-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T6ZhNG8El7S63OUqENyTlwe9WZ+6owpRysFmVMKCC9nAx+a6oV075YafhyHIXMv9 7TQA7+5E9lWtQAYgbJCj6g== 0000768532-97-000005.txt : 19970326 0000768532-97-000005.hdr.sgml : 19970326 ACCESSION NUMBER: 0000768532-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMERCE BANCSHARES INC CENTRAL INDEX KEY: 0000768532 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 470683029 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14277 FILM NUMBER: 97562187 BUSINESS ADDRESS: STREET 1: 1248 O ST. STREET 2: PO BOX 82408 CITY: LINCOLN STATE: NE ZIP: 68501 BUSINESS PHONE: 4024344110 MAIL ADDRESS: STREET 1: 1248 O ST STREET 2: PO BOX 82408 CITY: LINCOLN STATE: NE ZIP: 68501 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-K WASHINGTON, D.C. 20549 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED). For the fiscal year ended December 31, 1996 ----------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transition period from to Commission file number 0-14277 --------- FIRST COMMERCE BANCSHARES, INC. ........................................................................ (Exact name of registrant as specified in its charter) Nebraska 47-0683029 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) NBC Center, 1248 O Street, Lincoln, NE 68508 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (402) 434-4110 ------------------ Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.20 Par Value; Class B Common Stock, $.20 Par Value - ---------------------------------------------------------------------------- (Title of class) 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. X Yes 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X As of March 3, 1997, the aggregate market value of the common stock held by non-affiliates of the registrant was $107.6 million. For purposes of this computation only, the market value per share has been determined to be $24.50 for Class A shares and $17.25 for Class B shares, which is the average of the bid and ask price on February 28, 1997. "Affiliates" have been deemed to include all officers, directors and persons or groups of persons who have filed a Schedule 13-D with respect to the Company's common stock. Indicate the number of shares outstanding of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 3, 1997 Class A Common Stock, $.20 Par Value 2,606,336 shares Class B Common Stock, $.20 Par Value 10,940,651 shares DOCUMENTS INCORPORATED BY REFERENCE 1996 Annual Report to Shareholders - Parts I, II and IV Proxy Statement for Annual Shareholder's Meeting to be held April 15, 1997 - Part III INDEX PART I Page Number in: Form Annual 10-K Report ITEM 1. Business General------------------------------------------3 Statistical Disclosures Distribution of Assets, Liabilities and Shareholder's Equity; Interest Rates and Interest Differential --------------28 Investment Portfolio ----------------------------------33 Loan Portfolio ----------------------------------------34 Summary of Loan Loss Experience -----------------------37 Deposits ----------------------------------------- 18, 28 & 40 Return on Equity and Assets ---------------------------30 Short-term Borrowings ---------------------------------19 ITEM 2. Properties---------------------------------------10 ITEM 3. Legal Proceedings--------------------------------11 ITEM 4. Submission of Matters to a Vote of Security Holders------------------------------------------11 Executive Officers-------------------------------11 PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters-------------------12 ITEM 6. Selected Financial Data--------------------------12 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation------------12 ITEM 8. Financial Statements and Supplementary Data------12 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure--------12 PART III ITEM 10. Directors and Executive Officers of the Registrant--------------------------------12 ITEM 11. Executive Compensation---------------------------13 ITEM 12. Security Ownership of Certain Beneficial Owners and Management------------------------13 ITEM 13. Certain Relationships and Related Transactions---13 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K------------------------------13 Signatures---------------------------------------15 PART I ITEM 1. BUSINESS GENERAL First Commerce Bancshares, Inc. (referred to herein as "First Commerce") is a bank holding company having its principal place of business in the NBC Center, 1248 O Street, Lincoln, Nebraska 68508. First Commerce was incorporated under the laws of the State of Nebraska on May 2, 1985. First Commerce owns the following number of shares (excluding directors' qualifying shares held by Directors of the Banks, as to which shares First Commerce is required to repurchase upon the resignation of the individual director in accordance with a repurchase agreement) and percentage of outstanding shares of the following banks: No. of Shares Percent ------------- ------- National Bank of Commerce Trust & Savings Association, Lincoln, Nebraska 499,100 99.82% First National Bank & Trust Co. of Kearney, Nebraska 19,772.5 98.86% Overland National Bank of Grand Island, Nebraska 88,180 97.98% Western Nebraska National Bank, North Platte, Nebraska 30,746 99.37% City National Bank and Trust Co., Hastings, Nebraska 9,910 99.10% First National Bank of West Point, Nebraska 4,790 95.80% The First National Bank of McCook, Nebraska 6,000 100.00% As of December 31, 1996, First Commerce reported consolidated total assets of $2,028,012,000, total deposits of $1,574,544,000 and total stockholders' equity of $197,398,000. As of December 31, 1996 First Commerce and its subsidiaries had a staff of approximately 1,035 employees on a full-time equivalent basis. First Commerce considers its employee relations to be good. The National Bank of Commerce Trust and Savings Association offers trust services to each of the communities in which First Commerce subsidiary banks are located under the trade name of First Commerce Trust Services. National Bank of Commerce Trust & Savings Association (the "Lincoln Bank") - -------------------------------------------------------------------------- The Lincoln Bank traces its origin through mergers and acquisitions to 1902, and has been engaged in the banking business continuously since that date. The Lincoln Bank conducts a general commercial banking business from its offices in the NBC Center in Lincoln, Nebraska. The Lincoln Bank's business includes the usual banking functions of accepting demand and time deposits, and the extension of personal, agricultural, commercial, installment and mortgage loans. In addition, the Bank operates a Trust Department, which provides both personal trust and corporate financing services; a Correspondent Bank Department, which serves approximately 300 banks in the surrounding area; and a MasterCard/VISA Credit Card Department. To accommodate its customers, the Lincoln Bank operates six detached facilities and 51 automated "Bank In The Box" teller machines located throughout the Lincoln area. The Lincoln Bank has five active non-banking subsidiaries. The Lincoln Bank owns all of the issued and outstanding stock of (1) First Commerce Technologies, Inc., which provides data processing services to the Lincoln Bank, to the other subsidiary banks, and to approximately 316 other banks; (2) Peterson Building Corporation, which owns and operates the Rampark Parking Garage located adjacent to the NBC Center; (3) Commerce Court, Inc., which owns the Commerce Court building located adjacent to the NBC Center; (4) First Commerce Mortgage Company, a company engaged in the purchasing of residential loans to be packaged for resale as mortgage-backed securities, while retaining the servicing rights of the underlying mortgages; and (5) Cabela's LLC (80% ownership of voting stock; 50% total ownership), a company formed in 1995 with Cabela's, a catalog sales company, for the purpose of issuing a "co-branded" credit card. This joint venture had 66,000 active credit cards as of December 31, 1996. Lincoln is the capital city of the State of Nebraska, and the second largest city in the state. The population of Lincoln according to the 1990 census was 192,600. The Lincoln Bank is one of five commercial banks located in the central business district of the city. Being the capital city of the State of Nebraska, Lincoln is the site of most state agencies, and Lincoln is also the site of the University of Nebraska-Lincoln, Nebraska Wesleyan University, and Union College. The largest single employment category in Lincoln is governmental service. First National Bank & Trust Co. of Kearney (the "Kearney Bank") - --------------------------------------------------------------- The Kearney Bank traces its origin through mergers and acquisitions to 1917, and has engaged in the banking business continuously since that date. The Kearney Bank conducts a general commercial banking business from its offices in Kearney, Nebraska. The Kearney Bank's business includes the usual banking functions of accepting demand and time deposits, the extension of personal, agricultural, commercial, installment and mortgage loans. The Trust Department of the Kearney bank was acquired by the Lincoln bank in November of 1993. The Kearney Bank is located on the northeast corner of First Avenue and 21st Street in the southern part of the central business district of Kearney. The main banking premises was constructed in 1976. The Kearney Bank presently operates three detached facilities and 13 automated "Bank In The Box" teller machines located throughout the Kearney area. Overland National Bank of Grand Island (the "Grand Island Bank") - ---------------------------------------------------------------- The Grand Island Bank was granted a national charter in 1934, and has been engaged in the banking business continuously since that date. The Grand Island Bank conducts a general commercial banking business from its offices in Grand Island, Nebraska, including the usual banking functions of accepting demand and time deposits, and the extension of personal, installment, agricultural, commercial and mortgage loans. The Trust Department of the Grand Island bank was acquired by the Lincoln bank in November of 1993. The Grand Island Bank is located on the northwest corner of Third and Wheeler Streets in the center of the downtown business district of Grand Island. The building housing the main banking offices was constructed in 1959. Additionally, the Grand Island Bank owns and operates two detached drive-up facilities. All facilities are owned by the Bank. The Grand Island Bank operates 11 automated "Bank In The Box" teller machines located in Grand Island. The Grand Island Bank opened a loan/deposit production office in Wood River, Nebraska in January, 1997. An ATM machine has also been located at this location. The Grand Island Bank plans to open an additional loan/deposit office in 1997. Western Nebraska National Bank (the "North Platte Bank") - --------------------------------------------------------- The North Platte Bank opened for business on September 17, 1963, and since that time has conducted a general commercial banking business from its banking office in North Platte, Nebraska. The North Platte Bank's business includes the usual banking functions of accepting demand and time deposits and the extension of personal, agricultural, commercial, installment and mortgage loans. The North Platte Bank is located at the corner of Third and Dewey Streets in the downtown business district of North Platte. The North Platte Bank owns the land and building composing the banking premises. The North Platte Bank owns and operates three detached facilities in North Platte. On March 31, 1995, the Company acquired Western Banshares, Inc. with offices in Alliance and Bridgeport, Nebraska. The two offices were merged into North Platte National Bank. The name of the bank was changed to Western Nebraska National Bank. The two offices in Alliance and Bridgeport now operate as branches of the Western Nebraska National Bank. The North Platte Bank opened three loan/deposit production offices in 1996. These are located in Hyannis, Mullen and Valentine Nebraska. The North Platte Bank has nine automated "Bank In The Box" teller machines in North Platte, one in Alliance, one in Bridgeport, one in Thedford, Nebraska, one in Hyannis, Nebraska, one in Mullen, Nebraska and one in Valentine, Nebraska. During 1995, the North Platte Bank built a new facility in Bridgeport at a cost of approximately $1,250,000. A new main bank facility will open in downtown North Platte in April 1997. Total costs of this new facility will be between $5.5 million and $6.0 million. The North Platte Bank is negotiating to sell its current main bank facility. City National Bank and Trust Co. (the "Hastings Bank") - ------------------------------------------------------- The Hastings Bank opened for business in January of 1934, and has been engaged in the banking business continuously since that date. The Hastings Bank conducts a general commercial banking business from its offices in Hastings, Nebraska, including the usual banking functions of accepting demand and time deposits and the extension of personal, installment, agricultural, commercial, and mortgage loans. The Hastings Bank is located on the northwest corner of Third and Lincoln Streets in the northwest part of the downtown business district of Hastings. The building housing the main banking offices is owned by the Hastings Bank and was constructed in 1969. The Hastings Bank also owns and operates one detached banking facility which is located near the city's only retail shopping center approximately three miles to the north, and ten automated "Bank In The Box" teller machines. First National Bank of West Point (the "West Point Bank") - ---------------------------------------------------------- The West Point Bank was chartered in 1885, and has been engaged in the banking business continuously since that date. The West Point Bank conducts a general commercial banking business from its office at 142 South Main Street, West Point, Nebraska, including the usual banking functions of accepting demand and time deposits, and the extension of personal, installment, agricultural, commercial, and mortgage loans. The West Point Bank opened a loan/deposit production office in Snyder, Nebraska in December, 1996. The West Point Bank operates one automated "Bank In The Box" teller machine in West Point and has one located in Snyder, Nebraska. The West Point Bank is located in the central business district of West Point. The building which houses the main offices was constructed in 1964 and was added on to in 1993. The building is owned by the West Point Bank. The West Point Bank purchased and remodeled a house in Snyder, Nebraska to use as its loan/deposit production office. The First National Bank of McCook (the "McCook Bank") - ----------------------------------------------------- The McCook Bank was chartered in 1885, and has been engaged in the banking business continuously since that date. The McCook Bank conducts a general commercial banking business from its office at 108 West D Street, McCook, Nebraska, including the usual banking functions of accepting demand and time deposits, and the extension of personal, installment, agricultural, commercial, and mortgage loans. The McCook Bank has no detached drive-up facility, but operates three automated "Bank In The Box" teller machines in McCook and one in Culbertson, Nebraska. The McCook Bank is located in the downtown business district of McCook. The building which houses the Bank's offices was constructed in 1975, and is owned by the McCook Bank. The McCook Bank anticipates opening two loan/production offices in 1997. Non Bank Subsidiaries - ----------------------- First Commerce is the owner of the NBC Center. Construction of the eleven-story building was completed in March of 1976. The Lincoln Bank leases the lower level and five floors of the building. The remaining area of the building is leased to the public. First Commerce owns 6,000 shares, or 100%, of the issued shares of Commerce Affiliated Life Insurance Company, a company engaged in underwriting, as reinsurer, credit insurance sold in connection with the extensions of credit by bank subsidiaries. First Commerce owns all the stock of First Commerce Investors, Inc. First Commerce Investors, Inc. was incorporated in 1987 to provide investment advisory services in connection with the management and investment of assets held by the Company's subsidiary banks in a fiduciary capacity and to provide other investment advisory services. First Commerce owns 50% of the stock of Community Mortgage Co. Woods Brothers Realty, Inc. (a real estate agency) owns the other 50%. Community Mortgage Co. originates and sells residential real estate loans. COMPETITION - ------------ First Commerce faces intense competition in all of its activities from other commercial banks. In addition, other financial institutions compete throughout Nebraska and the Midwest for most of the services First Commerce provides, particularly as a result of recent legislation and technological developments. Thrift institutions, as well as finance companies, leasing companies, insurance companies, mortgage bankers, investment banking firms, pension trusts and others provide competition for certain banking and financial services. First Commerce's subsidiary banks also compete for interest-bearing funds with money market mutual funds and issuers of commercial paper and other securities. The Nebraska Bank Holding Company Act permits bank holding companies to own and operate more than one subsidiary bank. Under the law, an acquisition by a bank holding company of additional subsidiary banks is permitted so long as after consummation of the acquisition, the subsidiary banks of such bank holding company do not exceed nine in number (subject to certain statutory exceptions) and do not have deposits greater than 14% of total deposits of all banks, thrift institutions and savings and loan associations in the State of Nebraska as determined by the Nebraska Director of Banking and Finance as of the most recent calendar year end. At December 31, 1996, First Commerce had total deposits of approximately $1,574,544,000 which is below the limitation. The Nebraska Banking Act permits statewide branching, but only if the branch bank is established through the acquisition of or merger with another bank which has been chartered for more than eighteen months, and if the acquired bank is converted to a branch bank. Branches may be established de novo but only if located within the city or town in which the Bank's main office is located (except in Sarpy and Douglas Counties). Effective March 27, 1992, banks located in Sarpy and Douglas Counties, Nebraska, may establish an unlimited number of branches in and between both counties; banks in Lancaster County (which includes NBC) may establish up to nine branches within the city limits of the community in which the main office is located; and banks in all other counties may establish up to six branches within the city limits of their respective community. Out-of-state bank holding companies located anywhere in the United States may acquire Nebraska banks or Nebraska bank holding companies. (See "Federal Legislation" below.) In 1996, First Bank Systems, a Minnesota based banking organization, completed the purchase of Firstier Financial, Inc., one of the First Commerce's major competitors in the Lincoln and Nebraska markets. FEDERAL LEGISLATION - ------------------- The federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 increased the ability of bank holding companies, including First Commerce, to make interstate acquisitions and to operate their subsidiary banks. Commencing September 29, 1995, adequately capitalized and adequately managed bank holding companies were permitted to make acquisitions of banks located anywhere in the United States without regard to the provisions of any state laws that may presently prohibit such acquisitions. Interstate acquisitions are not permitted, however, if the potential acquirer would control more than 10 percent of the insured deposits in the United States or more than 30 percent of insured deposits in the home state of the bank to be acquired or in any state in which such bank has a branch. States may enact statutes increasing the 30 percent limit and may also lower such limit if they do so on a non-discriminatory basis. States will also be permitted to prohibit acquisitions of banks that have been established for fewer than five years. The Board of Governors of the Federal Reserve System is required to consider the