-----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, NX4Lx+N+FZvIxkIvpzDTguOemdfSuEGmKIBdYUfc76h15fzpnCVtIG0hDsszinD2 GU2srcW7+wTrQHuXdu7mcA== 0000768532-99-000005.txt : 19990326 0000768532-99-000005.hdr.sgml : 19990326 ACCESSION NUMBER: 0000768532-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 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: SEC FILE NUMBER: 000-14277 FILM NUMBER: 99572124 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 FIRST COMMERCE BANCSHARES, INC. 1998 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. - --- For the fiscal year ended December 31, 1998 ------------------------------------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 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 February 26, 1999, the aggregate market value of the common stock held by non-affiliates of the registrant was $151.8 million. For purposes of this computation only, the market value per share has been determined to be $27.25 for Class A shares and $26.125 for Class B shares, which is the average of the high and low trading range on February 26, 1999. "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 February 26, 1999 -------------------------- Class A Common Stock, $.20 Par Value 2,583,319 shares ----------------- Class B Common Stock, $.20 Par Value 10,928,951 shares ----------------- DOCUMENTS INCORPORATED BY REFERENCE 1998 Annual Report to Shareholders - Parts I, II and IV Proxy Statement for Annual Shareholder's Meeting to be held April 20, 1999 - 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----------------------------------------------------------19,28 & 41 Return on Equity and Assets-------------------- ------------------------------30 Short-term Borrowings------------------------- -------------------------------19 ITEM 2. Properties 13 ITEM 3. Legal Proceedings-------------------------------------------------------14 ITEM 4. Submission of Matters to a Vote of Security Holders -----------------------------------------------------------14 Executive Officers------------------------------------------------------14 PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters-----------------------------------------15 ITEM 6. Selected Financial Data-------------------------------------------------15 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation----------------------------------15 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk---------------------------------------------------------15 ITEM 8. Financial Statements and Supplementary Data-----------------------------16 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure---------------------------------16 PART III ITEM 10. Directors and Executive Officers of the Registrant----------------------------------------------------------16 ITEM 11. Executive Compensation--------------------------------------------------16 ITEM 12. Security Ownership of Certain Beneficial Owners and Management------------------------------------------------------16 ITEM 13. Certain Relationships and Related Transactions--------------------------16 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K-------------------------------------------------17 Signatures 19
PART I Discussions of certain matters contained in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which First Commerce Bancshares, Inc. ("First Commerce" or the "Company") operates, projections of future performance, perceived opportunities in the market, and statements regarding the Company's mission and vision. The Company's actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. ITEM 1. BUSINESS General First Commerce Bancshares, Inc. 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 499,300 99.86% 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 9,920 99.20% First National Bank of West Point, Nebraska 4,800 96.00% The First National Bank of McCook, Nebraska 6,000 100.00% Western Nebraska National Bank Valentine, Nebraska 6,000 100.00% As of December 31, 1998, First Commerce reported consolidated total assets of $2,384,745,000, total deposits of $1,728,500,000 and total stockholders' equity of $248,646,000. As of December 31, 1998 First Commerce and its subsidiaries had a staff of approximately 1,211 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 seven detached facilities and 45 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 255 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 90,000 active accounts as of December 31, 1998. 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 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. A new addition/remodeling project, with an approximate total cost of $3.2 million, is in the process of being completed (estimated completion date of January 1999. The Kearney Bank presently operates three detached facilities and 12 automated "Bank In The Box" teller machines located throughout the Kearney area, one each in Holdrege and Odessa, Nebraska. The Kearney Bank recently opened a loan/deposit production office in Holdrege, Nebraska. 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 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. The Bank owns all facilities. The Grand Island Bank operates 9 automated "Bank In The Box" teller machines located in Grand Island, and one located at Bosselman's at I-80 and Hwy 281. The Grand Island Bank has a loan/deposit production office in Wood River, Nebraska and in Cairo, Nebraska. An ATM machine is located at each of these locations. 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. In addition to its North Platte locations, the North Platte Bank operates two full service branches in Alliance and Bridgeport. The North Platte Bank has a loan/deposit production office in Hyannis, Nebraska. In June 1998, the North Platte Bank sold the assets of two former loan production offices in Valentine and Mullen, to a newly chartered bank in Valentine, Western Nebraska National Bank of Valentine. The Mullen loan production office is currently operating as a loan production office for the Valentine Bank. The newly chartered bank is also a subsidiary of First Commerce Bancshares, Inc. During, January 2000, at the end of an eighteen-month waiting period, First Commerce plans to merge the Valentine Bank back into the North Platte bank. The North Platte Bank has nine automated "Bank In The Box" teller machines in North Platte, three in Alliance, one each in Bridgeport, Hershy, Hemingford, Sutherland, Thedford, and Hyannis, Nebraska. A new main bank facility opened in downtown North Platte in April 1997. Total cost of this new facility was approximately $5.8 million. A new branch facility was recently completed in Alliance, with a total cost of approximately $880,000. 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 facility was remodeled in 1998 for approximately $750,000. 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 11 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 has one loan/deposit production office in Snyder, Nebraska. The West Point Bank operates one automated "Bank In The Box" teller machine in West Point and one 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 onto in 1993. The West Point Bank owns the building. 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 each in Culbertson, Nebraska; Burlington, Colorado; and Goodland, Kansas. The McCook Bank is located in the downtown business district of McCook. The building that houses the Bank's offices was constructed in 1975, and is owned by the McCook Bank. The McCook Bank opened a loan production office in Goodland, Kansas in 1997, and opened a loan production office in Burlington, Colorado in January 1998. Western Nebraska National Bank (the "Valentine Bank") - ----------------------------------------------------- In June 1998, the Company opened to new-chartered bank in Valentine, Nebraska, named Western Nebraska National Bank. The Valentine Bank acquired the assets and assumed the deposits of the North Platte Bank's loan/deposit production offices in Valentine and Mullen, Nebraska. The Valentine Bank operates one automated teller machine in Valentine, and operates one automated teller machine in Mullen. The Mullen location operates as a loan/deposit production office. A new main bank facility will be built in 1999 at 105 North Main, Valentine Nebraska, at an approximate totalcost of $1.2 million. It is First Commerce's intent to merge the Valentine Bank into the North Platte Bank in January 2000. First Commerce Bank of Colorado, NA (the "Colorado Bank") The Company has received approval to charter a new bank in northern Colorado Springs, Colorado. It is the Company's intent to open for business sometime in May 1999. The Colorado Bank will build a new building at the corner of Struthers Road and Gleneagle Drive, with a total cost including land, building and equipment of approximately $2.5 million. First Commerce will own 100% of a new holding company named First Commerce Bancshares of Colorado, Inc., which will in turn own the Colorado Bank. 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. As of October 1997, First Commerce converted the Lincoln Bank's common trust funds into mutual funds. First Commerce Investors advise the funds. Currently there are five funds, all under the name of the Great Plains Family of Funds. There are two equity funds, two bond funds, and an international fund. At December 31, 1998, assets in these funds totaled $422 million. 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 from other commercial banks in all activities. In addition, other financial institutions compete throughout Nebraska and the Midwest for most of the services First Commerce provides. 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, 1998, First Commerce had total deposits of approximately $1,728,500,000, 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). 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.) 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 subsidiary banks. Adequately capitalized and adequately managed bank holding companies are permitted to make acquisitions of banks located anywhere in the United States without regard to the provisions of any state laws that may 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% limit and may also lower such limit if they do so on a non-discriminatory basis. Nebraska's limit of 14% applies to both in-state and out-of-state holding companies. States also are permitted to prohibit acquisitions of banks that have been established for fewer than five years. The Nebraska legislature has enacted such a five-year requirement. 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. Effective June 1, 1997, the above statute also permitted interstate branch banking in all states by adequately capitalized and adequately managed banks. However, 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. However, Nebraska has prohibited de novo interstate branching and has prohibited the acquisition of a branch, as opposed to a whole bank, by an out-of-state bank. 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 eight 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% of the institution's capital, although the Federal Reserve has subsequently increased the cap to 200% 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, 1998, without the further approval of the Comptroller, of approximately $21,000,000. 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 that, 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, 1998, 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%, of which 4% must be Tier 1 capital. In addition, the minimum leverage ratio of Tier 1 capital to quarterly average assets is 4%. On December 31, 1998, First Commerce's total capital ratio was 15.4%, its Tier 1 ratio was 14.0%, and its Tier 1 leverage ratio was 10.0%. 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, 1998, First Commerce's subsidiary financial institutions operated a total of eight main banking houses (including the Lincoln Bank's NBC Center location), 18 detached facilities, and 110 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 1998 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. 56 Chairman and Chief 1973 Executive Officer Brad Korell 50 Executive Vice President 1990 Stuart Bartruff 44 Executive Vice President 1987 and Secretary (Principal Financial Officer) Mark Hansen 43 Senior Vice President 1994 Donald Kinley 48 Senior 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 Offi- cer on January 19, 1988. Mr. Stuart,Jr. had served as President and Chief Exe- cutive Officer of First Commerce since May 3, 1985. Mr. Stuart, Jr. also serves as Chairman and Chief Executive Officer of the Lincoln Bank, Chairman of the North Platte Bank, and as a director of the remaining subsi- diary 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 Senior Vice President and Treasurer in March 1999. Prior to that Mr. Kinley served as Vice President and 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, 1998, 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, 1998, 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, 1998, Pages 32 through 47, and captioned as "Management's Discussion and Analysis." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1998, Pages 37 through 40, and captioned "Management's Discussion and Analysis--Market Risk." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference from the First Commerce Annual Report to Shareholders for the Year Ended December 31, 1998, 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 20, 1999, under the caption "1. Election of Class I Directors," commencing on Page 2. For information concerning the Executive Officers, see Item 4 at Page 13. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the First Commerce Proxy Statement for the Annual Meeting of Shareholders to be held April 20, 1999, 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 An- nual Meeting of Shareholders to be held April 20, 1999, under the captions "Principal Shareholders" and "1. Election of Class I 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, 1998, Page 21, Footnote M and incorporated by reference from the First Commerce Proxy Statement for the Annual Meeting of Shareholders to be held April 20, 1999, 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, 1998 and 1997................................10 Consolidated Statements of Income for the Three Years Ended December 31, 1998...............11 Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1998......................................................................12 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1998...........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 1998 Annual Report to Shareholders on the pages indicated and are hereby incorporated by reference in this Form 10-K. First Commerce's 1998 Annual Report to Shareholders is an integral part of this Form 10-K. Reports on Form 8-K There were no Form 8-K's filed in the fourth quarter of 1998.
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 Exhibit 3.1 to Form S-1 Bancshares, Inc. No. 2-97513* (b) Amendment to Articles of Incorporation dated Exhibit 3.1(a) to Form 8-K dated October 19, 1993. October 19, 1993* (c) Amendment to Articles of Incorporation dated Exhibit 3 (c) to Form S-4 April 19, 1994 No. 33-81190* (d) By-Laws of First Commerce Bancshares, Inc. Exhibit 3.1 to Form S-1 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 Supplemental Executive Retirement and Exhibit 10(c) to Form 10-K for Deferred Compensation Plan and Trust Agreement. the year ended December 31, 1992. Exhibit 1 to Form 10-Q for the Quarter ended March 31, 1998.* (b) 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. (c) 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. (d) 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. (e) Dividend Reinvestment Plan and Employee Stock Exhibit 1 to Form 8-K dated Purchase Plan. December 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 Stuart, Jr. Date: March 23, 1999 -------------------------------- --------------- James Stuart, Jr. Chairman, Chief Executive Officer and Director By: Stuart Bartruff Date: March 23, 1999 -------------------------------- --------------- Stuart Bartruff Executive Vice President and Secretary (Principal Financial Officer) By: Donald Kinley Date: March 23, 1999 -------------------------------- --------------- Donald Kinley Senior 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 23, 1999 - --------------------------- -------------- David T. Calhoun, Director Connie Lapaseotes Date: March 23, 1999 - --------------------------- -------------- Connie Lapaseotes, Director __________________________ Date:_______________ John G. Lowe, III, Director __________________________ Date: _____________ John C. Osborne, Director _____________________________ Date: ____________ Richard C. Schmoker, Director William C. Schmoker Date: March 23, 1999 - ----------------------------- --------------- William C. Schmoker, Director _____________________________ Date: _______________ Kenneth W. Staab, Director James Stuart, Jr. Date: March 23, 1999 - --------------------------- -------------- James Stuart, Jr., Director James Stuart, III Date: March 23, 1999 - --------------------------- --------------- James Stuart, III, Director Scott Stuart Date: March 23, 1999 - ---------------------- --------------- Scott Stuart, Director EX-13 2 1998 ANNUAL REPORT First Commerce Bancshares & Subsidiaries o 1 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 eight commercial bank subsidiaries, a mortgage company and an asset management company. These subsidiaries provide a comprehensive range of trust, commercial, consumer, correspondent, retail deposit services 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, two in Kansas, one in Arkansas, Colorado, Florida, New Mexico and Texas. The Company is geographically located throughout Nebraska with full service banking offices in Alliance, Bridgeport, Grand Island, Hastings, Kearney, Lincoln, McCook, North Platte, Valentine and West Point. Loan/deposit production offices are located in Cairo, Holdrege, Hyannis, Mullen, Snyder, and Wood River, Nebraska; Burlington, Colorado; and Goodland, Kansas.
