency, Inc., Kyle Chandler Insurance Agency,
Inc., Galloway-Chandler-McKinney, Inc., and Napier Insurance Agency, Inc.
NBC exchanged 173,184 of the Company's common stock for all of the issued
and outstanding stock of the insurance agencies. The insurance agencies
were combined into a wholly-owned subsidiary of NBC,
Galloway-Chandler-McKinney Insurance Agency, Inc. The acquisition was
accounted for as a pooling of interests. The historical financial
statements of the Company were not restated as the changes would have been
immaterial.
NBC is the largest commercial bank domiciled in the north central
area of the state known as the Golden Triangle. A total of thirty banking
facilities and an operation/administration center serves the communities
of Aberdeen, Amory, Artesia, Brooksville, Columbus, Hamilton, Maben,
New Hope, 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 four 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 1999.
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 1.20% - 1.45% and a minimum return on equity of approximately 10% - 13%.
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 1999 and 1998,
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.
Galloway-Chandler-McKinney Insurance Agency, Inc.
Galloway-Chandler-McKinney Insurance Agency, Inc. (GCM) is a wholly-
owned subsidiary of NBC. The Company operates as an independent insurance
agency with its primary source of revenue coming from commissions and
premiums on the sale of property and casualty insurance, life insurance,
annuities, and other commercial lines. GCM is the result of the insurance
agencies acquisition of September 30, 1999, as previously described. GCM
has locations in Columbus, West Point, Amory, and Aberdeen, Mississippi.
At December 31, 1999, GCM had total assets of approximately $1.3 million,
and for the year ended December 31, 1999, reported gross revenues of
approximately $3.2 million.
NBC Insurance Services of Alabama, Inc.
NBC Insurance Services of Alabama is a wholly-owned subsidiary of NBC
and was formed in 1999 for the purpose of selling annuity products in the
State of Alabama. For the year ended December 31, 1999, its activities
were not significant. Management anticipates significant revenues from
this activity, but is uncertain as to anticipated results since activities
are in the development stage.
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 $1.5 million at December 31, 1999.
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 16 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 $40 billion. NBC is the largest bank domiciled in its immediate
service area. Asset size of competitive banks depends on whether the
reference is made to the branch banks or to their parent banks. Several
other competitors are branches or divisions of nationwide and regional
companies with more resources than the Company and its subsidiaries.
NBC also serves the City of Tuscaloosa, Alabama, with a main office
and four 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 $40 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, 1999, NBC had
available for payment of dividends to the Company, without prior approval
of its regulator, approximately $13.5 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 bank subsidiary
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 bank
subsidiary's FDIC assessment, trust services and asset/liability management.
At December 31, 1999, 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 3.0 percent. Banks must also maintain a
minimum ratio of total capital to risk-weighted assets of 8.0 percent.
At December 31, 1999, the Company's Tier 1 and total capital ratios
were 18.4% and 19.6%, 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, GCM, and NBC Insurance Services of Alabama, Inc., are subject
to regulation by the applicable state agencies. These agencies set reserve
requirements, reporting standards, and establish regulations, all of which
affect business operations.
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
The Gramm-Leach-Bailey Act was signed into law in November, 1999, and
allows banks to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities through
the use of "financial holding companies." The expanded powers generally
are available to banks only if the bank and its bank subsidiaries remain
well-capitalized and well-managed, and have a satisfactory CRA rating.
Under the Act, a national bank may engage in expanded financial activities
through a "financial subsidiary," provided the aggregate assets of all of
its financial subsidiaries do not exceed the lesser of 45 percent of the
bank's assets or $50 billion. A financial subsidiary may underwrite any
financial product other than insurance and may sell any financial product,
including title insurance. A national bank itself may not sell title
insurance, however, unless the state in which the bank is located permits
state banks to sell title insurance. A financial subsidiary may not engage
in insurance company portfolio investing, real estate investment or
merchant banking (merchant banking activities may be permitted in five
years upon the joint approval of the Federal Reserve and the U.S.
Treasury.) Additionally, legislation has been 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 legislation
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. 57 Chairman and Chief Executive Officer,
Chairman and Chief Executive NBC Capital Corporation and NBC
Officer, NBC Capital
Corporation and NBC
Bobby Harper 58 Chairman of Executive Committe, NBC
Chairman of the Executive Capital Corporation and Executive
Committee, NBC Capital Vice President, Banking Center
Corporation and Executive Administration, NBC
Vice President, Banking
Center Administration, NBC
Hunter M. Gholson 67 Secretary of NBC Capital Corporation
Secretary and NBC
Mark A. Abernathy 43 President and Chief Operating Officer,
President and Chief NBC Capital Corporation and NBC since
Operating Officer, NBC December, 1997, Executive Vice
Capital Corporation and NBC President and Chief Operating Officer
of NBC Capital Corporation and NBC
from August, 1994 - December, 1997.
Richard Haston 53 Executive Vice President, Chief
Executive Vice President, Financial Officer, and Treasurer,
CFO, and Treasurer, NBC NBC Capital Corporation, and
Capital Corporation and Executive Vice President and
Executive Vice President Chief Financial Officer, NBC, since
and Chief Financial Officer, January, 1997; Senior Vice
NBC President - Finance, NBC Capital
Corporation and NBC from
September, 1996 - December, 1996;
Executive Vice President and Chief
Financial Officer 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 46 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President, Credit Administration,
Vice President, Credit NBC, since January, 1999;
Administration, NBC Executive Vice President and Senior
Lender of the Starkville Banking
Center, NBC
Clifton B. Fowler 51 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. 58 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President, Division Manager of
Vice President, Division Consumer Financial Service, NBC,
Manager of Consumer Finance, since April, 1998; Vice President,
NBC NBC Capital Corporation and
President, NBC, Aberdeen Banking
Center from January, 1985 -
April, 1998.
John Davis 44 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Senior Vice
Corporation and Senior Vice President and Trust Officer,
President and Trust Officer, NBC since January, 1999, Vice
NBC President and Trust Officer
of NBC from January, 1991 -
December, 1998.
Donald J. Bugea, Jr. 46 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, 1999, NBC had 412 full-time employees, Finance had 3
full-time employees and GCM had 36 full-time employees. The Company,
Service, and CNIC had no employees at December 31, 1999.
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31,
1999. GCM and Finance operate out of leased office buildings.
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
Mortgage Loan Center Columbus, Mississippi 14,000
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
New Hope Branch New Hope, Mississippi 1,500
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 11,000
Northport Branch Tuscaloosa, Alabama 3,018
University Branch Tuscaloosa, Alabama 2,480
North Tuscaloosa Branch Tuscaloosa, Alabama 3,250
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, or its subsidiaries, are 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 33 of the Company's annual report to shareholders for the year
1999 is incorporated herein by reference in response to this item and
included in this report as Exhibit 13.a.
(b) At December 31, 1999, the Company had approximately 2,700 security
holders.
(c) Dividends on common stock were declared semiannually in June and
December of the years reported and totaled as follows:
(In thousands)
December 31,
______________
1999 1998
______ ______
Dividends declared, $.73 per share $3,907
Dividends declared, $.87 per share $5,983
______ ______
$5,983 $3,907
====== ======
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on
Page 34 of the Company's annual report to the shareholders for the year
1999 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 1999 1998 1997
________ ________ ________
Cash and due from banks $ 36,514 $ 32,419 $ 34,773
Securities:
Taxable 128,605 136,689 151,340
Non-taxable 106,062 104,961 78,291
________ ________ ________
Total securities 234,667 241,650 229,631
Federal funds sold and other
interest-bearing assets 50,951 51,101 21,663
Loans, net of unearned interest 605,561 579,649 560,118
Less reserve for loan losses 10,514 8,993 8,328
________ ________ ________
Net loans 595,047 570,656 551,790
Other assets 36,247 29,248 36,175
________ ________ ________
Total Assets $953,426 $925,074 $874,032
======== ======== ========
(In Thousands)
Liabilities and 1999 1998 1997
Stockholders' Equity ________ ________ ________
Deposits:
Noninterest-bearing $ 89,950 $ 91,262 $ 84,768
Interest-bearing 674,606 667,855 635,690
________ ________ ________
Total deposits 764,556 759,117 720,458
Federal funds purchased and
securities sold under
agreement to repurchase 18,985 12,936 14,743
Borrowed funds 44,428 30,562 23,862
Other liabilities 11,735 12,850 10,932
________ ________ ________
Total liabilities 839,704 815,465 769,995
Stockholders' equity 113,722 109,609 104,037
________ ________ ________
Total Liabilities and
Stockholders' Equity $953,426 $925,074 $874,032
======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of
net interest earnings, including the average amount of interest-
earning assets and interest-bearing liabilities outstanding during
the period, the interest earned or paid on such amounts, the
average yields/rates paid and the net yield on interest-earning
assets:
($ In Thousands)
Average Balance
____________________________
1999 1998 1997
________ ________ ________
EARNING ASSETS
Net loans $595,047 $570,656 $551,790
Federal funds sold and
other interest-bearing
assets 50,951 51,101 21,663
Securities:
Taxable 128,605 136,689 151,340
Nontaxable 106,062 104,961 78,291
________ ________ ________
Totals 880,665 863,407 803,084
________ ________ ________
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 674,606 667,855 635,690
Borrowed funds, federal funds
purchased and securities sold
under agreement to repurchase 63,413 43,498 38,605
________ ________ ________
Totals 738,019 711,353 674,295
________ ________ ________
Net Amounts $142,646 $152,054 $128,789
======== ======== ========
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1999 1998 1997 1999 1998 1997
_______ _______ _______ ____ ____ ____
EARNING ASSETS
Net loans $52,219 $52,955 $51,682 8.78 9.28 9.37
Federal funds sold and
other interest-bearing
assets 2,440 1,953 1,268 4.80 3.82 5.85
Securities:
Taxable 6,981 7,748 9,566 5.43 5.67 6.32
Nontaxable 5,449 5,668 4,189 5.14 5.40 5.35
_______ _______ _______ _____ ____ ____
Totals 67,089 68,324 66,705 7.62 7.91 8.31
======= ======= ======= ===== ==== ====
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
1999 1998 1997 1999 1998 1997
_______ _______ _______ ____ ____ ____
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $28,399 $30,416 $28,882 4.21 4.55 4.54
Borrowed funds, federal
funds purchased and
securities sold under
agreement to repurchase 2,599 2,328 1,995 4.10 5.35 5.17
_______ _______ _______ ____ ____ ____
Totals 30,998 32,744 30,877 4.20 4.60 4.58
_______ _______ _______
Net interest income $36,091 $35,580 $35,828
======= ======= =======
Net yield on earning assets 4.10 4.12 4.46
(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)
1999 Over 1998 1998 Over 1997
________________________ _______________________
Change Due To: Change Due To:
________________________ _______________________
Total Rate Volume Total Rate Volume
_______ _______ ______ ______ _______ ______
EARNING ASSETS
Net loans $ (736) $(3,453) $2,717 $1,273 $ (472) $1,745
Federal funds sold and
other interest-bearing
assets 487 493 (6) 685 (235) 920
Securities:
Taxable (767) (320) (447) (1,818) (938) (880)
Nontaxable (219) (279) 60 1,479 39 1,440
_______ _______ ______ ______ _______ ______
Totals $(1,235) $(3,559) $2,324 $1,619 $(1,606) $3,225
======= ======= ====== ====== ======= ======
(In Thousands) (In Thousands)
1999 Over 1998 1998 Over 1997
________________________ ______________________
Change Due To: Change Due To:
________________________ ______________________
Total Rate Volume Total Rate Volume
_______ _______ ______ ______ ______ ______
INTEREST-BEARING
LIABILITIES
Interest-bearing deposits $(2,017) $(2,333) $ 316 $1,534 $ 69 $1,465
Interest on borrowed
funds and federal funds
purchased and securities
sold under agreement to
repurchase 271 (284) 555 333 73 260
_______ _______ ______ ______ ______ ______
Totals $(1,746) $(2,617) $ 871 $1,867 $ 142 $1,725
======= ======= ====== ====== ====== ======
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,
____________________________
1999 1998 1997
________ ________ ________
U. S. Treasury $ 7,732 $ 15,987 $ 32,813
U. S. Government agencies and
mortgage-backed securities 106,946 84,972 108,768
States and political subdivisions 105,330 115,786 90,155
Other 10,272 9,503 8,745
________ ________ ________
Total book value $230,280 $226,248 $240,481
======== ======== ========
B. The following table sets forth the maturities of investment and
mortgage-backed securities (carrying values) at December 31,
1999, and the weighted average yield of such securities:
($ In Thousands)
Weighted Average Yield
_________________________________________________
0 - 1 Yield 1 - 5 Yield 5 - 10 Yield
Year (%) Years (%) Years (%)
________ _____ _________ _____ _______ _____
Securities:
U. S. Treasury $ 3,595 5.3% $ 4,137 4.8% $ - -
U. S. Govern-
ment agencies 18,925 6.3% 10,088 5.9% 1,410 6.8%
States and
political
subdivisions 6,308 7.5% 99,022 7.5% - -
Other 448 6.2% 2,174 6.1% 197 6.7%
________ _________ _______
Total $ 29,276 $ 115,421 $ 1,607
======== ========= =======
10+ Yield
Years (%)
_______ _____
Other
(including
equity
securities) $ 7,453 5.9%
=======
Book Yield
Value (%)
_______ _____
Mortgage-
backed
securities $76,523 6.0%
=======
NOTE: Interest and yields on tax-exempt obligations are not on
a taxable equivalent basis.
