ITEM 1 - BUSINESS
Forward Looking Statements
From time to time, NBC Capital Corporation (the Company) may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performances, development and results of the Company's business include, but are not limited to, the following: risks from changes in economic and industry conditions; changes in interest rates; risks inherent in making loans including repayment risks and value of collateral; dependence on senior management; and recently-enacted or proposed legislation. Statements contained in this filing regarding the demand for the Company and its subsidiaries' products and services, changing economic conditions, interest rates, and numerous other factors, may be forward-looking statements and are subject to uncertainties and risks.
NBC Capital Corporation
The Company is a bank holding company which was organized under the laws of the State of Mississippi. On July 2, 1984, the Company acquired all of the outstanding common stock of the National Bank of Commerce (NBC), a national banking corporation. For the year ended December 31, 1999, the Company's subsidiaries accounted for approximately 99% of the Company's consolidated income and consolidated expenses.
National Bank of Commerce
NBC was originally formed through a series of mergers which began in 1972 and concluded on October 1, 1974. In March, 1991, NBC acquired the assets and assumed the liabilities of the Bank of Philadelphia. In 1994, the Company acquired NBC of Tuscaloosa (formerly First State Bank of Tuscaloosa). On December 31, 1998, the Company acquired all the outstanding common stock of First National Corporation of West Point ("FNC") in exchange for 864,736 shares of the Company's common stock. The acquisition was accounted for as a pooling of interest. FNC was merged into the Company and FNC's wholly-owned subsidiary banks, First National Bank of West Point and National Bank of the South, were merged into NBC. Concurrently, the Company's subsidiary, NBC of Tuscaloosa, was merged into NBC (formerly NBC of Mississippi). As a result of the acquisition and reorganization, NBC was the resulting financial institution. Also, First National Finance Company, a wholly-owned finance company subsidiary of FNC became a wholly-owned subsidiary of the Company. On August 31, 1999, the Company acquired all the outstanding stock of FFBS Bancorp, Inc. (FFBS). FFBS was the holding company of its wholly-owned savings bank, First Federal Bank for Savings (First Federal), Columbus, Mississippi. The Company exchanged 1,396,162 shares of its common stock and a nominal amount of cash in lieu of fractional shares for each common share of FFBS. First Federal was merged into NBC with NBC as the surviving institution. The transaction was accounted for as a pooling of interests and historical financial statements of the Company were restated to give effect of the acquisition. On September 30, 1999, NBC acquired the insurance agencies of Galloway-Wiggers Insurance Agency, Inc., Kyle Chandler Insurance Agency, Inc., Galloway-Chandler-McKinney, Inc., and Napier Insurance Agency, Inc. NBC exchanged 173,184 of the Company's common stock for all of the issued and outstanding stock of the insurance agencies. The insurance agencies were combined into a wholly-owned subsidiary of NBC, Galloway-Chandler-McKinney Insurance Agency, Inc. The acquisition was accounted for as a pooling of interests. The historical financial statements of the Company were not restated as the changes would have been immaterial.
NBC is the largest commercial bank domiciled in the north central area of the state known as the Golden Triangle. A total of thirty banking facilities and an operation/administration center serves the communities of Aberdeen, Amory, Artesia, Brooksville, Columbus, Hamilton, Maben, New Hope, Philadelphia, West Point and Starkville. This area extends into six Mississippi counties with a radius of approximately 65 miles from the home office in Starkville. The Bank also serves the Tuscaloosa, Alabama, area with a main office and four branch locations.
NBC is engaged in the general banking business and activities closely related to banking as authorized by the banking laws and regulations of the United States. There were no significant changes in the business activities of NBC during 1999.
NBC provides a complete line of wholesale and retail services including mortgage loans and trusts. The customer base is well diversified and consists of business, industry, agriculture, government, education and individual accounts. Profitability and growth have been consistent throughout the history of the bank.
NBC utilizes a written Asset/Liability Management Policy which calls for maintaining the one year GAP within a tolerance of -5% to 10% of earning assets. The financial plan calls for a return on assets of 1.20% - 1.45% and a minimum return on equity of approximately 10% - 13%.
NBC is operated in a conservative fashion while meeting the needs of the community. There has been no disposition of any material amounts of assets nor has there been a material change in the mode of conducting business. No major changes in operation are planned for the near future.
NBC Service Corporation
NBC Service Corporation (Service) is a wholly-owned subsidiary of NBC and was formed to provide additional financial services that otherwise might not be provided by NBC. For the years 1999 and 1998, its primary activity was limited to its investment in Commerce National Insurance Company (CNIC) of which Service owns 79%. Commerce National Insurance Company is a credit life insurance company whose primary source of income is from premiums on credit life insurance on loans issued by NBC.
Galloway-Chandler-McKinney Insurance Agency, Inc.
Galloway-Chandler-McKinney Insurance Agency, Inc. (GCM) is a wholly- owned subsidiary of NBC. The Company operates as an independent insurance agency with its primary source of revenue coming from commissions and premiums on the sale of property and casualty insurance, life insurance, annuities, and other commercial lines. GCM is the result of the insurance agencies acquisition of September 30, 1999, as previously described. GCM has locations in Columbus, West Point, Amory, and Aberdeen, Mississippi. At December 31, 1999, GCM had total assets of approximately $1.3 million, and for the year ended December 31, 1999, reported gross revenues of approximately $3.2 million.
NBC Insurance Services of Alabama, Inc.
NBC Insurance Services of Alabama is a wholly-owned subsidiary of NBC and was formed in 1999 for the purpose of selling annuity products in the State of Alabama. For the year ended December 31, 1999, its activities were not significant. Management anticipates significant revenues from this activity, but is uncertain as to anticipated results since activities are in the development stage.
First National Finance
First National Finance (Finance), a wholly-owned subsidiary of the Company, is a finance company that provides lending and financing services to consumers. It engages in consumer financing, and its loans are of a smaller amount and a higher interest rate than that of NBC. Its loan portfolio totaled approximately $1.5 million at December 31, 1999. Finance is located in West Point, Mississippi. Finance was acquired as part of the FNC acquisition previously mentioned.
Competition
NBC and its subsidiaries currently serve six counties and ten municipalities in North Central Mississippi. Over this same area, the bank competes directly with approximately 16 competing banking institutions, numerous credit unions, finance companies, brokerage firms, mortgage companies and insurance companies. The competing banking institutions range in asset size from approximately $100 million to in excess of $40 billion. NBC is the largest bank domiciled in its immediate service area. Asset size of competitive banks depends on whether the reference is made to the branch banks or to their parent banks. Several other competitors are branches or divisions of nationwide and regional companies with more resources than the Company and its subsidiaries.