Financial Highlights (In Thousands Except Per Share Data) Percent At December 31, 1998 1997 Change ------ ------ ------- Assets $2,384,745 $2,251,100 5.9% Investments 747,844 691,144 8.2 Loans 1,284,007 1,236,443 3.8 Deposits 1,728,500 1,649,494 4.8 Stockholders' equity 248,646 232,580 6.9 Per share data: Stockholders' equity before net unrealized gains (losses) on securities available for sale 17.36 15.57 11.5 Total stockholders' equity 18.40 17.19 7.0 Closing bid price Class A 26.25 29.00 (9.5) Class B 28.00 32.50 (13.8)
Percent Percent Year Ended December 31, 1998 Change 1997 Change 1996 -------- -------- -------- -------- -------- Net interest income $82,197 7.3% $76,586 9.2% $70,106 Provision for loan losses 7,658 (7.7) 8,297 21.3 6,839 Noninterest income 65,714 22.1 53,839 22.3 44,030 Noninterest expense 95,286 17.5 81,103 9.7 73,912 Net income 29,035 9.2 26,597 22.3 21,756 Return on average equity before net unrealized gains (losses) on securities available for sale 13.05% 13.28% 12.14% Per share data: Basic net income $2.15 $1.96 $1.60 Dividends .34 .30 .26 Marketable equities (cost) $52,057 $43,217 $33,309 Marketable equities (fair value) 72,258 73,913 44,169
Dear Stockholders: Our Company had another good year of earnings growth and operational improvement in 1998. Net income for the year was $29.0 million, up 9.2% over the previous record year of $26.6 million. On a per share basis, 1998 earnings were $2.15 versus $1.96 in 1997, up 9.7%. Our earnings improvement was due to another year of increased net interest income, very low loan losses, a wonderful year of increased fee income, and gains on securities in our Global Fund. Asset growth during the year was less impressive, up only 5.9% over 1997, ending 1998 at $2.38 billion. Average asset growth was somewhat better, up 9% for the year. [OBJECT OMITTED]A year ago we introduced a new earnings term called "normalized earnings" which we hoped would be helpful to you in being able to compare earnings for different periods without being distorted by "non-core" earnings such as Global gains, bond gains, gains from sale of venture capital positions, etc. In 1998 our normalized earnings were $26 million, up 11% over normalized earnings in 1997. Normalized Earnings Schedule 1995 1996 1997 1998 ---- ---- ---- ---- Net income $17,420 $21,756 $26,597 $29,035 Less global gains net of tax 332 1,063 3,067 2,986 Less venture capital gains (losses) 76 (116) - (36) Less securities gains net of tax 46 24 94 26 -------------------- -------------------- Normalized earnings $16,966 $20,785 $23,436 $26,059 ====== ====== ====== ====== As I mentioned in the 1998 Third Quarter Report, the healthy earnings growth of our Company in 1998 is a continuation of a pattern of earnings and asset growth which began ten years ago. During these past ten years, our Company has grown from $955 million of total assets in 1988 to $2.38 billion on December 31, 1998, and earnings have increased from $9.7 million in 1988 to $29 million in 1998. This ten-year report card is very, very good. Needless to say, all of us are proud of this excellent business success. During this past ten-year period, we have generally had a solid economic arena in which to compete. Our agricultural commodity prices have been reasonably good, our national economy has been growing at a surprising pace for a long period, and our U. S. equity markets have enjoyed unprecedented gains. Also, during this period we have had some unique opportunities to capitalize on mistakes made by some of our competitors which in some markets has enabled us to accelerate our growth rate and improve market share. I have said this before, and I am repeating myself, as I believe that the big picture environment of today and what I see during the next few years will be more difficult for us than the past ten years. I am not predicting doom and gloom, just a tougher environment. In the next few pages I will discuss many important components of our business to give you a big picture look at recent important Company activity. We provide you with this information because review of our consolidated profit and loss statement and balance sheet, although very real, does not paint a complete or clear picture of our Company activity. At the conclusion of this review, I will also share some of my thoughts on what I expect our Company will be able to accomplish in the few years ahead. GROWTH Although asset and loan growth has been good during the past ten years, assets this past year increased only 5.9% to $2.38 billion at year-end. Loans were up only 3.8% to $1.28 billion at year-end. This reduced growth occurred in part due to poor cattle and hog prices and poor grain prices in our farm sector. Other loan sectors were impacted by low interest rates that enabled many of our loan customers to find long-term fixed rate loans from long-term lenders to replace our shorter term credits. Changing competitive patterns in our installment and student loan activities also slowed our overall loan growth rate, and a very tough competitive environment in general negatively impacted our overall loan growth. LOAN QUALITY As I continue to mention in these reviews, excessive loan losses kill bank earnings, and ultimately can kill banks, period. We continue our strong credit quality standard and have not and will not alter our long-term commitment to credit quality, even in this new arena of tougher competition. Our loss ratios (excluding credit card) are well in line with industry averages as are our loss reserves to loans. Our "watch list" grew considerably this past year, mostly as a result of the poor farm economy. A larger watch list does not necessarily mean higher actual loan losses, but another year of economic stress in our agricultural sector will certainly translate into higher future losses. [OBJECT OMITTED][OBJECT OMITTED] CREDIT CARD Our credit card business made major progress this year in stabilizing loss rates, improving profitability, and continuing rapid growth. This business began to change rapidly a few years ago with a proliferation of card offerings at lower rates and fees to consumers, many of which had sub-par credit standings. This rapid shift in the industry norm caused many that were previously in this business to fold their tents, lick their wounds, and look for other things to do. At First Commerce, we have found ways to reduce losses, improve our collection process, increase fees, and continue to grow. As mentioned in past reports, a few years ago we entered into a joint venture with Cabela's, "The World's Foremost Outfitter of Hunting, Fishing, and Outdoor Gear." This co-branded card partnership continues to be very successful. We admire and work well with our partners. With this partnership, our active credit card accounts outstanding now number over 160,000, and our managed loan volume from credit cards now exceeds $200 million. Our hats are off to those who have provided excellent leadership to this rapidly changing and important business -- Mark Hansen, Executive Vice President and Senior Lending Officer at NBC; Tom Boatman, Senior Vice President and Manager of our BankCard Division; Sue Saathoff, Vice President and Chief Operating Officer of our BankCard Division. [OBJECT OMITTED][OBJECT OMITTED] FIRST COMMERCE MORTGAGE Our mortgage company had another wonderful year in 1998 with net income of $1.2 million, and loan servicing growth of 36.8%, ending the 1998 year with servicing volume of $1.6 billion. At the beginning of 1998, mortgage rates fell rapidly to levels we have not seen for many years. This created a huge wave of refinancing activity, increasing volume for FCM to levels three times that of normal. Our management team did a skillful job of controlling interest rate exposure and were very successful in profitably selling unhedged mortgages into the secondary markets, enabling us to offset the losses incurred by writing down previously booked mortgage servicing rights caused by the heavy refinancing activity. FCM borrows heavily from NBC to support its warehouse activity. And, it is also one of NBC's largest deposit customers with average balances in excess of $47 million. During the year Jeff Holmberg was named Chief Executive Officer, effectively and smoothly completing the management transition planned a year ago. We are thankful for the many years of dedicated service which Doug Alford, FCM's former president, provided us. This past year, between the earnings of FCM, origination fees generated from our operating businesses, dollars earned by NBC from loans made to FCM, and interest earned on the FCM deposit balances, this business activity earned First Commerce over $3 million. [OBJECT OMITTED][OBJECT OMITTED] FEE INCOME During 1998, fee income generated in various parts of our consolidated Company increased $11.0 million to $58.2 million, up 23.3% over 1997. This is a very substantial increase without which we would not have been able to achieve our 1998 earnings targets. This excellent fee income growth occurred in our BankCard Division, Trust Division, our mortgage origination activity, brokerage, and investment fees generated by First Commerce Investors. This has been wonderful growth for us. RETAIL Our retail function continues to strengthen our relationships with our customers through continued quality service and cross selling activities. Our customers like to bank with us, and we are working hard to continue to earn their trust and find more good people to do business with. Jo Kinsey and staff are doing a great job of making banking fun again for our customers and our people. Important pieces of new technology were put in place this past year - a data base marketing system (managed by Judy Terwilliger) and an account profitability measuring system, which will make us more effective marketers and will enable us to do a better job managing customer relationships for future growth. During 1998, we opened our new Call Center at NBC, and it has been enormously successful. Under the leadership of Sandra Walsh, our Call Center now receives customer calls at a rate of 4,000 a week. This translates into 208,000 calls per year. Sandra and our excellent Call Center staff do a wonderful job of maintaining our traditional quality service, do an excellent job of cross-selling, and free up our Personal Bankers for effective and important face-to-face work with our customers in our banks and branches. We have web sites (www.fcbi.com) for every bank and now an interactive home banking product that allows our customers to access our bank services with their home PC over the Internet. This "electronic banking" function will grow importantly over the next five years and keep our Company in the front of the race in providing our customers new, convenient ways to access our many financial services. FIRST COMMERCE INVESTORS AND NBC TRUST DIVISION Our Trust Division, which is part of the National Bank of Commerce, and First Commerce Investors, which is a holding company subsidiary, have done an excellent job of increasing revenue and profits during the past three years. In the fall of 1997, the vast majority of the NBC co-mingled funds were converted into mutual funds, which provide a better product for our customers. Our Trust Division is capably led by Steve Caswell and a team of real pros who do a great job for our customers and bring in significant new business each year. Vicki Huff and the Trust Department staff continue to lead the new business charge for us and deserve a big hand for their wonderful work. At First Commerce Investors, Jim Stuart, III, Chairman, and Cam Hinds, President and Chief Investment Officer, along with a crew of very capable people have developed a very important investment business, which has the potential to provide us with good future growth. The current challenge is growing our mutual funds. FIRST COMMERCE TECHNOLOGIES, INC. First Commerce Technologies lost $888,000 in 1998. Principal causes of the loss were 1) communication expenses running much higher than plan, 2) increased costs relative to work done to be Year 2000 ready (mostly extra people), and 3) costs incurred (hardware and software) to provide better customer service and enhance our existing products. Needless to say, none of us are happy about the loss. We anticipate being able to run FCT at breakeven levels in 1999, and are then hopeful that our improved products and service quality will begin to produce higher revenues and profits in 2000 and beyond. Bank technology has been changing very rapidly during the past five years and we have invested heavily during this period to provide ourselves and FCT customers with the technology and service level to enable us to remain competitive in today's and tomorrow's banking environment. FCT has excellent people, they have improved service levels, and they have made excellent product improvement. This year, we have yet another year of heavy investment in products and a heavy year of completion of converting all of our customers to new Year 2000 ready and more user-friendly products. In the following year, we should begin to see the results of our heavy investment in this business. We have not done a good job of predicting results. WESTERN NEBRASKA NATIONAL BANKS At Western Nebraska National Banks (North Platte and Valentine), which I call "Western," growth continues at a very rapid pace. Total loans (when Valentine is included) increased to $162 million at the end of last year, up 17% from a year ago, and total assets as of year-end 1998 (when Valentine is included) were $240 million, up 14% over the previous year, and up 176% from five years ago. Expansion of our Alliance building is nearly complete, and we have recently hired two new outstanding people, Daryl Krejci and Jerry Beagle, to complement Frank Tolstedt, Marvin Larabee and Miles Colson. This great team has the town "abuzz" and new customers are standing in line to get in. In Valentine, Jan Lallman and Monty Nieffer have a new building under construction that, when completed, will boost the already strong growth which has occurred there. Total assets at year-end in Valentine were $17 million. This is a conversion of an LPO which we began only three years ago. Jan, Monty and their staff have plans to add a significant amount of new business this year in this wonderful Nebraska Sandhills ranch country. Mary Gerdes, President of Western, Joe Scherger, Executive Vice President, and Leland Poppe, Executive Vice President, have created a wonderful team of highly motivated people who are working hard, having fun, and winning. Upfront costs of goodwill created from past acquisitions and strong depreciation charges created by construction of the many new facilities dampen current earnings, but continued growth and time will make Western one of our largest profit centers. As I have said before, this is not "business as usual." GLOBAL We had another good year with our Global investments. At year end, Global's market value was $70.1 million with a cost of $52.1 million, thus creating potential future pre-tax gains (if December 31, 1998 prices hold) of $18 million. During 1998, $3.0 million was taken in net after tax gains and income, which was included in Company net income. Investment returns in 1998 for Global were 16.86%, which compares well to the Lipper Global Equity Index of 14.63%. Over the past three and five years, our Global returns have been 18.33% and 16.06%, respectively, which is quite good and better than our expectation. Global continues to provide us with a diversified earnings stream, a source of spare capital, and a source of potential emergency liquidity. Jim Stuart, III, and Cam Hinds, our FCI leaders, do a good job of managing this important pool of Company capital. COMPANY ACTIVITIES During this past year, Stuart Bartruff and I looked at a good number of potential acquisitions and bid on a few. We were not successful on any of our bids at the prices we felt would benefit our Company over the long run. Current acquisition prices for banks with little growth potential have been in the 2.5x book value area, and banks in growth markets are fetching handsome 3x book and higher prices. Stuart and I have not been able to justify paying excessive prices which would dilute our per share earnings caused mostly by the goodwill amortization created when excessive prices are paid. We continue to look for acquisition opportunities, which will accelerate our growth rate. Buying more agriculturally based Midwest banks does not meet this criteria unless the price is low enough that it does provide overall Company value. In April we will be opening a new bank on the northern borders of Colorado Springs. We are very pleased that Tom Feilmeier has agreed to be our president there. Tom is a very bright, high energy banker who has the financial and leadership skills to build a successful new bank in Colorado. This investment will require patience on our part, as this start-up will not breakeven for about three to five years. This is, we think, an excellent way to enter new growth markets at reasonable prices (book value plus losses versus 3x book for an existing bank). We are excited about this new venture. During 1998 we increased our cash dividend payment rate from 30 cents to 34 cents per share. Your Board also voted in December to increase the cash dividend rate in 1999 to 36 cents per share. During the 1998 year, we also purchased 18,017 of FCB shares at what we believe to be good prices for our Company and our stockholders. We will continue this practice when good opportunities present themselves. We compare these purchases/investments at prices of approximately 1.4x book value versus making an acquisition of another bank at 2.5x earnings that dilutes our earnings on a per share basis. On balance, as much as we like Nebraska, we think we have enough mid-western ag banks. Acquisition excitement for us comes from growth markets at fair prices, or continued investments in the Global Fund, or in our own Company when the price is right. During the past 18 months, we have spent a great deal of time and money in both our computer company, and our banks and other businesses to assure ourselves and customers that we are prepared for the turn of the century which will occur at the end of this year. Our principal focus has been to assure our customers and ourselves that our computer based hardware and software will work when we enter the Year 2000. We estimate that we have spent approximately $5.5 million through 1998 and will spend another $7.0 million in 1999 in both hard and soft dollars to make sure our hardware and software systems will work January 1, 2000. In our computer company, Terri Raffety, Mary Anne Classen, and Sandy Deets have done a great job defining, testing, and fixing our systems. And in NBC, Steve Slope and Dave Wellsfry have done an outstanding job of getting our systems prepared and tested. These five individuals have earned "Hero" status in my book. We are very proud of them. We will have nearly all systems tested by June 30 of this year. At this writing, all of our efforts and tests have gone very well, leaving me confident that we will be fully prepared for business as usual in January next year. CURRENT YEAR THOUGHTS Our business plans for 1999 call for us to continue with reasonable bottom line growth from both asset generated income, fee income, and normal profit production from Global. As mentioned earlier, I am worried that continued stress on our ag customers due to poor prices (below breakeven levels) could result in increased levels of loan losses and the need to beef up loss reserves to cover current and future losses. We clearly need price improvement or we are going to begin to see some unwanted liquidations a year from now in our agricultural sector. Our U.S. equity prices have been increasing in value at an unprecedented and an unsustainable rate for four years now. A rapid stock market correction could cause GDP growth in the U. S. economy to slow causing our general business climate to soften, making it tougher for our brokers to sell investments, making it tougher to produce good returns in Global, and producing a general and potentially scary slowdown in the U.S. economy. We know about the troubles of our trading partners in Asia and Latin America, which will continue to have a negative impact on U.S. GDP growth and ag prices here at home. Even with these concerns, our budgets call for continued growth and we work hard each day to achieve our plans for another successful year. Long term I continue to be optimistic about the growth of our country and the world economy and I feel there are reasonable prospects for agriculture in America. I also believe that given the current potential troublesome environment, our company is focused on the right things to maximize both our short and long-term potential. We have made important investments in people, technology, and buildings to enhance asset and bottom line growth. Our people are skilled, seasoned, and motivated to win. This, of course, is extremely important both in good times and even more so when our environment toughens up. It is possible that none of the things that concern me today will ever happen. I hope this turns out to be the case. We are not waiting for bad things to happen. We are working hard every day to make good things happen and being opportunistic along the way. We are very appreciative of the many people who have and who are helping make this an outstanding business organization. It has taken tremendous energy and commitment to get us where we are today, and we have no intention of letting any of our success slip away. As in past letters, I have ended by inviting any of you who have a good idea which will be helpful to us to call me, and I again invite you to do so. Sincerely, James Stuart, Jr. James Stuart, Jr. Chairman and CEO The First Commerce Bancshares Organization The multi-resource, statewide organization First Commerce Bancshares is today, traces its roots to the founding of Lincoln's National Bank of Commerce in 1902. The organization has since expanded not only in Nebraska, but into Kansas and Colorado. The numerous banking locations that comprise First Commerce Bancshares are indicated on the map below.