applicant's record under the federal Community Reinvestment Act in determining whether to approve an interstate banking acquisition. The above statute also permitted effective June 1, 1997, interstate branch banking in all states by adequately capitalized and adequately managed banks, but a state could enact specific legislation before June 1, 1997, prohibiting interstate branch banking in that state, in which event banks headquartered in the state will not be permitted to branch into other states. The Nebraska legislature has not enacted any such "opt-out" legislation. Applications for interstate branching authority will be subjected to regulatory scrutiny of compliance with both federal and state community reinvestment statutes with respect to all of the banks involved in the proposed transaction. The effect of this may be to permit the further consolidation of the Nebraska banking community and the acquisition of Nebraska banks and bank holding companies by larger regional bank systems or major money center banks. This may result in increased competition for deposits and profitable loans. Further, the regional bank systems and major money center banks may be able to offer a broader variety of services than those presently offered by Nebraska banks. SUPERVISION AND REGULATION; EFFECT OF GOVERNMENT POLICIES - --------------------------------------------------------- Banking is a highly regulated industry, with numerous federal and state laws and regulations governing the organization and operation of banks and their affiliates. As a bank holding company, First Commerce is subject to regulation under the Bank Holding Company Act of 1956, which requires First Commerce to register with the Federal Reserve Board and subjects First Commerce to the Board's examination and reporting requirements. The Act requires prior approval of the Federal Reserve Board for bank acquisitions (which includes the acquisition of substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if, after such acquisition, a bank holding company would own, directly or indirectly, more than five percent of the voting shares of such bank). The Act limits the ability of First Commerce to engage in, or to acquire direct or indirect control of the voting shares of any company engaged in any non-banking activity. One of the principal exceptions to this limitation is for activities found by the Federal Reserve Board, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto (such as making or servicing loans, performing certain data processing services, providing certain trust, fiduciary and investment services, and engaging in certain leasing transactions). First Commerce is also registered as a bank holding company under the Nebraska Bank Holding Company Act. Federal law also regulates transactions among First Commerce and its subsidiaries, including the amount of a banking affiliate's loans to, or investments in, an affiliate and the amount of advances to third parties collateralized by securities of an affiliate. In addition, various requirements and restrictions under federal law regulate the operations of First Commerce and its subsidiaries. These laws, among other things, require the maintenance of reserves against deposits, impose certain restrictions on the nature and terms of loans, restrict investments and other activities, regulate mergers, the establishment of branches and related operations, and subject the Subsidiary Banks to regulation and examination by the FDIC and the Comptroller of the Currency. Banks organized under federal law are limited in the amount of dividends which they may declare--depending upon the amount of their capital, surplus, income and retained earnings--and, in certain instances, such national banks must obtain regulatory approval before declaring any dividends. In addition, under the Bank Holding Company Act of 1956 and the Federal Reserve Board's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or furnishing of services. The banking industry also is affected by the monetary and fiscal policies of regulatory authorities, including the Federal Reserve Board. Through open market securities transactions, variations of the discount rate, and the establishment of reserve requirements, the Federal Reserve Board exerts considerable influence over the cost and availability of funds obtained for lending and investing, and the rates of interest paid by banks on their time and savings deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of bank holding companies and their subsidiary banks in the past and are expected to continue to do so in the future. In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve Board, no prediction can be made as to possible future changes in interest rates, deposit levels, or loan demand or as to the impact of such changes on the business and earnings of any bank or bank holding company. The Company's seven subsidiary banks are all chartered as national banks and, therefore, fall under the supervision and regulation of both the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation Act of 1991 (FDICIA) includes a variety of supervisory measures. FDICIA prescribed a system of prompt regulatory action when any financial institution falls below minimum capital standards. FDICIA also requires regulatory agencies to prescribe standards related to internal operations and management, including "internal controls information and audit systems," "loan documentation," "credit underwriting," "interest rate exposure," "asset growth," and such other operational and management standards as the agencies deem appropriate. FDICIA also requires that regulatory agencies prescribe compensation standards for executive officers, employees, directors, and principal shareholders of insured depository institutions. FDICIA authorizes regulatory agencies to treat as an "unsafe and unsound practice" any failure by an institution to correct a deficiency that leads to a "less-than- satisfactory" examination rating for asset quality, management, earnings, or liquidity. This permits the agencies to bring an enforcement action against the institution and impose sanctions. Federal Reserve Board's Regulation O governs loans to directors, officers and principal shareholders of member banks and their related interests. FDICIA imposed a cap on total extensions of credit to insiders equal to 100 percent of the institution's capital, although the Federal Reserve has recently increased the cap to 200 percent of capital for adequately capitalized banks with less than $100 million in deposits. Incorporated in FDICIA was the Truth-in-Savings Act which applies to depository accounts offered by depository institutions. This act imposes requirements concerning disclosure of terms, conditions, fees, and yields to advertisements and general solicitations, to periodic account statements, and to certain dealings between customers or potential customers and a depository institution. The Act aims to achieve standardization of the method of calculating an "annual percentage yield" and provides for civil liability and administrative enforcement mechanisms. From time to time, various proposals are made in the United States Congress and the Nebraska Legislature, and before various bank regulatory authorities which would, among other things, alter the powers of, and restrictions on, different types of banking organizations, expand the authority of regulators over certain activities of bank holding companies, require the application of more stringent standards with respect to the acquisition of banks, expand the powers of bank holding companies with respect to interstate acquisitions, affect the non- banking and securities activities permitted to banks or bank holding companies, or restructure part or all of the existing regulatory framework for banks, bank holding companies and other financial institutions. It is impossible to predict whether new legislation or regulations will be adopted and the impact, if any, on the business of First Commerce. DIVIDENDS - ----------- Under applicable federal statutes, the approval of the Comptroller is required if the total of all dividends declared by a national bank in a calendar year exceeds the aggregate of the Bank's "net profits," as defined, for that year and its retained net profits for the two preceding years. Under this formula, First Commerce's subsidiary banks could declare aggregate dividends as of December 31, 1996, without the further approval of the Comptroller, of approximately $16,525,000. Under Federal Reserve Board policy, First Commerce is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support such banks in circumstances where it might not do so absent such policy. The FDIC and the Comptroller have authority under federal law to take certain enforcement actions against a national bank found to be engaged in conduct which, in their opinion, constitutes an unsafe or unsound banking practice. Depending upon the financial condition of the bank in question, and other factors, the payment of dividends or other payments might under some circumstances be considered by the FDIC and/or the Comptroller to be an unsafe or unsound banking practice. In such case, the Comptroller could, among other things, commence cease and desist proceedings and the FDIC could commence a proceeding to terminate deposit insurance. CAPITAL REQUIREMENTS - -------------------- The Company and its subsidiaries are subject to various regulatory requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The regulations require that the Company and its banking subsidiaries meet specific capital adequacy guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory practices. The Company's and its banking subsidiaries capital classifications are subject to qualitative judgments by the regulators about components, risks weightings, and other factors. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") provides for, among other things, greater authority for the appointment of a conservator or receiver for undercapitalized institutions. The prompt corrective action regulations of the statute specify five capital categories with the highest rating being "well capitalized." Generally, to be "well capitalized" under the prompt corrective action provisions, an institution must have Tier 1 capital to risk weighted assets and total capital to risk weighted assets of 6% and 10%, respectively, and Tier 1 capital to quarterly average assets of 5%. At December 31, 1996, each of the Company's subsidiary banks exceeded the financial requirements for the "well capitalized" category under such regulations. The Federal Reserve Board has issued risk-based and leverage capital guidelines for bank holding companies like First Commerce. The risk-based guidelines define a two-tier capital framework. Generally, Tier 1 capital consists of common and qualifying preferred shareholders' equity, less goodwill. Generally, Tier 2 capital consists of mandatory convertible debt, subordinated debt and other qualifying term debt, preferred stock not qualifying for Tier 1 and the allowance for loan losses, subject to certain limitations. The regulatory minimum ratio for total capital is 8 percent, of which 4 percent must be Tier 1 capital. In addition, the minimum leverage ratio of Tier 1 capital to quarterly average assets is 4 percent. On December 31, 1996, First Commerce's total capital ratio was 14.7 percent, its Tier 1 ratio was 13.3 percent, and its Tier 1 leverage ratio was 9.4 percent. FOREIGN OPERATIONS - ------------------ The Company and its subsidiaries do not engage in any material foreign activities. ITEM 2. PROPERTIES First Commerce owns its headquarters building, the NBC Center, which is located at 1248 O Streets, Lincoln, Nebraska, in the downtown central business district of the city. Construction of the eleven-story building was completed in March 1976. The Lincoln Bank leases the lower level and five additional floors of the building. The remaining area of the building is leased to the public. At December 31, 1996, First Commerce's subsidiary financial institutions operated a total of seven main banking houses (including the Lincoln Bank's NBC Center location), 17 detached facilities, and 106 automated teller machines. All of the facilities are owned by the respective banks, with the exception of the Lincoln Bank which is housed in the First Commerce owned NBC Center. Additional information with respect to premises and equipment is presented on Page 18 of the Notes to Financial Statements in First Commerce's 1996 Annual Report to Shareholders, which is incorporated herein by reference. For additional description of property owned and operated by First Commerce and each subsidiary, see Item 1. ITEM 3. LEGAL PROCEEDINGS The nature of the business of First Commerce involves, at times, a certain amount of litigation against First Commerce and its subsidiaries involving matters arising in the ordinary course of business; however, in the opinion of the management of First Commerce, there are no proceedings pending to which First Commerce or any of its subsidiaries is a party, or which its property is subject, which, if determined adversely, would be material in relation to the financial condition of First Commerce. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of First Commerce's security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------- The present executive officers of First Commerce, their respective ages and the year each was first elected an officer, are set forth in the following table: Present Office Year First Name Age or Position Elected Officer - ----------------- ---- --------------- ---------------- James Stuart, Jr. 54 Chairman and Chief 1973 Executive Officer Brad Korell 48 Executive Vice President 1990 Stuart Bartruff 42 Executive Vice President- 1987 and Secretary (Principal Financial Officer) Mark Hansen 41 Senior Vice President 1994 Donald Kinley 46 Vice President and Treasurer 1977 (Principal Accounting Officer) The occupations of the executive officers for the last five years are as follows: James Stuart, Jr. was elected Chairman of the Board and Chief Executive Officer on January 19, 1988. Mr. Stuart, Jr. had served as President and Chief Executive Officer of First Commerce since May 3, 1985. Mr. Stuart, Jr. also serves as Chairman and Chief Executive Officer of the Lincoln Bank, and as a director of the remaining subsidiary banks except the West Point Bank. Brad Korell has served as Executive Vice President of First Commerce and as President of the Lincoln Bank since March 7, 1990. Prior to March 1990, Mr. Korell had served as Executive Vice President and Senior Loan Officer of the Lincoln Bank since December 1987. Stuart Bartruff has served as Executive Vice President and Secretary since April of 1994. Prior to April, 1994, Mr. Bartruff served as Senior Vice President- Loan Services since 1988 and was elected Secretary in May of 1992. Mark Hansen was elected Senior Vice President of First Commerce on June 21, 1994. Mr. Hansen has been an employee of the National Bank of Commerce since 1977, beginning as a Loan Analyst and being promoted to Corporate Lending Officer in 1980, Corporate Banking Manager in 1986, Senior Lender Officer in 1990, and Executive Vice President of National Bank of Commerce in 1992, a title he still holds. Donald Kinley was elected as Vice President and Treasurer in April 1993. Prior to that Mr. Kinley served as Vice President and Assistant Treasurer for more than five years. No family relationships exist between any of the executive officers. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1996, Page 1 and Page 27. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1996, Pages 28-31. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1996, Pages 32 through 45, and captioned as " Management's Discussion and Analysis ." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1996, Pages 10 through 26. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the First Commerce Proxy Statement for the Annual Meeting of Shareholders to be held April 15, 1997, under the caption "1. Election of Directors" commencing on Page 2. For information concerning the Executive Officers, see Item 4 at Page 11. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the First Commerce Proxy Statement for the Annual Meeting of Shareholders to be held April 15, 1997, under the caption "Executive Compensation and Other Information." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the First Commerce Proxy Statement for the Annual Meeting of Shareholders to be held April 15, 1997, under the captions "Principal Shareholders" and "1. Election of Directors." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1996, Page 21, Footnote M and incorporated by reference from the First Commerce Proxy Statement for the Annual Meeting of Shareholders to be held April 15, 1997, under the caption "Executive Compensation and Other Information." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS PAGE REFERENCE IN ANNUAL REPORT TO SHAREHOLDERS* Consolidated Balance Sheets as of December 31, 1996 and 1995 ...10 Consolidated Statements of Income for the Three Years Ended December 31, 1996 .....................................11 Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1996 .....................12 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996 ...............................13 Notes to Consolidated Financial Statements .....................14 Independent Auditors' Report ...................................26 Condensed financial statements for parent company only may be found in the Notes to Consolidated Financial Statements, Note P, Pages 23 and 24. All other schedules have been omitted because the required information is presented in the financial statements or in the notes thereto, the amounts involved are not significant or the required subject matter is not applicable. * These items are included in First Commerce's 1996 Annual Report to Shareholders on the pages indicated and are hereby incorporated by reference in this Form 10-K. First Commerce's 1996 Annual Report to Shareholders is an integral part of this Form 10-K. REPORTS ON FORM 8-K There was no Form 8-K's filed in the fourth quarter of 1996. EXHIBITS The following Exhibit Index lists the Exhibits to Form 10-K. Exhibit Number Page No. or Incorporation - ------------------ by Reference to ------------------------- (3) Articles of Incorporation and By-Laws: (a) Articles of Incorporation of First Commerce Bancshares, Inc. Exhibit 3.1 to Form S-1 No. 2-97513* (b) Amendment to Articles of Incorporation Exhibit 3.1(a) to Form 8-K dated dated October 19, 1993. October 19, 1993* (c) Amendment to Articles of Incorporation Exhibit 3 (c) to Form S-4 dated April 19, 1994 No. 33-81190* (d) By-Laws of First Commerce Bancshares, Exhibit 3.1 to Form S-1 Inc. No. 2-97513* (4) Form of Indenture (including form of Capital Note) Exhibit 4(A) to Form S-1 relating to the issuance of $26,500,000 principal No. 33-47328* amount of Capital Notes issued in Series between the Registrant and Norwest Bank Nebraska, N.A., as Trustee. (9) Not applicable. (10) Material contracts. (a) First Commerce Retirement Accumulation Plan and Trust. Exhibit 10(a) to Form 10-K for the year ended December 31, 1992.* (b) First Commerce Profit-Sharing and Thrift Plan and Trust. Exhibit 10(b) to Form 10-K for the year ended December 31, 1992.* (c) First Commerce Supplemental Executive Retirement and Exhibit 10(c) to Form 10-K for Deferred Compensation Plan and Trust Agreement. the year ended December 31, 1992.* (d) Deferred Compensation Plan and Deferred Compensation Exhibit 10(d) to Form 10-K for Trust Agreement dated April 2, 1993 between the the year ended December 31, 1993.* Company and Bradley F. Korell. (e) Deferred Compensation Plan and Deferred Compensation Exhibit 10(e) to Form 10-K for Trust Agreement dated April 2, 1993 between the the year ended December 31, 1993.* Company and Mark W. Hansen. (f) Deferred Compensation Plan and Deferred Compensation Exhibit 10(f) to Form 10-K for Trust Agreement dated April 2, 1993 between the the year ended December 31, 1993.* Company and Stuart L. Bartruff. (g) Dividend Reinvestment Plan and Employee Stock Pur- Exhibit 1 to Form 8-K dated Decem- chase Plan. ber 15, 1995.* (11) Not applicable. (12) Not applicable. (13) Annual Report to Security Holders. (16) Not applicable. (18) Not applicable. (19) Not applicable. (22) Subsidiaries of the Registrant. See Item 1, Page 3. (23) Not applicable. (24) Not applicable. (25) Not applicable. (28) Not applicable. (29) Not applicable. * Exhibit has heretofore been filed with the Securities and Exchange Commission and is incorporated herein as an exhibit by reference.
