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, 2001
Commission File Number 1-15773
NBC Capital Corporation
(Exact name of registrant as specified in its charter)
Mississippi 64-0694775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NBC Plaza, Starkville, Mississippi 39759
(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 18, 2002, was approximately:
$157,173,391
___________________________
(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 - 6,173,710 shares outstanding as
of March 18, 2002.
Documents incorporated by reference -
Portions of the Proxy Statement dated March 19, 2002
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 Company
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships 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. The Corporation undertakes
no obligation to update or revise any forward-looking statements,
whether as a result of changes in actual results, changes in
assumptions or other factors affecting such statements.
NBC Capital Corporation
The Company is a financial 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, 2001, 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-seven banking facilities and an operation/administration center
serves the communities of Aberdeen, Amory, Brooksville, Caledonia,
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 2001.
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.
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 2001 and 2000,
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,
2001, GCM had total assets of approximately $2.3 million, and for the
year ended December 31, 2001, reported gross revenues of approximately
$3.8 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, 2001 and 2000, its
activities were not significant.
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 $900,000 at December 31, 2001. 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 eleven
municipalities in North Central Mississippi. Over this same area, the
bank competes directly with numerous competing banking institutions,
credit unions, finance companies, brokerage firms, mortgage companies
and insurance companies. The competing banking institutions range in
asset size from approximately $270 million to in excess of $40 billion.
NBC is the largest bank domiciled in its immediate service area. Asset
size of competitive banks is that of the parent bank and not the branch.
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 $80 million to $45 billion.
Asset size of the competitive banks is that of the parent bank and not of
the branch. 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 financial 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 financial 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 holding
company debt.
The Act restricts the Company's nonbanking activities to those
which are determined by the Federal Reserve Board to be financial in
nature, incidental to such financial activity, or complementary to a
financial activity. The Act does not place territorial restrictions on
the activities of nonbank subsidiaries of holding companies. The
Company's banking subsidiaries are subject to limitations with respect
to transactions with affiliates.
The Act requires every 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 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
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 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
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 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 holding company. Further, federal bank regulatory
authorities have additional discretion to require a 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. In March, 2001, NBC
obtained approval to pay a dividend of $24.2 million to the Company
which was used to acquire 976,676 shares of the Company's common
stock from its largest stockholder and related parties.
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, 2001, 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, 2001, the Company's
leverage capital ratio was 9.7%.
(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, 2001, the Company's Tier 1 and total capital ratios
were 15.0% and 16.0%, 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.
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, 2000, 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.
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 holding company is subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of
credit to the 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.
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 any small group of 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. 59 Chairman and Chief Executive Officer,
Chairman and Chief Executive NBC Capital Corporation and NBC
Officer, NBC Capital
Corporation and NBC
Mark A. Abernathy 45 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
Hunter M. Gholson 69 Secretary of NBC Capital Corporation
Secretary and NBC
Richard T. Haston 55 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
and CFO, NBC
Bobby L. Harper 60 Chairman of Executive Committee, NBC
Chairman of the Executive Capital Corporation and NBC, and
Committee, NBC Capital Executive Vice President, Banking
Corporation and NBC and Center Administration, NBC since
Executive Vice President, January, 1999; President of NBC
Banking Center Administra- Columbus Banking Center from
tion, NBC January, 1981 - January, 1999.
Tommy M. Tomlinson 48 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
Thomas J. Prince, Jr. 60 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; President,
Services NBC NBC Aberdeen Banking Center
from January, 1985 - April, 1998
Donald J. Bugea, Jr. 48 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
John R. Davis 46 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
Clifton B. Fowler 53 Vice President, NBC Capital
Vice President, NBC Capital Corporation and President, NBC
Corporation and President, Starkville Banking Center
NBC Starkville Banking
Center
Personnel
At December 31, 2001, NBC had approximately 402 full-time
employees, Finance had 3 full-time employees and GCM had approximately
43 full-time employees. The Company, Service, and CNIC had no
employees at December 31, 2001.
ITEM 2 - PROPERTIES
The Company, Service and CNIC owned no properties at December 31,
2001. 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 26,000
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
Caledonia Branch Caledonia, Mississippi 1,000
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 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) Reference is made to Item 7 - Mangement's Discussion and Analysis
of Financial Condition and Results of Operations, under the
caption, "Market Information."
(b) At December 31, 2001, the Company had approximately 2,700 security
holders.
(c) Dividends on common stock were declared quarterly in 2001 and 2000
and totaled as follows:
(In thousands)
December 31,
______________
2001 2000
______ ______
Dividends declared, $.97 per share $ - $6,963
Dividends declared, $1.09 per share 6,997 -
______ ______
$6,997 $6,963
====== ======
ITEM 6 - SELECTED FINANCIAL DATA
Years Ended December 31,
2001 2000 1999 1998 1997
__________ __________ ________ ________ ________
(In thousands, except per share data)
INCOME DATA
Interest and
fees on loans $ 51,852 $ 57,535 $ 52,219 $ 52,955 $ 51,682
Interest and
dividends on
securities 17,968 14,052 12,430 13,416 13,755
Other interest
income 950 1,148 2,440 1,953 1,268
__________ __________ ________ ________ ________
Total interest
income 70,770 72,735 67,089 68,324 66,705
Interest expense 36,001 34,978 30,998 32,744 30,877
__________ __________ ________ ________ ________
Net interest
income 34,769 37,757 36,091 35,580 35,828
Provision for
loan losses 1,720 1,280 1,769 3,187 1,482
__________ __________ ________ ________ ________
Net interest
income after
provision for
loan losses 33,049 36,477 34,322 32,393 34,346
__________ __________ ________ ________ ________
Service charges
on deposit
accounts 5,942 5,306 5,230 4,720 4,653
Other income 10,524 8,456 7,824 4,871 3,759
__________ __________ ________ ________ ________
Total noninterest
income 16,466 13,762 13,054 9,591 8,412
__________ __________ ________ ________ ________
Salaries and
employee
benefits 18,156 17,260 17,545 16,024 14,651
Occupancy and
equipment
expense 4,616 4,539 4,213 3,778 3,558
Other expenses 9,344 9,118 12,211 9,299 8,041
__________ __________ ________ ________ ________
Total noninterest
expenses 32,116 30,917 33,969 29,101 26,250
__________ __________ ________ ________ ________
Income before
income taxes 17,399 19,322 13,407 12,883 16,508
Income taxes 4,261 5,277 2,899 2,881 4,826
__________ __________ ________ ________ ________
Net income $ 13,138 $ 14,045 $ 10,508 $ 10,002 $ 11,682
========== ========== ======== ======== ========
PER SHARE DATA
Net income -
basic $ 2.05 $ 1.96 $ 1.46 $ 1.43 $ 1.68
Net income -
diluted 2.05 1.96 1.46 1.42 1.67
Dividends 1.09 .97 .87 .73 .66
FINANCIAL DATA
Total assets $1,050,802 $1,009,515 $973,570 $937,147 $900,886
Net loans 616,187 637,800 613,557 576,731 563,590
Total deposits 810,703 804,804 752,810 776,955 734,107
Total
shareholders'
equity 102,927 120,123 111,251 111,868 105,304
(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 2001 2000 1999
__________ ________ ________
Cash and due from banks $ 26,462 $ 28,968 $ 36,514
Securities:
Taxable 185,076 133,497 128,605
Non-taxable 132,200 118,341 106,062
__________ ________ ________
Total securities 317,276 251,838 234,667
Federal funds sold and other
interest-bearing assets 22,816 17,962 50,951
Loans 629,248 630,851 605,561
Less allowance for loan losses 8,507 10,093 10,514
__________ ________ ________
Net loans 620,741 620,758 595,047
Other assets 54,571 44,728 36,247
__________ ________ ________
Total Assets $1,041,866 $964,254 $953,426
========== ======== ========
(In Thousands)
Liabilities and 2001 2000 1999
Stockholders' Equity __________ ________ ________
Deposits:
Noninterest-bearing $ 96,249 $ 94,038 $ 89,950
Interest-bearing 714,491 685,287 674,606
__________ ________ ________
Total deposits 810,740 779,325 764,556
Federal funds purchased and
securities sold under
agreements to repurchase 19,159 18,734 18,985
Borrowed funds 96,605 39,781 44,428
Other liabilities 13,167 10,806 11,735
__________ ________ ________
Total liabilities 939,671 848,646 839,704
Stockholders' equity 102,195 115,608 113,722
__________ ________ ________
Total Liabilities and
Stockholders' Equity $1,041,866 $964,254 $953,426
========== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of
net interest earnings, including the average amount of interest-
earning assets and interest-bearing liabilities outstanding during
the period, the interest earned or paid on such amounts, the
average yields/rates paid and the net yield on interest-earning
assets:
($ In Thousands)
Average Balance
____________________________
2001 2000 1999
________ ________ ________
EARNING ASSETS
Loans $629,248 $630,851 $605,561
Federal funds sold and
other interest-bearing
assets 22,816 17,962 50,951
Securities:
Taxable 185,076 133,497 128,605
Nontaxable 132,200 118,341 106,062
________ ________ ________
Totals 969,340 900,651 891,179
________ ________ ________
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 714,491 685,287 674,606
Borrowed funds, federal funds
purchased and securities sold
under agreements to repurchase 115,764 58,515 63,413
________ ________ ________
Totals 830,255 743,802 738,019
