UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended March 31, 2003.
Commission File Number 1-15773
NBC CAPITAL CORPORATION
(Exact name of registrant as specified in its charter.)
Mississippi 64-0694775
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
NBC Plaza, P. O. Box 1187, Starkville, Mississippi 39760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (662) 323-1341
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $1 Par Value - 8,170,478 shares as of March 31, 2003.
PART I - FINANCIAL INFORMATION
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME FOR
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
(Amounts in thousands, except per share data)
2003 2002
________ ________
INTEREST INCOME:
Interest and Fees on Loans $ 8,721 $ 10,578
Interest and Dividends on Investment Securities 4,819 4,819
Other Interest Income 94 83
________ ________
Total Interest Income 13,634 15,480
INTEREST EXPENSE:
Interest on Deposits 3,628 4,726
Interest on Borrowed Funds 1,323 1,430
________ ________
Total Interest Expense 4,951 6,156
________ ________
Net Interest Income 8,683 9,324
Provision for Loan Losses 750 630
________ ________
Net Interest Income After Provision for
Loan Losses 7,933 8,694
________ ________
NON-INTEREST INCOME:
Income from Fiduciary Activities 412 439
Service Charge on Deposit Accounts 1,793 1,600
Insurance Commissions, Fees and Premiums 1,218 901
Mortgage Loan Fee Income 440 403
Other Non-Interest Income 760 735
________ ________
Total Non-Interest Income 4,623 4,078
Gains on Securities 701 91
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 4,982 4,860
Expense of Premises and Fixed Assets 1,193 1,146
Other Non-Interest Expense 2,240 2,023
________ ________
Total Non-Interest Expense 8,415 8,029
________ ________
Income Before Income Taxes 4,842 4,834
Income Taxes 1,259 1,289
________ ________
NET INCOME $ 3,583 $ 3,545
======== ========
Net Earnings Per Share:
Basic $ 0.44 $ 0.43
======== ========
Diluted $ 0.44 $ 0.43
======== ========
Note 1: The 2002 statement has been restated to reflect the adoption of
FASB No. 147," Acquisition of Certain Financial Institutions".
Note 2: The 2002 Earnings Per Share amounts have been restated for the
4-for-3 stock split, accounted for as a stock dividend, that
occurred during the third quarter of 2002.
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
Mar. 31, 2003 Dec. 31, 2002
_____________ _____________
(Unaudited) (Audited)
ASSETS:
Cash and Balances Due From Banks:
Noninterest-Bearing Balances $ 29,092 $ 27,865
Interest-Bearing Balances 11,367 567
__________ __________
Total Cash and Due From Banks 40,459 28,432
Held-To-Maturity Securities (Market value of
$46,591 at March 31, 2003 and $46,975 at
December 31, 2002) 43,404 43,792
Available-For-Sale Securities 371,661 349,991
__________ __________
Total Securities 415,065 393,783
Federal Funds Sold and Securities Purchased
Under Agreement to Resell 7,199 28,486
Loans 568,901 584,707
Less: Reserve for Loan Losses(5,962)(6,029)
Net Loans 562,939 578,678
Bank Premises and Equipment (Net) 14,618 14,816
Interest Receivable 6,963 7,605
Goodwill 2,853 2,853
Other Assets 23,764 22,803
__________ __________
TOTAL ASSETS $1,073,860 $1,077,456
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NonInterest-Bearing Deposits $ 107,408 $ 103,502
Interest-Bearing Deposits 713,078 713,945
__________ __________
Total Deposits 820,486 817,447
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 17,620 25,599
Other Borrowed Funds 115,580 112,941
Interest Payable 1,584 1,626
Other Liabilities 8,414 8,736
__________ __________
TOTAL LIABILITIES 963,684 966,349
__________ __________
Shareholders' Equity:
Common Stock $1 par Value, Authorized
10,000,000 Shares, Issued 9,615,806
Shares 9,616 9,616
Surplus and Undivided Profits 126,481 124,710
Accumulated Other Comprehensive Income 1,828 4,122
Treasury Stock, at cost (1,445,328 at
March 31,2003 and 1,428,352 at
December 31, 2002) (27,749) (27,341)
__________ __________
TOTAL SHAREHOLDERS' EQUITY 110,176 111,107
__________ __________
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,073,860 $1,077,456
========== ==========
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
(Amounts in thousands)
2003 2002
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,583 $ 3,545
Adjustments to Reconcile Net Income
to Net Cash:
Depreciation and Amortization 511 536