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.........................................................48
Consolidated Balance Sheets December 31, -------------------------- 1998 1997 --------- -------- (Amounts In Thousands) ASSETS Cash and due from banks $ 135,731 $ 156,664 Federal funds sold 31,865 36,495 --------- --------- Cash and cash equivalents 167,596 193,159 Mortgage loans held for sale 66,178 31,360 Securities available for sale (cost of $430,747,000 and $294,691,000) 452,301 328,376 Securities held to maturity (fair value of $300,502,000 and $367,489,000) 295,543 362,768 Loans 1,284,007 1,236,443 Less allowance for loan losses 24,292 22,458 --------- --------- Net loans 1,259,715 1,213,985 Federal Home Loan Bank stock, at cost 9,347 8,481 Accrued interest receivable 22,257 21,476 Premises and equipment, net 62,392 54,468 Other assets 49,416 37,027 --------- --------- $2,384,745 $2,251,100 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest bearing $ 365,782 $ 353,109 Interest bearing 1,362,718 1,296,385 --------- --------- 1,728,500 1,649,494 Short-term borrowings 213,470 198,395 Federal Home Loan Bank borrowings 143,625 120,450 Accrued interest payable 7,442 7,734 Accrued expenses and other liabilities 29,562 26,277 Long-term debt 13,500 16,170 --------- --------- Total liabilities 2,136,099 2,018,520 Commitments and contingencies Stockholders' equity: Common stock: Class A voting, $.20 par value; authorized 10,000,000 shares; issued and outstanding 2,583,319 and 2,591,336 shares; 517 518 Class B nonvoting, $.20 par value; authorized 40,000,000 shares, issued and outstanding 10,928,951 and 10,938,951 shares 2,186 2,188 Paid-in capital 21,572 21,601 Retained earnings 210,361 186,377 Accumulated other comprehensive income 14,010 21,896 --------- --------- Total stockholders' equity 248,646 232,580 --------- --------- $2,384,745 $2,251,100 ========= =========
See notes to consolidated financial statements.
Consolidated Statements of Income Year ended December 31, ---------------------------- 1998 1997 1996 ------ ------ ------ (Amounts In Thousands Except Per Share Data) Interest income: Loans $111,395 $104,018 $ 97,228 Securities: Taxable 41,635 39,463 32,485 Nontaxable 1,503 1,381 1,483 Dividends 2,110 1,653 1,313 Mortgage loans held for sale 3,419 1,674 1,953 Federal funds sold 1,898 1,980 2,037 ------ ------ ------ Total interest income 161,960 150,169 136,499 Interest expense: Deposits 62,902 60,201 55,315 Short-term borrowings 9,181 8,706 7,256 Federal Home Loan Bank borrowings 6,313 3,206 2,153 Long-term debt 1,367 1,470 1,669 ------ ------ ------ Total interest expense 79,763 73,583 66,393 ------ ------ ------ Net interest income 82,197 76,586 70,106 Provision for loan losses 7,658 8,297 6,839 ------ ------ ------ Net interest income after provision for loan losses 74,539 68,289 63,267 Noninterest income: Credit card 15,759 13,047 10,591 Computer services 11,427 8,904 8,491 Other service charges and fees 10,682 7,829 6,217 Mortgage banking 8,853 5,425 4,868 Trust services 6,085 6,469 5,840 Service charges on deposits 5,427 5,562 5,231 Gains on securities sales 4,635 4,861 1,672 Other income 2,846 1,742 1,120 ------ ------ ------ Total noninterest income 65,714 53,839 44,030 ------ ------ ------ Noninterest expense: Salaries and employee benefits 44,123 39,475 35,808 Credit card fees 11,403 7,921 7,055 Equipment expense 6,289 5,538 5,523 Amortization of mortgage servicing rights 4,782 2,067 1,537 Communications 4,447 4,221 4,159 Net occupancy expense 4,353 4,496 3,980 Business development 4,343 3,695 3,990 Fees and insurance 4,266 3,802 3,770 Supplies 2,786 2,539 2,404 Other expenses 8,494 7,349 5,686 ------ ------ ------ Total noninterest expense 95,286 81,103 73,912 ------ ------ ------ Income before income taxes 44,967 41,025 33,385 Income tax provision 15,932 14,428 11,629 ------ ------ ------ Net income $ 29,035 $ 26,597 $ 21,756 ====== ====== ====== Weighted average shares outstanding 13,529 13,541 13,566 ====== ====== ====== Basic net income per share $2.15 $1.96 $1.60 ====== ====== ======
See notes to consolidated financial statements.
Consolidated Statements Of Stockholders' Equity Accumulated Class A Class B Compre- Other Common Common Paid-In Retained hensive Comprehensive Stock Stock Capital Earnings Income Income -------- -------- -------- -------- ------- ------------- (Amounts in Thousands) Balance, January 1, 1996 $521 $2,193 $21,665 $146,269 $ 9,373 Purchase and retirement of stock - (5) (37) (321) - Comprehensive income: Net income - - - 21,756 $21,756 - Unrealized gains on securities, net of reclassification adjustment (see disclosure) - - - - (488) (488) ------ Comprehensive income - - - - $21,268 - ====== Cash dividends ($.26 per share) - - - (3,528) - ---- ----- ------ ------- ------ Balance, December 31, 1996 521 2,188 21,628 164,176 8,885 ---- ----- ------ ------- ------ Purchase and retirement of stock (3) - (27) (330) - Comprehensive income: Net income - - - 26,597 $26,597 - Unrealized gains on securities, - - - - - net of reclassification adjustment (see disclosure) - - - - 13,011 13,011 ------ Comprehensive income - - - - $39,608 - ====== Cash dividends ($.30 per share) - - - (4,066) - ---- ----- ------ ------- ------ Balance, December 31, 1997 518 2,188 21,601 186,377 21,896 ---- ----- ------ ------- ------ Purchase and retirement of stock (1) (2) (29) (451) - Comprehensive income: Net income - - - 29,035 $29,035 - Unrealized gains on securities, net of reclassification adjustment (see disclosure) - - - - (7,886) (7,886) ------ Comprehensive income - - - - $21,149 - ====== Cash dividends ($.34 per share) - - - (4,600) - ---- ----- ------ ------- ------ Balance, December 31, 1998 $517 $2,186 $21,572 $210,361 $14,010 ==== ===== ====== ======= ======
Disclosure of reclassification amount: (Amounts in Thousands) Year ended December 31, 1996 1997 1998 ---- ---- ---- Unrealized holding gains arising during period, net of tax of $322, $8,708, and $(2,868), respectively $ 598 $16,171 $(5,326) Less: reclassification adjustment for gains included in net income, net of tax of $(584), $(1,700), and $(1,378), respectively (1,086) (3,160) (2,560) ------ ------ ------ Net unrealized gains on securities, net of tax of $(262), $7,008, and $(4,246), respectively $ (488) $13,011 $(7,886) ====== ====== ======
See notes to consolidated financial statements.
Consolidated Statements Of Cash Flows Year ended December 31, 1998 1997 1996 ------- ------- ------- (Amounts in Thousands) Net income $ 29,035 $ 26,597 $ 21,756 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 12,217 8,472 7,901 Provision for loan losses 7,658 8,297 6,839 Provision for deferred taxes 1,792 1,188 (489) Gain on sales of mortgage loans and securities (5,498) (4,906) (1,445) Changes in assets and liabilities: Purchases of mortgage loans held for sale (847,580) (307,025) (350,675) Proceeds from sales of mortgage loans held for sale 813,625 292,003 359,803 Accrued interest receivable (781) (1,283) (1,503) Accrued interest payable (292) 84 120 Other assets (1,039) (3,329) (759) Accrued expenses and other liabilities 122 1,277 34 Other 56 (271) (1,262) ------- ------- ------- Total adjustments (19,720) (5,493) 18,564 ------- ------- ------- Net cash flows from operating activities 9,315 21,104 40,320 Cash flows from investing activities: Proceeds from sales of securities held to maturity - 180 502 Proceeds from maturities of securities held to maturity 157,844 50,031 123,744 Purchases of securities held to maturity (90,619) (142,967) (193,574) Proceeds from sales of securities available for sale 31,971 101,701 8,913 Proceeds from maturities of securities available for sale 55,183 67,403 71,553 Purchases of securities available for sale (219,269) (99,784) (93,591) Net increase in loans (76,388) (140,200) (165,571) Securitization and sale of credit card loans 23,000 19,000 56,000 Purchases of premises and equipment (13,966) (11,054) (6,229) Purchases of mortgage servicing rights (11,663) (3,922) (4,204) Other 347 (459) (280) ------- ------- ------- Net cash flows from investing activities (143,560) (160,071) (202,737) Cash flows from financing activities: Net increase in deposits 79,006 74,950 111,339 Net increase in short-term borrowings 15,075 57,003 40,683 Net increase in Federal Home Loan Bank borrowings 23,175 47,381 41,569 Repayment of long-term debt (2,670) (2,534) (2,546) Repurchase of common stock (483) (360) (363) Cash dividends paid (4,600) (4,066) (3,528) Other (821) (85) (89) ------- ------- ------- Net cash flows from financing activities 108,682 172,289 187,065 ------- ------- ------- Net change in cash and cash equivalents (25,563) 33,322 24,648 Cash and cash equivalents at beginning of year 193,159 159,837 135,189 ------- ------- ------- Cash and cash equivalents at end of year $167,596 $193,159 $159,837 ======= ======= ======= Supplemental disclosure: Interest paid $79,911 $73,540 $66,210 Income taxes paid 13,290 13,465 12,540
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, mortgage banking, and retail deposit services through its Nebraska based banks and affiliated organizations. The majority of the Company's operations and assets are related to its Nebraska-based banking operations and none of the Company's other operations are significant enough to be reportable segments. 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. Mortgage Loans Held For Sale - Mortgage loans 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 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 the sole component of accumulated other comprehensive income in stockholders' equity. Realized gains and losses on investments are recognized using the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. Derivative Financial Instruments - The Company had a derivative financial instrument, a collar relating to a certain public equity security held by the Company, which was settled in 1998. The Company utilizes the deferral method of accounting for this instrument. Under the deferral method of accounting, a $697,000 gain from the settlement of the derivative financial instrument, net of tax of $244,000, was deferred and will be recognized in the same period as the gains and losses of the security being hedged. 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. A loan is considered 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. Certain direct loan costs and fees are deferred and recognized over the life of the loan on the interest method. Annual credit card fees are recognized on a straight-line basis over the period that cardholders may use the card. Credit Card Loan Securitization - The Company has sold, on a revolving basis, approximately $98,000,000 and $75,000,000 of credit card loans at December 31, 1998 and 1997, respectively, through a master trust securitization program. These securitizations have been recorded as sales in accordance with Statement of Financial Accounting Standards No. 125, "Accounting For Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." A residual earnings stream and servicing have been retained in the securitization, both of which are immaterial to the Company's consolidated financial statements. 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 their impairment, and an evaluation of the overall portfolio quality under current economic conditions. The allowance for large groups of smaller homogeneous loans, such as consumer loans and credit card loans are collectively evaluated for adequacy. For other loans, specific reserves are established for any impaired loan for which the recorded investment exceeds the measured value of the loan. 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. 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. 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. Advertising Costs - The Company expenses costs of advertising, except for direct-response advertising relating to its credit card portfolios, 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, 1998 and 1997, $3,301,000 and $2,730,000 of advertising costs are reported in other assets. 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 - Mortgage servicing rights represent the cost of acquiring the right to service mortgage loans. Such costs are initially capitalized and subsequently amortized in proportion to, and over the period of, estimated net loan servicing income. Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125) on a prospective basis as required. SFAS No. 125 supersedes the provisions of Statement of Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage Servicing Rights, an amendment to FASB Statement No. 65," which was adopted by the Company on July 1, 1995, on a prospective basis. The adoption of SFAS No. 125 did not have a material effect on the Company's financial position or results of operations. Both statements require that a mortgage banking enterprise recognize as a separate asset the rights to service mortgage loans for unrelated third parties that have been acquired through either the purchase or origination of a loan. Previous to July 1, 1995, only purchased mortgage servicing rights were capitalized as assets. Both statements also provide 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 will 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. Amortization of mortgage servicing rights is based on the ratio of net servicing income received in the current period to the net servicing income projected to be realized from the mortgage servicing rights. Projected net servicing income is in turn determined on the basis of the estimated future balance of the underlying mortgage loan portfolio, which decreases over time from scheduled loan amortization and prepayments. Additionally, SFAS No. 125 requires that mortgage servicing rights be reported at the lower of cost or fair value. The value of mortgage servicing rights is determined based on the present value of estimated expected future cash flows, using assumptions as to current market discount rates, prepayment speeds and servicing costs per loan. The unamortized mortgage servicing rights included in other assets were $14,402,000 and $7,521,000 at December 31, 1998 and 1997, respectively. The amount of loans serviced for others approximated $1,606,829,000, $1,174,357,000 and $1,038,021,000 at December 31, 1998, 1997, and 1996, respectively. As of December 31, 1998 and 1997, the fair value of the Company's capitalized mortgage servicing rights (including mortgage servicing rights purchased) was approximately $19.1 million and $15.4 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. Basic Net Income Per Share - Basic net income per share is based on the weighted average number of shares of common stock outstanding. Accounting Pronouncements - In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS133), "Accounting for Derivative Instruments and Hedging Activities" was issued. This statement addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The statement is effective for the Company's 2000 financial statements and establishes standards for reporting and display of derivatives on the balance sheet as assets or liabilities, measured at fair value. The Company has not determined the impact this statement will have on the consolidated financial statements. B. RESTRICTED CASH BALANCES The average compensating balances held at correspondent banks during 1998 and 1997 were $11,957,000 and $11,322,000 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 $26,568,000 and $25,624,000 for 1998 and 1997, respectively, as a reserve requirement. C. SECURITIES Debt and equity securities have been classified in the accompanying 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, 1998 - ------------------ U.S. government and agency securities $133,332 $ 2,949 $ - $136,281 Mortgage-backed securities 245,358 834 (2,430) 243,762 Marketable equity securities 52,057 23,092 (2,891) 72,258 ------- ------ ------ ------- Totals $430,747 $26,875 $(5,321) $452,301 ======= ====== ====== ======= December 31, 1997 - ------------------ U.S. government and agency securities $159,718 $ 2,938 $ (44) $162,612 Mortgage-backed securities 91,756 323 (228) 91,851 Marketable equity securities 43,217 31,929 (1,233) 73,913 ------- ------ ------ ------- Totals $294,691 $35,190 $(1,505) $328,376 ======= ====== ====== =======
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- --------- --------- --------- Securities held to maturity: December 31, 1998 - ------------------ U.S. government and agency securities $102,027 $2,458 $ - $104,485 States and political subdivision securities 36,802 589 (7) 37,384 Mortgage-backed securities 156,424 2,059 (139) 158,344 Other 290 - (1) 289 ------- ------ ------ ------- Totals $295,543 $5,106 $ (147) $300,502 ======= ====== ====== ======= December 31, 1997 - ----------------- U.S. government and agency securities $183,037 $2,701 $ (22) $185,716 States and political subdivision securities 27,448 456 (10) 27,894 Mortgage-backed securities 151,858 1,779 (172) 153,465 Other 425 - (11) 414 ------- ------ ------ ------- Totals $362,768 $4,936 $ (215) $367,489 ======= ====== ====== =======
The amortized cost and estimated fair value of debt securities at December 31, 1998, 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 $ 4,255 $ 4,277 $ 35,653 $ 36,229 Due after one year through five years 29,101 29,570 46,646 48,015 Due after five years through ten years 89,410 91,745 51,033 52,037 Due after ten years 16,353 16,566 - - ------- ------- ------- ------- 139,119 142,158 133,332 136,281 Mortgage-backed securities 156,424 158,344 245,358 243,762 ------- ------- ------- ------- $295,543 $300,502 $378,690 $380,043 ======= ======= ======= =======
The following table presents the securities portfolio sales activities for the years ended December 31, 1998, 1997 and 1996. All sales of securities held to maturity were within three months of the securities' maturities, or were early calls of the securities.
