ITEM 1 - BUSINESS
NBC Capital Corporation
NBC Capital Corporation (the Company) is a multi-bank holding company which was organized under the laws of the State of Mississippi in 1984 and was reorganized in 1987 under the laws of the State of Delaware. On July 2, 1984, the Company acquired all of the outstanding common stock of the National Bank of Commerce of Mississippi (NBC), a national banking corporation. On January 1, 1994, the Company acquired 99.2% of the outstanding common stock of First State Bank of Tuscaloosa, Alabama, a state chartered bank. For the year ended December 31, 1994, these financial institutions and their subsidiaries accounted for 100% of the Company's consolidated income and approximately 99% of its consolidated expenses.
National Bank of Commerce of Mississippi
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, a $75 million institution. NBC operates under the original Federal Charter granted to the First National Bank of Monroe County in 1887.
NBC is the largest commercial bank domiciled in the eastern area of the state known as the Golden Triangle. A total of 25 banking facilities and an operations center serve the communities of Aberdeen, Amory, Artesia, Brooksville, Columbus, Hamilton, Maben, Philadelphia and Starkville. This area extends into five Mississippi counties with a radius of approximately 65 miles from the home office in Starkville.
During 1994 and 1993, NBC 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 these years.
NBC provides a complete line of wholesale and retail services including mortgage loans and trust. The customer base is well diversified and consists of business, industry, agriculture, government, education and individual accounts. Profitability and growth have been consistent throughout the history of the bank.
NBC utilizes a written Asset/Liability Management Policy which calls for maintaining the 24 month GAP within a tolerance of + 5% - 10% of total assets. The financial plan calls for a return on assets of 1.3% and a minimum return on equity of 10%.
NBC is operated in a conservative fashion while meeting the needs of the community. There has been no disposition of any material amounts of assets nor has there been a material change in the mode of conducting business. No major changes in operation are provided for the near future.
First State Bank of Tuscaloosa
First State Bank of Tuscaloosa (FSB) was organized in 1968 and is a state bank and operates under the requirements of the laws of the State of Alabama.
FSB is located in Tuscaloosa, Alabama, a city with a population of approximately 75,000 people. FSB was acquired by the Company on January 1, 1994. Management of the Company is of the opinion that this acquisition will provide for new opportunities for growth and expansion. Tuscaloosa, Alabama, is a city that expects future economic development. As an example, Mercedes recently announced plans for the building of an automotive plant in the Tuscaloosa area. Management of the Company believes the acquisition of FSB places the Company in a position to participate in the economic development.
FSB competes with many other financial institutions in the Tuscaloosa area, most of which are larger. FSB had total assets of $67 million at December 31, 1994, and reported net income of $544 thousand for the year ended December 31, 1994. The bank's history has been one of moderate growth and average earnings when compared to its peer group.
FSB is engaged in the general banking business and activities closely related to banking as authorized by the banking laws and regulations of its banking regulators, the State of Alabama and the Federal Deposit Insurance Corporation (FDIC).
FSB provides a complete line of wholesale and retail services, including mortgage loans. The customer base consists principally of business, industry and industrial accounts.
The Company intends to operate FSB in a conservative fashion while meeting the needs of the community.
FSB has adopted the asset/liability management policy of NBC. The financial plan calls for a return on assets of 1%, beginning with the year 1995 and a minimum return on equity (net of goodwill) of 10%.
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 1994 and 1993, its primary activity was limited to its investment in Commerce National Insurance Company (CNI) 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.
Philadelphia Finance Corporation
Philadelphia Finance Corporation (Finance), a wholly-owned subsidiary of NBC is a finance company that provides lending and financing services to consumers. It engages in consumer financing, and its loans are of a smaller amount and a higher interest rate than that of NBC. Finance has one office located in Philadelphia, Mississippi.
Competition
NBC and its subsidiaries currently serve five counties and nine municipalities in North Mississippi. Over this same area, the bank competes directly with approximately 15 competing banking institutions, credit unions, finance companies, brokerage firms, mortgage companies and insurance companies. The institutions range in asset size of approximately $100 million to in excess of $3 billion. NBC is the largest bank domiciled in its immediate service area. Asset size of competitive banks depends on whether the reference is made to the branch banks or to their parent banks. Several other competitors are branches or divisions of nationwide companies with more resources than the Company and its subsidiaries.