Average yield on floating rate securities was determined
using the current yield.
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, 1999, 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 1999 1998 1997 1996 1995
______________ ________ ________ ________ ________ ________
Commercial,
financial and
agriculture $101,503 $ 81,365 $ 78,491 $ 76,205 $ 67,263
Real estate -
construction 26,185 27,253 27,636 27,000 18,488
Real estate -
mortgage 390,205 366,219 352,550 323,601 291,644
Installment
loans to
individuals 101,624 104,470 106,603 109,566 107,817
Other 4,234 7,526 7,155 8,813 6,589
________ ________ ________ ________ ________
Total loans 623,751 586,833 572,435 545,185 491,801
Unearned
interest - - (317) (1,123) (3,141)
________ ________ ________ ________ ________
$623,751 $586,833 $572,118 $544,062 $488,660
======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest
rates:
(In Thousands)
December 31, 1999
____________________________
Maturing or Repricing
____________________________
After
1 Year
Within Through Over
Type 1 Year 5 Years 5 Years Total
_______________________ ________ ________ ________ ________
Commercial, financial
and agricultural $ 80,495 $ 18,965 $ 2,043 $101,503
Real estate -
construction 25,653 352 180 26,185
________ ________ ________ ________
$106,148 $ 19,317 $ 2,223 $127,688
======== ======== ======== ========
(In Thousands)
December 31, 1999
____________________________
Maturing or Repricing
____________________________
After
1 Year
Through Over
Type 5 Years 5 Years Total
________________________ ________ ________ ________
Loans with:
Predetermined interest
rates $ 13,850 $ 135 $ 13,985
Floating interest
rates 5,467 2,088 7,555
________ ________ ________
$ 19,317 $ 2,223 $ 21,540
======== ======== ========
C. Nonperforming loans
1. The following table states the aggregate amount of loans
which were nonperforming in nature:
(In Thousands)
December 31,
______________________________________
Type 1999 1998 1997 1996 1995
__________________ ______ ______ ______ ______ ______
Loans accounted
for on a
nonaccrual basis $ 270 $ 927 $2,648 $1,901 $2,522
====== ====== ====== ====== ======
Accruing loans
past due 90 days
or more $2,975 $2,902 $1,660 $2,322 $1,210
====== ====== ====== ====== ======
Renegotiated
"troubled" debt $ 132 $ 337 $ 826 $ 511 $ 546
====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total
loans at December 31, 1999. 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
Mississippi 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,
1999.
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 1999, 1998, and 1997.
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, 1999, the recorded investment in loans
identified as impaired totaled approximately $2.0 million.
The allowance for loan losses related to these loans approxi-
mated $1.0 million. The average recorded investment in
impaired loans during the year ended December 31, 1999, was
$2.5 million. Total interest recognized on impaired loans
and the amount recognized on a cash basis were not
significant.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets
at December 31, 1999.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. An analysis of the loan loss experience for the periods
indicated is as follows:
($ In Thousands)
December 31,
___________________________________________
1999 1998 1997 1996 1995
_______ _______ _______ _______ _______
Beginning balance $10,102 $ 8,528 $ 8,175 $ 7,799 $ 7,138
_______ _______ _______ _______ _______
Charge-offs:
Domestic:
Commercial,
financial and
agricultural (566) (575) (379) (312) (240)
Real estate (444) (451) (145) (114) (130)
Installment
loans and
other (1,047) (960) (1,073) (1,272) (546)
_______ _______ _______ _______ _______
Total charge-offs (2,057) (1,986) (1,597) (1,698) (916)
_______ _______ _______ _______ _______
Recoveries:
Domestic:
Commercial,
financial and
agricultural 89 124 269 52 56
Real estate 25 76 97 68 53
Installment
loans and
other 266 173 227 267 230
_______ _______ _______ _______ _______
Total recoveries 380 373 593 387 339
_______ _______ _______ _______ _______
Net charge-offs (1,677) (1,613) (1,004) (1,311) (577)
_______ _______ _______ _______ _______
Reserve of sold
finance company - - (125) - -
Provision charged
to operations 1,769 3,187 1,482 1,687 1,238
_______ _______ _______ _______ _______
Ending balance $10,194 $10,102 $ 8,528 $ 8,175 $ 7,799
======= ======= ======= ======= =======
Ratio of net
charge-offs to
average loans
outstanding .28 .28 .18 .26 .13
Ratio of reserve
for loan losses
to loans
outstanding at
year end 1.63 1.72 1.49 1.50 1.59
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, 1999, these loans
totaled $395 million or approximately 63% 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 $102 million or 16% of total loans at
December 31, 1999. Consumer loans are originated in order to
provide a wide range of financial services to customers and
because the terms and normally higher interest rates on such
loans help maintain a profitable spread between the average loan
yield and the cost of funds.
In connection with consumer loan applications, the borrower's
income statement and credit bureau report are reviewed. In
addition, the relationship of the loan to the value of the
collateral is considered. All automobile loan applications
are reviewed, as well as the value of the unit which secured
the loan. NBC intends to continue to emphasize the origination
of consumer loans. Management believes that its loan loss
experience in connection with its consumer loan portfolio is
favorable in comparison to industry averages.
NBC makes commercial business loans on both a secured and
unsecured basis with terms which generally do not exceed five
years. Non-real estate commercial loans primarily consist of
short-term loans for working capital purposes, inventories,
seasonal loans, lines of credit and equipment loans. A personal
guaranty of payment by the principals of any borrowing entity is
often required and the financial statements and income tax returns
of the entity and its guarantors are reviewed. At December 31,
1999, NBC's commercial business loans represented approximately
15% of its total loan portfolio.
D. For the year 1999, losses for all loan categories, as a
percentage of average loans, are expected to approximate that
of 1999.