Deferred Income Taxes (Credits) 2,479 1,858
Provision for Loan Losses 750 630
Loss (Gain) on Sale of Securities (701) (91)
(Increase) Decrease in Interest
Receivable 642 460
(Increase) Decrease in Other Assets (2,299) (1,440)
Increase (Decrease) in Interest
Payable (42) (340)
Increase (Decrease) in Other
Liabilities (322) 3,383
__________ __________
Net Cash Provided by Operating Activities 4,601 8,541
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities and Calls of
Securities 36,935 9,607
Proceeds from Sale of Securities 60,816 4,909
Purchase of Securities (121,808) (35,618)
Increase) Decrease in Loans 14,989 30,149
(Additions) Disposal of Bank Premises
and Equipment (270) (216)
__________ __________
Net Cash (Used) Provided in Investing
Activities (9,338) 8,831
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Deposits 3,039 (13,022)
Dividend Paid on Common Stock (1,801) (1,731)
Increase (Decrease) in Borrowed Funds (5,340) (6,816)
Purchase of Treasury Stock (430) (322)
Other Financing Activities 9 0
Net Cash (Used) by Financing Activities (4,523) (21,891)
__________ __________
Net Increase (Decrease) in Cash and Cash
Equivalents (9,260) (4,519)
Cash and Cash Equivalents at Beginning
of Year 56,918 43,525
__________ __________
Cash and Cash Equivalents at End of Quarter $ 47,658 $ 39,006
========== ==========
Interest $ 4,993 $ 6,496
========== ==========
Income Taxes $ - $ -
========== ==========
Note 1: The 2002 statement has been restated to reflect the adoption of
FASB Statement No. 147, "Acquisition of Certain Financial
Institutions".
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include the
accounts of NBC Capital Corporation ("Corporation") and its subsidiaries,
National Bank of Commerce and First National Finance Company. 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 statement presented in this report have been
made. Such adjustments were of a normal recurring nature.
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. Accounting Pronouncements
The Corporation adopted FASB Statement No. 147, "Acquisition of Certain
Financial Institutions," which became effective October 1, 2002. This
Statement applied to unidentified intangible assets resulting from the
acquisition of less-than-whole financial institutions. The Corporation
had an unidentified intangible asset that resulted from such an acquisition.
Management determined that the acquisition met the requirements of a
business combination and, in accordance with FASB Statement No. 147, the
related unidentified intangible asset was reclassified as goodwill and
accounted for in accordance with FASB Statement No. 142. As a result, the
Corporation reversed all related amortization expense recognized after FASB
Statement No. 142 was applied. This reversal required the Corporation to
restate each of the first three quarters of 2002, by reversing the previously
recorded amortization. This reversal reduced the first quarter's other
operating expense by $28,000 and caused net income for that quarter to
increase by approximately $18,500. This change did not cause the earnings
per share to change.
At March 31, 2003, the Corporation had approximately $2.8 million of goodwill
on its balance sheet, including approximately $800,000 of unidentified
intangible assets reclassified as goodwill, which will remain at that level
unless it becomes impaired under the definition of impairment in FASB
Statement No. 142.
Note 2. Stock Options
The Corporation accounts for stock options 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.
Had compensation for the stock options been determined based on FASB
Statement No. 123, "Accounting for Stock Based Compensation," net
income and per share amounts would have been as follows:
Quarter Ended
March 31,
2003 2002
______ ______
Net income:
As reported $3,583 $3,545
Pro forma 3,518 3,505
Basic net earnings per share:
As reported $ .44 $ .43
Pro forma .43 .42
Diluted net earnings per share:
As reported $ .44 $ .43
Pro forma .43 .42
Note 3. Stock Split
During the third quarter of 2002, the Corporation had a four-for-three
(4 for 3) stock split. This stock split was accounted for as a stock
dividend. As a result of the split, all per share amounts and the weighted
average number of shares outstanding reported in this Form 10-Q for the
quarter ended March 31, 2002, have been restated to reflect this stock
split.