FSB is located in Tuscaloosa, Alabama, and has a main office and two branch locations. The bank competes with approximately eight other financial institutions, most of which are larger. The other institutions range in size from approximately $20 million to $10 billion. Asset size of the competitive banks depends on whether reference is made to the branch banks or to their parent bank. FSB also competes with numerous credit unions, finance companies, etc., many of which are branches of nationwide companies. The acquisition of FSB by the Company provides FSB with access to resources, products, and services previously unavailable, thereby improving its competitive position.
Supervision and Regulation
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the Act) and is registered as such with the Board of Governors of the Federal Reserve System (the Federal Reserve Board). As a bank holding company, the Company is required to file with the Federal Reserve Board an annual report and such other information as may be required. The Federal Reserve Board may also make examinations of the Company. In addition, the Federal Reserve Board has the authority to regulate provisions of certain bank holding company debt.
The Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring substantially all the assets of or direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority-owned. The Act also prohibits a bank holding company, with certain exceptions, from itself engaging in or acquiring direct or indirect control if more than 5% of the voting shares of any company engaged in non-banking activities. One of the principal exceptions to these prohibitions is for engaging in or acquiring shares of a company engaged in activities found by the Federal Reserve Board by order or regulation to be so closely related to banking or managing banks as to be a proper incident thereto. The Act prohibits the acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank to be acquired is located. The Act and regulations of the Federal Reserve Board also prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services.
Dividends paid by the Company are substantially provided from dividends from the banking subsidiaries. Generally, the approval of the bank's regulator is required if the total of all dividends declared by a bank in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. At December 31, 1994, the banking subsidiaries had available for payment of dividends to the Company, without prior approval of their regulator, approximately $11.4 million.
The Federal Reserve Board, FDIC and Office of the Comptroller of the Currency (OCC) have established risk-based capital guidelines for holding companies, such as the Company, and banks. The Company's strategy related to risk-based capital is to maintain capital levels which will be sufficient to qualify the Company's banking subsidiaries for the "well capitalized" category under the guidelines set forth by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). Maintaining capital ratios at the "well capitalized" level avoids certain restrictions which, for example, could impact the Company's banking subsidiaries' FDIC assessment, trust services and asset/liability management. At December 31, 1994, the tier I and total capital ratios, respectively, for the Bank 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.
The first requirement establishes a minimum ratio of capital as a percentage of total assets. The FDIC, OCC, and Federal Reserve Board require institutions to maintain a minimum leverage ratio of Tier 1 capital (as defined) to total average assets based on the institution's rating under the regulatory CAMEL rating system. Institutions with CAMEL ratings of one that are not anticipating or experiencing significant growth and have well-diversified risk are required to maintain a minimum leverage ratio of 3 percent. An additional 100 to 200 basis points are required for all but these most highly rated institutions.
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 4.0 percent. Banks must also maintain a minimum ratio of total capital to risk-weighted assets of 8.0 percent. At December 31, 1994, the Company's Tier 1 and total capital ratios were 14.6% and 16.2%, respectively.
The operations of NBC and FSB are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States and to members of the Federal Reserve System, and the FDIC. Bank operations are also subject to the regulations of the OCC, the Board of Governors of the Federal Reserve System and the FDIC.
The primary supervisory authority of NBC is the OCC, and of FSB is the FDIC, who regularly examine such areas as reserves, loans, investments, management practices and other aspects of bank operations. These examinations are for the protection of the institution's depositors and not for its shareholders. In addition to these regular examinations, the institution must furnish to its regulator quarterly reports containing a full and accurate statement of its affairs.
Management of the Company is not aware of any new or proposed regulation or regulatory recommendations that, if implemented, would have a significant impact upon the financial condition of the Company and its subsidiaries.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries, 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 subsidiaries are members of the FDIC and their deposits are insured as provided by law.
Finance and CNI 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.
Governmental Monetary Policies
As a bank chartered under the laws of the United States, NBC is a member of the Federal Reserve System. The earnings of NBC 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 borrowing 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
The Company nor any of its subsidiaries are dependent upon a single customer or very few customers.
Executive Officers
The executive officers of the Company and its bank subsidiaries, National Bank of Commerce of Mississippi and First State Bank of Tuscaloosa, as of December 31, 1994, are listed below. The title indicates a position held in the Company and the bank subsidiaries.