NBC also serves the City of Tuscaloosa, Alabama, with a main office and four branch locations. The bank competes with approximately eight other financial institutions, most of which are larger. The other institutions range in size from approximately $150 million to $40 billion. Asset size of the competitive banks depends on whether reference is made to the branch banks or to their parent bank. In Tuscaloosa, NBC also competes with numerous credit unions, finance companies, etc., many of which are branches of nationwide companies.
Supervision and Regulation
The Company and its subsidiary bank are subject to state and federal banking laws and regulations which impose specific requirements or restrictions on and provide for general regulatory oversight with respect to virtually all aspects of operations. These laws and regulations are generally intended to protect depositors, not shareholders. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company. Beginning with the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and following with Federal Deposit Insurance Corporation Improvement Act (FDICIA), which was enacted in 1991, numerous additional regulatory requirements have been placed on the banking industry, and additional changes have been proposed. The operations of the Company and its subsidiaries may be affected by legislative changes and the policies of various regulatory authorities. The Company is unable to predict the nature or the extent of the effect on its business and earnings that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future.
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the Act) and is registered as such with the Board of Governors of the Federal Reserve System (the Federal Reserve Board). As a bank holding company, the Company is required to file with the Federal Reserve Board an annual report and such other information as may be required. The Federal Reserve Board may also make examinations of the Company. In addition, the Federal Reserve Board has the authority to regulate provisions of certain bank holding company debt.
The Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring substantially all the assets of or direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority-owned. The Act also prohibits a bank holding company, with certain exceptions, from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities. One of the principal exceptions to these prohibitions is for engaging in or acquiring shares of a company engaged in activities found by the Federal Reserve Board by order or regulation to be so closely related to banking or managing banks as to be a proper incident thereto. The Act prohibits the acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank to be acquired is located. The Act and regulations of the Federal Reserve Board also prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services.
As a bank holding company, the Company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Company's consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal constitutes an unsafe or unsound practice, would violate any law, regulation, Federal Reserve order or directive or any condition imposed by, or written agreement with, the Federal Reserve.
In accordance with Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the subsidiaries. The Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve Board's determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution's financial condition.
Dividends paid by the Company are substantially provided from dividends from NBC. Generally, the approval of the OCC is required if the total of all dividends declared by a bank in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. At December 31, 1999, NBC had available for payment of dividends to the Company, without prior approval of its regulator, approximately $13.5 million.
The Federal Reserve Board, FDIC and OCC have established risk-based capital guidelines for holding companies, such as the Company, and its subsidiary bank. The capital-based regulatory framework contains five categories of compliance with regulatory capital requirements, including "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." The Company's strategy related to risk-based capital is to maintain capital levels which will be sufficient to qualify the Company's bank subsidiary for the "well capitalized" category under the guidelines set forth by the FDICIA. Maintaining capital ratios at the "well capitalized" level avoids certain restrictions which, for example, could impact the Company's bank subsidiary's FDIC assessment, trust services and asset/liability management. At December 31, 1999, the Tier 1 and total capital ratios, respectively, of the Company (consolidated) and NBC (individually) were well above the minimum 6% and 10% levels required to be categorized as a "well capitalized" insured depository institution.
The FDIC, OCC and Federal Reserve Board have historically had common capital adequacy guidelines involving minimum (a) leverage capital and (b) risk-based capital requirements:
(a) The first requirement establishes a minimum ratio of capital as a percentage of total assets. The FDIC, OCC, and Federal Reserve Board require institutions to maintain a minimum leverage ratio of Tier 1 capital (as defined) to total average assets based on the institution's rating under the regulatory CAMEL rating system. Institutions with CAMEL ratings of one that are not anticipating or experiencing significant growth and have well-diversified risk are required to maintain a minimum leverage ratio of 3 percent. An additional 100 to 200 basis points are required for all but these most highly rated institutions.
(b) The second requirement also establishes a minimum ratio of capital as a percentage of total assets, but gives weight to the relative risk of each asset. The FDIC, OCC, and Federal Reserve Bank require institutions to maintain a minimum ratio of Tier 1 capital to risk-weighted assets of 3.0 percent. Banks must also maintain a minimum ratio of total capital to risk-weighted assets of 8.0 percent. At December 31, 1999, the Company's Tier 1 and total capital ratios were 18.4% and 19.6%, respectively.
Under these guidelines, banks' and bank holding companies' assets are given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet items are given credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets. Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property and, under certain circumstances, residential construction loans, both of which carry a 50% rating. Most investment securities are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% rating, and direct obligations of or obligations guaranteed by the United States Treasury or United States Government agencies, which have a 0% rating.
The primary supervisory authority of NBC is the OCC. The OCC regulates or monitors virtually all areas of operations, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuances of securities, payment of dividends, interest rates payable on deposits, interest rates or fees chargeable on loans, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. The OCC also imposes limitations on the aggregate investment in real estate, bank premises, and furniture and fixtures. In addition to regular examinations, the institution must furnish to its regulator quarterly reports containing a full and accurate statement of its affairs.
Banks are subject to the provisions of Section 23A of the Federal Reserve Act, which place limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The aggregate of all covered transactions is limited in amount, as to any one affiliate, to 10% of the bank's capital and surplus and, as to all affiliates combined, to 20% of the bank's capital and surplus. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements. Compliance is also required with certain provisions designed to avoid the taking of low quality assets.
Banks are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. The Bank is subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.
National banks are required by the National Bank Act to adhere to branch office banking law. NBC may open branches throughout Mississippi or Alabama with the prior approval of the OCC. In addition, with prior regulatory approval, the subsidiary bank is able to acquire existing banking operations in Mississippi and Alabama. Furthermore, federal legislation permits interstate branching. The law also permits out of state acquisitions by bank holding companies (subject to veto by new state law), interstate branching by banks if allowed by state law, interstate merging by banks, and de novo branching by national banks if allowed by state law.