V. DEPOSITS
($ In Thousands)
1999 1998 1997
______________ ______________ ______________
Amount Rate Amount Rate Amount Rate
________ ____ ________ ____ ________ ____
A. Average
deposits:
Domestic:
Noninterest-
bearing
deposits $ 89,950 - $ 91,262 - $ 84,768 -
Interest-
bearing
demand
deposits (1) 312,642 2.3% 207,478 2.7% 187,284 2.9%
Savings
deposits 34,913 2.5% 36,204 2.5% 38,319 2.3%
Time deposits 327,051 6.2% 424,173 5.7% 410,177 5.5%
Foreign N/A N/A N/A
________ ____ ________ ____ ________ ____
Total $764,556 $759,117 $720,548
======== ======== ========
(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, 1999:
(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 $124,148 $45,763 $21,010 $28,751 $28,624
======== ======= ======= ======= =======
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,
______________________
1999 1998 1997
______ ______ ______
Return on assets (net income divided by
total average assets) 1.1 1.1 1.3
Return on equity (net income divided by
average equity) 9.3 9.1 11.2
Dividend payout ratio (dividends per share
divided by basic net income per share) 59.5 51.0 39.3
Equity to asset ratio (average equity
divided by average total assets) 11.9 11.8 11.9
VII. SHORT-TERM BORROWINGS (In Thousands)
Federal
Funds
Purchased
And
Securities Treasury
Sold Under Tax and
Agreement to Loan Note
Repurchase Payable
____________ ____________
Balance at December 31, 1999 $17,651 $2,462
Weighted average interest rate at
December 31, 1999 4.10% 4.75%
Maximum amount outstanding at any
month end for the year 1999 18,142 2,462
Average amount outstanding during
the year 1999 15,766 1,574
Weighted average interest rate during
the year 4.00% 4.28%
VIII. CAPITAL ADEQUACY DATA
Total consolidated capital of the Company was as follows:
($ In Thousands)
December 31,
__________________
1999 1997
________ ________
Total stockholders' equity (excluding
unrealized gain/loss) $113,889 $110,492
Allowance for loan losses, as allowed 9,668 8,815
Other components of capital - -
________ ________
Total primary capital 123,557 119,307
Total secondary capital - -
________ ________
Total capital 123,557 119,307
Less intangible assets and other adjustments (3,288) (3,518)
________ ________
Total capital, as defined for regulatory
purposes $120,269 $115,789
======== ========
Tier 1 and total capital as a percentage of "risk-weighted" assets
at December 31, 1999 and 1998, are as follows:
December 31,
______________
1999 1998
______ ______
Tier 1 capital percentage 18.4% 18.1%
Total capital percentage 19.6% 19.3%
The Company's capital ratios exceed the minimum capital requirements
at December 31, 1999, and management expects this to continue.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained on Pages 28 - 34 of the Company's 1999
annual report to shareholders is incorporated herein by reference in
response to this item and included in this report as Exhibit 13.c.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and,
accordingly, the Company manages exposure by considering the possible
changes in the net interest margin. The Company does not have any trading
instruments nor does it classify any portion of the investment portfolio as
held for trading. The Company does not engage in any hedging activities or
enter into any derivative instruments with a higher degree of risk than
collateralized mortgage obligations which are commonly held securities
generally collateralized by pools of GNMA, FNMA, or FHLMC pass-through
securities. Finally, the Company has no exposure to foreign currency
exchange rate risk, commodity price risk, and other market risks.
The following table reflects the year-end position of the Company's
interest-earning assets and interest-bearing liabilities which can either
reprice or mature within the designated time period. The interest rate
sensitivity gaps can vary from day-to-day and are not necessarily a
reflection of the future. In addition, certain assets and liabilities
within the same designated time period may nonetheless reprice at different
times and at different levels.
($ In Thousands)
December 31, 1999
______________________________________
Interest Sensitive Within (Cumulative)
______________________________________
Total of
Within Within Within Interest-
3 12 5 Earning
Months Months Years Assets
________ ________ ________ ________
Interest-earning assets:
Loans $308,898 $480,011 $609,692 $613,557
Investment and
mortgage-backed
securities 32,717 56,916 192,898 230,280
Federal funds sold
and other 201 201 2,096 2,096
________ ________ ________ ________
Totals $341,816 $537,128 $804,686 $845,933
======== ======== ======== ========
Interest-bearing
liabilities:
Deposits and
borrowed funds $366,995 $589,643 $755,827 $755,827
======== ======== ======== ========
Sensitivity gap:
Dollar amount $(25,179) $(52,515) $ 48,859
Percent of total
interest-earning
assets (3.0%) (6.2%) 5.8%
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, 1999, 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
$52.5 million (cumulative), representing a negative cumulative one
year gap of 6.2% 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. The
December, 1999, model reflects an increase of 3.4% in income and a
12.9% decrease in market value equity for a 200 basis point increase
in interest rates. The same model shows a 1.8% decrease in income
and a 16.6% increase in market value equity for a 200 basis points
increase in interest rates. The guidelines allow for no more than a
+ - 10% change in income, and no more than a + - 25% change in market
value equity.
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 2 - 27 of the Company's 1999 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 the Company's proxy statement,
dated March 17, 2000, which is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" of the
Company's proxy statement, dated March 17, 2000, 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 proxy statement,
dated March 17, 2000, 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 proxy statement, dated March 17, 2000, 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, 1999 and 1998, together with the report of T. E.
Lott & Company, independent accountants, dated January 21, 2000,
appearing on Pages 2 - 27 of the 1999 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
3.1 Articles of Incorporation of NBC Capital Corporation
(included as Exhibit B to NBC Capital Corporation's
Definitive Proxy Statement dated March 20, 1998, and
filed with the Commission on March 18, 1998, Commission
File No. 0-12885, which Exhibit B is incorporated
herein by reference).
3.2 By-laws of NBC Capital Corporation (included as
Exhibit 3(b) to NBC Capital Corporation's Registration
Statement on Form S-4A, filed with the Commission on
November 4, 1998, Commission File No. 333-65545, which
Exhibit 3(b) is incorporated herein by reference.
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).
10.2 Employment Agreement dated January 31, 1991, between
National Bank of Commerce and L. F. Mallory, Jr., as
previously filed.
10.3 Agreement and Plan of Merger by and between NBC Capital
Corporation and FFBS Bancorp, Inc., dated February 3,
1999 (included as Appendix A to the Proxy Statement-
Prospectus dated May 7, 1999, forming part of the
Company's Registration Statement on Form S-4 filed with
the Commission on March 30, 1999, Commission File No.
333-75293) and incorporated herein by reference.
10.4 Plan of Reorganization and Merger by and between
National Bank of Commerce and First Federal Bank for
Savings dated February 3, 1999 (included as Appendix A
to the Proxy Statement-Prospectus dated May 7, 1999,
forming part of the Company's Registration Statement on
Form S-4 filed with the Commission on March 30, 1999,
Commission File No. 333-75293) and incorporated herein
by reference.
10.5 Merger Agreement by and between NBC Capital Corporation
and National Bank of Commerce and Galloway-Wiggers
Insurance Agency, Inc., Galloway-Chandler-McKinney
Insurance, Inc., Galloway-Chandler-McKinney Insurance
Agency of Amory, Inc., Kyle Chandler Insurance Agency,
Inc., and Napier Insurance Agency, Inc. (included as
Exhibit 99.2 on Form 10Q filed with the Commission on
August 10, 1999, Commission File No. 0-12885) and
incorporated herein by reference.
10.6 1993 Incentive Stock Option Plan and 1993 Stock Option
Plan for Outside Directors of FFBS Bancorp, Inc.,
assumed by NBC Capital Corporation (incorporated by
reference to Exhibit A of Form S-8 filed September 20,
1999) and incorporated herein by reference.
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 33 of the
annual report to stockholders.
13.b. Selected Financial Data - Page 34 of the annual report
to stockholders.
13.c. Management's discussion and analysis of financial
condition and results of operations - Pages 28 - 33
of the annual report to stockholders.
13.d. Consolidated financial statements - Pages 2 - 27 of
the annual report to stockholders.
14. - 20. None
21. Subsidiaries of Company
23. Consent of Independent Public Accountants
27. Financial Data Schedule (Electronic Filing Only) -
years ended December 31, 1999, 1998, and 1997
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
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 C. Byars /S/ Mark A. Abernathy
_________________________________ _______________________________
(Director) (Director)
/S/ Harry Stokes Smith /S/ L. F. Mallory, Jr.
_________________________________ _______________________________
(Director) (Director)
/S/ Ralph Pogue /S/ Sammy J. Smith
_________________________________ _______________________________
(Director) (Director)
/S/ Edith D. Millsaps /S/ Thomas J. Prince
_________________________________ _______________________________
(Director) (Director)
/S/ Robert S. Caldwell /S/ E. Frank Griffin, III
_________________________________ _______________________________
(Director) (Director)
/S/ Allen Puckett, III /S/ Bobby L. Harper
_________________________________ _______________________________
(Director) (Director)
/S/ James C. Ratcliff /S/ James C. Galloway, Jr.
_________________________________ _______________________________
(Director) (Director)
/S/ Clifton B. Fowler
_________________________________
(Director)
Date: March 28, 2000
EXHIBIT 13.a.
MARKET INFORMATION
Effective October 1, 1998, the Corporation outsourced its stock transfer
activity to SunTrust Bank, Atlanta. Also, as of that date, the Corporation
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 prior
to the fourth quarter of 1998; however, on an annual basis, the stock
traded in a range between $32.00 and $39.75 during 1998. Dividends were
declared semi-annually in June and December of each of the years reported.
The following table sets forth, for the periods indicated, the range of
sales prices of the Corporation's common stock as reported on the
Inter-Dealer Market and the dividends declared for each year:
CASH DIVIDEND
DECLARED PER
YEAR QUARTER HIGH LOW QUARTER
____ _______ _______ _______ _____________
1998 First N/A N/A
Second N/A N/A $0.11
Third N/A N/A
Fourth $39.750 $37.000 0.62
1999 First $40.000 $37.875
Second 38.500 30.000 0.18
Third 33.500 27.250
Fourth 31.500 26.000 0.69
EXHIBIT 13.b.
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
________ ________ ________ ________ ________
(In thousands, except per share data)
INCOME DATA
Interest and
fees on loans $ 52,219 $ 52,955 $ 51,682 $ 46,972 $ 42,531
Interest and
dividends on
investment
securities 12,430 13,416 13,755 14,076 15,132
Other interest
income 2,440 1,953 1,268 787 874
________ ________ ________ ________ ________
Total interest
income 67,089 68,324 66,705 61,835 58,537
Interest expense 30,998 32,744 30,877 27,723 26,396
________ ________ ________ ________ ________
Net interest
income 36,091 35,580 35,828 34,112 32,141
Provision for
loan losses 1,769 3,187 1,482 1,677 1,238
________ ________ ________ ________ ________
Net interest
income after
provision for
loan losses 34,322 32,393 34,346 32,435 30,903
Service charges
on deposit
accounts 5,230 4,720 4,653 4,453 4,018
Other income 7,824 4,871 3,759 3,509 2,920
________ ________ ________ ________ ________
Total
noninterest
income 13,054 9,591 8,412 7,962 6,938
________ ________ ________ ________ ________
Salaries and
employee
benefits 17,545 16,024 14,651 14,146 13,277
Occupancy and
equipment
expense 4,213 3,778 3,558 3,154 3,067
Other expenses 12,211 9,299 8,041 8,551 7,468
________ ________ ________ ________ ________
Total
noninterest
expense 33,969 29,101 26,250 25,851 23,812
________ ________ ________ ________ ________
Income before
income taxes 13,407 12,883 16,508 14,546 14,029
Income taxes 2,899 2,881 4,826 3,729 3,623
________ ________ ________ ________ ________
Net income $ 10,508 $ 10,002 $ 11,682 $ 10,817 $ 10,406
======== ======== ======== ======== ========
PER SHARE DATA
Net income -
basic $ 1.46 $ 1.43 $ 1.68 $ 1.54 $ 1.48
Net income -
diluted 1.46 1.42 1.67 1.53 1.47
Dividends .87 .73 .66 .61 .60
FINANCIAL DATA
Shares
outstanding 7,213 7,045 7,044 7,036 7,042
Total assets $973,570 $937,147 $900,886 $847,131 $794,738
Net loans 613,557 576,731 563,590 535,886 481,557
Total deposits 752,810 776,955 734,107 707,240 675,205
Total
stockholders'
equity 111,251 111,868 105,304 100,774 94,989
(1) Financial data includes accounts of significant pooled
acquisitions for all years presented.