Name and Title Age Five Year Experience ________________________ ___ __________________________________
L. F. Mallory, Jr. 52 Chairman of the Board and Chairman, President President, NBC Capital and Chief Executive Corporation and NBC of Officer Mississippi
Bobby Harper 53 Chairman of Executive Committe, Chairman of the NBC Capital Corporation and NBC Executive Committee of Mississippi, and President, NBC of Mississippi, Columbus Banking Center
Hunter M. Gholson 62 Secretary of NBC Capital Secretary Corporation and NBC of Mississippi
Mark A. Abernathy 38 Prior to joining NBC in 1994, he Executive Vice was Consumer Regional Executive President and Chief Officer of Nations Bank, Operating Officer, Nashville, Tennessee NBC Capital Corporation and NBC of Mississippi
Mrs. Martha W. Taylor 53 Treasurer and Assistant Secretary, Treasurer and NBC Capital Corporation, and Assistant Secretary, Executive Vice President and NBC Capital Chief Financial Officer, NBC of Corporation and Mississippi Executive Vice President and Chief Financial officer, NBC of Mississippi
Carl M. Holloway 48 Vice President, NBC Capital Vice President, NBC Corporation and Executive Capital Corporation, Vice President, NBC of and Executive Vice Mississippi President, NBC of Mississippi
Joel C. Clements 47 Vice President, NBC Capital Vice President, NBC Corporation and Executive Capital Corporation Vice President, NBC of and Executive Vice Mississippi President, NBC of Mississippi
Clifton B. Fowler 46 Vice President, NBC Capital Vice President, NBC Corporation and President, Capital Corporation NBC of Mississippi, Starkville and President, NBC Banking Center of Mississippi, Has held current position since Starkville Banking November, 1990. Prior to Center joining NBC was with Trustmark National Bank.
Thomas J. Prince, Jr. 53 Vice President, NBC Capital Vice President, NBC Corporation and President, NBC Capital Corporation of Mississippi, Aberdeen and President, NBC of Banking Center Mississippi, Aberdeen Banking Center
Kenneth A. Madison 62 Vice President, NBC Capital Vice President, NBC Corporation, and President, NBC Capital Corporation of Mississippi, Philadelphia and President, NBC of Banking Center. Mississippi, Has held current position since Philadelphia Banking March, 1991. Prior to joining Center NBC was President and C/E/O of Bank of Philadelphia, Philadelphia, Mississippi
Thomas P. Hester 61 President and other positions of President, First First State Bank of Tuscaloosa State Bank of Tuscaloosa
Rex D. Poole 57 Vice President, NBC Capital Vice President, NBC Corporation and Senior Vice Capital Corporation President and Trust Officer, and Senior Vice NBC of Mississippi President and Trust Officer, NBC of Mississippi
Donald J. Bugea, Jr. 41 Senior Vice President and Senior Vice President Investment Officer, NBC of and Investment Mississippi Officer, NBC of Has held current position since Mississippi January, 1992. Prior to joining NBC was Senior Vice President and Cashier, NBC of Baton Rouge, Louisiana
Terrence Y. Dewitt 33 Executive Vice President and other Executive Vice positions of First State Bank of President, First Tuscaloosa State Bank of Tuscaloosa
Personnel
At December 31, 1994, NBC and FSB had 317 full-time employees. The Company, Service and CNI had no employees at December 31, 1994. The finance company had three employees.
ITEM 2
ITEM 2 - PROPERTIES
The Company, Service and CNI owned no properties at December 31, 1994.
The following listing describes the locations and general character of the Bank-owned properties:
Approximate Office Space Type Location (Square Feet) ________________________ ______________________ ______________
NBC of Mississippi: Main Office Starkville, Mississippi 35,000 University Branch Starkville, Mississippi 1,485 Motor Branch Starkville, Mississippi 2,000 82 Branch Starkville, Mississippi 2,077
Operations Center Starkville, Mississippi 16,500 Starkville Crossing Starkville, Mississippi 2,000 Main Office Columbus, Mississippi 36,000 North Columbus Branch Columbus, Mississippi 1,440
Fairlane Branch Columbus, Mississippi 2,400 Gardner Blvd. Branch Columbus, Mississippi 1,156 Bluecutt Road Branch Columbus, Mississippi 3,200 Main Office Aberdeen, Mississippi 11,026
Maple Street Branch Aberdeen, Mississippi 998 Highway 45 North Branch Aberdeen, Mississippi 1,205 Main Office Amory, Mississippi 8,550 Medical and Industrial Center Branch Amory, Mississippi 950
Main Office Artesia, Mississippi 1,500 Main Office Brooksville, Mississippi 3,000 Main Office Hamilton, Mississippi 1,800 Main Office Maben, Mississippi 4,000
Main Office Philadelphia, Mississippi 6,000 Northside Branch Philadelphia, Mississippi 300 Courtside Branch Philadelphia, Mississippi 400 Southside Branch Philadelphia, Mississippi 450 Operations Center Philadelphia, Mississippi 6,600
First State Bank of Tuscaloosa:
Main Office Tuscaloosa, Alabama 6,400 Northport Branch Tuscaloosa, Alabama 3,018 University Branch Tuscaloosa, Alabama 2,480
Finance operates out of NBC's building located in Philadelphia, Mississippi.