1998 1997 1996 ------------------ ----------------- -------------------- Held Available Held Available Held Available to for to for to for Maturity Sale Maturity Sale Maturity Sale ------- ----- -------- ------ ------- ------- Proceeds from sales of securities $ - $31,971 $180 $101,701 $502 $8,913 Gross gains on sales of securities - 6,187 - 5,270 2 1,821 Gross losses on sales of securities - (1,552) - (409) - (151)
Securities with a carrying value of $544,328,000 at December 31, 1998, and $438,402,000 at December 31, 1997, were pledged to secure obligations under repurchase agreements or to secure public or trust deposits in the normal course of business. Securities with a carrying value of $81,592,000 and $57,240,000 were pledged to secure advances from the Federal Home Loan Bank as of December 31, 1998 and 1997, respectively. As of December 31, 1997, marketable equity securities with a fair value of $4,975,000 were pledged against a derivative financial instrument, a collar relating to a marketable equity security. At December 31, 1998 and 1997, state and political subdivision securities with an amortized cost of $31,871,000 and $23,899,000, respectively, and an estimated fair value of $32,344,000 and $24,231,000, respectively, were issued by State of Nebraska political subdivisions.
D. LOANS Loans at December 31 are summarized as follows: 1998 1997 ------- ------- Real estate mortgage $ 408,380 $ 375,044 Consumer 276,837 281,697 Commercial and financial 258,898 259,045 Agricultural 180,029 180,310 Credit card 109,176 106,737 Real estate construction 50,687 33,610 --------- --------- $1,284,007 $1,236,443 ========= =========
Virtually all of the Company's loans are to Nebraska-based organizations, except credit card loans which are concentrated in the Midwest. The loan portfolio is well diversified by industry. The Nebraska economy is dependent upon the general state of the agricultural economy. As of December 31, 1998 and 1997, there were $538,000 and $1,581,000, respectively, of nonaccruing loans. The amount of impaired loans and the amount of restructured loans as of December 31, 1998 and 1997 was not material. 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. Mortgage loans with a carrying value of $159,619,000 and $123,597,000 were pledged against advances from the Federal Home Loan Bank as of December 31, 1998 and 1997, respectively. E. ALLOWANCE FOR LOAN LOSSES Transactions in the allowance for loan losses are summarized as follows: 1998 1997 1996 ------- ------- ------- Balance, January 1 $22,458 $20,157 $19,017 Provision for loan losses 7,658 8,297 6,839 ------- ------- ------- Total 30,116 28,454 25,856 Net charge-offs: Loans charged off 8,501 8,630 7,794 Less recoveries 2,677 2,634 2,095 ------- ------- ------- Net loans charged off 5,824 5,996 5,699 ------- ------- ------- Balance, December 31 $24,292 $22,458 $20,157 ======= ======= ======= F. PREMISES AND EQUIPMENT Premises and equipment at December 31 consists of the following: 1998 1997 ------- ------- Land $ 7,307 $ 7,176 Buildings and leasehold improvements 65,849 60,936 Equipment and furnishings 41,076 38,285 ------- ------- 114,232 106,397 Less accumulated depreciation 51,840 51,929 ------- ------- $62,392 $54,468 ======= ======= 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, 1998, 1997 and 1996, was approximately $1,787,000, $1,646,000, and $1,587,000, respectively. The approximate future minimum rental commitments under noncancelable leases are as follows: Premises Equipment Total --------- --------- --------- 1999 $ 711 $112 $ 823 2000 484 79 563 2001 412 36 448 2002 338 24 362 2003 308 15 323 Thereafter 1,873 15 1,888 G. DEPOSIT MATURITIES Maturities of time deposits at December 31, 1998 are as follows: 1999 $718,327 2000 99,049 2001 20,017 2002 9,779 2003 1,614 Thereafter 3 H. SHORT-TERM BORROWINGS Amounts and interest rates related to securities sold under agreement to repurchase are as follows:
1998 1997 ------ ------ Amount outstanding at year-end $188,661 $142,941 Average interest rate outstanding at year-end 4.8% 4.9% Highest amount outstanding as of any month-end during the year $188,661 $176,572 Average amount outstanding during the year 159,159 143,666 Approximate average interest rate 4.9% 4.9%
Other short-term borrowings consisted of federal funds purchased of $14,880,000 and $50,615,000 at December 31, 1998 and 1997, respectively, and commercial paper totaling $9,929,000 and $4,839,000 at December 31, 1998 and 1997, respectively. I. FEDERAL HOME LOAN BANK BORROWINGS Short-term Federal Home Loan Bank (FHLB) advances made to subsidiary banks totaled $2,225,000 and $82,450,000 at December 31, 1998 and 1997, respectively. Subsidiary banks had unused lines of credit with the FHLB of $41,610,000 as of December 31, 1998. FHLB long-term advances of $141,400,000 and $38,000,000 were made to subsidiary banks at December 31, 1998 and 1997, respectively. These advances mature in 1999 to 2008. Interest is paid monthly of which $1,000,000 bears interest based upon LIBOR rates, 5.35% at December 31, 1998. The balance bears fixed interest rates of 4.20% to 5.85%. Virtually all of the advances held at December 31, 1998 are callable at the option of the FHLB within the next five years. The advances are collateralized by a blanket pledge of mortgage loans and certain investment securities. Scheduled principal payments based on the earlier of the maturity date or call date of the FHLB advances for the five years following December 31, 1998 are: 1999 $75,225 2000 36,400 2001 3,000 2002 - 2003 29,000 J. LONG-TERM DEBT Long-term debt at December 31 consists of capital notes which bear interest at 8.10% to 8.70%. 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 Company intends to redeem the remaining balance of $13,500,000 on May 1, 1999. 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 below 30% as of December 31, 1998 and 1997. Scheduled principal payments, not considering the anticipated redemption, for the five years following December 31, 1998 are: 1999 $2,500 2000 2,000 2001 2,000 2002 7,000 2003 - K. INCOME TAXES Consolidated income tax expense for the years ended December 31 consists of the following: 1998 1997 1996 ------ ------ ------ Current provision: Federal $13,359 $12,503 $11,418 State 781 737 700 ------ ------ ------ 14,140 13,240 12,118 Deferred income taxes 1,792 1,188 (489) ------ ------ ------ Total consolidated income tax provision $15,932 $14,428 $11,629 ====== ====== ====== The effective rate of total tax expense differs from the statutory federal tax rate as follows: 1998 1997 1996 ------ ------ ------ Tax at federal statutory rate 35% 35% 35% Tax-exempt interest on obligations of state and political subdivisions (1) (2) (2) Other 1 2 2 -- -- -- Effective tax rate 35% 35% 35% == == == Significant items comprising the Company's net deferred tax liability as of December 31, 1998 and 1997 are as follows: Deferred tax assets: 1998 1997 ------ ------ Allowance for loan losses $ 8,421 $ 7,779 Other 2,218 1,773 ------ ------ Total deferred tax assets 10,639 9,552 Deferred tax liabilities: Net unrealized gains and losses on securities available for sale 7,544 11,789 Mortgage servicing rights 4,843 2,383 Premises and equipment 1,508 1,619 Other 1,598 1,069 ------ ------ Total deferred tax liabilities 15,493 16,860 ------ ------ Net deferred tax liability $(4,854) $(7,308) ====== ====== L. COMMITMENTS AND CONTINGENt liabilities The Company's consolidated financial statements do not reflect various commitments and contingent liabilities that 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 $617,940,000 and $449,325,000 (exclusive of $928,372,000 and $866,217,000 of unused approved lines of credit related to credit card loan agreements) at December 31, 1998 and 1997, 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 $108,696,000, and $46,878,000 at December 31, 1998 and 1997, 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 that 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 $146,510,000 and $64,043,000 as of December 31, 1998 and 1997, respectively. The Company has an agreement to sell on a best efforts basis $2,901,000 as of December 31, 1998. 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 $22,587,000 and $21,609,000 in letters of credit outstanding at December 31, 1998 and 1997, 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 or results of operations of the Company. M. RELATED PARTY TRANSACTIONS As of December 31, 1998, 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 related parties of the Company and its significant subsidiaries for the year ended December 31, 1998 is shown below: Beginning Ending Balance Additions Payments Balance -------- -------- -------- -------- $25,676 $101,212 $90,259 $36,629 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 $1,193,000 in 1998, $1,156,000 in 1997 and $1,020,000 in 1996. 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 $1,497,000 in 1998, $1,308,000 in 1997 and $1,289,000 in 1996. 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 1999, the subsidiary banks have retained defined net income from 1998 and 1997 of approximately $21,000,000. 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, 1998, 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, 1998, 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, 1998: Total Capital (to Risk Weighted Assets): Consolidated $252,967 15.4% $131,854 8.0% N/A N/A National Bank of Commerce 115,151 12.0 76,801 8.0 $96,001 10.0% Tier I Capital (to Risk Weighted Assets): Consolidated 230,226 14.0 65,927 4.0 N/A N/A National Bank of Commerce 103,151 10.7 38,400 4.0 57,601 6.0 Tier I Capital (to Quarterly Average Assets): Consolidated 230,226 10.0 91,868 4.0 N/A N/A National Bank of Commerce 103,151 7.9 52,390 4.0 65,488 5.0 As of December 31, 1997: Total Capital (to Risk Weighted Assets): Consolidated $226,623 14.9% $121,724 8.0% N/A N/A National Bank of Commerce 108,772 12.1 71,956 8.0 $89,945 10.0% Tier I Capital (to Risk Weighted Assets): Consolidated 205,459 13.5 60,862 4.0 N/A N/A National Bank of Commerce 97,499 10.8 35,978 4.0 53,967 6.0 Tier I Capital (to Quarterly Average Assets): Consolidated 205,459 9.7 84,362 4.0 N/A N/A National Bank of Commerce 97,499 8.1 48,046 4.0 60,058 5.0
P. CONDENSED FINANCIAL INFORMATION
Condensed Balance Sheets (Parent Company Only) December 31, -------------------- 1998 1997 ------ ------ ASSETS Cash on deposit with subsidiaries $ 226 $ 142 Securities purchased under agreement to resell to subsidiary bank 5,055 5,380 ------- ------- Cash and cash equivalents 5,281 5,522 Securities available for sale (cost of $55,882,000 and $47,063,000) 75,889 77,676 Investment in subsidiaries: Equity in net assets of bank subsidiaries 172,587 161,180 Equity in net assets of nonbank subsidiaries 1,848 1,291 Premises and equipment, net 11,477 11,404 Other assets 13,903 9,140 ------- ------- $280,985 $266,213 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accrued expenses and other liabilities $ 8,911 $ 12,624 Commercial paper outstanding 9,928 4,839 Long-term debt 13,500 16,170 ------- ------- Total liabilities 32,339 33,633 Stockholders' equity 248,646 232,580 ------- ------- $280,985 $266,213 ======= =======