On September 29, 1994, the federal government enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Interstate Banking Act). This Act became effective on September 29, 1995, and permits eligible bank holding companies in any state, with regulatory approval, to acquire banking organizations in any other state. Effective June 1, 1997, the Interstate Banking Act allows banks with different home states to merge, unless a particular state opts out of the statute. In addition, beginning June 1, 1997, the Interstate Banking Act permitted national and state banks to establish de novo branches in another state if there is a law in that state which applies equally to all banks and expressly permits all out-of-state banks to establish such branches.
The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the FDIC, or the OCC shall evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility.
Interest and certain other charges collected or contracted by Banks are often subject to state usuary laws and certain federal laws concerning interest rates. The loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution will be fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services.
A subsidiary bank of a bank holding company is subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or its subsidiary, on investments in stock or other securities thereof and on the taking of such stock or securities as collateral for loans to any borrower.
The bank subsidiary is a member of the FDIC and its deposits are insured as provided by law.
CNIC, GCM, and NBC Insurance Services of Alabama, Inc., are subject to regulation by the applicable state agencies. These agencies set reserve requirements, reporting standards, and establish regulations, all of which affect business operations.
The Company's common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is subject to the information, proxy solicitation, insider trading, and other restrictions and requirements of the SEC under the Exchange Act.
Recent Regulatory Developments
The Gramm-Leach-Bailey Act was signed into law in November, 1999, and allows banks to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities through the use of "financial holding companies." The expanded powers generally are available to banks only if the bank and its bank subsidiaries remain well-capitalized and well-managed, and have a satisfactory CRA rating. Under the Act, a national bank may engage in expanded financial activities through a "financial subsidiary," provided the aggregate assets of all of its financial subsidiaries do not exceed the lesser of 45 percent of the bank's assets or $50 billion. A financial subsidiary may underwrite any financial product other than insurance and may sell any financial product, including title insurance. A national bank itself may not sell title insurance, however, unless the state in which the bank is located permits state banks to sell title insurance. A financial subsidiary may not engage in insurance company portfolio investing, real estate investment or merchant banking (merchant banking activities may be permitted in five years upon the joint approval of the Federal Reserve and the U.S. Treasury.) Additionally, legislation has been considered that would eliminate the federal thrift charter and merge the FDIC's Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF"). At this time, the Company is unable to predict whether the proposed legislation will be enacted and, therefore, is unable to predict the impact such legislation may have on the operations of the Company and the Bank.
Governmental Monetary Policies
As a bank chartered under the laws of the United States, NBC is a member of the Federal Reserve System. Its earnings are affected by the fiscal and monetary policies of the Federal Reserve System which regulates the national money supply in order to mitigate recessionary and inflationary pressures. The techniques used by the Federal Reserve System include setting the reserve requirements of depository institutions and establishing the discount rate on member bank borrowings. The Federal Reserve System also conducts open market operations in United States Government securities.
The policies of the Federal Reserve System and other regulatory agencies have a direct effect on the amount of bank loans and deposits, and the interest rates charged and paid thereon. While the impact these policies may have upon the future business and earnings of the financial institutions cannot be accurately predicted, such policies can materially affect the earnings of commercial banks.
Sources and Availability of Funds
The materials essential to the business of the Company and its subsidiaries consist primarily of funds derived from deposits and other borrowings in the financial markets. The availability of funds is primarily dependent upon the economic policies of the government, the economy in general and the institution's ability to compete in the market place.
Seasonability
Neither the Company nor any of its subsidiaries are dependent upon any seasons.
Dependence Upon A Single Customer
Neither the Company nor any of its subsidiaries are dependent upon a single customer or very few customers.
Executive Officers
The executive officers of the Company and its bank subsidiary, NBC, are listed below. The title indicates a position held in the Company and the bank.
Name and Title Age Five Year Experience _____________________________ ___ ____________________________________
L. F. Mallory, Jr. 57 Chairman and Chief Executive Officer, Chairman and Chief Executive NBC Capital Corporation and NBC Officer, NBC Capital Corporation and NBC
Bobby Harper 58 Chairman of Executive Committe, NBC Chairman of the Executive Capital Corporation and Executive Committee, NBC Capital Vice President, Banking Center Corporation and Executive Administration, NBC Vice President, Banking Center Administration, NBC
Hunter M. Gholson 67 Secretary of NBC Capital Corporation Secretary and NBC
Mark A. Abernathy 43 President and Chief Operating Officer, President and Chief NBC Capital Corporation and NBC since Operating Officer, NBC December, 1997, Executive Vice Capital Corporation and NBC President and Chief Operating Officer of NBC Capital Corporation and NBC from August, 1994 - December, 1997.
Richard Haston 53 Executive Vice President, Chief Executive Vice President, Financial Officer, and Treasurer, CFO, and Treasurer, NBC NBC Capital Corporation, and Capital Corporation and Executive Vice President and Executive Vice President Chief Financial Officer, NBC, since and Chief Financial Officer, January, 1997; Senior Vice NBC President - Finance, NBC Capital Corporation and NBC from September, 1996 - December, 1996; Executive Vice President and Chief Financial Officer of Legacy Securities Corp., Memphis, Tennessee, April, 1996 - September, 1996; President and Chief Financial Officer of Calibre Financial Group, Inc., Memphis, Tennessee, June, 1993 - March, 1996
Tommy M. Tomlinson 46 Vice President, NBC Capital Vice President, NBC Capital Corporation and Executive Vice Corporation and Executive President, Credit Administration, Vice President, Credit NBC, since January, 1999; Administration, NBC Executive Vice President and Senior Lender of the Starkville Banking Center, NBC
Clifton B. Fowler 51 Vice President, NBC Capital Vice President, NBC Capital Corporation and President, NBC, Corporation and President, Starkville Banking Center NBC, Starkville Banking Center
Thomas J. Prince, Jr. 58 Vice President, NBC Capital Vice President, NBC Capital Corporation and Executive Vice Corporation and Executive President, Division Manager of Vice President, Division Consumer Financial Service, NBC, Manager of Consumer Finance, since April, 1998; Vice President, NBC NBC Capital Corporation and President, NBC, Aberdeen Banking Center from January, 1985 - April, 1998.
John Davis 44 Vice President, NBC Capital Vice President, NBC Capital Corporation and Senior Vice Corporation and Senior Vice President and Trust Officer, President and Trust Officer, NBC since January, 1999, Vice NBC President and Trust Officer of NBC from January, 1991 - December, 1998.