In the opinion of management, all properties are in good condition and are adequate to meet the needs of the communities they serve.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
There are no pending proceedings of a material nature to which the Company, NBC, FSB, Service, Finance, or CNI is a party.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) The information titled "Market Information" and contained on Page 30 of the Company's annual report to shareholders for the year 1994 is incorporated herein by reference in response to this item and included in this report as Exhibit 13.a.
(b) At December 31, 1994, the Company had approximately 1,760 security holders.
(c) Dividends on common stock were declared semiannually in June and December of the years reported and totaled as follows:
December 31, 1994 1993 ___________ ___________
Dividends declared, $1.75 per share $ - $ 2,099,552
Dividends declared, $2.05 per share 2,460,000 - ___________ ___________
$ 2,460,000 $ 2,099,552 =========== ===========
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The information titled "Selected Financial Data" and contained on Page 30 of the Company's annual report to the shareholders for the year 1994 is incorporated herein by reference in response to this item and included in this report as Exhibit 13.b.
SUPPLEMENTAL STATISTICAL INFORMATION
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential
A. Average balance sheets (consolidated):
(In Thousands) 1994 1993 1992 Assets ________ ________ ________
Cash and due from banks $ 19,515 $ 14,557 $ 15,277 Securities: Taxable 120,870 127,822 147,273 Non-taxable 57,649 49,743 38,849 ________ ________ ________ Total securities 178,519 177,565 186,122 Federal funds sold and securities purchased under agreement to resell 4,882 4,909 4,067 Loans, net of unearned interest 306,702 240,509 219,975 Less reserve for loan losses 5,488 3,805 2,838 ________ ________ ________ Net loans 301,214 236,704 217,137 Other assets 23,582 15,711 12,778 ________ ________ ________
Total Assets $527,712 $449,446 $435,381 ======== ======== ========
Liabilities and Stockholders' Equity
Deposits: Noninterest-bearing $ 65,010 $ 49,718 $ 42,417 Interest-bearing 386,000 332,731 340,318 ________ ________ ________ Total deposits 451,010 382,449 382,735 Federal funds purchased and securities sold under agreement to repurchase 5,557 516 1,212 Borrowed funds 13,367 11,922 1,700 Other liabilities 5,111 6,223 5,373 ________ ________ ________ Total liabilities 475,045 401,110 391,020
Stockholders' equity 52,667 48,336 44,361 ________ ________ ________
Total Liabilities and Stockholders' Equity $527,712 $449,446 $435,381 ======== ======== ========
B. Analysis of Net Interest Earnings
The table below shows, for the periods indicated, an analysis of net interest earnings, including the average amount of interest-earning assets and interest-bearing liabilities outstanding during the period, the interest earned or paid on such amounts, the average yields/rates paid and the net yield on interest-earning assets:
($ In Thousands) Average Balance
1994 1993 1992 ________ ________ ________
EARNING ASSETS Net loans $301,214 $236,704 $217,137 Federal funds sold and securities purchased under agreement to resell 4,882 4,909 4,067 Securities: Taxable 120,870 127,822 147,273 Nontaxable 57,649 49,743 38,849 ________ ________ ________
Totals 484,615 419,178 407,326 ________ ________ ________
INTEREST-BEARING LIABILITIES Interest-bearing deposits 386,000 332,731 340,318 Borrowed funds and federal funds purchased and securities sold under agreement to repurchase 18,924 12,438 2,912
________ ________ ________
Totals 404,924 345,169 343,230 ________ ________ ________
Net Amounts $ 79,691 $ 74,009 $ 64,096 ======== ======== ========
($ In Thousands) Yields Earned Interest for the Year and Ended December 31, Rates Paid (%) _______________________ ______________
1994 1993 1992 1994 1993 1992 _______ _______ _______ ____ ____ ____
EARNING ASSETS Net loans $25,217 $19,097 $18,817 8.37 8.07 8.67 Federal funds sold and securities purchased under agreement to resell 258 144 132 5.28 2.93 3.25 Securities: Taxable 7,231 8,095 10,661 5.98 6.33 7.24 Nontaxable 3,107 2,942 2,685 5.39 5.91 6.91 _______ _______ _______ Totals 35,813 30,278 32,295 7.39 7.22 7.93 _______ _______ _______
INTEREST-BEARING LIABILITIES Interest-bearing deposits 12,747 10,866 13,791 3.30 3.27 4.05 Borrowed funds and federal funds purchased and securities sold under agreement to repurchase 798 674 92 4.22 5.42 3.16 _______ _______ _______ Totals 13,545 11,540 13,883 3.35 3.34 4.04 _______ _______ _______
Net Amounts $22,268 $18,738 $18,412
======= ======= =======
Net yield on earning assets 4.59 4.47 4.52
(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.