(2) Per share and common stock data has been adjusted
retroactively for stock splits.
(3) Merger-related expenses amounted to $2.5 million after tax in
1999 and $1.8 million after tax in 1998.
EXHIBIT 13.c.
MANAGEMENT'S DISCUSSION AND AMALYSIS 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, including the notes thereto, 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 and other 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 August 31, 1999, the Corporation ("NBC") acquired all the outstanding
common stock of FFBS Bancorp, Inc. ("FFBS") in exchange for 1,396,162
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 FFBS and its subsidiary from the beginning of the earliest
period reported.
On September 30, 1999, NBC acquired four insurance agencies, collectively
known as the Galloway-Chandler-McKinney Insurance Agency ("GCM"). NBC
exchanged 173,184 shares of the Corporation's common stock for all the
issued and outstanding common stock of GCM. Following the acquisition, NBC
Commerce and changed the name to Galloway-Chandler-McKinney Insurance
Agency, Inc. The transaction has been accounted for as a pooling of
interest, and the Corporation's consolidated financial statements for 1999
include the accounts of GCM. The consolidated financial statements for
periods prior to 1999 were not restated since the changes were not
considered material. See Note B to the Consolidated Financial Statements
for additional information concerning these acquisitions and the
acquisition of First National Corporation of West Point ("FNC") as of
December 31, 1998.
Merger related expenses associated with the FFBS and GMC acquisitions of
$3.9 million ($2.5 million after tax) are included in the Consolidated
Statement of Income for the year ended December 31, 1999. This impacted
1999 earnings per share by approximately $.36 per share.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since 1995, the total assets of the company have increased 22.5%. Loans
have increased 27.4% between 1995 and 1999. Loan growth has continued in
each of the years noted in the summary of Selected Financial Data even
though there has been increased competition for good quality credits. The
quality of the portfolio remains excellent. Net charge-offs for 1997, 1998
and 1999, were .18%, .28% and .28% of average net loans outstanding for
each year, respectively.
Deposits have grown 11.5% over the period 1995-1999. During the period 1995
- - 1998, loans grew by approximately $95 million. This growth was funded by
deposits, which increased by approximately $102 million during this same
period. In 1999, the trend reversed as competition increased for deposits,
not only from within the banking industry, but from throughout the
financial services industry as billions of dollars continued to flow into
the stock markets. During 1999, as loans grew by $37 million, deposits
declined by approximately $24 million. Approximately 79% of this decline in
deposits occurred during the last sixty days of 1999. During January of
2000, approximately $7.4 million of these deposits returned to the bank.
This situation required the Corporation to look to other funding sources
such as reallocating funds from lower yielding assets and additional
borrowings from the Federal Home Loan Bank.
Stockholders' equity has represented a consistent strength of the
Corporation throughout the years noted in the summary of Selected Financial
Data. Stockholders' equity has increased 17.1% since 1995. Stockholders'
equity includes Accumulated Other Comprehensive Income which is composed of
unrealized gain (loss) on "Available-for-Sale Securities" of $1,376,000 and
($2,638,000) at December 31, 1998 and 1999, respectively, as required to be
reported under FASB 115.
Net income increased each year from 1995 through 1997. In 1998,
consolidated net income declined as a result of incurring approximately
$1.8 million of merger related expenses (net of taxes) associated with the
acquisition of FNC. Net income increased in 1999 by $506,000, even though
it included approximately $2.5 million of merger related expenses (net of
taxes) associated with the acquisitions of FBBS and GMC. Return on average
assets (ROA), a primary measure of earning strength, was 1.1% in both 1998
and 1999. Exclusive of the merger expenses, ROA would have been 1.3% in
1998 and 1.4% in 1999. Earnings per share grew from $1.48 in 1995 to $1.68
in 1997. In 1998 and 1999, earnings per share were $1.43 and $1.46,
respectively, after being impacted by approximately $.26 in 1998 and $.36
in 1999, for the above mentioned non-recurring merger expenses. All
earnings per share amounts have been restated to reflect the 1997 stock
split, the 1998 merger with FNC and the 1999 merger with FFBS.
Regular cash dividends have increased in each of the years outlined in the
summary of Selected Financial Data. Also, special cash dividends of
approximately $.15 per share in 1995 and $.06 per share in 1999, were paid
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, the 1998 merger with FNC and the
1999 merger with FFBS.
Net interest income ("NII"), the primary source of earnings for the
Corporation, represents income generated from earning assets less the
interest expense of funding those assets. NII increased 6.1% in 1996 and
5.0% in 1997. In 1998, there was a slight decline in NII of less than one
percent. In 1999, NII increased by 1.4%. 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 spread (rate
component). Net interest spread represents the difference between yields on
earning assets and rates paid on interest bearing liabilities. Net interest
spread for 1999 decreased to 4.07% from 4.08% in 1998. The primary reason
for this decline was a decrease in loan yields that resulted from an
increased competition for good quality loans. This occurred even though
rates trended upward during the year. The Corporation was able to offset
this decline in loan yields by reducing the overall cost of deposits by a
comparable amount.
Since the rate component pushed NII slightly down in 1999, the overall
increase for the year resulted from an increase in the volume component.
Earning Assets grew during 1999 by $21.9 million or 2.6%.
NII was adversely impacted during 1999 by a significant increase in cash
reserves during the last quarter of the year. The purpose of this increase
was to meet any unusual customer demands for cash as a result of Y2K. As
the cash reserves were built, additional borrowings from the Federal Home
Loan Bank were being incurred to fund this cash buildup and the
Corporation's normal daily liquidity needs. It is estimated that this Y2K
situation cost the Corporation approximately $320,000 in NII during the
fourth quarter. If this cost had not been incurred, NII for 1999 would
have increased by 2.3%.
The Corporation 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 Corporation utilizes an Asset/Liability Management Committee
that evaluates and analyzes the Corporation'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 1999, the Corporation's balance sheet reflected
approximately $52.5 million more in rate sensitive liabilities than assets
that were scheduled to reprice within one year. This represents 5.4% of
total assets and would indicate that the Corporation is liability
sensitive. This computation results from a static gap analysis that
weights assets and liabilities equally. It is the Corporation's policy to
maintain a static gap position of no more than a plus or minus 10% of
aggregate assets over a moving twenty-four month period. The Corporation's
position is considered essentially neutral to slightly asset sensitive when
using simulation modeling that provides a different weighting for assets
and liabilities on the basis that in a changing rate environment, assets
reprice more quickly and in closer relation to the changing rate than do
liabilities. Management believes that interest rates will increase during
early 2000. As a result, it is felt that the Corporation's current position
places it in a low interest rate risk posture for 2000. Management does not
believe that it is in the Corporation's best interest to speculate on
changes in interest rate levels. Although earnings could be enhanced if
predictions were correct, they could also be put at significant risk if
interest rates move against predictions.
The Corporation's Provision for Loan Losses is utilized to replenish the
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 1999 was deemed entirely adequate to cover
exposure within the Corporation's loan portfolio. The reserve has increased
24.7% since 1996 and stood at 1.63% of net loans at the end of 1999.
Non-interest income includes various service charges, fees, and commissions
collected by the company, including insurance commissions earned by GCM,
the wholly owned subsidiary of National Bank of Commerce. During 1999,
non-interest income increased by 36.1%. This increase was primarily due to
the acquisition of GCM on September 30, 1999. This acquisition, which was
accounted for as a pooling of interest, generated approximately $3.2
million of commissions, which were included in Other Income for 1999. As
previously stated, the 1998 amounts were not restated for this acquisition.
As a result, 92% of the total increase came from these commissions.
Additionally, Trust Department Income increased by 12.3% resulting from
continued growth in overall trust related activities. Service Charges on
Deposit Accounts also increased by 10.8% due to an increased number of
accounts resulting primarily from the acquisitions, account promotions and
an increased effort to collect fees earned. During 1998, non-interest
income increased by 14.0%. 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.
Non-interest expense represents ordinary overhead expenses, including
salaries, bonuses and benefits. The Corporation 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 by
approximately 16.7% during 1999. Of this total increase, 40% resulted from
increased merger related expenses incurred in the acquisitions of FFBS and
GCM. Salaries and Employee Benefits increased by 9.8% during 1999.
Approximately 50% of this increase in salary and employee benefits came
from the acquisition of GCM, which was included in the 1999 amounts, but
not in 1998. The remaining portion of the salary and employee benefits
increase for 1999 and all of the 1998 increase resulted from normal raises
and positions added to accommodate the Corporation's growth. The remaining
portion of the increase in non-interest expense in 1999 was primarily due
to the acquisition of GCM on September 30,1999. The major portion of GCM's
expenses for all of 1999, exclusive of salary and employee benefits, were
included in Other Expenses in the 1999 Consolidated Statements of Income.
As previously stated, the 1998 amounts were not restated for the GCM
acquisition. Overall non-interest expense increased by approximately 10.9%
during 1998. Of this increase, salaries accounted for approximately 5.2%
and other expenses accounted for approximately 5.6%. Of the total increase
in other expenses, approximately 74% were related to merger expenses
incurred in connection with the acquisition of FNC as of December 31,1998.
Changes in the Corporation's income tax expense have generally paralleled
income gains. The company's effective tax rates were 29.2% in 1997, 22.4%
in 1998 and 21.6% in 1999. 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 Corporation's ability to further reduce income tax expense through this
investment choice is limited by the Alternative Minimum Tax Provision and
the Corporation's normal liquidity and balance sheet structure
requirements.
LIQUIDITY, ASSET/LIABILITY MANAGEMENT
Liquidity may be defined as the ability of the Corporation to meet cash
flow requirements created by decreases in deposits and/or other sources of
funds or increases in loan demand. The Corporation 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
Corporation'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. As a result of
a $37 million increase in loans and a $24 million decrease in deposits, the
Corporation's loan/deposit ratio has increased from 75.5% in 1998 to 82.9%
in 1999. To accommodate this need for additional funding, the Corporation
utilized the Federal Home Loan Bank and other funding sources during 1999.
