SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission File Number 0-12885
NBC Capital Corporation
(Exact name of registrant as specified in its charter)
Mississippi 64-0694755
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NBC Plaza, Starkville, Mississippi 39760-1187
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(662) 323-1341
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common stock, $1 par value
Name of each exchange on which registered: American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to the Form 10-K. ( )
Aggregate market value of the voting stock held by nonaffiliates as of
March 23, 2001, was approximately:
$106,345,000
___________________________
(based on most recent sale)
Indicate the number of shares outstanding of each of the issuers'
classes of common stock as of the latest practicable date:
Common Stock, $1 par value - 6,222,632 shares outstanding as
of March 23, 2001.
Documents incorporated by reference -
Portions of the Proxy Statement dated April 9, 2001,
are incorporated by reference into Part III.
FORM 10K
INDEX
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security
Holders
Part II
Item 5. Market for the Company's Common Stock and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7.A. Quantitative and Qualitative Disclosures About
Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Matters
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationship and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I
ITEM 1 - BUSINESS
Forward Looking Statements
From time to time, NBC Capital Corporation (the Company) may publish
forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. In order to
comply with terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performances, development and results of the
Company's business include, but are not limited to, the following: risks
from changes in economic and industry conditions; changes in interest
rates; risks inherent in making loans including repayment risks and value
of collateral; dependence on senior management; and recently-enacted or
proposed legislation. Statements contained in this filing regarding the
demand for the Company and its subsidiaries' products and services,
changing economic conditions, interest rates, and numerous other factors,
may be forward-looking statements and are subject to uncertainties and
risks.
NBC Capital Corporation
The Company is a bank holding company which was organized under the
laws of the State of Mississippi. On July 2, 1984, the Company acquired
all of the outstanding common stock of the National Bank of Commerce (NBC),
a national banking corporation. For the year ended December 31, 2000, the
Company's subsidiaries accounted for approximately 99% of the Company's
consolidated income and consolidated expenses.
National Bank of Commerce
NBC was originally formed through a series of mergers which began
in 1972 and concluded on October 1, 1974. In March, 1991, NBC acquired
the assets and assumed the liabilities of the Bank of Philadelphia. In
1994, the Company acquired NBC of Tuscaloosa (formerly First State Bank
of Tuscaloosa). On December 31, 1998, the Company acquired all the
outstanding common stock of First National Corporation of West Point
("FNC") in exchange for 864,736 shares of the Company's common stock. The
acquisition was accounted for as a pooling of interest. FNC was merged
into the Company and FNC's wholly-owned subsidiary banks, First National
Bank of West Point and National Bank of the South, were merged into NBC.
Concurrently, the Company's subsidiary, NBC of Tuscaloosa, was merged into
NBC (formerly NBC of Mississippi). As a result of the acquisition and
reorganization, NBC was the resulting financial institution. Also, First
National Finance Company, a wholly-owned finance company subsidiary of FNC
became a wholly-owned subsidiary of the Company. On August 31, 1999, the
Company acquired all the outstanding stock of FFBS Bancorp, Inc. (FFBS).
FFBS was the holding company of its wholly-owned savings bank, First
Federal Bank for Savings (First Federal), Columbus, Mississippi. The
Company exchanged 1,396,162 shares of its common stock and a nominal amount
of cash in lieu of fractional shares for each common share of FFBS. First
Federal was merged into NBC with NBC as the surviving institution. The
transaction was accounted for as a pooling of interests and historical
financial statements of the Company were restated to give effect of the
acquisition. On September 30, 1999, NBC acquired the insurance agencies of
Galloway-Wiggers Insurance Agency, Inc., Kyle Chandler Insurance Agency,
Inc., Galloway-Chandler-McKinney, Inc., and Napier Insurance Agency, Inc.
NBC exchanged 173,184 of the Company's common stock for all of the issued
and outstanding stock of the insurance agencies. The insurance agencies
were combined into a wholly-owned subsidiary of NBC,
Galloway-Chandler-McKinney Insurance Agency, Inc. (GCM). The acquisition
was accounted for as a pooling of interests. The historical financial
statements of the Company were not restated as the changes would have been
immaterial. On April 28, 2000, GCM acquired Heritage Insurance Agency,
Ltd., an independent insurance agency located in Starkville, Mississippi,
for $47,025 in cash and 14,028 shares of the Company's common stock. The
acquisition was accounted for as a purchase.
NBC is the largest commercial bank domiciled in the north central
area of the state known as the Golden Triangle. A total of twenty-six
banking facilities and an operation/administration center serves the
communities of Aberdeen, Amory, Brooksville, Columbus, Hamilton, Maben,
New Hope, Philadelphia, West Point and Starkville. This area extends into
six Mississippi counties with a radius of approximately 65 miles from the
home office in Starkville. The Bank also serves the Tuscaloosa, Alabama,
area with a main office and four branch locations.
NBC is engaged in the general banking business and activities
closely related to banking as authorized by the banking laws and
regulations of the United States. There were no significant changes
in the business activities of NBC during 2000.
NBC provides a complete line of wholesale and retail services
including mortgage loans and trusts. The customer base is well
diversified and consists of business, industry, agriculture,
government, education and individual accounts. Profitability and
growth have been consistent throughout the history of the bank.
NBC utilizes a written Asset/Liability Management Policy which
calls for a static gap position of no more than a plus or minus 10% of
aggregate assets over a 24-month period.
NBC is operated in a conservative fashion while meeting the
needs of the community. There has been no disposition of any material
amounts of assets nor has there been a material change in the mode of
conducting business. No major changes in operations are planned for
the near future.
NBC Service Corporation
NBC Service Corporation (Service) is a wholly-owned subsidiary
of NBC and was formed to provide additional financial services that
otherwise might not be provided by NBC. For the years 2000 and 1999,
its primary activity was limited to its investment in Commerce National
Insurance Company (CNIC) of which Service owns 79%. Commerce National
Insurance Company is a credit life insurance company whose primary
source of income is from premiums on credit life insurance on loans
issued by NBC.
Galloway-Chandler-McKinney Insurance Agency, Inc.
Galloway-Chandler-McKinney Insurance Agency, Inc. (GCM) is a wholly-
owned subsidiary of NBC. GCM operates as an independent insurance
agency with its primary source of revenue coming from commissions and
premiums on the sale of property and casualty insurance, life insurance,
annuities, and other commercial lines. GCM is the result of the insurance
agencies acquired on September 30, 1999, and April 28, 2000, as
previously described. GCM has locations in Columbus, West Point, Amory,
Starkville, and Aberdeen, Mississippi. At December 31, 2000, GCM had total
assets of approximately $2.4 million, and for the year ended December 31,
2000, reported gross revenues of approximately $3.6 million.
NBC Insurance Services of Alabama, Inc.
NBC Insurance Services of Alabama is a wholly-owned subsidiary of NBC
and was formed in 1999 for the purpose of selling annuity products in the
State of Alabama. For the years ended December 31, 2000 and 1999, its
activities were not significant. Management anticipates significant
revenues from this activity, but is uncertain as to anticipated results
since activities remain in the development stage.
First National Finance
First National Finance (Finance), a wholly-owned subsidiary of the
Company, is a finance company that provides lending and financing services
to consumers. It engages in consumer financing, and its loans are of a
smaller amount and a higher interest rate than those of NBC. Its loan
portfolio totaled approximately $1.3 million at December 31, 2000.
Finance is located in West Point, Mississippi. Finance was acquired as
part of the FNC acquisition previously mentioned.
Competition
NBC and its subsidiaries currently serve six counties and ten
municipalities in North Central Mississippi. Over this same area, the
bank competes directly with approximately 16 competing banking
institutions, numerous credit unions, finance companies, brokerage firms,
mortgage companies and insurance companies. The competing banking
institutions range in asset size from approximately $150 million to in
excess of $45 billion. NBC is the largest bank domiciled in its immediate
service area. Asset size of competitive banks depends on whether the
reference is made to the branch banks or to their parent banks. Several
other competitors are branches or divisions of nationwide and regional
companies with more resources than the Company and its subsidiaries.
NBC also serves the City of Tuscaloosa, Alabama, with a main office
and four branch locations. The bank competes with approximately eight
other financial institutions, most of which are larger. The other
institutions range in size from approximately $150 million to $45 billion.
Asset size of the competitive banks depends on whether reference is made to
the branch banks or to their parent bank. In Tuscaloosa, NBC also competes
with numerous credit unions, finance companies, etc., many of which are
branches of nationwide companies.
Supervision and Regulation
The Company and its subsidiary bank are subject to state and federal
banking laws and regulations which impose specific requirements or
restrictions on and provide for general regulatory oversight with respect
to virtually all aspects of operations. These laws and regulations are
generally intended to protect depositors, not shareholders. To the extent
that the following summary describes statutory or regulatory provisions,
it is qualified in its entirety by reference to the particular statutory
and regulatory provisions. Any change in applicable laws or regulations
may have a material effect on the business and prospects of the Company.
Beginning with the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") and following with Federal Deposit
Insurance Corporation Improvement Act (FDICIA), which was enacted in 1991,
numerous additional regulatory requirements have been placed on the banking
industry, and additional changes have been proposed. The operations of the
Company and its subsidiaries may be affected by legislative changes and the
policies of various regulatory authorities. The Company is unable to
predict the nature or the extent of the effect on its business and earnings
that fiscal or monetary policies, economic control, or new federal or state
legislation may have in the future.
The Company is a bank holding company within the meaning of the
Bank Holding Company Act of 1956 (the Act) and is registered as such
with the Board of Governors of the Federal Reserve System (the Federal
Reserve Board). As a bank holding company, the Company is required
to file with the Federal Reserve Board an annual report and such other
information as may be required. The Federal Reserve Board may also
make examinations of the Company. In addition, the Federal Reserve
Board has the authority to regulate provisions of certain bank holding
company debt.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially
all the assets of or direct or indirect ownership or control of more
than 5% of the voting shares of any bank which is not already
majority-owned. The Act also prohibits a bank holding company, with
certain exceptions, from engaging in or acquiring direct or indirect
control of more than 5% of the voting shares of any company engaged in
non-banking activities. One of the principal exceptions to these
prohibitions is for engaging in or acquiring shares of a company
engaged in activities found by the Federal Reserve Board by order or
regulation to be so closely related to banking or managing banks as to
be a proper incident thereto. The Act prohibits the acquisition by a
bank holding company of more than 5% of the outstanding voting shares
of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted, unless such an
acquisition is specifically authorized by statute of the state in
which the bank to be acquired is located. The Act and regulations of
the Federal Reserve Board also prohibit a bank holding company and its
subsidiaries from engaging in certain tie-in arrangements in connection
with any extension of credit or provision of any property or services.
In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act require Federal Reserve
approval prior to any person or company acquiring "control" of a bank
holding company. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of voting
securities of a bank holding company. Control is rebuttably presumed to
exist if a person acquires 10% or more, but less than 25%, of any class of
voting securities and either the company has registered securities under
Section 12 of the Securities Exchange Act of 1934 or no other person owns a
greater percentage of that class of voting securities immediately after the
transaction.
In accordance with Federal Reserve Board policy, the Company is
expected to act as a source of financial strength to the subsidiaries.
The Federal Reserve Board may require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve
Board's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal
bank regulatory authorities have additional discretion to require a
bank holding company to divest itself of any bank or nonbank subsidiary
if the agency determines that divestiture may aid the depository
institution's financial condition.
Dividends paid by the Company are substantially provided from
dividends from NBC. Generally, the approval of the OCC is required if
the total of all dividends declared by a bank in any calendar year exceeds
the total of its net profits for that year combined with its retained net
profits of the preceding two years. At December 31, 2000, NBC had
available for payment of dividends to the Company, without prior approval
of its regulator, approximately $17.5 million.
The Federal Reserve Board, FDIC and OCC have established risk-based
capital guidelines for holding companies, such as the Company, and its
subsidiary bank. The capital-based regulatory framework contains five
categories of compliance with regulatory capital requirements, including
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." The
Company's strategy related to risk-based capital is to maintain capital
levels which will be sufficient to qualify the Company's bank subsidiary
for the "well capitalized" category under the guidelines set forth by the
FDICIA. Maintaining capital ratios at the "well capitalized" level avoids
certain restrictions which, for example, could impact the Company's bank
subsidiary's FDIC assessment, trust services and asset/liability
management. At December 31, 2000, the Tier 1 and total capital ratios,
respectively, of the Company (consolidated) and NBC (individually) were
well above the minimum 6% and 10% levels required to be categorized as a
"well capitalized" insured depository institution.
The FDIC, OCC and Federal Reserve Board have historically had
common capital adequacy guidelines involving minimum (a) leverage
capital and (b) risk-based capital requirements:
(a) The first requirement establishes a minimum ratio of capital
as a percentage of total assets. The FDIC, OCC, and Federal Reserve
Board require institutions to maintain a minimum leverage ratio of
Tier 1 capital (as defined) to total average assets based on the
institution's rating under the regulatory CAMELS rating system.
Institutions with CAMELS ratings of one that are not anticipating or
experiencing significant growth and have well-diversified risk are
required to maintain a minimum leverage ratio of 3 percent. An
additional 100 to 200 basis points are required for all but these
most highly rated institutions. At December 31, 2000, the Company's
leverage capital ratio was 12.1%.
(b) The second requirement also establishes a minimum ratio of
capital as a percentage of total assets, but gives weight to the
relative risk of each asset. The FDIC, OCC, and Federal Reserve Bank
require institutions to maintain a minimum ratio of Tier 1 capital to
risk-weighted assets of 3.0 percent. Banks must also maintain a
minimum ratio of total capital to risk-weighted assets of 8.0 percent.
At December 31, 2000, the Company's Tier 1 and total capital ratios
were 18.1% and 19.4%, respectively.
The primary supervisory authority of NBC is the OCC. The OCC
regulates or monitors virtually all areas of operations, including
security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits,
interest rates or fees chargeable on loans, establishment of branches,
corporate reorganizations, maintenance of books and records, and adequacy
of staff training to carry on safe lending and deposit gathering practices.
The OCC also imposes limitations on the aggregate investment in real
estate, bank premises, and furniture and fixtures. In addition to regular
examinations, the institution must furnish to its regulator quarterly
reports containing a full and accurate statement of its affairs.
Banks are subject to the provisions of Section 23A of the Federal
Reserve Act, which place limits on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with,
affiliates and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. The aggregate of all
covered transactions is limited in amount, as to any one affiliate, to
10% of the bank's capital and surplus and, as to all affiliates combined,
to 20% of the bank's capital and surplus. Furthermore, within the
foregoing limitations as to amount, each covered transaction must meet
specified collateral requirements. Compliance is also required with
certain provisions designed to avoid the taking of low quality assets.
Banks are also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution
from engaging in certain transactions with certain affiliates unless the
transactions are on terms substantially the same, or at least as
favorable to such institution or its subsidiaries, as those prevailing
at the time for comparable transactions with non-affiliated companies.
The Bank is subject to certain restrictions on extensions of credit to
executive officers, directors, certain principal shareholders, and their
related interests. Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third
parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
National banks are required by the National Bank Act to adhere to
branch office banking law. NBC may open branches throughout Mississippi
or Alabama with the prior approval of the OCC. In addition, with prior
regulatory approval, the subsidiary bank is able to acquire existing
banking operations in Mississippi and Alabama. Furthermore, federal
legislation permits interstate branching. The law also permits out of
state acquisitions by bank holding companies (subject to veto by new state
law), interstate branching by banks if allowed by state law, interstate
merging by banks, and de novo branching by national banks if allowed by
state law. Effective June 1, 1997, the Interstate Banking Act allows banks
with different home states to merge, unless a particular state opts out of
the statute. In addition, beginning June 1, 1997, the Interstate
Banking Act permitted national and state banks to establish de novo
branches in another state if there is a law in that state which applies
equally to all banks and expressly permits all out-of-state banks to
establish such branches.
The Community Reinvestment Act (CRA) requires that, in connection with
examinations of financial institutions within their respective
jurisdictions, the Federal Reserve, the FDIC, or the OCC shall evaluate
the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions.
These factors are also considered in evaluating mergers, acquisitions,
and applications to open a branch or facility.