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) 1994 Over 1993 1993 Over 1992 ____________________ __________________________ Change Due To: Change Due To: ____________________ __________________________ Total Rate Volume Total Rate Volume ______ ______ ______ ________ ________ ________
EARNING ASSETS Net loans $6,120 $ 734 $5,386 $ 280 $ (924) $ 1,204 Federal funds sold and securities purchased under agreement to resell 114 115 (1) 12 (11) 23 Securities: Taxable (864) (435) (429) (2,566) (1,252) (1,314) Nontaxable 165 (205) 370 257 (270) 527 ______ _______ ______ ________ ________ ________
Totals $5,535 $ 209 $5,326 $(2,017) $(2,457) $ 440 ====== ======= ====== ======== ======== ========
INTEREST-BEARING LIABILITIES Interest-bearing deposits $1,881 $ 102 $1,779 $(2,925) $(2,621) $ (304) Interest on borrowed funds and federal funds purchased and securities sold under agreement to repurchase 124 (91) 215 582 104 478 ______ _______ ______ ________ ________ _______
Totals $2,005 $ 11 $1,994 $(2,343) $(2,517) $ 174 ====== ======= ====== ======== ======== =======
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 presents the book values of securities as of the dates indicated:
(In Thousands) December 31, ____________________________
1994 1993 1992 ________ ________ ________
U. S. Treasury $ 23,907 $ 11,359 $ 17,540 U. S. Government agencies and mortgage-backed securities 76,779 93,157 121,460 States and political subdivisions 70,917 56,333 40,571 Other 4,543 4,196 5,019 ________ ________ ________
Total book value $176,146 $165,045 $184,590 ======== ======== ========
B. The following table sets forth the maturities of investment and mortgage-backed securities (book values) at December 31, 1994, and the weighted average yield of such securities:
($ In Thousands) Weighted Average Yield _________________________________________
0-1 Yield 1-5 Yield 5-10 Yield Year (%) Years (%) Years (%) _______ _____ _______ _____ _______ _____ Securities:
U. S. Treasury $11,133 5.4% $12,774 5.6% $ - - U. S. Government agencies 3,803 6.2% 8,798 6.0% 1,601 9.5% States and political subdivisions 8,078 4.7% 27,447 5.1% 12,214 6.5% Other 327 8.7% 262 7.6 496 6.5% _______ _______ _______
Total $23,341 $49,281 $14,311 ======= ======= =======
10+ Yield Years (%) _______ _____
States and political subdivisions $23,179 6.3% Other 3,458 5.6% _______
Total $26,637 =======
Book Yield Value (%) _______ _____ Mortgage-backed securities $62,576 6.6% =======
NOTE: Interest and yields on tax-exempt obligations are not on a taxable equivalent basis.
Average yield on floating rate securities was determined using the current yield.
C. Investment securities in excess of 10% of stockholders' equity.
At December 31, 1994, there were no securities from any issues in excess of 10% of stockholders' equity.
