SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 31, 2004
NBC CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Mississippi 1-15773 64-0694755
(State or Other Jurisdiction (Commission (IRS Employer
Of Incorporation) File Number) Identification No.)
NBC Plaza, Starkville, Mississippi 39759
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (662)-323-1341
(Former Name or Former Address, if Changed Since Last Report)
NBC Capital Corporation ("NBC") hereby amends its Current Report on Form 8-K,
dated April 1, 2004, in order to file the financial statements and pro forma
financial information required by Item 7 of Form 8-K.
ITEM 7
FINANCIAL STATEMENTS AND EXHIBITS
Item 7(a) Financial Statements of acquired business.
____________________________________________________
Following are the audited consolidated financial statements of Enterprise
Bancshares, Inc., for the year ended December 31, 2003 and the unaudited
consolidated financial statements of Enterprise Bancshares, Inc. for the
three-month period ended March 31, 2004:
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Enterprise Bancshares, Inc.
Memphis, Tennessee
We have audited the accompanying consolidated balance sheet of Enterprise
Bancshares, Inc. as of December 31, 2003, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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 that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2003 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Enterprise
Bancshares, Inc. as of December 31, 2003, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
/S/ Crowe Chizek and Company LLC
Louisville, Kentucky
February 5, 2004
ENTERPRISE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 2003
ASSETS
Cash and due from financial institutions $ 6,881,429
Securities available for sale 68,228,017
Loans held for sale 891,445
Loans, net of allowance of $3,297,589 206,602,535
Federal Home Loan Bank and Federal Reserve
Bank stock, at cost 3,015,300
Premises and equipment, net 3,531,214
Other real estate owned 1,688,871
Accrued interest receivable and other assets 3,260,291
Assets identified for disposal 807,622
____________
Total assets $294,906,724
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 33,745,028
Interest bearing 199,167,826
____________
Total deposits 232,912,854
Federal funds purchased and repurchase agreements 7,164,463
Federal Home Loan Bank advances 26,000,000
Subordinated debentures 6,000,000
Accrued expenses and other liabilities 3,118,612
Liabilities associated with assets identified for disposal 116,095
____________
Total liabilities 275,312,024
Shareholders' equity:
Preferred stock, $1 par value; 3,000,000 shares
authorized; none outstanding -
Common stock, $1 par value; 7,000,000 shares
authorized; 993,995 issued and outstanding in 2003 993,995
Additional paid-in capital 9,398,614
Retained earnings 8,781,628
Accumulated other comprehensive income 715,711
Amount reclassified on ESOP shares (295,248)
____________
Total shareholders' equity 19,594,700
____________
Total liabilities and shareholders' equity $294,906,724
============
ENTERPRISE BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 2003
Interest income
Loans, including fees $ 12,154,850
Securities: taxable 1,587,665
tax exempt 607,935
Federal funds sold and other 10,534
____________
14,360,984
____________
Interest expense
Deposits 3,432,727
Federal funds purchased and repurchase
agreements 41,725
Federal Home Loan Bank advances 1,391,182
Subordinated debenture 271,431
____________
5,137,065
____________
Net interest income 9,223,919
Provision for loan losses 414,594
____________
Net interest income after
provision for loan losses 8,809,325
____________
Noninterest income
Service charges on deposit accounts 679,790
Net gains on sales of securities 339,503
Net gains on sales of loans 913,529
Other 734,541
____________
2,667,363
____________
Noninterest expense
Salaries and employee benefits 5,936,087
Occupancy and equipment 1,359,962
Other 2,444,187
____________
9,740,236
____________
Income from continuing operations before income taxes 1,736,452
Income tax expense 460,678
____________
Income from continuing operations 1,275,774
Loss from discontinued operations (including loss on
disposal of $488,227) 242,105
Income tax benefit from discontinued operations (75,137)
____________
Net income $ 1,108,806
============
Earnings per share:
Basic:
Income from continuing operations $ 1.28
Discontinued operations (0.17)
____________
Net income $ 1.11
============
Diluted:
Income from continuing operations $ 1.25
Discontinued operations (0.17)
____________
Net income $ 1.08
============
ENTERPRISE BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31
Accumu-
lated
Other
Amount
Compre-
Reclassi-
hensive
fied
Common Stock Paid-In Retained Income/ on
ESOP
Shares Par Value Capital Earnings (Loss)
Shares Total
__________ __________ ___________ __________ __________
__________ ___________
Balance,
January 1,
2003 1,031,979 $1,031,979 $10,724,817 $8,165,808 $ 698,470 $
- $20,621,074
Shares issued
for exercise of
stock options,
including tax
benefit of
$138,846 28,220 28,220 458,861 - -
- 487,081
Issuance of
common stock 522 522 16,704 - -
- 17,226
Stock repurchase (66,726) (66,726) (1,801,768) - -
- (1,868,494)
Dividends paid
($0.50 per
common share) - - - (492,986) -
- (492,986)
Reclassification
of common stock
in ESOP subject
to repurchase
obligation - - - - -
(295,248) (295,248)
Comprehensive
income:
Net income - - - 1,108,806 -
- 1,108,806
Change in net
unrealized
gain on
securities
available for
sale, net of
tax effects - - - - 17,241
- 17,241
___________
Total
comprehen-
sive income
1,126,047
__________ __________ ___________ __________ __________
__________ ___________
Balance,
December 31,
2003 993,995 $ 993,995 $ 9,398,614 $8,781,628 $ 715,711
$(295,248) $19,594,700
=========== ========== =========== ========== ==========
========== ===========
ENTERPRISE BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 2003
Cash flows from operating activities
Net income $ 1,108,806
Adjustments to reconcile net income
to net cash from operating activities:
Provision for loan losses 414,594
Depreciation 666,810
Net amortization (accretion) of securities 510,364
Gain on sale of available for sale
securities, net (339,503)
Gain on sale of mortgage loans, net (913,529)
Federal Home Loan Bank and Federal
Reserve Bank dividends (95,100)
Changes in:
Loans held for sale 8,734,609
Accrued interest and other assets 4,385,496
Accrued interest and other liabilities 146,988
____________
Net cash from operating activities 14,619,535
Cash flows from investing activities
Available-for-sale securities:
Sales 10,543,898
Maturities, prepayments and calls 19,231,816
Purchases (46,933,288)
Net increase in loans (26,987,069)
Purchase of Federal Home Loan Bank
and Federal Reserve Bank stock (226,950)
Purchases of premises and equipment, net (347,841)
____________
Net cash from investing activities (44,719,434)
Cash flows from financing activities
Net change in deposits 19,361,789
Net change in federal funds purchased
and repurchase agreements 3,355,318
Proceeds from Federal Home Loan Bank advances 38,000,000
Repayments on Federal Home Loan Bank advances (38,000,000)
Issuance of common stock 17,226
Exercise of stock options 487,081
Stock repurchase (1,868,494)
Cash dividends paid (492,986)
____________
Net cash from financing activities 20,859,934
____________
Net change in cash and cash equivalents (9,239,965)
Beginning cash and cash equivalents 16,121,394
____________
Ending cash and cash equivalents $ 6,881,429
============
Supplemental cash flow information:
Interest paid $ 5,309,330
Income taxes paid 1,015,000
Supplemental noncash disclosures:
Transfers from loans to repossessed assets $ 3,665,946
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated
financial statements include Enterprise Bancshares, Inc. and its wholly owned
subsidiary, Enterprise National Bank, which includes its wholly-owned
subsidiaries, Enterprise Staff Solutions, Inc. (ESS) and Enterprise Insurance
Solutions, Inc. (EIS), together referred to as "the Company". As further
discussed in "Sale of the Company and Discontinued Operations" below, the
Company has committed to dispose of ESS. As further discussed in Note 8, a
trust that had previously been consolidated with the Company is now reported
separately. Intercompany transactions and balances are eliminated
in consolidation.
