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, 1999
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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
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FIRST COMMERCE BANCSHARES, INC.
............................................................................
(Exact name of registrant as specified in its charter)
Nebraska 47-0683029
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NBC Center, 1248 O Street, Lincoln, NE 68508
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 434-4110
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.20 Par Value; Class B Common Stock, $.20 Par Value
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(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 December 31, 1999, the aggregate market value of the common stock
held by non-affiliates of the registrant was $207.1 million. For purposes of
this computation only, the market value per share has been determined to be
$25.50 for Class A shares and $19.69 for Class B shares, which is the closing
bid price on December 31, 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 December 31, 1999
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Class A Common Stock, $.20 Par Value 2,568,892 shares
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Class B Common Stock, $.20 Par Value 10,769,926 shares
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INDEX
PART I
Page Number in:
Form
10-K
ITEM 1. Business
General--------------------------------------------------------------3
Statistical Disclosures
Distribution of Assets, Liabilities and
Shareholder's Equity; Interest Rates and Interest Differential ---15
Investment Portfolio----------------------------------------------18
Loan Portfolio----------------------------------------------------19
Summary of Loan Loss Experience-----------------------------------22
Deposits----------------------------------------------------------26
Return on Equity and Assets---------------------------------------14
Short-term Borrowings---------------------------------------------41
ITEM 2. Properties -----------------------------------------------------------11
ITEM 3. Legal Proceedings-----------------------------------------------------11
ITEM 4. Submission of Matters to a Vote of Security
Holders -----------------------------------------------------------12
Executive Officers----------------------------------------------------12
PART II
ITEM 5. Market for the Registrant's Common Stock and
Related Stockholder Matters----------------------------------------13
ITEM 6. Selected Financial Data-----------------------------------------------14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation---------------------------------17
ITEM 7A.Quantitative and Qualitative Disclosures About
Market Risk--------------------------------------------------------31
ITEM 8. Financial Statements and Supplementary Data---------------------------31
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure--------------------------------50
PART III
ITEM 10. Directors and Executive Officers of the
Registrant--------------------------------------------------------50
ITEM 11. Executive Compensation-----------------------------------------------51
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management----------------------------------------------------54
ITEM 13. Certain Relationships and Related Transactions-----------------------57
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K-----------------------------------------------58
Signatures ----------------------------------------------------------60
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
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On February 1, 2000 the Company entered into a Definitive Agreement with Wells
Fargo & Company (Wells Fargo) for the acquisition of all the outstanding Class A
and Class B common stock of the Company. The purchase price is approximately
$480 million or $35.95 per Class A and Class B common share, payable in shares
of Wells Fargo common stock. The acquisition is subject to regulatory approval
and the approval of Company stockholders. Management expects the acquisition to
be completed during 2000.
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 and subsidiary bank holding company:
No. of Shares Percent
National Bank of Commerce Trust &
Savings Association, Lincoln, Nebraska 499,600 99.92%
First National Bank & Trust Co. of
Kearney, Nebraska 19,772.5 98.86%
Overland National Bank of
Grand Island, Nebraska 88,390 98.21%
Western Nebraska National Bank,
North Platte, Nebraska 44,680 99.62%
City National Bank and Trust Co.,
Hastings, Nebraska 9,930 99.30%
First National Bank of West Point, Nebraska 4,820 96.40%
The First National Bank of McCook, Nebraska 6,000 100.00%
First Commerce Bancshares of Colorado, Inc.
Colorado Springs, Colorado 10 100.00%
As of December 31, 1999, First Commerce reported consolidated total assets of
$2,609,590,000, total deposits of $1,812,856,000 and total stockholders' equity
of $257,663,000.
As of December 31, 1999 First Commerce and its subsidiaries had a staff of
approximately 1,238 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")
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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 260 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 191,000 active accounts as of December 31, 1999. On January 1, 2000
Peterson Building Corporation and Commerce Court, Inc. were merged into the
National Bank of Commerce.
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 May 2000). The Kearney Bank
presently operates three detached facilities and 11 automated "Bank In The Box"
teller machines located throughout the Kearney area, one each in Holdrege and
Odessa, Nebraska.
The Kearney Bank operates a loan/deposit production office in Holdrege,
Nebraska.
Overland National Bank of Grand Island (the "Grand Island Bank")
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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. On January 18, 2000, at the end of an eighteen-month waiting
period, First Commerce merged 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, Hershey, 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")
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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 10 automated "Bank In The Box" teller machines.