FINANCIAL STATEMENT SCHEDULES None. SIGNATURES Pursuant to the requirements of Section 13 or 14 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST COMMERCE BANCSHARES, INC. By: James Sturat, Jr. Date: March 18, 1997 ---------------- --------------- James Stuart, Jr. Chairman, Chief Executive Officer and Director By: Stuart Bartruff Date: March 18, 1997 ---------------- --------------- Stuart Bartruff Executive Vice President and Secretary (Principal Financial Officer) By: Donald Kinley Date: March 18, 1997 ------------- --------------- Donald Kinley Vice President and Treasurer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. David T. Calhoun Date: March 18, 1997 - ---------------- --------------- David T. Calhoun, Director Connie Lapaseotes Date: March 18, 1997 - ------------------ --------------- Connie Lapaseotes, Director - --------------------------- Date:_______________ John G. Lowe, III, Director John C. Osborne Date: March 18, 1997 - ---------------- --------------- John C. Osborne, Director _____________________________ Date:_______________ Richard C. Schmoker, Director Kenneth W. Staab Date: March 18, 1997 - ----------------- --------------- Kenneth W. Staab, Director _______________________ Date:_________________ James Stuart, Director James Stuart, Jr. Date: March 18, 1997 - ----------------- --------------- James Stuart, Jr., Director Scott Stuart Date: March 18, 1997 - ------------- --------------- Scott Stuart, Director EX-13 2 1996 ANNUAL REPORT DESCRIPTION OF BUSINESS First Commerce Bancshares, Inc. (the Company) is a multi-bank holding company organized as a Nebraska corporation. The Company's primary business is the ownership and management of seven commercial bank subsidiaries, a mortgage company and an asset management company. These subsidiaries provide a comprehensive range of trust, commercial, consumer, correspondent, and mortgage banking services. The Company provides computer services to banks throughout Nebraska and surrounding states through its subsidiary, First Commerce Technologies, Inc. First Commerce Technologies presently has four computer centers in Nebraska, one in Colorado, two in Kansas, one in Arkansas and one in Florida. The Company is geographically located throughout Nebraska with full service banking offices in Alliance, Bridgeport, Grand Island, Hastings, Kearney, Lincoln, McCook, North Platte and West Point. Loan/deposit production offices are located in Hyannis, Mullen, Snyder, Valentine and Wood River. FINANCIAL HIGHLIGHTS (In Thousands Except Per Share Data) PERCENT AT DECEMBER 31, 1996 1995 CHANGE ---- ---- Assets $2,028,012 $1,815,575 11.7% Investments 649,861 566,176 14.8 Loans 1,121,239 1,017,367 10.2 Deposits 1,574,544 1,463,205 7.6 Stockholders' equity 197,398 180,021 9.7 Per share data: Stockholders' equity before net unrealized gains (losses) on securities available for sale 13.92 12.58 10.7 Total stockholders' equity 14.57 13.27 9.8 Closing bid price Class A 26.50 20.00 32.5 Class B 19.50 14.25 36.8 PERCENT PERCENT YEAR ENDED DECEMBER 31, 1996 CHANGE 1995 CHANGE 1994 ----- ------- ----- -------- ----- Net interest income $70,106 15.1% $60,889 5.4% $57,793 Provision for loan losses 6,839 95.7 3,495 952.7 332 Noninterest income 44,030 30.1 33,850 7.9 31,363 Noninterest expense 73,912 14.8 64,393 7.9 59,663 Net income 21,756 24.9 17,420 (8.5) 19,032 Return on average equity before net unrealized gains (losses) on securities available for sale 12.1% 10.5% 13.4% Per share data: Net income $1.60 $1.29 $1.46 Dividends .26 .227 .216 Global fund (cost) $33,163 $27,327 $23,376 Global fund (fair value) 44,000 34,191 24,834
DEAR STOCKHOLDERS, Our Company had a remarkably successful year in 1996. Before providing in- depth information, let me share some of the more noteworthy achievements in summary form. w NET INCOME INCREASED 24.9% TO $21.8 MILLION. w TOTAL ASSETS INCREASED 11.7% TO $2.028 BILLION. w LOANS INCREASED 10.2% TO $1.12 BILLION AND "MANAGED LOANS" INCREASED 15%. w THREE NEW LOAN/DEPOSIT PRODUCTION OFFICES WERE OPENED BY WESTERN NEBRASKA NATIONAL BANK - ONE IN VALENTINE, ONE IN MULLEN AND ONE IN HYANNIS. LPO/DPOS HAVE ALSO BEEN OPENED IN WOOD RIVER AND IN SNYDER. THESE ARE OPERATING UNITS OF OVERLAND NATIONAL BANK IN GRAND ISLAND AND FIRST NATIONAL BANK IN WEST POINT, RESPECTIVELY. w NEW SENIOR MANAGEMENT HAS BEEN INSTALLED AT FIRST COMMERCE TECHNOLOGIES. w EXCELLENT GROWTH AND PROFITABILITY WAS ACHIEVED BY OUR CREDIT CARD JOINT VENTURE WITH CABELA'S. w OUR MORTGAGE COMPANY HAD EXCELLENT GROWTH AND NOW SERVICES 16,000 LOANS TOTALING OVER $1 BILLION. PROFITS EXCEEDED $1 MILLION FOR THE YEAR. w FIRST COMMERCE OPENED NEARLY 9,000 NET NEW CHECKING ACCOUNTS. w NEW FUNDING SOURCES WERE ADDED OR ENHANCED TO PROVIDE US THE ABILITY TO CONTINUE TO GROW. w A NEW RETAIL BANKING EMPHASIS WAS BEGUN TO ENABLE US TO BETTER COMPETE IN THE CONSUMER MARKET IN FUTURE YEARS. w OUR GLOBAL FUND INCREASED TO $44 MILLION. INVESTMENT RETURNS WERE APPROXIMATELY 17%. w OUR PRIMARY CO-MINGLED EQUITY TRUST FUND MANAGED BY FIRST COMMERCE INVESTORS WAS UP 25% FOR THE YEAR. w OUR CASH DIVIDEND RATE IN 1996 WAS 26 CENTS, UP FROM 22.7 CENTS IN 1995. IN DECEMBER, THE FCB BOARD APPROVED AN INCREASED DIVIDEND FOR 1997 OF 30 CENTS. w LOAN LOSSES, EXCLUDING CREDIT CARD LOSSES, REMAINED AT LOW LEVELS. w GOOD PROGRESS WAS MADE IN OUR TECHNOLOGY ADVANCEMENTS NEEDED TO SUPPORT OUR NEW RETAIL THRUST AND TO SUPPORT FCT CUSTOMERS. For those of you who just want the big picture on 1996 results, you may choose to stop reading here. What follows is a more detailed explanation of the bullet points above and other Company information. Detailed financial reports and footnotes to the statements follow my letter and you may review these at any depth you choose. Our Annual Meeting is scheduled for Tuesday, April 15, 1997, at The Country Club of Lincoln and I invite you to attend. Formal notices will be mailed in March. Needless to say, your management team is proud of this report card. As I have mentioned before, bottom line growth of FCB is not always as consistent as we would like, due at times (such as the previous two years) to upward shifts in interest rates which usually cause our spreads to shrink and interest margin to decline. In 1996, interest rates were generally stable, and our net yield spreads improved 17 basis points to 4.10%. This spread improvement coupled with the strong growth in loans and securities enabled our net interest income to increase by $9 million over 1995 to $70 million in 1996. This improvement, caused partly by our successful growth strategies begun in the early 90's, and partly by an interest rate environment that was favorable to us, was key to our bottom line success in 1996. Our loan growth during the year was excellent, up 10.2% to $1.12 billion at December 31, 1996. During the year, $56 million of credit card receivables were securitized and "sold" into the secondary market. We continue to manage this credit card paper and thus we include this volume in our definition of "managed assets" which increased 15%. Over the past five years, our managed loan assets have increased from $632 million at December 31, 1991 to $1.18 billion, an increase of $548 million, or 87% - an average increase of 17% over the five year period. In addition to the strong asset growth and spread improvement, our fee income was also important to our strong earnings. Many of our business units contributed to our success including our mortgage company, our trust business, our retail investment area, our credit card operation, service charge income due to adding significant new customers and fee income from our loan activities. In addition to these ongoing operating functions, we had an unexpected, but pleasant, tax refund of $405,000, after tax, booked during the first quarter of the year at our McCook bank. Also, $916,000 of after tax gains were taken in Global. At year end, we chose to make a $301,000 after tax donation to the NBC Foundation. The net positive impact on earnings from these three events was $1,020,000. Now, let me comment on some of our operating units and on some of our newer initiatives. FIRST COMMERCE MORTGAGE FCM had a record year with bottom line profits of $1,079,000 and new servicing volume of $226 million, bringing servicing as of December 31, 1996 to $1.038 billion. Doug Alford, President, and his capable staff run an efficient company and provide a very important service to our bank customers, our many correspondent bank customers, and the customers of FCM. We have been in this business for ten years. Over time, we should be able to continue to grow this business both in servicing and in profitability. This business is not only a profit center on its own, but provides important revenue to each of our affiliate banks which originate mortgages for FCM. RETAIL BANKING In the third quarter of 1996, we launched a new initiative designed to make us more competitive in retail banking in future years. We selected Jo Kinsey to run this operation for us. She has a wealth of banking experience, and the enthusiasm and drive to accomplish her mission. Included in this retail thrust will be new services for our customers including telephone bill paying, personal computer banking, and a 24 hour Customer Call Center. Doing a better job for the customer is our focus and our strong level of personal service to our customers will not be lost in this new retail thrust. Investments of additional resources of both people and technology will be needed to make this new approach successful. A year from now we expect to see the beginning of more rapid growth in our retail markets - and over the long run, we intend to be one of the best retail banks in the country. TECHNOLOGY This past year we have paid for new or upgraded personal computers for the entire Company to enable all of us to function in an upgraded Windows environment. Although expensive, it is imperative that we be able to drive the more powerful software programs to maintain excellence in customer service and internal efficiency. In addition, substantial work was done in 1996 and will be completed in 1997 to implement the major new products discussed under our retail strategies including personal computer banking and telephone bill paying. Also scheduled for completion in 1997 is the development of a data base marketing system for use by both our retail banking and our credit card businesses. None of this is moonshot stuff which could cause inordinate risk to the Company. But, it will be important to develop just what we need at reasonable costs. Brad Korell, President of National Bank of Commerce, keeps a watchful eye on these projects to make certain these projects don't take on a life of their own at excessive costs. NBC CREDIT CARD DIVISION NBC's credit card business is now comprised of two basic businesses; 1) management of our proprietary card base (our customers exclusively) and 2) management of our credit card joint venture with Cabela's which we call the Cabela's LLC (Limited Liability Company). On our proprietary card side, we have 78,000 active card customers and $81 million of credit card receivables as of December 31, 1996. This business over the past four years has become extremely competitive with many large players entering the market with attractive features associated with their cards to attract customers. As this has occurred, our losses in this business have increased and attrition has increased causing the business profitability to decline. Our losses are lower than national averages, but have gone up. The increased loan loss provision for FCB, up $3.3 million over 1995 to $6.8 million is nearly all due to credit card and consumer loan charge offs. New technology including a data base warehouse and better prediction tools are seeming to be helpful. Profitability in this business, even with the increased losses, remains very good and thus we are hopeful we can get the losses stabilized or reduced, and then find some card offerings that will be attractive to the market place. We have a new concept planned for rollout in 1997 which we are quite enthusiastic about. Performance of our joint venture with Cabela's has been excellent. Our first rollout took place in May of 1995. We ended 1996 with 66,000 active cards, had $74 million of receivable volume and we achieved our earnings objectives while being fully reserved. Losses in this portfolio are less than in our proprietary business. We continue to be very pleased with the quality of our partner and are anticipating future growth in 1997 and beyond. LOAN QUALITY During the year our loan quality (without credit card) continued to be very good. Non credit card charge offs were $1,518,000, only .14% of total loans. Our troubled loan category (our "Watch List") actually declined to less than .6% of total loans. 1996 was generally a good crop year for our farmers, and fat cattle prices were at levels that enabled our cattle feeding customers to return to profitability. All of this, as well as a strong regional and national economy, strengthened our portfolio. NBC TRUST DIVISION Our Trust Division, led by Steve Caswell, has many highly skilled customer service oriented people. The business increased revenues to $5.8 million in 1996, up 11% over the previous year and produced profits of almost $2 million after all expenses and overhead allocations. Some of this success is due to a higher level of managed assets due to excellent stock and bond market returns, but we also have added new customers fleeing from some of our competitor banks - customers looking for quality service from our trust experts. Our hats are off to this wonderful group of professionals. FIRST COMMERCE TECHNOLOGIES In June of 1996, we hired Patric Jerge to manage our technology company. Since his arrival we have been very pleased with the progress made at FCT. Continued and new emphasis has been placed on customer service and quality. To achieve these results, we have invested in additional people and additional computer power. A new sales leader and a new leader of our software people have also joined the team and have made good progress in our development objectives. At this point, we have signed some important pieces of new business and renewed nearly all existing bank contracts. This continues to be a complicated and competitive business, but we like what we see and the potential for success, if we continue to make progress, is substantial. WESTERN NEBRASKA NATIONAL BANK Western had a good year last year. Net income was $886,000 after goodwill amortization of $267,000. We opened LPOs in Valentine, Mullen and Hyannis to provide service locations to the ranching needs of the entire Sandhills area. We strengthened the home loan origination and retail investment functions and added some technical talent in our operations area. Our note case improved a good deal due to good crops and better prices for our cattle feeders. Our new headquarters building in North Platte will be completed this spring and will add to our operating efficiencies and enable us to serve our customers better. Our new business objectives have been largely successful and Mike Jacobson, President, is the perfect person to continue to lead this drive for more good new business. Added depreciation expense due to the new building and continued amortization expense will require us to continue with our rapid growth in order to cover this overhead. FIRST COMMERCE INVESTORS FCI, our investment company, had a very good year. They (10 people) have two primary customers - The National Bank of Commerce Trust Division where they manage the co-mingled funds and individual trust assets, and First Commerce Bancshares where they help me manage the Global Fund. The Company is led by James Stuart, III, Chairman and CEO, and H. Cameron Hinds, President and Chief Investment Officer. Equity Fund C increased in value by 25%, putting that fund performance in the top 12% of similar type funds. Global achieved returns of approximately 17%, which was better than the global indexes we measure ourselves against. We plan to convert our co-mingled equity funds and our bond funds to mutual funds in 1997 providing us with a larger market for our managed funds and making our products more user friendly. We have a singular purpose at FCI: selecting and buying stocks that produce excellent returns to our customers over a three to five year timeframe. We are investment driven - good investment returns will attract new business. CORPORATE - GENERAL We are pleased to see that our stock price (Class B) improved nicely in 1996 from $14.25 in January to $19.50 in December, an increase of 37%. We continue to be surprised and disappointed over the spread between Class A and Class B shares - a spread that should be minimal. Your Board in December increased the cash dividend rate to 30 cents per year, beginning in March of 1997. This is approximately a 17% dividend payout rate. As earnings improve, dividends will keep pace. We looked at a few acquisitions this past year and made none. Due to the fact that we choose not to use our Class A voting stock when making acquisitions, we are not allowed to use an accounting method called "pooling" in our acquisitions. This makes the future earnings results of a high priced cash acquisition generally look very disappointing, since all of the purchase price in excess of fair value of net assets must be booked as goodwill, and written off against earnings over 15 years. When excellent synergies exist, we will look hard; otherwise, it is a lot more profitable to grow from within or to buy our own stock at half the price of most acquisitions. Needless to say, we don't agree with this accounting treatment. We purchased 22,682 shares of FCB Class B stock during the year and will buy more as the price is right. This investment of Company funds compares very favorably to paying 2x book value or more for another bank and having to write off half of it. We have very little term debt - $18.5 million at December 31, 1996. We will retire $2.5 million of this in 1997. This issue becomes callable in 1999. Our modest leverage position adds excellent flexibility and stability to our Company. We currently have $4 million of FCB Commercial Paper outstanding which we intend to use as a funding source for our subsidiary banks. Last summer we completed our first "sale" of securitized credit card receivables. In excess of fifty million dollars was sold, enabling us to continue our asset growth when raising deposits to fund this growth becomes too costly. EXPENSES Another area of ongoing importance to me is control of our expenses. Our expense reduction program was quite successful this past year with costs being reduced by $1 million. However, when you look at total non interest expenses, the increases were substantial, up 14.8%, nearly $10 million. Accounting rules require that we add up the similar expense categories such as equipment rental and depreciation, salaries and benefits, etc. of each of our businesses that are not necessarily similar, and it sometimes causes distortions. That is why I like to point out in this letter the financial results of some specific operating units and how they on a stand alone basis really performed, such as the mortgage company and our credit card division. Included in this other noninterest expense, for example, are increased BankCard fees which were up $3.3 million, almost entirely due to costs incurred in the Cabela's LLC, and which had fee income on the revenue side to offset this. Another big number in the other expense category was an increase in minority interest expense of $764,000, a large part being Cabela's share of the LLC profit. On Page 43 of this report is a very detailed explanation of this entire category of expenses if you care to study further. We are watching and working on expenses. We also don't mind spending or investing reasonable amounts of money to enable us to make more, or to improve service levels, so we can keep what we have. This is called investing. We are, however, geared for growth, as without growth, over the long run, expenses such as heat, lights, telephones, technology and people costs, will eat us up. Short term, expenses can be cut, but the impact on long term success of a major "re-engineering" through expense slashing can be a disaster if you plan to create long term success. The graphs to the right highlight the foregoing. What clearly is important is balance which we believe we have. When we compare ourselves to our peer group, our net non interest expense is much less than the averages. For the past few years, our asset growth has been excellent, and in 1996, due to some degree having favorable interest rates, the results of the excellent growth impacted the bottom line favorably. We need to be mindful that the economy, other than the cattle markets, has been excellent. Just as with stock markets, we all know things just aren't great all the time. We