The Company provides financial services through its offices in Memphis,
Tennessee and the surrounding area. Its primary deposit products are checking,
savings, and term certificate accounts, and its primary lending products are
residential mortgage, commercial, and installment loans. Substantially all
loans are secured by specific items of collateral including business assets,
consumer assets and real estate. Commercial loans are expected to be repaid
from cash flow from operations of businesses. Real estate loans are secured by
both residential and commercial real estate. EIS provides commercial insurance
coverage to businesses. Other financial instruments which potentially
represent concentrations of credit risk include deposit accounts in other
financial institutions.
Sale of the Company and Discontinued Operations: On December 11, 2003, the
Company entered into a definitive agreement to sell all outstanding shares to
NBC Capital Corporation (NBC), subject to shareholder and regulatory
approval. NBC will pay $48.00 in cash for each outstanding share. Outstanding
options at the date of sale will be converted into options of NBC. The
transaction is expected to close near April 1, 2004.
In connection with the sale, the Company agreed to dispose of ESS, which is a
professional employer organization offering employee benefits and human
resources management, payroll administration and worker's compensation
for small to medium sized businesses. Because of the Company's commitment to
dispose of ESS, it has been reflected as a discontinued operation in the
accompanying financial statements. Management anticipates selling ESS, which
continues to operate, prior to April 1, 2004. During 2003, ESS had revenue of
$791,637 and a pretax loss of $242,105. Excluding the estimated loss on
disposal of net assets of $488,227, ESS would have had pretax income of
$246,122.
Upon consummation of the merger, the Chief Executive Officer and outside
directors will receive aggregate payments associated with the change of control
of approximately $938,000 (Note 14).
Operating Segments: While executive management monitors the revenue streams of
the various products and services, the identifiable segments other than banking
are not material and operations are managed and financial performance is
evaluated on a company-wide basis. Accordingly, all of the financial service
operations are considered by management to be aggregated in one reportable
operating segment.
Use of Estimates: To prepare financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions based on available information.
These estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. The
allowance for loan losses, fair values of financial instruments, and estimated
litigation losses are particularly subject to change.
Cash Flows: Cash and cash equivalents include cash and deposits with other
financial institutions less than 90 days. Net cash flows are reported for
loan, deposit, and repurchase agreement transactions.
Securities: All securities in the Company's portfolio are classified as
available for sale. Securities are classified as available for sale when
they might be sold before maturity. Securities available for sale are carried
at fair value, with unrealized holding gains and losses reported in other
comprehensive income.
Interest income includes amortization of purchase premium or discount. Gains
and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.
Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs,
and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income on
mortgage and commercial loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well secured and in process of collection.
Consumer loans are typically charged off no later than 180 days past due. In
all cases, loans are placed on nonaccrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
All interest accrued but not received for loans placed on nonaccrual is
reversed against interest income. Interest received on such loans is accounted
for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are
reasonably assured.
Loans Held for Sale: Loans originated and intended for sale in the secondary
market are carried at the lower of cost or market in the aggregate. Net
unrealized losses, if any, are recorded as a valuation allowance and charged to
earnings. No servicing is retained on loans sold in the secondary market.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management
estimates the allowance balance required using past loan loss experience, the
nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or
loans otherwise classified as substandard or doubtful. The general component
covers non-classified loans and is based on historical loss experience adjusted
for current factors.
A loan is impaired when full payment under the loan terms is not expected.
Commercial and commercial real estate loans are individually evaluated for
impairment. If a loan is impaired, a portion of the allowance is allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Large groups of smaller
balance homogeneous loans, such as consumer and residential real estate loans,
are collectively evaluated for impairment, and accordingly, they are not
separately identified for impairment disclosures.
Other real estate owned: Assets acquired through or instead of loan
foreclosure are initially recorded at fair value when acquired, establishing a
new cost basis. If fair value declines, a valuation allowance is recorded
through expense. Costs after acquisition are expensed.
Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Buildings and related components
are depreciated using the straight-line method with useful lives ranging from
5 to 33 years. Furniture, fixtures and equipment are depreciated using the
straight-line (or accelerated) method with useful lives ranging from 3 to 7
years.
Goodwill and Other Intangible Assets: Goodwill results from prior business
acquisitions and represents the excess of the purchase price over the fair
value of acquired tangible assets and liabilities and identifiable intangible
assets. Upon adopting new accounting guidance on January 1, 2002, the Company
ceased amortizing goodwill. Goodwill is assessed at least annually for
impairment and any such impairment will be recognized in the period identified.
Identifiable acquisition intangibles, primarily customer contracts and non-
compete agreements, are recorded at cost and amortized on the straight-line
basis over the estimated useful life, six to ten years for customer contracts,
and three to five years for non-compete agreements. Goodwill and other
intangible assets of $393,006 at December 31 are included in other assets.
Amortization expense was $50,000 in 2003.
Long-term Assets: Premises and equipment and other long-term assets are
reviewed for impairment when events indicate their carrying amount may not be
recoverable from future undiscounted cash flows. If impaired, the assets
are recorded at discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to
cover these liabilities, which are not covered by federal deposit insurance.
Stock Compensation: Employee compensation expense under stock options is
reported using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and earnings
per share if expense was measured using the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Net income as reported $1,108,806
Deduct: Stock-based compensation expense
determined under fair value based method (284,941)
__________
Pro forma net income $ 823,865
==========
Basic earnings per share as reported $ 1.11
Pro forma basic earnings per share .83
Diluted earnings per share as reported $ 1.08
Pro forma diluted earnings per share .81
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions for options granted during the year.
Risk-free interest rate 3.88%
Expected option life 10 years
Dividend yield 1.67%
Weighted average fair value of
options granted during the year $ 5.05
Income Taxes: Income tax expense is the total of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest. Participants may put their ESOP shares back to the
Company upon termination, and an amount of equity equal to these shares times
current market price is reclassified out of shareholders' equity and included
in other liabilities.
Off-Balance Sheet Financial Instruments: Financial instruments include off-
balance sheet credit instruments, such as commitments to make loans and standby
letters of credit, issued to meet customer-financing needs. The face
amount for these items represents the exposure to loss, before considering
customer collateral or ability to repay. Such financial instruments are
recorded when they are funded. Instruments, such as standby letters of credit,
that are considered financial guarantees in accordance with FASB Intrepretation
No. 45 are recorded at fair value.