Condensed Statements of Income (Parent Company Only)
Year ended December 31, ----------------------------- 1998 1997 1996 ------ ------ ------ Income: Dividends from bank subsidiaries $18,278 $15,542 $14,186 Dividends from nonbank subsidiaries 400 225 150 Rent: Subsidiaries 1,664 1,635 1,291 Other 1,514 1,449 1,678 Interest and dividend income 2,502 1,963 1,541 Other 4,613 4,733 1,219 ------- ------- ------- 28,971 25,547 20,065 Expenses: Salaries and employee benefits 2,803 2,682 1,807 Interest 1,866 1,780 1,669 Interest paid to subsidiaries - - 204 Building expense 2,321 2,412 2,246 Other 1,515 1,597 1,945 ------- ------- ------- 8,505 8,471 7,871 ------- ------- ------- Income before income tax benefit (expense) and equity in undistributed earnings of subsidiaries 20,466 17,076 12,194 Income tax benefit (expense) (537) (327) 706 ------- ------- ------- Income before equity in undistributed earnings of subsidiaries 19,929 16,749 12,900 Equity in undistributed earnings of subsidiaries 9,106 9,848 8,856 ------- ------- ------- Net income $29,035 $26,597 $21,756 ======= ======= =======
Condensed Statements of Cash Flows (Parent Company Only)
Year ended December 31, ----------------------------- 1998 1997 1996 ------ ------ ------ Net income $29,035 $26,597 $21,756 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 1,016 884 864 Equity in undistributed earnings of subsidiaries (9,106) (9,848) (8,856) Gains on sale of securities (4,595) (4,717) (1,635) Other (98) (450) 1,105 ------ ------ ------ Total adjustments (12,783) (14,131) (8,522) ------ ------ ------ Net cash flows from operating activities 16,252 12,466 13,234 Cash flows from investing activities: Proceeds from sales and maturities of securities available for sale 30,687 17,824 8,915 Purchase of securities available for sale (35,603) (22,892) (14,277) Purchase of premises and equipment (790) (365) (244) Purchase of loans from subsidiary bank (4,731) (360) (4,980) Cash and cash equivalents from nonbank subsidiaries merger - - 245 Investments in subsidiaries (4,089) (13) (93) Other 697 (447) (494) ------ ------ ------ Net cash flows from investing activities (13,829) (6,253) (10,928) Cash flows from financing activities: Net increase in short-term borrowings 5,089 934 3,905 Repayment of long-term debt (2,670) (2,534) (2,546) Repurchase of common stock (483) (360) (363) Cash dividends paid (4,600) (4,066) (3,528) ------ ------ ------ Net cash flows from financing activities (2,664) (6,026) (2,532) ------ ------ ------ Net change in cash and cash equivalents (241) 187 (226) Cash and cash equivalents at beginning of year 5,522 5,335 5,561 ------ ------ ------ Cash and cash equivalents at end of year $ 5,281 $ 5,522 $ 5,335 ====== ====== ====== Supplemental disclosures of cash flow information: Cash paid during year for: Interest $ 1,798 $ 1,763 $ 1,716 Income taxes 13,062 12,708 12,140
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, 1998 and 1997. 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, 1998 December 31, 1997 ------------------ ------------------- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value ------- ------- ------- ------- Assets: Cash and cash equivalents $ 167,596 $ 167,596 $ 193,159 $ 193,159 Mortgage loans held for sale 66,178 66,388 31,360 31,427 Securities available for sale 452,301 452,301 328,376 328,376 Securities held to maturity 295,543 300,502 362,768 367,489 Net loans 1,259,715 1,261,759 1,213,985 1,215,790 Other financial instruments 48,371 48,371 48,303 48,303 Liabilities: Demand deposits with no stated maturities 879,711 879,711 814,437 814,437 Time deposits 848,789 851,084 835,057 837,194 Short-term borrowings 213,470 213,470 198,395 198,395 Federal Home Loan Bank borrowings 143,625 143,711 120,450 120,565 Long-term debt 13,500 13,500 16,170 16,330 Other financial instruments 26,295 26,295 21,850 21,850
Cash and Cash Equivalents. For cash and cash equivalents, the carrying amount is considered a reasonable estimate of fair value. Mortgage Loans 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, 1998 and 1997. 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 matur- ities 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, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Lincoln, Nebraska February 5, 1999
Selected Quarterly Financial Data (In Thousands Except Per Share Data) First Second Third Fourth Annual Quarter Quarter Quarter Quarter Total (2) -------- -------- -------- -------- -------- (Unaudited) 1998 Total interest income $39,504 $40,485 $40,251 $41,720 $161,960 Net interest income 20,125 20,637 19,944 21,491 82,197 Provision for loan losses 1,496 1,484 1,531 3,147 7,658 Gains on securities sales 839 1,457 1,915 424 4,635 Noninterest income 14,153 14,554 15,306 17,066 61,079 Noninterest expense 21,841 22,574 23,838 27,033 95,286 Net income 7,620 8,105 7,601 5,709 29,035 Basic net income per share .56 .60 .56 .43 2.15 Common stock trading range (1) Class A voting high 32.00 31.50 29.75 28.50 32.00 low 29.00 27.00 25.00 24.75 24.75 Class B nonvoting high 32.50 30.50 33.50 31.00 33.50 low 27.50 25.88 24.75 24.00 24.00 Dividends declared per share .085 .085 .085 .085 .34 1997 Total interest income $35,518 $37,266 $37,979 $39,406 $150,169 Net interest income 18,234 19,094 19,126 20,132 76,586 Provision for loan losses 2,584 1,640 1,840 2,233 8,297 Gains (losses) on securities sales 3,255 1,358 389 (141) 4,861 Noninterest income 11,936 11,303 12,535 13,204 48,978 Noninterest expense 19,149 19,398 20,223 22,333 81,103 Net income 7,563 6,900 6,379 5,755 26,597 Basic net income per share .56 .51 .47 .43 1.96 Common stock trading range (1) Class A voting high 28.50 31.00 26.00 33.00 33.00 low 21.00 20.00 21.00 22.50 20.00 Class B nonvoting high 20.00 23.50 23.50 32.50 32.50 low 16.00 16.75 19.00 21.25 16.00 Dividends declared per share .075 .075 .075 .075 .30
(1) 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, 1998, the Company had 474 Class A shareholders of record and 1,044 Class B shareholders of record. (2) Quarterly per share amounts may not add to annual total due to rounding. Selected Financial Data Three-Year Average Balance Sheets / Yields and Rates
Year Ended December 31, ------------------------------- 1998 ------------------------------- Average Average Balance Interest Rate ------- ------- ------- (Amounts in thousands) Assets Interest-earning assets: Loans, including non-accrual loans $1,231,931 $111,395 9.04% Taxable investment securities 610,135 41,635 6.82 Nontaxable investment securities (non-taxable basis) 29,475 1,503 5.10 Federal funds sold 34,500 1,898 5.50 Mortgage loans held for sale 47,949 3,419 7.13 Equity securities 68,105 1,431 2.10 Federal Home Loan Bank stock 8,981 679 7.56 -------- ------- Total interest-earning assets 2,031,076 161,960 7.97 Less allowance for loan losses (22,735) Cash and due from banks 116,870 Premises and equipment 57,917 Other assets 71,923 -------- Total assets $2,255,051 ======== Liabilities AND EQUITY Interest-bearing liabilities: Interest-bearing demand $ 385,760 11,347 2.94% Savings 97,227 2,776 2.86 Time 856,274 48,779 5.70 -------- ------ Total interest-bearing deposits 1,339,261 62,902 4.70 Short-term borrowings 182,922 9,181 5.02 Federal Home Loan Bank borrowings 116,166 6,313 5.43 Long-term debt 14,489 1,367 9.43 -------- ------ Total interest-bearing liabilities 1,652,838 79,763 4.83 ------ Noninterest bearing demand deposits 320,619 Other liabilities 42,595 -------- Total liabilities 2,016,052 Total stockholders' equity 238,999 -------- Total liabilities and stockholders' equity $2,255,051 ======== Net interest income $ 82,197 ====== Net interest spread 3.14% ==== Net yield on interest-earning assets 4.05% ====
Selected Financial Data Three-Year Average Balance Sheets / Yields and Rates
Year Ended December 31, ------------------------------------------------------------------- 1997 1996 ------------------------------- ------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------- ------- ------- ------- ------- ------- (Amounts in thousands) $1,140,439 $104,018 9.12% $1,066,896 $ 97,228 9.11% 576,735 39,463 6.84 510,800 32,485 6.36 26,698 1,381 5.17 29,190 1,483 5.08 34,282 1,980 5.78 34,863 2,037 5.84 20,679 1,674 8.10 24,860 1,953 7.86 57,760 1,104 1.91 37,269 913 2.45 8,031 549 6.84 6,283 400 6.37 -------- -------- --------- ------- 1,864,624 150,169 8.05 1,710,161 136,499 7.98 (21,401) (19,680) 116,196 102,269 51,400 48,146 59,245 46,467 --------- --------- $2,070,064 $1,887,363 ========= ========= $ 350,708 9,627 2.75% $ 325,590 8,332 2.56% 89,666 2,558 2.85 84,039 2,334 2.78 844,476 48,016 5.69 797,944 44,649 5.60 -------- ------- -------- ------- 1,284,850 60,201 4.69 1,207,573 55,315 4.58 174,759 8,706 4.98 144,654 7,256 5.02 53,596 3,206 5.98 43,225 2,153 4.98 17,102 1,470 8.60 19,683 1,669 8.48 -------- ------- -------- ------- 1,530,307 73,583 4.81 1,415,135 66,393 4.69 ------- ------- 293,474 265,013 33,237 20,786 --------- -------- 1,857,018 1,700,934 213,046 186,429 --------- --------- $2,070,064 $1,887,363 ========= ========= $ 76,586 $ 70,106 ======= ======= 3.24% 3.29% ==== ==== 4.11% 4.10% ==== ====
Selected Financial Data (In Thousands Except Per Share Data) 1998 1997 1996 1995 ------ ------ ------ ------ At December 31, Assets $2,384,745 $2,251,100 $2,028,012 $1,815,575 Investments 747,844 691,144 642,700 561,183 Loans 1,284,007 1,236,443 1,121,239 1,017,367 Deposits 1,728,500 1,649,494 1,574,544 1,463,205 Federal Home Loan Bank borrowings 143,625 120,450 73,069 31,500 Long-term debt 13,500 16,170 18,704 21,250 Stockholders' equity 248,646 232,580 197,398 180,021 Year Ended December 31, Net interest income $82,197 $76,586 $70,106 $60,889 Provision for loan losses 7,658 8,297 6,839 3,495 Total noninterest income 65,714 53,839 44,030 33,850 Total noninterest expenses 95,286 81,103 73,912 64,393 Net income 29,035 26,597 21,756 17,420 Per share data: Net income $ 2.15 $ 1.96 $ 1.60 $ 1.29 Dividends .34 .30 .26 .227 Stockholders' equity before net unrealized gains and losses on available for sale securities 17.36 15.57 13.92 12.58 Total stockholders' equity 18.40 17.19 14.57 13.27 Selected Ratios: Rate of return on average: Total assets 1.29% 1.28% 1.15% 1.02% Stockholders' equity(1) 13.05 13.28 12.14 10.52 Average total stockholders' equity to average total assets(1) 10.43 10.33 9.49 9.46 Common dividends payout ratio 15.84 15.29 16.21 17.58 Allowance for loan losses to total loans 1.89 1.82 1.80 1.87 Nonaccrual and restructured loans as a percentage of total loans .16 .25 .45 .29 Net charge-offs to average total loans .47 .53 .53 .27 Capital Ratios: Core capital (Tier I) (2) 13.97% 13.50% 13.31% 13.39% Total risk based capital (3) 15.35 14.89 14.72 14.82 Leverage (4) 10.02 9.74 9.40 9.16
(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 1998 requirements). (3) Tier I capital plus allowance for loan losses (limited to 1.25% of risk-weighted assets) to risk-weighted assets (using 1998 requirements). (4) Tier I capital to quarterly average assets less goodwill. .