At December 31, 1999, the Corporation had $64.4 million outstanding to the
Federal Home Loan Bank compared to $24.6 at December 31, 1998.
Additionally, at December 31,1999, the Corporation had purchased $11.0
million in Fed Funds.
The Corporation also offers repurchase agreements to accommodate excess
funds of some of its larger depositors. Management believes that these
repurchase agreements stabilize traditional deposit sources as opposed to
risking the potential loss of these funds to alternative investment
arrangements. Repurchase Agreements, which are viewed as a source of funds
to the Corporation, totaled $17.6 million and $10.5 million at December 31,
1999, and 1998, respectively. The level of repurchase agreement activity
is limited by the availability of investment portfolio securities to be
pledged against the accounts.
During the next five years, approximately $63.7 million of the Federal Home
Loan Bank borrowings will mature. The Corporation believes that normal
earnings and other traditional sources of cash flow, along with additional
borrowings from the Federal Home Loan Bank, if necessary, will provide the
cash to allow it to meet these maturities with no adverse effect on
liquidity. The fed funds purchased of $11.0 million and $20.0 million of
short-term borrowings from the Federal Home Loan bank were repaid during
have previously been discussed.
The Corporation does not have plans at this time for any discretionary
spending that would have a material impact on liquidity. Additionally, the
Corporation 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 Corporation maintains a strict asset/liability
management policy. As part of this policy, the Corporation 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 Corporation's exclusive source of
capital growth over the five years noted in the summary of Selected
Financial Data. Stockholders' equity, as stated previously, has grown
consistently over this period, except for 1999 and relates quite favorably
to the company's assets. In 1999, total Stockholders' Equity showed a
decline of approximately $600,000. The reason for this decline was that
Accumulated Other Comprehensive Income, which is primarily composed of
unrealized gains (losses) on available-for-sale securities, moved from a
gain of $1.4 million in 1998 to a loss of $2.6 million in 1999. This
resulted from an increasing rate environment during 1999, which caused in a
decline in market value of these investment securities.
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 1999, NBC
maintained an 11.8% leverage ratio that obviously allowed it to
significantly exceed the ratio required for a "well-capitalized"
institution.
Regulatory authorities also evaluate a financial institution's capital
under certain risk-weighted formulas (high-risk assets would require a
higher capital allotment, lower risk assets a lower capital allotment). In
this context, a "well-capitalized" bank is required to have a Tier 1
risk-based capital ratio (excludes reserve for loan losses) of 6.0% and a
total risk-based capital ratio (includes reserve for loan losses) of 10.0%.
At the end of 1999, the Corporation had a Tier 1 ratio of 18.4% and a total
risk-based capital ratio of 19.6%, once again placing the Corporation well
above the level required for a "well-capitalized" institution.
The Corporation's capital position obviously exceeds regulatory
requirements, even for "well-capitalized" institutions. Capital has
increased 17.1% since 1995 to total 11.4% of assets at the end of 1999.
Management considers this level of capital to be excessive in relation to
the amount needed to support the assets of the Corporation. Management is
currently considering alternatives to safely leverage the excess capital in
an effort to increase the earnings of the Corporation and improve Return of
Average Equity. There are no material commitments for the use of capital
resources that can not be funded through normal liquidity.
YEAR 2000 COMPLIANCE
During 1999, the Corporation continued its efforts to prepare for January
1, 2000. All levels of the Corporation's management and its Board of
Directors were aware of the seriousness of this issue and the effects it
could have had on the Corporation and its customers. The Corporation's
Year 2000 Steering Committee, under the leadership of the President and
Chief Operating Officer, guided it through its action plan for compliance.
The Corporation is pleased to announce that it encountered no material
problems related to Year 2000 issues.
All the dates that were identified as critical that have already passed
have not caused the Corporation any problems. However, management will
continue to monitor the remainder of the identified dates until they pass.
The dates that remain to be monitored are as follows: February 29, 2000;
March 31, 2000; December 31, 2000; and January 1, 2001. Based on the fact
that all of the critical dates have passed without any significant problems
and the fact that the contingency plans established are still in place,
management is of the opinion that the remaining critical dates will pass
without material incident. Although this is Management's opinion, there
are no guarantees and actual results could differ materially from planned
results.
Both internal and external resources were utilized to address the Year 2000
problem. A budget of $1.8 million was completed and approved by the Board
of Directors. Approximately 60% of this total was from the allocation of
the salary and benefits of current employees assigned to work on this
project. Another 4% was to be spent on items that were capitalized and
amortized or depreciated over future periods. During 1999, the company
incurred approximately $1,051,000 in both allocated and direct expenses
relating to Year 2000. This expenditure did not have a material impact on
the financial performance of the Corporation.
EXHIBIT 13.d.
CONSOLIDATED FINANCIAL STATEMENTS
NBC CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REPORT
DECEMBER 31, 1999 AND 1998
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, 1999 and 1998,
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, 1999. 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, 1999 and 1998,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/S/ T. E. LOTT & COMPANY
Columbus, Mississippi
January 21, 2000
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1998
1999 (Note B)
________ ________
ASSETS (In thousands)
Cash and due from banks (Note M) $ 80,288 $ 31,786
Interest-bearing deposits with banks 1,895 31,006
Federal funds sold 201 26,228
________ ________
Total cash and cash equivalents 82,384 89,020
________ ________
Securities available-for-sale (Note C) 200,456 183,989
Securities held-to-maturity (Note C)
(estimated fair value of $31,406 in 1999
and $45,593 in 1998) 29,824 42,259
________ ________
Total securities 230,280 226,248
________ ________
Loans (Note D) 623,751 586,833
Less allowance for loan losses (Note D) (10,194) (10,102)
________ ________
Net loans 613,557 576,731
________ ________
Interest receivable 8,847 9,246
Premises and equipment (Note E) 16,757 16,877
Intangible assets 3,288 3,518
Other assets 18,457 15,507
________ ________
Total Assets $973,570 $937,147
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 92,506 $ 97,418
Interest-bearing deposits, $100,000 or more 124,148 93,250
Other interest-bearing deposits 536,156 586,287
________ ________
Total deposits 752,810 776,955
Interest payable 2,813 3,275
Federal funds purchased and securities sold
under repurchase agreements (Note F) 28,666 10,464
Other borrowed funds (Note F) 66,857 25,163
Other liabilities 11,173 9,422
________ ________
Total liabilities 862,319 825,279
________ ________
Commitments and contingent liabilities
(Note N)
Stockholders' equity (Notes B, I and M):
Common stock - $1 par value, authorized
10,000,000 shares in 1999 and 1998; issued
7,212,662 shares in 1999 and 7,044,765
in 1998 7,213 7,045
Surplus 51,845 52,554
Retained earnings 55,410 51,552
Accumulated other comprehensive income
(Note G) (2,638) 1,376
Unearned compensation (Note J) - (657)
Treasury stock, at cost (Note K) (579) (2)
________ ________
Total stockholders' equity 111,251 111,868
________ ________
Total Liabilities and Stockholders' Equity $973,570 $937,147
======== ========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1998 1997
1999 (Note B) (Note B)
________ ________ ________
(In thousands,
except per share data)
INTEREST INCOME
Interest and fees on loans $ 52,219 $ 52,955 $ 51,682
Interest and dividends on
securities:
Taxable interest and dividends 6,981 7,748 9,566
Tax-exempt interest 5,449 5,668 4,189
Other 2,440 1,953 1,268
________ ________ ________
Total interest income 67,089 68,324 66,705
________ ________ ________
INTEREST EXPENSE
Interest on time deposits of
$100,000 or more 3,965 5,372 4,536
Interest on other deposits 24,434 25,044 24,346
Interest on borrowed funds 2,599 2,328 1,995
________ ________ ________
Total interest expense 30,998 32,744 30,877
________ ________ ________
Net interest income 36,091 35,580 35,828
Provision for loan losses (Note D) 1,769 3,187 1,482
________ ________ ________
Net interest income after
provision for loan losses 34,322 32,393 34,346
________ ________ ________
OTHER INCOME
Service charges on deposit
accounts 5,230 4,720 4,653
Insurance commissions, fees,
and premiums 3,649 538 501
Other service charges and fees 1,916 2,073 1,831
Trust Department income 1,405 1,251 1,061
Securities (losses) gains, net 37 110 (51)
Other 817 899 417
________ ________ ________
Total other income 13,054 9,591 8,412
________ ________ ________
OTHER EXPENSE
Salaries 14,696 13,110 12,042
Employee benefits (Note J) 2,849 2,914 2,609
Net occupancy expense 2,048 1,965 1,900
Furniture and equipment expense 2,165 1,813 1,658
Merger and integration expense
(Note B) 3,070 1,100 -
Other 9,141 8,199 8,041
________ ________ ________
Total other expense 33,969 29,101 26,250
________ ________ ________
Income before income taxes 13,407 12,883 16,508
Income taxes (Note H) 2,899 2,881 4,826
________ ________ ________
Net income $ 10,508 $ 10,002 $ 11,682
======== ======== ========
Net income per share:
Basic $ 1.46 $ 1.43 $ 1.68
Diluted 1.46 1.42 1.67
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C>
Accumu-
lated
Other
Compre- Unearned Compre-
hensive Common Retained Compen- Treasury hensive
Income Stock Surplus Earnings sation Stock Income Total
_______ ______ _______ ________ _______ ________ _______ ________
Balance,
January 1, 1997,
as previously
reported $5,665 $38,467 $ 31,797 $ - $ - $ 355 $ 76,284
Equity from
acquisition
accounted for as
a pooling of
interests
(Note B) 1,371 13,832 10,176 (889) - - 24,490
______ _______ ________ _______ ________ _______ ________
Balance,
January 1, 1997,
as restated 7,036 52,299 41,973 (889) - 355 100,774
Comprehensive
income:
Net income for
1997 $11,682 - - 11,682 - - - 11,682
Net change in
unrealized gains
(losses) on
securities
available-for-
sale, net of tax 263 - - - - - 263 263
_______
Comprehensive
income $11,945
=======
Cash dividends
declared, $.66
per share - - (3,556) - - - (3,556)
Pre-merger
transactions of
pooled entity:
Dividends - - (3,893) - - - (3,893)
Other 8 167 - 127 (268) - 34
______ _______ ________ _______ ________ _______ ________
Balance,
December 31, 1997 7,044 52,466 46,206 (762) (268) 618 105,304
Comprehensive
income:
Net income for
1998 $10,002 - - 10,002 - - - 10,002
Net change in
unrealized gains
(losses) on
securities
available-for-
sale, net of tax 758 - - - - - 758 758
_______
Comprehensive
income $10,760
=======
Cash dividends
declared, $.73
per share - - (3,907) - - - (3,907)
Purchase of
fractional
shares - (6) - - - - (6)
Pre-merger
transactions of
pooled entity:
Dividends - - (749) - - - (749)
Other 1 94 - 105 266 - 466
______ _______ ________ _______ ________ _______ ________
Balance,
December 31, 1998 7,045 52,554 51,552 (657) (2) 1,376 111,868
Comprehensive
income:
Net income for
1999 $10,508 - - 10,508 - - - 10,508
Net change in
unrealized gains
(losses) on
securities
available-for-
sale, net of tax (4,016) - - - - - (4,016) (4,016)
_______
Comprehensive
income $ 6,492
=======
Issuance of common
stock for
acquisition
accounted for as
a pooling of
interests
(Note B) 173 (232) - - - 2 (57)
Cash dividends
declared, $.87
per share - - (5,983) - - - (5,983)
Purchase of
treasury stock - - - - (1,900) - (1,900)
Purchase of
fractional shares - (11) - - - - (11)
Treasury shares
issued for
acquisition
(Note K) (21) (814) - - 835 - -
Exercise of
stock options - (327) - - 486 - 159
Pre-merger
transactions
of pooled
entities:
Dividends - - (667) - - - (667)
Other 16 675 - 657 2 - 1,350
______ _______ ________ _______ ________ _______ ________
Balance,
December 31, 1999 $7,213 $51,845 $55,410 $ - $ (579) $(2,638) $111,251
====== ======= ======= ======== ======== ======= ========
The accompanying notes are an integral part of these statements.