Interest and certain other charges collected or contracted by Banks
are often subject to state usuary laws and certain federal laws
concerning interest rates. The loan operations are also subject to
certain federal laws applicable to credit transactions. These include but
are not limited to the federal Truth-In-Lending Act, governing disclosures
of credit terms to consumer borrowers; the Home Mortgage Disclosure Act of
1975, requiring financial institutions to provide information to enable the
public and public officials to determine whether a financial institution
will be fulfilling its obligation to help meet the housing needs of the
community it serves; the Equal Credit Opportunity Act, prohibiting
discrimination on the basis of race, creed or other prohibited factors in
extending credit; and the rules and regulations of the
various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations also are subject to certain laws
and regulations, included but not limited to, the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds
Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that act, which governs automatic deposits to and withdrawals
from deposit accounts and customers' rights and liabilities arising from
the use of automated teller machines and other electronic banking services.
A subsidiary bank of a bank holding company is subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiary, on investments in
stock or other securities thereof and on the taking of such stock or
securities as collateral for loans to any borrower.
The bank subsidiary is a member of the FDIC and its deposits are
insured as provided by law.
CNIC, GCM, and NBC Insurance Services of Alabama, Inc., are subject
to regulation by the applicable state agencies. These agencies set reserve
requirements, reporting standards, and establish regulations, all of which
affect business operations.
The Company's common stock is registered with the SEC under the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Consequently, the Company is
subject to the information, proxy solicitation, insider trading, and other
restrictions and requirements of the SEC under the Exchange Act.
Recent Regulatory Developments
The Gramm-Leach-Bailey Act was signed into law in November, 1999, and
allows banks to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities through
the use of "financial holding companies." The expanded powers, which
became effective March 11, 2001, generally are available to banks only if
the bank and its bank subsidiaries remain well-capitalized and
well-managed, and have a satisfactory CRA rating. Under the Act, a
national bank may engage in expanded financial activities through a
"financial subsidiary," provided the aggregate assets of all of its
financial subsidiaries do not exceed the lesser of 45 percent of the
bank's assets or $50 billion. A financial subsidiary may underwrite any
financial product other than insurance and may sell any financial product,
including title insurance. A national bank itself may not sell title
insurance, however, unless the state in which the bank is located permits
state banks to sell title insurance.
Governmental Monetary Policies
As a bank chartered under the laws of the United States, NBC is a
member of the Federal Reserve System. Its earnings are affected by the
fiscal and monetary policies of the Federal Reserve System which regulates
the national money supply in order to mitigate recessionary and
inflationary pressures. The techniques used by the Federal Reserve System
include setting the reserve requirements of depository institutions and
establishing the discount rate on member bank borrowings. The Federal
Reserve System also conducts open market operations in United States
Government securities.
The policies of the Federal Reserve System and other regulatory
agencies have a direct effect on the amount of bank loans and deposits,
and the interest rates charged and paid thereon. While the impact these
policies may have upon the future business and earnings of the financial
institutions cannot be accurately predicted, such policies can materially
affect the earnings of commercial banks.
Sources and Availability of Funds
The materials essential to the business of the Company and its
subsidiaries consist primarily of funds derived from deposits and other
borrowings in the financial markets. The availability of funds is
primarily dependent upon the economic policies of the government, the
economy in general and the institution's ability to compete in the market
place.
Seasonability
Neither the Company nor any of its subsidiaries are dependent upon
any seasons.
Dependence Upon A Single Customer
Neither the Company nor any of its subsidiaries are dependent upon
a single customer or very few customers.
Executive Officers
The executive officers of the Company and its bank subsidiary,
NBC, are listed below. The title indicates a position held in the
Company and the bank.
Name and Title Age Five Year Experience
_____________________________ ___ ____________________________________
L. F. Mallory, Jr. 58 Chairman and Chief Executive Officer,
Chairman and Chief Executive NBC Capital Corporation and NBC
Officer, NBC Capital
Corporation and NBC
Bobby Harper 59 Chairman of Executive Committe, NBC
Chairman of the Executive Capital Corporation and Executive
Committee, NBC Capital Vice President, Banking Center
Corporation and Executive Administration, NBC
Vice President, Banking
Center Administration, NBC
Hunter M. Gholson 68 Secretary of NBC Capital Corporation
Secretary and NBC
Mark A. Abernathy 44 President and Chief Operating Officer,
President and Chief NBC Capital Corporation and NBC since
Operating Officer, NBC December, 1997, Executive Vice
Capital Corporation and NBC President and Chief Operating Officer
of NBC Capital Corporation and NBC
from August, 1994 - December, 1997
Richard Haston 54 Executive Vice President, Chief
Executive Vice President, Financial Officer, and Treasurer,
CFO, and Treasurer, NBC NBC Capital Corporation, and
Capital Corporation and Executive Vice President and
Executive Vice President Chief Financial Officer, NBC, since
and Chief Financial Officer, January, 1997; Senior Vice
NBC President - Finance, NBC Capital
Corporation and NBC from
September, 1996 - December, 1996;
Executive Vice President and Chief
Financial Officer of Legacy
Securities Corp., Memphis, Tennessee,
April, 1996 - September, 1996;
and President and Chief Financial
Officer of Calibre Financial Group,
June, 1993 - March, 1996
Tommy M. Tomlinson 47 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President, Credit Administration,
Vice President, Credit NBC, since January, 1999;
Administration, NBC Executive Vice President and Senior
Credit Officer of the Starkville
Banking Center, NBC, from
January, 1996 - December 1998
Clifton B. Fowler 52 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC,
Corporation and President, Starkville Banking Center
NBC, Starkville Banking
Center
Thomas J. Prince, Jr. 59 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President, Division Manager of
Vice President, Division Consumer Financial Service, NBC,
Manager of Consumer Financial since April, 1998; Vice President,
Services, NBC NBC Capital Corporation and
President, NBC, Aberdeen Banking
Center from January, 1985 -
April, 1998
John Davis 45 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Senior Vice
Corporation and Senior Vice President and Trust Officer,
President and Trust Officer, NBC since January, 1999, Vice
NBC President and Trust Officer
of NBC from January, 1991 -
December, 1998
Donald J. Bugea, Jr. 47 Vice President, NBC Capital
Vice President, NBC Capital Corporation and Executive Vice
Corporation and Executive President and Investment
Vice President and Investment Officer, NBC
Officer, NBC
Personnel
At December 31, 2000, NBC had approximately 411 full-time employees,
Finance had 3 full-time employees and GCM had approximately 48 full-time
employees. The Company, Service, and CNIC had no employees at
December 31, 2000.
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31,
2000. GCM and Finance operate out of leased office buildings.
The following listing describes the locations and general character of
the Bank-owned properties:
Approximate
Office Space
Type Location (Square Feet)
______________________________ _________________________ _____________
NBC:
Main Office Starkville, Mississippi 35,000
University Branch Starkville, Mississippi 1,485
Motor Branch Starkville, Mississippi 2,000
Operations Center Starkville, Mississippi 16,500
Starkville Crossing Starkville, Mississippi 2,000
Main Office Columbus, Mississippi 36,000
Mortgage Loan Center Columbus, Mississippi 14,000
North Columbus Branch Columbus, Mississippi 1,440
Fairlane Branch Columbus, Mississippi 2,400
Bluecutt Road Branch Columbus, Mississippi 3,200
New Hope Branch New Hope, Mississippi 1,500
Main Office Aberdeen, Mississippi 11,026
Maple Street Branch Aberdeen, Mississippi 998
Highway 45 North Branch Aberdeen, Mississippi 1,205
Main Office Amory, Mississippi 8,550
Medical and Industrial
Center Branch Amory, Mississippi 950
Main Office Brooksville, Mississippi 3,000
Main Office Hamilton, Mississippi 1,800
Main Office Maben, Mississippi 4,000
Main Office Philadelphia, Mississippi 6,000
Northside Branch Philadelphia, Mississippi 300
Southside Branch Philadelphia, Mississippi 450
Westside Branch Philadelphia, Mississippi 3,250
Main Office Tuscaloosa, Alabama 30,000
Northport Branch Tuscaloosa, Alabama 3,018
University Branch Tuscaloosa, Alabama 2,480
North Tuscaloosa Branch Tuscaloosa, Alabama 3,250
Highway 69 South Branch Tuscaloosa, Alabama 2,000
Main Office West Point, Mississippi 18,000
East Main Branch West Point, Mississippi 1,900
Highway 45 South Branch West Point, Mississippi 1,520
Highway 45 North Branch West Point, Mississippi 825
In the opinion of management, all properties are in good condition
and are adequate to meet the needs of the communities they serve.
ITEM 3 - LEGAL PROCEEDINGS
NBC is a defendant in a lawsuit in which a class is pursuing
unspecified and punitive damages as a result of the placement of
collateral protection insurance. NBC has vigorously defended its
position and, as of March 15, 2001, had reached a preliminary settlement
in the amount of $450,000. The settlement is yet to be approved by the
court.
There are no other pending proceedings of a material nature to which
the Company, or its subsidiaries, are a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) Effective April 20, 2000, the Company listed its stock on the
American Stock Exchange and is currently traded on the AMEX under the
symbol NBY. Prior to that date, the stock was traded on the NASDAQ
Inter-Dealer Market under the symbol NBCA. The following table sets
forth the range of sales prices of the Company's common stock for the
periods indicated.
1999 First $40.000 $37.875
Second 38.500 30.000
Third 33.500 27.250
Fourth 31.500 26.000
2000 First $29.000 $20.000
Second 21.375 20.000
Third 20.625 18.625
Fourth 20.000 18.750
(b) At December 31, 2000, the Company had approximately 2,700 security
holders.
(c) Dividends on common stock were declared quarterly in 2000 and
semiannually in June and December of 1999 and totaled as follows:
(In thousands)
December 31,
______________
2000 1999
______ ______
Dividends declared, $.97 per share $6,963 $ -
Dividends declared, $.87 per share - 5,983
______ ______
$6,963 $5,983
====== ======
ITEM 6 - SELECTED FINANCIAL DATA
Years Ended December 31,
2000 1999 1998 1997 1996
__________ ___________ ________ ________ ________
(In thousands, except per share data)
INCOME DATA
Interest and
fees on loans $ 57,535 $ 52,219 $ 52,955 $ 51,682 $ 46,972
Interest and
dividends on
securities 14,052 12,430 13,416 13,755 14,076
Other interest
income 1,148 2,440 1,953 1,268 787
__________ ___________ ________ ________ ________
Total interest
income 72,735 67,089 68,324 66,705 61,835
Interest expense 34,978 30,998 32,744 30,877 27,723
__________ ___________ ________ ________ ________
Net interest
income 37,757 36,091 35,580 35,828 34,112
Provision for
loan losses 1,280 1,769 3,187 1,482 1,677
__________ ___________ ________ ________ ________
Net interest
income after
provision for
loan losses 36,477 34,322 32,393 34,346 32,435
__________ ___________ ________ ________ ________
Service charges
on deposit
accounts 5,306 5,230 4,720 4,653 4,453
Other income 8,456 7,824 4,871 3,759 3,509
__________ ___________ ________ ________ ________
Total noninterest
income 13,762 13,054 9,591 8,412 7,962
__________ ___________ ________ ________ ________
Salaries and
employee
benefits 17,260 17,545 16,024 14,651 14,146
Occupancy and
equipment
expense 4,539 4,213 3,778 3,558 3,154
Other expenses 9,118 12,211 9,299 8,041 8,551
__________ ___________ ________ ________ ________
Total noninterest
expenses 30,917 33,969 29,101 26,250 25,851
__________ ___________ ________ ________ ________
Income before
income taxes 19,322 13,407 12,883 16,508 14,546
Income taxes 5,277 2,899 2,881 4,826 3,729
__________ ___________ ________ ________ ________
Net income $ 14,045 $ 10,508 $ 10,002 $ 11,682 $ 10,817
========== =========== ======== ======== ========
PER SHARE DATA
Net income -
basic $1.96 $1.46 $1.43 $1.68 $1.54
Net income -
diluted 1.96 1.46 1.42 1.67 1.53
Dividends .97 .87 .73 .66 .61
FINANCIAL DATA
Shares issued 7,213 7,213 7,045 7,044 7,036
Total assets $1,009,515 $ 973,570 $937,147 $900,886 $847,131
Net loans 637,800 613,557 576,731 563,590 535,886
Total deposits 804,804 752,810 776,955 734,107 707,240
Total
stockholders'
equity 120,123 111,251 111,868 105,304 100,774
(1) Financial data includes accounts of significant pooled acquisitions
for all years presented.
(2) Merger-related expenses amounted to $2.5 million after tax in 1999
and $1.8 million after tax in 1998.
SUPPLEMENTAL STATISTICAL INFORMATION
I. DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. Average balance sheets (consolidated):
The following table presents, for the years indicated, condensed
daily average balance sheet information.
(In Thousands)
Assets 2000 1999 1998
________ ________ ________
Cash and due from banks $ 28,968 $ 36,514 $ 32,419
Securities:
Taxable 133,497 128,605 136,689
Non-taxable 118,341 106,062 104,961
________ ________ ________
Total securities 251,838 234,667 241,650
Federal funds sold and other
interest-bearing assets 17,962 50,951 51,101
Loans, net of unearned interest 630,538 605,561 579,649
Less reserve for loan losses 10,093 10,514 8,993
________ ________ ________
Net loans 620,445 595,047 570,656
Other assets 45,041 36,247 29,248
________ ________ ________
Total Assets $964,254 $953,426 $925,074
======== ======== ========
(In Thousands)
Liabilities and 2000 1999 1998
Stockholders' Equity ________ ________ ________
Deposits:
Noninterest-bearing $ 94,038 $ 89,950 $ 91,262
Interest-bearing 685,287 674,606 667,855
________ ________ ________
Total deposits 779,325 764,556 759,117
Federal funds purchased and
securities sold under
agreement to repurchase 18,734 18,985 12,936
Borrowed funds 39,781 44,428 30,562
Other liabilities 10,806 11,735 12,850
________ ________ ________
Total liabilities 848,646 839,704 815,465
Stockholders' equity 115,608 113,722 109,609
________ ________ ________
Total Liabilities and
Stockholders' Equity $964,254 $953,426 $925,074
======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of
net interest earnings, including the average amount of interest-
earning assets and interest-bearing liabilities outstanding during
the period, the interest earned or paid on such amounts, the
average yields/rates paid and the net yield on interest-earning
assets:
($ In Thousands)
Average Balance
____________________________
2000 1999 1998
________ ________ ________
EARNING ASSETS
Net loans $620,445 $595,047 $570,656
Federal funds sold and
other interest-bearing
assets 17,962 50,951 51,101
Securities:
Taxable 133,497 128,605 136,689
Nontaxable 118,341 106,062 104,961
________ ________ ________
Totals 890,245 880,665 863,407
________ ________ ________
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 685,287 674,606 667,855
Borrowed funds, federal funds
purchased and securities sold
under agreement to repurchase 58,515 63,413 43,498
________ ________ ________
Totals 743,802 738,019 711,353
________ ________ ________
Net Amounts $146,443 $142,646 $152,054
======== ======== ========
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
2000 1999 1998 2000 1999 1998
_______ _______ _______ ____ ____ ____
EARNING ASSETS
Net loans $57,535 $52,219 $52,955 9.27 8.78 9.28
Federal funds sold and
other interest-bearing
assets 1,148 2,440 1,953 6.39 4.80 3.82
Securities:
Taxable 7,966 6,981 7,748 5.97 5.43 5.67
Nontaxable 6,086 5,449 5,668 5.14 5.14 5.40
_______ _______ _______ ____ ____ ____
Totals $72,735 $67,089 $68,324 8.17 7.62 7.91
======= ======= ======= ==== ==== ====
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
2000 1999 1998 2000 1999 1998
_______ _______ _______ ____ ____ ____
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $31,559 $28,399 $30,416 4.61 4.21 4.55
Borrowed funds, federal
funds purchased and
securities sold under
agreement to repurchase 3,419 2,599 2,328 5.84 4.10 5.35
_______ _______ ______ ____ ____ ____
Totals 34,978 30,998 32,744 4.70 4.20 4.60
_______ _______ ______
Net interest income $37,757 $36,091 $35,580
======= ======= =======
Net yield on earning assets 4.24 4.10 4.12
(1) Interest and yields on tax-exempt obligations are not on a
fully taxable equivalent basis.
(2) For the purpose of these computations, nonaccruing loans
are included in the average loan balances outstanding.