________ ________ ________
Net Amounts $139,085 $156,849 $153,160
======== ======== ========
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
2001 2000 1999 2001 2000 1999
_______ _______ _______ ____ ____ ____
EARNING ASSETS
Loans $51,852 $57,535 $52,219 8.24 9.12 8.62
Federal funds sold and
other interest-bearing
assets 950 1,148 2,440 4.16 6.39 4.80
Securities:
Taxable 11,165 7,966 6,981 6.03 5.97 5.43
Nontaxable 6,803 6,086 5,449 5.15 5.14 5.14
_______ _______ _______ ____ ____ ____
Totals $70,770 $72,735 $67,089 7.30 8.08 7.53
======= ======= ======= ==== ==== ====
($ In Thousands) Yields Earned
Interest for the Year And
Ended December 31, Rates Paid (%)
_______________________ ______________
2001 2000 1999 2001 2000 1999
_______ _______ _______ ____ ____ ____
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $29,866 $31,559 $28,399 4.18 4.61 4.21
Borrowed funds, federal
funds purchased and
securities sold under
agreements to
repurchase 6,135 3,419 2,599 5.30 5.84 4.10
_______ _______ _______ ____ ____ ____
Totals 36,001 34,978 30,998 4.34 4.70 4.20
_______ _______ _______
Net interest income $34,769 $37,757 $36,091
======= ======= =======
Net yield on earning assets 3.59 4.19 4.05
(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)
2001 Over 2000 2000 Over 1999
_________________________ _________________________
Change Due To: Change Due To:
_________________________ _________________________
Total Rate Volume Total Rate Volume
_______ _______ _______ _______ _______ _______
EARNING ASSETS
Loans $(5,683) $(5,540) $ (143) $ 5,316 $ 3,082 $ 2,234
Federal funds sold
and other interest-
bearing assets (198) (881) 683 (1,292) 1,382 (2,674)
Securities:
Taxable 3,199 88 3,111 985 712 273
Nontaxable 717 4 713 637 6 631
_______ _______ _______ _______ _______ _______
Totals $(1,965) $(6,329) $ 4,364 $ 5,646 $ 5,182 $ 464
======= ======= ======= ======= ======= =======
(In Thousands) (In Thousands)
2001 Over 2000 2000 Over 1999
________________________ _______________________
Change Due To: Change Due To:
________________________ _______________________
Total Rate Volume Total Rate Volume
_______ _______ ______ ______ ______ _______
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits $(1,693) $(4,004) $2,311 $3,160 $3,931 $ (771)
Interest on borrowed
funds and federal
funds purchased and
securities sold
under agreements to
repurchase 2,717 (396) 3,113 820 1,002 (182)
_______ _______ ______ ______ ______ _______
Totals $ 1,024 $(4,400) $5,424 $3,980 $4,933 $ (953)
======= ======= ====== ====== ====== =======
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,
____________________________
2001 2000 1999
________ ________ ________
U. S. Treasury $ 306 $ 4,544 $ 7,732
U. S. Government agencies and
mortgage-backed securities 185,751 137,684 106,946
States and political subdivisions 113,871 124,011 105,330
Other 40,798 15,551 10,272
________ ________ ________
Total book value $340,726 $281,790 $230,280
======== ======== ========
B. The following table sets forth the maturities of investment and
mortgage-backed securities (carrying values) at December 31,
2001, and the weighted average yield of such securities:
($ In Thousands)
Weighted Average Yield
_______________________________________________
0 - 1 Yield 1 - 5 Yield 5 - 10 Yield
Year (%) Years (%) Years (%)
_______ _____ ________ _____ _______ _____
Securities:
U. S. Treasury $ 206 6.4% $ 100 2.8% $ - -
U. S. Govern-
ment agencies 606 5.9% 1,494 6.9% 1,970 6.7%
States and
political
subdivisions 6,280 7.8% 66,653 7.2% 23,452 9.1%
Other 7,833 4.9% 2,070 6.8% 456 6.5%
_______ _______ _______
Total $14,925 $70,317 $25,878
======= ======= =======
10+ Yield
Years (%)
_______ _____
U. S. Govern-
ment agencies $ 469 7.0%
State and
political 17,486 8.8%
Other
(including
equity
securities) 30,439 5.4%
_______
Total $48,394
=======
Book Yield
Value (%)
________ _____
Mortgage-
backed
securities $181,212 5.9%
========
NOTE: Interest and yields on tax-exempt obligations are 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, 2001, 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 2001 2000 1999 1998 1997
______________ ________ ________ ________ ________ ________
Commercial,
financial and
agriculture $101,630 $103,045 $101,503 $ 81,365 $ 78,491
Real estate -
construction 31,461 33,638 26,185 27,253 27,636
Real estate -
mortgage 387,667 402,987 390,205 366,219 352,550
Installment
loans to
individuals 94,424 105,564 101,624 104,470 106,603
Other 7,758 2,255 4,234 7,526 7,155
________ ________ ________ ________ ________
Total loans 622,940 647,489 623,751 586,833 572,435
Unearned
interest - - - - (317)
________ ________ ________ ________ ________
$622,940 $647,489 $623,751 $586,833 $572,118
======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest
rates:
(In Thousands)
December 31, 2001
____________________________
Maturing or Repricing
____________________________
After
1 Year
Within Through Over
Type 1 Year 5 Years 5 Years Total
_______________________ ________ ________ ________ ________
Commercial, financial
and agricultural $ 75,322 $ 23,730 $ 2,578 $101,630
Real estate -
construction 27,921 3,464 76 31,461
________ ________ ________ ________
$103,243 $ 27,194 $ 2,654 $133,091
======== ======== ======== ========
(In Thousands)
December 31, 2001
____________________________
Maturing or Repricing
____________________________
After
1 Year
Through Over
Type 5 Years 5 Years Total
________________________ ________ ________ ________
Loans with:
Predetermined interest
rates $ 13,021 $ 2,641 $ 15,662
Floating interest
rates 14,173 13 14,186
________ ________ ________
$ 27,194 $ 2,654 $ 29,848
======== ======== ========
C. Nonperforming loans
1. The following table states the aggregate amount of loans
which were nonperforming in nature:
(In Thousands)
December 31,
______________________________________
Type 2001 2000 1999 1998 1997
__________________ ______ ______ ______ ______ ______
Loans accounted
for on a
nonaccrual basis $2,050 $1,384 $ 270 $ 927 $2,648
====== ====== ====== ====== ======
Accruing loans
past due 90 days
or more $1,850 $2,356 $2,975 $2,902 $1,660
====== ====== ====== ====== ======
Renegotiated
"troubled" debt $ 665 $ 294 $ 132 $ 337 $ 826
====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total
loans at December 31, 2001. 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,
2001.
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 2001, 2000 and 1999.
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, 2001, the recorded investment in loans
identified as impaired totaled approximately $2.5 million.
The allowance for loan losses related to these loans approxi-
mated $1.4 million. The average recorded investment in
impaired loans during the year ended December 31, 2001, was
$4.1 million. Total interest recognized on impaired loans
and the amount recognized on a cash basis were not
significant.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets
at December 31, 2001.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. An analysis of the loan loss experience for the periods
indicated is as follows:
($ In Thousands)
December 31,
___________________________________________
2001 2000 1999 1998 1997
_______ _______ _______ _______ _______
Beginning balance $ 9,689 $10,194 $10,102 $ 8,528 $ 8,175
_______ _______ _______ _______ _______
Charge-offs:
Domestic:
Commercial,
financial and
agricultural (2,840) (499) (566) (575) (379)
Real estate (780) (206) (444) (451) (145)
Installment
loans and
other (1,580) (1,497) (1,047) (960) (1,073)
_______ _______ _______ _______ _______
Total charge-offs (5,200) (2,202) (2,057) (1,986) (1,597)
_______ _______ _______ _______ _______
Recoveries:
Domestic:
Commercial,
financial and
agricultural 119 55 89 124 269
Real estate 61 17 25 76 97
Installment
loans and
other 364 345 266 173 227
_______ _______ _______ _______ _______
Total recoveries 544 417 380 373 593
_______ _______ _______ _______ _______
Net charge-offs (4,656) (1,785) (1,677) (1,613) (1,004)
_______ _______ _______ _______ _______
Allowance of sold
finance company - - - - (125)
Provision charged
to operations 1,720 1,280 1,769 3,187 1,482
_______ _______ _______ _______ _______
Ending balance $ 6,753 $ 9,689 $10,194 $10,102 $ 8,528
======= ======= ======= ======= =======
Ratio of net
charge-offs to
average loans
outstanding .74 .29 .28 .28 .18
Ratio of allowance
for loan losses
to loans
outstanding at
year end 1.08 1.50 1.63 1.72 1.49
B. Determination of Allowance for Loan Losses
The determination of the allowance for loan losses requires
significant judgment. The balance of the allowance for loan
losses reflects management's best estimate of probable loan
losses related to specifically identified loans, as well as
probable incurred loan losses in the remaining portfolio.
Reference should be made to Note A-6 to the consolidated
financial statements included herein as Item 8 and to Item 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following schedule sets forth the components of the allowance
for loan losses at December 31, 2001 and 2000. This allocation
is based upon the consistent, quarterly evaluation of the adequacy
of the allowance for loan losses. The entire allowance for loan
losses is available to absorb loan losses in any category.
2001 2000
__________________ __________________
Allowance Allowance
Loan For Loan Loan For Loan
Balance Losses Balance Losses
(In thousands) ________ ________ ________ ________
Allocated component:
Impaired loans $ 2,471 $ 1,353 $ 3,158 $ 1,634
Graded loans 33,221 2,674 30,946 3,196
Homogeneous pools 187,751 1,071 211,986 1,075
Other loans 399,497 1,271 401,399 1,079
Unallocated component - 384 - 2,075
________ ________ ________ ________
$622,940 $ 6,753 $647,489 $ 9,689
======== ======== ======== ========
The allowance allocated to impaired loans for the years 2001 and
2000 was based upon the estimated fair value of the underlying
collateral. Graded loans are those loans that exhibit some form
of weakness. Allocations to this group are based upon the
historical loan loss experience of the grades assigned and upon
specific allocations to specific loans. An allowance is allocated
to the various pools of loans considered to be homogenous based
upon the historical loan losses of each pool. Other loans consist
of those loans not graded or impaired or considered homogenous.
These loans are grouped by risk assignments which are based upon
consideration of collateral values, borrower financial condition
and performance, debt service capacity, cash flows, market share,
and other indicators. Allocations of the allowance to these loans
are based upon historical loan loss experience of the risk
assignment.
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, 2001, these loans
totaled $419 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,
historically, 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 $94 million or 15% of total loans at
December 31, 2001. 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,
2001, NBC's commercial business loans represented approximately
16% of its total loan portfolio.
D. In the year 2001, NBC experienced an unusual and unexpected loan
loss of $2 million (reference should be made to Item 7 - Manage-
ment's Discussion and Analysis of Financial Condition and Results
of Operations), which is included in the commercial, financial
and agricultural category in Table IV.A. With the exception of
this loss, loan losses in 2002 for all loan categories, as a
percentage of average loans, are expected to approximate that of
2001.