Earnings Per Common Share: Basic earnings per common share is net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under stock options. Unearned ESOP
shares are not considered outstanding for earnings per share.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity.
Adoption of New Accounting Standards: During 2003, the Company adopted FASB
Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, FASB Interpretation 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, and FASB Interpretation 46, Consolidation of
Variable Interest Entities. Adoption of the new standards did not materially
affect the Company's operating results or financial condition.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. See Note 18 for further discussion of legal actions.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank
of $62,000 was required to meet regulatory reserve and clearing requirements at
year-end 2003. This balance does not earn interest.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
NOTE 2 - SECURITIES
The fair value of available for sale securities and gross unrealized gains and
losses recognized in accumulated other comprehensive income were as follows:
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
___________ ___________ ___________
2003
U. S. Treasury securities $ 1,005,940 $ 6,090 $ -
Obligations of U. S. Government
agencies 20,521,472 78,343 -
State and municipal obligations 17,507,070 598,153 (18,392)
Mortgage-backed securities 28,206,905 453,802 (40,294)
Corporate bonds 986,630 6,709 -
___________ ___________ ___________
Total $68,228,017 $ 1,143,097 $ (58,686)
=========== =========== ===========
Sales of available for sale securities at year-end 2003 were as follows:
Proceeds $10,543,898
Gross gains 339,503
Contractual maturities of securities available for sale at year-end 2003 are
shown below. Securities not due at a single maturity date, primarily mortgage-
backed securities, are shown separately.
Fair Value
___________
Due in one year or less $ 1,005,940
Due after one year to five years 9,512,654
Due after five years to ten years 13,858,917
Due after ten years 15,643,601
Mortgage-backed 28,206,905
___________
$68,228,017
===========
Securities pledged at year-end 2003 had carrying amounts of $50,869,771, and
were pledged to secure public deposits and repurchase agreements.
At year-end 2003, there were no holdings of securities of any one issuer, other
than the U. S. Government and its agencies, in an amount greater than 10% of
shareholders' equity.
Securities with unrealized losses at year-end 2003 not recognized in income are
as follows:
Less than 12 Months
12 Months or More Total
______________________ ________________ ____________________
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Loss Value Loss Value Loss
________________ ___________ __________ _____ __________ ___________ _________
State and
municipal
obligations $ 2,774,687 $ (18,392) $ - $ - $ 2,774,687 $(18,392)
Mortgage-backed
securities 8,160,180 (40,294) - - 8,160,180 (40,294)
___________ __________ _____ __________ ___________ _________
Total temporarily
impaired $10,934,867 $ (58,686) $ - $ - $10,934,867 $(58,686)
=========== ========= ===== ========== =========== ========
All of the securities are backed by the U. S. Government and its agencies.
There are no concerns of credit loss and there is nothing to indicate that full
principal will not be received. Management considers the unrealized losses to
be market driven and no loss will be incurred unless the securities are sold.
While these securities are held in the available for sale portfolio, the
current intent and ability is to hold them to maturity.
NOTE 3 - LOANS
Loans at year-end 2003 were as follows:
Commercial $ 53,203,864
Real estate:
Mortgage 63,303,279
Construction and development 83,766,712
Installment 9,525,013
Other 101,256
____________
Subtotal 209,900,124
Less allowance for loan losses 3,297,589
____________
Loans, net $206,602,535
============
Activity in the allowance was as follows:
Balance at beginning of year $ 2,903,366
Provision for loan losses 414,594
Loans charged-off (594,407)
Recoveries 574,036
____________
Ending balance $ 3,297,589
============
Impaired loans were as follows:
Loans with no allocated allowance
for loan losses $ -
Loans with allocated allowance for loan losses 2,571,733
____________
Total $ 2,571,733
============
Amount of the allowance for loan
losses allocated $ 1,029,243
Average of impaired loans during the year $ 3,697,214
Interest income recognized during impairment 14,372
Cash-basis interest income recognized 14,372
Nonperforming loans were as follows:
Loans past due over 90 days still on accrual $ 2,187,348
Nonaccrual loans 2,441,149
Nonperforming loans and impaired loans are defined differently. Some loans may
be included in both categories, whereas other loans may only be included in one
category. At year end, impaired loans consisted principally of all nonaccrual
loans.
Loans to principal officers, directors, and their affiliates and significant
shareholders in 2003 were as follows:
Beginning balance $ 8,415,246
Effect of changes in related parties (2,396,104)
New loans, including renewals 2,982,984
Repayments (4,283,899)
____________
Ending balance $ 4,718,227
============
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
Land $ 814,022
Buildings 1,974,082
Furniture, fixtures and equipment 4,494,272
Leasehold improvements 791,314
Automobiles 215,414
____________
8,289,104
Less accumulated depreciation and amortization 4,757,890
____________
$ 3,531,214
============
Depreciation expense was $666,810 for 2003.
Rent expense for 2003 was $314,726. Rent commitments under noncancelable
operating leases were as follows, before considering renewal options that
generally are present.
Year ending December 31:
2004 $ 320,931
2005 336,919
2006 212,921
2007 171,244
2008 66,252
Thereafter 18,174
____________
Total $ 1,126,441
============
NOTE 5 - OTHER REAL ESTATE OWNED
Foreclosed real estate is reported net of a valuation allowance. Activity in
the account was as follows:
Beginning of year $ 1,508,625
Additions 3,850,789
Sales (3,447,442)
Valuation adjustments (223,101)
____________
End of year $ 1,688,871
============
NOTE 6 - DEPOSITS
Time deposits of $100,000 or more were $56,413,171 at year-end 2003.
Scheduled maturities of time deposits for the next five years were as follows:
2004 $ 86,401,759
2005 13,957,800
2006 1,053,403
2007 5,440,818
2008 3,681,551
Thereafter 1,070,883
____________
Total $111,606,214
============
Deposits from principal officers, directors and their affiliates at year-end
2003 were approximately $3,168,336.
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured by mortgage-backed
securities with a carrying amount of $6,749,963 at year-end 2003.
Securities sold under agreements to repurchase are financing arrangements that
mature daily. At maturity, the securities underlying the agreements are
returned to the Company. Information concerning securities sold under
agreements to repurchase is summarized as follows:
Average daily balance during the year $ 2,221,974
Average interest rate during the year .62%
Maximum month-end balance during the year 7,458,343
Weighted average interest rate at year-end. 60%
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER DEBT
At year-end, advances from the Federal Home Loan Bank were as follows:
Federal Home Loan Bank convertible fixed rate
advances with interest rates ranging from 4.45%
to 5.92%. $ 26,000,000
Each advance is a convertible fixed rate advance payable at its maturity date,
with a prepayment penalty. The advances have fixed-rate periods ranging from
one to five years with maturities up to ten years if not called earlier
by the Federal Home Loan Bank. Total advances of $3,000,000 mature in 2008,
with the rest maturing thereafter. FHLB advances are secured by substantially
all of the 1-4 family mortgage loans.