have had things our way for some time now. Our forecasts for this new year look pretty good. We budgeted for managed loan growth of about 10%. I don't know where these loan increases are coming from at this writing, but we do have good momentum, and we do have many good people out knocking on doors, looking for good business. The technology advances we are making are important, but at the same time, our continued commitment to outstanding personal customer service will be unwavering and important to our continued success. Brad Korell and I get many, many letters and people stop us on the street to share with us their appreciation of the excellent service they receive from our people. Our people are really good, and it keeps our customers and their friends coming back for more. There are many wonderful service success stories all across our organization. This is a large part of what we are about and a major part of why we are winning. We keep working on being better and finding new people or businesses to serve. If you have any ideas where you think you can help us, drop me a note or give me a call. As always, we have lots of work to do. Many thanks for your support. Sincerely, James Stuart, Jr. Chairman and CEO INDEX TO FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS.............................10 CONSOLIDATED STATEMENTS OF INCOME.......................11 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.........12 CONSOLIDATED STATEMENTS OF CASH FLOWS...................13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............14 INDEPENDENT AUDITORS' REPORT............................26 SELECTED QUARTERLY FINANCIAL DATA.......................27 SELECTED FINANCIAL DATA.................................28 MANAGEMENT'S DISCUSSION AND ANALYSIS....................32 OFFICERS AND DIRECTORS..................................46 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------- 1996 1995 ----- ---- (Amounts In Thousands) ASSETS Cash and due from banks $ 131,309 $ 102,451 Federal funds sold 28,528 32,738 Cash and cash equivalents 159,837 135,189 Mortgages held for sale 16,293 25,574 Securities available for sale (cost of $366,181,000 and $351,076,000) 379,849 365,494 Securities held to maturity (fair value of $271,886,000 and $200,739,000) 270,012 200,682 Loans 1,121,239 1,017,367 Less allowance for loan losses 20,157 19,017 --------- --------- Net loans 1,101,082 998,350 Accrued interest receivable 20,193 18,690 Premises and equipment 48,695 48,036 Other assets 32,051 23,560 ---------- ---------- $2,028,012 $1,815,575 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest bearing $ 328,826 $ 277,679 Interest bearing 1,245,718 1,185,526 --------- --------- 1,574,544 1,463,205 Securities sold under agreement to repurchase 134,212 92,726 Federal funds purchased and other short-term borrowings 45,980 5,214 Accrued interest payable 7,650 7,530 Accrued expenses and other liabilities 15,255 11,360 Long-term debt 52,973 55,519 --------- --------- Total liabilities 1,830,614 1,635,554 Commitments and contingencies Stockholders' equity: Common stock: Class A voting, $.20 par value; authorized 10,000,000 shares; issued and outstanding 2,606,336 shares; 521 521 Class B nonvoting, $.20 par value; authorized 40,000,000 shares; issued and outstanding 10,940,651 and 10,963,348 shares 2,188 2,193 Paid-in capital 21,628 21,665 Retained earnings 164,176 146,269 Net unrealized gains (losses) on securities available for sale (net of tax) 8,885 9,373 ------- ------- Total stockholders' equity 197,398 180,021 ---------- ---------- $2,028,012 $1,815,575 ========== ==========
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ----- ---- ---- (Amounts In Thousands Except Per Share Data) Interest income: Loans $ 97,228 $ 85,494 $ 68,380 Securities: Taxable 32,885 31,943 28,264 Nontaxable 1,483 1,610 1,510 Dividends 913 771 602 Mortgages held for sale 1,953 1,213 865 Federal funds sold 2,037 2,966 2,161 ------- ------- ------ Total interest income 136,499 123,997 101,782 Interest expense: Deposits 55,315 55,156 38,833 Short-term borrowings 7,341 4,835 3,195 Long-term debt 3,737 3,117 1,961 ------- ------- ------ Total interest expense 66,393 63,108 43,989 ------- ------- ------- Net interest income 70,106 60,889 57,793 Provision for loan losses 6,839 3,495 332 ------- ------- ------- Net interest income after provision for loan losses 63,267 57,394 57,461 Noninterest income: Computer services 8,491 8,147 8,293 Credit card 10,591 4,965 4,289 Mortgage banking 4,868 3,571 2,997 Service charges on deposits 5,231 4,893 4,849 Other services charges and fees 6,217 5,293 5,007 Trust services 5,840 5,272 5,007 Gains on securities sales 1,672 581 182 Other income 1,120 1,128 739 ------ ------- ------- Total noninterest income 44,030 33,850 31,363 ------ ------ ------- Noninterest expense: Salaries and employee benefits 35,808 33,101 29,647 Net occupancy expense 3,980 3,815 3,552 Equipment rentals, depreciation and maintenance 5,523 4,770 4,900 Communications 4,159 3,647 3,215 Business development 3,990 2,649 2,624 Supplies 2,404 2,395 1,911 Fees and insurance 10,825 8,868 9,366 Other expenses 7,223 5,148 4,448 ------ ------- ------- Total noninterest expense 73,912 64,393 59,663 ------ ------ ------ Income before income taxes 33,385 26,851 29,161 Income tax provision 11,629 9,431 10,129 ------ ------ ------ Net income $ 21,756 $ 17,420 $ 19,032 ======= ====== ======== Weighted average shares outstanding 13,566 13,497 13,071 ======= ====== ====== Net income per share $1.60 $1.29 $1.46 ===== ===== ===== See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET UNREALIZED CLASS A CLASS B GAINS (LOSSES) COMMON COMMON PAID-IN RETAINED TREASURY ON SECURITIES STOCK STOCK CAPITAL EARNINGS STOCK AVAILABLE FOR SALE ------------ ------- ------- -------- -------- ------------------ (Amounts in Thousands) Balance, January 1, 1994 $521 $2,085 $14,183 $116,699 $ - $ 3,805 Purchase of treasury stock - - - - (1,088) - Issuance of Class B common stock in bank acquisition, net of cost of $87,000 - 65 3,829 - - - Cash dividends ($.216 per share) - - - (2,823) - - Change in net unrealized gains (losses) on securities available for sale, net of tax effect of $3,744,000 - - - - - (6,954) Net income - - - 19,032 - - Balance, December 31, 1994 521 2,150 18,012 132,908 (1,088) (3,149) Purchase of treasury stock - - - - (82) - Retirement of treasury stock - (19) (154) (997) 1,170 - Cash dividends ($.227 per share) - - - (3,062) - - Issuance of Class B common stock in bank acquisition, net of cost of $35,000 - 62 3,807 - - - Change in net unrealized gains (losses) on securities available for sale, net of tax effect of $6,742,000 - - - - - 12,522 Net income - - - 17,420 - - Balance, December 31, 1995 521 2,193 21,665 146,269 - 9,373 Purchase and retirement of stock - (5) (37) (321) - - Cash dividends ($.26 per share) - - - (3,528) - - Change in net unrealized gains (losses) on securities available for sale, net of tax effect of $262,000 - - - - - (488) Net income - - - 21,756 - ---- ------ ------- -------- ------------ -------- Balance, December 31, 1996 $521 $2,188 $21,628 $164,176 $ - $ 8,885 ==== ====== ======= ======== ========== ======
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ------------------------------- 1996 1995 1994 ---- ---- ---- (Amounts in Thousands) Net income $ 21,756 $ 17,420 $ 19,032 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 7,901 6,034 5,868 Provision for loan losses 6,839 3,495 332 Deferred income taxes (491) (81) 512 Gain on sales of mortgages and securities (1,445) (605) (17) Changes in assets and liabilities: Accrued interest receivable (1,503) (3,725) (1,097) Accrued interest payable 120 1,623 1,541 Other assets (759) (3,581) 1,558 Accrued expenses and other liabilities 224 1,187 (973) Purchase of mortgages held for sale (350,675) (216,875) (154,550) Proceeds from sales of mortgages held for sale 359,803 196,128 174,760 Other (1,450) 2,871 (345) -------- -------- -------- Total adjustments 18,564 (13,529) 27,589 -------- -------- -------- Net cash flows from operating activities 40,320 3,891 46,621 Cash flows from investing activities: Proceeds from sale of securities held to maturity 502 6,015 21,038 Proceeds from maturities of securities held to maturity 123,744 91,751 131,443 Purchases of securities held to maturity (193,574) (33,659) (129,548) Proceeds from sale of securities available for sale 8,913 18,706 76,264 Proceeds from maturities of securities available for sale 71,553 80,850 53,348 Purchases of securities available for sale (93,591) (165,555) (166,591) Net increase in loans (165,571) (140,074) (59,341) Securitization and sale of credit card loans 56,000 - - Purchase of premises and equipment (6,229) (7,761) (3,368) Cash and cash equivalents from bank acquisition, net of cash expenses - 1,775 3,939 Other (4,484) (2,457) 562 --------- --------- -------- Net cash flows from investing activities (202,737) (150,409) (72,254) Cash flows from financing activities: Net increase in deposits 111,339 69,550 300 Change in short-term borrowings 82,252 24,808 (1,267) Proceeds from long-term debt 10,000 24,269 10,000 Repayment of long-term debt (12,546) (2,000) (2,000) Repurchase of common stock (363) (82) (1,088) Cash dividends paid (3,528) (3,062) (2,823) Other (89) (81) (97) -------- -------- -------- Net cash flows from financing activities 187,065 113,402 3,025 -------- ------- -------- Net change in cash and cash equivalents 24,648 (33,116) (22,608) Cash and cash equivalents at beginning of year 135,189 168,305 190,913 ------- -------- -------- Cash and cash equivalents at end of year $159,837 $135,189 $168,305 ======== ======== ======== Supplemental disclosure: Interest paid $66,210 $61,422 $42,380 Income taxes paid 12,540 9,484 10,186 Common stock exchanged for acquisition of bank net of cash and cash equivalents - 3,869 3,894 See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Columnar amounts in footnotes are in thousands except per share amounts) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS - First Commerce Bancshares, Inc. (the Company) is a multi-bank holding company whose primary business is providing the normal banking functions of trust, commercial, consumer, correspondent, and mortgage banking services through its Nebraska based banks and affiliated organizations. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Certain prior years' amounts have been reclassified to conform to current year's classifications. Assets held in agency or fiduciary capacities are not assets of the subsidiary banks and accordingly, are not included in the accompanying financial statements. USE OF ESTIMATES -In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and income and expense for the period. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the adequacy of the allowance for loan losses. CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company considers cash, due from banks, federal funds sold and certain securities that are purchased and sold for one-day periods to be cash equivalents. MORTGAGES HELD FOR SALE - Mortgages held for sale are stated at the lower of aggregate cost or market. Net unrealized losses are recognized through a valuation allowance by charges to expense. SECURITIES - Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held to maturity, and are reported at amortized cost. Securities that are acquired and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at their fair values, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held to maturity or trading securities are classified as available for sale securities and reported at fair value, with unrealized gains and losses reported, net of tax, as a separate component of stockholders' equity. Realized gains and losses on sales of investments are recognized on the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. LOANS - Loans are stated at the principal amount outstanding, net of the allowance for loan losses. Interest on loans is calculated by the interest method on the daily outstanding principal balance. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. Certain direct loan costs and fees are deferred and recognized over the life of the loan on the interest method. Annual bank card fees are recognized on a straight-line basis over the period that cardholders may use the card. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an estimate of the amount that management believes will be adequate to absorb possible losses based on prior loan loss experience, the nature and volume of the loan portfolio, review of specific problem loans and an evaluation of the overall portfolio quality under current economic conditions. A change in the economy can quickly affect the financial status of borrowers and loan quality. Such changes can require significant adjustments in the allowance for loan losses on very short notice and are possible in the future. Impaired loans are measured based on either the present value of expected future cash flows discounted at the loan's effective rate, the market price of the loan, or, the method predominately used by the Company, the fair value of the underlying collateral if the loan is collateral dependent. Specific reserves are established for any impaired loan for which the recorded investment exceeds the measured value of the loan. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the terms of the respective leases or the useful lives of the improvements, whichever is shorter. OTHER REAL ESTATE OWNED - Other real estate owned is carried at the lower of fair value, minus estimated costs to sell, or the balance of the loan on the property at the date of acquisition. Gains or losses from the sale of other real estate owned or further reductions in the carrying value from a decline in the property value are charged against operating expenses. The Company did not have any other real estate owned at December 31, 1996 and 1995. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE - The Company enters into sales of securities under agreement to repurchase with customers of the subsidiary banks, which provide for the repurchase of the same security. These agreements may be open ended or of a specific term in length. Securities sold under agreement to repurchase identical securities are collateralized by assets which are held in a safekeeping agent account at the Federal Reserve. LOAN SERVICING - Effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage Servicing Rights, an amendment to FASB Statement No. 65," on a prospective basis. SFAS 122 provides that an institution that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. Mortgage servicing rights should be amortized in proportion to and over the period of estimated net servicing income and should be evaluated for impairment based on their fair value. The impairment evaluation should stratify the mortgage servicing rights based upon one or more of the predominant risk characteristics of the underlying loans. The effect of adopting SFAS 122 was not significant to the financial statements or results of operations. The unamortized purchased servicing rights included in other assets were $5,666,000 and $2,999,000 at December 31, 1996 and 1995, respectively. The amount of mortgage loans serviced for others approximated $1,038,021,000, $812,351,000 and $707,327,000 at December 31, 1996, 1995, and 1994, respectively. As of December 31, 1996, credit card loans of $56,000,000 were serviced for others. As of December 31, 1996 and 1995, the fair value of the Company's capitalized mortgage servicing rights (including mortgage servicing rights purchased) was approximately $18.5 million and $11.0 million, respectively. There was no valuation allowance for impairment relative to such rights. Fair value was estimated by determining the present value of the estimated future cash flows using discount rates commensurate with the risks involved. The predominant risk characteristics which the Company uses to stratify mortgage servicing rights are loan type, interest rate and origination date. INCOME TAXES - The Company and its subsidiaries file a consolidated income tax return. The amount of income taxes payable or refundable is recognized in the current year and deferred tax assets and liabilities are reflected on items that are recognized in different time periods for financial accounting and income tax purposes using the then current enacted tax rates on the asset and liability method. NET INCOME PER SHARE - Net income per share is based on the weighted average number of shares of common stock outstanding. ACCOUNTING PRONOUNCEMENTS - In June 1996, Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued. The statement establishes accounting standards of the transfers and servicing of financial assets and extinguishments of liabilities. The Company does not expect the adoption of this statement to be material to the consolidated financial statements. B. RESTRICTED CASH BALANCES The average compensating balances held at correspondent banks during 1996 and 1995 were $11,498,000 and $9,844,000 respectively. The subsidiary banks maintain such compensating balances to offset charges for services rendered by the correspondent banks. In addition, the Federal Reserve Bank required the subsidiary banks to maintain average balances of $27,232,000 and $23,717,000 for 1996 and 1995, respectively, as a reserve requirement. C. SECURITIES Debt and equity securities have been classified in the consolidated balance sheets according to management's intent. The amortized cost of securities and their estimated fair values at December 31 were as follows.
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- SECURITIES AVAILABLE FOR SALE: DECEMBER 31, 1996 - ----------------- U.S. government and agency securities $242,680 $ 4,160 $ (259) $246,581 Mortgage-backed securities 83,505 122 (1,215) 82,412 Marketable equity securities 39,996 11,343 (483) 50,856 -------- ------- --------- -------- Totals $366,181 $15,625 $(1,957) $379,849 DECEMBER 31, 1995 - ------------------ U.S. government and agency securities $210,976 $ 8,415 $ (86) $219,305 Mortgage-backed securities 109,345 223 (1,031) 108,537 Marketable equity securities 30,755 7,193 (296) 37,652 -------- ------- ---------- -------- Totals $351,076 $15,831 $(1,413) $365,494 SECURITIES HELD TO MATURITY: DECEMBER 31, 1996 - ----------------- U.S. government and agency securities $118,840 $1,436 $(236) $120,040 States and political subdivision securities 28,747 346 (45) 29,048 Mortgage-backed securities 121,738 890 (506) 122,122 Other 687 2 (13) 676 -------- ------- ------- -------- Totals $270,012 $2,674 $(800) $271,886 DECEMBER 31, 1995 - ----------------- U.S. government and agency securities $ 39,188 $ 491 $ (89) $ 39,590 States and political subdivision securities 32,777 499 (90) 33,186 Mortgage-backed securities 126,752 209 (970) 125,991 Other 1,965 23 (16) 1,972 -------- ------- --------- -------- Totals $200,682 $1,222 $(1,165) $200,739
The amortized cost and estimated fair value of debt securities at December 31, 1996, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
HELD TO MATURITY AVAILABLE FOR SALE ----------------------- ------------------------ ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ---------- -------- --------- -------- Due in one year or less $ 12,598 $ 12,646 $ 31,761 $ 31,990 Due after one year through five years 39,923 40,492 200,918 204,548 Due after five years through ten years 92,110 92,970 10,001 10,043 Due after ten years 3,643 3,656 - - ------- ------- -------- --------- 148,274 149,764 242,680 246,581 Mortgage-backed securities 121,738 122,122 83,505 82,412 ------- -------- ------- ------- $270,012 $271,886 $326,185 $328,993 ======== ======== ======== ======= The following table presents the securities portfolio sales activities for the years ended December 31, 1996, 1995 and 1994. All sales of securities held to maturity were within three months of the securities' maturities, or were early calls of the securities. 1996 1995 1994 HELD AVAILABLE HELD AVAILABLE HELD AVAILABLE TO FOR TO FOR TO FOR MATURITY SALE MATURITY SALE MATURITY SALE Proceeds from sales of securities $502 $8,913 $6,015 $18,706 $21,038 $76,264 Gross gains of sales of securities 2 1,821 20 1,069 73 943 Gross losses on sales of securities 0 (151) (6) (502) (30) (804) Income taxes on securities' net gains 1 584 5 198 15 49 First Commerce Bancshares & Subsidiaries o 36 Securities with a carrying value of $438,547,000 at December 31, 1996, and $437,476,000 at December 31, 1995, were pledged to secure obligations under repurchase agreements or to secure public or trust deposits in the normal course of business. At December 31, 1996 and 1995, state and political subdivision securities with an amortized cost of $24,400,000 and $27,667,000, respectively, and an estimated fair value of $24,549,000 and $27,854,000, respectively, were issued by State of Nebraska political subdivisions.