</TABLE>
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1998 1997
1999 (Note B) (Note B)
________ ________ ________
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,508 $ 10,002 $ 11,682
Adjustments to reconcile net income to
net cash:
Depreciation and amortization 2,430 2,328 2,104
Deferred income taxes (credits) (719) (1,349) 62
Provision for loan losses 1,769 3,187 1,482
FHLB stock dividend (175) (174) (185)
Losses (gains) on sale of securities (37) (110) 51
Deferred credits (154) (80) (123)
(Increase) decrease in interest receivable 399 (583) (636)
Increase in other assets (503) (5,451) (1,453)
Increase (decrease) in interest payable (462) (342) 443
Increase in other liabilities 476 854 163
Amortization of unearned compensation 657 262 127
Excess of fair market value of allocated
ESOP shares over cost 504 231 184
Other - 87 -
________ ________ ________
Net cash provided by operating activities 14,693 8,862 13,901
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale (76,330) (99,500) (77,558)
Proceeds from sales of securities
available-for-sale 12,989 29,200 9,843
Proceeds from maturities and calls of
securities available-for-sale 52,058 85,724 51,802
Purchase of securities held-to-maturity (487) - -
Proceeds from maturities and calls of
securities held-to-maturity 1,819 202 315
Increase in loans (38,441) (16,627) (29,052)
Additions to premises and equipment (1,724) (1,145) (2,535)
Other - 448 (204)
________ ________ ________
Net cash used in investing activities (50,116) (1,698) (47,389)
________ ________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits (24,145) 42,848 26,867
Dividends paid on common stock (5,344) (4,277) (7,060)
Net increase (decrease) in borrowed funds 59,896 (14,033) 21,616
Exercise of stock options 337 132 172
Acquisition of stock (1,900) (2) (449)
Other (57) 4 (392)
________ ________ ________
Net cash provided by financing activities 28,787 24,672 40,754
________ ________ ________
Net increase (decrease) in cash and
cash equivalents (6,636) 31,836 7,266
Cash and cash equivalents at beginning
of year 89,020 57,184 49,918
________ ________ ________
Cash and cash equivalents at end of year $ 82,384 $ 89,020 $ 57,184
======== ======== ========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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,
Galloway-Chandler-McKinney Insurance Agency, Inc., a wholly-owned
subsidiary of NBC,
NBC Insurance Services of Alabama, Inc., a wholly-owned subsidiary of
NBC,
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.
Galloway-Chandler-McKinney Insurance Agency, Inc., operates insurance
agencies in the NBC servicing area. NBC Insurance Services of Alabama,
Inc., sells annuity contracts in the State of Alabama. 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, 1999 and 1998.
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 related to intangible
assets was $401,330 for 1999, $331,673 for 1998, and $310,148 for 1997.
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
bases of assets and liabilities as measured by income tax laws and their
bases as reported in the financial statements. 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. NBC makes
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. An 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 employee benefits
expense.
13. Stock Options
Stock option grants are accounted for in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, no compensation expense is recognized for
stock options granted.
14. 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.
15. Net Income Per Share
Net income per share computations are based upon the weighted average
number of common shares outstanding during the periods. Diluted net income
per share computations are based upon the weighted average number of common
shares outstanding during the periods plus the dilutive effect of
outstanding stock options. Net income per share for periods prior to 1999
have been restated to reflect the effect of the FFBS Bancorp, Inc. ("FFBS")
acquisition which was accounted for as a pooling of interest.
Presented below is a summary of the components used to calculate basic and
diluted net income per share for the years ended December 31, 1999, 1998,
and 1997:
Years Ended December 31,
_________________________
1999 1998 1997
_______ _______ _______
(In thousands,
except per share data)
Basic Net Income Per Share
Weighted average common shares
outstanding 7,178 6,987 6,962
======= ======= =======
Net income $10,508 $10,002 $11,682
======= ======= =======
Basic net income per share $ 1.46 $ 1.43 $ 1.68
======= ======= =======
Diluted Net Income Per Share
Weighted average common shares
outstanding 7,178 6,987 6,962
Net effect of the assumed
exercise of stock options based
on the treasury stock method 36 32 37
_______ _______ _______
Total weighted average common
shares and common stock
equivalents outstanding 7,214 7,019 6,999
======= ======= =======
Net income $10,508 $10,002 $11,682
======= ======= =======
Diluted net income per share $ 1.46 $ 1.42 $ 1.67
======= ======= =======
16. 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.
17. Business Segments
FASB Statement No. 131, "Disclosures About Segments of an Enterprise and
Related Information," 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. Management believes the Corporation's principal activity is
community banking and that any other activities are not considered
significant segments.
18. Accounting Pronouncements
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,
2000, and is not expected to have a material effect on the Corporation's
consolidated financial statements.
19. Reclassifications
Certain prior period amounts have been reclassified to conform with the
1999 presentation.
NOTE B - ACQUISITIONS
On August 31, 1999, the Corporation acquired all of the outstanding common
stock of FFBS in exchange for 1,396,162 shares of the Corporation's common
stock and a nominal amount of cash in lieu of fractional shares.
Simultaneously, the wholly-owned subsidiary of FFBS, First Federal Bank for
Savings ("First Federal"), was merged into NBC with NBC as the surviving
institution. The acquisition of FFBS 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 FFBS and its subsidiary. The effect of the pooling of interests on
reported operations follows:
NBC FFBS
Capital Bancorp, Currently
Corporation Inc. Reported
___________ ________ _________
(In thousands)
1998:
Net interest income $ 30,877 $ 4,703 $ 35,580
Provision for loan losses 3,187 - 3,187
Other income 8,838 753 9,591
Other expense 26,056 3,045 29,101
Net income 8,494 1,508 10,002
1997:
Net interest income 31,129 4,699 35,828
Provision for loan losses 1,477 5 1,482
Other income 7,777 635 8,412
Other expense 23,768 2,482 26,250
Net income 9,918 1,764 11,682
On September 30, 1999, NBC acquired the insurance agencies of
Galloway-Wiggers Insurance Agency, Inc., Kyle Chandler Insurance Agency,
Inc., Galloway-Chandler-McKinney, Inc., and Napier Insurance Agency, Inc.
(GCM). GCM had total assets of approximately $1.4 million at acquisition.
NBC exchanged 173,184 shares of the Corporation's common stock for all of
the issued and outstanding common stock of GCM. The insurance agencies
were combined into a wholly-owned subsidiary of NBC, Galloway-Chandler-
McKinney Insurance Agency, Inc. The transaction has been accounted for as
a pooling of interests, and the Corporation's consolidated financial
statements for 1999 include the accounts of GCM. The consolidated
financial statements for periods prior to 1999 were not restated as the
changes would have been immaterial.
On December 31, 1998, the Corporation acquired all of the outstanding
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. First National's wholly-owned
subsidiary banks, First National Bank of West Point and National Bank of
the South, were merged into NBC with NBC as the surviving institution. The
merger was accounted for as a pooling of interests, and accordingly, the
financial statements include the consolidated accounts and consolidated
operations of First National for all periods presented.
The Corporation recognized approximately $3.9 million of expense associated
with the acquisitions of FFBS and GCM. The following table presents the
primary components of merger and integration expenses incurred through
December 31, 1999, and the amounts remaining as accrued expenses and
included in other liabilities at December 31, 1999:
Total Remaining
Merger and Accrued at
Integration December 31,
Description Expense 1999
______________________________________ ____________ ____________
(In thousands)
Employee contract and severance costs $ 803 $ 50
ESOP and other employee plan
terminations 564 -
Service contract terminations 341 -
Investment banker costs 447 -
Professional fees 575 21
Integration costs and other 340 82
______ ______
$3,070 $ 153
====== ======
Other expenses associated with the merger and included in other categories
in the accompanying consolidated statement of income for the year ended
December 31, 1999, totaled approximately $780,000, and consisted
principally of an additional provision for loan losses.
Merger and integration expenses associated with the First National
acquisition of $1.1 million are included in the consolidated statement of
income for the year ended December 31, 1998. Other merger-related expenses
included in other categories in the accompanying consolidated statement of
income for the year ended December 31, 1998, totaled approximately $1.8
million and consisted principally of an additional provision for loan
losses.