V. DEPOSITS
($ In Thousands)
2001 2000 1999
______________ ______________ ______________
Amount Rate Amount Rate Amount Rate
________ ____ ________ ____ ________ ____
A. Average
deposits:
Domestic:
Noninterest-
bearing $ 96,249 - $ 94,038 - $ 89,950 -
Interest-
bearing
demand (1) 296,160 2.9% 254,458 3.6% 312,642 2.3%
Savings 39,196 1.5% 48,414 2.1% 34,913 2.5%
Time 379,135 5.4% 382,415 5.6% 327,051 6.2%
Foreign N/A N/A N/A
________ ________ ________
Total $810,740 $779,325 $764,556
======== ======== ========
(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, 2001
(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 $147,885 $62,692 $31,906 $29,290 $23,997
======== ======= ======= ======= =======
E. Foreign office time deposits of $100,000 or more
Not applicable
VI. RETURN ON EQUITY AND ASSETS
The following financial ratios are presented for analytical
purposes:
December 31,
______________________
2001 2000 1999
______ ______ ______
Return on assets (net income divided by
total average assets) 1.3 1.4 1.1
Return on equity (net income divided by
average equity) 12.5 12.2 9.3
Dividend payout ratio (dividends per share
divided by basic net income per share) 53.2 49.5 59.5
Equity to asset ratio (average equity
divided by average total assets) 9.8 12.0 11.9
VII. SHORT-TERM BORROWINGS ($ In Thousands)
Securities Treasury
Sold Under Tax and
Agreement to Loan Note
Repurchase Payable
____________ ____________
Balance at December 31, 2001 $16,625 $ 683
Weighted average interest rate at
December 31, 2001 2.23% 1.43%
Maximum amount outstanding at any
month end for the year 2001 $21,765 $ 2,508
Average amount outstanding during
the year 2001 18,922 1,750
Weighted average interest rate during
the year 3.45% 3.37%
VIII. CAPITAL ADEQUACY DATA
Total consolidated capital of the Company was as follows:
($ In Thousands)
December 31,
__________________
2001 2000
________ ________
Total stockholders' equity (excluding
unrealized gain/loss) $101,277 $120,191
Allowance for loan losses, as allowed 6,753 9,606
Other components of capital - -
________ ________
Total primary capital 108,030 129,797
Total secondary capital - -
________ ________
Total capital 108,030 129,797
Less intangible assets and other adjustments (1,415) (3,235)
________ ________
Total capital, as defined for regulatory
purposes $106,615 $126,562
======== ========
Tier 1 and total capital as a percentage of "risk-weighted" assets
at December 31, 2001 and 2000, are as follows:
December 31,
______________
2001 2000
______ ______
Tier 1 capital percentage 15.0% 18.1%
Total capital percentage 16.0% 19.4%
The Company's capital ratios exceed the minimum capital requirements at
December 31, 2001, and management expects this to continue.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. The Private Securities Litigation Act of 1995 encourages
the disclosure of forward-looking information by management by
providing a safe harbor for such information. This discussion
includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Corporation
believes that the expectations reflected in such forward-looking
statements are reasonable, such forward-looking statements are based
on numerous assumptions (some of which may prove to be incorrect) and
are subject to risks and uncertainties which could cause the actual
results to differ materially from the Corporation's expectations. The
forward-looking statements made in this document are based on
management's beliefs, as well as assumptions made by and information
currently available to management. When used in the Corporation's
documents, the words "anticipate," "estimate," "expect," "objective,"
"projection," "forecast," "goal" and similar expressions are intended
to identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with forward-
looking statements, factors that could cause the Corporation's actual
results to differ materially from those contemplated in any forward-
looking statements include, among others, increased competition,
regulatory factors, economic conditions, changing interest rates,
changing market conditions, availability or cost of capital, employee
workforce factors, cost and other effects of legal and administrative
proceedings, and changes in federal, state or local laws and
regulations. The Corporation undertakes no obligation to update or
revise any forward-looking statements, whether as a result of changes
in actual results, changes in assumptions or other factors affecting
such statements.
The two major trends that can have a material impact on the Corporation's
financial condition and results of operations are the trend in interest
rates and the overall trend in the economy. Currently, management
expects, based on the available information, that interest rates will
trend upward and the overall economy in its market will improve somewhat
during 2002. The Corporation's 2002 projections, budgets and goals are
based on these expectations. If these trends move differently than
expected in either direction or speed, it could have a material impact on
the Corporation's financial condition and results of operations. The
areas of the Corporation's operations most directly impacted would be net
interest margin, loan and deposit growth and provision for loan losses.
ACCOUNTING ISSUES
Note A of the Notes to Consolidated Financial Statements contains a
summary of the Corporation's accounting policies. Management is of the
opinion that Note A, read in conjunction with all other information in the
annual report, including management's letter to shareholders and
management's discussion and analysis, is sufficient to provide the reader
with the information needed to understand the Corporation's financial
condition and results of operations and to identify the areas in which
management is required to make the most difficult, subjective and /or
complex judgments.
In the normal course of business, the Corporation's wholly-owned
subsidiary, National Bank of Commerce, makes loans to related parties,
including directors and executive officers of the Corporation and their
relatives and affiliates. These loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other parties. Also, they are
consistent with sound banking practices and within the applicable
regulatory and lending limitations. See Note L in the Notes to
Consolidated Financial Statement and the Corporation's Proxy Statement for
additional details concerning related party transactions.
Note A of the Notes to Consolidated Financial Statements contains a
listing of all the Corporation's affiliated companies. The Corporation
does not have investments in any unconsolidated entities over which it
exercises management or control. The Corporation does not have
relationships with limited or special purpose entities that it relies on
to provide financing, liquidity or market and credit risk support.
During 2001, the Financial Accounting Standards Board issued release 142,
which changed the accounting for goodwill, effective for years beginning
after December 15, 2001. Beginning in 2002, goodwill will no longer be
amortized. The amount of goodwill recorded on the financial statement at
December 31, 2001 will remain at that level until or unless it becomes
impaired under the definition of impairment in FAS 142. At that time, the
impaired portion of goodwill would be written off against current
earnings. At December 31, 2001, the Corporation had approximately $2
million of goodwill on its Balance Sheet, which will remain at that level
unless it becomes impaired. The amortization of goodwill for 2001 was
approximately $260,000.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since 1997, the total assets of the Corporation have increased 16.6%.
During this same period, loans have increased 9.3%, while deposits grew by
10.4%. In 1998, net loans grew by approximately $13.1 million. This
growth was funded by deposits, which increased by approximately $42.8
million. In 1999, the trend reversed, as competition for deposits
increased not only from within the banking industry, but from throughout
the financial services industry as evidenced by billions of dollars
flowing into the stock markets. During 1999, as net loans grew by $36.8
million, deposits declined by approximately $24.1 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 net loan growth of approximately $24.2 million with a
growth in deposits of approximately $52 million. During 2001, net loans
declined by $21.6 million, mostly as a result of a decline in the
Adjustable Rate Mortgage ("ARM") loans that the Corporation carried in its
loan portfolio. The reason for the decline was the interest rate
environment. During that period the Federal Reserve lowered rates eleven
times, totaling 4.75%. Because of these lower rates, many homeowners
refinanced their existing ARM loans to fixed rate loans. Due to the
interest rate risk, the Corporation does not normally carry fixed rate
mortgage loans on its books. As a result of this decline in loans and an
overall soft loan demand, the Corporation did not need to aggressively
price deposits, and therefore, had only a modest $5.9 million growth in
deposits during the year. See the section entitled "Liquidity, Asset /
Liability Management" for additional comments on sources and uses of cash
during 2001.
Shareholders' Equity has represented a consistent strength of the
Corporation throughout the years, as noted in the summary of Selected
Financial Data. Shareholders' equity has decreased 2.3% since 1997. From
1997 through 2000, Shareholder's Equity increased from $105.3 million to
$120.1 million or 14.1%. The decline in 2001 resulted from the purchase
of approximately $25 million of Treasury Stock, which was accounted for as
a reduction of Shareholder's Equity on the Balance Sheet. See the section
entitled "Capital" for additional information concerning this stock
repurchase. Shareholder's equity also includes Accumulated Other
Comprehensive Income which is composed of unrealized gain (loss), net of
taxes on "Available-for-Sale Securities" of ($68,000) and $1,650,000 at
December 31, 2000 and 2001, respectively, as required to be reported under
FASB 115.
In 1998, consolidated net income declined by $1.7 million 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
the Corporation incurred 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, Inc.
("GCM"). 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 costs.
In 2000, fully diluted earnings per share increased by 34.2% to $1.96 per
share, as net income increased from $10.5 million in 1999 to $14 million
in 2000. In 2001, net income declined to $13.1 million; however, fully
diluted earnings per share increased to $2.05, a 4.6% increase, due to
10.8% fewer weighted average shares outstanding as a result of the
previously mentioned repurchase of the Corporation's stock. The following
paragraphs discuss the decline in net income in 2001, compared to 2000.
The 1997 and 1998 earnings per share amounts have been restated to reflect
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. The 1997 and 1998 dividend per share
amounts have been restated to reflect 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 4.6% in 2000 and
declined by 7.9% in 2001. 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
(including loan fees) for 2000 increased to 3.38% from 3.33% in 1999. The
primary reason for this increase was an increase in average loan yields of
approximately 59 basis points. This increase in loan yields was partially
offset by an overall increase in the average cost of deposits of
approximately 40 basis points. The volume component also contributed to
this increase in NII, as earning assets grew $9.8 million or 1.1% during
2000.
The year 2001 was a unique year for the banking industry. During the year,
the Federal Reserve reduced interest rates eleven times for a total of 475
basis points. Even though most thought rates would decline during 2001,
few, if any, expected rates to decline that far that fast. This rate
decline did not stop the general state of the economy from continuing to
slip into a recession during the first half of the year. With this slow
down in the economy, the Corporation experienced a substantial decline in
loan demand as businesses went into a defensive position. In this
environment, the competition for quality credits increased. This
situation caused many of the fixed rate loans that were in the portfolio
to be refinanced at lower rates during the year. Also, at the beginning
of the year, approximately 45 percent of the loan portfolio was composed
of variable rate loans. These two factors caused an overall decline in
loan yields during 2001.
As mentioned later in this discussion, the Corporation's policy is to
maintain a basically neutral gap position on its balance sheet. As was
stated in last year's annual report, the Corporation began the year with a
liability sensitive position of $57.7 million or 5.7% of assets, well
within our policy of plus or minus 10%. Even though a liability sensitive
position was appropriate for this declining rate environment, the speed
and amount of the declines caused the variable loans to reprice more
quickly than the cost of liabilities could be reduced, putting a great
deal of downward pressure on the Corporation's margin during the year.