If the pending merger with Wells Fargo is approved, the Hastings Bank would have
to be divested
First National Bank of West Point (the "West Point Bank")
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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
expanded in 1993. The West Point Bank owns the building.
The First National Bank of McCook (the "McCook Bank")
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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, which houses the Bank's offices, was constructed in 1975, and is owned
by the McCook Bank.
The McCook Bank operates a loan production office in Goodland, Kansas, and
operates a loan production office in Burlington, Colorado.
Western Nebraska National Bank (the "Valentine Bank")
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In June 1998, the Company opened a 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 opened in 1999 at 105 North Main, Valentine Nebraska,
at an approximate total cost of $1.2 million.
First Commerce merged the Valentine Bank into the North Platte Bank on January
18, 2000.
First Commerce Bank of Colorado, NA ( the "Colorado Bank")
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The Company opened a new bank, First Commerce Bank of Colorado, N.A., in May
1999. It is currently leasing its bank headquarters.
The Colorado Bank is in the process of constructing a new building at the corner
of Struthers Road and Gleneagle Drive, with a total cost including land,
building and equipment of approximately $3.5 million.
First Commerce owns 100% of a new bank holding company named First Commerce
Bancshares of Colorado, Inc., which in turn owns 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.
In October 1997, First Commerce converted the Lincoln Bank's common trust funds
into mutual funds. First Commerce Investors, Inc 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, 1999, assets in these funds totaled $399 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, 1999, First Commerce had total deposits of
approximately $1,812,856,000, 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
- -------------------
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act which will, 120 days thereafter, permit bank holding companies to become
Financial Holding Companies ("FHC") and, by doing so, affiliate with securities
firms and insurance companies and engage in other activities that are financial
in nature or complementary thereto. A bank holding company may become an FHC, if
each of its subsidiary banks is well capitalized under the FDICIA prompt
corrective action provisions (see "Capital Requirements" below), well managed
and has at least a satisfactory rating under the Community Reinvestment Act, by
filing a declaration that the bank holding company wishes to become a FHC and
meets all applicable requirements.
No prior regulatory approval will be required for a FHC to acquire a company,
other than a bank or savings association, engaged in activities permitted under
the Gramm-Leach-Bliley Act. Activities cited by the Gramm-Leach-Bliley Act as
being "financial in nature" include:
o securities underwriting, dealing and market making
o sponsoring mutual funds and investment companies
o insurance underwriting and agency
o merchant banking activities
o activities that the Board has determined to be closely related to banking
A national bank also may engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment, through a financial subsidiary of the bank, if the bank is well
capitalized, well managed and has at least a satisfactory Community Reinvestment
Act rating. Subsidiary banks of a FHC or national banks with financial
subsidiaries must continue to be well capitalized and well managed in order to
continue to engage in activities that are financial in nature without regulatory
actions or restrictions, which could include divestiture of the financial
subsidiary or subsidiaries. In addition, a FHC or a bank may not acquire a
company that is engaged in activities that are financial in nature unless each
of the subsidiary banks of the FHC or the bank has at least a satisfactory
Community Reinvestment Act rating.
The Gramm-Leach-Bliley Act may change the operating environment of the Company
and its subsidiaries in substantial and unpredictable ways. We cannot accurately
predict the ultimate effect that this legislation, or implementing regulations,
will have upon the financial condition or results of operations of the Company
or any of its subsidiaries.
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 have enacted 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 did not enact 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,
1999, without the further approval of the Comptroller, of approximately
$19,000,000.
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,
which, in their opinion, constitutes an unsafe or unsound banking practice.
Depending upon the financial condition of the bank in question, and other
factors, the payment of dividends or other payments might under some
circumstances be considered by the FDIC and/or the Comptroller to be an unsafe
or unsound banking practice. In such case, the Comptroller could, among other
things, commence cease and desist proceedings and the FDIC could commence a
proceeding to terminate deposit insurance.