D. LOANS
Loans at December 31 are summarized as follows: 1996 1995 ---------- --------- Real estate mortgage $ 332,913 $ 295,268 Consumer 271,906 263,320 Commercial and financial 245,873 201,910 Agricultural 130,071 126,414 Credit card 98,895 108,641 Real estate construction 41,581 21,814 ---------- ---------- $1,121,239 $1,017,367
Although the loan portfolio is well diversified by industry, virtually all of the Company's loans are to Nebraska-based organizations, except credit card loans which are concentrated in the Midwest. The Nebraska economy is dependent upon the general state of the agricultural economy. As of December 31, 1996 and 1995, there were $3,429,000 and $1,700,000, respectively, of nonaccruing loans. The amount of restructured loans as of December 31, 1996 and 1995 was not significant. The Company's policy for requiring collateral and guarantees varies with the creditworthiness of each borrower. The portfolio is generally secured by accounts receivable, inventory, property, plant and equipment, income producing commercial properties, marketable securities or interest-bearing time deposits. Impaired loans were $2,595,000 and $2,472,000 at December 31, 1996 and 1995, respectively. The total allowance for loan losses related to these loans was $402,000 and $463,000 at December 31, 1996 and 1995, respectively. Interest income on impaired loans of $194,000 and $192,000 was recognized for cash payments received in 1996 and 1995, respectively. Average impaired loans for 1996 and 1995 were $2,627,000 and $1,844,000, respectively. E. ALLOWANCE FOR LOAN LOSSES Transactions in the allowance for loan losses are summarized as follows:
1996 1995 1994 ------- ------- ------- Balance, January 1 $19,017 $17,190 $18,461 Provision for loan losses 6,839 3,495 332 Bank acquisition - 843 326 ------ ------ ------ Total 25,856 21,528 19,119 Net charge-offs: Loans charged-off 7,794 4,657 3,723 Less recoveries 2,095 2,146 1,794 ------ ------ ------ Net loans charged-off 5,699 2,511 1,929 ------- ------- ------- Balance, December 31 $20,157 $19,017 $17,190 ======= ======= =======
F. PREMISES AND EQUIPMENT Premises and equipment at December 31 consists of the following:
1996 1995 -------- ------ Land $ 7,308 $ 6,973 Buildings and leasehold improvements 57,086 53,450 Equipment and furnishings 32,449 34,420 -------- ------- 96,843 94,843 Less accumulated depreciation 48,148 46,807 -------- ------- $48,695 $48,036 ======= =======
The Company has certain obligations under noncancelable operating leases for premises and equipment. Most of these leases have renewal or purchase options. Rental expense on all leases for the years ended December 31, 1996, 1995 and 1994, was approximately $1,587,000, $1,352,000, and $1,361,000, respectively. The approximate future minimum rental commitments under noncancelable leases are as follows: PREMISES EQUIPMENT TOTAL --------- --------- ------- 1997 $ 611 $888 $1,499 1998 461 231 692 1999 342 61 403 2000 267 48 315 2001 217 6 223 Thereafter 4,685 - 4,685 G. DEPOSIT MATURITIES Maturities of time deposits at December 31, 1996 are as follows: 1997 $708,030 1998 95,083 1999 15,669 2000 4,841 2001 886 Thereafter 41 H. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE Amounts and interest rates related to securities sold under agreement to repurchase are as follows:
1996 1995 -------- --------- Amount outstanding at year-end $134,212 $ 92,726 Average interest rate outstanding at year-end 4.7% 5.0% Highest amount outstanding as of any month-end during the year 146,151 101,912 Average amount outstanding during the year 125,639 85,384 Approximate average interest rate 4.7% 5.1%
I. LONG-TERM DEBT Long-term debt at December 31 is as follows: 1996 1995 ------- ------- Capital notes, 7.50% to 8.70%, due 1997 to 2002 $18,500 $21,000 Federal Home Loan Bank advances, due 1997 and 1998 34,269 34,269 Other 204 250 ------ ------ $52,973 $55,519 ======= ======= The capital notes were issued on June 1, 1992, in series pursuant to an indenture dated May 1, 1992. Each series of capital notes is payable May 1. Interest is payable semi-annually on May 1 and November 1. The capital notes are subject to redemption at the option of the Company at any time on or after May 1, 1999, at a redemption price equal to 100% of the principal amount thereof together with the accrued interest to the redemption date. The indenture provides that the Company will not create, assume, incur or suffer to exist any mortgage or other liens upon the shares of capital stock of any significant bank subsidiary (of which the National Bank of Commerce is the only one at present) owned by the Company unless certain conditions are met. The indenture also provides that the Company will not permit its debt to tangible equity ratio to exceed 30%. The Company's debt to tangible equity ratio was 10% as of December 31, 1996. The Federal Home Loan Bank (FHLB) advances of $34,269,000 were made to subsidiary banks. These advances are due in 1997 and 1998. Interest is paid monthly of which $10,000,000 bears interest based upon the national prime rate, 5.90% at December 31, 1996. The balance bears fixed interest rates of 5.71% to 6.15%. The advances are collateralized by a blanket pledge of mortgage loans and certain investment securities. Scheduled principal payments of long-term debt for the five years following December 31, 1996 are: 1997 $26,807 1998 12,541 1999 2,545 2000 2,048 2001 2,032 J. INCOME TAXES Consolidated income tax expense for the years ended December 31 consists of the following:
1996 1995 1994 ------- ------ ------ Current provision: Federal $11,420 $8,857 $ 8,985 State 700 655 632 ------ ----- ------ 12,120 9,512 9,617 Deferred income taxes (491) (81) 512 ------- ------ ------- Total consolidated income tax provision $11,629 $9,431 $10,129 ======= ====== ======= The effective rate of total tax expense differs from the statutory federal tax rate as follows: 1996 1995 1994 ----- ----- ----- Tax at federal statutory rate 35% 35% 35% Tax-exempt interest on obligations of state and political subdivisions (2) (2) (2) Other 2 2 2 ---- ---- ---- Effective tax rate 35% 35% 35% ==== ==== ==== Significant items comprising the Company's net deferred tax asset as of December 31, 1996, 1995 and 1994 are as follows: DEFERRED TAX ASSETS: 1996 1995 1994 ---- ---- ----- Allowance for loan losses $6,929 $6,509 $5,912 Net unrealized gains and losses on securities available for sale - - 1,696 Other 1,495 1,132 1,213 ------ ----- ----- Total deferred tax assets 8,424 7,641 8,821 DEFERRED TAX LIABILITIES: Net unrealized gains and losses on securities available for sale 4,783 5,046 - Premises and equipment 1,833 2,133 2,175 Other 920 328 255 ----- ----- ----- Total deferred tax liabilities 7,536 7,507 2,430 ------ ------ ------ Net deferred tax asset $ 888 $ 134 $6,391 ======= ====== ====== K. ADVERTISING COSTS The Company expenses costs of advertising, except for direct-response advertising relating to its bankcard joint venture, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of direct-response mailings and telemarketing costs. The capitalized costs of the advertising are amortized over the five year period following completion of the advertising campaign. At December 31, 1996 and 1995, $1,952,000 and $1,700,000, respectively, of advertising costs are reported in other assets. L. COMMITMENTS AND CONTINGENT LIABILITIES The Company's consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business to meet the financing needs of customers. These include commitments to extend credit and standby letters of credit. These instruments involve, in varying degrees, elements of credit, interest rate and liquidity risk in excess of the amount recognized in the consolidated balance sheet. The extent of the Company's involvement in various commitments or contingent liabilities is expressed by the contract amount of such instruments. Commitments to extend credit, excluding mortgage banking operations, amounted to $360,310,000 and $341,073,000 (exclusive of $799,306,000 and $718,957,000 of unused approved lines of credit related to credit card loan agreements) at December 31, 1996 and 1995, respectively. These commitments are agreements to lend to a customer as long as all conditions established in the contract are fulfilled. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis in conjunction with the normal lending function. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based upon management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income-producing commercial properties, marketable securities and interest- bearing time deposits. The Company's commitments to extend credit in its mortgage banking operations amounted to approximately $31,350,000, and $51,800,000 at December 31, 1996 and 1995, respectively. Credit policies in the Company's mortgage banking operations are designed to satisfy the requirements of the secondary mortgage market. These requirements, among others, include that the loans which are subject to these commitments be secured by a first position in the underlying property and meet certain maximum loan-to-value and insurance requirements. Mandatory commitments to deliver residential mortgages are binding agreements to sell mortgage loans to investors at fixed prices and expiration dates. The Company could incur pair-off costs should it be unable to fulfill its obligation, which could occur if an insufficient level of conforming closed loans is available for delivery by the specified date. This exposure is less than the contract amount of the commitment and is determined by the delivery shortfall and the then current market interest rates. The Company monitors its position relative to these commitments to deliver on a daily basis. The Company had mandatory commitments to deliver residential mortgage loans totaling approximately $38,425,000 and $54,105,000 as of December 31, 1996 and 1995, respectively. The Company has an agreement to sell on a best efforts basis $1,119,000 as of December 31, 1996. Standby and commercial letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third party. These guarantees primarily consist of performance assurances made on behalf of customers who have a contractual commitment to produce or deliver goods or services. Most guarantees are for one year or less. The risk to the Company arises from its obligation to make payment in the event of the customers' contractual default. The amount of collateral obtained, if deemed necessary by the Company, is based upon management's credit evaluation of the customer. The Company had $22,607,000 and $18,238,000 in letters of credit outstanding at December 31, 1996 and 1995, respectively. The Company is involved in various legal actions in the normal course of business. Management is of the opinion that none of these legal actions will result in losses material to the financial position of the Company. M. RELATED PARTY TRANSACTIONS As of December 31, 1996, the subsidiary banks had various loans outstanding to related parties (executive officers, directors, loans guaranteed by directors and companies employing a director of the Company and its significant subsidiaries). The Company believes these loans have been made under comparable terms and conditions as loans made to unrelated parties. An analysis of aggregate loans to these related parties of the Company and its significant subsidiaries for the year ended December 31, 1996 is shown below: BEGINNING ENDING BALANCE ADDITIONS PAYMENTS BALANCE -------- --------- -------- ------- $33,026 $105,606 $115,373 $23,259 N. EMPLOYEE BENEFIT PLANS The Company has two employee retirement plans. The Retirement Accumulation Plan is a noncontributory defined contribution plan covering substantially all employees with six months of service. Annual contributions are based upon defined compensation of covered employees. Company cost for this plan was $1,020,000 in 1996, $968,000 in 1995 and $953,000 in 1994. The Profit Sharing and Thrift Plan is a contributory, defined contribution plan covering substantially all employees with six months of service. Employee contributions vary from 0 to 12% of compensation. The Company contribution, subject to certain limitations, is based upon employee contributions and profitability. Company cost for this plan was $1,289,000 in 1996, $1,009,000 in 1995 and $1,016,000 in 1994. O. REGULATORY MATTERS One of the principal sources of cash of the Company is dividends from its subsidiary banks. The total dividends that can be declared by the subsidiary banks without receiving prior approval from regulatory authorities are limited to a bank's defined net income of that year combined with its retained defined net income from the previous two years. For the calendar year 1997, the subsidiary banks have retained defined net income from 1996 and 1995 of approximately $18,147,000. The Company and its subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The regulations require the Company to meet specific capital adequacy guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As of December 31, 1996, the most recent notification from the OCC, categorized the Company's banking subsidiaries as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institutions' categories. Management believes, as of December 31, 1996, that the Company and its subsidiary banks meet all capital adequacy requirements to which they are subject. The Company's and the National Bank of Commerce's (the Company's most significant bank subsidiary) actual capital amounts and ratios are presented in the following table:
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS --------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- ----- ------ ------ ------ ----- AS OF DECEMBER 31, 1996: Total Capital (to Risk Weighted Assets): Consolidated $200,441 14.7% $108,954 8.0% N/A National Bank of Commerce 99,860 12.3 65,170 8.0 $81,463 10.0% Tier I Capital (to Risk Weighted Assets): Consolidated 181,269 13.3 54,477 4.0 N/A National Bank of Commerce 89,677 11.0 32,585 4.0 48,878 6.0 Tier I Capital (to Quarterly Average Assets): Consolidated 181,269 9.4 77,167 4.0 N/A National Bank of Commerce 89,677 8.0 45,006 4.0 56,258 5.0 AS OF DECEMBER 31, 1995: Total Capital (to Risk Weighted Assets): Consolidated $178,307 14.8% $96,236 8.0% N/A National Bank of Commerce 90,309 12.5 57,994 8.0 $72,492 10.0% Tier I Capital (to Risk Weighted Assets): Consolidated 161,128 13.4 48,118 4.0 N/A National Bank of Commerce 81,248 11.2 28,997 4.0 43,495 6.0 Tier I Capital (to Quarterly Average Assets): Consolidated 161,128 9.2 70,379 4.0 N/A National Bank of Commerce 81,248 8.0 40,621 4.0 50,776 5.0
P. CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS (Parent Company Only) DECEMBER 31, ----------------- 1996 1995 ----- ----- ASSETS Cash on deposit with subsidiaries $ 102 $ 56 Securities purchased under agreement to resell to subsidiary bank 4,770 4,130 Short-term investments 463 1,375 ------ -------- Cash and cash equivalents 5,335 5,561 Securities available for sale (cost of $36,849,000 and $29,704,000) 47,686 36,568 Investment in subsidiaries: Equity in net assets of bank subsidiaries 147,703 142,059 Equity in net assets of nonbank subsidiaries 1,050 9,202 Excess cost over fair value of net assets 3,840 3,979 Premises and equipment 11,768 12,234 Other assets 7,796 3,477 -------- -------- $225,178 $213,080 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 5,171 $ 4,459 Short-term borrowings from non-bank subsidiaries - 7,350 Commercial paper outstanding 3,905 - Long-term debt 18,704 21,250 -------- -------- Total liabilities 27,780 33,059 Stockholders' equity 197,398 180,021 -------- -------- $225,178 $213,080 ======== ========
CONDENSED STATEMENTS OF INCOME (Parent Company Only)
YEAR ENDED DECEMBER 31, ------------------------- 1996 1995 1994 ----- ---- ---- Income: Dividends from bank subsidiaries $14,186 $11,220 $11,055 Dividends from nonbank subsidiaries 150 300 1,200 Rent: Subsidiaries 1,291 1,760 1,748 Other 1,678 1,162 1,152 Interest and dividend income 1,541 1,335 1,130 Other 1,219 415 259 ------ ------ ------ 20,065 16,192 16,544 Expenses: Salaries and employee benefits 1,807 1,758 1,782 Interest 1,669 1,811 1,939 Interest paid to subsidiaries 204 554 222 Building expense 2,246 2,079 2,188 Other 1,945 1,850 1,703 ----- ----- ----- 7,871 8,052 7,834 ----- ----- ----- Income before income tax benefit and equity in undistributed earnings of subsidiaries 12,194 8,140 8,710 Income tax benefit 706 1,097 1,227 ------ ------ ----- Income before equity in undistributed earnings of subsidiaries 12,900 9,237 9,937 Equity in undistributed earnings of subsidiaries 8,856 8,183 9,095 ------- ------- ------- Net income $21,756 $17,420 $19,032 ======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only)
YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ------- ------- ------- Net income $21,756 $17,420 $19,032 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 864 728 751 Equity in undistributed earnings of subsidiaries (8,856) (8,183) (9,095) Other (530) (681) 184 ------- ------ ------- Total adjustments (8,522) (8,136) (8,160) Net cash flows from operating activities 13,234 9,284 10,872 Cash flows from investing activities: Proceeds from sales and maturities of securities available for sale 8,915 12,065 12,181 Purchase of securities available for sale (14,277) (13,014) (22,529) Purchase of premises and equipment (244) (1,597) (119) Purchase of loans from subsidiary bank (4,980) - - Cash and cash equivalents from nonbank subsidiaries merger 245 - - Other (587) (2,417) (89) -------- ------- -------- Net cash flows from investing activities (10,928) (4,963) (10,556) -------- -------- -------- Cash flows from financing activities: Changes in short-term borrowings 3,905 450 6,900 Repayment of long-term debt (2,546) (2,000) (2,000) Purchase of common stock (363) (82) (1,088) Cash dividends paid (3,528) (3,062) (2,823) ------- ------- ------- Net cash flows from financing activities (2,532) (4,694) 989 ------- ------- ------- Net change in cash and cash equivalents (226) (373) 1,305 Cash and cash equivalents at beginning of year 5,561 5,934 4,629 ------- ------- ------- Cash and cash equivalents at end of year $ 5,335 $ 5,561 $ 5,934 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during year for: Interest $ 2,479 $1,842 $1,940 Income taxes 12,140 8,805 9,521 Common stock exchanged for acquisition of bank - 3,869 3,894 Debt exchanged for other assets - 250 -
Q. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair Value of Financial Instruments," requires certain entities to disclose the estimated fair value of its financial instruments. For the Company, as with most financial institutions, most of its assets and its liabilities are considered financial instruments as defined in SFAS 107. Many of the Company's financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Company's general practice and intent to hold most of its financial instruments to maturity and not engage in trading or sales activities. Therefore, significant estimations and present value calculations were used by the Company for purposes of this disclosure. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1996 and 1995. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------- ------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ------ -------- -------- ASSETS: Cash and cash equivalents $ 159,837$ 159,837 $135,189 $ 135,189 Mortgages held for sale 16,293 16,340 25,574 25,731 Securities available for sale 379,849 379,849 365,494 365,494 Securities held to maturity 270,012 271,886 200,682 200,739 Net loans 1,101,082 1,096,399 998,350 1,000,930 Other financial instruments 34,630 34,630 25,210 25,210 LIABILITIES: Demand deposits with no stated maturities749,674 749,674 668,305 668,305 Time deposits 824,870 827,039 794,900 798,283 Federal funds purchased and securities sold under agreement to repurchase 134,212 134,212 92,726 92,726 Other short-term borrowings 45,980 45,980 5,214 5,214 Long-term debt 52,973 53,559 55,519 56,760 Other financial instruments 19,033 19,033 16,318 16,318