Donald J. Bugea, Jr. 46 Vice President, NBC Capital Vice President, NBC Capital Corporation and Executive Vice Corporation and Executive President and Investment Vice President and Investment Officer, NBC Officer, NBC
Personnel
At December 31, 1999, NBC had 412 full-time employees, Finance had 3 full-time employees and GCM had 36 full-time employees. The Company, Service, and CNIC had no employees at December 31, 1999.
ITEM 2
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31, 1999. GCM and Finance operate out of leased office buildings.
The following listing describes the locations and general character of the Bank-owned properties:
Approximate Office Space Type Location (Square Feet) ______________________________ _________________________ _____________
NBC:
Main Office Starkville, Mississippi 35,000 University Branch Starkville, Mississippi 1,485 Motor Branch Starkville, Mississippi 2,000 Operations Center Starkville, Mississippi 16,500 Starkville Crossing Starkville, Mississippi 2,000
Main Office Columbus, Mississippi 36,000 Mortgage Loan Center Columbus, Mississippi 14,000 North Columbus Branch Columbus, Mississippi 1,440 Fairlane Branch Columbus, Mississippi 2,400 Gardner Blvd. Branch Columbus, Mississippi 1,156 Bluecutt Road Branch Columbus, Mississippi 3,200
New Hope Branch New Hope, Mississippi 1,500
Main Office Aberdeen, Mississippi 11,026 Maple Street Branch Aberdeen, Mississippi 998 Highway 45 North Branch Aberdeen, Mississippi 1,205
Main Office Amory, Mississippi 8,550 Medical and Industrial Center Branch Amory, Mississippi 950
Main Office Artesia, Mississippi 1,500
Main Office Brooksville, Mississippi 3,000
Main Office Hamilton, Mississippi 1,800
Main Office Maben, Mississippi 4,000
Main Office Philadelphia, Mississippi 6,000 Northside Branch Philadelphia, Mississippi 300 Southside Branch Philadelphia, Mississippi 450 Westside Branch Philadelphia, Mississippi 3,250
Main Office Tuscaloosa, Alabama 11,000 Northport Branch Tuscaloosa, Alabama 3,018 University Branch Tuscaloosa, Alabama 2,480 North Tuscaloosa Branch Tuscaloosa, Alabama 3,250 Highway 69 South Branch Tuscaloosa, Alabama 2,000
Main Office West Point, Mississippi 18,000 Administrative Building West Point, Mississippi 1,200 East Main Branch West Point, Mississippi 1,900 Highway 45 South Branch West Point, Mississippi 1,520 Highway 45 North Branch West Point, Mississippi 825
In the opinion of management, all properties are in good condition and are adequate to meet the needs of the communities they serve.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
There are no pending proceedings of a material nature to which the Company, or its subsidiaries, are a party.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) The information titled "Market Information" and contained on Page 33 of the Company's annual report to shareholders for the year 1999 is incorporated herein by reference in response to this item and included in this report as Exhibit 13.a.
(b) At December 31, 1999, the Company had approximately 2,700 security holders.
(c) Dividends on common stock were declared semiannually in June and December of the years reported and totaled as follows:
(In thousands) December 31, ______________ 1999 1998 ______ ______
Dividends declared, $.73 per share $3,907
Dividends declared, $.87 per share $5,983
______ ______
$5,983 $3,907 ====== ======
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on Page 34 of the Company's annual report to the shareholders for the year 1999 is incorporated herein by reference in response to this item and included in this report as Exhibit 13.b.
SUPPLEMENTAL STATISTICAL INFORMATION
I. DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
A. Average balance sheets (consolidated):
The following table presents, for the years indicated, condensed daily average balance sheet information.
(In Thousands) Assets 1999 1998 1997 ________ ________ ________
Cash and due from banks $ 36,514 $ 32,419 $ 34,773 Securities: Taxable 128,605 136,689 151,340 Non-taxable 106,062 104,961 78,291 ________ ________ ________ Total securities 234,667 241,650 229,631 Federal funds sold and other interest-bearing assets 50,951 51,101 21,663
Loans, net of unearned interest 605,561 579,649 560,118 Less reserve for loan losses 10,514 8,993 8,328 ________ ________ ________ Net loans 595,047 570,656 551,790 Other assets 36,247 29,248 36,175 ________ ________ ________
Total Assets $953,426 $925,074 $874,032 ======== ======== ========
(In Thousands) Liabilities and 1999 1998 1997 Stockholders' Equity ________ ________ ________
Deposits: Noninterest-bearing $ 89,950 $ 91,262 $ 84,768 Interest-bearing 674,606 667,855 635,690 ________ ________ ________ Total deposits 764,556 759,117 720,458
Federal funds purchased and securities sold under agreement to repurchase 18,985 12,936 14,743 Borrowed funds 44,428 30,562 23,862 Other liabilities 11,735 12,850 10,932
________ ________ ________ Total liabilities 839,704 815,465 769,995
Stockholders' equity 113,722 109,609 104,037 ________ ________ ________ Total Liabilities and Stockholders' Equity $953,426 $925,074 $874,032 ======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of net interest earnings, including the average amount of interest- earning assets and interest-bearing liabilities outstanding during the period, the interest earned or paid on such amounts, the average yields/rates paid and the net yield on interest-earning assets: ($ In Thousands) Average Balance ____________________________ 1999 1998 1997 ________ ________ ________ EARNING ASSETS Net loans $595,047 $570,656 $551,790 Federal funds sold and other interest-bearing assets 50,951 51,101 21,663 Securities: Taxable 128,605 136,689 151,340 Nontaxable 106,062 104,961 78,291 ________ ________ ________ Totals 880,665 863,407 803,084 ________ ________ ________
INTEREST-BEARING LIABILITIES Interest-bearing deposits 674,606 667,855 635,690 Borrowed funds, federal funds purchased and securities sold under agreement to repurchase 63,413 43,498 38,605 ________ ________ ________
Totals 738,019 711,353 674,295 ________ ________ ________
Net Amounts $142,646 $152,054 $128,789 ======== ======== ========
($ In Thousands) Yields Earned Interest for the Year And Ended December 31, Rates Paid (%) _______________________ ______________ 1999 1998 1997 1999 1998 1997 _______ _______ _______ ____ ____ ____ EARNING ASSETS Net loans $52,219 $52,955 $51,682 8.78 9.28 9.37 Federal funds sold and other interest-bearing assets 2,440 1,953 1,268 4.80 3.82 5.85 Securities: Taxable 6,981 7,748 9,566 5.43 5.67 6.32 Nontaxable 5,449 5,668 4,189 5.14 5.40 5.35 _______ _______ _______ _____ ____ ____
Totals 67,089 68,324 66,705 7.62 7.91 8.31 ======= ======= ======= ===== ==== ====
($ In Thousands) Yields Earned Interest for the Year And Ended December 31, Rates Paid (%) _______________________ ______________ 1999 1998 1997 1999 1998 1997 _______ _______ _______ ____ ____ ____ INTEREST-BEARING LIABILITIES Interest-bearing deposits $28,399 $30,416 $28,882 4.21 4.55 4.54 Borrowed funds, federal funds purchased and securities sold under agreement to repurchase 2,599 2,328 1,995 4.10 5.35 5.17 _______ _______ _______ ____ ____ ____
Totals 30,998 32,744 30,877 4.20 4.60 4.58 _______ _______ _______
Net interest income $36,091 $35,580 $35,828 ======= ======= =======
Net yield on earning assets 4.10 4.12 4.46
(1) Interest and yields on tax-exempt obligations are not on a fully taxable equivalent basis.