Capital Requirements
- --------------------
The Company and its subsidiaries are subject to various regulatory requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. The regulations require
that the Company and its banking subsidiaries meet specific capital adequacy
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
practices. The Company's and its banking subsidiaries' capital classifications
are subject to qualitative judgments by the regulators about components, risks
weightings, and other factors.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
provides for, among other things, greater authority for the appointment of a
conservator or receiver for undercapitalized institutions. The prompt corrective
action regulations of the statute specify five capital categories with the
highest rating being "well capitalized." Generally, to be "well capitalized"
under the prompt corrective action provisions, an institution must have Tier 1
capital to risk weighted assets and total capital to risk weighted assets of 6%
and 10%, respectively, and Tier 1 capital to quarterly average assets of 5%. At
December 31, 1999, 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, 45% of the
unrealized gain on equity securities 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, 1999, First
Commerce's total capital ratio was 15.5%, its Tier 1 ratio was 13.5%, and its
Tier 1 leverage ratio was 9.9%.
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 Street, 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, 1999, First Commerce's subsidiary financial institutions
operated a total of nine main banking houses (including the Lincoln Bank's NBC
Center location), 18 detached facilities, and 115 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 12 of the Notes to Financial Statements in First Commerce's 1999 Annual
Report to Shareholders, which is included herein.
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. 57 Chairman and Chief 1973
Executive Officer
Brad Korell 51 Executive Vice President 1990
Stuart Bartruff 45 Executive Vice President 1987
and Secretary (Principal
Financial Officer)
Mark Hansen 44 Senior Vice President 1994
Donald Kinley 49 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 Officer
on January 19, 1988. Mr. Stuart, Jr. had served as President and Chief Executive
Officer of First Commerce since May 3, 1985. Mr. Stuart, Jr. also serves as
Chairman and Chief Executive Officer of the Lincoln Bank, Chairman of the North
Platte Bank, and as a director of the remaining subsidiary banks except the West
Point Bank.
Brad Korell has served as Executive Vice President of First Commerce and as
President of the Lincoln Bank since March 7, 1990. Prior to March 1990, Mr.
Korell had served as Executive Vice President and Senior Loan Officer of the
Lincoln Bank since December 1987.
Stuart Bartruff has served as Executive Vice President and Secretary since April
of 1994. Prior to April, 1994, Mr. Bartruff served as Senior Vice President-Loan
Services since 1988 and was elected Secretary in May of 1992.
Mark Hansen was elected Senior Vice President of First Commerce on June 21,
1994. Mr. Hansen has been an employee of the National Bank of Commerce since
1977, beginning as a Loan Analyst and being promoted to Corporate Lending
Officer in 1980, Corporate Banking Manager in 1986, Senior Lender Officer in
1990, and Executive Vice President of National Bank of Commerce in 1992, a title
he still holds.
Donald Kinley was elected as Senior Vice President and Treasurer in April 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
The Company's common stock is traded on the NASDAQ Small Cap Market under the
symbol "FCBIA" for the Class A voting common stock and "FCBIB" for the Class B
nonvoting common stock. The market value ranges below are based upon the high
and low trading prices per share for the calendar quarters indicated as released
by NASDAQ. As of December 31, 1999, the Company had 456 Class A shareholders of
record and 999 Class B shareholders of record.
First Second Third Fourth Annual
Quarter Quarter Quarter Quarter Total (2)
-------- -------- -------- -------- --------
(Unaudited)
1999
Common stock trading range
Class A voting
high $29.50 $26.75 $26.00 $26.00 $29.50
low 24.50 18.50 18.00 19.50 18.00
Closing Bid Price 25.50
Class B nonvoting
high 30.00 27.88 24.94 24.25 30.00
low 21.25 21.00 18.75 17.75 17.75
Closing Bid Price 19.69
Dividends declared per share .09 .09 .09 .09 .36
1998
Common stock trading range
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
Closing Bid Price 26.25
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
Closing Bid Price 28.00
Dividends declared per share .085 .085 .085 .085 .34
On February 1, 2000 the Company entered into a Definitive Agreement with Wells
Fargo & Company (Wells Fargo) for the acquisition of all the outstanding Class A
and Class B common stock of the Company. The purchase price is approximately
$480 million or $35.95 per Class A and Class B common share, payable in shares
of Wells Fargo common stock. The acquisition is subject to regulatory approval
and the approval of Company stockholders. Management expects the acquisition to
be completed during 2000.