CASH AND CASH EQUIVALENTS. For cash and cash equivalents, the carrying amount is considered a reasonable estimate of fair value. MORTGAGES HELD FOR SALE. The estimated fair value of these instruments is based upon current quoted prices for the instrument or similar instruments. SECURITIES. The estimated fair value of securities is based on quoted market prices, dealer quotes and prices obtained from independent pricing services. LOANS. For those loans with floating interest rates, carrying value was used as approximate fair value. For all other loans, the estimated fair value is based on the discounted value of projected cash flows. When using the discounting method, loans are gathered by homogeneous groups and discounted at a rate that would be used for similar loans at December 31, 1996 and 1995. In addition, when computing the estimated fair value for all loans, general reserves for loan losses are subtracted from the calculated fair value for consideration of credit issues. DEPOSITS. The estimated fair value of deposits with no stated maturity, such as noninterest bearing, savings, NOW and money market checking accounts, is the amount payable on demand. The estimated fair value of time deposits is based on the discounted value of projected cash flows. The discount rate is the market rate currently offered for deposits with similar original maturities. SHORT-TERM BORROWINGS. Due to the short-term nature of repricing and maturities of these instruments, fair value is considered carrying value. LONG-TERM DEBT. The estimated fair value of long-term debt is based on rates currently believed to be available to the Company for debt with similar terms and maturities. OTHER FINANCIAL INSTRUMENTS. All other financial instruments of a material nature, including both assets and liabilities shown above, fall into the definition of short-term and fair value is estimated as carrying value. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS. The estimated fair value of these instruments such as loan commitments and standby letters of credit approximates their off-balance sheet carrying value because of repricing ability and other terms of the contracts. INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders First Commerce Bancshares, Inc. Lincoln, Nebraska We have audited the accompanying consolidated balance sheets of First Commerce Bancshares, Inc., and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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, such consolidated financial statements present fairly, in all material respects, the financial position of First Commerce Bancshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Lincoln, Nebraska February 14, 1997 SELECTED QUARTERLY FINANCIAL DATA (In Thousands Except Per Share Data)
FIRST SECOND THIRD FOURTH ANNUAL QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- ------- (Unaudited) 1996 Total interest income $32,997 $33,755 $34,514 $35,233 $136,499 Net interest income 16,686 17,457 17,845 18,118 70,106 Provision for loan losses 1,821 1,355 1,502 2,161 6,839 Noninterest income 11,173 10,816 10,611 11,430 44,030 Noninterest expense 17,555 17,484 18,814 20,059 73,912 Net income 5,727 6,059 5,225 4,745 21,756 Net income per share .42 .45 .39 .35 1.60 Common stock trading range * Class A voting high 24.00 29.50 29.50 29.50 29.50 low 20.00 22.00 26.50 25.00 20.00 Class B nonvoting high 16.25 16.75 16.75 20.50 20.50 low 13.50 13.50 14.75 15.00 13.50 Dividends declared per share .065 .065 .065 .065 .26 1995 Total interest income $28,131 $31,286 $32,284 $32,296 $123,997 Net interest income 14,617 15,113 15,430 15,729 60,889 Provision for loan losses 696 686 700 1,413 3,495 Noninterest income 7,985 8,351 8,107 9,407 33,850 Noninterest expense 15,706 15,827 15,530 17,330 64,393 Net income 4,098 4,467 4,739 4,116 17,420 Net income per share .31 .33 .35 .30 1.29 Common stock trading range * Class A voting high 20.00 18.00 20.00 22.50 22.50 low 16.25 16.00 16.00 17.00 16.00 Class B nonvoting high 14.00 13.00 14.00 16.25 16.25 low 10.50 10.75 11.00 12.00 10.50 Dividends declared per share .054 .054 .054 .065 .227
* The Company's common stock is traded in the over-the-counter market under the NASDAQ symbol "FCBIA" for the Class A voting common stock and "FCBIB" for the Class B nonvoting common stock. The market value ranges are based upon the high and low trading prices per share for the calendar quarters indicated as released by NASDAQ. As of December 31, 1996, the Company had 549 Class A shareholders of record and 1,077 Class B shareholders of record. SELECTED FINANCIAL DATA Three-Year Average Balance Sheets / Yields and Rates
YEAR ENDED DECEMBER 31, 1996 ------------------------------ AVERAGE AVERAGE BALANCE INTEREST RATE ----------- ---------- ------- (Amounts in thousands) ASSETS Interest-earning assets: Loans, including non-accrual loans $1,066,896 $ 97,228 9.11% Taxable investment securities 517,083 32,885 6.36 Nontaxable investment securities (non-taxable basis)29,190 1,483 5.08 Federal funds sold 34,863 2,037 5.84 Mortgages held for sale 24,860 1,953 7.86 Equity securities 37,269 913 2.45 ---------- ------- ----- Total interest-earning assets 1,710,161 136,499 7.98 Less allowance for loan losses (19,680) Cash and due from banks 102,269 Premises and equipment 48,146 Other assets 46,467 ---------- Total assets $1,887,363 ========== LIABILITIES AND EQUITY Interest-bearing liabilities: Interest-bearing demand $ 325,590 8,332 2.56% Savings 84,039 2,334 2.78 Time 797,944 44,649 5.60 --------- ------ ----- Total interest-bearing deposits 1,207,573 55,315 4.58 Federal funds purchased and other short-term borrowings 24,574 1,336 5.44 Securities sold under agreement to repurchase 128,109 6,005 4.69 Long-term debt 54,879 3,737 6.81 --------- ------ ----- Total interest-bearing liabilities 1,415,135 66,393 4.69 Noninterest bearing demand deposits 265,013 Other liabilities 20,786 --------- Total liabilities 1,700,934 Total stockholders' equity 186,429 ---------- Total liabilities and stockholders' equity $1,887,363 ========== Net interest income $ 70,106 Net interest spread 3.29% Net yield on interest-earning assets 4.10%
SELECTED FINANCIAL DATA Three-Year Average Balance Sheets / Yields and Rates
YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 --------------------------- ---------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE -------- -------- ------- -------- -------- -------- (Amounts in thousands) $ 917,742 $ 85,494 9.32%$ 797,369 $ 68,380 8.58% 512,193 31,943 6.24 486,918 28,264 5.80 31,788 1,610 5.06 29,980 1,510 5.04 47,134 2,966 6.29 50,866 2,161 4.25 12,533 1,213 9.68 9,435 865 9.17 29,639 771 2.60 22,197 602 2.71 --------- ------- ----- --------- ------- ----- 1,551,029 123,997 7.99 1,396,765 101,782 7.29 (18,306) (17,988) 94,107 98,908 45,809 44,475 37,569 34,582 ---------- ---------- $1,710,208 $1,556,742 ========== ========== $ 312,994 8,350 2.67%$ 333,987 8,401 2.52% 80,049 2,269 2.83 82,865 2,270 2.74 758,347 44,537 5.87 598,918 28,162 4.70 --------- ------ ---- --------- ------- ------ 1,151,390 55,156 4.79 1,015,770 38,833 3.82 10,231 595 5.82 12,135 534 4.40 81,992 4,240 5.17 78,651 2,661 3.38 42,036 3,117 7.42 24,023 1,961 8.16 --------- ------ ---- --------- ----- ---- 1,285,649 63,108 4.91 1,130,579 43,989 3.89 242,602 268,053 16,414 15,745 --------- --------- 1,544,665 1,414,377 165,543 142,365 ---------- --------- $1,710,208 $1,556,742 ========== ========== $ 60,889 $ 57,793 3.08% 3.40% 3.93% 4.14%
SELECTED FINANCIAL DATA (In Thousands Except Per Share Data) 1996 1995 1994 1993 ---------- ---------- --------- ----------- At December 31, Assets $2,028,012 $1,815,575 $1,624,138 $1,572,298 Investments 649,861 566,176 537,797 520,176 Loans 1,121,239 1,017,367 850,292 777,695 Deposits 1,574,544 1,463,205 1,355,965 1,324,196 Long-term debt 52,973 55,519 33,000 25,000 Stockholders' equity 197,398 180,021 149,354 137,293 Year Ended December 31, Net interest income $70,106 $60,889 $57,793 $57,727 Provision for loan losses 6,839 3,495 332 1,143 Total noninterest income 44,030 33,850 31,363 33,345 Total noninterest expenses 73,912 64,393 59,663 60,806 Net income 21,756 17,420 19,032 19,760 Per share data: Net income $1.60 $ 1.29 $ 1.46 $ 1.52 Dividends .26 .227 .216 .20 Stockholders' equity before net unrealized gains and losses on available for sale securities 13.92 12.58 11.49 10.24 Total stockholders' equity 14.57 13.27 11.26 10.53 Selected Ratios: Rate of return on average: Total assets 1.15% 1.02% 1.22% 1.33% Stockholders' equity(1) 12.14 10.52 13.37 15.77 Average total stockholders' equity to average total assets(1) 9.49 9.46 9.15 8.46 Common dividends payout ratio 16.21 17.58 14.83 13.19 Allowance for loan losses to total loans 1.80 1.87 2.02 2.37 Nonaccrual and restructured loans as a percentage of total loans .45 .29 .30 .34 Net charge-offs to average total loans .53 .27 .24 .16 Capital Ratios: Core capital (Tier I) (2) 13.31% 13.39% 14.78% 13.43% Total risk based capital (3) 14.72 14.82 16.26 14.90 Leverage (4) 9.40 9.16 9.23 8.31 (1) Stockholders' equity before net unrealized gains and losses on securities available for sale. (2) Stockholders' equity before net unrealized gains and losses on securities available for sale, plus minority interest, less goodwill and deposit intangibles to risk-weighted assets (using 1996 requirements). (3) Tier I capital plus allowance for loan losses (limited to 1.25% of risk-weighted assets) to risk-weighted assets (using 1996 requirements). (4) Tier I capital to quarterly average assets less goodwill. 1992 1991 1990 1989 1988 1987 ---------- ---------- ----------- ----------- ----------- --------- $1,452,058 $1,309,613 $1,106,354 $1,019,288 $955,367 $946,037 495,784 384,951 375,624 354,865 400,485 439,213 674,352 631,713 538,056 489,537 423,333 384,887 1,196,111 1,123,728 938,881 864,011 788,962 781,307 26,500 11,725 10,583 10,757 12,956 14,907 116,335 99,702 95,576 88,578 83,008 75,134 $55,303 $47,547 $37,933 $34,648 $35,309 $34,456 3,152 3,810 1,770 1,630 2,146 6,800 33,767 27,722 24,293 22,378 20,048 18,230 57,304 52,239 44,896 40,930 39,698 37,186 19,150 12,980 10,672 10,025 9,669 6,482 $1.47 $ .93 $ .75 $ .69 $ .64 $ .43 .188 .136 .112 .102 .10 .061 8.93 7.65 6.78 6.13 5.52 4.97 8.93 7.65 6.78 6.13 5.52 4.97 1.41% 1.06% 1.02% 1.04% 1.03% .72% 17.69 12.84 11.49 11.75 12.08 8.94 7.96 8.23 8.88 8.82 8.56 8.03 12.79 14.25 15.05 14.76 15.60 14.29 2.74 2.68 2.74 2.94 3.37 3.40 .50 .73 .43 .85 .71 1.50 .25 .48 .37 .26 .19 1.11 12.70% 10.05% 11.16% 13.95 11.30 12.41 7.98 7.40 8.59
MANAGEMENT'S DISCUSSION AND ANALYSIS CORPORATE RESULTS SUMMARY (Columnar amounts are in thousands) The Company's net income during 1996 was $21,756,000 versus $17,420,000 in 1995 and $19,032,000 during 1994. On a per share basis this equates to $1.60, $1.29, and $1.46 for 1996, 1995 and 1994, respectively. Additionally, year-end assets reached $2,028,012,000, versus $1,815,575,000 in 1995. Average stockholders' equity to average assets was approximately 9.5% for both 1996 and 1995. The cash dividend was $0.26 per share versus $0.227 per share. In January 1997, the Company raised its annualized dividend to 30 cents. This equates to a 15% increase on a per share basis. The $4.3 million or 25% increase in net income in 1996 from 1995 can be primarily attributed to an increase in net interest income. The net yield on interest earning assets increased from 3.93% in 1995 to 4.10% in 1996. This resulted in a $9.2 million or 15% increase in net interest income. The increase in net interest income was partially offset by a $3.3 million increase in loan loss expense. Even though overall loan quality remains high in the organization, significant growth in loans combined with a significant increase in bank card charge-offs created the need to provide additional expense to keep reserves at desired levels. Year-end loans increased almost $104 million in 1996 from 1995, which is on top of a $167 million increase during 1995. The $104 million increase does not include $56 million of credit card loans which were securitized and sold during the year. On a managed loan basis, loans increased $160 million during 1996. Although average deposit growth was a respectable 5.6%, it did not keep up with loan growth. Therefore, the Company utilized other non-traditional methods to fund some of its loan growth. Besides the securitization of credit card loans mentioned above, average securities sold under agreement to repurchase and other short-term borrowings increased approximately $60 million from 1995. EARNING ASSETS Average earning assets in 1996 were $1.71 billion, a 10% increase over 1995 primarily caused by the loan growth referred to above. Average earning assets were $1.55 billion in 1995, an 11% increase over 1994. Average loans were $1,067 million, $918 million and $797 million in 1996, 1995 and 1994, respectively, a 16.3%, 15.1% and 13.7% increase over each respective previous year. Loan demand has been strong during the past three years as shown by these increases in average loans. Loan demand was led by the real estate mortgage, commercial and consumer markets. The increase in agricultural loans in 1995 can primarily be attributed to the Western Bank acquisition. The increase in credit card loans can be attributed to a new joint venture with Cabela's, a catalog sales company, and the issuance of a new Cabela's co-branded credit card. Average loans accounted for 62% of average earning assets during 1996 and 59% in 1995. Average investment securities were $584 million at December 31, 1996, a $10 million increase over 1995. Investment securities accounted for 34% of average earning assets during 1996 and 37% during 1995. SECURITY PORTFOLIO The Company's investment securities portfolio consists of high quality securities with primarily short to medium maturities. The Company utilized buying opportunities during the year to extend the average life of its investment portfolio. As rates dropped in the latter part of the year, the Company began buying higher yielding U. S. Government agencies with a 10 year stated maturity, which are callable within two years. These securities are presented on the following maturity schedule under the 5 through 10 year column, but the Company expects that these securities will be called when they reach their call date, absent significant movements in interest rates which are not anticipated. MANAGEMENT'S DISCUSSION AND ANALYSIS The following table presents the amortized cost of the securities portfolio by type of security as of December 31, for the years indicated.
DECEMBER 31, ---------------------- 1996 1995 1994 ---- ---- ---- U.S. Treasury $172,534 $183,580 $226,075 U.S. Agency 188,986 66,584 - State and municipal 28,747 32,777 29,676 Mortgage-backed securities 205,243 236,097 258,719 Corporate bonds - 1,000 999 Marketable equity securities 39,996 30,755 25,960 Other securities 687 965 1,326 ------- ------- -------- $636,193 $551,758 $542,755 ======== ======== ======= The following tables present the amortized cost of each investment category by maturity range and the weighted average yield for each range (except for mortgage-backed securities and marketable equity securities).
DECEMBER 31, 1996 ------------------------- AFTER 1 AFTER 5 UNDER THROUGH THROUGH AFTER 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL ------- ------- --------- ------- ----- Securities held to maturity: U.S. Treasury and Agency $ 5,809 $28,350 $84,681 $ - $118,840 State and municipal 6,634 11,387 7,338 3,388 28,747 Other securities 155 186 91 255 687 ------- ------- ------- ------- --------- $12,598 $39,923 $92,110 $3,643 $148,274 ======= ======= ====== ====== ======== Weighted average yield to maturity: U.S. Treasury and Agency 5.4% 6.7% 7.2% -% 7.0% State and municipal (1) 5.0 5.0 5.3 5.4 5.1 Other securities 7.2 6.2 6.1 6.7 6.6 Securities available for sale: U.S. Treasury and Agency $31,761 $200,918 $10,001 $ - $242,680 ======= ======== ======= ====== ======== Weighted average yield to maturity: U.S. Treasury and Agency 6.6% 6.9% 7.1% -% 6.9% ===== ==== ==== ==== ====
(1) Not based on taxable equivalents. The Company owned $205 million in mortgage-backed securities at December 31, 1996. Yields in these securities can be reduced due to early prepayment. The prepayment risk associated with mortgage-backed securities is monitored continuously by updating the analytics concerning prepayment speeds. Bond accounting and asset/liability reports are adjusted accordingly. A large portion of the mortgage-backed securities are collateralized mortgage obligations (CMO's) which are planned amortization class (PAC) bonds. Under the terms of a PAC contract, if the collateral prepays faster or slower than the defined range, the contract is suspended until the collateral prepayment speed returns to the defined range. In addition, high premium CMO's are avoided. The Company has not experienced any significant adverse prepayment characteristics in the last two years. MANAGEMENT'S DISCUSSION AND ANALYSIS LOANS As indicated previously, the Company experienced strong internal loan growth in 1996 and 1995, which for 1995 was assisted by the Western Bank acquisition and the Cabela's joint venture. The following table presents the amount of loans by categories and percentage of loans by categories as of December 31, for the year indicated.
1996 1995 1994 1993 1992 ---------- ---------- -------- Real estate mortgage $ 332,913 $ 295,268 $270,603 $236,202 $214,264 Consumer 271,906 263,320 228,332 187,021 173,920 Commercial and financial 245,873 201,910 166,682 169,466 124,942 Agricultural (except loans secured by real estate; includes loans for household and other personal expenditures) 130,071 126,414 87,758 87,338 72,346 Credit card 98,895 108,641 80,135 81,932 73,480 Real estate construction 41,581 21,814 16,782 15,736 15,400 --------- --------- -------- 1,121,239 1,017,367 850,292 777,695 674,352 Less allowance for loan losses (20,157) (19,017) (17,190) (18,461) (18,470) ---------- --------- -------- $1,101,082 $ 998,350 $833,102 $759,234 $655,882 ========== ========== =========
The above table does not include $56 million of credit card loans which were securitized and sold during 1996. Managed loans at December 31, 1996 were $1,177,239,000. Total managed credit card loans were $154,895,000 as of the same date.
DECEMBER 31, ------------------------------------------- 1996 1995 1994 1993 1992 As a percentage of total loans: Real estate mortgage 29.7% 29.0% 31.8% 30.4% 31.8% Consumer 24.3 25.9 26.9 24.1 25.7 Commercial and financial 21.9 19.9 19.6 21.8 18.5 Agricultural 11.6 12.4 10.3 11.2 10.7 Credit card 8.8 10.7 9.4 10.5 11.0 Real estate construction 3.7 2.1 2.0 2.0 2.3 ----- ----- ----- ------ ------ 100.0% 100.0% 100.0% 100.0% 100.0%
The Company has no foreign loans. The following table presents loan maturities by ranges (except for real estate mortgage loans, credit card loans and consumer loans). Also included for loans due after one year are the amounts which have predetermined interest rates and floating or adjustable rates.