Even though management began repricing deposits downward during January,
it was the third and fourth quarters before the rates stabilized enough
for the reduction in deposit cost to catch up with the decline in yields
and for the margin to stabilize and begin to increase.
The 7.9% decline in NII during 2001 resulted from a decline in net
interest spread from 3.38% in 2000 to 2.96%. The primary reason for this
decline was a decrease in average loan yields of approximately 88 basis
points. This decrease in loan yields was partially offset by a decrease
in the average cost of deposits of 43 basis points and a decrease in the
cost of other borrowed funds of 54 basis points. The volume component of
NII also helped offset this decline in loan yields, as average-earning
assets grew $68.7 million or 7.6%.
The table below shows, for the periods indicated, an analysis of NII,
including the average amount of interest-earning assets and interest-
bearing liabilities outstanding during the period, the interest earned
or paid on such amounts, the average yields/rates paid and the net
yield on interest-earning assets on both a book and tax equivalent
basis:
($ In Thousands)
Average Balance
___________________
Year Year
Ended Ended
12/31/01 12/31/00
________ ________
EARNING ASSETS:
Loans $629,248 $630,851
Federal funds sold and other interest-
bearing assets 22,816 17,962
Securities:
Taxable 185,076 133,497
Nontaxable 132,200 118,341
________ ________
Totals $969,340 $900,651
======== ========
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits $714,491 $685,287
Borrowed funds, federal funds
purchased and securities sold
under agreements to repurchase
and other 115,764 58,515
________ ________
Totals $830,255 $743,802
======== ========
($ In Thousands)
Interest Yields Earned
For and Rates Paid (%)
Year Year Year Year
Ended Ended Ended Ended
12/31/01 12/31/00 12/31/01 12/31/00
________ ________ ________ ________
EARNING ASSETS:
Loans $ 51,852 $ 57,535 8.24 9.12
Federal funds sold and
other interest-bearing
assets 950 1,148 4.16 6.39
Securities:
Taxable 11,165 7,966 6.03 5.97
Nontaxable 6,803 6,086 5.15 5.14
________ ________ ________ ________
Totals $ 70,770 $ 72,735 7.30 8.08
======== ======== ======== ========
INTEREST-BEARING
LIABILITIES:
Interest-bearing
deposits $ 29,866 $ 31,559 4.18 4.61
Borrowed funds, federal
funds sold, securities
sold under agreements
to repurchase and
other 6,135 3,419 5.30 5.84
________ ________ ________ ________
Totals 36,001 34,978 4.34 4.70
________ ________ ________ ________
Net interest income $ 34,769 $ 37,757
======== ========
Net yield on earning
assets 3.59 4.19
________ ________
Note: Yields on a tax equivalent basis would be:
Nontaxable securities 7.92 7.91
________ ________
Total earning assets 7.68 8.44
________ ________
Net yield on earning assets 3.96 4.56
________ ________
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 by the senior credit officers and the loan review
staff. As a part of this evaluation, certain loans are individually
reviewed to determine if there is an impairment of the bank's ability
to collect the loan and the related interest. This determination is
generally made based on collateral value. If it is determined that an
impairment exists, a specific portion of the reserve is allocated to
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.) Even though there has been increased competition for good
quality credits in the Corporation's market, the quality of our portfolio
remains strong. Net charge-offs for 1999, 2000 and 2001 were .28%, .29%
and .72% of average net loans outstanding for each year, respectively.
Had it not been for a single $2 million loan charged off in June of 2001
(this loan will be discussed in more detail in the following paragraph),
the ratio for 2001 would have been .41%. Classified loans to capital have
increased from 16.6% at December 31, 2000 to 18.1% at December 31, 2001.
The classified loans have actually decreased by approximately $1 million
during 2001; however, equity has decreased by $17.2 million because of the
stock repurchase. Recomputing the classified loans to equity ratio for
2001 on a comparable basis with 2000, without considering the increase in
treasury stock, would have decreased the ratio to 14.3%. The Reserve for
Loan Losses as a percentage of total loans has declined from 1.50% of
total loans at the end of 2000 to 1.08% at the end of 2001. Based on
these evaluations, the reserve amounts maintained at the end of 2001 and
2000 were deemed adequate to cover exposure within the Corporation's loan
portfolio.
The Provision for Loan Losses declined from $1,769,000 in 1999 to
$1,280,000 in 2000; however, it increased in 2001 to $1,720,000. The
provision in 1999 was higher due to the level of credit risk in the loans
that came into the portfolio from the acquisitions completed during 1998
and 1999. The provision included a special provision of $780,000 made by
FFBS as a condition of its merger with the Corporation. 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 an appropriate level to cover the credit risk in the
portfolio. In 2001, the provision was increased to $1,720,000, as net
charge-offs increased from $3.5 million in 2000 to $4.6 million in 2001.
The primary reason for the increased charge-offs was that in June, the
Corporation charged-off a $2 million commercial loan that defaulted. This
loan had previously not been classified as a problem loan and there were
special circumstances surrounding the default. The Corporation has filed
a claim with its bonding company to recover the entire $2 million;
however, it is too early to predict whether there will be a recovery. Due
to the overall condition of the economy and the continuing softening in
the market, management intends to increase the provision for loan losses
in 2002 to a level that we anticipate will protect the Corporation from
any unforeseen deterioration in the quality of the loan portfolio.
Non-interest income includes various service charges, fees and
commissions collected by the Corporation, including insurance
commissions earned by GCM, the wholly owned insurance agency
subsidiary of National Bank of Commerce. During 2001, non-interest
income grew 19.6% to $16.5 million. This increase resulted from the
Corporation's continued focus on diversifying its income sources so
that it can be less dependent on net interest income. Several
different sources contributed to this increase during 2001. Service
charges on deposit accounts increased by 12% to $5.9 million as a
result of an on-going effort by management to do a better job of
billing and collecting fees. The Corporation's Trust Department
Income increased by 6.3% to $1.7 million. This increase was smaller
than the prior year's increase. The activities in this area grew
steadily during 2001; however, the amount of income collected from
management fees is directly related to the market value of the account
assets, which in many cases was negatively impacted by the decline in
the equity markets during the year. Additionally, other non-interest
income increased by $1.8 million or 69%. This increase came primarily
from two sources. First, the fees from mortgage-related activities
increased 205.7%, or $984,000, as a result of a favorable interest
rate environment, which produced heavy refinancing activity throughout
the year. Second, earnings from a $10 million purchase of Bank Owned
Life Insurance ("BOLI") caused this category of other non-interest
income to increase by $621,000. This purchase of BOLI was executed to
help cover the increasing cost of employee benefits. These increases
were partially offset by a decline of 8.3%, or $347,000, in Insurance
Commissions, Fees and Premiums. This decline in Insurance Commissions,
Fees and Premiums relates directly to the volume of insurance products
sold. During the first quarter of 2001, a great deal of time and
effort was spent handling claims that resulted from a major storm that
hit the service area. This took away from time that would have been
spent developing new business. Also, GCM experienced a reduction in
incentive rebates from its insurance carriers because of underwriting
losses that resulted from these same storms. 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. During 2000, Insurance
Commissions, Fees and Premiums increased by $555,000, or 15.2%, over
1999 levels. 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 and all commissions, fees and premiums generated by
Heritage from the date of the purchase are included in the
Corporation's numbers for 2000.
The Corporation recognized $459,000 in securities gains during 2001,
compared to a loss of $22,000 for 2000 and a gain of $37,000 for 1999.
This relative large gain in 2001 resulted primarily from several
securities that had been purchased at a discount being called because of
the low interest rate environment.
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 indices 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 that were expensed
in 1999 and 2000 were paid to employees based on the attainment of
predetermined profit goals. The predetermined profit goals were not
reached in 2001; therefore, no significant bonuses were accrued. Overall,
non-interest expense increased by approximately $1.2 million or, 3.9%,
during 2001. This increase resulted primarily from a $896,000, or 5.2%,
increase in Salaries and Employee Benefits and a $226,000, or 2.5%,
increase in Other Operating Expenses. Salaries and Employee Benefits
increased as the result of an increase in employee benefit cost and a
reduction in the FASB 91 deferral because of the reduction in loan volume.
Salaries were basically unchanged during the year. The Corporation made
significant changes in the employee benefits that became effective at the
beginning of 2001. Management knew that these changes would increase the
cost of benefits in the early years, but would eventually allow management
to better control and possibly reduce the cost of benefits in future
years. To offset these increases, the Corporation purchased the Bank-
Owned Life Insurance mentioned earlier in this discussion. The increase
in Other Operating Expenses resulted from increases in several expense
categories, none of which were individually considered to be material.
During 2000, overall non-interest expense decreased by approximately $3.1
million or 9.0%. 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. Also, there were 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.
Changes in the Corporation's income tax expense have generally paralleled
changes in pre-tax income. The Corporation's effective tax rates were
21.6% in 1999, 27.3% in 2000 and 24.5% in 2001. The decrease in the
effective rate in 2001 resulted from a $14 million increase in assets that
provide either tax-free or tax advantaged earnings. The large increase in
the effective rate in 2000 was the result of the acquisitions completed in
the third quarter of 1999. The tax-exempt income as a percentage of total
pre-tax income declined from 46.7% in 1999 to 34.0% in 2000 for the
combined Corporations. Also, GCM 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, the level of tax exempt yields 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 $24.5 million decrease in loans and a $5.9 million increase in
deposits, the Corporation's loan/deposit ratio has decreased from 80.5% in
2000 to 76.8% in 2001. In addition, the Corporation increased its
borrowing from the Federal Home Loan Bank during 2001 by approximately
$55.3 million, while other borrowed funds declined by $1.7 million. These
additional funds were used primarily in two areas. First, approximately
$25 million was used to repurchase the Corporation's common stock. For
additional information on this purchase, please refer to the discussion
under the "Capital" section of this document. Second, approximately $40
million was used for arbitrage transactions. In these arbitrage
transactions, the Corporation borrowed this money at a specific rate and
used it to purchase U. S. Government Agency Securities at a higher rate.
This locks in a positive interest spread on these transactions over the
life of the instruments. The remaining funds generated during the year
were primarily invested in the securities portfolio causing the balance to
increase by approximately $58.9 million, including the $40 million in the
arbitrage securities and the purchase of $10 million dollars of Bank Owned
Life Insurance. 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 $16.6 million and $16.3 million at December 31,
2001 and 2000, 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 service is not considered material.