(2) For the purpose of these computations, nonaccruing loans are included in the average loan balances outstanding.
(3) Interest income on loans includes related fees.
C. Increase (Decrease) in Interest Income and Interest Expense
The following table analyzes the changes in both the rate and volume components of net interest revenue:
(In Thousands) (In Thousands) 1999 Over 1998 1998 Over 1997 ________________________ _______________________ Change Due To: Change Due To: ________________________ _______________________ Total Rate Volume Total Rate Volume _______ _______ ______ ______ _______ ______ EARNING ASSETS Net loans $ (736) $(3,453) $2,717 $1,273 $ (472) $1,745 Federal funds sold and other interest-bearing assets 487 493 (6) 685 (235) 920 Securities: Taxable (767) (320) (447) (1,818) (938) (880)
Nontaxable (219) (279) 60 1,479 39 1,440
_______ _______ ______ ______ _______ ______
Totals $(1,235) $(3,559) $2,324 $1,619 $(1,606) $3,225
======= ======= ====== ====== ======= ======
(In Thousands) (In Thousands) 1999 Over 1998 1998 Over 1997 ________________________ ______________________ Change Due To: Change Due To: ________________________ ______________________ Total Rate Volume Total Rate Volume _______ _______ ______ ______ ______ ______ INTEREST-BEARING LIABILITIES Interest-bearing deposits $(2,017) $(2,333) $ 316 $1,534 $ 69 $1,465
Interest on borrowed funds and federal funds purchased and securities sold under agreement to repurchase 271 (284) 555 333 73 260
_______ _______ ______ ______ ______ ______
Totals $(1,746) $(2,617) $ 871 $1,867 $ 142 $1,725 ======= ======= ====== ====== ====== ======
NOTE: (1) Change in volume is the change in volume times the previous year's rate.
(2) Change in rate is the change in rate times the previous year's balance.
(3) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of change to each.
II. INVESTMENT PORTFOLIO
A. The following tables present the book values of securities as of the dates indicated: (In Thousands) December 31, ____________________________ 1999 1998 1997 ________ ________ ________
U. S. Treasury $ 7,732 $ 15,987 $ 32,813 U. S. Government agencies and mortgage-backed securities 106,946 84,972 108,768 States and political subdivisions 105,330 115,786 90,155 Other 10,272 9,503 8,745
________ ________ ________
Total book value $230,280 $226,248 $240,481 ======== ======== ========
B. The following table sets forth the maturities of investment and mortgage-backed securities (carrying values) at December 31, 1999, and the weighted average yield of such securities:
($ In Thousands) Weighted Average Yield _________________________________________________ 0 - 1 Yield 1 - 5 Yield 5 - 10 Yield Year (%) Years (%) Years (%) ________ _____ _________ _____ _______ _____ Securities:
U. S. Treasury $ 3,595 5.3% $ 4,137 4.8% $ - - U. S. Govern- ment agencies 18,925 6.3% 10,088 5.9% 1,410 6.8% States and political subdivisions 6,308 7.5% 99,022 7.5% - - Other 448 6.2% 2,174 6.1% 197 6.7% ________ _________ _______
Total $ 29,276 $ 115,421 $ 1,607 ======== ========= =======
10+ Yield Years (%) _______ _____ Other (including equity securities) $ 7,453 5.9% =======
Book Yield Value (%) _______ _____ Mortgage- backed securities $76,523 6.0% =======
NOTE: Interest and yields on tax-exempt obligations are not on a taxable equivalent basis.
Average yield on floating rate securities was determined using the current yield.
The majority of mortgage-backed securities are backed by U. S. agencies.
C. Investment securities in excess of 10% of stockholders' equity.
At December 31, 1999, there were no securities from any issues in excess of 10% of stockholders' equity that were not securities of the U. S. Government or U. S. Government agencies or corporations
III. LOAN PORTFOLIO
A. Type of loans
The amount of loans outstanding by type at the indicated dates are shown in the following table:
(In Thousands) December 31, ________________________________________________ Type 1999 1998 1997 1996 1995 ______________ ________ ________ ________ ________ ________
Commercial, financial and agriculture $101,503 $ 81,365 $ 78,491 $ 76,205 $ 67,263 Real estate - construction 26,185 27,253 27,636 27,000 18,488
Real estate - mortgage 390,205 366,219 352,550 323,601 291,644
Installment loans to individuals 101,624 104,470 106,603 109,566 107,817
Other 4,234 7,526 7,155 8,813 6,589
________ ________ ________ ________ ________
Total loans 623,751 586,833 572,435 545,185 491,801
Unearned interest - - (317) (1,123) (3,141) ________ ________ ________ ________ ________
$623,751 $586,833 $572,118 $544,062 $488,660 ======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest rates:
(In Thousands) December 31, 1999 ____________________________ Maturing or Repricing ____________________________ After 1 Year Within Through Over Type 1 Year 5 Years 5 Years Total _______________________ ________ ________ ________ ________
Commercial, financial and agricultural $ 80,495 $ 18,965 $ 2,043 $101,503 Real estate - construction 25,653 352 180 26,185
________ ________ ________ ________
$106,148 $ 19,317 $ 2,223 $127,688 ======== ======== ======== ========
(In Thousands) December 31, 1999 ____________________________ Maturing or Repricing ____________________________ After 1 Year Through Over Type 5 Years 5 Years Total ________________________ ________ ________ ________
Loans with: Predetermined interest rates $ 13,850 $ 135 $ 13,985 Floating interest rates 5,467 2,088 7,555 ________ ________ ________
$ 19,317 $ 2,223 $ 21,540 ======== ======== ========
C. Nonperforming loans
1. The following table states the aggregate amount of loans which were nonperforming in nature:
(In Thousands) December 31, ______________________________________ Type 1999 1998 1997 1996 1995 __________________ ______ ______ ______ ______ ______
Loans accounted for on a nonaccrual basis $ 270 $ 927 $2,648 $1,901 $2,522 ====== ====== ====== ====== ====== Accruing loans past due 90 days or more $2,975 $2,902 $1,660 $2,322 $1,210 ====== ====== ====== ====== ====== Renegotiated "troubled" debt $ 132 $ 337 $ 826 $ 511 $ 546 ====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total loans at December 31, 1999. However, lending activities are affected by the economic trends within the areas served by the Company and its subsidiaries. This, in turn, can be influenced by the areas' larger employers, such as Mississippi State University, University of Alabama, Columbus Air Force Base, and the Mercedes-Benz Automotive Plant.