(3) Interest income on loans includes related fees.
C. Increase (Decrease) in Interest Income and Interest Expense
The following table analyzes the changes in both the rate and volume
components of net interest revenue:
(In Thousands) (In Thousands)
2000 Over 1999 1999 Over 1998
_________________________ ________________________
Change Due To: Change Due To:
_________________________ ________________________
Total Rate Volume Total Rate Volume
_______ _______ _______ _______ _______ _______
EARNING ASSETS
Net loans $ 5,316 $ 3,033 $ 2,283 $ (736) $(3,453) $ 2,717
Federal funds sold
and other interest-
bearing assets (1,292) 1,382 (2,674) 487 493 (6)
Securities:
Taxable 985 712 273 (767) (320) (447)
Nontaxable 637 6 631 (219) (279) 60
_______ _______ _______ _______ _______ _______
Totals $ 5,646 $ 5,133 $ 513 $(1,235) $(3,559) $ 2,324
======= ======= ======= ======= ======= =======
(In Thousands) (In Thousands)
2000 Over 1999 1999 Over 1998
_______________________ ________________________
Change Due To: Change Due To:
_______________________ ________________________
Total Rate Volume Total Rate Volume
______ ______ _______ _______ _______ ______
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $3,160 $3,931 $ (771) $(2,017) $(2,333) $ 316
Interest on borrowed
funds and federal
funds purchased and
securities sold under
agreement to
repurchase 820 1,002 (182) 271 (284) 555
______ ______ _______ _______ _______ ______
Totals $3,980 $4,933 $ (953) $(1,746) $(2,617) $ 871
====== ====== ======= ======= ======= ======
NOTE: (1) Change in volume is the change in volume times the previous
year's rate.
(2) Change in rate is the change in rate times the previous year's
balance.
(3) The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of change to each.
II. INVESTMENT PORTFOLIO
A. The following tables present the book values of securities as of
the dates indicated:
(In Thousands)
December 31,
____________________________
2000 1999 1998
________ ________ ________
U. S. Treasury $ 4,544 $ 7,732 $ 15,987
U. S. Government agencies and
mortgage-backed securities 137,684 106,946 84,972
States and political subdivisions 124,011 105,330 115,786
Other 15,551 10,272 9,503
________ ________ ________
Total book value $281,790 $230,280 $226,248
======== ======== ========
B. The following table sets forth the maturities of investment and
mortgage-backed securities (carrying values) at December 31,
2000, and the weighted average yield of such securities:
($ In Thousands)
Weighted Average Yield
_________________________________________________
0 - 1 Yield 1 - 5 Yield 5 - 10 Yield
Year (%) Years (%) Years (%)
________ _____ _________ _____ _______ _____
Securities:
U. S. Treasury $ 346 6.7% $ 4,198 4.7% $ - -
U. S. Govern-
ment agencies 16,193 6.2% 5,655 5.7% 22,291 6.8%
States and
political
subdivisions 10,225 5.1% 66,747 4.7% 29,232 5.8%
Other 892 5.6% 1,427 6.4% 506 7.4%
________ _________ _______
Total $ 27,656 $ 78,027 $52,029
======== ========= =======
10+ Yield
Years (%)
_______ _____
U. S. Govern-
ment agencies $ 413 7.0%
State and
political 17,807 6.2%
Other
(including
equity
securities) 12,726 6.1%
_______
Total $30,946
=======
Book Yield
Value (%)
_______ _____
Mortgage-
backed
securities $93,132 6.2%
=======
NOTE: Interest and yields on tax-exempt obligations are not on
a taxable equivalent basis.
Average yield on floating rate securities was determined
using the current yield.
The majority of mortgage-backed securities are backed by
U. S. Government agencies.
C. Investment securities in excess of 10% of stockholders' equity.
At December 31, 2000, there were no securities from any issues
in excess of 10% of stockholders' equity that were not securities
of the U. S. Government or U. S. Government agencies or
corporations.
III. LOAN PORTFOLIO
A. Type of loans
The amount of loans outstanding by type at the indicated dates
are shown in the following table:
(In Thousands)
December 31,
________________________________________________
Type 2000 1999 1998 1997 1996
______________ ________ ________ ________ ________ ________
Commercial,
financial and
agriculture $103,045 $101,503 $ 81,365 $ 78,491 $ 76,205
Real estate -
construction 33,638 26,185 27,253 27,636 27,000
Real estate -
mortgage 402,987 390,205 366,219 352,550 323,601
Installment
loans to
individuals 105,564 101,624 104,470 106,603 109,566
Other 2,255 4,234 7,526 7,155 8,813
________ ________ ________ ________ ________
Total loans 647,489 623,751 586,833 572,435 545,185
Unearned
interest - - - (317) (1,123)
________ ________ ________ ________ ________
$647,489 $623,751 $586,833 $572,118 $544,062
======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest
rates:
(In Thousands)
December 31, 2000
____________________________
Maturing or Repricing
____________________________
After
1 Year
Within Through Over
Type 1 Year 5 Years 5 Years Total
_______________________ ________ ________ ________ ________
Commercial, financial
and agricultural $ 76,371 $ 24,060 $ 2,614 $103,045
Real estate -
construction 29,853 3,704 81 33,638
________ ________ ________ ________
$106,224 $ 27,764 $ 2,695 $136,683
======== ======== ======== ========
(In Thousands)
December 31, 2000
____________________________
Maturing or Repricing
____________________________
After
1 Year
Through Over
Type 5 Years 5 Years Total
________________________ ________ ________ ________
Loans with:
Predetermined interest
rates $180,998 $ 67,959 $248,957
Floating interest
rates 618 - 618
________ ________ ________
$181,616 $ 67,959 $249,575
======== ======== ========
C. Nonperforming loans
1. The following table states the aggregate amount of loans
which were nonperforming in nature:
(In Thousands)
December 31,
______________________________________
Type 2000 1999 1998 1997 1996
__________________ ______ ______ ______ ______ ______
Loans accounted
for on a
nonaccrual basis $1,384 $ 270 $ 927 $2,648 $1,901
====== ====== ====== ====== ======
Accruing loans
past due 90 days
or more $2,356 $2,975 $2,902 $1,660 $2,322
====== ====== ====== ====== ======
Renegotiated
"troubled" debt $ 294 $ 132 $ 337 $ 826 $ 511
====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total
loans at December 31, 2000. However, lending activities are
affected by the economic trends within the areas served by
the Company and its subsidiaries. This, in turn, can be
influenced by the areas' larger employers, such as
Mississippi State University, University of Alabama,
Columbus Air Force Base, and the Mercedes-Benz Automotive
Plant.
3. There were no outstanding foreign loans at December 31,
2000.
4. Loans classified for regulatory purposes or for internal
credit review purposes that have not been disclosed in
the above table do not represent or result from trends or
uncertainties that management expects will materially
impact the financial condition of the Company or its
subsidiary banks, or their future operating results,
liquidity, or capital resources.
5. If all nonaccrual loans had been current throughout their
terms, interest income would have not been significantly
different for the years ended 2000, 1999 and 1998.
6. Management stringently monitors loans that are classified
as nonperforming. Nonperforming loans include nonaccrual
loans, loans past due 90 days or more, and loans renegotiated
or restructured because of a debtor's financial difficulties.
Loans are generally placed on nonaccrual status if any of the
following events occur: 1) the classification of a loan as
nonaccrual internally or by regulatory examiners,
2) delinquency on principal for 90 days or more unless
management is in the process of collection, 3) a balance
remains after repossession of collateral, 4) notification
of bankruptcy, or 5) management's judgment that nonaccrual
is appropriate.
7. At December 31, 2000, the recorded investment in loans
identified as impaired totaled approximately $3.1 million.
The allowance for loan losses related to these loans approxi-
mated $1.6 million. The average recorded investment in
impaired loans during the year ended December 31, 2000, was
$2.1 million. Total interest recognized on impaired loans
and the amount recognized on a cash basis were not
significant.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets
at December 31, 2000.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. An analysis of the loan loss experience for the periods
indicated is as follows:
($ In Thousands)
December 31,
___________________________________________
2000 1999 1998 1997 1996
_______ _______ _______ _______ _______
Beginning balance $10,194 $10,102 $ 8,528 $ 8,175 $ 7,799
_______ _______ _______ _______ _______
Charge-offs:
Domestic:
Commercial,
financial and
agricultural (499) (566) (575) (379) (312)
Real estate (206) (444) (451) (145) (114)
Installment
loans and
other (1,497) (1,047) (960) (1,073) (1,272)
_______ _______ _______ _______ _______
Total charge-offs (2,202) (2,057) (1,986) (1,597) (1,698)
_______ _______ _______ _______ _______
Recoveries:
Domestic:
Commercial,
financial and
agricultural 55 89 124 269 52
Real estate 17 25 76 97 68
Installment
loans and
other 345 266 173 227 267
_______ _______ _______ _______ _______
Total recoveries 417 380 373 593 387
_______ _______ _______ _______ _______
Net charge-offs (1,785) (1,677) (1,613) (1,004) (1,311)
_______ _______ _______ _______ _______
Reserve of sold
finance company - - - (125) -
Provision charged
to operations 1,280 1,769 3,187 1,482 1,687
_______ _______ _______ _______ _______
Ending balance $ 9,689 $10,194 $10,102 $ 8,528 $ 8,175
======= ======= ======= ======= =======
Ratio of net
charge-offs to
average loans
outstanding .29 .28 .28 .18 .26
Ratio of reserve
for loan losses
to loans
outstanding at
year end 1.50 1.63 1.72 1.49 1.50
B. Determination of Reserve for Loan Losses
The provision for loan losses charged to operations is based upon
management's estimations of the amount necessary to maintain the
allowance at an adequate level, considering past loan loss
experience, current economic conditions, the value of any
underlying collateral, credit reviews of the loan portfolio,
changes in the size and character of the loan portfolio, and other
factors warranting consideration. Allowances for any impaired
loans are generally determined based on collateral values. Loans
are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
The allowance is maintained at a level believed adquate by
management to absorb potential loan losses. Also, reference
should be made to the discussion in Item 7 - Mangement's
Discussion and Analysis under the heading, "Financial Condition
and Results of Operations."
C. Loans and Risk Descriptions
Real Estate Loans
NBC originates loans secured by commercial real estate, one-
to-four family residential properties, and multi-family dwelling
units (5 or more units). At December 31, 2000, these loans
totaled $436 million or approximately 67% of the loan portfolio.
NBC originates commercial real estate loans up to 80% of the
appraised value. Currently, it is the philosophy to originate
these loans only to selected known borrowers and on properties in
the market area.
Of primary concern in commercial real estate lending is the
borrower's credit worthiness and the feasibility and cash flow
potential of the project. To monitor cash flows of borrowers,
annual financial statements are obtained from the borrower and
loan guarantors, if any. Although many banks have had
significant losses in commercial real estate lending, NBC has
sustained few losses, and those losses were not significant
relative to the size of the entire commercial real estate loan
portfolio at the time.
NBC originates loans secured by first and junior liens on
one-to-four family residences in their lending areas. Typically,
such loans are single family homes that serve as the primary
residence of the borrower. Generally, these loans are originated
in amounts up to 80% of the appraised value or selling price of
the property. In the past, very few losses from these types of
loans have been experienced.
Loans for multi-family (5 or more) residential properties are
generally secured by apartment buildings. Loans secured by
income properties are generally larger and involve greater risk
than residential loans because payments are often dependent on
the successful operation or management of the properties. As a
result, these types of loans may be more sensitive to adverse
conditions in the real estate market or the economy. Cash flow
and financial statements are obtained from the borrowers and any
guarantors. Also, rent rolls are often obtained.
Consumer and Other Loans
NBC offers consumer loans in the form of home improvement loans,
mobile home loans, automobile loans and unsecured personal loans.
These loans totaled $104 million or 16% of total loans at
December 31, 2000. Consumer loans are originated in order to
provide a wide range of financial services to customers and
because the terms and normally higher interest rates on such
loans help maintain a profitable spread between the average loan
yield and the cost of funds.
In connection with consumer loan applications, the borrower's
income statement and credit bureau report are reviewed. In
addition, the relationship of the loan to the value of the
collateral is considered. All automobile loan applications
are reviewed, as well as the value of the unit which secured
the loan. NBC intends to continue to emphasize the origination
of consumer loans. Management believes that its loan loss
experience in connection with its consumer loan portfolio is
favorable in comparison to industry averages.
NBC makes commercial business loans on both a secured and
unsecured basis with terms which generally do not exceed five
years. Non-real estate commercial loans primarily consist of
short-term loans for working capital purposes, inventories,
seasonal loans, lines of credit and equipment loans. A personal
guaranty of payment by the principals of any borrowing entity is
often required and the financial statements and income tax returns
of the entity and its guarantors are reviewed. At December 31,
2000, NBC's commercial business loans represented approximately
14% of its total loan portfolio.
D. For the year 2001, losses for all loan categories, as a
percentage of average loans, are expected to approximate that
of 2000.
V. DEPOSITS
($ In Thousands)
2000 1999 1998
______________ ______________ ______________
Amount Rate Amount Rate Amount Rate
________ ____ ________ ____ ________ ____
A. Average
deposits:
Domestic:
Noninterest-
bearing $ 94,038 - $ 89,950 - $ 91,262 -
Interest-
bearing
demand (1) 254,458 3.6% 312,642 2.3% 207,478 2.7%
Savings 48,414 2.1% 34,913 2.5% 36,204 2.5%
Time 382,415 5.6% 327,051 6.2% 424,173 5.7%
Foreign N/A N/A N/A
________ ____ ________ ____ ________ ____
Total $779,325 $764,556 $759,117
======== ======== ========
(1) Includes Money Market accounts
B. Other categories
None
C. Foreign deposits
Not material
D. Time certificate of deposit of $100,000 or more and maturities at
December 31, 2000
(In Thousands)
3 6
Months Months
3 Through Through Over
Months 6 12 12
Total Or Less Months Months Months
________ _______ _______ _______ _______
Time certificates
of deposit of
$100,000 or more $147,541 $46,335 $30,721 $40,985 $29,500
======== ======= ======= ======= =======
E. Foreign office time deposits of $100,000 or more
Not applicable
VI. RETURN ON EQUITY AND ASSETS
The following financial ratios are presented for analytical
purposes:
December 31,
______________________
2000 1999 1998
______ ______ ______
Return on assets (net income divided by
total average assets) 1.4 1.1 1.1
Return on equity (net income divided by
average equity) 12.2 9.3 9.1
Dividend payout ratio (dividends per share
divided by basic net income per share) 49.5 59.5 51.0
Equity to asset ratio (average equity
divided by average total assets) 12.0 11.9 11.8
VII. SHORT-TERM BORROWINGS (In Thousands)
Federal
Funds
Purchased
And
Securities Treasury
Sold Under Tax and
Agreement to Loan Note
Repurchase Payable
____________ ____________
Balance at December 31, 2000 $16,326 $2,374
Weighted average interest rate at
December 31, 2000 4.15% 4.14%
Maximum amount outstanding at any
month end for the year 2000 17,831 2,677
Average amount outstanding during
the year 2000 17,049 1,634
Weighted average interest rate during
the year 4.16% 4.18%
VIII. CAPITAL ADEQUACY DATA
Total consolidated capital of the Company was as follows:
($ In Thousands)
December 31,
__________________
2000 1999
________ ________
Total stockholders' equity (excluding
unrealized gain/loss) $120,191 $113,889
Allowance for loan losses, as allowed 9,606 9,668
Other components of capital - -
________ ________
Total primary capital 129,797 123,557
Total secondary capital - -
________ ________
Total capital 129,797 123,557
Less intangible assets and other adjustments (3,235) (3,288)
________ ________
Total capital, as defined for regulatory
purposes $126,562 $120,269
======== ========
Tier 1 and total capital as a percentage of "risk-weighted" assets
at December 31, 2000 and 1999, are as follows:
December 31,
______________
2000 1999
______ ______
Tier 1 capital percentage 18.1% 18.4%
Total capital percentage 19.4% 19.6%
The Company's capital ratios exceed the minimum capital requirements
at December 31, 2000, and management expects this to continue.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial
condition. This discussion should be read in conjunction with the
consolidated financial statements, including the notes thereto, and the
supplemental financial data included elsewhere in this report, including
the five-year summary of Selected Financial Data and management's letter
to shareholders at the beginning of this Annual Report.