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 1994 1993 1992 1991 1990 _________________ ________ ________ ________ ________ ________
Commercial, financial and agriculture $ 51,541 $ 35,177 $ 33,814 $ 37,970 $ 37,257 Real estate - construction 12,372 2,777 3,491 3,439 3,721 Real estate - mortgage 178,391 140,162 123,535 113,019 87,867 Installment loans to individuals 79,961 73,756 66,211 61,340 53,568 Other 5,297 5,654 5,522 9,308 4,517 ________ ________ ________ ________ ________ Total loans 327,562 257,526 232,573 225,076 186,930 Unearned interest (4,031) (5,597) (5,600) (6,404) (5,453) ________ ________ ________ ________ ________
$323,531 $251,929 $226,973 $218,672 $181,477 ======== ======== ======== ======== ========
B. Maturities and sensitivities of loans to changes in interest rates:
(In Thousands) December 31, 1994
_________________________________ Maturing ________________________ Within 1-5 Over Type 1 Year Years 5 Years Total ____________________________ ________ _______ _______ ________
Commercial, financial and agricultural $ 40,150 $ 9,535 $ 1,856 $ 51,541 Real estate - construction 11,667 705 - 12,372 Other loans, excluding real estate - mortgage and installment loans 5,297 - - 5,297 ________ _______ _______ ________
$ 57,114 $10,240 $ 1,856 $ 69,210 ======== ======= ======= ======== Loans with: (1) Predetermined interest rates $ 33,585 $89,743 $20,802 $144,130 Floating interest rates 181,784 248 3 182,035 ________ _______ _______ ________
$215,369 $89,991 $20,805 $326,165 ======== ======= ======= ========
(1) Excludes nonaccrual loans of $1,397.
C. Nonperforming loans
1. The following tables states the aggregate amount of loans which were nonperforming in nature:
(In Thousands ) December 31, __________________________________ Type 1994 1993 1992 1991 1990 _______________________ ______ ______ ______ ______ ______
Loans accounted for on a nonaccrual basis $1,397 $1,451 $1,442 $ 987 $ 162 ====== ====== ====== ====== ======
Accruing loans past due 90 days or more $ 601 $ 484 $ 794 $1,469 $ 481 ====== ====== ====== ====== ======
Renegotiated "troubled" debt $ 306 $ 853 $ 632 $ 100 $ 39 ====== ====== ====== ====== ======
2. There were no loan concentrations in excess of 10% of total loans at December 31, 1994.
3. There were no outstanding foreign loans at December 31, 1994.
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 1994, 1993, and 1992.
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 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, 1994, management was not aware of
any potential problem loans not previously disclosed.
D. Other interest-bearing assets
There were no other interest-bearing non-performing assets at December 31, 1994.
VI. Summary of Loan Loss Experience
A. An analysis of the loan loss experience for the periods indicated is as follows:
($ In Thousands) December 31, _______________________________________ 1994 1993 1992 1991 1990 ______ ______ ______ _______ ______
Beginning balance $4,450 $3,204 $2,796 $ 2,127 $1,924 ______ ______ ______ _______ ______ Charge-offs: Domestic: Commercial, financial and agricultural (78) (151) (743) (1,030) (110) Real estate (239) (80) (413) (454) (335) Installment loans and other (392) (427) (822) (1,751) (323) ______ ______ ______ _______ _______ Total charge-offs (709) (658) (1,978) (3,235) (768) ______ ______ ______ _______ _______ Recoveries: Domestic: Commercial, financial and agricultural 48 122 79 66 66 Real estate 25 31 97 14 101 Installment loans and other 177 116 181 123 129 ______ ______ ______ _______ _______ Total recoveries 250 269 357 203 296 ______ ______ ______ _______ _______ Net charge-offs (459) (389) (1,621) (3,032) (472) ______ ______ ______ _______ _______ Reserve of acquired bank 494 - - 2,090 -
Provision charged to operations 1,234 1,635 2,029 1,611 675 ______ ______ ______ _______ _______
Ending balance $5,719 $4,450 $3,204 $ 2,796 $ 2,127 ====== ====== ====== ======= =======
Ratio of net charge-offs to average loans outstanding .15 .13 .75 1.45 .29
Ratio of reserve for loan losses to loans out- standing at year end 1.77 1.77 1.41 1.28 1.17
B. Determination of Reserve for Loan Losses
The information contained in Note A-4 to the financial statements of the annual report to shareholders is incorporated herein by reference and included in this report as Exhibit 13.d.
C. Loans and Risk Descriptions
Real Estate Loans
NBC and FSB originate loans secured by commercial real estate, one-to-four family residential properties, and multi-family dwelling units (5 or more units). At December 31, 1994, these loans totaled $173 million or approximately 53% of the loan portfolio.
NBC and FSB originate 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 and FSB have 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 and FSB originate 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 and FSB offer consumer loans in the form of home improvement loans, mobile home loans, automobile loans and unsecured personal loans. These loans totalled $80 million or 24% of total loans at December 31, 1994. Consumer loans are originated in order to provide a wide range of financial services to customers and because the terms and normally higher interest rates on such loans help maintain a profitable spread between the average loan yield and the cost of funds.