Subordinated Debentures and Trust Preferred Securities
______________________________________________________
On December 19, 2002, Enterprise (TN) Statutory Trust I, a newly-formed
Connecticut business trust and subsidiary of Enterprise Bancshares issued
6,000 floating rate trust preferred securities at $1,000 per share to a Trust
Preferred Securities Pool. The Company issued subordinated debentures to the
trust in exchange for the proceeds of the offering; the debentures and related
debt issuance costs represent the sole assets of the trust. The floating rate
is equal to the three-month LIBOR rate plus 3.25%, and reprices quarterly. The
securities are scheduled to mature in 30 years and they cannot be redeemed by
Enterprise (TN) Statutory Trust I for a minimum of five years.
Prior to 2003, the trust was consolidated in the Company's financial
statements, with the trust preferred securities issued by the trust reported in
liabilities as "trust preferred securities" and the subordinated debentures
eliminated in consolidation. Under new accounting guidance, FASB
Interpretation No. 46, as revised in December 2003, the trust is no longer
consolidated with the Company. Accordingly, the Company does not report the
securities issued by the trust as liabilities, and instead reports as
liabilities the subordinated debentures issued by the Company and held by
the trust, as these are no longer eliminated in consolidation. Amounts
previously reported as "trust preferred securities" in liabilities have been
recaptioned "subordinated debentures" and continue to be presented in
liabilities on the balance sheet. The effect of no longer consolidating the
trust does not significantly change the amounts reported as the Company's
assets, liabilities, equity, or interest expense.
The subordinated debentures are fully, irrevocably and unconditionally
guaranteed on a subordinated basis by the Company. The proceeds of the
Preferred Securities were invested in junior subordinated debentures of the
Company. The net proceeds to the Company from the sale of the junior
subordinated debentures, after deducting underwriting commissions and
estimated offering expenses, were approximately $5.82 million. These
proceeds, which are included in the regulatory capital calculation as
additional capital, will be used for general corporate purposes, including
investments from time to time in the Bank in the form of additional capital.
Distributions on the subordinated debentures are payable quarterly on
March 26, June 26, September 26 and December 26 of each year that the
Preferred Securities are outstanding. The Preferred Securities are
classified as long-term debt, while the distributions are recorded as
interest expense in the Company's consolidated financial statements.
NOTE 9 - INCOME TAXES
The components of income tax expense (benefit) are as follows:
Current $ 818,428
Deferred (357,750)
__________
Total $ 460,678
==========
The provision for income taxes differs from the amount computed at the
statutory rate as follows:
Federal statutory rate (benefit) 34.0%
Add (subtract) the effect of:
State taxes, net of federal benefit 3.6
Tax-exempt interest income (11.7)
Other 0.6
__________
Effective rate (benefit) 26.5%
==========
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows at December 31.
Deferred tax assets:
Allowance for loan losses $ 963,007
Deferred compensation 210,375
Self-insured medical plan 4,700
Other real estate owned write downs 84,640
Mark to market 4,927
Accrued expenses 322,897
Other 20,362
__________
Total deferred tax assets 1,610,908
Deferred tax liabilities:
Depreciation $ 51,046
Unrealized gain on securities 411,642
Federal Home Loan Bank stock dividends 190,888
Other 74,013
__________
Total deferred tax liabilities 727,589
__________
Net deferred tax asset $ 883,319
==========
NOTE 10 - CAPITAL REQUIREMENTS AND RESTRICTIONS
ON RETAINED EARNINGS
Banks and bank holding companies are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators.
Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are
not used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required. At year-end 2003, the
most recent regulatory notifications categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the Institution's category.
The Bank's actual and required capital amounts (in thousands) and ratios are
presented below at year-end. The holding company is substantially the same as
the Bank.
To Be Well
Capitalized
Under
Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
______________ ______________ ______________
Amount Ratio Amount Ratio Amount Ratio
_______ _____ _______ _____ _______ _____
(Dollars in Thousands)
2003
Total Capital (to risk
weighted assets) $27,317 12.5% $17,424 8.0% $21,788 10.0%
Tier I Capital (to risk
weighted assets) $24,589 11.3% $ 8,712 4.0% $13,068 6.0%
Tier I Capital (to average
assets) $24,589 8.6% $11,487 4.0% $14,359 5.0%
The Company's primary source of funds to pay dividends to stockholders is the
dividends it receives from the Bank. The Bank is subject to certain regulations
on the amount of dividends it may declare without prior approval of the
Comptroller of the Currency. Under these regulations, the amount of dividends
that may be paid in any calendar year is limited to current year's net income
combined with its retained net income of the preceding two years. At December
31, 2003, the Company had approximately $394,000 of retained earnings
available for dividends in future periods.
NOTE 11 - STOCK AND STOCK OPTIONS
The Board of Directors and shareholders approved incentive stock option plans
(the "Plans") in 1991 and in 1997 to enable eligible officers and key employees
to purchase up to an aggregate of 200,000 (100,000 shares for each Plan)
shares of the Company's $1 par value common stock. During 2000, the Incentive
Stock Option Plan of 1997 was amended to allow for issuance of non-qualified
stock options to non-employee directors and consultants and to increase the
number of shares that could be issued under the Plan from 100,000 shares to
500,000 shares.
The exercise price of the options granted under these Plans generally equals
the estimated fair value of the stock at the grant date. The fair value of the
stock is estimated by management and the Board of Directors. The vesting
period for all options is five years, and all options expire 10 years from
their date of grant.
A summary of the activity in the plan is as follows.
Weighted
Average
Exercise
Shares Price
________ _______
Outstanding at beginning of year 249,380 $ 26.03
Granted 78,400 30.00
Exercised (28,220) 12.34
Forfeited (20,460) 30.39
________
Outstanding at end of year 279,100 28.21
========
Options exercisable at year-end 158,280 26.31
Options outstanding at year-end 2003 were as follows.
Outstanding Exercisable
_________________________ ___________________
Weighted Average Weighted
Range of Remaining Average
Exercise Contractual Exercise
Prices Number Life Number Price
______ _______ ____ _______ _____
$ 8 - $ 14 8,500 1.71 8,500 $11.41
$ 15 - $ 20 28,000 3.65 28,000 18.21
$ 21 - $ 24 28,700 5.01 28,700 24.00
$ 25 - $ 32 213,900 7.63 93,080 30.82
_______ _______
Outstanding at year-end 279,100 6.78 158,280 $26.31
======= =======
NOTE 12 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
Basic
Net income from continuing operations $1,275,774
==========
Weighted average common shares outstanding 997,797
__________
Basic earnings per common share
from continuing operations $ 1.28
==========
Diluted
Net income from continuing operations $1,275,774
==========
Weighted average common shares
outstanding for basic earnings per
common share 997,797
Add: Dilutive effects of assumed
exercises of stock options 25,697
__________
Average shares and dilutive potential
common shares 1,023,494
==========
Diluted earnings per common share
from continuing operations $ 1.25
==========
Options for 233,000 shares of common stock were not considered in
computing diluted earnings per common share for 2003 because, based on
the average share price during the year, they were antidilutive.