3. There were no outstanding foreign loans at December 31, 1999.
4. Loans classified for regulatory purposes or for internal credit review purposes that have not been disclosed in the above table do not represent or result from trends or uncertainties that management expects will materially impact the financial condition of the Company or its subsidiary banks, or their future operating results, liquidity, or capital resources.
5. If all nonaccrual loans had been current throughout their terms, interest income would have not been significantly different for the years ended 1999, 1998, and 1997.
6. Management stringently monitors loans that are classified as nonperforming. Nonperforming loans include nonaccrual loans, loans past due 90 days or more, and loans renegotiated or restructured because of a debtor's financial difficulties. Loans are generally placed on nonaccrual status if any of the following events occur: 1) the classification of a loan as nonaccrual internally or by regulatory examiners, 2) delinquency on principal for 90 days or more unless management is in the process of collection, 3) a balance remains after repossession of collateral, 4) notification of bankruptcy, or 5) management's judgment that nonaccrual is appropriate.
7. At December 31, 1999, the recorded investment in loans identified as impaired totaled approximately $2.0 million. The allowance for loan losses related to these loans approxi- mated $1.0 million. The average recorded investment in impaired loans during the year ended December 31, 1999, was $2.5 million. Total interest recognized on impaired loans and the amount recognized on a cash basis were not significant.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets at December 31, 1999.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. An analysis of the loan loss experience for the periods indicated is as follows: ($ In Thousands) December 31, ___________________________________________ 1999 1998 1997 1996 1995 _______ _______ _______ _______ _______
Beginning balance $10,102 $ 8,528 $ 8,175 $ 7,799 $ 7,138 _______ _______ _______ _______ _______ Charge-offs: Domestic: Commercial, financial and agricultural (566) (575) (379) (312) (240) Real estate (444) (451) (145) (114) (130) Installment loans and other (1,047) (960) (1,073) (1,272) (546) _______ _______ _______ _______ _______
Total charge-offs (2,057) (1,986) (1,597) (1,698) (916) _______ _______ _______ _______ _______
Recoveries: Domestic: Commercial, financial and agricultural 89 124 269 52 56
Real estate 25 76 97 68 53 Installment loans and other 266 173 227 267 230 _______ _______ _______ _______ _______ Total recoveries 380 373 593 387 339 _______ _______ _______ _______ _______ Net charge-offs (1,677) (1,613) (1,004) (1,311) (577) _______ _______ _______ _______ _______ Reserve of sold finance company - - (125) - - Provision charged to operations 1,769 3,187 1,482 1,687 1,238 _______ _______ _______ _______ _______
Ending balance $10,194 $10,102 $ 8,528 $ 8,175 $ 7,799 ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans outstanding .28 .28 .18 .26 .13 Ratio of reserve for loan losses to loans outstanding at year end 1.63 1.72 1.49 1.50 1.59
B. Determination of Reserve for Loan Losses
The information contained in Note A-6 to the financial statements of the annual report to shareholders is incorporated herein by reference and included in this report as Exhibit 13.d.
C. Loans and Risk Descriptions
Real Estate Loans
NBC originates loans secured by commercial real estate, one- to-four family residential properties, and multi-family dwelling units (5 or more units). At December 31, 1999, these loans totaled $395 million or approximately 63% of the loan portfolio.
NBC originates commercial real estate loans up to 80% of the appraised value. Currently, it is the philosophy to originate these loans only to selected known borrowers and on properties in the market area.
Of primary concern in commercial real estate lending is the borrower's credit worthiness and the feasibility and cash flow potential of the project. To monitor cash flows of borrowers, annual financial statements are obtained from the borrower and loan guarantors, if any. Although many banks have had significant losses in commercial real estate lending, NBC has sustained few losses, and those losses were not significant relative to the size of the entire commercial real estate loan portfolio at the time.
NBC originates loans secured by first and junior liens on one-to-four family residences in their lending areas. Typically, such loans are single family homes that serve as the primary residence of the borrower. Generally, these loans are originated in amounts up to 80% of the appraised value or selling price of the property. In the past, very few losses from these types of loans have been experienced.
Loans for multi-family (5 or more) residential properties are generally secured by apartment buildings. Loans secured by income properties are generally larger and involve greater risk than residential loans because payments are often dependent on the successful operation or management of the properties. As a result, these types of loans may be more sensitive to adverse conditions in the real estate market or the economy. Cash flow and financial statements are obtained from the borrowers and any guarantors. Also, rent rolls are often obtained.
Consumer and Other Loans
NBC offers consumer loans in the form of home improvement loans, mobile home loans, automobile loans and unsecured personal loans. These loans totaled $102 million or 16% of total loans at December 31, 1999. Consumer loans are originated in order to provide a wide range of financial services to customers and because the terms and normally higher interest rates on such loans help maintain a profitable spread between the average loan yield and the cost of funds.
In connection with consumer loan applications, the borrower's income statement and credit bureau report are reviewed. In addition, the relationship of the loan to the value of the collateral is considered. All automobile loan applications are reviewed, as well as the value of the unit which secured the loan. NBC intends to continue to emphasize the origination of consumer loans. Management believes that its loan loss experience in connection with its consumer loan portfolio is favorable in comparison to industry averages.