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARCH 31, 2003
DISCLOSURE REGARDING FORWARD LOOKING INFORMATION
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial condition
for the quarter ended March 31, 2003. 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. The Private Securities Litigation Act of 1995 encourages
the disclosure of forward-looking information by management by providing a safe
harbor for such information. This discussion includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Corporation believes that the expectations reflected in such
forward-looking statements are reasonable, such forward-looking statements are
based on numerous assumptions (some of which may prove to be incorrect) and are
subject to risks and uncertainties which could cause the actual results to
differ materially from the Corporation's expectations. The forward-looking
statements made in this document are based on management's beliefs, as well as
assumptions made by and information currently available to management. When
used in the Corporation's documents, the words "anticipate," "estimate,"
"expect," "objective," "projection," "forecast," "goal" and similar expressions
are intended to identify forward-looking statements. In addition to any
assumptions and other factors referred to specifically in connection with
forward-looking statements, factors that could cause the Corporation's actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, increased competition, regulatory factors,
economic conditions, changing interest rates, changing market conditions,
availability or cost of capital, employee workforce factors, cost and other
effects of legal and administrative proceedings, and changes in federal, state
or local laws and regulations. The Corporation undertakes no obligation to
update or revise any forward-looking statements, whether as a result of
changes in actual results, changes in assumptions or other factors affecting
such statements.
The two major trends that can have a material impact on the Corporation's
financial condition and results of operations are the trend in interest rates
and the overall trend in the economy. Currently, management expects, based on
the available information, that interest rates will remain at their current
levels during the second and third quarters of 2003 and trend upward slightly
during the last quarter, and the overall economy in its market will remain
relatively flat throughout the year. The Corporation's 2003 projections,
budgets and goals are based on these expectations. If these trends
move differently than expected in either direction or speed, it could have a
material impact on the Corporation's financial condition and results of
operations. Another risk is that interest rates continue at current levels for
an extended period of time. If this happens, as existing loans in our
portfolio mature, they will be paying off at an older, higher interest rate.
The new loans that will be replacing them will be made at much lower interest
rates. Rates on deposits are at a level that will make it very difficult to
offset this loss in yield with a reduced cost of deposits. This situation,
if it occurs, will put additional pressure on the Corporation's net interest
margin and net income. The areas of the Corporation's operations most
directly impacted by all the above described situations would be the net
interest margin, loan and deposit growth and the provision for loan losses.
ACCOUNTING ISSUES
Note A of the Notes to Consolidated Financial Statements included in the
Corporation's Form 10-K for the year ended December 31, 2002, contains a
summary of the Corporation's accounting policies. Management is of the
opinion that Note A, read in conjunction with all other information in the
annual report, including management's letter to shareholders and management's
discussion and analysis, is sufficient to provide the reader with the
information needed to understand the Corporation's financial condition and
results of operations. This information is also sufficient to enable the
reader to identify the areas in which management is required to make the most
difficult, subjective and /or complex judgments.
In the normal course of business, the Corporation's wholly-owned subsidiary,
National Bank of Commerce, makes loans to related parties, including
directors and executive officers of the Corporation and their relatives and
affiliates. These loans are made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other parties.
Also, they are consistent with sound banking practices and within the
applicable regulatory and lending limitations imposed by the national
banking laws and regulations.
Under Section 402 of the Sarbanes-Oxley Act of 2002, loans to executive
officers are generally prohibited. However, the rule does not apply to any
loan made or maintained by an insured depository institution if the loans
are subject to the insider lending restrictions of section 22(h) of the
Federal Reserve Act. All loans to executive officers made by the
Corporation's bank subsidiary are subject to the above referenced section
of the Federal Reserve Act.
The Corporation does not have investments in any unconsolidated entities
over which it exercises management or control. The Corporation does not
have relationships with limited or special purpose entities that it relies
on to provide financing, liquidity or market and credit risk support.