In connection with consumer loan applications, the borrower's income statement and credit bureau report are reviewed. In addition, the relationship of the loan to the value of the collateral is considered. All automobile loan applications are reviewed, as well as the value of the unit which secured the loan.
NBC and FSB intend to continue to emphasize the origination of consumer loans. Management believes that its loan loss experience in connection with its consumer loan portfolio is favorable in comparison to industry averages.
NBC and FSB make commercial business loans on both a secured and unsecured basis with terms which generally do not exceed five years. Nonreal estate commercial loans primarily consist of short-term loans for working capital purposes, inventories, seasonal loans, lines of credit and equipment loans. A personal guaranty of payment by the principals of any borrowing entity is often required and the financial statements and income tax returns of the entity and its guarantors are reviewed. At December 31, 1994, NBC and FSB's commercial business loans represented approximately 15% of its total loan portfolio.
D. For the year 1995, losses for all loan categories, as a percentage of average loans, are expected to approximate that of 1994.
V. Deposits
($ In Thousands) 1994 1993 1992 _____________ _____________ _____________
Amount Rate Amount Rate Amount Rate ________ ____ ________ ____ ________ ____
A. Average deposits Domestic: Noninterest- bearing deposits $ 65,010 - $ 49,718 - $ 42,417 - Interest-bearing demand deposits 141,988 2.3% 108,167 2.5% 100,282 3.1% Savings deposits 30,717 2.5% 27,862 2.8% 22,523 3.5% Time deposits 213,295 4.0% 196,702 3.7% 217,513 5.0% Foreign N/A N/A N/A ________ ________ ________
Total $451,010 $382,449 $382,735 ======== ======== ========
B. Other categories
None
C. Foreign deposits
Not material
D. Time certificate of deposit of $100,000 or more and maturities at December 31, 1994:
(In Thousands) 3 Months 6 Months 3 Months Through Through Over Total Or Less 6 Months 12 Months 12 Months _______ ________ __________ _________ _________
Time certificates of deposit of $100,000 or more $56,990 $ 31,868 $ 11,654 $ 4,421 $ 9,047 ======= ======== ========== ========= =========
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, ________________ 1994 1993 1992 ____ ____ ____
Return on assets (net income divided by total average assets) 1.4 1.4 1.3
Return on equity (net income divided by average equity) 13.6 13.1 13.0
Dividend payout ratio (dividends per share divided by net income per share) 34.4 33.1 36.7
Equity to asset ratio (average equity divided by average total assets) 10.0 10.8 10.2
VII. Short-term borrowings
Treasury Tax Federal And Funds Loan Note Purchased Payable ___________ __________
Balance at December 31, 1994 $17,800,000 $1,473,792 Weighted average interest rate at December 31, 1994 5.60% 4.90%
Maximum amount outstanding at any month end for the year 1994 17,800,000 2,165,426
Average amount outstanding during the year 1994 915,890 1,250,690
Weighted average interest rate during the year 5.02% 3.60%
For the years prior to 1994, the Company had no short-term borrowings in excess of 30% of stockholders' equity.
VIII. Capital adequacy data
Total capital of the Company as a percentage of total adjusted assets was as follows:
($ In Thousands) December 31, __________________ 1994 1993 ________ ________
Total assets $545,405 $452,357 Allowance for loan losses 5,719 4,450 ________ ________
Total adjusted assets $551,124 $456,807 ======== ========
Total stockholders' equity (excluding unrealized loss) $ 54,438 $ 49,760 Allowance for loan losses 5,719 4,450 Other components of capital - - ________ ________ Total primary capital 60,157 54,210 Total secondary capital - - ________ ________
Total capital $ 60,157 $ 54,210 ======== ========
Ratio of total capital to total adjusted assets 10.9 11.9
In 1989, the Federal Reserve Board (FRB) issued new capital guidelines which redefine capital as Tier 1 and Tier 2 (total) capital. The capital requirements are based upon the credit risk associated with an institution's assets, both recorded and unrecorded. Tier 1 and total capital as a percentage of "risk weighted assets" at December 31, 1994 and 1993, are as follows:
December 31, ______________ 1994 1993 ______ ______
Tier 1 capital percentage 14.8% 17.5% Total capital percentage 16.1% 18.7%
The Company's capital ratios exceed the minimum capital requirements at December 31, 1994, and management expects this to continue.