NBC makes commercial business loans on both a secured and unsecured basis with terms which generally do not exceed five years. Non-real estate commercial loans primarily consist of short-term loans for working capital purposes, inventories, seasonal loans, lines of credit and equipment loans. A personal guaranty of payment by the principals of any borrowing entity is often required and the financial statements and income tax returns of the entity and its guarantors are reviewed. At December 31, 1999, NBC's commercial business loans represented approximately 15% of its total loan portfolio.
D. For the year 1999, losses for all loan categories, as a percentage of average loans, are expected to approximate that of 1999.
V. DEPOSITS ($ In Thousands) 1999 1998 1997 ______________ ______________ ______________ Amount Rate Amount Rate Amount Rate ________ ____ ________ ____ ________ ____ A. Average deposits: Domestic: Noninterest- bearing deposits $ 89,950 - $ 91,262 - $ 84,768 - Interest- bearing demand deposits (1) 312,642 2.3% 207,478 2.7% 187,284 2.9% Savings deposits 34,913 2.5% 36,204 2.5% 38,319 2.3% Time deposits 327,051 6.2% 424,173 5.7% 410,177 5.5% Foreign N/A N/A N/A ________ ____ ________ ____ ________ ____
Total $764,556 $759,117 $720,548 ======== ======== ========
(1) Includes Money Market accounts
B. Other categories
None
C. Foreign deposits
Not material
D. Time certificate of deposit of $100,000 or more and maturities at December 31, 1999: (In Thousands) 3 6 Months Months 3 Through Through Over Months 6 12 12 Total Or Less Months Months Months ________ _______ _______ _______ _______ Time certificates of deposit of $100,000 or more $124,148 $45,763 $21,010 $28,751 $28,624 ======== ======= ======= ======= =======
E. Foreign office time deposits of $100,000 or more
Not applicable
VI. RETURN ON EQUITY AND ASSETS
The following financial ratios are presented for analytical purposes: December 31, ______________________ 1999 1998 1997 ______ ______ ______ Return on assets (net income divided by total average assets) 1.1 1.1 1.3
Return on equity (net income divided by average equity) 9.3 9.1 11.2
Dividend payout ratio (dividends per share divided by basic net income per share) 59.5 51.0 39.3
Equity to asset ratio (average equity divided by average total assets) 11.9 11.8 11.9
VII. SHORT-TERM BORROWINGS (In Thousands) Federal Funds Purchased And Securities Treasury Sold Under Tax and Agreement to Loan Note Repurchase Payable ____________ ____________
Balance at December 31, 1999 $17,651 $2,462
Weighted average interest rate at December 31, 1999 4.10% 4.75%
Maximum amount outstanding at any month end for the year 1999 18,142 2,462
Average amount outstanding during the year 1999 15,766 1,574
Weighted average interest rate during the year 4.00% 4.28%
VIII. CAPITAL ADEQUACY DATA
Total consolidated capital of the Company was as follows:
($ In Thousands) December 31, __________________ 1999 1997 ________ ________ Total stockholders' equity (excluding unrealized gain/loss) $113,889 $110,492 Allowance for loan losses, as allowed 9,668 8,815 Other components of capital - -
________ ________ Total primary capital 123,557 119,307 Total secondary capital - - ________ ________ Total capital 123,557 119,307
Less intangible assets and other adjustments (3,288) (3,518) ________ ________ Total capital, as defined for regulatory purposes $120,269 $115,789 ======== ========
Tier 1 and total capital as a percentage of "risk-weighted" assets at December 31, 1999 and 1998, are as follows: December 31, ______________ 1999 1998 ______ ______
Tier 1 capital percentage 18.4% 18.1% Total capital percentage 19.6% 19.3%
The Company's capital ratios exceed the minimum capital requirements at December 31, 1999, and management expects this to continue.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained on Pages 28 - 34 of the Company's 1999 annual report to shareholders is incorporated herein by reference in response to this item and included in this report as Exhibit 13.c.
ITEM 7A.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company does not engage in any hedging activities or enter into any derivative instruments with a higher degree of risk than collateralized mortgage obligations which are commonly held securities generally collateralized by pools of GNMA, FNMA, or FHLMC pass-through securities. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks.
The following table reflects the year-end position of the Company's interest-earning assets and interest-bearing liabilities which can either reprice or mature within the designated time period. The interest rate sensitivity gaps can vary from day-to-day and are not necessarily a reflection of the future. In addition, certain assets and liabilities within the same designated time period may nonetheless reprice at different times and at different levels. ($ In Thousands) December 31, 1999 ______________________________________ Interest Sensitive Within (Cumulative) ______________________________________ Total of Within Within Within Interest- 3 12 5 Earning Months Months Years Assets ________ ________ ________ ________ Interest-earning assets: Loans $308,898 $480,011 $609,692 $613,557 Investment and mortgage-backed securities 32,717 56,916 192,898 230,280 Federal funds sold and other 201 201 2,096 2,096 ________ ________ ________ ________
Totals $341,816 $537,128 $804,686 $845,933 ======== ======== ======== ======== Interest-bearing liabilities: Deposits and borrowed funds $366,995 $589,643 $755,827 $755,827 ======== ======== ======== ======== Sensitivity gap: Dollar amount $(25,179) $(52,515) $ 48,859
Percent of total interest-earning assets (3.0%) (6.2%) 5.8%
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated, based upon certain assumptions, to mature or reprice within that time period. A gap is considered positive when the amount of interest rate sensitive assets maturing within a specific time frame exceeds the amount of interest rate sensitive liabilities maturing within that same time frame. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. In a rising interest rate environment, an institution with a positive gap would generally be expected, absent the effects of other factors, to experience a greater increase in the yield of its assets relative to the costs of its liabilities and thus an increase in the institution's net interest income would result whereas an institution with a negative gap could experience the opposite results.
At December 31, 1999, total interest-earning assets maturing or repricing within one year was less than interest-bearing liabilities maturing or repricing within the same time period by approximately $52.5 million (cumulative), representing a negative cumulative one year gap of 6.2% of earning assets. Management of the Company believes this is the proper position in the current interest rate environment.
Banking regulators have issued advisories concerning the management of interest rate risk (IRR). The regulators consider that effective interest rate management is an essential component of safe and sound banking practices. To monitor its IRR, the Company's risk management practices include (a) Risk Management, (b) Risk Monitoring and (c) Risk Control. Risk Management consists of a system in which a measurement is taken of the amount of earnings at risk when interest rates change. The Company does this by first preparing a "base strategy" which is the position of the bank and its forecasted earnings based upon the current interest rate environment or, most likely, interest rate environment. The IRR is then measured based upon hypothetical changes in interest rates by measuring the impact such a change will have on the "base strategy."