AS OF DECEMBER 31, 1996 ----------------------------------------------- DUE AFTER 1 YEAR -------------------- PRE- FLOATING DUE DUE 1 DUE DETERMINED OR WITHIN THROUGH AFTER INTEREST ADJUSTABLE 1 YEAR 5 YEARS 5 YEARS RATE RATE ------ ------- -------- -------- ---------- Commercial and financial $146,347 $75,553 $23,973 $61,747 $37,779 Agricultural 96,317 29,620 4,134 25,950 7,804 Real estate construction 18,001 5,736 17,844 3,731 19,849
MANAGEMENT'S DISCUSSION AND ANALYSIS RISK MANAGEMENT Overall risk management is an essential part of the operation of any financial services organization. There are three primary risk exposures: credit quality, interest rate sensitivity and liquidity risk. Credit quality risk involves the risk of either not collecting interest when it is due or not receiving the principal balance of the loan or investment when it matures or is due. Interest rate sensitivity risk is the risk of reduced net interest income because of differences in the repricing characteristics of assets and liabilities, as well as the change in the market value of assets and liabilities as interest rates fluctuate. Liquidity risk is the risk that the Company will not be able to fund its obligations. ASSET QUALITY The quality of the Company's loan portfolio remains strong. A key measure of the effectiveness of credit risk management is the percentage of the loan portfolio that is classified as nonperforming. Nonperforming loans include nonaccrual loans, loans 90 days or more past due and restructured loans. The Company's nonperforming loans totaled $5.9 million at December 31, 1996, as compared to $3.6 million at the end of 1995. As a percentage of total loans, nonperforming loans represent only .5% and .4% of the loan portfolio at December 31, 1996 and 1995, respectively. Virtually all of the Company's loans, except credit card loans which are concentrated in the Midwest, are to Nebraska-based organizations. The Nebraska economy is somewhat dependent upon the general state of the agricultural economy, which has been good for the past several years. The agricultural economy is dependent upon commodity prices, weather and input costs. Crop yields were generally excellent throughout the region during 1996. The prices for crops were generally higher than normal. Most of the Company's cattle feeders lost money throughout the year due to high corn prices, but had returned to profitable operations by the end of 1996. Loans to cattle feeders represent the Company's largest loan segment concentration, but the Company has been applying selective underwriting criteria to this segment. The Company's direct agricultural loans grew almost $40 million during 1995, primarily due to the acquisition of Western Bank in Bridgeport and Alliance. In addition to the Company's direct agricultural loans, many of its nonagricultural borrowers are affected by the overall agricultural economy in Nebraska. The Company's borrowers are to a lesser extent affected by the overall national economy. Farm income represents 7% of Nebraska's personal income. Another area of loan concentration of the Company is in real estate related activities. This is normally one of the first areas affected by a downturn in the economy, but the Company applies selective underwriting in evaluating projects. Another area of significant risk in a downturn of the economy would be in the consumer and credit card areas. Credit card loans traditionally have a higher ratio of net charge-offs to loans outstanding than other areas in the loan portfolio. The credit card portfolio experienced $4.2 million in charge- offs during 1996, up from $2.6 million in 1995 and $2.3 million in 1994. The national trend in credit card charge-offs also increased during 1996. The Company's credit card charge-offs followed this trend, and are comparable to industry averages. Consumer loan charge-offs increased in 1996 and 1995 from abnormally low levels in the prior years. Consumer loan charge-offs are below industry levels. Management reviews loans regularly, placing them on nonaccrual when it considers the collection of principal or interest questionable. Thereafter, income is not recorded unless it is received in cash or until such time as the borrower demonstrates an ability to pay interest and principal. During 1996, 1995 and 1994, the Company received approximately $457,000, $458,000 and $186,000 in interest on loans which had been previously charged-off or placed on nonaccrual. This interest was included in interest and fees on loans in the consolidated statements of income. As a general rule, credit card and consumer loans are evaluated for charge-off once the delinquency period reaches 90 days. Management classifies loans as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured predominantly using the fair value of the underlying collateral, if the impaired loan is collateral dependent. Impaired loans were $2,595,000 and $2,472,000 at December 31, 1996 and 1995, respectively. The allowance for loan losses related to these loans was $402,000 and $463,000 at December 31, 1996 and 1995, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS Management is not aware of any significant risks in the current commercial loan portfolio due to concentrations within any particular industry other than those previously discussed. Loans classified as commercial could be affected by downturns in the real estate, agricultural and consumer economies due to being directly or indirectly related to these areas. Management believes that it carries adequate, even reasonably conservative, loan loss reserves. However, such reserves are estimates and a change in the economy can quickly affect the financial status of borrowers and loan quality. Such changes can require significant adjustments in the loan loss reserve on very short notice and are possible in the future. The following table presents the amount of nonperforming loans for the periods indicated:
1996 1995 1994 1993 1992 ----- ----- ----- ----- ----- 1. Nonaccrual, Past Due and Restructured Loans (a) Loans accounted for on a nonaccrual basis $3,429 $1,700 $1,150 $1,315 $1,944 (b) Accruing loans which are contractually past due 90 days or more as to principal or interest payments 846 690 384 432 782 (c) Loans not included above which are "troubled debt restructurings" 1,597 1,256 1,377 1,342 1,449 i.Gross interest income that would have been recorded in the period then ended if the loans listed in categories (a) and (c) had been current in accordance with their original terms 628 350 285 305 405 ii.Amount of interest income on loans listed in categories (a) and (c) that was included in net income for the period. 395 155 153 140 198 2. Potential Problem Loans(1) 6,660 7,953 6,265 6,162 8,058 3. Foreign Outstandings - - - - - 4. Loan Concentrations - -
(1)Balances shown are loans in which the primary source of repayment may not be sufficient to meet the present terms of the loan. The Company believes it has sufficient security collateral to support the current loan balance. MANAGEMENT'S DISCUSSION AND ANALYSIS PROVISION FOR LOAN LOSSES The Company maintains an allowance for loan losses at a level considered by management to be adequate to provide for the risk of possible loan losses. The amount of the provision charged to operating expense is determined on the basis of several factors, including reviews of individual loans, past due and nonaccruing loans outstanding, the level of the allowance for losses in relation to loans, actual loss experience, appraisals of the loan portfolio conducted by the Company's internal audit staff and by Federal bank examiners, and management's estimate of the impact of the current and future economic conditions. The Company expensed $6,839,000, $3,495,000 and $332,000 for estimated loan losses in 1996, 1995 and 1994, respectively. Average loans increased $120.4 million or 15.1% during 1995 from 1994 and increased another $149.2 million or 16.3% during 1996. Net charge-offs were $5.7 million, $2.5 million and $1.9 million during 1996, 1995 and 1994, respectively. The increase in net charge-offs over the past three years is primarily in credit card charge-offs, although the Company's charge-off ratios remain comparable to national averages. Consumer loan charge-offs have also increased which can be primarily attributed to higher levels of consumer bankruptcies. In 1996, Nebraska bankruptcy filings rose by over 40%. Management feels the overall credit quality of the Company's loan portfolio remains good. The increase in loan loss expense during 1996 and 1995 is primarily due to the increase in charge-offs, combined with the significant growth in loans in order to keep the loan loss reserve at desired levels. The loan loss reserve as a percentage of loans was 1.80%, 1.87% and 2.02% at December 31, 1996, 1995 and 1994, respectively. The following table presents an analysis of loan loss experience.
1996 1995 1994 1993 1992 ---------- -------- --------- -------- -------- Average loans and leases for the year $1,066,896 $917,742 $797,369 $701,305 $649,167 ========== ========= ======== ========= ======== Reserve for loan losses: Balance, beginning of year $19,017 $17,190 $18,461 $18,470 $16,912 Provision charged to expense 6,839 3,495 332 1,143 3,152 Bank acquisitions - 843 326 - - Loans charged off: Real estate construction - - - (332) (300) Real estate mortgage (43) (66) (27) (102) (70) Agricultural (73) (98) (120) (142) (101) Commercial and financial (734) (70) (64) (135) (279) Consumer (2,117) (1,168) (631) (502) (1,048) Credit card (4,827) (3,255) (2,881) (1,913) (1,579) Loan recoveries: Real estate construction - - - 632 - Real estate mortgage 282 185 245 41 196 Agricultural 77 186 176 223 64 Commercial and financial 193 438 397 340 665 Consumer 897 636 431 370 481 Credit card 646 701 545 368 377 ------- ------- ------- ------- ------- Net loans charged off (5,699) (2,511) (1,929) (1,152) (1,594) ------- -------- ------- ------- ------- Balance, end of year $20,157 $19,017 $17,190 $18,461 $18,470 ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans .53% .27% .24% .16% .25%
MANAGEMENT'S DISCUSSION AND ANALYSIS This table presents an allocation for loan losses by loan categories; however, the breakdown is based on a number of qualitative factors, and the amounts as such are not necessarily indicative of actual future charge-offs in any particular category.
1996 1995 1994 1993 1992 ------- ------ ------ ------- -------- Real estate construction $ 628 $ 419 $ 331 $ 221 $ 121 Real estate mortgage 2,493 2,902 2,927 2,476 2,073 Agricultural 3,169 3,941 2,658 2,468 1,501 Commercial and financial 4,896 3,781 3,887 4,790 4,931 Consumer 3,302 3,152 2,472 2,162 1,791 Credit card 5,398 4,623 3,511 2,712 1,638 Unallocated 271 199 1,404 3,632 6,415 ------- ------- ------- ------- -------- $20,157 $19,017 $17,190 $18,461 $18,470
INTEREST RATE RISK The Company's principal objective for interest rate risk management is to control exposure of net interest income to risks associated with interest rate movements. The Company trys to limit this exposure by matching the maturities of its assets and liabilities, along with the use of floating rate assets which will move with interest rate movements. Interest rate risk is measured and reported to each of the Company's subsidiary banks' Asset and Liability Management Committees (ALCO) through the use of traditional gap analysis which measures the difference between assets and liabilities that reprice in a given time period, simulation modeling which produces projections of net interest income under various interest rate scenarios and balance sheet strategies, and valuation modeling which measures the sensitivity of various components to the balance sheet under various rate scenarios. Significant assumptions include rate sensitivities, prepayment risks, and the timing of changes in prime and deposit rates compared with changes in money market rates. Below is a table showing the Company's interest rate-sensitive assets (excluding assets on nonaccrual and overdrafts) and liabilities for various time periods in which they either mature or are repriceable (in thousands):
1 TO 91 TO 181 TO 1 TO 5 OVER 90 DAYS 180 DAYS 360 DAYS YEARS 5 YEARS TOTAL --------- ---------- --------- ------- -------- ----------- Assets: Investments $ 68,524 $ 23,375 $ 41,233 $375,083 $141,646 $ 649,861 Loans 490,961 66,070 98,983 422,728 37,651 1,116,393 Mortgages held for sale 16,293 - - - - 16,293 Federal funds sold 28,528 - - - - 28,528 -------- -------- -------- -------- --------- --------- 604,306 89,445 140,216 797,811 179,297 1,811,075 Liabilities: Interest-bearing demand deposits 34,626 - 76,587 223,151 - 334,364 Savings deposits - - - 86,804 - 86,804 Time deposits 254,628 169,531 283,871 116,479 41 824,550 Short-term borrowings 180,192 - - - - 180,192 Long-term debt 23,769 3,038 - 19,166 7,000 52,973 ------- ------- -------- ------- ----- --------- 493,215 172,569 360,458 445,600 7,041 1,478,883 --------- --------- ---------- ---------- -------- --------- Repricing gap $111,091 $(83,124) $(220,242) $352,211 $172,256 $ 332,192 ======== ========= ========== ======== ======== ========= Cumulative repricing gap $111,091 $27,967 $(192,275) $159,936 $332,192 $ 332,192 GAP as a % of earning assets 6.1% 1.5% (10.6)% 8.8% 18.3% 18.3%
This table estimates the repricing maturities of the Company's interest sensitive assets and liabilities based upon the company's interest rate- sensitive assets and liabilities, based upon the Company's assessment of the repricing characteristics of contractual and non-contractual instruments. Non- contractual deposit liabilities are allocated among the various maturity ranges. MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES The Company's primary business is ownership of banks. The assets of any commercial bank are primarily funded through the use of borrowings in the form of demand and time deposits, negotiable certificates of deposit, and short-term funds. The Banks have demonstrated the ability to acquire short-term funds when needed and rely primarily upon negotiable certificates of deposit, brokered certificates of deposit, federal funds acquired from correspondent banks, securities sold under agreement to repurchase, and borrowed funds from the Federal Home Loan Bank. These sources should remain accessible as long as the Banks offer competitive rates. In addition, the Company has utilized the securitization of credit card receivables to provide liquidity and fund the receivable growth in the Cabela's LLC credit cards. The Company relies primarily on the Banks for its source of cash needs. The cash flow from the Banks to the Company comes in the form of dividends, tax benefits and rental payments. Total dividends that can be declared by the subsidiary banks without receiving prior approval from regulatory authorities are limited to each Bank's defined net income of that year combined with its retained defined net income from the previous two years subject to minimum regulatory capital requirements. For the calendar year 1997, the Banks have retained defined net income from the previous two years of approximately $18.1 million. The parent company holds approximately $53.0 million in cash, short-term investments and marketable securities as of December 31, 1996. The Company has the ability to issue commercial paper which could be used to provide liquidity to subsidiary banks. The Company has issued $4 million in commercial paper as of December 31, 1996. Long-term debt at December 31, 1996 includes $18.5 million of capital notes which have a payment of $2.5 million due in 1997 and $34.3 million of FHLB borrowings (at subsidiary banks) which have $24.3 million principal due in 1997. The Company's risk-based capital ratios, which take into account the different credit risks among banking organizations' assets, have remained strong over the past three years. Tier 1 and total risk-based capital ratios were 13.3% and 14.7%, respectively, at December 31, 1996. These ratios are down slightly from the 13.4% and the 14.8%, respectively, at December 31, 1995, and the 14.8% and the 16.3%, respectively, at December 31, 1994, due to the significant loan growth the Company incurred during 1996 and 1995. Loans typically carry a higher risk rating than other earning assets. In accordance with the regulatory guidelines, unrealized gains and losses on the available for sale securities portfolio are excluded from the risk-based capital calculations. The Company's leverage ratio, the ratio of Tier 1 capital to total quarterly average assets, was 9.4% at December 31, 1996 and 9.2% at December 31, 1995. The Federal Deposit Insurance Corporation typically defines a bank to be "well capitalized" if it maintains a Tier 1 capital ratio of a least 6.0%, a total risk-based capital ratio of at least 10.0% and a leverage ratio of at least 5.0%. It is the Company's intention to maintain sufficient capital in each of its subsidiary banks to permit them to maintain a "well-capitalized" designation. All of the Company's bank subsidiaries met the "well-capitalized" designation at December 31, 1996. LEVERAGE RATIOS These ratios measure the extent to which the Company has been financed by long- term debt (before net unrealized gains and losses on securities available for sale). 1996 1995 1994 Long-term debt to long-term debt plus equity 21.9% 24.5% 17.8% Total long-term debt to equity 28.1 32.5 21.6 Long-term debt to equity (parent only) 9.9 12.4 15.1 FUNDING SOURCES Average deposits were $1.47 billion in 1996 as compared to $1.39 billion during 1995 as compared to $1.28 billion in 1994, a 5.7% and 8.6% increase, respectively. Average interest-bearing deposits increased from $1,016 million in 1994 to $1,151 million in 1995, to $1,208 million in 1996, a 13.3% and 4.9% increase, respectively. Noninterest-bearing demand deposits decreased $25.4 million or 9.5% in 1995 from 1994 but increased 9.2% or $22.4 million in 1996. The increase or decrease in noninterest-bearing demand deposits can be primarily attributed to the fluctuation in short-term interest rates. The Company's largest subsidiary bank, the National Bank of Commerce, provides many services to nonaffiliated banks which are paid for by maintaining balances in the National Bank of Commerce. As interest rates increase or decrease, the National Bank of Commerce requires the nonaffiliated banks to maintain higher or lower balances to pay for the services being provided. If interest rates rise the amount of deposits required to be maintained will go down. If interest rates decrease, then the amount of deposits required to be maintained will increase. MANAGEMENT'S DISCUSSION AND ANALYSIS Average time deposits increased 5.2% during 1996 as compared to 1995, while interest-bearing demand and savings deposits increased 4.2%. The Company uses time deposits of $100,000 or more as a significant funding source. The following table presents time deposits of $100,000 or more by time remaining until maturity. AS OF DECEMBER 31, 1996 ------------------------------------------------- OVER 3 OVER 6 3 MONTHS THROUGH THROUGH OVER OR LESS 6 MONTHS 12 MONTHS 12 MONTHS TOTAL -------- -------- --------- ---------- -------- $111,917 $60,474 $44,418 $12,832 $229,641 During 1996, the Company used a funding source it has not previously used before, securitization and sale of credit card loans. On July 18, 1996 the Company completed the establishment of the National Bank of Commerce Master Credit Card Trust (trust). The initial pooling and servicing agreement will allow the National Bank of Commerce (Bank) to sell up to $100,000,000 of credit card receivables to the trust. As these loan receivables are securitized, the Company's on-balance sheet funding needs are reduced by the amount of loans securitized. As of December 31, 1996, the Company had sold $56 million of credit card receivables to the trust. The securitization involved the sale of a group of credit card receivables. These credit card receivables arise from accounts whose ownership is retained by the Company. In addition to selling the existing receivables, rights to new receivables, including most income generated by and payments made from these accounts, were sold. Certificates representing undivided interests in the trust were issued. The Investor Certificates are sold by the trust to investors who are financing the purchase through the issuance of commercial paper. Interest is paid to the Investor Certificate holders during the life of the transaction. The Seller Certificate is retained by the Company. The Company continues to service the accounts and receives a servicing fee for doing so. During the revolving period, which is 36 months on the first series issued by the Company, no principal payments are made to the Investor Certificate holders. Payments received on the accounts are used to pay interest to the Investor Certificate holders and to purchase new receivables generated by the accounts, so that the principal dollar amount of the Investor Certificate remains unchanged. Once the revolving period begins, principal payments will be allocated for distribution to the Investor Certificate holders according to the terms of the transaction. As principal payments are allocated to the Investor Certificate holders, the Company's credit card receivables will increase by the amount of the principal allocation. Distribution of principal to the Investor Certificate holders may begin sooner if the average annualized yield (generally this includes interest income, interchange income, and other fees) for three consecutive months falls below a base rate (generally equal to the sum of the certificate rate payable to investors and contractual servicing fees) or other certain events occur. For the three month period ended December 31, 1996, the average annualized yield exceeded the base minimum yield by approximately 14.5%. This yield is calculated on a cash basis. The securitization did not have a material impact on earnings reported for the Company. EARNINGS PERFORMANCE The Company's net income was $21,756,000, up 25% or $4,336,000 from 1995. The Company's net income for 1995 was $17,420,000, down $1,612,000 from 1994's net income of $19,032,000. The increase in net income in 1996 from 1995 can be primarily attributed to an increase in net interest income. The net yield on interest earning assets increased from 3.93% in 1995 to 4.10% in 1996. This resulted in a $9.2 million or 15% increase in net interest income. The increase in net interest income was partially offset by a $3.3 million increase in loan loss expense. Even though overall loan quality remains high in the organization, significant growth in loans combined with a significant increase in bank card charge-offs created the need to provide additional expense to keep reserves at desired levels. The decline in income in 1995 was due to an increase in loan loss expense of over $3 million in order to keep reserves at desired levels given the loan growth experienced by the Company. Increases in noninterest expenses offset increases in net interest income. MANAGEMENT'S DISCUSSION AND ANALYSIS NET INTEREST INCOME Net interest income, the principal source of earnings, is the difference between the interest income generated by earning assets and the total cost of the liabilities obtained to fund the earning assets. Net interest income in 1996 was $70.1 million as compared to $60.9 million and $57.8 million in the prior two years. The Company's net yield on interest-earning assets (net interest income as a percent of average earning assets) decreased from 4.14% in 1994 to 3.93% in 1995 but recovered to 4.10% in 1996. A flat yield curve and stiff competition for deposits contributed to the decline in spreads and the net yield on earning assets in 1995. The Company's growth in earning assets forced it to run deposit specials at rates higher than it would normally pay on deposits with comparable length maturities. These specials were run early in the year and by the end of 1995 most of these specials had matured with the deposits retained at more normal rates. This resulted in the increase in the net yield on earning assets to 4.10% in 1996. However, in both years, the increase in volume created by the loan growth previously discussed was the predominant factor in the increase in net interest income. The following tables attribute changes in net interest income either to changes in average balances or to changes in average rates for earning assets and interest-bearing liabilities. The change in interest due jointly to volume and rate has been allocated to volume and rate in proportion to the relationship of the absolute dollar amount of change in each.