IX. Interest Sensitivity Analysis
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, 1994 _______________________________________ Interest Sensitive Within (Cumulative) _______________________________________ Total of Interest- Within Within Within Earning 3 Months 12 Months 5 Years Assets ________ _________ ________ ________ Interest-earning assets: Loans $183,033 $ 233,894 $283,231 $327,562 Investment and mortgage- backed securities 13,426 36,355 138,163 176,146 Federal funds sold 2,500 2,500 2,500 2,500 ________ _________ ________ ________
Totals $198,959 $ 272,929 $423,894 $506,208 ======== ========= ======== ========
Interest-bearing liabilities: Deposits $211,094 $ 291,724 $331,469 $388,301 ======== ========= ======== ======== Sensitivity gap: Dollar amount $(12,135) $ (18,795) $ 92,425
Percent of total interest-earning assets (2.4%) (3.7%) 18.3%
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, 1994, total interest-earning assets maturing or repricing within one year was less than interest-bearing liabilities maturing or repricing within the same time period by $19 million, representing a negative cumulative one year gap of 3.7% of earning assets. Management of the Company believes this is the proper position in the current interest rate environment.
Banking regulators have recently 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.
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 a committee.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained on Pages 28 and 29 of the Company's 1994 annual report to shareholders is incorporated herein by reference in response to this item and included in this report as Exhibit 13.c.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the report thereon of T. E. Lott & Company, independent accountants, are set forth on Pages 9 - 27 of the Company's 1994 annual report to shareholders which is incorporated herein by reference and included in this report as Exhibit 13.d.
ITEM 9
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is made to the material under the captions, "Election of Directors", "Executive Compensation and Other Information," of the Company's proxy statement which is incorporated herein by reference.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Reference is made to the caption, "Executive Compensation and Other Information" Pages 9 - 13 of the proxy statement which is incorporated herein by reference.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to Page 3 and Pages 5 - 8 of the Company's proxy statement which is incorporated herein by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Page 15, "Other Information" of the Company's proxy statement which is incorporated herein by reference.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The consolidated financial statements for the years ended December 31, 1994 and 1993, together with the report of T. E. Lott & Company, independent accountants, dated January 26, 1994, appearing on Pages 9 - 27 of the 1994 annual report to shareholders, are attached as Exhibit 13.d. to this Form 10K Annual Report.
2. Financial Statement Schedules
Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits:
1. - 2. None
3. Articles of Incorporation and By-Laws: (Reference is made to Exhibits 3.1 and 3.2 of the Company's Registration Statement on Form S- 14 filed on April 5, 1984, with the Securities and Exchange Commission.)
4. - 9. None
10.1 Acquisition agreement between National Bank of Commerce of Mississippi and Bank of Philadelphia filed as an exhibit to Form 8K in October, 1990.
Purchase agreement between NBC Capital Corporation and Charter Holding Company, Inc. filed as an exhibit to Form 8K in August, 1993.
11. - 12. None
13. Annual report to shareholders - deemed filed herewith only to the extent it is incorporated elsewhere herein.
13.a. Market for Company's common stock - Page 30 of the annual report to stockholders.
13.b. Selected Financial Data - Page 30 of the annual report to stockholders.
13.c. Management's discussion and analysis of financial condition and results of operations - Pages 28 - 29 of the annual report to stockholders.
13.d. Consolidated financial statements - Pages 9 - 27 of the annual report to stockholders.
14. - 21. None
22. Subsidiaries of Company
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1994.
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, President and Chief Executive Officer
S/Martha W. Taylor By __________________________ Martha W. Taylor Treasurer and Assistant Secretary (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/Henry Weiss S/Andrew C. Puckett ____________________________ ___________________________ (Director) (Director)
S/Thomas J. Prince S/J. Nutie Dowdle ____________________________ ___________________________ (Director) (Director)
S/Bobby Harper S/Sammy J. Smith ____________________________ ___________________________ (Director) (Director)
S/Clifton B. Fowler S/Edith D. Millsaps ____________________________ ___________________________ (Director) (Director)
S/Carl M. Holloway S/Robert S. Jones ____________________________ ___________________________ (Director) (Director)
S/Mark A. Abernathy S/L. F. Mallory, Jr. __________________________ ___________________________ (Director) (Director)
S/Allen Puckett, III ____________________________ (Director)
Date: March 28, 1995