RESULTS OF OPERATIONS
First quarter of 2003 compared to the first quarter of 2002
Earnings for the first quarter of 2003 increased by 1.1% to $3.58 million,
or $.44 per share. This compares to $3.55 million, or $.43 per share, for
the first quarter of 2002. On an annualized basis, these 2003 totals
equate to a 1.3% return on average assets and a 13.0% return on average
equity. For this same period in 2002, return on average assets was 1.4%
and return on average equity was 13.8%.
Net interest income for the first quarter of 2003 was $8.68 million,
compared to $9.32 million for 2002. This represents a decrease of 6.9%.
This decrease resulted from a thirty-seven basis point decrease in the
net interest margin. This decline was partially offset by a $27.5 million
increase in average earning assets. The primary reason for the decrease
in margin was that the Corporation lost 92 basis points from the repricing
of its earning assets from the first quarter of 2002 to the first quarter
of 2003, while it was only able to decrease its cost of funds by 63 basis
points. The 2.8% increase in average earning assets helped reduce the
effect of the loss of margin on the net interest income. However, all the
growth in average earning assets came in the area of the investment
securities portfolio, as loans continued to decline. Average loans
declined from $603.3 million during the first quarter of 2002 to $567.8
million during the first quarter of 2003. During these same periods, the
average balances of the investment securities portfolio increased from
$354.8 million to $408.1 million. This change in the mix of average
earning assets also had a negative impact on margin because the yield on
the loan portfolio for the first quarter of 2003 was 6.23%, while the
yield on the investment portfolio was only 4.79%. This mix change
occurred because of the Corporation's need to grow earning assets during
a time of very soft loan demand and an overall slow economy in its market
area. The Corporation continued to lose mortgage loans from its portfolio
as the adjustable rate loans in the portfolio refinanced to fixed rate
loans and were sold into the secondary market. In the area of consumer
loans, there was continued competition from sources offering low or, in
the case of automobiles, zero rate loans. All these factors put pressure
on the Corporation's ability to maintain or increase margins and net
interest income. Management believes that if the Federal Reserve continues
the current low rate environment for the remainder of the year, the
Corporation's net interest income will continue to come under pressure. For
additional information, see the table entitled "Analysis of Net Interest
Earnings" at the end of this section.
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 Corporation's loan portfolio. The
methodology used to make this determination is performed on a quarterly
basis. An overall analysis of the portfolio is performed by the senior
credit officers and the loan review staff. As a part of this evaluation,
certain loans are individually reviewed to determine if there is an
impairment of the bank's ability to collect the loan and the related
interest. This determination is generally made based on collateral value.
If it is determined that an impairment exists, a specific portion of the
reserve is allocated to each affected loan. All other loans are grouped
into homogeneous pools and risk exposure is determined by considering the
following list of factors (this list is not all inclusive and the factors
reviewed may change as circumstances change): historical loss experiences;
trends in delinquencies and non-accruals; and national, regional and local
economic conditions. These economic conditions would include, but not be
limited to, general real estate conditions, the current interest rate
environment and trends, unemployment levels and other information, as
deemed appropriate. Classified assets to capital were 14.8% at March 31,
2003, compared to 20.9% at March 31, 2002. The percentage of loans past
due 30 days or more was 2.92% at March 31, 2003. The Reserve for Loan
Losses as a percentage of total loans has increased from 1.03% of net
loans at the end of 2002 to 1.05% at the end of the first quarter of
2003. During this quarter, net charge-offs totaled $817,000, compared
to $305,000 for the same quarter of 2002. Overall, loan quality remains
good. At the end of the first quarter of 2003, the ratio of
non-performing loans to total loans remained low at .62%. This compares
to .70% at December 31, 2002 and .52% at March 31, 2002. Management is
committed to not relaxing its underwriting standards. Based on these
evaluations, the reserve amounts maintained at the end of the first
quarter of 2003 and at the end of 2002 were deemed adequate to cover
exposure within the Corporation's loan portfolio.
The Provision for Loan Losses has increased from $630,000 during the
first quarter of 2002 to $750,000 in the same quarter of 2003. The
level of the provision for the first quarter of 2003 was increased due
to a more conservative stance regarding the portion of the provision
allocated to our consumer loan portfolio in light of the continuation
of the soft economy and the heavy job losses in some of our markets.