1996/95 1995/94 ------------------------------ -------------------------------------- AMOUNTS AMOUNTS ATTRIBUTABLE ATTRIBUTABLE TO CHANGES IN TO CHANGES IN ---------------------- ------------------------ TOTAL TOTAL VOLUME RATE CHANGE VOLUME RATE CHANGE -------- --------- -------- -------- -------- ------- Interest and fees on loans $13,628 $(1,894) $11,734 $10,890 $6,224 $17,114 Interest on taxable investment securities 307 635 942 1,513 2,166 3,679 Interest on state and municipal obligations (131) 5 (126) 92 8 100 Equity securities 189 (47) 142 192 (23) 169 Interest on mortgages held for sale 994 (254) 740 (169) 974 805 Interest on short-term investments (730) (200) (930) 298 50 348 ------ ------- ------- ------- ------ ------- Total interest income 14,257 (1,755) 12,502 12,816 9,399 22,215 Interest on deposits: Interest-bearing demand 329 (347) (18) (544) 493 (51) Savings deposits 111 (46) 65 (78) 77 (1) Other time deposits 2,268 (2,156) 112 8,461 7,914 16,375 Interest on federal funds purchased 782 (41) 741 (93) 154 61 Interest on short-term borrowings 2,194 (429) 1,765 117 1,462 1,579 Interest on long-term debt 891 (271) 620 1,350 (194) 1,156 ----- ------- ----- ------ ------ ------ Total interest expense 6,575 (3,290) 3,285 9,213 9,906 19,119 ------- -------- ------- ------- ------ ------- Net interest income $ 7,682 $ 1,535 $ 9,217 $ 3,603 $ (507) $ 3,096
Nonaccruing loans have been included in average total loans. Loan fees on new loans have been included in interest income, but the amounts of such fees are not deemed material to total interest income. Tax-exempt interest is not on a tax-equivalent basis. MANAGEMENT'S DISCUSSION AND ANALYSIS NONINTEREST INCOME Noninterest income continues to be a significant source of revenues. Management has stressed the importance of growth of noninterest income to enhance the Company's profitability. As a percentage of net revenues (net interest income plus noninterest income), noninterest income was 39%, 36%, and 35% during 1996, 1995 and 1994, respectively. The following table shows the breakdown of noninterest income and the percentage change for 1996, 1995 and 1994.
PERCENT INCREASE (DECREASE) ----------------- 1996 1995 1994 1996/95 1995/94 ----- ---- ---- ------- -------- Computer services $ 8,491 $8,147 $ 8,293 4.2% (1.8)% Credit card 10,591 4,965 4,289 113.3 15.8 Mortgage banking 4,868 3,571 2,997 36.3 19.2 Service charges on deposits 5,231 4,893 4,849 6.9 .9 Other service charges and fees 6,217 5,293 5,007 17.5 5.7 Trust services 5,840 5,272 5,007 10.8 5.3 Gains on securities sales 1,672 581 182 187.8 219.2 Other income 1,120 1,128 739 (.7) 52.6 ------- ------- ------- Total noninterest income $44,030 $33,850 $31,363 30.1 7.9
The increase in noninterest income in 1996 from 1995 can be primarily attributed to an increase in activity. Credit card income increased $5,626,000 due to an increase in merchant discount income, combined with an increase in interchange income from the joint venture initiated in 1995 with a large catalog sales organization to issue a co-branded credit card to its customer base. Mortgage banking revenues increased due to an increase in servicing income, origination fees and underwriting fee income, all due to an increase in activity. The increase in other service charges and fees can be primarily related to a volume increase in discount brokerage sales which resulted in an increase in fee income and fee income from sales of bonds to correspondent banks. Trust services income increased due to an increase in activity and managed assets. Gains on securities sales are attributable to sales of equity securities out of the Company's Global fund. Included in other income is interest on an income tax refund. The increase in noninterest income in 1995 from 1994 can be primarily attributed to an increase in activity and rates charged. Credit card income increased $676,000 primarily due to an increase in merchant discount income. As discussed previously, during 1995 the Company joined in a joint venture with a large catalog sales organization to issue a co-branded credit card to its customer base. During the year the Company issued almost 75,000 cards from this activity which caused an increase in bank card fee income. During the year the Company's mortgage banking subsidiary adopted SFAS 122. The Company estimates this caused an increase in pre-tax profits of approximately $550,000. The increase in other income can be attributed to a $371,000 settlement from a class action lawsuit related to a loss on bonds in 1990. MANAGEMENT'S DISCUSSION AND ANALYSIS NONINTEREST EXPENSE The emphasis on growth in fee-based services income requires significant investments in staff, training and technology. The following table shows the breakdown of noninterest expense and the percentage change for 1996, 1995 and 1994.
PERCENT INCREASE (DECREASE) ----------------- 1996 1995 1994 1996/95 1995/94 ----- ---- ---- ------- ------- Salaries and employee benefits $35,808 $33,101 $29,647 8.2% 11.7% Net occupancy expense 3,980 3,815 3,552 4.3 7.4 Equipment expense 5,523 4,770 4,900 15.8 (2.7) Fees and insurance 10,825 8,868 9,366 22.1 (5.3) Communications 4,159 3,647 3,215 14.0 13.4 Supplies 2,404 2,395 1,911 .4 25.3 Business development 3,990 2,649 2,624 50.6 1.0 Other expenses 7,223 5,148 4,448 40.3 15.7 ------- ------- ------- Total noninterest expense $73,912 $64,393 $59,663 14.8 7.9 Efficiency ratio * 64.8% 68.0% 66.9% Average number of full-time equivalent employees 1,035 1,015 966 Personnel expense per employee (in dollars) $34,597 $32,612 $30,690
* Computed as noninterest expense divided by the sum of net interest income and noninterest income. Noninterest expenses were $73.9 million in 1996 as compared to $64.4 million in 1995. Salaries and employee benefits increased $2.7 million or 8.2% due primarily to increases in the level of pay, combined with an increase in the number of employees. The increase in equipment expense was due primarily to a write-down taken during the year on computer equipment which will have to be upgraded during 1997 to handle software upgrades. Fees and insurance increased primarily due to an increase in bankcard processing fees. The increase in bankcard processing fees of $3.3 million was partially offset by a decrease in FDIC fees of $1.5 million. Communications expense increased 14% due to First Commerce Technologies currently processing for several Florida banks, combined with an increase in postage costs related to the Cabela's joint-venture started in 1995. Business development costs increased over $1.3 million. A contribution to the NBC Foundation during 1996 accounted for $463,000 of this increase. Bankcard advertising costs in both the National Bank of Commerce and the Cabela's joint-venture accounted for the balance of the increase. The increase in other expenses is due primarily to an increase in amortization costs related to purchased mortgage service costs of $790,000, an increase in travel costs of $200,000 and an increase in minority interest expense because of the Cabela's joint-venture of $764,000. Noninterest expenses were $64.4 million in 1995 versus $59.7 million in 1994. The increase in salary costs is due to an increase in the number of employees and normal year-to-year increases in the levels of pay. The increase in the number of employees can be primarily attributed to the Western Bank acquisition and the Cabela's joint venture which required the Company to increase its bankcard staff to service this increase in bankcard activity. The increase in communications is due to a general increase in telephone and courier expenses due to normal business expansion and price inflation. The decrease in equipment expense is due primarily to the State of Nebraska L.B. 775 agreement which refunds sales tax based on qualified investment property purchased by the Company. These refunds impact equipment expense through a reduction in basis and subsequent lowering of depreciation expense. Fees and insurance expenses included bankcard processing fees of $3.8 million in 1995, up from $3.1 million in 1994 and $2.9 million in 1993. The increase in bankcard processing fees is primarily due to the Cabela's joint venture initiated in 1995. The increase in bankcard processing fees was offset by decreases in FDIC assessments due to a decrease in the amount assessed per $100 of deposits from 23 cents to 4.4 cents in May 1995. The decrease in FDIC expense in 1995 from 1994 was $1.3 million. Supplies increased primarily due to the Company implementing check imaging on statements during the year and the related up front costs associated with this change, combined with a significant increase in paper costs during 1995. The increase in occupancy expense can be attributed to the Western Bank acquisition and the NBC Superior Street branch being open for a full year. MANAGEMENT'S DISCUSSION AND ANALYSIS INCOME TAXES The provision for income taxes was $11,629,000 in 1996, $9,431,000 in 1995 and $10,129,000 in 1994. The changes from year to year can be primarily attributed to the increase or decrease in income before income taxes. The income tax provision for 1996 was reduced by a $238,000 income tax refund from prior years. IMPACT OF INFLATION The assets and liabilities of a financial institution are primarily monetary in nature. As such, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During periods of inflation, monetary assets lose value in terms of purchasing power while monetary liabilities have corresponding purchasing power gains. Since banks generally have an excess of monetary assets over monetary liabilities, inflation will, in theory, cause a loss of purchasing power in the value of shareholders' equity. However, the concept of purchasing power is not an adequate indicator of the effect of inflation on banks because it does not take into account changes in interest rates, which are a more important determinant of bank earnings. Other sections of the Management's Discussion and Analysis discuss how the Company monitors the effect of changing interest rates on the Company's earnings. Noninterest related expenses are also influenced by the current rate of inflation since they represent the Company's purchase of goods and services from others. It is difficult to assess the true effect of inflation on the Company. The Company believes, however, that based on past history, it has and will continue to react to minimize any adverse effects of inflation. MANAGEMENT'S DISCUSSION AND ANALYSIS TRENDS AND UNCERTAINTIES ECONOMY. The projected outlook for the Nebraska economy over the next couple of years is for growth in employment (1.8% growth), personal income (6.5% annual growth), and retail sales (6.4% growth). Construction activity has been solid, while retail sales growth has been favorable. The manufacturing base in the state continues to operate at expanding levels. Motor vehicle and farm equipment sales have been strong. The state's fiscal position appears to be favorable from the standpoint of the amount of excess tax receipts being received over budgeted expenditures. The U. S. economy should realize moderate growth as the Federal Reserve Board attempts to maintain balance between growth and inflation. The results of the 1996 Nebraska farm sector have been favorable. Crop prices were much higher relative to last year, and crop yields were good. Cattle feeders realized improved profitability in the latter part of the year, while ranch operations have been reflecting losses (reduced cow inventories should improve future prospects). Agricultural real estate values have risen, but ranch land values may come under some pressure. Personal bankruptcy filings have increased significantly (up 40% in Nebraska during 1996) during the past few months due to overextended credit. ENVIRONMENTAL. Many environmental issues are being discussed on the national and local level. In Nebraska, water is used to irrigate nearly six million acres of semi-arid cropland. The state is now discussing issues relating to domestic, agricultural, and environmental uses of water. Legislation has been implemented to recognize the inter-relationship between ground and surface water. Discussions and regulations have also focused on water quality and preserving wildlife habitat. These discussions may ultimately have an impact on current agricultural practices. EXPANSION ACTIVITIES. The Company is making efforts to expand activities and to grow in order to increase net income. The Company has the capacity to expand its computer processing business and continues to pursue and obtain additional customers. The Company has obtained additional data processing business from Florida banks, and the acquisition of additional data processing centers is possible. The Company has actively attempted to increase its mortgage banking and mortgage servicing business and is considering possible geographic expansion. The Company may also attempt to acquire servicing from other servicing companies in the future. The Western Nebraska National Bank will open a new main bank facility in North Platte in April, 1997, two other banking subsidiaries are expanding existing facilities and the National Bank of Commerce will be opening a new branch facility. The National Bank of Commerce and Cabela's, a catalog sales company, created a joint company in 1995 for the purpose of issuing a "co-branded" credit card. This joint company has been successful in obtaining 66,000 active accounts from Cabela's clients and will continue to solicit new cardholders. The Company expects to make further acquisitions in the future although there are no identified opportunities at this time. In 1996, subsidiary banks opened four loan/deposit production offices, and four additional offices are planned in 1997 (including two outside of Nebraska). These offices are attracting new customers and allowing the Company to expand geographically. REGULATORY. During 1992, the FDIC (Federal Deposit Insurance Corporation) implemented a new risk-based assessment system where each insured depository institution pays an assessment rate based on the combination of its capital and supervisory condition. The FDIC Board intends to review the rate schedules every six months to ensure that the assigned rates are consistent with economic conditions and allow the funds to maintain the statutory-mandated 1.25 percent reserve ratio. All of the Company's subsidiary banks presently meet the conditions required under the new system to pay the lowest possible rate. The banking industry has been assessed a portion of the FICO bond debt service costs. The plethora of recent bank regulations has resulted in the employment of greater company resources to ensure regulatory compliance. Risk-based capital guidelines established by regulatory agencies set minimum capital standards based on the level of risk associated with a financial institution's assets. As of December 31, 1996, the Company and all of its bank subsidiaries exceed the minimum capital requirements as mandated by regulatory agencies (See Footnote O). STOCK REPURCHASE PROGRAM. During 1994, the Board of Directors announced its intentions of purchasing shares of its common stock when appropriate and at a price management believes advantageous to the Company. During 1996, the Company acquired 22,682 shares of its Class B stock at an average price of $16.00. SENIOR OFFICERS * JAMES STUART JR. Chairman and Chief Executive Officer * STUART BARTRUFF Executive Vice President and Secretary * BRAD KORELL Executive Vice President * MARK HANSEN Senior Vice President THOMAS L. ALEXANDER Senior Vice President, Human Resources JOAN CROMWELL Senior Vice President and Senior Auditor MARY GERDES Senior Vice President and Loan Services Manager DONALD D. KINLEY Vice President and Treasurer KAREN KUHN Vice President, Marketing * Executive Officer DIRECTORS David Calhoun Kenneth W. Staab Chairman and Chief Staab Restaurant Executive Officer Management Jacob North Printing James Stuart Connie Lapaseotes Chairman, Stuart Lapaseotes, Ltd. Management Co. Cattle Feeding, Managing of Outdoor Ranching and Farming Advertising Companies John G. Lowe, III James Stuart, Jr. Owner, Lowe Investment Chairman and Chief Co., Investment Firm Executive Officer First Commerce Bancshares, Inc. Jack Osborne President, Industrial Scott Stuart Irrigation Services Managing Partner KJS Partnership, Outdoor Advertising Richard C. Schmoker Attorney and Partner, Advisory Director: Faegre and Benson Harold Wimmer SUBSIDIARY SENIOR OFFICERS Brad Korell, President National Bank of Commerce Lincoln, Nebraska PATRIC J. JERGE, President First Commerce Technologies Lincoln, Nebraska DOUGLAS G. ALFORD, President First Commerce Mortgage Company Lincoln, Nebraska ROBERT MORRIS, President and Chief Executive Officer City National Bank Hastings, Nebraska LARRY L. JEPSON, Chairman and Chief Executive Officer JOHN CANNON, President First National Bank Kearney, Nebraska RICK HARBAUGH, President and Chief Executive Officer The Overland National Bank Grand Island, Nebraska KENNETH W. FOSTER, Chairman MARK JEPSON, President and Chief Executive Officer First National Bank McCook, Nebraska MICHAEL B. JACOBSON, President and Chief Executive Officer Western Nebraska National Bank North Platte - Alliance - Bridgeport, Nebraska ALLAN MCCLURE, President and Chief Executive Officer First National Bank West Point, Nebraska JAMES STUART, III, Chairman and Chief Executive Officer H. CAMERON HINDS, President First Commerce Investors Lincoln, Nebraska CORPORATE FACTS CORPORATE OFFICE: NBC Center 1248 O Street Lincoln, NE 68508 Telephone: (402) 434-4110 Fax: (402) 434-4181 E-mail Address: fcbi@navix.net Website: www.fcbi.com TRANSFER AGENT: Chemical Mellon Shareholder Services Mellon Bank, N.A. P. O. Box 444 Pittsburgh, PA 15230 Telephone: (412) 236-8173 STOCK: The Company's common stock is traded on the over-the-counter market. Quotations are furnished by NASDAQ Symbol FCBIA and FCBIB. FORM 10-K AVAILABLE: A copy of the Company's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission may be obtained without charge by any shareholder requesting it in writing. Please direct your request to Donald Kinley, Vice President and Treasurer, at the Corporate office. ANNUAL SHAREHOLDERS MEETING: April 15, 1997 Country Club of Lincoln Lincoln, Nebraska DIVIDEND REINVESTMENT PLAN: The Company offers a dividend reinvestment plan as a convenient method of investing cash dividends paid and to make optional cash contributions in additional shares of Class B non-voting stock. For information on enrolling, contact the plan administrator at the following address: ATTN.: Dividend Reinvestment Plan Administration Mellon Bank, N.A. P.O. Box 750 Pittsburgh, PA 15230 First Commerce Bancshares & Subsidiaries o 125 EX-27 3 FINANCIAL DATA SCHEDULE
9 0000768532 FIRST COMMERCE BANCSHARES, INC. 1,000 12-MOS DEC-31-1996 DEC-31-1996 131,309 0 28,528 0 379,849 270,012 271,886 1,121,239 20,157 2,028,012 1,574,544 180,192 22,905 52,973 0 0 2,709 194,689 2,028,012 97,228 35,281 3,990 136,499 55,315 66,393 70,106 6,839 1,672 73,912 33,385 21,756 0 0 21,756 1.60 1.60 7.98 3,429 846 1,597 6,660 19,017 7,794 2,095 20,157 20,157 0 0
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