NOTE 13 - OTHER COMPREHENSIVE INCOME
Unrealized holding gains and losses
on available for sale securities, net of tax $ 227,733
Less reclassification adjustments for gains
and losses later recognized in income,
net of tax (210,492)
_________
Other comprehensive income $ 17,241
=========
NOTE 14 EMPLOYEE BENEFIT PLANS AND CONTRACTS
The Bank sponsors a profit sharing 401(k) plan (the "401(k) Plan") to
provide eligible employees with retirement benefits. Employees may
contribute up to 15% of their eligible compensation to the 401(k) Plan.
The Bank matches a minimum of 25% of the first 6% of an employee's eligible
compensation. Additionally, the 401(k) Plan provides that the Bank may make
annual discretionary profit sharing contributions. The Bank made matching
contributions of approximately $93,150 during 2003.
The Bank maintains a deferred compensation arrangement with the Chief
Executive Officer providing for annual retirement benefits. As of
December 31, 2003 all benefits under this agreement were vested and the
amount accrued for benefits under the plan was $550,000.
Effective January 1, 2004, the Company entered into an employment agreement
with the Chief Executive Officer which provides for a payment of 2.99 times
his base salary in the event of a change of control such as the sale of the
Company described in Note 1. Using the base salary in place at January 1,
2004, a payment of approximately $650,000 will be due upon closing the sale.
During 2002, the Company formed an Employee Stock Option Plan (ESOP). The
Company makes discretionary contributions to the ESOP which the Plan uses to
purchase shares of Company stock as shares become available. Employees are
eligible to participate after one year of service and vest in accordance with
a schedule, which provides for 100% vesting upon completion of five years of
service. Shares of the Company's stock have been acquired in non-leveraged
transactions. Thus, there are no unearned ESOP shares. At the time of
purchase, the shares are released and allocated to eligible employees
determined by a formula specified in the Plan. Dividends on allocated shares
increase participant accounts. Compensation expense of $113,110 was recognized
during 2003 and at December 31, 2003 there were 6,151 shares of Company stock
in the Plan.
Because the Company's stock is not traded on an established market, it is
required to provide the participants in the Plan with a put option to
repurchase their shares. At December 31, 2003, the fair value of the shares
in the Plan had an estimated fair value of $295,248 based on the merger
agreement discussed in Note 1. This repurchase obligation is reflected in the
Company's financial statements in other liabilities and reduces shareholders'
equity by the estimated fair value of shares held by the ESOP.
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were as
follows at year-end (in thousands).
Carrying Fair
Amount Value
________ ________
Financial assets
Cash and cash equivalents $ 6,881 $ 6,881
Securities available for sale 68,228 68,228
Loans held for sale 891 904
Loans, net 206,603 206,829
Federal Home Loan Bank and
Federal Reserve Bank stock 3,015 3,015
Accrued interest receivable 1,338 1,338
Financial liabilities
Deposits 232,913 233,239
Federal funds purchased and
repurchase agreements 7,164 7,164
Federal Home Loan Bank advances 26,000 28,636
Long-term debt 6,000 6,000
Accrued interest receivable 500 500
The methods and assumptions used to estimate fair value are described as
follows.
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank and Federal Reserve Bank stock,
accrued interest receivable and payable, demand deposits, short-term debt,
and variable rate loans or deposits that reprice frequently and fully.
Security fair values are based on market prices or dealer quotes, and if no
such information is available, on the rate and term of the security and
information about the issuer. For fixed rate loans or deposits and for
variable rate loans or deposits with infrequent repricing or repricing limits,
fair value is based on discounted cash flows using current market rates applied
to the estimated life and credit risk. Fair values for impaired loans are
estimated using discounted cash flow analysis or underlying collateral values.
Fair value of loans held for sale approximates carrying value. Fair value of
debt is based on current rates for similar financing.
NOTE 16 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer-financing needs.
These are agreements to provide credit or to support the credit of others,
as long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-
sheet risk to credit loss exists up to the face amount of these instruments,
although material losses are not anticipated. The same credit policies are
used to make such commitments as are used for loans, including obtaining
collateral at exercise of the commitment. The contractual amount of financial
instruments with off-balance-sheet risk was as follows at year end (in
thousands).
Fixed Variable
Rate Rate
__________ ___________
Commitments to make loans
(at market rates) $1,323,400 $ -
Unused lines of credit and
letters of credit 3,060,736 53,880,815
Commitments to make loans are generally made for periods of 30 days or less.
The fixed rate loan commitments have interest rates ranging from 5.50% to 6.25%
and maturities ranging from 5 years to 30 years.
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEET
December 31, 2003
ASSETS
Cash and cash equivalents $ 75,239
Investment in subsidiaries 25,700,233
Other assets 190,877
___________
Total assets $25,966,349
===========
LIABILITIES AND EQUITY
Subordinated debenture $ 6,000,000
Other liabilities 371,640
Shareholders' equity 19,594,709
___________
Total liabilities and shareholders' equity $25,966,349
===========
CONDENSED STATEMENT OF INCOME
Year ended December 31, 2003
Interest and dividend income $ 492,987
Operating expense (308,726)
___________
Income before income tax and
undistributed subsidiary income 184,261
Income tax expense (benefit) (118,211)
Equity in undistributed subsidiary income 806,334
___________
Net income $ 1,108,806
===========
STATEMENT OF CASH FLOWS
Year ended December 31, 2003
Cash flows from operating activities
Net income $ 1,108,806
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net income of subsidiary (806,334)
Change in other assets and other liabilities 196,860
___________
Net cash from operating activities 499,332
Cash flows from investing activities
Investment in subsidiary 1,381,412
Cash flows from financing activities
Exercise of stock options 487,081
Cash dividends paid (492,986)
Stock repurchase (1,868,494)
___________
Net cash from financing activities (1,874,399)
___________
Net change in cash 6,345
Beginning cash and cash equivalents 68,894
___________
Ending cash and cash equivalents $ 75,239
===========
NOTE 18 - LITIGATION
The Company is involved in litigation surrounding certain loan and contractual
matters. The claim asks for compensatory and treble damages amounting to $6
million. The Company believes the claim lacks merit and is vigorously
defending its position. Estimated losses associated with this litigation are
included in other liabilities. While management believes the recorded amounts
are sufficient to cover any loss arising from the litigation, the outcome of
this matter cannot be firmly predicted.
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Earnings
Net Net Per Share
Interest Interest Income ______________
Income Income (Loss) Basic Diluted
__________ __________ __________ _____ _______
2003
First quarter $3,453,258 $2,140,440 $ 436,295 $0.43 $0.42
Second quarter 3,551,132 2,281,452 516,990 0.52 0.51
Third quarter 3,551,145 2,298,176 374,433 0.38 0.37
Fourth quarter 3,805,449 2,503,851 (218,912) (.22) (.22)
During the fourth quarter, net income was reduced by the effects of
1) providing an estimate of loss on net assets held for sale from the
discontinued operations, 2) an increase in the benefits due to the Chief
Executive Officer under a deferred compensation arrangement (Note 14), and
3) a change in estimated loss on a litigation matter.
ENTERPRISE BANCSHARES, INC.