In the opinion of management, the current level of the provision
should be sufficient to protect the Corporation from any unforeseen
deterioration in the quality of the loan portfolio.
Non-interest income grew 13.4%, resulting from a 12.1% increase in
income from deposit accounts, a 35.2% increase in insurance commission
and fee income and a 9.2% increase in fees from mortgage-related
activities. The solid increase in income from deposit accounts largely
resulted from increased account activity, more uniform application of
account-based fees, and selected fee increases. The increase in
insurance commission and fee income resulted from an increased volume
in all lines of the insurance business and improved profit sharing
from carriers due to lower loss levels and underwriting volume.
Mortgage fee income benefited from the continued demand for loans in
this low interest rate environment. The pipeline for mortgage loans,
both new home loans and refinancing of existing loans, remains strong
into the second quarter, as interest rates remain at 40-year lows.
Other non-interest income increased by $25,000, or 3.4%. This increase
came from improvement in our credit card income and income from our
retail investment sales. Income from Trust and Financial Management
activities declined by $27,000 or 6.2%. This change was primarily due
to lower fees related to the impact of the equity market on the value
of assets under management.
The Corporation recognized $701,000 in securities gains during the
first quarter of 2003, compared to a gain of $91,000 during the first
quarter of 2002. The gains in 2002 resulted from securities that had
been purchased at a discount being called because of the low rate
environment. In the first quarter of 2003, the Corporation took
advantage of a very unusual interest rate environment that allowed
certain securities to be sold at a gain and replaced with similar
securities with yields above the level of the securities sold. This
opportunity resulted from the rapid prepayment of some mortgage-backed
securities which reduced their yields and average lives and made them
attractive at premium prices to short term investors. The Corporation
took advantage of this opportunity to improve portfolio yields without
extending maturities beyond acceptable levels, and at the same time, to
recognize gains.
Non-interest expenses for the first quarter of 2003 increased by 4.8%
over the same period of 2002. This small increase resulted from a
continued focus on managing these expenses. Salaries and employee
benefits were up 2.5%, primarily due to higher employee insurance costs
and a 1.7% increase in salary expenses resulting from normal raises.
Expenses associated with premises and fixed assets increased by $47,000,
or 4.1%, due to increases in property taxes and utilities. Other
non-interest expenses increased by $217,000, or 10.7%. This increase
resulted from increases in several expense categories, none of which
were individually considered to be material.
Changes in the Corporation's income tax expense have generally
paralleled changes in income. The Corporation's effective tax rate
decreased from 26.7% for the first quarter of 2002 to 26.0% for the
first quarter of 2003. This decrease in the effective tax rate for the
quarter resulted primarily from the mix of income from tax-free investments
and the percentage relationship of tax-free income to total pre-tax income.
The Corporation's ability to reduce income tax expense by acquiring
additional tax-free investments is limited by the alternative minimum tax
provision, the market supply of acceptable municipal securities, the level
of tax exempt yields and the Corporation's normal liquidity and balance
sheet structure requirements.
FINANCIAL CONDITION
The Corporation's balance sheet shows a slight decrease in total assets
from $1.08 billion to $1.07 billion during the first quarter of 2003.
During this period, loans declined by $15.8 million. There were several
reasons for the continued decline in loans, including the continued
refinancing of variable rate mortgage loans to fixed rate loans (which
the Corporation does not hold in its portfolio), tighter underwriting
standards in the consumer loan portfolio and continued competition from
low and zero rate loans, especially from the automobile industry. Because
of lower loan demand, the Corporation decided not to aggressively price
deposits, resulting in only a $3.0 million increase in deposits. The
Corporation used its excess cash flow to increase the investment
securities portfolio by $21.3 million and to reduce securities sold under
agreement to repurchase by $8.0 million. Federal Home Loan Bank borrowings
increased by $2.7 million to take advantage of very low borrowing rates and
to replace the borrowings that were paid during the period. Also, federal
funds sold decreased by $21.3 million and cash in an interest-bearing
account at the Federal Home Loan Bank increased by $10.8 million.