Risk monitoring consists of evaluating the "base strategy" and the assumptions used in its development based upon the current interest rate environment. This evaluation is performed quarterly by management or more often in a rapidly changing interest rate situation and monitored by an Asset/Liability Management Committee.
Risk control is utilized based upon the setting of guidelines as to the tolerance for interest rate exposure. These guidelines are set by senior management and approved by the board of directors. The December, 1999, model reflects an increase of 3.4% in income and a 12.9% decrease in market value equity for a 200 basis point increase in interest rates. The same model shows a 1.8% decrease in income and a 16.6% increase in market value equity for a 200 basis points increase in interest rates. The guidelines allow for no more than a + - 10% change in income, and no more than a + - 25% change in market value equity.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the report thereon of T. E. Lott & Company, independent accountants, are set forth on Pages 2 - 27 of the Company's 1999 annual report to shareholders which is incorporated herein by reference and included in this report as Exhibit 13.d.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to the material under the captions, "Election of NBC Directors" and "Executive Compensation," of the Company's proxy statement, dated March 17, 2000, which is incorporated herein by reference.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" of the Company's proxy statement, dated March 17, 2000, which is incorporated herein by reference.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption, "Stock Ownership of Directors, Officers, and Principal Shareholders," of the Company's proxy statement, dated March 17, 2000, which is incorporated herein by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to, "Certain Relationships and Related Transactions" of the Company's proxy statement, dated March 17, 2000, which is incorporated herein by reference.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The consolidated financial statements for the years ended December 31, 1999 and 1998, together with the report of T. E. Lott & Company, independent accountants, dated January 21, 2000, appearing on Pages 2 - 27 of the 1999 annual report to shareholders, are attached as Exhibit 13.d. to this Form 10K Annual Report.
2. Financial Statement Schedules
Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits:
1. - 2. None
3.1 Articles of Incorporation of NBC Capital Corporation (included as Exhibit B to NBC Capital Corporation's Definitive Proxy Statement dated March 20, 1998, and filed with the Commission on March 18, 1998, Commission File No. 0-12885, which Exhibit B is incorporated herein by reference).
3.2 By-laws of NBC Capital Corporation (included as Exhibit 3(b) to NBC Capital Corporation's Registration Statement on Form S-4A, filed with the Commission on November 4, 1998, Commission File No. 333-65545, which Exhibit 3(b) is incorporated herein by reference.
4. - 9. None
10.1 Definitive Agreement and Plan of Reorganization and Merger by and between NBC Capital Corporation and First National Corporation of West Point dated as of July 24, 1998 (incorporated by reference to Exhibit 2.1 of Form 8-K filed January 15, 1999).
10.2 Employment Agreement dated January 31, 1991, between National Bank of Commerce and L. F. Mallory, Jr., as previously filed.
10.3 Agreement and Plan of Merger by and between NBC Capital Corporation and FFBS Bancorp, Inc., dated February 3, 1999 (included as Appendix A to the Proxy Statement- Prospectus dated May 7, 1999, forming part of the Company's Registration Statement on Form S-4 filed with the Commission on March 30, 1999, Commission File No. 333-75293) and incorporated herein by reference.
10.4 Plan of Reorganization and Merger by and between National Bank of Commerce and First Federal Bank for Savings dated February 3, 1999 (included as Appendix A to the Proxy Statement-Prospectus dated May 7, 1999, forming part of the Company's Registration Statement on Form S-4 filed with the Commission on March 30, 1999, Commission File No. 333-75293) and incorporated herein by reference.
10.5 Merger Agreement by and between NBC Capital Corporation and National Bank of Commerce and Galloway-Wiggers Insurance Agency, Inc., Galloway-Chandler-McKinney Insurance, Inc., Galloway-Chandler-McKinney Insurance Agency of Amory, Inc., Kyle Chandler Insurance Agency, Inc., and Napier Insurance Agency, Inc. (included as Exhibit 99.2 on Form 10Q filed with the Commission on August 10, 1999, Commission File No. 0-12885) and incorporated herein by reference.
10.6 1993 Incentive Stock Option Plan and 1993 Stock Option Plan for Outside Directors of FFBS Bancorp, Inc., assumed by NBC Capital Corporation (incorporated by reference to Exhibit A of Form S-8 filed September 20, 1999) and incorporated herein by reference.
11. - 12. None
13. Annual report to shareholders - deemed filed herewith only to the extent it is incorporated elsewhere herein.
13.a. Market for Company's common stock - Page 33 of the annual report to stockholders.
13.b. Selected Financial Data - Page 34 of the annual report to stockholders.
13.c. Management's discussion and analysis of financial condition and results of operations - Pages 28 - 33 of the annual report to stockholders.
13.d. Consolidated financial statements - Pages 2 - 27 of the annual report to stockholders.
14. - 20. None
21. Subsidiaries of Company
23. Consent of Independent Public Accountants
27. Financial Data Schedule (Electronic Filing Only) - years ended December 31, 1999, 1998, and 1997
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NBC CAPITAL CORPORATION (Registrant)
/S/ L. F. Mallory, Jr. By _______________________________________ L. F. Mallory, Jr. Chairman and Chief Executive Officer
/S/ Richard T. Haston By _______________________________________ Richard T. Haston Executive Vice President, CFO, and Treasurer (Chief Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
/S/ David C. Byars /S/ Mark A. Abernathy _________________________________ _______________________________ (Director) (Director)
/S/ Harry Stokes Smith /S/ L. F. Mallory, Jr. _________________________________ _______________________________ (Director) (Director)
/S/ Ralph Pogue /S/ Sammy J. Smith _________________________________ _______________________________ (Director) (Director)
/S/ Edith D. Millsaps /S/ Thomas J. Prince _________________________________ _______________________________ (Director) (Director)
/S/ Robert S. Caldwell /S/ E. Frank Griffin, III _________________________________ _______________________________ (Director) (Director)
/S/ Allen Puckett, III /S/ Bobby L. Harper _________________________________ _______________________________ (Director) (Director)
/S/ James C. Ratcliff /S/ James C. Galloway, Jr. _________________________________ _______________________________ (Director) (Director)
/S/ Clifton B. Fowler _________________________________ (Director)
Date: March 28, 2000