NOTE C - SECURITIES
A summary of amortized cost and estimated fair value of securities
available-for-sale and securities held-to-maturity at December 31, 1999 and
1998, follows:
December 31, 1999
____________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_________ __________ __________ _________
(In thousands)
Securities available-for-
sale:
U. S. Treasury securities $ 7,980 $ 4 $ 252 $ 7,732
Obligations of other
U. S. Government agencies 31,269 - 847 30,422
Obligations of states and
municipal subdivisions 76,337 174 1,005 75,506
Mortgage-backed
securities 78,489 177 2,142 76,524
Equity securities 5,294 - - 5,294
Other securities 5,129 1 152 4,978
_________ __________ __________ _________
$ 204,498 $ 356 $ 4,398 $ 200,456
========= ========== ========== =========
Securities held-to-maturity:
Obligations of states and
municipal subdivisions $ 29,824 $ 1,601 $ 19 $ 31,406
========= ========== ========== =========
December 31, 1998
____________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_________ __________ __________ _________
(In thousands)
Securities available-for-
sale:
U. S. Treasury securities $ 15,813 $ 173 $ - $ 15,987
Obligations of other
U. S. Government agencies 32,638 304 16 32,926
Obligations of states and
municipal subdivisions 82,130 1,548 48 83,630
Mortgage-backed securities 41,792 329 177 41,943
Equity securities 5,115 - - 5,115
Other securities 4,410 37 59 4,388
_________ __________ __________ _________
$ 181,898 $ 2,391 $ 300 $ 183,989
========= ========== ========== =========
Securities held-to-maturity:
Obligations of states and
municipal subdivisions $ 32,156 $ 3,288 $ - $ 35,444
Obligations of other U. S.
Government agencies 5,997 9 19 5,987
Mortgage-backed securities 4,106 58 2 4,162
_________ __________ __________ _________
$ 42,259 $ 3,355 $ 21 $ 45,593
========= ========== ========== =========
The scheduled maturities of securities available-for-sale and securities
held-to-maturity at December 31, 1999, are as follows:
Available-for-Sale Held-to-Maturity
_____________________ _____________________
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
_________ __________ __________ _________
(In thousands)
Due in one year or less $ 28,131 $ 27,736 $ 1,540 $ 1,557
Due after one year through
five years 88,662 87,137 28,284 29,849
Due after five years
through ten years 1,662 1,607 - -
Mortgage-backed securities
and other securities 86,043 83,976 - -
_________ __________ __________ _________
$ 204,498 $ 200,456 $ 29,824 $ 31,406
========= ========== ========== =========
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 $40,000, $131,000, and $22,000, and gross losses of $3,000,
$21,000, and $73,000 were realized on securities available-for-sale in
1999, 1998, and 1997, respectively.
Securities with a carrying value of $156,550,000 and $125,232,000 at
December 31, 1999 and 1998, respectively, were pledged to secure public and
trust deposits and for other purposes as required or permitted by law.
NOTE D - LOANS
Loans outstanding include the following types: (In Thousands)
December 31,
__________________
1999 1998
________ ________
(In thousands)
Commercial, financial and agricultural $101,503 $ 81,365
Real estate - construction 26,185 27,253
Real estate - mortgage 390,205 366,219
Installment loans to individuals 101,624 104,470
Other 4,234 7,526
________ ________
623,751 586,833
Allowance for loan losses (10,194) (10,102)
________ ________
$613,557 $576,731
======== ========
Transactions in the allowance for loan losses are summarized as follows:
Years Ended December 31,
____________________________
1999 1998 1997
________ ________ ________
(In thousands)
Balance at beginning of year $ 10,102 $ 8,528 $ 8,175
Additions:
Provision for loan losses charged to
operating expense 1,769 3,187 1,482
Recoveries of loans previously
charged off 380 373 593
________ ________ ________
12,251 12,088 10,250
Deductions:
Loans charged off 2,057 1,986 1,597
Allowance applicable to loans sold of
finance company - - 125
________ ________ ________
Balance at end of year $ 10,194 $ 10,102 $ 8,528
======== ======== ========
At December 31, 1999 and 1998, the recorded investment in loans considered
to be impaired totaled approximately $1,993,000 and $1,850,000,
respectively. The allowance for loan losses related to these loans
approximated $ 1,009,000 and $1,280,000 at December 31, 1999 and 1998,
respectively. The average recorded investment in impaired loans during the
years ended December 31, 1999 and 1998, was approximately $2.5 million and
$1.2 million, respectively. For the years ended December 31, 1999 and
1998, the amount of income recognized on impaired loans was immaterial.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization as follows:
Estimated December 31,
Useful Lives __________________
In Years 1999 1998
____________ ________ ________
(In thousands)
Premises:
Land - $ 3,187 $ 3,384
Buildings, construction and
improvements 10 - 50 16,902 16,550
________ ________
20,089 19,934
Equipment 3 - 10 10,964 11,561
________ ________
31,053 31,495
Less accumulated depreciation
and amortization (14,296) (14,618)
________ ________
$ 16,757 $ 16,877
======== ========
The amount charged to operating expenses for depreciation was $1,845,000
for 1999, $1,821,000 for 1998, and $1,732,000 for 1997.
NOTE F - BORROWED FUNDS
Federal funds purchased and securities sold under repurchase agreements
consisted of the following at December 31, 1999 and 1998:
December 31,
__________________
1999 1998
________ ________
(In thousands)
Federal funds purchased $ 11,015 $ -
Securities sold under agreement to repurchase 17,651 10,464
________ ________
$ 28,666 $ 10,464
======== ========
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:
1999 1998
________ ________
($ In thousands)
Average balance during the year $ 15,766 $ 12,936
Average interest rate during the year 4.00% 4.31%
Maximum month-end balance during the year 18,142 15,188
Securities underlying the repurchase agreements remain under the control
of NBC.
Other borrowed funds consisted of the following at December 31:
1999 1998
________ ________
(In thousands)
FHLB advances $ 64,395 $ 24,571
Treasury tax and loan note 2,462 592
________ ________
$ 66,857 $ 25,163
======== ========
Advances from the FHLB have maturity dates ranging from January, 2000,
through March, 2008. Interest is payable monthly at rates ranging from
5.50% to 6.63%. 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 at December 31, 1999,
are as follows:
Year Amount
____ ________
2000 $ 56,000
2001 4,035
2002 2,475
2003 1,976
2004 1,681
Thereafter 690
NOTE G - COMPREHENSIVE INCOME
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,
____________________________
1999 1998 1997
________ ________ ________
(In thousands)
Net change in unrealized gain (loss):
Net unrealized gain (loss) on securities
available-for-sale $ (6,096) $ 1,339 $ 368
Reclassification adjustment for (gains)
losses on securities available-for-sale (37) (110) 51
________ ________ ________
Net change in unrealized gains (losses)
on securities available-for-sale before
tax (6,133) 1,229 419
________ ________ ________
Income tax (expense) benefit:
Net unrealized gain (loss) on
securities available-for-sale 2,070 (496) (137)
Reclassification adjustment for gains
(losses) on securities available-for-
sale 14 41 (19)
________ ________ ________
Total income tax (expense) benefit 2,084 (455) (156)
________ ________ ________
Net change in unrealized gains (losses)
on securities available-for-sale, net
of tax before minority interest (4,049) 774 263
Minority interest in net change 33 (16) -
________ ________ ________
$ (4,016) $ 758 $ 263
======== ======== ========
NOTE H - INCOME TAXES
The provision for income taxes including the tax effects of securities
transactions [1999 - $13,965; 1998 - $41,200; 1997 - $(19,412)] is as
follows:
Years Ended December 31,
____________________________
1999 1998 1997
________ ________ ________
(In thousands)
Current tax expense $ 3,618 $ 4,230 $ 4,764
Deferred tax expense (benefit) (719) (1,349) 62
________ ________ ________
$ 2,899 $ 2,881 $ 4,826
======== ======== ========
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,
____________________________
1999 1998 1997
________ ________ ________
(In thousands)
Tax on income before income taxes $ 4,558 $ 4,380 $ 5,613
Increase (decrease) resulting from:
Tax-exempt income (1,959) (2,046) (1,424)
Nondeductible expenses 481 326 273
State income taxes, net of federal
benefit 334 345 309
Recapture of minimum tax by subsidiary (172) - -
Other, net (343) (124) 55
________ ________ ________
$ 2,899 $ 2,881 $ 4,826
======== ======== ========
The components of the net deferred tax asset included in other assets as of
December 31, 1999 and 1998, are as follows:
December 31,
__________________
1999 1998
________ ________
(In thousands)
Deferred tax assets:
Allowance for loan losses $ 3,574 $ 3,390
Employee benefits 493 386
Other 747 382
Unrealized loss on securities available-for-sale 1,380 -
________ ________
Total deferred tax assets 6,194 4,158
________ ________
Deferred tax liabilities:
Premises and equipment (949) (1,082)
Other (828) (758)
Unrealized gain on securities available-for-sale - (705)
________ ________
Total deferred tax liabilities (1,777) (2,545)
________ ________
Net deferred tax asset $ 4,417 $ 1,613
======== ========
NOTE I - STOCK OPTIONS
In connection with the business combination with FFBS, the Corporation
assumed stock options which were previously granted by FFBS and converted
those options, based upon the appropriate exchange ratio, into options to
acquire the Corporation's common stock. The stock options had been granted
to eligible employees and directors of FFBS. All options were granted with
an exercise price of $11.42 per share (as adjusted by the exchange ratio).
Activity for the assumed stock options for the three years ended
December 31, 1999, follows:
December 31,
_________________________
1999 1998 1997
_______ _______ _______
Shares under option at beginning of year 57,772 69,308 87,841
Granted - - -
Exercised 42,225 11,536 18,533
Canceled - - -
_______ _______ _______
Shares under option at end of year 15,547 57,772 69,308
======= ======= =======
Exercisable at end of year 15,547 57,772 69,308
======= ======= =======
The options outstanding have a remaining weighted average contract life of
2.4 years.
The pro forma net income and pro forma net income per share, as determined
in accordance with FASB Statement No. 123, "Accounting for Stock Based
Compensation," is not materially different from net income and net income
per share as reported.