Shareholders' equity decreased from $111.1 million to $110.2 million
during the first quarter of 2003. During this period there was a decrease
in the market value of the available-for-sale portion of the investment
securities portfolio. This resulted in the Accumulated Other Comprehensive
Income component of Shareholders' Equity decreasing from an unrealized gain
of $4,122,000 at December 31, 2002 to an unrealized gain of $1,828,000 at
March 31, 2003. Also, during the first quarter, the Company declared a
dividend of approximately $1,799,000, payable on April 1, 2003.
Additionally, the Corporation repurchased 18,000 shares of its common
stock in the open market under the announced stock repurchase plan for
approximately $430,000, or an average purchase price per share of $23.86.
These declines were largely offset with the net earnings for the quarter.
The Corporation's bank subsidiary is required to maintain a minimum amount
of capital to total risk weighted assets as defined by the banking
regulators. At March 31, 2003, the bank's Tier I, Tier II and Total
Capital Ratios exceeded the well-capitalized standards developed under
the referenced regulatory guidelines.
Dividends paid by the Corporation are provided from dividends received
from the subsidiary bank. Under the regulations controlling national
banks, the payment of dividends by the bank without prior approval from the
Comptroller of the Currency is limited in amount to the current year's net
profit and the retained net earnings of the two preceding years. To fund
the 976,676 share repurchase transaction in March of 2001, the
Corporation's subsidiary bank borrowed funds from the Federal Home Loan
Bank and with special permission from the Office of the Comptroller of the
Currency, declared a special dividend to the Corporation to purchase this
stock. As a result, the subsidiary bank is limited to its 2002 net
retained earnings and the current year's net profits to pay dividends to
the Corporation during 2003, without obtaining further approval from the
Comptroller of Currency. At March 31, 2003, without approval, the
subsidiary bank's dividend paying ability was limited to approximately
$7.2 million.
Also, under regulations controlling national banks, the bank is limited
in the amount it can lend to the Corporation and such loans are required
to be on a fully secured basis. At March 31, 2003, there were no
borrowings between the Corporation and its subsidiary bank.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of its business, the Corporation enters into
agreements with customers to loan money. When a loan agreement is
executed, the customer can either borrow the money immediately or draw
against the loan over a predetermined time period. If an unfunded
commitment is drawn against, the bank charges the customer the interest
rate established in the original agreement for the amount of the draw
for the time period outstanding. As of March 31, 2003, the amount of
unfunded commitments outstanding was $77,133,000.
Also, the Corporation provides Commercial Letters of Credit to its
customers. The Corporation charges the customer approximately one and
one-half percent of the face amount of a letter of credit as a fee for
issuance. This is a contingent obligation to make a loan to this
customer for up to the amount of the Letter of Credit and at a
predetermined rate of interest. As of March 31, 2003, the amount of
outstanding Letters of Credit was $6,100,000.
Both of these arrangements are subject to the same credit and
underwriting standards as any other loan agreement.
At any point in time, the Corporation does not know when or if these
commitments will be funded. Generally, if they are funded, they are
funded at various times over the commitment period. As a result, the
Corporation is able to fund them out of normal cash flow. If they were
all funded at the same time, the Corporation has the short-term borrowing
lines in place to fund its cash needs.
From a profit standpoint, it would be in the best interest of the
Corporation for all of these outstanding commitments to be funded.