1994 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ ------ $1,624,138 $1,572,298 $1,452,058 $1,309,613 $1,106,354 $1,019,288 535,136 520,176 495,784 384,951 375,624 354,865 850,292 777,695 674,352 631,713 538,056 489,537 1,355,965 1,324,196 1,196,111 1,123,728 938,881 864,011 10,000 - - - - - 23,000 25,000 26,500 11,725 10,583 10,757 149,354 137,293 116,335 99,702 95,576 88,578 $57,793 $57,727 $55,303 $47,547 $37,933 $34,648 332 1,143 3,152 3,810 1,770 1,630 31,363 33,345 33,767 27,722 24,293 22,378 59,663 60,806 57,304 52,239 44,896 40,930 19,032 19,760 19,150 12,980 10,672 10,025 $ 1.46 $ 1.52 $1.47 $ .93 $ .75 $ .69 .216 .20 .188 .136 .112 .102 11.49 10.24 8.93 7.65 6.78 6.13 11.26 10.53 8.93 7.65 6.78 6.13 1.22% 1.33% 1.41% 1.06% 1.02% 1.04% 13.37 15.77 17.69 12.84 11.49 11.75 9.15 8.46 7.96 8.23 8.88 8.82 14.83 13.19 12.79 14.25 15.05 14.76 2.02 2.37 2.74 2.68 2.74 2.94 .30 .34 .50 .73 .43 .85 .24 .16 .25 .48 .37 .26 14.78% 13.43% 12.70% 10.05% 11.16% 16.26 14.90 13.95 11.30 12.41 9.23 8.31 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 1998 was $29,035,000 as compared to $26,597,000 in 1997 and $21,756,000 during 1996. On a per share basis this equates to $2.15, $1.96, and $1.60, for 1998, 1997 and 1996, respectively. The Company experienced moderate growth as year-end assets reached $2,384,745,000 as compared to $2,251,100,000, in 1997. The Company continued its history of raising its annual dividend rate. The 1998 cash dividend was $0.34 per share versus $0.30 per share in 1997 and $0.26 per share in 1996. In December 1998, the Company raised its annualized dividend to 36 cents. The $2.4 million or 9% increase in net income in 1998 from 1997 can be primarily attributed to an increase in net interest income, combined with a slight decrease in the provision for loan losses. The net yield on interest earning assets decreased slightly from 4.11% in 1997 to 4.05% in 1998. However, average earning assets increased $166 million during 1998 compared to $154 million in 1997. This resulted in a $5.6 million or 7% increase in net interest income in 1998. Although year-end loans increased $48 million in 1998 from 1997, this increase is down from the $115 million increase in 1997 from 1996, and the $104 million increase during 1996. Average deposit growth continues to lag earning asset growth. Average deposits increased 5.2% or $82 million in 1998 and 7.2% or $106 million in 1997. Therefore, the Company has utilized other non-traditional methods to fund some of its earning asset growth. In 1996 the Company started securitizing part of its credit card portfolio. Total securitized assets were $98 million at the end of 1998. Short-term borrowings that are made up primarily of securities sold under repurchase agreements have increased on the average $38 million since 1996. Average Federal Home Loan Bank borrowings were $116 million in 1998, as compared to $54 million in 1997 and $43 million in 1996. EARNING ASSETS Average earning assets in 1998 were $2.03 billion, an 8.9% increase over 1997 primarily caused by loan growth of $91 million and an increase in taxable investment securities of $33 million. Average earning assets were $1.86 billion in 1997, a 9.0% increase over 1996. Average loans were $1,232 million, $1,140 million and $1,067 million in 1998, 1997 and 1996, respectively, an 8.0%, 6.9%, and 16.3% 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 growth in 1998 was primarily in the real estate market. Average loans accounted for 61% of average earning assets during 1998 and 1997. Average investment securities were $717 million during 1998, a $47 million increase over 1997. Investment securities accounted for 35% of average earning assets during 1998 and 36% during 1997. 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 last two years to extend the average life of its investment portfolio. The Company has purchased high yielding callable U. S. Government agencies with stated maturities much longer than the call dates. These securities are classified on the following maturity schedule by contractual maturity, but the Company anticipates that these securities will be called when they reach their call date. The Company expects that approximately $100 million of U. S. Treasury and Agency securities will mature or be called in 1999 at an average yield of approximately 7.2%. The Company's average yield on its taxable security portfolio was approximately 6.8% for the last two years. 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, --------------------------- 1998 1997 1996 ------ ------ ------ U.S. Treasury $ 77,069 $103,366 $172,533 U.S. Agency 158,290 239,389 188,986 State and municipal 36,802 27,448 28,747 Mortgage-backed securities 401,782 243,614 205,244 Marketable equity securities 52,057 43,217 32,835 Other securities 290 425 687 ------- ------- ------- $726,290 $657,459 $629,032 ======= ======= ======= 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, 1998 -------------------------------------------------- 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 $1,500 $21,511 $79,016 $ - $102,027 State and municipal 2,755 7,490 10,315 16,242 36,802 Other securities - 100 79 111 290 ------ ------- ----- ----- ------- $4,255 $29,101 $89,410 $16,353 $139,119 ===== ====== ====== ====== ======= Weighted average yield to maturity: U.S. Treasury and Agency 4.7% 7.2% 7.1% - % 7.1% State and municipal (1) 3.1 4.3 4.8 4.8 4.6 Other securities - 8.6 8.6 7.1 8.0 Securities available for sale: U.S. Treasury and Agency $35,653 $46,646 $51,033 $ - $133,332 ====== ====== ====== ==== ======= Weighted average yield to maturity: U.S. Treasury and Agency 7.2% 6.9% 7.0% -% 7.0%
(1) Not based on taxable equivalents. The Company owned $402 million in mortgage-backed securities at December 31, 1998. 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. 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. LOANS The following table presents the amount of loans by categories and percentage of loans by categories as of December 31, for the years indicated.
December 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ Real estate mortgage $ 408,380 $ 375,044 $ 332,913 $ 295,268 $270,603 Consumer 276,837 281,697 271,906 263,320 228,332 Commercial and financial 258,898 259,045 245,873 201,910 166,682 Agricultural 180,029 180,310 130,071 126,414 87,758 Credit card 109,176 106,737 98,895 108,641 80,135 Real estate construction 50,687 33,610 41,581 21,814 16,782 --------- --------- --------- -------- ------- 1,284,007 1,236,443 1,121,239 1,017,367 850,292 Less allowance for loan losses (24,292) (22,458) (20,157) (19,017) (17,190) --------- --------- --------- -------- ------- $1,259,715 $1,213,985 $1,101,082 $ 998,350 $833,102 ----------- --------- --------- -------- -------
December 31, --------------------------------------------------------- 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ As a percentage of total loans: Real estate mortgage 31.8% 30.3% 29.7% 29.0% 31.8% Consumer 21.6 22.8 24.3 25.9 26.9 Commercial and financial 20.2 21.0 21.9 19.9 19.6 Agricultural 14.0 14.6 11.6 12.4 10.3 Credit card 8.5 8.6 8.8 10.7 9.4 Real estate construction 3.9 2.7 3.7 2.1 2.0 ------ ------ ------ ------ ------ 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 that have predetermined interest rates and floating or adjustable rates.
As of December 31, 1998 -------------------------------------------------- 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 $175,212 $71,371 $12,315 $55,859 $27,827 Agricultural 133,392 44,176 2,461 39,199 7,438 Real estate construction 33,604 16,764 319 7,737 9,346
RISK MANAGEMENT Overall risk management is an essential part of the operation of any financial services organization. There are three primary financial risk exposures: credit quality, interest rate sensitivity or market risk, 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 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 $3.6 million at December 31, 1998, as compared to $4.2 million at the end of 1997. As a percentage of total loans, nonperforming loans represent only .3% of the loan portfolio at December 31, 1998 and 1997. 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 partially dependent upon the general state of the agricultural economy. The agricultural economy is dependent upon commodity prices, weather and input costs. Crop yields were generally fair throughout the region during 1998. The prices for crops were not as high as they were in 1997. Commodity prices during 1998 were such that all agricultural related business groups (i.e., ranchers, cattle feeders, hog producers and grain farmers) lost money for a part or all of 1998. Loans to cattle feeders represent the Company's largest loan segment concentration, but the Company applies selective underwriting criteria to this segment. In addition to the Company's direct agricultural loans, some 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. Watch list loans (loans with a potential or known repayment weakness) related to agriculture increased significantly in the fourth quarter of 1998. Because of the volatility in this sector, inherent losses in the loan portfolio may be greater than historical experience, and a prudent evaluation requires the allowance for loan losses to be greater than would otherwise be the case. Farm income represents 7% of Nebraska's personal income. In 1999, grain prices are expected to be below "breakeven" levels. This situation will result in additional financial stress for many agricultural borrowers. 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 Company had seen an increase in credit card charge-offs in 1997 and 1996 but credit card charge-offs stabilized in 1998. Credit card loans had $4.8 million in net charge-offs during 1998, $5.0 million in 1997 and $4.2 million in 1996. Nationally, credit card charge-offs also increased during 1996 and 1997. The Company's credit card charge-offs are slightly below industry averages. Consumer loan charge-offs showed an increase in 1998 from 1997, but were lower than the levels seen in 1996. 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 1998, 1997 and 1996, the Company received approximately $491,000, $398,000 and $457,000 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. For other loans, specific reserves are established for any impaired loan for which the recorded investment exceeds the measured value of the loan. 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. 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 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 short notice and are possible in the future. The following table presents the amount of nonperforming loans for the periods indicated:
1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ 1. Nonaccrual, Past Due and Restructured Loans (a) Loans accounted for on a nonaccrual basis $ 538 $1,581 $3,429 $1,700 $1,150 (b) Accruing loans which are contractually past due 90 days or more as to principal or interest payments 1,584 1,106 846 690 384 (c) Loans not included above which are "troubled debt restructurings" 1,465 1,530 1,597 1,256 1,377 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 202 529 628 350 285 ii.Amount of interest income on loans listed in categories (a) and (c) that was included in net income for the period. 150 244 395 155 153 2. Potential Problem Loans(1) 19,980 4,631 6,660 7,953 6,265 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. 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 and an evaluation of their impairment, 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 $7,658,000, $8,297,000 and $6,839,000 for estimated loan losses in 1998, 1997 and 1996, respectively. Average loans increased 8.0% in 1998, 6.9% during 1997 and 16.3% in 1996. Net charge-offs were $5.8 million, $6.0 million and $5.7 million during 1998, 1997 and 1996, 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 are comparable to national averages. Consumer loan charge-offs increased significantly in 1996 due to increased consumer bankruptcies, but they trended back down in 1997 and 1998. Management believes the overall credit quality of the Company's loan portfolio remains very good, although it is concerned by the number of agricultural loans it has had to add to the Company's watch list in the fourth quarter of 1998. Potential problem loans were approximately $20 million at the end of 1998 as compared to $4.6 million at the end of 1997. The Company takes a proactive stance in identifying potential problem loans and developing appropriate credit enhancement plans. The loan loss reserve as a percentage of loans was 1.89%, 1.82% and 1.80% at December 31, 1998, 1997 and 1996, respectively. The following table presents an analysis of loan loss experience.
1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ Average loans and leases for the year $1,231,931 $1,140,439 $1,066,896 $917,742 $797,369 , ========= ========= ======== ======= ======= Reserve for loan losses: Balance, beginning of year $22,458 $20,157 $19,017 $17,190 $18,461 Provision charged to expense 7,658 8,297 6,839 3,495 332 Bank acquisitions - - - 843 326 Loans charged off: Real estate construction - - - - - Real estate mortgage (50) (100) (43) (66) (27) Agricultural (243) (158) (73) (98) (120) Commercial and financial (782) (1,159) (734) (70) (64) Consumer (1,541) (1,452) (2,117) (1,168) (631) Credit card (5,885) (5,760) (4,827) (3,255) (2,881) Loan recoveries: Real estate construction - - - - - Real estate mortgage 81 84 282 185 245 Agricultural 225 225 77 186 176 Commercial and financial 725 839 193 438 397 Consumer 604 736 897 636 431 Credit card 1,042 749 646 701 545 ------- ------- ------- ------- ------- Net loans charged off (5,824) (5,996) (5,699) (2,511) (1,929) ------- ------- ------- ------- ------- Balance, end of year $24,292 $22,458 $20,157 $19,017 $17,190 ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans .47% .53% .53% .27% .24% === === === === ===
This table presents an allocation of 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.
1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ Real estate construction $ 718 $ 330 $ 628 $ 419 $ 331 Real estate mortgage 3,514 3,009 2,493 2,902 2,927 Agricultural 3,700 3,286 3,169 3,941 2,658 Commercial and financial 5,020 4,690 4,896 3,781 3,887 Consumer 3,387 3,478 3,302 3,152 2,472 Credit card 7,607 7,175 5,398 4,623 3,511 Unallocated 346 490 271 199 1,404 ------ ------ ------ ------ ------ $24,292 $22,458 $20,157 $19,017 $17,190 ====== ====== ====== ====== ======
MARKET RISK The Company's principal objective for interest rate risk management is to manage exposure of net interest income to risks associated with interest rate movements. The Company tries to limit this exposure by matching the maturities of its assets and liabilities, along with the use of floating rate assets and liabilities that will move with interest rate movements. Interest rate risk is measured and reported to the Company's Asset and Liability Management Committee (ALCO), which includes senior management representatives. Measurement and reporting methods include 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 economic valuation modeling which measures the sensitivity of equity value to changes in interest rates. Significant assumptions include rate sensitivities, prepayment risks, and the timing of changes in prime and deposit rates compared with changes in money market rates. The Company's exposure to interest rate risk is reviewed on at least a quarterly basis by the Board of Directors and the ALCO. In addition, each subsidiary bank has its own ALCO committee, which reviews the interest rate risk of each subsidiary bank. If interest rate risk measurements are not within established guidelines, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within Board-approved limits. In order to manage the exposure to interest rate fluctuations, the Company has developed strategies to manage its liquidity, shorten its effective maturities of interest-earning assets, and increase the interest rate sensitivity of its asset base. The Company has almost $400 million of assets where interest rates are adjustable, primarily in a 30-day time frame. One measure of interest rate sensitivity is an evaluation of the sensitivity of the Economic Value of Equity (EVE). The interest rate risk is measured from the dispersion of equity values above and below the value produced using current or base rates. EVE is the difference between the total present values of cash flowing into the Company and the total present values of cash flowing out of the Company in the future. The analysis performed by the Company assesses the risk of loss in interest rate sensitive instruments in the event of a sudden and sustained 50 to 200 basis points increase or decrease in the market interest rates. The Company's Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in EVE of 6%, 12%, 18% and 25% in the event of a sudden and sustained 50 to 200 basis points increase or decrease in market interest rates. The following table presents the Company's projected change in EVE, for all assets and liabilities except for the Company's marketable equity securities, for the various rate shock levels:
As of December 31, 1998 - ----------------------- Percent Change ----------------- Change in Economic Value Actual Board Interest Rates Of Equity Change Actual Limit ------------- --------- ------- ----- 200 basis point increase $222,998 $(30,480) (12.0)% (25)% 150 basis point increase 230,033 (23,445) (9.2) (18) 100 basis point increase 238,150 (15,328) (6.0) (12) 50 basis point increase 246,200 (7,278) (2.9) (6) Base scenario 253,478 - - - 50 basis point decrease 257,332 3,854 1.5 (6) 100 basis point decrease 259,256 5,778 2.3 (12) 150 basis point decrease 261,947 8,469 3.3 (18) 200 basis point decrease 264,680 11,202 4.4 (25) As of December 31, 1997 - ----------------------- Percent Change ----------------- Change in Economic Value Actual Board Interest Rates Of Equity Change Actual Limit ------------ --------- ------ ----- 200 basis point increase $190,367 $(46,388) (19.6)% (25)% 150 basis point increase 204,005 (32,750) (13.8) (18) 100 basis point increase 217,815 (18,940) (8.0) (12) 50 basis point increase 231,273 (5,482) (2.3) (6) Base scenario 236,755 - - - 50 basis point decrease 245,840 9,085 3.8 (6) 100 basis point decrease 252,409 15,654 6.6 (12) 150 basis point decrease 259,315 22,560 9.5 (18) 200 basis point decrease 265,741 28,986 12.2 (25)
The preceding table indicates that at December 31, 1998 and 1997, in the event of a sudden and sustained increase in prevailing market rates, the Company's EVE would be expected to decrease, and that in the event of a sudden and sustained decrease in prevailing market interest rates, the Company's EVE would be expected to increase. At December 31, 1998 and 1997, the Company's estimated changes in EVE were within the targets established by the Board of Directors. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposits decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the ALCO could undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presenting the computation of EVE. Actual values may differ from those projections presented, should market conditions vary from assumptions used in the calculation of EVE. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in EVE. Finally, the ability of many borrowers, with adjustable rate loans, to repay their loans may decrease in the event of interest rate increases. Below is a gap analysis, which is another means of analyzing interest rate risk, 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, are repriceable or are callable (in thousands):
1 to 91 to 181 to 1 to 5 Over 90 Days 180 Days 360 Days Years 5 Years Total -------- -------- -------- -------- -------- -------- Assets: Investments $ 80,049 $ 50,543 $120,184 $386,249 $ 89,962 $ 726,987 Loans 578,769 182,876 130,591 366,571 20,027 1,278,834 Mortgage loans held for sale 66,178 - - - - 66,178 Federal funds sold 31,865 - - - - 31,865 Federal Home Loan Bank stock - - - - 9,347 9,347 ------- ------- ------- ------- ------- -------- 756,861 233,419 250,775 752,820 119,336 2,113,211 Liabilities: Interest-bearing demand deposits 100,400 - 54,181 258,444 - 413,025 Savings deposits 18,731 - - 82,173 - 100,904 Time deposits 289,732 185,163 243,432 130,459 3 848,789 Short-term borrowings 213,470 - - - - 213,470 Federal Home Loan Bank borrowings 51,225 1,000 23,000 68,400 143,625 Long-term debt - 13,500 - - - 13,500 ------- ------- ------- ------- ------- -------- 673,558 199,663 320,613 539,476 3 1,733,313 ------- ------- ------- ------- ------- -------- Repricing gap $ 83,303 $ 33,756 $(69,838) $213,344 $119,333 $ 379,898 ======= ======= ======= ======= ======= ======== Cumulative repricing gap $ 83,303 $117,059 $ 47,221 $260,565 $379,898 $ 379,898 ======= ======= ======= ======= ======= ======== GAP as a % of earning assets 3.9% 5.5% 2.2% 12.3% 18.0% 18.0% === ==== ==== ==== ==== ====
This table estimates the repricing maturities of the Company's interest 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 based upon the Company's analysis of the repricing characteristics of the non-contractual deposit liability. The above gap analysis indicates that the Company's one-year cumulative gap is positive by $47.2 million dollars. Generally, during a period of falling interest rates, a positive gap would adversely effect net interest income. Conversely, during a period of rising interest rates, a positive gap would result in an increase in net interest income. Management's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. The Company owns $72 million and $74 million of marketable equity securities at December 31, 1998 and 1997, respectively. The fair value of this portfolio has exposure to price risk. The following table shows the effect of stock price fluctuations of plus or minus 5%, plus or minus 10% and plus or minus 15%. These were selected based upon the probability of their occurrence.