NOTE J - EMPLOYEE BENEFITS
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the Corporation's consolidated financial statements
at December 31, 1999 and 1998:
December 31,
________________
1999 1998
_______ _______
($ In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 8,367 $ 8,727
Service cost 572 410
Interest cost 559 560
Actuarial (gain) loss (548) 491
Amendments - (996)
Benefits paid (1,835) (825)
_______ _______
Benefit obligation at end of year 7,115 8,367
_______ _______
Change in plan assets:
Fair value of plan assets at beginning of year 9,988 9,388
Expected return on plan assets 858 842
Employer contributions - -
Benefits paid (1,835) (825)
Asset gains deferred for later recognition 534 583
_______ _______
Fair value of plan assets at end of year 9,545 9,988
_______ _______
Funded status 2,430 1,621
Unrecognized net asset at adoption of Statement
No. 87 being recognized over employees' remaining
service life (26) (65)
Unrecognized net actuarial (gain) loss (332) 790
Unrecognized prior service cost (796) (868)
_______ _______
Prepaid benefit cost $ 1,276 $ 1,478
======= =======
Weighted average assumptions:
Discount rate 7.75% 7.00%
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 $ 573 $ 410
Interest cost 559 560
Expected return on plan assets (858) (842)
Amortization of prior service costs (72) (70)
Amortization of transition obligation (33) (33)
Recognized net actuarial loss 33 21
_______ _______
$ 202 $ 46
======= =======
In connection with its conversion to a stock savings and loan association
in 1993, First Federal established an ESOP. At formation, the ESOP
borrowed $1,269,000 from FFBS to purchase 126,960 shares of FFBS common
stock. The loan obligation was considered unearned compensation and, as
such, was recorded as a reduction of stockholders' equity. Cash
contributions to the ESOP were determined based on the total debt service
of the ESOP less any dividends paid on ESOP shares. Accounting for the ESOP
was in accordance with Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans." As the debt was repaid, shares were
released from collateral and allocated to qualified employees based on the
proportion of debt service paid for the year. As shares were released from
collateral, an expense was recorded equal to the fair market value of the
shares allocated. For the year ended December 31, 1999, 1998, and 1997,
employee benefit expense related to the First Federal ESOP totaled
$333,481, $379,868, and $153,244, respectively. In accordance with the
terms of the ESOP, concurrent with the business combination, the debt was
retired and the remaining unallocated shares were allocated to
participants, resulting in an additional one-time expense of $423,400.
Contributions to the Corporation's nonleveraged ESOP amounted to $100,000
in 1999, $80,000 in 1998, and $150,000 in 1997. At December 31, 1999, the
plan held 296,226 shares of the Corporation's common stock. Contributions
to the 401(k) plan amounted to $336,722 in 1999, $290,230 in 1998, and
$172,975 in 1997.
In 1993, First Federal established a Recognition and Retention Plan ("RRP")
under which awards of FFBS common stock were made to directors of First
Federal. Common stock was purchased by the RRP at its market value and was
considered unearned compensation at the time of purchase and earned ratably
over the stipulated vesting period. As such, the RRP unearned compensation
was reported as a reduction of stockholders' equity. In accordance with
the terms of the RRP, the shares awarded were immediately vested upon
consummation of the merger with NBC, resulting in an additional one-time
expense of $70,536.
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 1999, 1998, and 1997.
NOTE K - TREASURY STOCK
Shares held in treasury totaled 17,470 at December 31, 1999, and 100 at
December 31, 1998.
Upon formation of the Corporation's ESOP, the Corporation was required by
IRS regulations to provide a put option to plan participants in order to
provide liquidity to participants who received Corporation common stock.
During the year 1999, the Corporation acquired, as treasury shares, 52,788
shares of its common stock of which 47,316 shares were the result of the
exercise of the put option. Upon the acquisition of FFBS, 21,420 treasury
shares were issued and in accordance with APB Opinion No. 16, "Business
Combinations," the issuance of the treasury shares has been reported as
though the shares were retired. Additionally, in 1999, 13,898 treasury
shares were issued upon the exercise of stock options.
NOTE L - 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 1999 is
summarized as follows:
(In thousands)
Loans outstanding at January 1, 1999 $ 6,463
New loans 17,692
Repayments (10,881)
________
Loans outstanding at December 31, 1999 $ 13,274
========
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 M - 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, 1999, that the Corporation and its subsidiary
bank exceed all capital adequacy requirements.
At December 31, 1999, 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, 1999 and 1998, are
presented in the following table. No amount was deducted from capital for
interest-rate risk exposure:
NBC Capital
Corporation NBC
(Consolidated) _______________
Amount Ratio Amount Ratio
________ _____ ________ _____
($ In thousands)
December 31, 1999:
Total risk-based $120,269 19.6% $115,673 18.9%
Tier I risk-based 112,602 18.4% 108,008 17.7%
Tier I leverage 112,602 11.8% 108,008 11.4%
December 31, 1998:
Total risk-based $115,789 19.3% $112,603 19.0%
Tier I risk-based 108,295 18.1% 105,173 17.7%
Tier I leverage 108,295 11.8% 105,173 11.2%
The minimum amounts of capital and ratios as established by banking
regulators at December 31, 1999 and 1998, were as follows:
NBC Capital
Corporation NBC
(Consolidated) _______________
Amount Ratio Amount Ratio
________ _____ ________ _____
($ In thousands)
December 31, 1999:
Total risk-based $ 49,067 8.0% $ 48,858 8.0%
Tier I risk-based 24,534 4.0% 24,429 4.0%
Tier I leverage 28,560 3.0% 26,868 3.0%
December 31, 1998:
Total risk-based 47,995 8.0% 47,410 8.0%
Tier I risk-based 24,000 4.0% 23,705 4.0%
Tier I leverage 27,530 3.0% 28,170 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, 1999, the required reserve balance
with the Federal Reserve Bank was approximately $9,716,000.
NOTE N - 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, 1999 and 1998, is as follows:
Contractual Amount
__________________
December 31,
__________________
1999 1998
________ ________
(In thousands)
Commitments to extend credit $ 64,645 $ 57,509
Credit card lines 5,829 1,932
Commercial and similar letters of credit 4,588 3,523
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 1999 or 1998, 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 O - 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 D. The
distribution of commitments to extend credit approximates the distribution
of loans outstanding. Letters of credit were granted primarily to
commercial borrowers.
NOTE P - SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
____________________________
1999 1998 1997
________ ________ ________
(In thousands)
Cash paid during the year for:
Interest $ 29,195 $ 32,570 $ 30,296
Income taxes 3,840 4,500 4,559
NOTE Q - 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 - Fair values of off-balance sheet financial
instruments are based on fees charged to enter into similar agreements.
However, commitments to extend credit do not represent a significant value
until such commitments are funded or closed. Management has determined
that these instruments do not have a distinguishable fair value and no
fair value has been assigned.
December 31, 1999 December 31, 1998
____________________ ____________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
_________ _________ _________ _________
Financial Instruments: (In thousands)
Assets:
Cash and cash equivalents $ 82,384 $ 82,384 $ 89,020 $ 89,020
Investment securities
available-for-sale 200,456 200,456 183,989 183,989
Investment securities
held-to-maturity 29,824 31,406 42,259 45,593
Loans 613,557 612,609 576,731 576,171
Liabilities:
Noninterest-bearing
deposits 92,506 92,506 97,418 97,418
Interest-bearing deposits 660,304 660,495 679,537 680,536
Federal funds purchased
and securities sold under
agreements to repurchase 28,666 28,666 10,464 10,464
FHLB and other borrowings 66,857 66,854 25,163 24,588
NOTE R - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of December 31, 1999 and 1998, and statements of income
and cash flows for the years ended December 31, 1999, 1998 and 1997, of NBC
Capital Corporation (parent company only) are presented below:
BALANCE SHEETS
1999 1998
________ ________
(In thousands)
Assets
Cash and cash equivalents $ 2,605 $ 2,995
Investment in subsidiaries 108,163 110,050
Other assets 5,747 3,882
________ ________
$116,515 $116,927
======== ========
Liabilities and Stockholders' Equity
Dividends payable and other liabilities $ 5,264 $ 5,059
Stockholders' equity 111,251 111,868
________ ________
$116,515 $116,927
======== ========
STATEMENTS OF INCOME
Years Ended December 31,
____________________________
1999 1998 1997
________ ________ ________
(In thousands)
Income
Dividends from subsidiaries $ 9,393 $ 4,373 $ 6,878
Other 149 206 269
________ ________ ________
9,542 4,579 7,147
Expense 1,135 930 294
Income before income taxes and equity in
undistributed earnings of subsidiaries 8,407 3,649 6,853
Income tax benefit 258 282 34
Income before equity in undistributed
earnings of subsidiaries 8,665 3,931 6,887
Equity in undistributed earnings of
subsidiaries 1,843 6,071 4,795
________ ________ ________
Net income $ 10,508 $ 10,002 $ 11,682
======== ======== ========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
____________________________
1998 1997
1999 (Note B) (Note B)
________ ________ ________
Cash Flows From Operating Activities (In thousands)
Net income $ 10,508 $ 10,002 $ 11,682
Equity in subsidiaries' earnings in
excess of dividends (1,843) (6,071) 4,795)
Other, net (2,148) (469) (75)
________ ________ ________
Net cash provided by operating activities 6,517 3,462 6,812
________ ________ ________
Cash Flows From Investing Activities - 1,750 1,712
________ ________ ________
Cash Flows From Financing Activities
Dividends paid on common stock (5,344) (4,277) (7,060)
Other (1,563) 134 (871)
________ ________ ________
Net cash used in financing activities (6,907) (4,143) (7,931)
________ ________ ________
Net increase (decrease) in cash and cash
equivalents (390) 1,069 593
Cash and cash equivalents at beginning
of year 2,995 1,926 1,333
________ ________ ________
Cash and cash equivalents at end of year $ 2,605 $ 2,995 $ 1,926
======== ======== ========
EXHIBIT 21
SUBSIDIARIES OF NBC CAPITAL CORPORATION
State of
Incorpora- % Holder of
Subsidiary tion Business Ownership Outstanding Stock
__________________ ___________ ___________ _________ _________________
National Bank of Mississippi Financial 100% NBC Capital Corp.
Commerce Institution
First National Mississippi Finance 100% NBC Capital Corp.
Finance Company Company
Galloway-Chandler- Mississippi Insurance 100% National Bank of
McKinney Insurance Agency Commerce
Agency, Inc.
NBC Service Mississippi Insurance 100% National Bank of
Corporation Commerce
NBC Insurance Alabama Insurance 100% National Bank of
Services of Commerce
Alabama, Inc.
Philadelphia Mississippi Finance 100% National Bank of
Finance Company Commerce
Corporation
(Inactive)
Commerce National Mississippi Credit Life 79% NBC Service
Insurance Co. Insurance Corporation
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of NBC Capital Corporation on Form S-8 (SEC File No. 333-87407) of our
report dated January 21, 2000, relating to the consolidated financial
statements of NBC Capital Corporation which appear in this Form 10-K.
/S/ T. E. LOTT & COMPANY
Columbus, Mississippi
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The amounts for the years ended December 31, 1998 and 1997, have been
restated to reflect the pooled acquisition of FFBS Bancorporation, Inc.
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
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