ANALYSIS OF NET INTEREST EARNINGS
The table below shows, for the periods indicated, an analysis of net
interest earnings, including the average amount of interest-earning assets
and interest-bearing liabilities outstanding during the period, the
interest earned or paid on such amounts, the average yields/rates paid and
the net yield on interest-earning assets:
($ In Thousands)
Average Balance
_____________________________
Three Months Year
Ended Ended
3/31/03 12/31/02
__________ __________
EARNING ASSETS:
Net loans $ 567,845 $ 591,297
Federal funds sold and other
interest-bearing assets 28,904 12,986
Securities:
Taxable 291,621 250,970
Nontaxable 116,450 123,380
__________ __________
Totals 1,004,820 978,633
__________ __________
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits 727,333 701,654
Borrowed funds, federal funds
purchased and securities
sold and other 132,037 134,639
__________ __________
Totals 859,370 836,293
__________ __________
Net amounts $ 145,450 $ 142,340
========== ==========
($ In Thousands)
Interest Yields Earned
for and Rates Paid (%)
Three Months Year Three Months Year
Ended Ended Ended Ended
3/31/03 12/31/02 3/31/03 12/31/02
________ ________ ________ ________
EARNING ASSETS:
Net loans $ 8,721 $ 40,022 6.23 6.77
Federal funds sold
and other interest-
bearing assets 94 215 1.32 1.66
Securities:
Taxable 3,370 13,675 4.69 5.45
Nontaxable 1,449 6,139 5.05 4.98
________ ________ ________ ________
Totals 13,634 60,051 5.50 6.14
________ ________ ________ ________
INTEREST-BEARING
LIABILITIES:
Interest-bearing deposits 3,628 17,171 2.02 2.45
Borrowed funds, federal
funds sold and other 1,323 5,705 4.06 4.24
________ ________ ________ ________
Totals 4,951 22,876 2.34 2.74
________ ________ ________ ________
Net interest income $ 8,683 $ 37,175
======== ========
Net yield on earning
assets 3.50 3.80
Note: Yields on a tax equivalent basis would be:
Nontaxable securities 7.76 7.66
________ ________
Total earning assets 5.82 6.47
________ ________
Net yield on earning assets 3.82 4.14
________ ________
PART I. ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART I. ITEM 4
Controls and Procedures
March 31, 2003
It is the responsibility of the Chief Executive Officer and the Chief
Financial Officer to establish and maintain disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for NBC
Capital Corporation. These disclosure controls and procedures have been
designed to ensure that material information relating to NBC Capital
Corporation, including its consolidated subsidiaries, is made known to
these officers by others within those entities, during the period covered
by this filing and up to and including the filing date of this report.
In accordance with Item 307a of Regulation S-K, these disclosure controls
and procedures were evaluated on April 29, 2003 (a date within 90 days of
the filing of this report). It is the conclusion of the Corporation's
Chief Executive Officer and the Chief Financial Officer that, as of the
date of the evaluation, the disclosure controls and procedures of NBC
Capital Corporation were functioning effectively to make known all
material information that requires disclosure in this filing. In response
to Item 307b of Regulation S-K, there have been no significant changes in
the Corporation's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation. Therefore, no corrective actions were necessary with regard
to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re computation of per-share earnings
99 Certificate pursuant to 18 U.S.C., Section 1350 as
adopted pursuant to section 906 of Sarbanes-Oxley
Act of 2002-Chief Executive Officer
99 Certificate pursuant to 18 U.S.C., Section 1350 as
adopted pursuant to section 906 of Sarbanes-Oxley
Act of 2002-Chief Financial Officer
(b) Form 8-K
A Form 8-K was filed to announce the release of a
quarterly earnings release for the quarter ended
March 31, 2003. The press release was made to the
public after the market close on April 22, 2003 and
furnished on Form 8-K filed on April 29, 2003.
The financial information furnished herein has not been audited by
independent accountants; however, in the opinion of management, all
adjustments necessary for a fair presentation on the results of operations
for the three-month period ended March 31, 2003, have been included.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NBC CAPITAL CORPORATION
Registrant
Date: May 8, 2003
/s/ Richard T. Haston
________________________________
Richard T. Haston
Executive Vice President,
Chief Financial Officer and
Treasurer
CERTIFICATIONS
I, Lewis F. Mallory, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of NBC Capital
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 8, 2003
/s/ Lewis F. Mallory, Jr.
____________________________
Lewis F. Mallory, Jr.
Chairman of the Board and
Chief Executive Officer
I, Richard T. Haston, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NBC Capital
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 8,2003
/s/ Richard T. Haston
_____________________________
Richard T. Haston
Executive Vice President &
Chief Financial Officer
EXHIBIT INDEX:
Page 22 11 Statement re computation of per-share
earnings
Page 23 99 Certificate pursuant to 18 U.S.C., Section
1350 as adopted pursuant to section 906 of
Sarbanes-Oxley Act of 2002-Chief Executive
Officer
Page 24 99 Certificate pursuant to 18 U.S.C., Section
1350 as adopted pursuant to section 906 of
Sarbanes-Oxley Act of 2002-Chief Financial
Officer