Certain information included in this discussion contains forward-looking
statements and information that are based on management's conclusions,
drawn from certain assumptions and information currently available to
management. The Private Securities Litigation Act of 1995 encourages the
disclosure of forward-looking information by management by providing safe
harbor for such information. Specifically, this discussion contains
forward-looking statements with respect to the adequacy of the Allowance
for Loan Losses and other market, liquidity and credit risk disclosures.
Although management believes that the expectations reflected in such
forward-looking statements are reasonable and based on management's best
judgements, it can give no assurance that such expectations will prove to
be correct. Such forward-looking statements are subject to certain risks
that assumptions will change and uncertainties will materialize. Should
this happen, then underlying assumptions may prove to be significantly
different and actual results may vary materially from those anticipated or
projected.
BUSINESS COMBINATIONS
On April 28, 2000, NBC Capital Corporation completed an acquisition of
Heritage Insurance Agency, LTD., located in Starkville, Mississippi.
Heritage was acquired for a combination of cash and common stock of NBC
Capital Corporation. The transaction was accounted for as a purchase.
Upon completion of the transaction, Heritage became part of Galloway-
Chandler-McKinney Insurance Agency, Inc., a wholly-owned subsidiary of
National Bank of Commerce, which is a wholly-owned subsidiary of NBC
Capital Corporation.
Merger related expenses associated with this transaction were not material
to the consolidated financial statements of NBC Capital Corporation.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since 1996, the total assets of the Corporation have increased 19.2%.
During this same period, loans have increased 19.0%; even though there has
been increased competition for good quality credits. The quality of the
portfolio remains excellent. Net charge-offs for 1998, 1999 and 2000 were
.28%, .28% and .29% of average net loans outstanding for each year,
respectively.
Deposits have grown 13.8% between 1996-2000. During the period 1996 -
1998, loans grew by approximately $41 million. This growth was funded by
deposits, which increased by approximately $70 million during this same
period. In 1999, the trend reversed as competition increased for
deposits, not only from within the banking industry, but from throughout
the financial services industry as billions of dollars continued to flow
into the stock markets. During 1999, as loans grew by $37 million,
deposits declined by approximately $24 million. Approximately 79% of this
decline in deposits occurred during the last sixty days of 1999. This
situation required the Corporation to look to other funding sources such
as reallocating funds from lower yielding assets and additional borrowings
from the Federal Home Loan Bank. During 2000, this trend again reversed
as the equity markets turned down and cash began flowing back into the
banking system. As a result, the Corporation was able to fund its loan
growth of approximately $24 million with a growth in deposits of
approximately $52 million. See the section entitled "Liquidity, Asset /
Liability Management" for additional comments on sources and uses of cash
during 2000.
Stockholders' equity has represented a consistent strength of the
Corporation throughout the years noted in the summary of Selected
Financial Data. Stockholders' equity has increased 19.2% since 1996.
Stockholders' equity includes Accumulated Other Comprehensive Income which
is composed of unrealized gain (loss), net of taxes on "Available-for-Sale
Securities" of ($2,638,000) and ($68,000) at December 31, 1999 and 2000,
respectively, as required to be reported under FASB 115.
Net income increased from 1996 to 1997. In 1998, consolidated net income
declined as a result of incurring approximately $1.8 million of merger
related expenses (net of taxes) associated with the acquisition of First
National Corporation of West Point ("FNC"). Net income increased in 1999
by $506,000, even though it included approximately $2.5 million of merger
related expenses (net of taxes) associated with the acquisitions of FFBS
Bancorp, Inc., ("FFBS") and Galloway-Chandler-McKinney Insurance Agency
("GCM"). Fully diluted earnings per share grew from $1.53 in 1996 to
$1.67 in 1997. In 1998 and 1999, fully diluted earnings per share were
$1.42 and $1.46, respectively, after being impacted by approximately $.26
in 1998 and $.36 in 1999, for the above mentioned non-recurring merger
expenses. In 2000, fully diluted earnings per share increased by 34.2%
to $1.96 per fully diluted share. All earnings per share amounts have
been restated to reflect the 1997 stock split, the 1998 merger with FNC
and the 1999 merger with FFBS.
Regular cash dividends have increased in each of the years outlined in the
summary of Selected Financial Data. Also, a special cash dividend of
$.06 per share was paid in 1999 in recognition of the company's strong
earnings and equity position. As stated in the preceding paragraph, all
per share amounts have been restated to reflect the 1997 stock split, the
1998 merger with FNC and the 1999 merger with FFBS.
Net interest income ("NII"), the primary source of earnings for the
Corporation, represents income generated from earning assets less the
interest expense of funding those assets. NII increased 1.4% in 1999 and
4.6% in 2000. Changes in NII may be divided into two components; first,
the change in average earning assets (volume component) and second, the
change in the net interest spread (rate component). Net interest spread
represents the difference between yields on earning assets and rates paid
on interest bearing liabilities. Net interest spread for 2000 increased to
4.09% from 4.07% in 1999. The primary reason for this increase was an
increase in average loan yields of approximately 51 basis points during
2000. This increase in loan yields was partially offset by an overall
increase in the average cost of deposits of approximately 41 basis points.
The volume component also contributed to this increase in NII as earning
assets grew $32.9 million or 3.9%. Net interest spread for 1999 decreased
to 4.07% from 4.08% in 1998. The primary reason for this decline was a
decrease in loan yields that resulted from an increased competition for
good quality loans. This occurred even though rates trended upward during
the year. The Corporation was able to offset this decline in loan yields
by reducing the overall cost of deposits by a comparable amount. Since
the rate component pushed NII slightly down in 1999, the overall increase
in NII for the year resulted from an increase in the volume component.
Earning Assets grew during 1999 by $21.9 million or 2.6%.
NII was also adversely impacted during 1999 by a significant increase in
cash reserves during the last quarter of the year. The purpose of this
increase was to meet any unusual customer demands for cash as a result of
Y2K. As the cash reserves were built, additional borrowings from the
Federal Home Loan Bank were being incurred to fund this cash buildup and
the Corporation's normal daily liquidity needs. It is estimated that this
Y2K preparation cost the Corporation approximately $320,000 in NII during
the fourth quarter. If this cost had not been incurred, NII for 1999
would have increased by 2.3%.
The Corporation'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 exist, a specific portion of the
reserve is allocated to these individual loans. 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 loan to capital has
declined from 22.3% at December 31, 1999 to 16.6% at December 31, 2000.
The Reserve for Loan Losses as a percentage of total loans has also
declined from 1.63% of net loans at the end of 1999 to 1.50% at the end of
2000. Based on these evaluations, the reserve amounts maintained at the
end of 2000 and 1999 were deemed adequate to cover exposure within the
Corporation's loan portfolio.
The Provision for Loan Losses has declined from $3,187,000 in 1998 to
$1,769,000 in 1999 to $1,280,000 in 2000. The provisions in 1998 and 1999
were unusually high due to the level of credit risk in the loans that came
into the portfolio from the acquisitions completed during those years.
These provisions included special provisions of $1.8 million in 1998 and
$780,000 in 1999, made by FNC and FFBS as a condition of their mergers
with the Corporation. However, the level of the provision for 2000 was
reduced due to the improvement in the overall quality of the portfolio and
to allow the balance in the Reserve for Loan Losses to be at the
appropriate level to cover the credit risk in the portfolio as of
December 31, 2000, as determined by the above described analysis.
Non-interest income includes various service charges, fees and commissions
collected by the Corporation, including insurance commissions earned by
GCM, the wholly-owned subsidiary of National Bank of Commerce. During 2000,
non-interest income increased by $708,000 or 5.4%. This increase was
caused primarily by increases in the Corporation's Trust Department Income
and Insurance Commissions, Fees and Premiums. Trust Department Income
increased by $211,000 or 15.0% resulting from continued growth in overall
trust related activities. Additionally, Insurance Commissions, Fees and
Premiums increased during 2000 by $555,000 or 15.2%. This increase was
caused by an increase in the volume of insurance written during the year
and by the purchase of Heritage Insurance Agency in April of 2000. This
acquisition was accounted for as a purchase; therefore, all commissions,
fees and premiums generated by Heritage from the date of the purchase are
included in the Corporation's numbers for 2000. During 1999, non-interest
income increased by 36.1%. This increase was primarily due to the
acquisition of GCM on September 30, 1999. This acquisition, which was
accounted for as a pooling of interest, generated approximately $3.2
million of commissions, which were included in Other Income for 1999.
The 1998 financial statements were not restated for this acquisition
because it was not considered material to the NBC Capital Corporation
Consolidated Financial Statements. As a result, 92% of the total
increase came from these commissions. Additionally, Trust Department
Income increased by 12.3% resulting from continued growth in overall trust
related activities. Service Charges on Deposit Accounts also increased by
10.8% due to an increased number of accounts resulting primarily from the
acquisitions, account promotions and an increased effort to collect fees
earned.
Non-interest expense represents ordinary overhead expenses, including
salaries, bonuses and benefits. The Corporation maintains a formal salary
administration program that considers extensive comparative salary data
and other indexes supplied by a leading outside consulting firm. This data
is utilized to assure that salaries are in line and competitive with
comparable jobs in the marketplace. Incentive bonuses were expensed in
each of the years noted and were paid to employees based on the attainment
of predetermined profit goals. Overall, non-interest expense decreased by
approximately $3.1 million or 9.0% during 2000. This decrease resulted
from a $285,000 or 1.6% decrease in Salaries and Employee Benefits, a
$326,000 or 7.7% increase in Net Occupancy and Furniture and Equipment
Expense and a $3.0 million or 99.3% decrease in Merger and Integration
Expenses. Salaries and Employee Benefits decreased as the result of the
successful integration of the two acquisitions completed during the third
quarter of 1999. The increase in Net Occupancy and Furniture and
Equipment Expense resulted primarily from a large purchase of data
processing hardware and software in late 1999 and early 2000 as part of
an overall platform automation project approved in 1999 and normal
increases in utility and repairs and maintenance expenses. The large
reduction in Merger and Integration Expenses was due to the merger-related
expenses incurred in 1999, which were not repeated in 2000. Non-interest
expense increased by approximately 16.7% during 1999. Of this total
increase, 40% resulted from increased merger related expenses incurred in
the acquisitions of FFBS and GCM. Salaries and Employee Benefits increased
by 9.5% during 1999. Approximately 50% of this increase in salary and
employee benefits came from the acquisition of GCM, which was included in
the 1999 amounts, but not in 1998. The remaining portion of the salary
and employee benefits increase for 1999 resulted from normal raises and
positions added to accommodate the Corporation's growth. The remaining
portion of the increase in non-interest expense in 1999 was primarily due
to the acquisition of GCM on September 30,1999. The major portion of
GCM's expenses for all of 1999, exclusive of salary and employee benefits,
were included in Other Expenses in the 1999 Consolidated Statements of
Income. As previously stated, the 1998 amounts were not restated for the
GCM acquisition.
Changes in the Corporation's income tax expense have generally paralleled
income gains. The Corporation's effective tax rates were 22.4% in 1998,
21.6% in 1999 and 27.3% in 2000. The large increase in the effective rate
in 2000 was the result of the acquisitions completed in the third quarter
of 1999. All the earning assets acquired from FFBS generated fully taxable
income. This resulted in the tax-exempt income as a percentage of total
pre-tax income declining from 46.7% in 1999 to 34.0% in 2000 for the
combined corporations. Also, Galloway-Chandler- McKinney Insurance Agency
was a Sub S corporation prior to the acquisition and; therefore, it had no
income tax expense to be included in the 1999 consolidated statements. 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 and the Corporation's
normal liquidity and balance sheet structure requirements.
LIQUIDITY, ASSET/LIABILITY MANAGEMENT
Liquidity may be defined as the ability of the Corporation to meet cash
flow requirements created by decreases in deposits and/or other sources of
funds or increases in loan demand. The Corporation has not experienced any
problems with liquidity over any of the years noted and anticipates that
all liquidity requirements will be met comfortably in the future. The
Corporation's traditional sources of funds from deposit increases,
maturing loans and investments and earnings have generally allowed it
to consistently generate sufficient funds for liquidity needs. As the
result of a $23.7 million increase in loans and a $52.0 million increase
in deposits, the Corporation's loan/deposit ratio has decreased from
82.9% in 1999 to 80.5% in 2000. At December 31, 1999, the Corporation
had approximately $82.2 million in cash accumulated for Y2K contingency
purposes. The reduction of this balance to $31.7 million at December 31,
2000, provided an additional $50.5 million in liquidity for the year 2000.
In addition to the above mentioned loan growth, the securities portfolio
increased by $51.5 million and Federal Funds sold increased by $13.2
million during the year. The remaining cash was used to reduce short-term
borrowings by $12.3 million and Other Borrowed Funds by $9.8 million. All
the remaining liquidity needs for the year were provided from normal
operating activities.
The Corporation offers repurchase agreements to accommodate excess funds of
some of its larger depositors. Management believes that these repurchase
agreements stabilize traditional deposit sources as opposed to risking the
potential loss of these funds to alternative investment arrangements.
Repurchase Agreements, which are viewed as a source of funds to the
Corporation, totaled $16.3 million and $17.6 million at December 31, 2000
and 1999, respectively. The level of repurchase agreement activity is
limited by the availability of investment portfolio securities to be
pledged against the accounts. Due to the limited amount of repurchase
agreements and the fact that the underlying securities remain under the
control of National Bank of Commerce, the exposure of the Corporation for
this program is not considered material.
During the next five years, approximately $54.5 million of the Federal Home
Loan Bank borrowings will mature. The Corporation believes that normal
earnings and other traditional sources of cash flow, along with additional
borrowings from the Federal Home Loan Bank, if necessary, will provide the
cash to allow it to meet these maturities with no adverse effect on
liquidity. At December 31, 2000, the Corporation had the ability to borrow
approximately $140 million from the Federal Home Loan Bank and had other
short-term borrowing lines of approximately $38 million.
The Corporation has no plans for the refinancing or redemption of any
liabilities other than normal maturities and payments relating to the
borrowings from the Federal Home Loan Bank. The Corporation does not have
plans at this time for any discretionary spending that would have a
material impact on liquidity other than the repurchase of a block of its
common stock. In February, the Corporation entered into a Letter of
Intent to purchase approximately 977,000 shares of its common stock for a
total purchase price of approximately $24.5 million. This transaction,
which was consummated on March 22, 2001, was financed through borrowings
from the Federal Home Loan Bank. The Corporation has excess consolidated
capital when compared to its peers and management believes that this
repurchase of its stock is the quickest and most efficient method of
utilizing a portion of this excess capital. The completion of this
transaction will result in reducing the Corporation's equity to assets
ratio to a more appropriate level. If this transaction had been completed
at the beginning of 2000, it would have had the following effect on the
Corporation's year-end numbers: the equity to assets ratio would have
decreased from 11.9% to approximately 9.5%; earnings per share would have
increased from $1.96 per share to approximately $2.13 per share; and return
on average equity would have improved from 12.2% to approximately 13.8%.
In management's opinion, this transaction is very positive for the
shareholders of the Corporation. The Corporation's decision to purchase
this block of shares was supported by a Fairness Opinion from an
independent, professional source.
The Corporation has maintained a consistent and disciplined asset/liability
management policy during each of the years noted in the summary. This
policy focuses on interest rate risk and rate sensitivity. As part of this
policy, the Corporation does not engage in currency or interest rate swaps,
nor does it purchase and hold any derivative securities.
The primary objective of rate sensitivity management is to maintain net
interest income growth while reducing exposure to adverse fluctuations in
rates. The Corporation utilizes an Asset/Liability Management Committee
that evaluates and analyzes the Corporation's pricing, asset/liability
maturities and growth, and balance sheet mix strategies in an effort to
make informed decisions that will increase income and limit interest rate
risk. The committee uses simulation modeling as a guide for its decision
making. Modeling techniques are also utilized to forecast changes in net
income and the economic value of equity under assumed fluctuations in
interest rate levels.