The following table shows the contractual obligations for the Corporation
as of December 31, 2001:
Obligations
___________ Due in Due
less than Due in Due in After 5
(In Thousands) Total 1 year 1-3 years 3-5 years years
_________________ ________ _________ _________ _________ _________
Long-term debt $109,911 $ 38,157 $ 37,361 $ 29,487 $ 4,906
Operating leases 3,090 261 781 318 1,730
Securities sold
under
repurchase
agreements 16,625 16,625 - - -
Other borrowings 682 682 - - -
________ _________ _________ _________ _________
Total cash
obligations $130,308 $ 55,725 $ 38,142 $ 29,805 $ 6,636
======== ========= ========= ========= =========
The following table shows the other commercial commitments for the
Corporation as of December 31, 2001:
Commercial Commitments
______________________
Expires
in less Expires Expires Expires
than 1 in 1-3 in 3-5 after 5
(In Thousands) Total year years years years
______________ _______ _______ _______ _______ _______
Lines of Credit
(unfunded
commitments) $94,876 $70,567 $17,105 $ 4,132 $ 3,072
Standby letters of
credit $ 4,880 $ 612 $ 1,363 $ 2,095 -
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 obligations with no adverse effect on liquidity. At December 31,
2001, the Corporation had the ability to borrow approximately $64 million
from the Federal Home Loan Bank and had other short-term borrowing lines
(Federal Funds Purchased Lines) of approximately $91 million from upstream
correspondent banks.
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 its announced stock repurchase
program. At December 31, 2001, the Corporation had the authority, at its
discretion, to purchase 290,500 additional shares of its common stock.
If purchased at the year-end closing price of $30.74, this purchase would
require approximately $8.9 million. These purchases will be made over an
unknown period of time and the necessary funds will be provided from
normal sources.
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 sensitivity.
During 2001, the Corporation did not engage in any non-exchange-traded
contracts such as currency or interest rate swaps, nor did it purchase or
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 2001, the Corporation's balance
sheet reflected approximately $88.1 million more in rate sensitive
liabilities than assets that were scheduled to reprice within one year.
This represents 8.4% 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
increase slightly during 2001. As a result, it is felt that the
Corporation's current position places it in an acceptable 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. In 1998, Stockholders' Equity increased by approximately
$6.6 million as a result of net income and the Corporation's normal
dividend payout. 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 composed primarily 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 movement
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. This, along with net income, net of dividends paid,
resulted in Stockholder's Equity increasing from $111.3 million at the
end of 1999 to $120.1 million at the end of 2000. In 2001,
Stockholder's Equity decreased by $17.2 million or 14.3%. This decrease
resulted from a large purchase of Treasury Stock during the first quarter
and the normal payment of dividends. These decreases were partially offset
by the net income for the year and a continued downward trend in interest
rates, which caused the Accumulated Other Comprehensive Income to increase
from a loss of $68,000 at December 31 2000, to a gain of $1,650,000 at
December 31, 2001.
During 2001, the amount of Treasury Stock increased from $1,043,000 to
$25,997,000, as the number of shares held in the treasury increased from
37,235 to 1,029,702. The majority of the increase resulted from a
March 22, 2001 transaction in which the Corporation repurchased 976,676
shares of its common stock (13.6% of its outstanding shares) from its
largest shareholder group for approximately $24.5 million. The
Corporation had and continues to have excess consolidated capital when
compared to its peers, and management believed that this repurchase of its
stock was a quick and efficient method of utilizing a portion of the
excess capital. The completion of this transaction resulted in reducing
the Corporation's equity to assets ratio to a more appropriate level.
Additional information on this transaction can be found in Form 8-K filed
by the Corporation on April 5, 2001. On July 2, 2001, the Corporation
announced a Stock Repurchase Program to repurchase 310,000 additional
shares or up to 5% of its common stock. During 2001, 19,500 shares were
purchased under this program for approximately $563,000, or an average of
$28.85 per share. Also during 2001, the Corporation issued 6,011 shares
upon the exercise of stock options granted under a plan carried over from
FFBS.
Current regulatory requirements call for a basic leverage ratio of 5.0%
for an institution to be considered "well-capitalized." At the end of
2001, NBC maintained a 9.7% leverage ratio, which means it significantly
exceeded 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 2001, the Corporation had a Tier 1 ratio of 15.0% and
a total risk-based capital ratio of 16.0%, 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. Even though
capital has decreased 2.3% since 1997 to total 9.8% of assets at December
31, 2001, management still considers this level of capital to be excessive
in relation to the amount needed to support the assets of the Corporation.
As a result, management is continuing to consider alternatives to safely
leverage the remaining excess capital in an effort to increase the
earnings of the Corporation and improve Return of Average Equity. Some of
the items under consideration are the additional purchase of the
Corporation's stock, acquisitions and additional arbitrage transactions.
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. SunTrust Bank, Atlanta acts as Transfer Agent for
the Corporation. 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 2001 and the dividends declared for each period:
CASH DIVIDEND
DECLARED PER
YEAR QUARTER HIGH LOW QUARTER
_________________________________________________________________________
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
2001 First $22.500 $18.875 $ 0.25
Second 29.450 21.450 0.28
Third 33.750 27.250 0.28
Fourth 32.500 29.900 0.28
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, 2001
______________________________________
Interest Sensitive Within (Cumulative)
______________________________________
Total of
Within Within Within Interest-
3 12 5 Earning
Months Months Years Assets
________ ________ ________ ________
Interest-earning assets:
Loans $273,666 $467,759 $621,749 $622,940
Investment and
mortgage-backed
securities 21,537 46,164 227,033 340,726
Federal funds sold
and other 14,773 14,773 14,773 14,773
________ ________ ________ ________
Totals $309,976 $528,696 $863,555 $978,439
======== ======== ======== ========
Interest-bearing
liabilities:
Deposits $343,058 $561,332 $649,040 $709,134
Borrowed funds 36,435 55,464 122,312 127,219
________ ________ ________ ________
$379,493 $616,796 $771,352 $836,353
======== ======== ======== ========
Sensitivity gap:
Dollar amount $(69,517) $(88,100) $ 92,203 $142,086
Percent of total
interest-earning
assets (7.1%) (9.0%) 9.4% 14.5%
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, 2001, 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
$88.1 million (cumulative), representing a negative cumulative one
year gap of 9.0% of earning assets. Management of the Company
believes this position to be acceptable 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, 2001, model reflects a decrease of 10% in income and a
30% decrease in market value equity for a 200 basis point increase
in interest rates. The same model shows a 3% increase in income
and a 13% 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. However, at December 31, 2001, management believes the
changes in income and market value equity as reflected in the model
are acceptable in the current rate environment.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NBC CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2001 AND 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
NBC Capital Corporation
We have audited the accompanying consolidated balance sheets of NBC
Capital Corporation and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. 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 auditing standards generally
accepted in the United States of America. 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 that 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, 2001 and
2000, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the
United States of America.
/S/ T. E. LOTT & COMPANY
Starkville, Mississippi
January 18, 2002
NBC CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
__________ __________
ASSETS (In thousands)
Cash and due from banks (Note M) $ 28,752 $ 29,439
Interest-bearing deposits with banks 1,263 2,289
Federal funds sold 13,510 13,422
__________ __________
Total cash and cash equivalents 43,525 45,150
__________ __________
Securities available-for-sale (Note C) 293,043 231,994
Securities held-to-maturity (Note C)
(estimated fair value of $50,623 in 2001
and $53,343 in 2000) 47,683 49,796
__________ __________
Total securities 340,726 281,790
Loans (Note D) 622,940 647,489
Less allowance for loan losses (Note D) (6,753) (9,689)
__________ __________
Net loans 616,187 637,800
__________ __________
Interest receivable 8,352 10,521
Premises and equipment (Note E) 15,377 16,285
Intangible assets 2,857 3,235
Other assets 23,778 14,734
__________ __________
Total Assets $1,050,802 $1,009,515
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 101,569 $ 96,788
Interest-bearing deposits, $100,000 or more 147,885 147,541
Other interest-bearing deposits 561,249 560,475
__________ __________
Total deposits 810,703 804,804
__________ __________
Interest payable 2,284 3,420
Securities sold under agreements to
repurchase (Note F) 16,625 16,326
Other borrowed funds (Note F) 110,594 57,027
Other liabilities 7,669 7,815
__________ __________
Total liabilities 947,875 889,392
__________ __________
Commitments and contingent liabilities
(Note N)
Shareholders' equity (Notes B, I and M):
Common stock - $1 par value, authorized
10,000,000 shares in 2001 and 2000;
issued 7,212,662 shares in 2001 and 2000 7,213 7,213
Surplus 51,429 51,529
Retained earnings 68,632 62,492
Accumulated other comprehensive income
(Note G) 1,650 (68)
Treasury stock, at cost (Note K) (25,997) (1,043)
__________ __________
Total shareholders' equity 102,927 120,123
__________ __________
Total Liabilities and Shareholders' Equity $1,050,802 $1,009,515
========== ==========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
________ ________ ________
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans $ 51,852 $ 57,535 $ 52,219
Interest and dividends on
securities:
Taxable 11,165 7,966 6,981
Tax-exempt interest 6,803 6,086 5,449
Other 950 1,148 2,440
________ ________ ________
Total interest income 70,770 72,735 67,089
INTEREST EXPENSE
Interest on time deposits
of $100,000 or more 7,788 7,692 6,096
Interest on other deposits 22,078 23,867 22,303
Interest on borrowed funds 6,135 3,419 2,599
________ ________ ________
Total interest expense 36,001 34,978 30,998
________ ________ ________
Net interest income 34,769 37,757 36,091
Provision for loan losses
(Note D) 1,720 1,280 1,769
________ ________ ________
Net interest income after
provision for loan losses 33,049 36,477 34,322
________ ________ ________
OTHER INCOME
Service charges on deposit
accounts 5,942 5,306 5,230
Insurance commissions, fees,
and premiums 3,857 4,204 3,649
Other service charges and
fees 2,935 1,938 1,916
Trust Department income 1,717 1,616 1,405
Securities gains (losses),
net 459 (22) 37
Other 1,556 720 817
________ ________ ________
Total other income 16,466 13,762 13,054
________ ________ ________
OTHER EXPENSE
Salaries 15,026 14,976 14,696
Employee benefits (Note J) 3,130 2,284 2,849
Net occupancy expense 2,311 2,161 2,048
Furniture and equipment
expense 2,305 2,378 2,165
Merger and integration
expense (Note B) - 22 3,070
Other 9,344 9,096 9,141
________ ________ ________
Total other expense 32,116 30,917 33,969
________ ________ ________
Income before income taxes 17,399 19,322 13,407
Income taxes (Note H) 4,261 5,277 2,899
________ ________ ________
Net income $ 13,138 $ 14,045 $ 10,508
======== ======== ========
Net income per share:
Basic $ 2.05 $ 1.96 $ 1.46
Diluted 2.05 1.96 1.46
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Accumu-
lated
Other
Compre- Unearned Compre-
hensive Common Retained Compen- Treasury hensive
Income Stock Surplus Earnings sation Stock Income Total
_______ ______ _______ ________ _______ ________ _______ ________
(In thousands)
Balance,
January 1,
1999 $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 acquisi-
tion
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
(Note K) - - - - (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
(Note K) - - - - (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
Comprehensive
income:
Net income
for 2001 $13,138 - - 13,138 - - - 13,138
Net change
in
unrealized
gains
(losses)
on
securities
available-
for-sale,
net of tax 1,718 - - - - - 1,718 1,718
_______
Comprehensive
income $14,856
=======
Cash dividend
declared,
$1.09 per
share - - (6,998) - - - (6,998)
Purchase of
treasury
stock
(Note K) - - - - (25,122) - (25,122)
Exercise of
stock
options - (100) - - 168 - 68
______ _______ ________ _______ ________ _______ ________
Balance,
December 31,
2001 $7,213 $51,429 $ 68,632 $ - $(25,997) $ 1,650 $102,927
====== ======= ======== ======= ======== ======= ========
The accompanying notes are an integral part of these statements.