December 31, 1998 December 31, 1997 -------------------- ----------------- Fair Actual Fair Actual Change in Prices Value Change Value Change ---------------- ----- ------ -------- ------ 15% increase $83,097 $ 10,839 $85,000 $ 11,087 10% increase 79,484 7,226 81,304 7,391 5% increase 75,871 3,613 77,609 3,696 Current fair value 72,258 - 73,913 - 5% decrease 68,645 (3,613) 70,217 (3,696) 10% decrease 65,032 (7,226) 66,522 (7,391) 15% decrease 61,419 (10,839) 62,826 (11,087)
Within the Company's public equity investment portfolio, a 5% or less increase in the value of the portfolio has occurred in 33% of the quarters over the past three years; a 5% to 10% increase in the value of the portfolio has occurred in 17% of the quarters over the past three years; a 10% to 15% increase in the value of the portfolio has occurred in 25% of the quarters in the past three years; a 5% or less decrease has occurred in 17% of the quarters in the last three years; and a 5% to 10% decrease has occurred in one quarter over the past three years. In conclusion, the analysis of the above data indicates that the Company's earnings could be adversely effected by a decrease in interest rates. All of the estimated changes fall within the guidelines of the Company's Board of Directors and the risks they are willing to take in order to generate profits for the Company. 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 (FHLB). 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 1999, the Banks have retained defined net income from the previous two years of approximately $21.0 million. The parent company holds approximately $81.0 million in cash, short-term investments and marketable securities as of December 31, 1998. The Company has the ability to issue commercial paper, which could be used to provide liquidity to subsidiary banks. The Company has issued $10.0 million in commercial paper as of December 31, 1998. Long-term debt at December 31, 1998 includes $13.5 million of capital notes which have a payment of $2.5 million due in 1999 and $141.0 million of FHLB borrowings (at subsidiary banks) which have a payment of or are callable in the amount of $73 million due in 1999. The Company's capital notes are callable at the Company's option on or after May 1, 1999. It is the Company's intention to exercise this call option and refinance with a combination of term debt and a line of credit. Although most of the FHLB borrowings have call dates much shorter than the maturity date, if interest rates stay stable, these call options by the FHLB will probably not be exercised. 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 14.0% and 15.4%, respectively, at December 31, 1998. These ratios are up slightly from 13.5% and 14.9%, respectively, at December 31, 1997, and 13.3% and 14.7%, respectively, at December 31, 1996. 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 10.0% at December 31, 1998 and 9.7% at December 31, 1997. The Office of the Comptroller of the Currency 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, 1998. 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). 1998 1997 1996 ------- ------- ------- Long-term debt to long-term debt plus equity 39.8% 20.5% 21.9% Total long-term debt to equity 66.0 25.7 28.1 Long-term debt to equity (parent only) 5.8 7.7 9.9 FUNDING SOURCES Average deposits were $1.66 billion in 1998 as compared to $1.58 billion during 1997 and $1.47 billion in 1996, a 5.2% and 7.2% increase, respectively. Average interest-bearing deposits increased from $1,208 million in 1996 to $1,285 million in 1997, to $1,339 million in 1998, a 6.4% and 4.2% increase, respectively. Noninterest-bearing demand deposits increased $27.1 million or 9.2% in 1998 from 1997 and increased 10.7% or $28.5 million in 1997 from 1996. The increase in noninterest-bearing demand deposits can be primarily attributed to growth in public and business account relationships combined with a decline in short-term interest rates in 1998, which causes customers who pay for services by maintaining balances, to increase the balances they keep on deposit with subsidiary banks. Average time deposits increased 1.4% during 1998 and 5.8% during 1997. Interest-bearing demand and savings deposits increased 9.7% during 1998 compared to 7.5% during 1997. 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, 1998 --------------------------------------------------- Over 3 Over 6 3 Months through through Over or Less 6 Months 12 Months 12 Months Total --------- --------- --------- --------- ------- $129,372 $54,021 $53,324 $10,322 $247,039 On July 18, 1996, the Company closed on the National Bank of Commerce Master Credit Card Trust (Trust). The initial pooling and servicing agreement allowed the National Bank of Commerce 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, 1998 and 1997, the Company had sold $98 million and $75 million, respectively, of credit card receivables to the Trust. The National Bank of Commerce is in the process of increasing the maximum securitization level to $120 million. EARNINGS PERFORMANCE The Company's net income was $29,035,000, up 9.2% or $2,438,000 from 1997. The Company's net income for 1997 was $26,597,000, up $4,841,000 from 1996's net income of $21,756,000. The increase in net income in 1998 from 1997 can be attributed to several factors. The net yield on interest earning assets decreased from 4.11% in 1997 to 4.05% in 1998, but average earning assets increased $166 million during 1998, resulting in a $5.6 million increase in net interest income. Loan loss expense decreased $.6 million, which resulted a net increase in net interest income after the provision for loan losses of $6.3 million. The increase in income in 1997 over 1996 was due primarily to an increase in net interest income, due to a significant increase in interest earning assets combined with an increase in gains on securities transactions of $3.2 million. The increase in net interest income and gains on securities transactions was partially offset by an increase in the provision for loan losses of $1.5 million. 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 1998 was $82.2 million as compared $76.6 million and $70.1 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) was 4.10% in 1996, increased to 4.11% in 1997 and decreased slightly to 4.05% in 1998. The Federal Reserve decreased short-term rates in the fourth quarter of 1998, which could help decrease the Company's cost of funds if they remain at current levels. Competition for quality loan growth could hurt the yield on earning assets. The impact of these strategies can be seen in the table shown on following page. The 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.
1998/97 1997/96 ------------------------------- ------------------------------ Amounts Amounts Attributable Attributable to Changes in to Changes in ----------------- ----------------- Total Total Volume Rate Change Volume Rate Change ------ ------ ------ ------ ------ ------ Interest on loans $ 8,280 $ (903) $ 7,377 $ 6,708 $ 82 $ 6,790 Interest on taxable securities 2,279 (107) 2,172 4,394 2,584 6,978 Interest on nontaxable securities 142 (20) 122 (129) 27 (102) Interest on fed funds sold 13 (95) (82) (33) (24) (57) Interest on mortgage loans held for sale 1,918 (173) 1,745 (341) 62 (279) Equity securities 210 117 327 318 (127) 191 FHLB stock 131 (1) 130 122 27 149 ------ ------ ------ ------ ----- ----- Total interest income 12,973 (1,182) 11,791 11,039 2,631 13,670 ------ ------ ------ ------ ----- ----- Interest on deposits: Interest-bearing demand 1,205 515 1,720 1,448 (153) 1,295 Savings deposits 216 2 218 163 61 224 Other time deposits 672 91 763 2,662 705 3,367 Interest on short-term borrowings 410 65 475 1,500 (50) 1,450 Interest on FHLB borrowings 3,425 (318) 3,107 1,155 (102) 1,053 Interest on long-term debt (238) 135 (103) (222) 23 (199) ------ ------ ------ ------ ----- ----- Total interest expense 5,690 490 6,180 6,706 484 7,190 ------ ------ ------ ------ ----- ----- Net interest income $ 7,283 $(1,672) $ 5,611 $ 4,333 $2,147 $ 6,480 ------ ------ ------ ------ ----- ------- ------ ------ ------ ------ ----- ------
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 considered material to total interest income. Tax-exempt interest is not on a tax-equivalent basis. 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 44%, 41%, and 39% during 1998, 1997 and 1996, respectively. The following table shows the breakdown of noninterest income and the percentage changes.
Percent Increase (Decrease) ------------------ 1998 1997 1996 1998/97 1997/96 ------ ------ ------ ------- ------- Credit card $15,759 $13,047 $10,591 20.8% 23.2% Computer services 11,427 8,904 8,491 28.3 4.9 Other service charges and fees 10,682 7,829 6,217 36.4 25.9 Mortgage banking 8,853 5,425 4,868 63.2 11.4 Trust services 6,085 6,469 5,840 (5.9) 10.8 Service charges on deposits 5,427 5,562 5,231 (2.4) 6.3 Gains on securities sales 4,635 4,861 1,672 (4.6) 190.7 Other income 2,846 1,742 1,120 63.4 55.5 ------ ------ ------ Total noninterest income $65,714 $53,839 $44,030 22.1 22.3 ====== ====== ======
Noninterest income in 1998 was $65,714,000 compared to $53,839,000 in 1997, a 22.1% increase. If securities gains of $4,635,000 and $4,861,000 in 1998 and 1997, respectively, were excluded, noninterest income would have been $61.1 million in 1998 compared to $49.0 million in 1997, a 24.7% increase. In both 1998 and 1997, the securities gains were primarily the result of selling certain positions held in the Company's Global Fund. Credit card fees increased $2,712,000 or 20.8% due to increased credit card activity including interchange and merchant income, and fees generated by an increased card holder base. Computer fees increased $2,523,000 or 28.3% due to an increase in conversion and annual processing fees. In September 1997, the Company converted its common trust funds to mutual funds, the "Great Plains Family of Funds." Fees earned from these mutual funds are included in other service charges and fees, and explain the $2,853,000 or 36.4% increase in this noninterest income category. This also accounts for the 5.9% decrease in trust services income. Mortgage banking income increased 63.2% over 1997 because of the large volume of mortgage refinancings in 1998. Other income increased 63.4% in 1998 primarily due to an increase in the gain on sale of mortgages held for sale. As a normal course of business, First Commerce Mortgage Company holds mortgages from the time funded until the time delivered. Noninterest income increased $9,809,000 or 22.3% in 1997 from 1996. If securities gains of $4,861,000 and $1,672,000 in 1997 and 1996, respectively, were excluded, noninterest income would have been $49.0 million in 1997 compared to $42.4 million in 1996, a 15.6% increase. Credit card income increased $2.5 million due to increased credit card activity. Discount brokerage fee income and bond investment fees on bonds sold by the National Bank of Commerce are primarily responsible for a 25.9% increase in other service charges and fees. Trust services fees increased 10.8% due primarily to an increase in activity and an increase in the value of assets being managed. Mortgage banking revenues increased due to an increase in servicing income, origination fees and underwriting fee income, all due to an increase in activity. Other income increased primarily due to gains on the sale of mortgages held for sale and profit sharing payments received on some other real estate owned (which had been previously sold) based on the earnings being generated from the real estate. NONINTEREST EXPENSE The emphasis on growth in fee-based service income requires significant investments in staff, training and technology. The following table shows the breakdown of noninterest expense and the percentage change for 1998, 1997 and 1996.