Due to the potential volatility of interest rates, the Corporation's goal
is to stabilize the net interest margin by maintaining a neutral rate
sensitive position. At year-end 2000, the Corporation's balance sheet
reflected approximately $57.7 million more in rate sensitive liabilities
than assets that were scheduled to reprice within one year. This represents
5.7% of total assets and would indicate that the Corporation is slightly
liability sensitive. This computation results from a static gap analysis
that weights assets and liabilities equally. It is the Corporation's
policy to maintain a static gap position of no more than a plus or minus
10% of aggregate assets over a moving twenty-four month period. The
Corporation's position is considered essentially neutral when using
simulation modeling that provides different weighting for assets and
liabilities. Management believes that interest rates will decline during
2001. As a result, it is felt that the Corporation's current position
places it in a low interest rate risk posture. Management does not believe
that it is in the Corporation's best interest to speculate on changes in
interest rate levels. Although earnings could be enhanced if predictions
were correct, they could also be put at significant risk if interest rates
move against predictions.
CAPITAL
Retained earnings have served as the Corporation's exclusive source of
capital growth over the five years noted in the summary of Selected
Financial Data. Stockholders' Equity, as stated previously, has grown
consistently over this period, except for 1999 and relates quite favorably
to the Corporation's assets. The equity to assets ratio increased from
11.4% at December 31, 1999 to 11.9% at December 31, 2000. In 1999, total
Stockholders' Equity showed a decline of approximately $600,000. The
reason for this decline was that Accumulated Other Comprehensive Income,
which is primarily composed of unrealized gains (losses) on available-
for-sale securities, moved from a gain of $1.4 million in 1998 to a loss
of $2.6 million in 1999. This resulted from an increasing rate
environment during 1999, which caused a decline in market value of these
investment securities. The interest rate trend reversed in 2000 and as a
result the Accumulated Other Comprehensive Income improved from a loss of
$2.6 million to a loss of only $68,000.
During 2000, the amount of Treasury Stock increased from $579,000 to
$1,043,000, as the number of shares held in the treasury increased from
17,470 to 37,235. When the Corporation formed its ESOP, it was required by
the IRS regulations to provide a put option to plan participants in order
to provide liquidity to participants who received the Corporation's common
stock. Prior to listing its stock on the American Stock Exchange in April
of 2000, the corporation acquired 41,561 shares as a result of the exercise
of these put options. Also during 2000, the Corporation issued 7,768
shares upon the exercise of stock options from a plan carried over from
FFBS and 14,028 shares in connection with the acquisition of Heritage
Insurance Agency.
Current regulatory requirements call for a basic leverage ratio of 5.0% for
an institution to be considered as "well-capitalized." At the end of 2000,
NBC maintained a 12.1% leverage ratio that obviously allowed it to
significantly exceed the ratio required for a "well-capitalized"
institution.
Regulatory authorities also evaluate a financial institution's capital
under certain risk-weighted formulas (high-risk assets would require a
higher capital allotment, lower risk assets a lower capital allotment). In
this context, a "well-capitalized" bank is required to have a Tier 1
risk-based capital ratio (excludes reserve for loan losses) of 6.0% and a
total risk-based capital ratio (includes reserve for loan losses) of 10.0%.
At the end of 2000, the Corporation had a Tier 1 ratio of 18.3% and a total
risk-based capital ratio of 19.5%, once again placing the Corporation well
above the level required for a "well-capitalized" institution.
The Corporation's capital position obviously exceeds regulatory
requirements, even for "well-capitalized" institutions. Capital has
increased 19.2% since 1996 to total 11.9% of assets at the end of 2000.
Management considered this level of capital to be excessive in relation to
the amount needed to support the assets of the Corporation. Even though
the purchase of the Corporation's stock, as discussed under the section on
Liquidity / Asset Liability Management, had the positive effect of reducing
this ratio to a more acceptable level, management is continuing to consider
other alternatives to safely leverage the excess capital in an effort to
increase the earnings of the Corporation and improve Return of Average Equity.
There are no material commitments for the use of capital resources that can
not be funded through currently available liquidity sources.
MARKET INFORMATION
Effective April 20, 2000, the Corporation listed its stock on the American
Stock Exchange and is currently traded on the AMEX under the symbol NBY.
Prior to that time, the stock was traded on the NASDAQ Inter-Dealer Market
under the symbol NBCA. Sun Trust Bank, Atlanta currently acts as Transfer
Agent for the Corporation. During 1999, dividends were declared
semi-annually in June and December. In 2000, the Corporation began paying
dividends on a quarterly basis. The following table sets forth, for the
periods indicated, the range of sales prices of the Corporation's common
stock as reported on the Inter-Dealer Market through March of 2000 and the
AMEX for the remainder of 2000 and the dividends declared for each year:
CASH DIVIDEND
DECLARED PER
YEAR QUARTER HIGH LOW QUARTER
____ _______ _______ _______ _____________
1999 First $40.000 $37.875 $ -
Second 38.500 30.000 0.18
Third 33.500 27.250 -
Fourth 31.500 26.000 0.69
2000 First $29.000 $20.000 $ 0.24
Second 21.375 20.000 0.24
Third 20.625 18.625 0.24
Fourth 20.000 18.750 0.25
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and,
accordingly, the Company manages exposure by considering the possible
changes in the net interest margin. The Company does not have any trading
instruments nor does it classify any portion of the investment portfolio as
held for trading. The Company does not engage in any hedging activities or
enter into any derivative instruments with a higher degree of risk than
collateralized mortgage obligations which are commonly held securities
generally collateralized by pools of GNMA, FNMA, or FHLMC pass-through
securities. Finally, the Company has no exposure to foreign currency
exchange rate risk, commodity price risk, and other market risks.
The following table reflects the year-end position of the Company's
interest-earning assets and interest-bearing liabilities which can either
reprice or mature within the designated time period. The interest rate
sensitivity gaps can vary from day-to-day and are not necessarily a
reflection of the future. In addition, certain assets and liabilities
within the same designated time period may nonetheless reprice at different
times and at different levels.
($ In Thousands)
December 31, 2000
______________________________________
Interest Sensitive Within (Cumulative)
______________________________________
Total of
Within Within Within Interest-
3 12 5 Earning
Months Months Years Assets
________ ________ ________ ________
Interest-earning assets:
Loans $321,884 $464,377 $581,470 $647,489
Investment and
mortgage-backed
securities 15,756 62,660 203,946 281,790
Federal funds sold
and other 15,711 15,711 15,711 15,711
________ ________ ________ ________
Totals $353,351 $542,748 $801,127 $944,990
======== ======== ======== ========
Interest-bearing
liabilities:
Deposits $307,976 $554,743 $708,016 $708,016
Borrowed funds 20,925 45,669 73,160 73,352
________ ________ ________ ________
$328,901 $600,412 $781,176 $781,368
======== ======== ======== ========
Sensitivity gap:
Dollar amount $ 24,450 $(57,664) $ 19,951 $163,622
Percent of total
interest-earning
assets 2.59% (6.10%) 2.11%
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning
assets anticipated, based upon certain assumptions, to mature or
reprice within that time period. A gap is considered positive when
the amount of interest rate sensitive assets maturing within a
specific time frame exceeds the amount of interest rate sensitive
liabilities maturing within that same time frame. During a period
of falling interest rates, a negative gap would tend to result in
an increase in net interest income while a positive gap would tend
to adversely affect net interest income. In a rising interest rate
environment, an institution with a positive gap would generally be
expected, absent the effects of other factors, to experience a
greater increase in the yield of its assets relative to the costs
of its liabilities and thus an increase in the institution's net
interest income would result whereas an institution with a negative
gap could experience the opposite results.
At December 31, 2000, total interest-earning assets maturing or
repricing within one year were less than interest-bearing liabilities
maturing or repricing within the same time period by approximately
$57.7 million (cumulative), representing a negative cumulative one
year gap of 6.1% of earning assets. Management of the Company
believes this is the proper position in the current interest rate
environment.
Banking regulators have issued advisories concerning the management
of interest rate risk (IRR). The regulators consider that effective
interest rate management is an essential component of safe and sound
banking practices. To monitor its IRR, the Company's risk management
practices include (a) Risk Management, (b) Risk Monitoring and
(c) Risk Control. Risk Management consists of a system in which a
measurement is taken of the amount of earnings at risk when interest
rates change. The Company does this by first preparing a "base
strategy" which is the position of the bank and its forecasted
earnings based upon the current interest rate environment or, most
likely, interest rate environment. The IRR is then measured based
upon hypothetical changes in interest rates by measuring the impact
such a change will have on the "base strategy."
Risk monitoring consists of evaluating the "base strategy" and the
assumptions used in its development based upon the current interest
rate environment. This evaluation is performed quarterly by
management or more often in a rapidly changing interest rate
situation and monitored by an Asset/Liability Management Committee.
Risk control is utilized based upon the setting of guidelines as to
the tolerance for interest rate exposure. These guidelines are set
by senior management and approved by the board of directors. The
December, 2000, model reflects an increase of 1.23% in income and a
12.44% decrease in market value equity for a 200 basis point increase
in interest rates. The same model shows a 1.94% decrease in income
and a 19.46% increase in market value equity for a 200 basis points
decrease in interest rates. The guidelines allow for no more than a
+ - 10% change in income, and no more than a + - 25% change in market
value equity.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NBC CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
DECEMBER 31, 2000 AND 1999
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
NBC Capital Corporation
We have audited the accompanying consolidated balance sheets of NBC Capital
Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of NBC
Capital Corporation and subsidiaries as of December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000, in conformity
with generally accepted accounting principles.
/S/ T. E. LOTT & COMPANY
Columbus, Mississippi
January 19, 2001 (Except for Note R, as to which the
date is February 1, 2001)
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
__________ __________
ASSETS (In thousands)
Cash and due from banks (Note M) $ 29,439 $ 80,288
Interest-bearing deposits with banks 2,289 1,895
Federal funds sold 13,422 201
__________ __________
Total cash and cash equivalents 45,150 82,384
__________ __________
Securities available-for-sale (Note C) 231,994 200,456
Securities held-to-maturity (Note C)
(estimated fair value of $53,343 in 2000
and $31,406 in 1999) 49,796 29,824
__________ __________
Total securities 281,790 230,280
__________ __________
Loans (Note D) 647,489 623,751
Less allowance for loan losses (Note D) (9,689) (10,194)
__________ __________
Net loans 637,800 613,557
__________ __________
Interest receivable 10,521 8,847
Premises and equipment (Note E) 16,285 16,757
Intangible assets 3,235 3,288
Other assets 14,734 18,457
__________ __________
Total Assets $1,009,515 $ 973,570
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 96,788 $ 92,506
Interest-bearing deposits, $100,000 or more 147,541 124,148
Other interest-bearing deposits 560,475 536,156
__________ __________
Total deposits 804,804 752,810
__________ __________
Interest payable 3,420 2,813
Federal funds purchased and securities sold
under repurchase agreements (Note F) 16,326 28,666
Other borrowed funds (Note F) 57,027 66,857
Other liabilities 7,815 11,173
__________ __________
Total liabilities 889,392 862,319
__________ __________
Commitments and contingent liabilities (Note N)
Stockholders' equity (Notes B, I and M):
Common stock - $1 par value, authorized
10,000,000 shares in 2000 and 1999;
issued 7,212,662 shares in 2000 and 1999 7,213 7,213
Surplus 51,529 51,845
Retained earnings 62,492 55,410
Accumulated other comprehensive income
(Note G) (68) (2,638)
Treasury stock, at cost (Note K) (1,043) (579)
__________ __________
Total stockholders' equity 120,123 111,251
__________ __________
Total Liabilities and Stockholders' Equity $1,009,515 $ 973,570
========== ==========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
_______ _______ _______
(In thousands,
except per share data)
INTEREST INCOME
Interest and fees on loans $57,535 $52,219 $52,955
Interest and dividends on securities:
Taxable interest and dividends 7,966 6,981 7,748
Tax-exempt interest 6,086 5,449 5,668
Other 1,148 2,440 1,953
_______ _______ _______
Total interest income 72,735 67,089 68,324
_______ _______ _______
INTEREST EXPENSE
Interest on time deposits of $100,000
or more 7,692 6,096 5,372
Interest on other deposits 23,867 22,303 25,044
Interest on borrowed funds 3,419 2,599 2,328
_______ _______ _______
Total interest expense 34,978 30,998 32,744
_______ _______ _______
Net interest income 37,757 36,091 35,580
Provision for loan losses (Note D) 1,280 1,769 3,187
_______ _______ _______
Net interest income after provision
for loan losses 36,477 34,322 32,393
_______ _______ _______
OTHER INCOME
Service charges on deposit accounts 5,306 5,230 4,720
Insurance commissions, fees, and premiums 4,204 3,649 538
Other service charges and fees 1,938 1,916 2,073
Trust Department income 1,616 1,405 1,251
Securities (losses) gains, net (22) 37 110
Other 720 817 899
_______ _______ _______
Total other income 13,762 13,054 9,591
_______ _______ _______
OTHER EXPENSE
Salaries 14,976 14,696 13,110
Employee benefits (Note J) 2,284 2,849 2,914
Net occupancy expense 2,161 2,048 1,965
Furniture and equipment expense 2,378 2,165 1,813
Merger and integration expense (Note B) 22 3,070 1,100
Other 9,096 9,141 8,199
_______ _______ _______
Total other expense 30,917 33,969 29,101
_______ _______ _______
Income before income taxes 19,322 13,407 12,883
Income taxes (Note H) 5,277 2,899 2,881
_______ _______ _______
Net income $14,045 $10,508 $10,002
======= ======= =======
Net income per share:
Basic $ 1.96 $ 1.46 $ 1.43
Diluted 1.96 1.46 1.42
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated
Other
Compre- Unearned Compre-
hensive Common Retained Compen- Treasury hensive
Income Stock Surplus Earnings sation Stock Income Total
_______ _______ _______ ________ ________ ________ ___________ ________
(In thousands)
Balance,
January 1, 1998 $ 7,044 $52,466 $ 46,206 $ (762) $ (268) $ 618 $105,304
Comprehensive
income:
Net income for
1998 $10,002 - - 10,002 - - - 10,002
Net change in
unrealized
gains
(losses)on
securities
available-
for-sale,
net of tax 758 - - - - - 758 758
_______
Comprehensive
income $10,760
=======
Cash dividends
declared, $.73
per share - - (3,907) - - - (3,907)
Purchase of
fractional
shares - (6) - - - - (6)
Pre-merger
transactions
of pooled
entity:
Dividends - - (749) - - - (749)
Other 1 94 - 105 266 - 466
_______ _______ ________ ________ ________ ___________ ________
Balance,
December 31,
1998 7,045 52,554 51,552 (657) (2) 1,376 111,868
Comprehensive
income:
Net income for
1999 $10,508 - - 10,508 - - - 10,508
Net change in
unrealized
gains (losses)
on securities
available-
for-sale,
net of tax (4,016) - - - - - (4,016) (4,016)
_______
Comprehensive
income $ 6,492
=======
Issuance of
common stock
for acquisition
accounted for
as a pooling
of interests
(Note B) 173 (232) - - - 2 (57)
Cash dividends
declared, $.87
per share - - (5,983) - - - (5,983)
Purchase of
treasury stock - - - - (1,900) - (1,900)
Purchase of
fractional
shares - (11) - - - - (11)
Treasury shares
issued for
acquisition
(Note K) (21) (814) - - 835 - -
Exercise of
stock options - (327) - - 486 - 159
Pre-merger
transactions
of pooled
entities:
Dividends - - (667) - - - (667)
Other 16 675 - 657 2 - 1,350
_______ _______ ________ ________ ________ ___________ ________
Balance,
December 31,
1999 7,213 51,845 55,410 - (579) (2,638) 111,251
Comprehensive
income:
Net income for
2000 $14,045 - - 14,045 - - - 14,045
Net change in
unrealized
gains (losses)
on securities
available-
for-sale,
net of tax 2,570 - - - - - 2,570 2,570
_______
Comprehensive
income $16,615
=======
Cash dividends
declared, $.97
per share - - (6,963) - - - (6,963)
Purchase of
treasury stock - - - - (1,164) - (1,164)
Treasury shares
issued for
acquisition
(Note K) - (184) - - 479 - 295
Exercise of
stock options - (132) - - 221 - 89
_______ _______ ________ ________ ________ ___________ ________
Balance,
December 31,
2000 $ 7,213 $51,529 $ 62,492 $ - $ (1,043) $ (68) $120,123
======= ======= ======== ======== ======== =========== ========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
________ ________ ________
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,045 $ 10,508 $ 10,002
Adjustments to reconcile net income
to net cash:
Depreciation and amortization 2,458 2,430 2,328
Deferred income taxes (credits) 103 (719) (1,349)
Provision for loan losses 1,280 1,769 3,187
FHLB stock dividend (278) (175) (174)
Losses (gains) on sale of securities 22 (37) (110)
Deferred credits (397) (154) (80)
Changes in:
Interest receivable (1,674) 399 (583)
Other assets 2,125 (503) (5,451)
Interest payable 607 (462) (342)
Other liabilities (167) 476 854
Amortization of unearned compensation - 657 262
Excess of fair market value of
allocated ESOP shares over cost - 504 231
Other - - 87
________ ________ ________
Net cash provided by operating activities 18,124 14,693 8,862
________ ________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-
sale (46,745) (76,330) (99,500)
Proceeds from sales of securities
available-for-sale 1,883 12,989 29,200
Proceeds from maturities and calls of
securities available-for-sale 17,488 52,058 85,724
Purchases of securities held-to-maturity (22,866) (487) -
Proceeds from maturities and calls of
securities held-to-maturity 2,894 1,819 202
Increase in loans (25,126) (38,441) (16,627)
Additions to premises and equipment (1,450) (1,724) (1,145)
Cash paid in business acquisition (47) - -
Other - - 448
________ ________ ________
Net cash used in investing activities (73,969) (50,116) (1,698)
________ ________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits 51,994 (24,145) 42,848
Dividends paid on common stock (10,138) (5,344) (4,277)
Net increase (decrease) in borrowed funds (22,170) 59,896 (14,033)
Exercise of stock options 89 337 132
Acquisition of stock (1,164) (1,900) (2)
Other - (57) 4
________ ________ ________
Net cash provided by financing activities 18,611 28,787 24,672
________ ________ ________
Net increase (decrease) in cash and
cash equivalents (37,234) (6,636) 31,836
Cash and cash equivalents at beginning
of year 82,384 89,020 57,184
________ ________ ________
Cash and cash equivalents at end of year $ 45,150 $ 82,384 $ 89,020
======== ======== ========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE A - SUMMARY OF ACCOUNTING POLICIES
NBC Capital Corporation (the "Corporation"), and its subsidiaries,
follow generally accepted accounting principles, including, where
applicable, general practices within the banking industry.
1. Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and
National Bank of Commerce ("NBC"), a wholly-owned subsidiary of
the Corporation,
First National Finance Company, a wholly-owned subsidiary of the
Corporation,
Galloway-Chandler-McKinney Insurance Agency, Inc., a wholly-owned
subsidiary of NBC,
NBC Insurance Services of Alabama, Inc., a wholly-owned subsidiary
of NBC, NBC Service Corporation, a wholly-owned subsidiary of NBC,
and
Commerce National Insurance Company, a 79%-owned subsidiary of NBC
Service Corporation.
Significant intercompany accounts and transactions have been
eliminated.
2. Nature of Operations
The Corporation is a bank holding company. Its primary asset is its
investment in its subsidiary bank. NBC provides full banking services,
including trust services. The bank operates under a national bank
charter and is subject to regulation of the Office of the Comptroller
of the Currency. The area served by NBC is the North Central region of
Mississippi with locations in ten communities and the Tuscaloosa,
Alabama area. Galloway-Chandler-McKinney Insurance Agency, Inc.,
operates insurance agencies in the NBC servicing area. NBC Insurance
Services of Alabama, Inc., sells annuity contracts in the State of
Alabama. The primary asset of NBC Service Corporation is its
investment in Commerce National Insurance Company, a life insurance
company. First National Finance Company is a finance company located
in West Point, Mississippi.
3. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
4. Securities
Investments in securities are classified into three categories and are
accounted for as follows:
Securities Available-for-Sale
Securities classified as available-for-sale are those securities that
are intended to be held for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors, including
movements in interest rates, liquidity needs, security risk assessments,
changes in the mix of assets and liabilities and other similar factors.
These securities are carried at their estimated fair value, and the net
unrealized gain or loss is reported as accumulated other comprehensive
income, net of tax, until realized. Premiums and discounts are
recognized in interest income using the interest method.
Gains and losses on the sale of securities available-for-sale are
determined using the adjusted cost of the specific security sold.
Securities Held-to-Maturity
Securities classified as held-to-maturity are those securities for
which there is a positive intent and ability to hold to maturity.
These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method.
Trading Account Securities
Trading account securities are those securities which are held for
the purpose of selling them at a profit. There were no trading account
securities on hand at December 31, 2000 and 1999.
5. Loans
Loans are carried at the principal amount outstanding. Interest income
on loans is recognized based on the principal balance outstanding and
the stated rate of the loan.
Loans are generally placed on a nonaccrual status when principal or
interest is past due ninety days, or when specifically determined to be
impaired. When a loan is placed on nonaccrual status, interest accrued
but not received is generally reversed against interest income. If
collectibility is in doubt, cash receipts on nonaccrual loans are used
to reduce principal rather than recorded as interest income.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related
loan.
6. Allowance for Loan Losses
For financial reporting purposes, the provision for loan losses charged
to operations is based upon management's estimations of the amount
necessary to maintain the allowance at an adequate level, considering
past loan loss experience, current economic conditions, the value of any
underlying collateral, credit reviews of the loan portfolio, changes in
the size and character of the loan portfolio and other factors
warranting consideration. Allowances for any impaired loans are
generally determined based on collateral values. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is
maintained at a level believed adequate by management to absorb
potential loan losses.
7. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are determined using the
straight-line method at rates calculated to depreciate or amortize the
cost of assets over their estimated useful lives.
Maintenance and repairs of property and equipment are charged to
operations, and major improvements are capitalized. Upon retirement,
sale, or other disposition of property and equipment, the cost and
accumulated depreciation are eliminated from the accounts, and any gains
or losses are included in operations.
8. Other Real Estate
Other real estate consists of properties acquired through foreclosure
and is recorded at the lower of cost or current appraisal less estimated
costs to sell. Any write-down from the cost to fair value required at
the time of foreclosure is charged to the allowance for loan losses.
Subsequent gains or losses on other real estate are reported in other
operating income or expenses.
9. Intangible Assets
Intangible assets, consisting principally of goodwill associated with
acquisitions, are being amortized to expense using the straight-line
method over a fifteen-year period. Amortization expense related to
intangible assets was $394,155 for 2000, $401,330 for 1999, and $331,673
for 1998.
10. Income Taxes
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently
payable plus deferred taxes related primarily to differences between the
bases of assets and liabilities as measured by income tax laws and their
bases as reported in the financial statements. The deferred tax assets
and liabilities represent the future tax consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
The Corporation and its subsidiaries (except for Commerce National
Insurance Company) file consolidated income tax returns. The
subsidiaries provide for income taxes on a separate return basis and
remit to the Corporation amounts determined to be payable.
11. Trust Assets
Assets of the Trust Department, other than cash on deposit, are not
included in the accompanying balance sheets, since such items are not
assets of the bank.
12. Employee Benefits
NBC maintains a noncontributory defined benefit pension plan covering
substantially all employees. The plan calls for benefits to be paid to
eligible employees at retirement based primarily upon years of service
and compensation. Contributions to the plan reflect benefits attributed
to employees' services to date, as well as services expected to be
earned in the future. The annual pension cost charged to expense is
actuarially determined in accordance with the provisions of Financial
Accounting Standards Board (FASB) Statement No. 87, "Employers'
Accounting for Pensions." The plan was amended effective January 1,
2001, to close participation in the plan. Employees hired subsequent to
December 31, 2000, will not be eligible to participate. Current
participants will continue to accrue benefits, but benefits accrued will
be offset by contributions to the profit sharing plan.
On January 1, 2001, the Corporation and its subsidiaries adopted a
defined contribution profit sharing plan. Employer contributions will
be made annually equal to 3% of each participant's base pay.
Participant accounts will be 100% vested upon completion of five years
of service.
NBC provides a deferred compensation arrangement (401(k) plan) whereby
employees contribute a percentage of their compensation. NBC makes
matching contributions of fifty percent of employee contributions of six
percent or less for employees with less than twenty years of service.
For employees with service of twenty years or more, the matching
contribution is seventy-five percent of employee contributions of six
percent or less.
Employees of NBC participate in a nonleveraged Employee Stock Ownership
Plan (ESOP) through which common stock of the Corporation is purchased
at its market price for the benefit of employees. Contributions are made
at the discretion of the Board of Directors and are expensed in the
applicable year. Effective January 1, 2001, the ESOP plan was amended
to freeze the plan and to allow no new entrants into the ESOP. All
participants at December 31, 2000, became 100% vested in their accounts.
The ESOP is accounted for in accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans."
The Corporation and its subsidiary bank have various deferred income and
supplemental retirement plans for certain key executive and senior
officers. Life insurance contracts have been purchased which may be
used to fund payments under the plans. The estimated present value of
the projected payments under the plans is being accrued to expense over
the remaining expected term of each participant's active employment.
The Corporation provides an employee stock benefit plan whereby 8,434
shares of the Corporation's stock have been assigned for the benefit of
certain key employees. Under the terms of the plan, retirement or
similar payments will be equal to the fair market value of the stock
plus all cash dividends paid since the adoption of the agreement. An
expense was recorded at the establishment date based on the market value
of the stock. The difference between any increase or decrease in the
value of the stock is recorded as an adjustment to employee benefits
expense.
13. Stock Options
Stock option grants are accounted for in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, no compensation expense is recognized for
stock options granted.
14. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks, interest-bearing deposits with
banks, and federal funds sold. Generally, federal funds are sold for
one to seven day periods.
15. Net Income Per Share
Basic net income per share computations are based upon the weighted
average number of common shares outstanding during the periods. Diluted
net income per share computations are based upon the weighted average
number of common shares outstanding during the periods plus the dilutive
effect of outstanding stock options. Net income per share for periods
prior to 1999 have been restated to reflect the effect of the FFBS
Bancorp, Inc. ("FFBS") acquisition which was accounted for as a pooling
of interest.
Presented below is a summary of the components used to calculate basic
and diluted net income per share for the years ended December 31, 2000,
1999, and 1998:
Years Ended December 31,
2000 1999 1998
________ ________ ________
(In thousands, except per share data)
Basic Net Income Per Share
Weighted average common shares
outstanding 7,180 7,178 6,987
======== ======== ========
Net income $ 14,045 $ 10,508 $ 10,002
======== ======== ========
Basic net income per share $ 1.96 $ 1.46 $ 1.43
======== ======== ========
Diluted Net Income Per Share
Weighted average common shares
outstanding 7,180 7,178 6,987
Net effect of the assumed exercise
of stock options based on the
treasury stock method 5 36 32
________ ________ ________
Total weighted average common
shares and common stock
equivalents outstanding 7,185 7,214 7,019
======== ======== ========
Net income $ 14,045 $ 10,508 $ 10,002
======== ======== ========
Diluted net income per share $ 1.96 $ 1.46 $ 1.42
======== ======== ========
16. Off-Balance Sheet Financial Instruments
In the ordinary course of business, NBC enters into off-balance sheet
financial instruments consisting of commitments to extend credit, credit
card lines, commercial and similar letters of credit and commitments to
purchase securities. Such financial instruments are recorded in the
financial statements when they are exercised.
17. Business Segments
FASB Statement No. 131, "Disclosures About Segments of an Enterprise and
Related Information," requires public companies to report (i) certain
financial and descriptive information about their reportable operating
segments (as defined) and (ii) certain enterprise-wide financial
information about products and services, geographic areas, and major
customers. Management believes the Corporation's principal activity is
community banking and that any other activities are not considered
significant segments.
18. Accounting Pronouncements
In June, 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and for Hedging Activities." Statement No. 133
requires all derivatives to be recorded on the balance sheet at fair
value. Statement No. 133 is effective for fiscal periods beginning
after June 15, 2000, and its adoption will not have a material effect on
the Corporation's consolidated financial statements.
NOTE B - ACQUISITIONS
On April 28, 2000, NBC acquired Heritage Insurance Agency, Ltd.
(Heritage), an independent insurance agency located in Starkville,
Mississippi, for $47,025 in cash and 14,028 shares of the Corporation's
common stock. Simultaneously with the acquisition, Heritage was merged
into Galloway-Chandler-McKinney Insurance Agency, Inc. The acquisition
of Heritage was accounted for as a purchase business combination, and
the results of operations of Heritage, which are not material, have been
included in the consolidated financial statements from the acquisition
date.
On August 31, 1999, the Corporation acquired all of the outstanding
common stock of FFBS in exchange for 1,396,162 shares of the
Corporation's common stock and a nominal amount of cash in lieu of
fractional shares. Simultaneously, the wholly-owned subsidiary of FFBS,
First Federal Bank for Savings ("First Federal"), was merged into NBC
with NBC as the surviving institution. The acquisition of FFBS has been
accounted for as a pooling of interests and, accordingly, all prior
financial statements have been restated to include the consolidated
accounts and consolidated operations of FFBS and its subsidiary. The
effect of the pooling of interests on reported operations follows:
NBC FFBS
Capital Bancorp, Currently
Corporation Inc. Reported
___________ ___________ ___________
(In thousands)
1998:
Net interest income $30,877 $4,703 $35,580
Provision for loan losses 3,187 - 3,187
Other income 8,838 753 9,591
Other expense 26,056 3,045 29,101
Net income 8,494 1,508 10,002
On September 30, 1999, NBC acquired the insurance agencies of Galloway-
Wiggers Insurance Agency, Inc., Kyle Chandler Insurance Agency, Inc.,
Galloway-Chandler-McKinney, Inc., and Napier Insurance Agency, Inc.
(GCM). GCM had total assets of approximately $1.4 million at
acquisition. NBC exchanged 173,184 shares of the Corporation's common
stock for all of the issued and outstanding common stock of GCM. The
insurance agencies were combined into a wholly-owned subsidiary of NBC,
Galloway-Chandler-McKinney Insurance Agency, Inc. The transaction has
been accounted for as a pooling of interests, and the Corporation's
consolidated financial statements for 1999 include the accounts of GCM.
The consolidated financial statements for periods prior to 1999 were not
restated as the changes would have been immaterial.
On December 31, 1998, the Corporation acquired all of the outstanding
stock of First National Corporation of West Point ("First National") in
exchange for 864,736 shares of the Corporation's common stock and a
nominal amount of cash in lieu of fractional shares. First National's
wholly-owned subsidiary banks, First National Bank of West Point and
National Bank of the South, were merged into NBC with NBC as the
surviving institution. The merger was accounted for as a pooling of
interests.
The Corporation recognized approximately $3.9 million of expense
associated with the acquisitions of FFBS and GCM. The following table
presents the primary components of merger and integration expenses
incurred through December 31, 1999, and the amounts remaining as accrued
expenses and included in other liabilities at December 31, 1999:
Total Remaining
Merger and Accrued at
Integration December 31,
Description Expense 1999
_____________________________________ ___________ ___________
(In thousands)
Employee contract and severance costs $ 803 $ 50
ESOP and other employee plan terminations 564 -
Service contract terminations 341 -
Investment banker costs 447 -
Professional fees 575 21
Integration costs and other 340 82
______ ______
$3,070 $ 153
====== ======
Other expenses associated with the merger and included in other
categories in the accompanying consolidated statement of income for the
year ended December 31, 1999, totaled approximately $780,000, and
consisted principally of an additional provision for loan losses.
Included in merger and integration expenses for the year ended
December 31, 1998, are costs of $1.1 million associated with the First
National acquisition. Also, approximately $1.8 million of additional
expenses were incurred and these consisted principally of an additional
provision for loan losses.