Condensed Consolidated Financial Statements (unaudited) as of and for the
three-month period ended March 31, 2004
CONDENSED CONSOLIDATED BALANCE SHEET
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENTERPRISE BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2004
(Unaudited)
(Amounts in thousands)
ASSETS
Cash and due from banks $ 9,613
Available-for sale securities 59,453
Loans 214,708
Less: Reserve for loan losses (4,547)
________
Net loans 210,161
Bank premises and equipment (net) 3,289
Interest receivable 1,214
Other assets 7,195
________
Total assets $290,925
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 32,809
Interest bearing deposits 196,505
________
Total deposits 229,314
Federal funds purchased and securities sold
under agreements to repurchase 8,434
Other borrowed funds 26,000
Interest payable 522
Subordinated debentures 6,000
Other liabilities 1,186
________
Total liabilities 271,456
Stockholder's equity:
Common stock 994
Surplus and undivided profits 17,450
Accumulated other comprehensive income 1,025
________
Total shareholders' equity 19,469
________
Total liabilities and stockholders' equity $290,925
========
ENTERPRISE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2004
(Unaudited)
(Amounts in thousands, except per share data)
Interest income
Interest and fees on loans $ 3,175
Interest and dividends on investment securities 650
Other interest income 32
________
Total interest income 3,857
Interest expense
Interest on deposits 843
Interest on borrowed funds 374
________
Total interest expense 1,217
________
Net interest income 2,640
Provision for possible loan losses 1,290
________
Net interest income after provision for
loan losses 1,350
Non-interest income
Service charge on deposit accounts 203
Insurance commissions and fee income 27
Other non-interest income 161
________
Total non-interest income 391
Non-interest expense
Salaries and employee benefits 1,427
Expense of premises and fixed assets 295
Other non-interest expense 1,049
________
Total non-interest expense 2,771
________
Income (loss) from continuing operations before
income taxes (1,030)
Income tax benefit (427)
________
Income (loss) from continuing operations (603)
Loss from discontinued operations (231)
Income tax benefit from discontinued operations (88)
________
Net income (loss) $ (746)
========
Net earnings per share:
Basic and diluted:
Loss from continuing operations $ (0.61)
Discontinued operations (0.17)
________
Net loss $ (0.78)
========
ENTERPRISE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004
(Unaudited)
(Amounts in thousands)
Cash flows from operating activities
Net income (loss) $ (746)
Adjustments to reconcile net income to net cash
Depreciation and amortization 151
Deferred income taxes (credits) (1,213)
Provision for loan losses 1,290
Loss (gain) on sale of securities 0
(Increase) decrease in interest receivable 119
(Increase) decrease in other assets (1,731)
Increase (decrease) in interest payable 22
Increase (decrease) in other liabilities (1,549)
________
Net cash used in operating activities (3,657)
Cash flows from investing activities
Proceeds from maturities of securities 8,500
Proceeds from sale of securities 0
Purchase of securities 3,758
(Increase) decrease in loans (3,957)
(Additions) disposal of bank premises and equipment 104
Other investing activities 0
________
Net cash provided by investing activities 8,405
Cash flows from financing activities
Increase (decrease) in deposits (3,599)
Change in liability for ESOP 295
Increase (decrease) in borrowed funds 1,270
Purchase of treasury stock 0
Other financing activities 18
________
Net cash used in financing activities (2,016)
________
Net increase (decrease) in cash and cash equivalents 2,732
Cash and cash equivalents at beginning of year 6,881
________
Cash and cash equivalents at end of quarter $ 9,613
========
Interest paid $ 1,195
========
Income tax paid $ 0
========
ENTERPRISE BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited condensed consolidated financial statements include
the accounts of Enterprise Bancshares, Inc. ("Enterprise") and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. In the normal decision making process, management makes certain
estimates and assumptions that affect the reported amounts that appear in these
statements. Although management believes that the estimates and assumptions
are reasonable and are based on the best information available, actual results
could differ.
In the opinion of management, all adjustments necessary for the fair
presentation of the financial statements presented in this report have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting Principles
have been condensed or omitted.
Note 1. Earnings per share
Even though Enterprise had outstanding options during the quarter, as described
in Notes 11 and 12 of the audited consolidated financial statements as of
December 31, 2003, and for the year ended December 31, 2003, they were not
considered in the quarterly earnings per share calculation. Including these
outstanding options would have been anti-dilutive due to the net loss reflected
for the quarter.
Note 2. Reserve for loan losses
During the first quarter of 2004, the reserve for loan losses for Enterprise
was evaluated and adjusted to an amount determined utilizing the methodology
of NBC Capital Corporation. For additional information on the evaluation
method used by NBC Capital Corporation, see Management's Discussion and
Analysis in NBC Capital Corporation's Form 10-Q for the quarter ended March 31,
2004, filed with the Securities and Exchange Commission on May 6, 2004.
Item 7(b) Pro forma financial information.
__________________________________________
As of the close of business on March 31, 2004, NBC Capital Corporation ("NBC")
completed its acquisition of Enterprise Bancshares, Inc. ("ENB"). This section
contains the unaudited pro forma consolidated financial information relating to
such acquisition as of the close of business on March 31, 2004, as required by
Rule 11-02 of Regulation S-X.
The following unaudited pro forma combined condensed financial information has
been derived from NBC's and ENB's historical financial statements under the
assumptions and adjustments set forth in the accompanying notes. The
information does not incorporate or assume any cost savings in connection
with the acquisition. The pro forma combined condensed statements of income
data account for the acquisition as a purchase transaction and assume that the
acquisition had occurred at the beginning of the periods presented. The pro
forma combined condensed consolidated balance sheet data assume that the
acquisition occurred on March 31, 2004.
The unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
acquisition had been consummated at the assumed time.
The unaudited pro forma combined condensed financial information reflects that
the common stock of ENB was purchased for cash of $48 per common share and that
NBC acquired 100% of all outstanding common stock of ENB. The information also
reflects that NBC purchased stock options covering 258,100 of ENB's 279,100
shares subject to outstanding stock options for the difference between the
exercise price of the respective option and the $48 per share purchase price.
The remaining vested options (covering 21,000 shares of ENB common stock) were
converted into options to acquire 39,039 shares of NBC common stock.
