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.