NOTE C - SECURITIES
A summary of amortized cost and estimated fair value of securities
available-for-sale and securities held-to-maturity at December 31, 2000
and 1999, follows:
December 31, 2000
____________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_________ __________ __________ _________
(In thousands)
Securities available-
for-sale:
U. S. Treasury
securities $ 4,595 $ 3 $ 54 $ 4,544
Obligations of other
U. S. Government
agencies 44,596 141 185 44,552
Obligations of states
and municipal
subdivisions 73,898 404 87 74,215
Mortgage-backed
securities 93,366 305 539 93,132
Equity securities 10,572 - - 10,572
Other securities 5,100 - 121 4,979
_________ __________ __________ _________
$ 232,127 $ 853 $ 986 $ 231,994
========= ========== ========== =========
Securities held-to-
maturity:
Obligations of states
and municipal
subdivisions $ 49,796 $ 3,547 $ - $ 53,343
========= ========== ========== =========
December 31, 1999
____________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_________ __________ __________ _________
(In thousands)
Securities available-
for-sale:
U. S. Treasury
securities $ 7,980 $ 4 $ 252 $ 7,732
Obligations of other
U. S. Government
agencies 31,269 - 847 30,422
Obligations of states
and municipal
subdivisions 76,337 174 1,005 75,506
Mortgage-backed
securities 78,489 177 2,142 76,524
Equity securities 5,294 - - 5,294
Other securities 5,129 1 152 4,978
_________ __________ __________ _________
$ 204,498 $ 356 $ 4,398 $ 200,456
========= ========== ========== =========
Securities held-to-
maturity:
Obligations of states
and municipal
subdivisions $ 29,824 $ 1,601 $ 19 $ 31,406
========= ========== ========== =========
The scheduled maturities of securities available-for-sale and securities
held-to-maturity at December 31, 2000, are as follows:
Available-for-Sale Held-to-Maturity
_____________________ _____________________
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
_________ __________ __________ _________
(In thousands)
Due in one year or less $ 25,967 $ 26,019 $ 1,637 $ 1,668
Due after one year
through five years 65,124 65,131 12,896 13,783
Due after five years
through ten years 33,059 33,214 18,815 20,111
Due after ten years 1,779 1,773 16,448 17,781
Mortgage-backed
securities and other
securities 106,198 105,857 - -
_________ __________ __________ _________
$ 232,127 $ 231,994 $ 49,796 $ 53,343
========= ========== ========== =========
Equity securities consist of investments in FNMA preferred stock and
stock of the Federal Reserve Bank and the Federal Home Loan Bank (FHLB).
The transferability of the Federal Reserve Bank and FHLB stock is
restricted.
Gross gains of $ -0-, $40,000, and $131,000, and gross losses of
$22,000, $3,000, and $21,000 were realized on securities available-for-
sale in 2000, 1999, and 1998, respectively.
Securities with a carrying value of $202,892,000 and $156,550,000 at
December 31, 2000 and 1999, respectively, were pledged to secure public
and trust deposits and for other purposes as required or permitted by
law.
NOTE D - LOANS
Loans outstanding include the following types:
December 31,
__________________
2000 1999
________ ________
(In thousands)
Commercial, financial and agricultural $103,045 $101,503
Real estate - construction 33,638 26,185
Real estate - mortgage 402,987 390,205
Installment loans to individuals 105,564 101,624
Other 2,255 4,234
________ ________
647,489 623,751
Allowance for loan losses (9,689) (10,194)
________ ________
$637,800 $613,557
======== ========
Transactions in the allowance for loan losses are summarized as follows:
Years Ended December 31,
____________________________
2000 1999 1998
________ ________ ________
(In thousands)
Balance at beginning of year $ 10,194 $ 10,102 $ 8,528
Additions:
Provision for loan losses
charged to operating expense 1,280 1,769 3,187
Recoveries of loans previously
charged off 417 380 373
________ ________ ________
11,891 12,251 12,088
Deductions:
Loans charged off 2,202 2,057 1,986
________ ________ ________
Balance at end of year $ 9,689 $ 10,194 $ 10,102
======== ======== ========
At December 31, 2000 and 1999, the recorded investment in loans
considered to be impaired totaled approximately $3,160,000 and
$1,993,000, respectively. The allowance for loan losses related to
these loans approximated $ 1,600,000 and $1,009,000 at December 31,
2000 and 1999, respectively. The average recorded investment in
impaired loans during the years ended December 31, 2000 and 1999, was
approximately $2.1 million and $2.5 million, respectively. For the
years ended December 31, 2000 and 1999, the amount of income
recognized on impaired loans was immaterial.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization as follows:
Estimated December 31,
Useful Lives __________________
In Years 2000 1999
____________ ________ ________
(In thousands)
Premises:
Land - $ 2,868 $ 3,187
Buildings, construction and
improvements 10 - 50 16,097 16,902
________ ________
18,965 20,089
Equipment 3 - 10 11,435 10,964
________ ________
30,400 31,053
Less accumulated depreciation
and amortization (14,115) (14,296)
________ ________
$ 16,285 $ 16,757
======== ========
The amount charged to operating expenses for depreciation was
$1,922,000 for 2000, $1,845,000 for 1999, and $1,821,000 for 1998.
NOTE F - BORROWED FUNDS
Federal funds purchased and securities sold under repurchase agreements
consisted of the following at December 31, 2000 and 1999:
December 31,
__________________
2000 1999
________ ________
(In thousands)
Federal funds purchased $ - $ 11,015
Securities sold under agreements to repurchase 16,326 17,651
________ ________
$ 16,326 $ 28,666
======== ========
Federal funds purchased and securities sold under agreements to
repurchase generally mature within one to seven days from the
transaction date. Information concerning securities sold under
agreements to repurchase is summarized as follows:
2000 1999
________ ________
($ In thousands)
Average balance during the year $ 17,049 $ 15,766
Average interest rate during the year 4.16% 4.00%
Maximum month-end balance during the year 17,831 18,142
Securities underlying the repurchase agreements remain under the
control of NBC.
Other borrowed funds consisted of the following at December 31:
2000 1999
________ ________
(In thousands)
FHLB advances $ 54,653 $ 64,395
Treasury tax and loan note 2,374 2,462
________ ________
$ 57,027 $ 66,857
======== ========
Advances from the FHLB have maturity dates ranging from January, 2001,
through January, 2006. Interest is payable monthly at rates ranging from
5.90% to 7.29%. Advances due to the FHLB are collateralized by first
mortgage loans, FHLB capital stock, and amounts on deposit with the
FHLB. The treasury tax and loan note generally matures within one to
sixty days from the transaction date. Interest is paid at an adjustable
rate as set by the U. S. Government.
Annual principal repayment requirements on FHLB borrowings at
December 31, 2000, are as follows:
Year Amount
____ ______
(In thousands)
2001 $ 24,506
2002 15,704
2003 5,421
2004 5,357
2005 3,473
Thereafter 192
NOTE G - COMPREHENSIVE INCOME
In the calculation of comprehensive income, certain reclassification
adjustments are made to avoid double counting amounts that are displayed
as part of net income for a period that also had been displayed as part
of other comprehensive income. The disclosure of the reclassification
amounts are as follows:
Years Ended December 31,
____________________________
2000 1999 1998
________ ________ ________
(In thousands)
Net change in unrealized gains
(losses):
Net unrealized gains (losses)
on securities available-for-sale $ 3,887 $ (6,096) $ 1,339
Reclassification adjustment for
(gains) losses on securities
available-for-sale 22 (37) (110)
________ ________ ________
Net change in unrealized gains
(losses) on securities available-
for-sale before tax 3,909 (6,133) 1,229
________ ________ ________
Income tax (expense) benefit:
Net unrealized gains (losses) on
securities available-for-sale (1,323) 2,070 (496)
Reclassification adjustment for
gains (losses) on securities
available-for-sale (8) 14 41
________ ________ ________
Total income tax (expense)
benefit (1,331) 2,084 (455)
________ ________ ________
Net change in unrealized gains
(losses) on securities available-
for-sale, net of tax before
minority interest 2,578 (4,049) 774
Minority interest in net change (8) 33 (16)
________ ________ ________
$ 2,570 $ (4,016) $ 758
======== ======== ========
NOTE H - INCOME TAXES
The provision for income taxes including the tax effects of securities
transactions [2000 - $(8,254); 1999 - $13,965; 1998 - $41,200] is as
follows:
Years Ended December 31,
____________________________
2000 1999 1998
________ ________ ________
(In thousands)
Current tax expense $ 5,174 $ 3,618 $ 4,230
Deferred tax expense (benefit) 103 (719) (1,349)
________ ________ ________
$ 5,277 $ 2,899 $ 2,881
======== ======== ========
The difference between the total expected tax expense at the federal
tax rate of 34% and the reported income tax expense is as follows:
Years Ended December 31,
____________________________
2000 1999 1998
________ ________ ________
(In thousands)
Tax on income before income taxes $ 6,569 $ 4,558 $ 4,380
Increase (decrease) resulting from:
Tax-exempt income (2,231) (1,959) (2,046)
Nondeductible expenses 442 481 326
State income taxes, net of federal
benefit 540 334 345
Recapture of minimum tax by
subsidiary - (172) -
Other, net (43) (343) (124)
________ ________ ________
$ 5,277 $ 2,899 $ 2,881
======== ======== ========
The components of the net deferred tax asset included in other assets
as of December 31, 2000 and 1999, are as follows:
December 31,
__________________
2000 1999
________ ________
(In thousands)
Deferred tax assets:
Allowance for loan losses $ 3,460 $ 3,574
Employee benefits 547 493
Other 882 747
Unrealized loss on securities
available-for-sale 49 1,380
_______ ________
Total deferred tax assets 4,938 6,194
_______ ________
Deferred tax liabilities:
Premises and equipment $ (822) $ (949)
Other (1,133) (828)
_______ ________
Total deferred tax liabilities (1,955) (1,777)
_______ ________
Net deferred tax asset $ 2,983 $ 4,417
======= ========
NOTE I - STOCK OPTIONS
In connection with the business combination with FFBS, the Corporation
assumed stock options which were previously granted by FFBS and
converted those options, based upon the appropriate exchange ratio, into
options to acquire the Corporation's common stock. The stock options
had been granted to eligible employees and directors of FFBS. All
options were granted with an exercise price of $11.42 per share (as
adjusted by the exchange ratio).
Activity for the assumed stock options for the three years ended
December 31, 2000, follows:
December 31,
______________________
2000 1999 1998
______ ______ ______
Shares under option at beginning of year 15,547 57,772 69,308
Granted - - -
Exercised 7,768 42,225 11,536
Canceled - - -
______ ______ ______
Shares under option at end of year 7,779 15,547 57,772
====== ====== ======
Exercisable at end of year 7,779 15,547 57,772
====== ====== ======
The options outstanding have a remaining weighted average contract
life of 1.4 years.
The pro forma net income and pro forma net income per share, as
determined in accordance with FASB Statement No. 123, "Accounting for
Stock Based Compensation," is not materially different from net income
and net income per share as reported.
NOTE J - EMPLOYEE BENEFITS
The following table sets forth the defined benefit plan's funded status
and amounts recognized in the Corporation's consolidated financial
statements at December 31, 2000 and 1999:
December 31,
______________
2000 1999
______ ______
($ In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $7,115 $8,367
Service cost 543 572
Interest cost 578 559
Actuarial (gain) loss 394 (548)
Amendments (864) -
Beginning of year measurement loss 634 -
Administrative expenses paid (52) -
Benefits paid (601) (1,835)
______ ______
Benefit obligation at end of year 7,747 7,115
______ ______
Change in plan assets:
Fair value of plan assets at beginning of year 9,545 9,988
Return on plan assets (124) 858
Employer contributions 85 -
Administrative expenses paid (52) -
Benefits paid (601) (1,835)
Asset gains deferred for later recognition - 534
______ ______
Fair value of plan assets at end of year 8,853 9,545
______ ______
Funded status 1,106 2,430
Unrecognized net asset at adoption of
Statement No. 87 being recognized over
employees' remaining service life - (26)
Unrecognized net actuarial (gain) loss 1,609 (332)
Unrecognized prior service cost (1,587) (796)
______ ______
Prepaid benefit cost $1,128 $1,276
====== ======
Weighted average assumptions:
Discount rate 7.50% 7.75%
Expected return on plan assets 8.50% 9.50%
Rate of compensation increase 5.00% 5.00%
Components of net periodic benefit cost:
Service cost $ 543 $ 573
Interest cost 577 559
Expected return on plan assets (730) (858)
Amortization of prior service costs (72) (72)
Amortization of transition obligation (26) (33)
Recognized net actuarial loss 11 33
______ ______
$ 303 $ 202
====== ======
In connection with its conversion to a stock savings and loan
association in 1993, First Federal established an ESOP. At formation,
the ESOP borrowed $1,269,000 from FFBS to purchase 126,960 shares of
FFBS common stock. The loan obligation was considered unearned
compensation and, as such, was recorded as a reduction of stockholders'
equity. Cash contributions to the ESOP were determined based on the
total debt service of the ESOP less any dividends paid on ESOP shares.
Accounting for the ESOP was in accordance with Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans." As
the debt was repaid, shares were released from collateral and allocated
to qualified employees based on the proportion of debt service paid for
the year. As shares were released from collateral, an expense was
recorded equal to the fair market value of the shares allocated. For
the years ended December 31, 1999, and 1998, employee benefit expense
related to the First Federal ESOP totaled $333,481, and $379,868,
respectively. In accordance with the terms of the ESOP, concurrent with
the business combination, the debt was retired and the remaining
unallocated shares were allocated to participants, resulting in an
additional one-time expense in 1999 of $423,400.
No contributions were made to the Corporation's nonleveraged ESOP in
2000. Contributions to the ESOP were $100,000 in 1999, and $80,000 in
1998. At December 31, 2000, the plan held 315,856 shares of the
Corporation's common stock. Contributions to the 401(k) plan amounted
to $278,534 in 2000, $336,722 in 1999, and $290,230 in 1998.
In 1993, First Federal established a Recognition and Retention Plan
("RRP") under which awards of FFBS common stock were made to directors
of First Federal. Common stock was purchased by the RRP at its market
value and was considered unearned compensation at the time of purchase
and earned ratably over the stipulated vesting period. As such, the RRP
unearned compensation was reported as a reduction of stockholders'
equity. In accordance with the terms of the RRP, the shares awarded
were immediately vested upon consummation of the merger with NBC,
resulting in an additional one-time expense in 1999 of $70,536.
Expenses under the deferred income and supplemental retirement plans,
net of increases in the cash surrender value of life insurance
contracts, were not material for 2000, 1999, and 1998.
NOTE K - TREASURY STOCK
Shares held in treasury totaled 37,235 at December 31, 2000, and 17,470
at December 31, 1999.
Upon formation of the Corporation's ESOP, the Corporation was required
by IRS regulations to provide a put option to plan participants in order
to provide liquidity to participants who received Corporation common
stock. During the years 2000 and 1999, the Corporation acquired, as
treasury shares, 41,561 and 52,788 shares, respectively, of its common
stock of which 41,561 and 47,316 shares, respectively, were the result
of the exercise of the put option. Upon consummation of the acquisition
of FFBS, 21,420 treasury shares were issued and in accordance with APB
Opinion No. 16, "Business Combinations," the issuance of the treasury
shares has been reported as though the shares were retired.
Additionally, 7,768 and 13,898 treasury shares were issued in 2000 and
1999, respectively, upon the exercise of stock options, and 14,028
treasury shares were issued in connection with the acquisition of
Heritage.
NOTE L - RELATED PARTY TRANSACTIONS
In the normal course of business, loans are made to directors and
executive officers and to companies in which they have a significant
ownership interest. In the opinion of management, these loans are made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other parties, and are consistent with sound banking practices and
are within applicable regulatory and lending limitations. The activity
in loans to current directors, executive officers, and their affiliates
during 2000 is summarized as follows:
(In thousands)
_______
Loans outstanding at January 1, 2000 $11,634
New loans 14,498
Repayments (2,921)
_______
Loans outstanding at December 31, 2000 $23,211
=======
Also, in the normal course of business, the Corporation and its
subsidiaries enter into transactions for services with companies and
firms whose principals are directors and stockholders.
NOTE M - REGULATORY MATTERS
Any dividends paid by the Corporation are provided from dividends
received from its subsidiary bank. Under regulations controlling
national banks, the payment of any dividends by a bank without prior
approval of the Comptroller of the Currency is limited to the current
year's net profits (as defined by the Comptroller of the Currency) and
retained net profits of the two preceding years.
The Corporation and its subsidiary bank are subject to regulatory
capital requirements administered by federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's
consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the
Corporation and its subsidiary bank must meet specific capital
guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. Capital amounts and classifications are also
subject to qualitative judgment by regulators about components, risk
weightings, and other related factors.