NBC CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
________ ________ ________
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,138 $ 14,045 $ 10,508
Adjustments to reconcile net income to
net cash:
Depreciation and amortization 2,558 2,458 2,430
Deferred income taxes (credits) 701 103 (719)
Provision for loan losses 1,720 1,280 1,769
FHLB stock dividend (201) (278) (175)
(Gains) losses on sale of securities (459) 22 (37)
Deferred credits (63) (397) (154)
Changes in:
Interest receivable 2,169 (1,674) 399
Other assets (10,811) 2,125 (503)
Interest payable (1,136) 607 (462)
Other liabilities (99) (167) 476
Amortization of unearned
compensation - - 657
Excess of fair market value of
allocated ESOP shares over cost - - 504
________ ________ ________
Net cash provided by operating
activities 7,517 18,124 14,693
________ ________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-
sale (159,165) (46,745) (76,330)
Proceeds from sales of securities
available-for-sale 33,056 1,883 12,989
Proceeds from maturities and calls of
securities available-for-sale 68,374 17,488 52,058
Purchases of securities held-to-maturity - (22,866) (487)
Proceeds from maturities and calls of
securities held-to-maturity 2,113 2,894 1,819
(Increase) decrease in loans 19,956 (25,126) (38,441)
Additions to premises and equipment (1,125) (1,450) (1,724)
Cash paid in business acquisition - (47) -
________ ________ ________
Net cash used in investing activities (36,791) (73,969) (50,116)
________ ________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits 5,899 51,994 (24,145)
Dividends paid on common stock (7,062) (10,138) (5,344)
Net increase (decrease) in borrowed
funds 53,866 (22,170) 59,896
Exercise of stock options 68 89 337
Acquisition of stock (25,122) (1,164) (1,900)
Other - - (57)
________ ________ ________
Net cash provided by financing
activities 27,649 18,611 28,787
________ ________ ________
Net decrease in cash and cash
equivalents (1,625) (37,234) (6,636)
Cash and cash equivalents at beginning
of year 45,150 82,384 89,020
________ ________ ________
Cash and cash equivalents at end of year $ 43,525 $ 45,150 $ 82,384
======== ======== ========
The accompanying notes are an integral part of these statements
NBC CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A - SUMMARY OF ACCOUNTING POLICIES
NBC Capital Corporation (the "Corporation"), and its subsidiaries,
follow accounting principles generally accepted in the United States of
America, 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 financial 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 accounting
principles generally accepted in the United States of America 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, 2001 and 2000.
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.
A loan is considered to be impaired when it appears probable that the
entire amount contractually due will not be collected. Factors
considered in determining impairment include payment status, collateral
values, and the probability of collecting scheduled payments of
principal and interest when due. Generally, impairment is measured on a
loan by loan basis using the fair value of the supporting collateral.
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
collectability 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
The allowance for loan losses is maintained at a level believed adequate
by management to absorb probable losses inherent in the loan portfolio
and is based on the size and current risk characteristics of the loan
portfolio, an assessment of individual problem loans, actual and
anticipated loss experience, current economic events, including
unemployment levels, and other pertinent factors, including regulatory
guidance and general economic conditions. Determination of the
allowance is inherently subjective as it requires significant estimates,
including the evaluation of collateral supporting impaired loans,
estimated losses on pools of homogeneous loans based on historical loss
experience, and consideration of current economic trends, all of which
may be susceptible to significant change. Loan losses are charged off
against the allowance, while recoveries of amounts previously charged
off are credited to the allowance. A provision for loan losses is
charged to operations based on management's periodic evaluation of the
factors previously mentioned, as well as other pertinent factors.
The allowance for loan losses consists of an allocated component and an
unallocated component. The components of the allowance for loan losses
represent an estimation done pursuant to either Financial Accounting
Standards Board (FASB) Statement No. 5, "Accounting for Contingencies,"
or FASB Statement No. 114, "Accounting by Creditors for Impairment of a
Loan." The allocated component of the allowance for loan losses
reflects expected losses resulting from an analysis developed through
specific credit allocations for individual loans and historical loss
experience for each loan category. The specific allocations are based
on a regular review of all loans over a fixed-dollar amount and where
the internal credit rating is at or below a predetermined
classification. The historical loan loss element is determined
statistically using loss experience and the related internal gradings of
loans charged off. The analysis is performed quarterly and loss factors
are updated regularly based on actual experience. The allocated
component of the allowance for loan losses also includes consideration
of the amounts necessary for any concentrations and changes in portfolio
mix and volume.
The unallocated portion of the allowance reflects management's estimate
of probable inherent but undetected losses within the portfolio due to
uncertainties in economic conditions, changes in collateral values,
unfavorable information about a borrower's financial condition, and
other risk factors that have not yet manifested themselves. In
addition, the unallocated allowance includes a component that explicitly
accounts for the inherent imprecision in the loan loss analysis. The
historical losses used in the analysis may not be representative of
actual losses inherent in the portfolio that have not yet been realized.
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 the outstanding loan balance or current
appraisal less estimated costs to sell. Any write-down 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 consist principally of goodwill and identifiable
intangible assets associated with acquisitions. These assets are being
amortized to expense using the straight-line method over periods of
three to fifteen years. Amortization expense related to intangible
assets was $378,766 for 2001, $394,155 for 2000, and $401,330 for 1999.
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
Except for amounts included in deposits, assets of the Trust Department
are not included in the accompanying balance sheets.
12. Advertising Costs
Advertising costs are expensed in the period in which they are incurred.
Advertising expense for the years ended December 31, 2001, 2000, and
1999, was approximately $544,000, $668,000, and $714,000, respectively.
13. 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 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 are
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 deferred income plans is being accrued
to expense over the remaining expected term of each participant's active
employment. Accruals for the supplemental retirement plans are based
upon a predetermined rate or upon the earnings of the related life
insurance contracts.
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.
14. 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.
15. 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.
16. 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.
Presented below is a summary of the components used to calculate basic
and diluted net income per share for the years ended December 31, 2001,
2000, and 1999:
Years Ended December 31,
____________________________
2001 2000 1999
________ ________ ________
(In thousands, except per share data)
Basic Net Income Per Share
Weighted average common shares
outstanding 6,411 7,180 7,178
======== ======== ========
Net income $ 13,138 $ 14,045 $ 10,508
======== ======== ========
Basic net income per share $ 2.05 $ 1.96 $ 1.46
======== ======== ========
Diluted Net Income Per Share
Weighted average common shares
outstanding 6,411 7,180 7,178
Net effect of the assumed
exercise of stock options
based on the treasury stock
method - 5 36
________ ________ ________
Total weighted average common
shares and common stock
equivalents outstanding 6,411 7,185 7,214
======== ======== ========
Net income $ 13,138 $ 14,045 $ 10,508
======== ======== ========
Diluted net income per share $ 2.05 $ 1.96 $ 1.46
======== ======== ========
17. 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.
18. 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.
19. Accounting Pronouncements
In June, 2001, the FASB issued Statements No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets."
Statement No. 141 supersedes APB Opinion No. 16, "Business
Combinations," and eliminates the pooling-of-interests method of
accounting for business combinations, thus requiring that all business
combinations be accounted for using the purchase method. In addition,
in applying the purchase method, Statement No. 141 changes the criteria
for recognizing intangible assets apart from goodwill and states the
following criteria should be considered in determining the recognition
of the intangible assets: (i) the intangible asset arises from the
contractual or other legal rights, or (ii) the intangible asset is
separable or dividable from the acquired entity and capable of being
sold, transferred, licensed, rented, or exchanged. The requirements of
the statement are effective for all business combinations completed
after June 30, 2001.
According to Statement No. 142, goodwill and those intangible assets
that have indefinite lives are not amortized but are tested for
impairment. Statement No. 142 is effective for years beginning after
December 15, 2001. Management is of the opinion the impact of the
adoption of the statement on the Corporation's consolidated financial
statements will not be significant. If Statement No. 142 was in effect
for all years presented, its impact on net income and net income per
share would have been as follows:
For the Years Ended December 31,
_______________________________
2001 2000 1999
________ ________ ________
(In thousands, except for per share data)
Reported net income $ 13,138 $ 14,045 $ 10,508
Add:
Goodwill amortization 262 256 250
________ ________ ________
Adjusted net income $ 13,400 $ 14,301 $ 10,758
======== ======== ========
For the Years Ended December 31,
_______________________________
2001 2000 1999
________ ________ ________
(In thousands, except for per share data)
Basic net income per share:
Reported net income $ 2.05 $ 1.96 $ 1.46
Goodwill amortization .04 .04 .04
________ ________ ________
Adjusted net income $ 2.09 $ 2.00 $ 1.50
======== ======== ========
Diluted net income per share:
Reported net income $ 2.05 $ 1.96 $ 1.46
Goodwill amortization .04 .04 .04
________ ________ ________
Adjusted net income $ 2.09 $ 2.00 $ 1.50
======== ======== ========
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 Bancorp, Inc. (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, 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,
the consolidated financial statements for all periods presented
include the consolidated accounts and consolidated operations of
FFBS.