NBC CAPITAL CORPORATION
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
(IN THOUSANDS)
NBC ENTERPRISE PRO FORMA
CAPITAL BANCSHARES COMBINED
CORP. INC. ADJUSTMENTS CONSOLIDATED
__________ __________ ___________ ____________
ASSETS:
Cash and Cash
Equivalents $ 91,922 $ 9,613 $ (52,904) $ 48,631
(A)(B)(C)
Available-for-sale
securities 356,729 59,453 416,182
Held-to-maturity
securities 35,856 0 35,856
__________ __________ ____________
Total securities 392,585 59,453 452,038
Loans 595,027 214,708 809,735
Less: reserve for
loan losses (6,633) (4,547) (11,180)
__________ __________ ____________
Net loans 588,394 210,161 798,555
Bank premises and
equipment (net) 15,716 3,289 134 19,139
(A)(B)(C)
Goodwill 2,853 32,103 34,956
(A)(B)(C)
Core deposit premium 5,461 5,461
(A)(B)(C)
Other assets 39,339 8,409 (169) 47,579
(C)
__________ __________ ___________ ____________
TOTAL ASSETS $1,130,809 $ 290,925 $ (15,375) $ 1,406,359
========== ========== =========== ============
LIABILITIES AND
SHAREHOLDERS'EQUITY
Non-interest bearing
deposits $ 111,911 $ 32,809 $ 144,720
Interest-bearing
deposits 719,713 196,505 916,218
__________ __________ ____________
Total deposits 831,624 229,314 1,060,938
Other borrowed
funds 121,630 34,434 156,064
Other liabilities 63,344 7,708 3,740 74,792
(C)
__________ __________ ___________ ____________
TOTAL LIABILITIES 1,016,598 271,456 3,740 1,291,794
__________ __________ ___________ ____________
Common equity 9,616 994 (994) 9,616
(A)(B)(C)
Surplus and
undivided profits 131,836 17,450 36,950
(A)(B)(C)
354
(54,400) 132,190
Accumulated other
comprehensive income 657 1,025 (1,025) 657
(A)(C)
Treasury stock at cost (27,898) (27,898)
__________ __________ ___________ ____________
TOTAL SHAREHOLDERS'
EQUITY 114,211 19,469 (19,115) 114,565
__________ __________ ___________ ____________
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $1,130,809 $ 290,925 $ (15,375) $ 1,406,359
========== ========== =========== ============
NBC CAPITAL CORPORATION
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
(IN THOUSANDS, ACCEPT SHARE DATA)
NBC ENTERPRISE PRO FORMA
CAPITAL BANCSHARES COMBINED
CORP. INC. ADJUSTMENTS CONSOLIDATED
__________ __________ ___________ ____________
INTEREST INCOME:
Interest and fees on
loans $ 8,321 $ 3,175 $ $ 11,496
Interest and dividends
on securities 4,190 650 (261) 4,579
(C)(D)
Other 158 32 190
__________ __________ ___________ ____________
Total interest income 12,669 3,857 (261) 16,265
INTEREST EXPENSE:
Interest on deposit 2,838 843 3,681
Interest on borrowed
funds 1,388 374 66 1,828
(C)(D)
__________ __________ ___________ ____________
Total interest
expense 4,226 1,217 66 5,509
__________ __________ ___________ ____________
Net interest income 8,443 2,640 (327) 10,756
Provision for loan
losses 675 1,290 1,965
__________ __________ ___________ ____________
Net interest income
after provision for
loan losses 7,768 1,350 (327) 8,791
OTHER INCOME:
Service charges on
deposit accounts 1,940 203 2,143
Insurance commission,
fees and premiums 1,177 27 1,204
Other income 1,740 161 1,901
__________ __________ ___________ ____________
Total other income 4,857 391 - 5,248
OTHER EXPENSES:
Salaries and employee
benefits 5,032 1,427 6,459
Net premises and
fixed asset expense 1,185 295 (1) 1,479
(C)(D)
Other expenses 2,167 1,049 384 3,600
(C)(D)
__________ __________ ___________ ____________
Total other expenses 8,384 2,771 383 11,538
Income (loss) before
income taxes 4,241 (1,030) (710) 2,501
Income taxes 1,148 (427) (272) 449
(D)
__________ __________ ___________ ____________
Net income (loss)
before extraordinary
items 3,093 (603) (438) 2,052
Loss from
discontinued
operations - 231 (231)
Income tax benefit
from discontinued
operations (88) 88
__________ __________ ___________ ____________
Net income (loss)
from continuing
operations $ 3,093 $ (746) $ (438) $ 1,909
========== ========== =========== ============
Earning per share:
Basic: Income (loss) from
continuing
operations $ 0.38 $ (0.61) $ 0.25
Discontinued
operations - (0.17) (0.02)
__________ __________ ____________
Net income (loss) $ 0.38 $ (0.78) $ 0.23
========== ========== ============
Diluted:
Income (loss) from
continuing
operations $ 0.38 $ (0.61) $ 0.23
Discontinued
operations - (0.17) (0.02)
__________ __________ ____________
Net income (loss) $ 0.38 $ (0.78) $ 0.21
========== ========== ============
Average common
shares-basic 8,168,224 994,126 8,168,224
Average common
shares-diluted 8,189,568 1,019,823 8,198,428
NBC CAPITAL CORPORATION
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2003
(UNAUDITED)
(IN THOUSANDS, ACCEPT SHARE DATA)
NBC ENTERPRISE PRO FORMA
CAPITAL BANCSHARES COMBINED
CORP. INC. ADJUSTMENTS CONSOLIDATED
__________ __________ ___________ ____________
INTEREST INCOME:
Interest and fees on
loans $ 34,073 $ 12,155 $ $ 46,228
Interest and dividends
on securities 17,242 2,196 (918) 18,520
(C)(D)
Other 262 10 272
__________ __________ ___________ ____________
Total interest
income 51,577 14,361 (918) 65,020
INTEREST EXPENSE:
Interest on deposit 12,838 3,432 16,270
Interest on borrowed
funds 5,043 1,705 1,463 8,211
(C)(D)
__________ __________ ___________ ____________
Total interest
expense 17,881 5,137 1,463 24,481
Net interest income 33,696 9,224 (2,381) 40,539
Provision for loan
losses 2,770 415 3,185
__________ __________ ___________ ____________
Net interest income
after provision for
loan losses 30,926 8,809 (2,381) 37,354
OTHER INCOME:
Service charges on
deposit accounts 7,774 680 8,454
Insurance commission,
fees and premiums 4,256 - 4,256
Other income 8,615 1,987 10,602
__________ __________ ___________ ____________
Total other income 20,645 2,667 - 23,312
OTHER EXPENSES:
Salaries and employee
benefits 19,867 5,936 25,803
Net premises and fixed
asset expense 4,687 1,360 (2) 6,045
(C)(D)
Other expenses 9,000 2,444 1,537 12,981
(C)(D)
__________ __________ ___________ ____________
Total other expenses 33,554 9,740 1,535 44,829
Income before income
taxes 18,017 1,736 (3,916) 15,837
Income taxes 4,492 460 (1,498) 3,454
(D)
__________ __________ ___________ ____________
Net income (loss)
before extraordinary
items 13,525 1,276 (2,418) 12,383
Loss from
discontinued
operations - 242 242
Income tax benefit
from discontinued
operations (75) (75)
__________ __________ ___________ ____________
Net income from
continuing
operations $ 13,525 $ 1,109 $ (2,418) $ 12,216
========== ========== =========== ============
Earning per share:
Basic:
Income from
continuing
operations $ 1.65 $ 1.28 $ 1.51
Discontinued
operations - (0.17) (0.02)
__________ __________ ____________
Net income $ 1.65 $ 1.11 $ 1.49
========== ========== ============
Diluted:
Income from
continuing
operations $ 1.65 $ 1.25 $ 1.51
Discontinued
operations - (0.17) (0.02)
__________ __________ ____________
Net income $ 1.65 $ 1.08 $ 1.49
========== ========== ============
Average common
shares-basic 8,173,989 997,797 8,173,989
Average common
shares-diluted 8,186,729 1,023,494 8,195,692
NOTES TO UNAUDITED COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The pro forma information is not necessarily indicative of the results of
operations or the combined financial position that would have resulted had
the acquisition been consummated at the beginning of each of the periods
indicated, nor is it necessarily indicative of the results of operations
in future periods or the future financial position of the combined company.