To ensure capital adequacy, quantitative measures have been established
by regulators and these require the Corporation and its bank subsidiary
to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined) to risk-weighted assets (as
defined), and of Tier I capital to adjusted average total assets
(leverage). Management believes, as of December 31, 2000, that the
Corporation and its subsidiary bank exceed all capital adequacy
requirements.
At December 31, 2000, NBC was categorized by regulators as well-
capitalized under the regulatory framework for prompt corrective action.
A financial institution is considered to be well-capitalized if it has
total risk-based capital ratio of 10% or more, has a Tier I risk-based
capital ratio of 6% or more, and has a Tier I leverage capital ratio of
5% or more. There are no conditions or anticipated events that, in the
opinion of management, would change the categorization.
The actual capital amounts and ratios at December 31, 2000 and 1999, are
presented in the following table. No amount was deducted from capital
for interest-rate risk exposure:
NBC Capital
Corporation
(Consolidated) NBC
_______________ _______________
Amount Ratio Amount Ratio
________ _____ ________ _____
($ In thousands)
December 31, 2000:
Total risk-based $126,562 19.4% $122,418 18.8%
Tier I risk-based 118,384 18.1% 114,248 17.5%
Tier I leverage 118,384 12.1% 114,248 11.6%
December 31, 1999:
Total risk-based $120,269 19.6% $115,673 18.9%
Tier I risk-based 112,602 18.4% 108,008 17.7%
Tier I leverage 112,602 11.8% 108,008 11.4%
The minimum amounts of capital and ratios as established by banking
regulators at December 31, 2000 and 1999, were as follows:
NBC Capital
Corporation
(Consolidated) NBC
_______________ _______________
Amount Ratio Amount Ratio
________ _____ ________ _____
($ In thousands)
December 31, 2000:
Total risk-based $ 52,366 8.0% $ 52,166 8.0%
Tier I risk-based 25,183 4.0% 26,083 4.0%
Tier I leverage 29,648 3.0% 29,740 3.0%
December 31, 1999:
Total risk-based $ 49,067 8.0% $ 48,858 8.0%
Tier I risk-based 24,534 4.0% 24,429 4.0%
Tier I leverage 28,560 3.0% 26,868 3.0%
NBC is required to maintain average reserve balances in the form of cash
or deposits with the Federal Reserve Bank. The reserve balance varies
depending upon the types and amounts of deposits. At December 31, 2000,
the required reserve balance on deposit with the Federal Reserve Bank
was approximately $500,000.
NOTE N - COMMITMENTS AND CONTINGENT LIABILITIES
The consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of banking
business and which involve elements of credit risk, interest rate risk,
and liquidity risk. The commitments and contingent liabilities are
commitments to extend credit, credit card lines, and commercial and
similar letters of credit. A summary of commitments and contingent
liabilities at December 31, 2000 and 1999, is as follows:
Contractual Amount
________________
December 31,
________________
2000 1999
_______ _______
(In thousands)
Commitments to extend credit $91,570 $64,645
Credit card lines 7,230 5,829
Commercial and similar letters of credit 4,481 4,588
Commitments to extend credit, credit card lines, and commercial and
similar letters of credit include some exposure to credit loss in the
event of nonperformance of the customer. The credit policies and
procedures for such commitments are the same as those used for lending
activities. Because these instruments have fixed maturity dates and
because a number expire without being drawn upon, they generally do not
present any significant liquidity risk. No significant losses on
commitments were incurred in 2000 or 1999, nor are any significant
losses as a result of these transactions anticipated.
NBC is a defendant in a lawsuit in which a class is pursuing unspecified
compensatory and punitive damages as a result of the placement of
collateral protection insurance. NBC is vigorously defending its
position and, at present, is unable to determine the potential loss or
costs, if any, of the litigation.
NBC is also a defendant in various pending and threatened legal actions
arising in the normal course of business. In the opinion of management,
based upon the advice of legal counsel, the ultimate disposition of
these matters will not have a material effect on the Corporation's
consolidated financial statements.
NOTE O - CONCENTRATIONS OF CREDIT
Most of the loans, commitments and letters of credit of NBC have been
granted to customers in its market areas. Generally, such customers are
also depositors. Investments in state and municipal securities also
involve governmental entities within the bank's market areas. The
concentrations of credit by type of loan are set forth in Note D. The
distribution of commitments to extend credit approximates the
distribution of loans outstanding. Letters of credit were granted
primarily to commercial borrowers.
NOTE P - SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
_________________________
2000 1999 1998
_______ _______ _______
(In thousands)
Cash paid during the year for:
Interest $34,376 $29,195 $32,570
Income taxes, net of refunds 4,924 3,840 4,500
NOTE Q - DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with FASB Statement No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated
fair value amounts have been determined using available market
information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data
to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that
could be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and Cash Equivalents - For such short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities - For securities held as investments, fair value equals
market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar
securities.
Loans - The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities.
Deposits - The fair values of demand deposits are, as required by
Statement No. 107, equal to the carrying value of such deposits. Demand
deposits include noninterest-bearing demand deposits, savings accounts,
NOW accounts, and money market demand accounts. The fair value of
variable rate term deposits, those repricing within six months or less,
approximates the carrying value of these deposits. Discounted cash
flows have been used to value fixed rate term deposits and variable rate
term deposits repricing after six months. The discount rate used is
based on interest rates currently being offered on comparable deposits
as to amount and term.
Short-Term Borrowings - The carrying value of federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximates their carrying values.
FHLB and Other Borrowings - The fair value of the fixed rate borrowings
are estimated using discounted cash flows, based on current incremental
borrowing rates for similar types of borrowing arrangements. The
carrying amount of any variable rate borrowings approximates their fair
values.
Off-Balance Sheet Instruments - Fair values of off-balance sheet
financial instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit do not represent a
significant value until such commitments are funded or closed.
Management has determined that these instruments do not have a
distinguishable fair value and no fair value has been assigned.
December 31, 2000 December 31, 1999
____________________ ____________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
_________ _________ _________ _________
Financial Instruments: (In thousands)
Assets:
Cash and cash
equivalents $ 45,150 $ 45,150 $ 82,384 $ 82,384
Securities available-
for-sale 231,994 231,994 200,456 200,456
Securities held-to-
maturity 49,796 53,353 29,824 31,406
Loans 637,800 637,083 613,557 612,609
Liabilities:
Noninterest-bearing
deposits 96,788 96,788 92,506 92,506
Interest-bearing
deposits 708,016 708,518 660,304 660,495
Federal funds
purchased and
securities sold
under agreements
to repurchase 16,326 16,326 28,666 28,666
FHLB and other
borrowings 57,027 57,019 66,857 66,854
NOTE R - SUBSEQUENT EVENTS
On February 1, 2001, the Corporation entered into a letter of intent to
purchase approximately 977,000 shares of the Corporation's common stock
for approximately $24.5 million. The acquisition is expected to be
completed by March 29, 2001.
NOTE S - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of December 31, 2000 and 1999, and statements of
income and cash flows for the years ended December 31, 2000, 1999 and
1998, of NBC Capital Corporation (parent company only) are presented
below:
BALANCE SHEETS
2000 1999
________ ________
(In thousands)
Assets
Cash and cash equivalents $ 2,469 $ 2,605
Investment in subsidiaries 116,977 108,163
Other assets 2,675 5,747
________ ________
$122,121 $116,515
======== ========
Liabilities and Stockholders' Equity
Dividends payable and other liabilities $ 1,998 $ 5,264
Stockholders' equity 120,123 111,251
________ ________
$122,121 $116,515
======== ========
STATEMENTS OF INCOME
Years Ended December 31,
____________________________
2000 1999 1998
________ ________ ________
(In thousands)
Income
Dividends from subsidiaries $ 8,136 $ 9,393 $ 4,373
Other 130 149 206
________ ________ ________
8,266 9,542 4,579
Expense 127 1,135 930
________ ________ ________
Income before income taxes and equity
in undistributed earnings of
subsidiaries 8,139 8,407 3,649
Income tax benefit 4 258 282
Income before equity in undistributed
earnings of subsidiaries 8,143 8,665 3,931
Equity in undistributed earnings of
subsidiaries 5,902 1,843 6,071
_________ ________ ________
Net income $ 14,045 $ 10,508 $ 10,002
========= ======== ========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
____________________________
2000 1999 1998
________ ________ ________
(In thousands)
Cash Flows From Operating Activities
Net income $ 14,045 $ 10,508 $ 10,002
Equity in subsidiaries' earnings in
excess of dividends (5,902) (1,843) (6,071)
Other, net 2,981 (2,148) (469)
________ ________ ________
Net cash provided by operating
activities 11,124 6,517 3,462
________ ________ ________
Cash Flows From Investing Activities (47) - 1,750
________ ________ ________
Cash Flows From Financing Activities
Dividends paid on common stock (10,138) (5,344) (4,277)
Other, net (1,075) (1,563) 134
________ ________ ________
Net cash used in financing activities (11,213) (6,907) (4,143)
________ ________ ________
Net increase (decrease) in cash and
cash equivalents (136) (390) 1,069
Cash and cash equivalents at beginning
of year 2,605 2,995 1,926
________ ________ ________
Cash and cash equivalents at end
of year $ 2,469 $ 2,605 $ 2,995
======== ======== ========
NOTE T - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS AND PER SHARE
AMOUNTS (UNAUDITED)
Three Months Ended
__________________________________
Mar. 31 June 30 Sept. 30 Dec. 31
_______ _______ _______ _______
(In thousands, except per share amounts)
2000
Total interest income $17,357 $17,836 $18,405 $19,137
Total interest expense 7,948 8,481 9,051 9,498
_______ _______ _______ _______
Net interest income 9,409 9,355 9,354 9,639
Provision for loan losses 383 382 282 233
_______ _______ _______ _______
Net interest income after
provision for loan losses 9,026 8,973 9,072 9,406
Total noninterest income,
excluding securities gains
(losses) 3,492 3,567 3,439 3,286
Securities gains (losses) - (20) - (2)
Total noninterest expenses 6,986 7,518 7,961 8,452
Income taxes 1,643 1,388 1,182 1,064
_______ _______ _______ _______
Net income $ 3,889 $ 3,614 $ 3,368 $ 3,174
======= ======= ======= =======
Per share:
Net income $.54 $.50 $.47 $.45
Net income, diluted .54 .50 .47 .45
Cash dividends declared .24 .24 .24 .25
1999
Total interest income $16,515 $16,677 $16,918 $16,979
Total interest expense 7,677 7,634 7,757 7,930
_______ _______ _______ _______
Net interest income 8,838 9,043 9,161 9,049
Provision for loan losses 315 315 1,099 40
_______ _______ _______ _______
Net interest income after
provision for loan losses 8,523 8,728 8,062 9,009
Total noninterest income,
excluding securities gains
(losses) 3,315 3,047 3,271 3,384
Securities gains (losses) - 17 20 -
Total noninterest expense,
including merger and
consolidation expenses 7,578 7,628 10,199 8,564
Income taxes 836 1,037 105 921
_______ _______ _______ _______
Net income $ 3,424 $ 3,127 $ 1,049 $ 2,908
======= ======= ======= =======
Per share:
Net income $.48 $.44 $.15 $.39
Net income, diluted .48 .44 .15 .39
Cash dividends declared - .18 - .69
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to the material under the captions, "Information
About the Board's Nominees" and "Executive Officers," of the Company's
proxy statement, dated April 9, 2001, which is incorporated herein by
reference.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" of the
Company's proxy statement, dated April 9, 2001, which is incorporated
herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption, "Stock Ownership of Directors,
Officers, and Principal Shareholders," of the Company's proxy statement,
dated April 9, 2001, which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to, "Certain Relationships and Related Transactions
and Indebtedness" of the Company's proxy statement, dated April 9, 2001,
which is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The following consolidated financial statements and report of
independent auditors of NBC Capital Corporation and subsidiaries
are included in this Form 10-K (Item 8) of the registrant for the
year ended December 31, 2000.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 2000 and 1999
Consolidated Statements of Income--Years Ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Shareholders' Equity--Years Ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows--Years Ended
December 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedules not included have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3(a)&(c). Exhibits:
1. - 2. None
3.1 Articles of Incorporation of NBC Capital
Corporation (included as Exhibit B to NBC Capital
Corporation's Definitive Proxy Statement dated
March 20, 1998, and filed with the Commission on
March 18, 1998, Commission File No. 0-12885,
which Exhibit B is incorporated herein by
reference).
3.2 By-laws of NBC Capital Corporation (included as
Exhibit 3(b) to NBC Capital Corporation's
Registration Statement on Form S-4A, filed with
the Commission on November 4, 1998, Commission
File No. 333-65545, which Exhibit 3(b) is
incorporated herein by reference.
4. - 9. None
10.1 Definitive Agreement and Plan of Reorganization
and Merger by and between NBC Capital Corporation
and First National Corporation of West Point
dated as of July 24, 1998 (incorporated by
reference to Exhibit 2.1 of Form 8-K filed
January 15, 1999).
10.2 Employment Agreement dated January 31, 1991,
between National Bank of Commerce and L. F.
Mallory, Jr., as previously filed.
10.3 Agreement and Plan of Merger by and between NBC
Capital Corporation and FFBS Bancorp, Inc., dated
February 3, 1999 (included as Appendix A to the
Proxy Statement-Prospectus dated May 7, 1999,
forming part of the Company's Registration
Statement on Form S-4 filed with the Commission
on March 30, 1999, Commission File No.
333-75293) and incorporated herein by reference.
10.4 Plan of Reorganization and Merger by and between
National Bank of Commerce and First Federal Bank
for Savings dated February 3, 1999 (included as
Appendix A to the Proxy Statement-Prospectus
dated May 7, 1999, forming part of the Company's
Registration Statement on Form S-4 filed with the
Commission on March 30, 1999, Commission File No.
333-75293) and incorporated herein by reference.
10.5 Merger Agreement by and between NBC Capital
Corporation and National Bank of Commerce and
Galloway-Wiggers Insurance Agency, Inc.,
Galloway-Chandler-McKinney Insurance, Inc.,
Galloway-Chandler-McKinney Insurance Agency of
Amory, Inc., Kyle Chandler Insurance Agency,
Inc., and Napier Insurance Agency, Inc. (included
as Exhibit 99.2 on Form 10Q filed with the
Commission on August 10, 1999, Commission File
No. 0-12885) and incorporated herein by
reference.
10.6 1993 Incentive Stock Option Plan and 1993 Stock
Option Plan for Outside Directors of FFBS
Bancorp, Inc., assumed by NBC Capital Corporation
(incorporated by reference to Exhibit A of Form
S-8 filed September 20, 1999) and incorporated
herein by reference.
10.7 Employment Agreement Dated January 2, 2001, by and
Between National Bank of Commerce and Richard T.
Haston
10.8 Employment Agreement Dated January 2, 2001 by and
Between National Bank of Commerce and Mark A.
Abernathy
11. - 12. None
13. None
14. - 20. None
21. Subsidiaries of Company
23. None
27. Financial Data Schedule (Electronic Filing Only)-
year ended December 31, 2000
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 2000.
(d) Financial statement schedules - None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NBC CAPITAL CORPORATION
(Registrant)
/S/ L. F. Mallory, Jr.
By _______________________________________
L. F. Mallory, Jr.
Chairman and Chief Executive Officer
/S/ Richard T. Haston
By _______________________________________
Richard T. Haston
Executive Vice President, CFO, and
Treasurer (Chief Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacity and on the dates indicated.
/S/ Allen B. Puckett, III /S/ J. Nutie Dowdle
_________________________________ _______________________________
(Director) (Director)
/S/ Mark A. Abernathy /S/ Sammy J. Smith
_________________________________ _______________________________
(Director) (Director)
/S/ Thomas J. Prince /S/ Robert S. Jones
_________________________________ _______________________________
(Director) (Director)
/S/ Ralph Pogue /S/ Robert S. Caldwell, Jr.
_________________________________ _______________________________
(Director) (Director)
/S/ Robert L. Calvert, III /S/ Bobby Harper
_________________________________ _______________________________
(Director) (Director)
/S/ Harry Stokes Smith /S/ Robert A. Cunningham
_________________________________ _______________________________
(Director) (Director)
/S/ James C. Galloway, Jr. /S/ Robert D. Miller
_________________________________ _______________________________
(Director) (Director)
/S/ Henry Weiss
_________________________________
(Director)
Date: March 23, 2001