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 all periods presented include the accounts of GCM.
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:
Total
Merger and
Integration
Description Expense
_____________________________ _____________
(In thousands)
Employee contract and severance costs $ 803
ESOP and other employee plan terminations 564
Service contract terminations 341
Investment banker costs 447
Professional fees 575
Integration costs and other 340
______
$3,070
======
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.
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, 2001
and 2000, follows:
December 31, 2001
_____________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_________ __________ __________ __________
(In thousands)
Securities available-
for-sale:
U. S. Treasury
securities $ 300 $ 6 $ - $ 306
Obligations of
other U. S.
Government
agencies 4,354 185 - 4,539
Obligations
of states and
municipal
subdivisions 64,588 1,604 4 66,188
Mortgage-backed
securities 180,484 1,485 757 181,212
Equity
securities 7,511 - - 7,511
Other securities 33,285 142 140 33,287
_________ __________ __________ __________
$ 290,522 $ 3,422 $ 901 $ 293,043
========= ========== ========== ==========
Securities held-to-
maturity:
Obligations of
states and
municipal
subdivisions $ 47,683 $ 2,983 $ 43 $ 50,623
========= ========== ========== ==========
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
========= ========== ========== ==========
The scheduled maturities of securities available-for-sale and securities
held-to-maturity at December 31, 2001, 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 $ 12,791 $ 12,959 $ 1,966 $ 1,999
Due after one year
through five years 56,970 58,527 11,790 12,787
Due after five years
through ten years 7,050 7,308 18,570 19,626
Due after ten years 22,586 22,458 15,357 16,211
Mortgage-backed
securities and
other securities 191,125 191,791 - -
_________ __________ __________ __________
$ 290,522 $ 293,043 $ 47,683 $ 50,623
========= ========== ========== ==========
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 $480,000, $ -0-, and $40,000, and gross losses of $21,000,
$22,000, and $3,000 were realized on securities available-for-sale in
2001, 2000, and 1999, respectively.
Securities with a carrying value of $193,986,000 and $202,892,000 at
December 31, 2001 and 2000, 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,
2001 2000
________ ________
(In thousands)
Commercial, financial and agricultural $101,630 $103,045
Real estate - construction 31,461 33,638
Real estate - mortgage 387,667 402,987
Installment loans to individuals 94,424 105,564
Other 7,758 2,255
________ ________
622,940 647,489
Allowance for loan losses (6,753) (9,689)
________ ________
$616,187 $637,800
======== ========
Transactions in the allowance for loan losses are summarized as
follows:
Years Ended December 31,
2001 2000 1999
________ ________ ________
(In thousands)
Balance at beginning of year $ 9,689 $ 10,194 $ 10,102
Additions:
Provision for loan losses charged to
operating expense 1,720 1,280 1,769
Recoveries of loans previously
charged off 544 417 380
________ ________ ________
11,953 11,891 12,251
Deductions:
Loans charged off 5,200 2,202 2,057
________ ________ ________
Balance at end of year $ 6,753 $ 9,689 $ 10,194
======== ======== ========
At December 31, 2001 and 2000, the recorded investment in loans
considered to be impaired totaled approximately $2,471,000 and
$3,160,000, respectively. The allowance for loan losses related to
these loans approximated $1,353,000 and $1,600,000 at December 31, 2001
and 2000, respectively. The average recorded investment in impaired
loans during the years ended December 31, 2001 and 2000, was
approximately $4.1 million and $2.1 million, respectively. For the
years ended December 31, 2001 and 2000, 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 2001 2000
________ ________
(In thousands)
Premises:
Land - $ 3,404 $ 2,868
Buildings, construction and
improvements 10 - 50 16,308 16,097
________ ________
19,712 18,965
Equipment 3 - 10 11,688 11,435
________ ________
31,400 30,400
Less accumulated depreciation
and amortization (16,023) (14,115)
________ ________
$ 15,377 $ 16,285
======== ========
The amount charged to operating expenses for depreciation was $2,032,000
for 2001, $1,922,000 for 2000, and $1,845,000 for 1999.
NOTE F - BORROWED FUNDS
Securities sold under agreements to repurchase generally mature within
one to seven days from the transaction date. Information concerning
securities sold under agreements to repurchase is summarized as follows:
2001 2000
________ ________
($ In thousands)
Balance at year end $ 16,625 $ 16,326
Average balance during the year 18,922 17,049
Average interest rate during the year 3.45% 4.16%
Maximum month-end balance during the year 21,765 17,831
Securities underlying the repurchase agreements remain under the
control of NBC.
Other borrowed funds consisted of the following at December 31:
2001 2000
________ ________
(In thousands)
FHLB advances $109,911 $ 54,653
Treasury tax and loan note 683 2,374
________ ________
$110,594 $ 57,027
======== ========
Advances from the FHLB have maturity dates ranging from January, 2002,
through January, 2007. Interest is payable monthly at rates ranging
from 2.50% 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, 2001, are as follows:
Year Amount
_________ _________
(In thousands)
2002 $ 38,157
2003 18,511
2004 18,850
2005 17,586
2006 11,901
Thereafter 4,906
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 disclosures of the reclassification
amounts are as follows:
Years Ended December 31,
____________________________
2001 2000 1999
________ ________ ________
(In thousands)
Net change in unrealized gains
(losses):
Net unrealized gains (losses)
on securities available-for-
sale $ 3,113 $ 3,887 $(6,096)
Reclassification adjustment
for (gains) losses on
securities available-for-sale (459) 22 (37)
________ ________ ________
Net change in unrealized gains
(losses) on securities
available-for-sale before tax 2,654 3,909 (6,133)
________ ________ ________
Income tax (expense) benefit:
Net unrealized gains (losses) on
securities available-for-sale (1,080) (1,323) 2,070
Reclassification adjustment for
gains (losses) on securities
available-for-sale 171 (8) 14
________ ________ ________
Total income tax (expense)
benefit (909) (1,331) 2,084
________ ________ ________
Net change in unrealized gains
(losses) on securities
available-for-sale, net of
tax before minority interest 1,745 2,578 (4,049)
Minority interest in net change (27) (8) 33
________ ________ ________
$ 1,718 $ 2,570 $ (4,016)
======== ======== ========
NOTE H - INCOME TAXES
The provision for income taxes including the tax effects of securities
transactions [2001 - $171,247; 2000 - $(8,254); 1999 - $13,965] is as
follows:
Years Ended December 31,
____________________________
2001 2000 1999
________ ________ ________
(In thousands)
Current tax expense $ 3,560 $ 5,174 $ 3,618
Deferred tax expense (benefit) 701 103 (719)
________ ________ ________
$ 4,261 $ 5,277 $ 2,899
======== ======== ========
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,
____________________________
2001 2000 1999
________ ________ ________
(In thousands)
Tax on income before income taxes $ 5,916 $ 6,569 $ 4,558
Increase (decrease) resulting from:
Tax-exempt income (2,597) (2,231) (1,959)
Nondeductible expenses 442 442 481
State income taxes, net of
federal benefit 462 540 334
Recapture of minimum tax by
subsidiary - - (172)
Other, net 38 (43) (343)
________ ________ ________
$ 4,261 $ 5,277 $ 2,899
======== ======== ========
The components of the net deferred tax asset included in other assets
as of December 31, 2001 and 2000, are as follows:
December 31,
_________________
2001 2000
________ _______
(In thousands)
Deferred tax assets:
Allowance for loan losses $ 2,532 $ 3,460
Employee benefits 676 547
Unrealized loss on securities
available-for-sale - 49
Other 1,049 882
_______ _______
Total deferred tax assets 4,257 4,938
_______ _______
Deferred tax liabilities:
Premises and equipment (818) (822)
Unrealized gain on securities
available-for-sale (860) -
Other (1,206) (1,133)
_______ _______
Total deferred tax liabilities (2,884) (1,955)
_______ _______
Net deferred tax asset $ 1,373 $ 2,983
======= =======
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, 2001, follows:
December 31,
_________________________
2001 2000 1999
_______ _______ _______
Shares under option at beginning
of year 7,779 15,547 57,772
Granted - - -
Exercised (6,011) (7,768) (42,225)
Canceled - - -
_______ _______ _______
Shares under option at end of year 1,768 7,779 15,547
======= ======= =======
Exercisable at end of year 1,768 7,779 15,547
======= ======= =======
At December 31, 2001, the options outstanding have a remaining
weighted average contract life of eighteen months.
In June, 2001, the Corporation established the 2001 Long-Term
Compensation Plan that is administered by a committee appointed by
the Corporation's Board of Directors. Employees eligible to receive
incentives under the plan are those designated, individually or by
groups or categories, by the committee. The plan is a nonqualified
stock option plan. The number of shares of Corporation common stock
that may be issued under the plan cannot exceed 235,000. The
committee may grant options to designated employees at an exercise
price not less than the fair market value of the common stock at the
date of the grant and the number of shares subject to the option must
be designated at the grant date. The option term is determined by the
committee, but cannot exceed ten years. Vesting is in equal amounts
over a four year period. In June, 2001, grants for 84,000 shares were
issued at an option price of $27.67 per share.
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, 2001 and 2000:
December 31,
_________________
2001 2000
_______ _______
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 7,747 $ 7,115
Service cost 390 543
Interest cost 622 578
Actuarial loss 498 394
Amendments - (864)
Beginning of year measurement loss 837 634
Administrative expenses paid (68) (52)
Benefits paid (490) (601)
_______ _______
Benefit obligation at end of year 9,536 7,747
_______ _______
Change in plan assets:
Fair value of plan assets at beginning
of year 8,853 9,545
Return on plan assets (422) (124)
Employer contributions 346 85
Administrative expenses paid (68) (52)
Benefits paid (490) (601)
_______ _______
Fair value of plan assets at end of year 8,219 8,853
_______ _______
Funded status (1,317) 1,106
Unrecognized net actuarial loss 4,044 1,609
Unrecognized prior service cost (1,448) (1,587)
_______ _______
Prepaid benefit cost $ 1,279 $ 1,128
======= =======
Weighted average assumptions:
Discount rate 7.00% 7.50%
Expected return on plan assets 8.50% 8.50%
Rate of compensation increase 5.00% 5.00%
Components of net periodic benefit cost:
Service cost $ 390 $ 543
Interest cost 622 577
Expected return on plan assets (764) (730)
Amortization of prior service costs (140) (72)
Amortization of transition obligation - (26)
Recognized net actuarial loss 87 11
______ _______
Net periodic benefit cost $ 195 $ 303
====== =======
No contributions were made to the Corporation's nonleveraged ESOP in
2001 and 2000. In 1999, $100,000 was contributed to the ESOP. At
December 31, 2001, the plan held 307,451 shares of the Corporation's
common stock. Contributions to the 401(k) plan amounted to $351,846 in
2001, $278,534 in 2000, and $336,722 in 1999. Expense for the defined
contribution plan totaled $303,000 in 2001.