Percent Increase (Decrease) ------------------- 1998 1997 1996 1998/97 1997/96 ------ ------ ------ ------- ------- Salaries and employee benefits $44,123 $39,475 $35,808 11.8% 10.2% Credit card fees 11,403 7,921 7,055 44.0 12.3 Equipment expense 6,289 5,538 5,523 13.6 .3 Amortization of mortgage servicing rights 4,782 2,067 1,537 131.3 34.5 Communications 4,447 4,221 4,159 5.4 1.5 Net occupancy expense 4,353 4,496 3,980 (3.2) 13.0 Business development 4,343 3,695 3,990 17.5 (7.4) Fees and insurance 4,266 3,802 3,770 12.2 .8 Supplies 2,786 2,539 2,404 9.7 5.6 Other expenses 6,919 5,297 4,330 30.6 22.3 Minority interest 1,064 1,541 845 (31.0) 82.4 Goodwill amortization 511 511 511 - - ------ ------ ------ Total noninterest expense $95,286 $81,103 $73,912 17.5 9.7 ====== ====== ====== Efficiency ratio (1) 65.4% 63.1% 64.5% Average number of full-time equivalent employees 1,211 1,108 1,035 Personnel expense per employee (in dollars) $36,435 $35,627 $34,597
(1) Computed as noninterest expense (excluding net cost of real estate owned, minority interest and goodwill amortization) divided by the sum of net interest income and noninterest income (excluding securities gains). Noninterest expenses were $95,286,000 in 1998 compared to $81,103,000 in 1997. This is an increase of $14.2 million or 17.5%. Salaries and employee benefits increased $4,648,000 or 11.8% generally due to increases in the levels of pay and number of employees. Credit card fees increased $3,482,000 or 44.0% due to increased activity and an increase in Cabela's bucks expense, points earned from using the Cabela's credit card in the joint venture with Cabela's, which can be redeemed for merchandise at Cabela's. Equipment expenses increased $751,000 or 13.6% due to additional equipment purchases, primarily computer related. Amortization of mortgage servicing rights increased $2,715,000 or 131.3% due to an increase in the volume of mortgages serviced by First Commerce Mortgage. In addition to the increase in volume, a significant increase in refinancings during 1998 resulted in the early write-off of $2 million of capitalized mortgage servicing rights on refinanced loans. Business development expenses increased 17.5% due primarily to increased marketing for new solicitations at Cabela's. Fees and insurance increased $464,000 or 12.2% due to increased credit report and filing fees. Other expenses increased 30.6%. Additional consulting fees relating primarily to the Company's computer service company increased $747,000. Additional software expense increased $596,000 due primarily to upgrading software to be Year 2000 ready. A decrease in minority interest expense is related to the decrease in profits in the Cabela's credit card joint venture. Noninterest expenses were $81,103,000 in 1997 compared to $73,912,000 in 1996. Salaries and employee benefits increased $3.7 million or 10.2% generally due to increases in the levels of pay and the number of employees. Credit card processing fees increased $866,000 due to increased activity and an increase in Cabela's bucks expense. Net occupancy expense increased 13.0% generally due to building new and remodeling existing facilities. The increase in amortization of mortgage servicing rights is due to the adoption of Statement of Financial Accounting Standards No. 122 in 1995, and the related costs being capitalized and amortized over the the life of the related servicing income. The largest components in the increase in other expenses are increases in minority interest expense because of the Cabela's joint venture, additional consulting expenses and increased travel expenses primarily relating to the Company's computer service company. INCOME TAXES The provision for income taxes was $15,932,000 in 1998, $14,428,000 in 1997 and $11,629,000 in 1996. The changes from year to year can be primarily attributed to the increase in income before income taxes. 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. TRENDS AND UNCERTAINTIES ECONOMY. Recent economic data shows that the economy remains strong in the Omaha/Lincoln metro areas, but there are some signs of weaknesses, mostly in businesses engaged in agricultural services and wholesale trade, in some of the rural counties. A lack of qualified applicants hinders economic growth across the state. 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 sales have been strong. The state's fiscal position is favorable from the standpoint of the amount of excess tax receipts being received over budgeted expenditures. The U. S. economy should continue to realize moderate growth as the Federal Reserve Board attempts to maintain balance between growth and inflation. Agricultural exports have been reduced due to the Asian and other markets' economic uncertainties. The financial results of the 1998 Nebraska farm sector were not good. Crop prices are approximately 25% lower relative to last year, while crop yields were average to above average. Preliminary results would indicate that grain farmers, at best, broke even in 1998. Loan deficiency payments and market transition payments helped to soften the impact of lower grain prices. Cattle feeders lost money throughout all of 1998. Ranch operations reflected profits throughout 1998, but at a much lower level in the last half of the year. Beef cow numbers continue to decline. Hog producers lost money for most of 1998. Personal bankruptcy filings have stabilized but remain at high levels. Commodity prices remain at historically low levels. Current cash grain prices will not allow grain farmers to turn a profit in 1999. Current cash hog prices will keep hog producers selling at a loss. On the positive side, cattle feeders recorded a profit in January 1999, for the first time in twenty months. 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 continues to discuss 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, moratoriums on new irrigation wells and preserving wildlife habitat. These discussions may ultimately have an impact on the 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 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's loan production office in Valentine was converted to a full service bank in order to provide complete banking services to the growing client base. The Company has obtained preliminary regulatory approval to charter a new bank in Colorado Springs, Colorado. 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 90,000 active accounts from Cabela's clients. In 1999, the joint company 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. The Company could make further use of loan production offices to expand geographically. The Company has minority ownership interests in seven early stage venture capital companies. One of these companies successfully completed an initial public stock offering in 1997. The Company will continue to explore venture capital investment opportunities. YEAR 2000. THE COMPANY'S STATE OF READINESS. A significant technological issue impacting all companies worldwide is the need to modify their computer information systems to properly process transactions relating to the Year 2000 and beyond. The Company has implemented a formal program to evaluate, monitor, review and manage the risks, solutions and costs and update its software programs and other time sensitive systems for Year 2000 compliance. The Federal Financial Institutions Examination Council has issued regulatory guidelines on the Year 2000 problem. The Company has incorporated these guidelines into its Year 2000 plan. Certain subsidiaries of the Company have been examined by both regulators and the Company's own internal audit staff and will be subject to ongoing examinations with regard to their Year 2000 readiness. The Company's Year 2000 Project includes four phases __ awareness, assessment, remediation and testing. Executive management of the Company reviews and approves these various phases of the project as they are completed. A report is given to the Company's Board of Directors on a quarterly basis on the status of the Year 2000 project. 0 The Company considers the awareness phase of its Year 2000 Project to be substantially complete from an internal standpoint. Major customers and vendors of the Company have been contacted to establish the level of their awareness concerning Year 2000, which will be ongoing as circumstances dictate. 0 The Company considers the assessment phase of its Year 2000 Project to be substantially complete for internal mission critical systems. Assessment of external services and systems has been dependent, in part, on vendor management surveys. The Company has completed this survey process and has received a 100% response rate from mission critical vendors. 0 The remediation phase of the Company's project includes the analysis, planning and actual remediation necessary to bring mission critical internal systems, both software and other time sensitive systems, into Year 2000 ready status. Remediation may include upgrading, renovating or replacing existing systems. The Company believes that this phase of its Year 2000 Project was substantially completed as of December 31, 1998 with respect to internal mission critical systems. 0 The testing phase of the project involves both Internal Testing conducted by programming and quality assurance staff, and Customer Acceptance Testing (CAT) conducted by customers of the Company. Internal testing is performed on all internal and external mission critical systems and services with Year 2000 date information in various Year 2000 date scenarios. CAT testing, by the Company's financial institution data processing customers, is conducted in a simulated banking environment. A detailed customer acceptance testing program has been designed to test key aspects of all core banking applications being provided to banking customers by the Company. The Company has begun both types of tests related to its project and to the extent feasible, plans to substantially complete testing of mission critical systems and services by March 31, 1999. THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Through December 31, 1998, cumulative costs relating directly to Year 2000 issues since the project's inception have totaled approximately $5.5 million. A portion of the estimated total includes both the cost of existing staff that have been redeployed to the Year 2000 project from other projects and consultants or other independent programmers who have been hired to help the Company complete its project. These costs do not include system upgrades and replacements that were made in the normal course of operations for other purposes in addition to addressing Year 2000 issues, unless the implementation was accelerated. The Company estimates that remaining Year 2000 project costs will total approximately $7.0 million and, therefore, the total estimated Year 2000 Project costs from inception through completion should approximate $12.5 million. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. As is the case with most financial services companies, the Company is heavily dependent on internal and external computer systems and services. If those systems or services are interrupted, the Company's ability to serve its retail, commercial banking and its credit card customers could be directly effected. Some of the commercial financial services that could be effected are credit card merchant processing, commercial cash management services and financial institution data processing services. Year 2000 failures associated with internal and external systems and services could generate claims or create other material adverse effects for the Company. Even though the Company's Year 2000 Project will include contingency plans for third party Year 2000 failures, there can be no assurances that mission critical third party vendors or other significant third parties (such as telecommunications or utilities industries, the Federal Reserve System or national credit card processing associations) will adequately address their Year 2000 issues. Increased credit losses associated with possible Year 2000 failures of major borrowers or increased consumer cash demands resulting from publicity concerning Year 2000 problems could also have a material adverse effect on the Company. The Company is unable to quantify, in any reasonable manner, the financial impact of these possible adverse effects, due to the uncertainty involved. The Company generally advises commercial entities with which it does business that it cannot guarantee that they or the Company will be completely unaffected by the Year 2000. The Company nonetheless continues to monitor these issues on an ongoing basis and will strive to minimize their impact. THE COMPANY'S CONTINGENCY PLANS. The Company is in the process of developing contingency plans to address potential Year 2000 interruptions of its internal and external mission critical systems and services. For example, the Company is developing plans to provide the liquidity that would be needed to meet possible unusually high cash demands generated by the publicity concerning potential Year 2000 issues for financial institutions. The initial contingency planning process is well under way as of December 31, 1998. These plans will be subject to ongoing review, testing and adjustment. Contingency plans may be limited or problematic for some systems or services because there may be no reasonable economic alternatives for these systems or services. There can be no assurance that contingency plans will fully mitigate Year 2000 problems. The foregoing Year 2000 discussion contains forward-looking statements, including without limitation, anticipated costs and the dates by which the Company expects to substantially complete the remediation and testing of systems and are based on management's best current estimates, which were derived utilizing numerous assumptions about future events, including the continued availability of certain resources, representations received from third party service providers and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially form those anticipated. Specific matters that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to identify and convert all relevant computer systems, results of Year 2000 testing, adequate resolution of Year 2000 issues by governmental agencies, business or other third parties who are service providers, suppliers, borrowers or customers of the Company, unanticipated systems costs, the need to replace hardware and the adequacy of and ability to implement contingency plans and similar uncertainties. 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% 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 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, 1998, 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 1998, the Company acquired 8,017 shares of its Class A stock and 10,000 shares of its Class B stock at an average price of $26.81. All outstanding treasury stock was retired as of December 31, 1998. FORWARD LOOKING INFORMATION When used or incorporated by reference in disclosure documents, the words "anticipate," "estimate," "expect," "project," "target," "goal," and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These forward-looking statements speak only as of the date of the document. The Company expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 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 Donald D. Kinley Vice President and Treasurer Leland Poppe Senior Vice President and Senior Agricultural Banking Officer James R. Richardson Senior Vice President and Loan Services Manager * Executive Officer DIRECTORS David Calhoun Kenneth W. Staab Chairman and Chief Executive Officer Staab Restaurant Management Jacob North Printing Connie Lapaseotes James Stuart, Jr. Lapaseotes, Ltd. Chairman and Chief Executive Officer Cattle Feeding, Ranching and Farming First Commerce Bancshares, Inc. John G. Lowe, III James Stuart, III Owner, Lowe Investment Co. Chairman and Chief Executive Officer Investment Firm First Commerce Investors, Inc. John C. Osborne Scott Stuart President, Industrial Irrigation Services Director, First Commerce Bancshares, Inc. Richard C. Schmoker Councelor to the Board Attorney and Partner, Faegre & Benson James Stuart, Sr. Chairman, Stuart Management Co. William C. Schmoker Advisory Director Assistant Vice President Harold Wimmer Norwest Investment Management, Inc. Chairman, Wimmers Meat Products, Inc. SUBSIDIARY SENIOR OFFICERS James Stuart, Jr., Chairman Mary C. Gerdes, President and and Chief Executive Officer Chief Executive Officer Brad Korell, President Western Nebraska National Bank National Bank of Commerce North Platte - Alliance - Bridgeport, Nebraska Lincoln, Nebraska Brad Korell, Chairman Mary C. Gerdes, Chairman Patric J. Jerge, President Jan Lallman, President and Chief Executive Officer and Chief Executive Officer First Commerce Technologies, Inc. Western Nebraska National Bank Lincoln, Nebraska Valentine, Nebraska Jeffrey Holmberg, President Allen McClure, Chairman and Chief Executive Oficer Paul Bachman, President First Commerce Mortgage Company and Chief Executive Officer Lincoln, Nebraska First National Bank West Point, Nebraska Robert Morris, President Rick Harbaugh, President and Chief Executive Officer and Chief Executive Officer City National Bank The Overland National Bank Hastings, Nebraska Grand Island, Nebraska Larry L. Jepson, Chairman James Stuart, III, Chairman and Chief Executive Officer and Chief Executive Officer John Cannon, President H. Cameron Hinds, President First National Bank First Commerce Investors, Inc. Kearney, Nebraska Lincoln, Nebraska Kenneth W. Foster, Chairman Jerry Pesek, Manager Mark Jepson, President Community Mortgage Company and Chief Executive Officer Lincoln, Nebraska First National Bank McCook, Nebraska
CORPORATE FACTS Corporate Office: NBC Center 1248 O Street Lincoln, NE 68508 Telephone: (402) 434-4110 Fax: (402) 434-4181 E-mail Address: dbrown@fcbcorp.com Website: www.fcbi.com Transfer Agent: Chase-Mellon Shareholder Services Mellon Bank, N.A. 4 Station Square, 3rd Floor Pittsburgh, PA 15219 Telephone: (412) 236-8173 Website: www.chasemellon.com 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, 1998, 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 20, 1999 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 EX-27 3 FDS -- DECEMBER 31, 1998
9 0000768532 First Commerce Bancshares, Inc. 1000 12-mos Dec-31-1998 Jan-01-1998 Dec-31-1998 135,731 0 31,865 0 452,301 295,543 300,502 1,284,007 24,292 2,384,745 1,728,500 215,695 20,942 154,900 0 0 2,703 245,943 2,384,745 111,395 45,248 5,317 161,960 62,902 79,763 82,197 7,658 4,635 95,286 44,967 29,035 0 0 29,035 2.15 2.15 4.05 538 1,584 1,465 19,980 22,458 8,501 2,677 24,292 24,292 0 346
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