Under accounting principles generally accepted in the United States of
America, the acquisition is accounted for using the purchase method of
accounting and, as such, the assets and liabilities of ENB are recorded at
their estimated fair market value. The allocation of the total purchase cost
reflected in the unaudited pro forma combined condensed consolidated financial
information is based on an evaluation of ENB's balance sheet by an
independent third party. The allocation of the total purchase cost has been
made to the major categories of assets and liabilities in the accompanying
unaudited pro forma combined condensed consolidated financial information.
The unaudited pro forma combined condensed consolidated statements of income
give effect to the acquisition as if the acquisition had occurred on January 1,
2003 and January 1, 2004, respectively. The unaudited pro forma combined
condensed balance sheet assumes the acquisition was consummated at the close of
business on March 31, 2004. Certain reclassifications have been included in
the unaudited pro forma combined condensed consolidated balance sheet and
unaudited pro forma combined condensed consolidated statements of income to
conform the presentation.
Assumptions relating to the pro forma adjustments set forth in the unaudited
pro forma combined condensed consolidated financial statements are summarized
as follows:
INVESTMENT SECURITIES. Fair values are based on quoted market prices. The
premium recorded on the write-up of these securities will be amortized against
interest income over the remaining lives of the individual securities to
approximate a constant yield to maturity.
LAND, BUILDINGS AND EQUIPMENT. The fair values for the land and building were
determined using a combination of the "Sales Comparison Approach" and the
"Income Approach". The "Sales Comparison Approach" uses values paid for
recently sold comparable property and current listings. The "Income Approach"
considers the net income that a property will produce and then the amount of
capital that would reasonably be paid to receive this income. An "Asset Based
Approach" was used for all other fixed assets. This approach includes those
methods that seek to write up or down or otherwise adjust the various tangible
and /or intangible assets of the company. The valuation indicated that the
land should be written up to current fair value and the buildings be written
down to their fair value. As a result, the effect on depreciation will be
realized on the remaining lives of the buildings. There was no material
difference between book and fair value of all other fixed assets.
CORE DEPOSIT PREMIUM. A fair value for the core deposit premium has been
determined to be $5,461,000 based on a "Discounted Cash Flow Approach". This
premium will be amortized against income over a ten-year period using an
accelerated amortization method that approximates the actual lives of these
acquired deposits.
OTHER. Based upon the review of the independent third party, the carrying
values of all other assets and liabilities of ENB approximates their fair
market values.
NOTE B - CALCULATION OF PURCHASE PRICE
The acquisition included cash based on a per share purchase price of $48 per
outstanding share of ENB common stock. Additionally, NBC offered to purchase
all of ENB's outstanding options for the difference between the exercise price
of the respective option and the $48 per share purchase price. All options
were purchased, except for options covering 21,000 shares that were converted
into options to acquire NBC common stock. The intrinsic value of the converted
options and the total acquisition cost are also part of the total purchase
price. These items are described in the following table (In Thousands):
(IN THOUSANDS)
Cash for outstanding common shares $ 47,737
Cash for outstanding options 5,167
Intrinsic value of vested options 354
Acquisition cost 2,137
________
Total purchase price $ 55,395
========
NOTE C - PURCHASE PRICE ADJUSTMENT
The following table reflects the purchase accounting adjustments to reflect the
acquisition of ENB:
(IN THOUSANDS)
CALCULATION OF COST OF ACQUIRED ENTITY
Total purchase price of acquired entity 55,395
Book equity, excluding investment mark to market (below) 18,445
________
Excess of acquisition cost over book value $ 36,950
========
ALLOCATION OF PURCHASE PRICE:
Write up of fixed assets $ 134
Adjust securities for mark to market 1,553
Core deposit intangible 5,461
Goodwill 32,103
Contract write-offs (169)
Deferred tax liabilities (2,132)
________
$ 36,950
========
The unaudited pro forma combined condensed consolidated balance sheet at
March 31, 2004 reflects the one-time acquisition costs that total
approximately $2.1 million. This amount consists of investment banking
fees, legal fees, severance arrangements and other professional costs.
Acquisition and integration cost are not included in the unaudited pro
forma condensed statements of income.
NOTE D - PRO FORMA ADJUSTMENTS
Pro forma adjustments that were calculated for the acquisition are as follows
(in thousands):
March 31,2004 December 31, 2003
_____________ _________________
Amortization of core deposit intangible $ 384 $1,537
Amortization of premium on investments 261 918
Reduction in depreciation for adjustment
to fixed assets (1) (2)
Interest expense on borrowings to
finance acquisition 66 1,463
______ ______
Total adjustments $ 710 $3,916
====== ======
The interest expense in the table above reflects the cost of the borrowings to
finance the acquisition of ENB. The $30 million in Trust Preferred Securities
were issued on December 30, 2003 and the $24 million in Federal Home Loan Bank
borrowings was completed on March 29, 2004. As a result, for the period ended
March 31, 2004, the only adjustment required was for 89 days of interest cost
on the $24 million of Federal Home Loan Bank Borrowing at the rate of 1.1%.
The Trust Preferred Securities were already included in the operation of
NBC for the period. For the year ended December 31, 2003, the interest costs
of the Trust Preferred Securities at the rate of 4.02% and the Federal Home
Loan Board Borrowings are included for the full year.
NOTE E -COST SAVINGS AND REVENUE ENHANCEMENTS
As a result of the acquisition, NBC anticipates cost savings, revenue
enhancements and other operating synergies. The cost savings, revenue
enhancements and other operating synergies are expected to be achieved
in various amounts at various times during the periods subsequent to the
acquisition and not ratably over or at the beginning or end of such periods.
For the purpose of preparing the pro forma statement of income, we have
not taken into account any adjustments on a pro forma basis or otherwise to
reflect the anticipated cost savings, revenue enhancements and other operating
synergies that are expected. We have, however, shown as pro forma
adjustments interest expense associated with the borrowings incurred to fund
the acquisition of ENB and also the pro rata amortization of the core deposit
premium, the amortization of the premium created from the mark to market
adjustment on the securities portfolio and the anticipated decrease in
depreciation expense associated with writing the fixed assets to their fair
market value. The dilution shown in the pro forma condensed statement of
income does not reflect management's expectations for the actual
financial performance of the combined company if the estimated cost savings,
revenue enhancements and operating synergies are recognized.
Item 7(c) - The Consent of Crowe Chizek and Company, LLC, is included as
________________________________________________________________________
Exhibit 23.1.
____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NBC CAPITAL CORPORATION
By: /s/ Richard T. Haston
_______________________
Richard T. Haston
Executive Vice President,
Chief Financial Officer and
Treasurer
Date: June 10, 2004
EXHIBIT INDEX
23.1 Consent of Crowe Chizek and Company LLC