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 2001, 2000, and 1999.
NOTE K - TREASURY STOCK
Shares held in treasury totaled 1,029,702 at December 31, 2001, and
37,235 at December 31, 2000.
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 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, 6,011 and
7,768 treasury shares were issued in 2001 and 2000, respectively, upon
the exercise of stock options, and 14,028 treasury shares were issued in
connection with the acquisition of Heritage.
On June 28, 2001, the Corporation announced a stock repurchase program
of up to 5%, or 310,000 shares of the Corporation's common stock. Stock
repurchases are being carried out through open market purchases, block
trades, and in negotiated private purchases. The program is being
conducted on an ongoing basis until June, 2002, and is subject to
availability of stock, market conditions, and other factors. At
December 31, 2001, the Corporation had repurchased 19,500 shares of its
common stock.
In March, 2001, the Corporation repurchased 976,676 shares of its common
stock from parties representing the largest block of stock controlled by
related shareholders. The purchase price of $24.5 million was financed
by borrowings from the FHLB.
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 2001 is summarized as follows:
(In thousands)
Loans outstanding at January 1, 2001 $ 24,207
New loans 17,872
Repayments (4,787)
________
Loans outstanding at December 31, 2001 $ 37,292
========
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 shareholders.
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, 2001, that the
Corporation and its subsidiary bank exceed all capital adequacy
requirements.
At December 31, 2001, 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 a
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, 2001 and 2000, 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, 2001:
Total risk-based $106,615 16.0% $103,763 15.7%
Tier I risk-based 99,862 15.0% 97,040 14.6%
Tier I leverage 99,862 9.7% 97,040 9.4%
December 31, 2000:
Total risk-based $126,562 19.4% $122,418 18.8%
Tier I risk-based 118,384 18.1% 114,248 17.5%
Tier I leverage 118,384 12.1% 114,248 11.6%
The minimum amounts of capital and ratios as established by banking
regulators at December 31, 2001 and 2000, were as follows:
NBC Capital
Corporation
(Consolidated) NBC
________________ ________________
Amount Ratio Amount Ratio
________ ______ ________ ______
($ In thousands)
December 31, 2001:
Total risk-based $ 53,174 8.0% $ 53,001 8.0%
Tier I risk-based 26,595 4.0% 26,500 4.0%
Tier I leverage 30,946 3.0% 30,890 3.0%
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%
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, 2001
and 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, 2001 and 2000, is as follows:
Contractual Amount
__________________
December 31,
__________________
2001 2000
________ ________
(In thousands)
Commitments to extend credit $ 89,460 $ 91,570
Credit card lines 5,416 7,230
Commercial and similar letters of credit 4,880 4,481
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 during the three years ended December 31,
2001, nor are any significant losses as a result of these transactions
anticipated.
NBC is 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,
____________________________
2001 2000 1999
________ ________ ________
(In thousands)
Cash paid during the year for:
Interest $ 37,138 $ 34,376 $ 29,195
Income taxes, net of refunds 2,895 4,924 3,840
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 any 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, 2001 December 31, 2000
____________________ ____________________
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
________ __________ ________ __________
Financial Instruments: (In thousands)
Assets:
Cash and cash
equivalents $ 43,524 $ 43,524 $ 45,150 $ 45,150
Securities available-
for-sale 293,043 293,043 231,994 231,994
Securities held-to-
maturity 47,683 50,623 49,796 53,353
Loans 616,187 617,419 637,800 637,083
Liabilities:
Noninterest-bearing
deposits 101,569 101,569 96,788 96,788
Interest-bearing
deposits 709,134 709,772 708,016 708,518
Securities sold
under agreements
to repurchase 16,625 16,625 16,326 16,326
FHLB and other
borrowings 110,594 110,229 57,027 57,019
NOTE R - CONDENSED PARENT COMPANY STATEMENTS
Balance sheets as of December 31, 2001 and 2000, and statements of
income and cash flows for the years ended December 31, 2001, 2000 and
1999, of NBC Capital Corporation (parent company only) are presented
below:
BALANCE SHEETS
December 31,
__________________
2001 2000
________ ________
(In thousands)
Assets:
Cash and cash equivalents $ 1,385 $ 2,469
Investment in subsidiaries 100,898 116,977
Other assets 2,703 2,675
________ ________
$104,986 $122,121
======== ========
Liabilities and Shareholders' Equity:
Dividends payable and other liabilities $ 2,059 $ 1,998
Shareholders' equity 102,927 120,123
________ ________
$104,986 $122,121
======== ========
STATEMENTS OF INCOME
Years Ended December 31,
____________________________
2001 2000 1999
________ ________ ________
(In thousands)
Income:
Dividends from subsidiaries $ 31,199 $ 8,136 $ 9,393
Other 73 130 149
________ ________ ________
31,272 8,266 9,542
Expense 459 127 1,135
________ ________ ________
Income before income taxes and equity
in undistributed earnings of
subsidiaries 30,813 8,139 8,407
Income tax benefit 122 4 258
________ ________ ________
Income before equity in undistributed
earnings of subsidiaries 30,935 8,143 8,665
Equity in undistributed earnings of
subsidiaries in excess of (less than)
dividends (17,797) 5,902 1,843
________ ________ ________
Net income $ 13,138 $ 14,045 $ 10,508
======== ======== ========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
____________________________
2001 2000 1999
________ ________ ________
(In thousands)
Cash Flows From Operating Activities:
Net income $ 13,138 $ 14,045 $ 10,508
Equity in subsidiaries' earnings in
excess of (less than) dividends 17,797 (5,902) (1,843)
Other, net 97 2,981 (2,148)
________ ________ ________
Net cash provided by operating activities 31,032 11,124 6,517
________ ________ ________
Cash Flows From Investing Activities - (47) -
Cash Flows From Financing Activities:
Dividends paid on common stock (7,062) (10,138) (5,344)
Acquisition of stock (25,122) (1,164) (1,900)
Other, net 68 89 337
________ ________ ________
Net cash used in financing activities (32,116) (11,213) (6,907)
________ ________ ________
Net decrease in cash and cash equivalents (1,084) (136) (390)
Cash and cash equivalents at beginning
of year 2,469 2,605 2,995
________ ________ ________
Cash and cash equivalents at end of year $ 1,385 $ 2,469 $ 2,605
======== ======== ========
NOTE S - 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 data)
2001
Total interest income $ 18,975 $ 18,331 $ 17,456 $ 16,008
Total interest expense 9,929 9,841 8,802 7,429
________ ________ ________ ________
Net interest income 9,046 8,490 8,654 8,579
Provision for loan losses 180 1,180 180 180
________ ________ ________ ________
Net interest income after
provision for loan losses 8,866 7,310 8,474 8,399
Total noninterest income,
excluding securities gains 3,566 3,974 3,963 4,504
Securities gains 49 163 109 138
Total noninterest expenses 7,981 8,179 7,780 8,176
Income taxes 1,152 595 1,313 1,201
________ ________ ________ ________
Net income $ 3,348 $ 2,673 $ 3,453 $ 3,664
======== ======== ======== ========
Per share:
Net income $ .47 $ .43 $ .56 $ .59
Net income, diluted .47 .43 .56 .59
Cash dividends declared .25 .28 .28 .28
Three Months Ended
______________________________________
Mar. 31 June 30 Sept. 30 Dec. 31
________ ________ ________ ________
(In thousands, except per share data)
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 losses 3,492 3,567 3,439 3,286
Securities 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
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to the material under the captions, "Election of
Directors" of the Company's proxy statement, dated March 19, 2002, which
is incorporated herein by reference, and to "Executive Officers" included
in Part I, Item 1, of this report.
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation" of the
Company's proxy statement, dated March 19, 2002, which is incorporated
herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption, "Stock Ownership of Directors,
Officers, and Principal Shareholders," of the Company's proxy statement,
dated March 19, 2002, which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to, "Certain Relationships, Related Transactions
and Indebtedness" of the Company's proxy statement, dated March 19, 2002,
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, 2001.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 2001 and 2000
Consolidated Statements of Income--Years Ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Shareholders' Equity--Years Ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows--Years Ended
December 31, 2001, 2000, and 1999
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 Employment Agreement dated January 31, 1991,
between National Bank of Commerce and L. F.
Mallory, Jr., as previously filed.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 Employment Agreement Dated January 2, 2001, by
and Between National Bank of Commerce and
Richard T. Haston (incorporated by reference
to Exhibit 10.7 of Form 10-K filed March 30,
2001).
10.7 Employment Agreement Dated January 2, 2001, by
and Between National Bank of Commerce and
Mark A. Abernathy (incorporated by reference
to Exhibit 10.8 of Form 10-K filed March 30,
2001).
10.8 2001 Long-Term Incentive Compensation Plan
(incorporated by reference to Exhibit 4 of
Form S-8 filed August 8, 2001) and incorporated
herein by reference.
10.9 Salary Reduction Thrift Plan (incorporated by
reference to Exhibit 4.3 of Form S-8 filed
December 13, 2001) and incorporated herein by
reference.
11. - 20. None
21. Subsidiaries of Company
22. None
23. Consent of Independent Auditors
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 2001.
(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/ MARK A. ABERNATHY /S/ SAMMY J. SMITH
_________________________________ _______________________________
(Director) (Director)
/S/ ROBERT A. CUNNINGHAM /S/ ROBERT D. MILLER
_________________________________ _______________________________
(Director) (Director)
/S/ JAMES D. GRAHAM /S/ ROBERT S. CALDWELL, JR.
_________________________________ _______________________________
(Director) (Director)
/S/ DAVID C. BYARS /S/ JAMES C. GALLOWAY, JR.
_________________________________ _______________________________
(Director) (Director)
/S/ HENRY WEISS /S/ ROBERT S. JONES
_________________________________ _______________________________
(Director) (Director)
/S/ JAMES C. RATCLIFF
_________________________________
(Director)
Date: March 27, 2002