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
1999 1998 1997 1996 1995
------ ------ ------ ------ -------
At December 31,
Assets $2,609,590 $2,384,745 $2,251,100 $2,028,012 $1,815,575
Investments 815,692 747,844 691,144 642,700 561,183
Loans 1,441,013 1,284,007 1,236,443 1,121,239 1,017,367
Deposits 1,812,856 1,728,500 1,649,494 1,574,544 1,463,205
Federal Home Loan Bank borrowings 229,016 143,625 120,450 73,069 31,500
Long-term debt 12,536 13,500 16,170 18,704 21,250
Stockholders' equity 257,663 248,646 232,580 197,398 180,021
Year Ended December 31,
Net interest income $ 87,922 $82,197 $76,586 $70,106 $60,889
Provision for loan losses 6,877 7,658 8,297 6,839 3,495
Total noninterest income 75,384 65,714 53,839 44,030 33,850
Total noninterest expenses 108,873 95,286 81,103 73,912 64,393
Net income 30,927 29,035 26,597 21,756 17,420
Per share data:
Net income $ 2.33 $ 2.15 $ 1.96 $ 1.60 $ 1.29
Dividends .36 .34 .30 .26 .227
Stockholders' equity before accumulated
other comprehensive income 19.23 17.36 15.57 13.92 12.58
Total stockholders' equity 19.32 18.40 17.19 14.57 13.27
Selected Ratios:
Rate of return on average:
Total assets 1.24% 1.29% 1.28% 1.15% 1.02%
Stockholders' equity(1) 12.59 13.05 13.28 12.14 10.52
Average total stockholders' equity
to average total assets(1) 9.83 10.43 10.33 9.49 9.46
Common dividends payout ratio 15.60 15.84 15.29 16.21 17.58
Allowance for loan
losses to total loans 1.73 1.89 1.82 1.80 1.87
Nonaccrual and restructured
loans as a percentage of total loans .15 .16 .25 .45 .29
Net charge-offs to
average total loans .48 .47 .53 .53 .27
Capital Ratios:
Core capital (Tier I) (2) 13.51% 13.97% 13.50% 13.31% 13.39%
Total risk based capital (3) 15.53 15.35 14.89 14.72 14.82
Leverage (4) 9.93 10.02 9.74 9.40 9.16
(1) Stockholders' equity before accumulated other comprehensive income.
(2) Stockholders' equity before accumulated other comprehensive income, plus
minority interest, less goodwill and deposit intangibles to risk-weighted assets
(using 1999 requirements). (3) Tier I capital plus allowance for loan losses
(limited to 1.25% of risk-weighted assets) plus 45% of unrealized gains on
equity securities to risk-weighted assets (using 1999 requirements).
(4) Tier I capital to quarterly average assets less goodwill.
The following table sets forth the average balances, net interest income and
expense and average yields and rates for the Company's interest-earning assets
and interest-bearing liabilities for the indicated periods on a non
tax-equivalent basis.
Year Ended December 31,
--------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------- -----------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- ------- ------- ------- ------- ------- ------- ------- -------
(Amounts in thousands)
Assets
Interest-earning assets:
Loans, including non-accrual loans $1,306,715 $114,157 8.74% $1,231,931 $111,395 9.04% $1,140,439 $104,018 9.12%
Taxable investment securities 703,405 47,557 6.76 610,135 41,635 6.85 576,735 39,463 6.84
Nontaxable investment securities
(non-taxable basis) 41,059 2,035 4.96 29,475 1,503 5.10 26,698 1,381 5.17
Federal funds sold 43,069 2,196 5.10 34,500 1,898 5.50 34,282 1,980 5.78
Mortgage loans held for sale 39,423 2,866 7.27 47,949 3,419 7.13 20,679 1,674 8.10
Equity securities 71,365 1,472 2.06 68,105 1,431 2.10 57,760 1,104 1.91
Federal Home Loan Bank stock 10,730 771 7.19 8,981 679 7.56 8,031 549 6.84
-------- -------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning assets 2,215,766 171,054 7.72 2,031,076 161,960 7.97 1,864,624 150,169 8.05
Less allowance for loan losses (24,630) (22,735) (21,401)
Cash and due from banks 132,594 116,870 116,196
Premises and equipment 68,967 57,917 51,400
Other assets 82,150 71,923 59,245
-------- -------- --------
Total assets $2,474,847 $2,255,051 $2,070,064
======== ======== ========
Liabilities AND EQUITY
Interest-bearing liabilities:
Interest-bearing demand $ 415,952 11,819 2.84% $ 385,760 11,347 2.94% $ 350,708 9,627 2.75%
Savings 102,786 2,705 2.63 97,227 2,776 2.86 89,666 2,558 2.85
Time 896,066 46,638 5.20 856,274 48,779 5.70 844,476 48,016 5.69
-------- ------ -------- ------ -------- ------
Total interest-bearing deposits 1,414,804 61,162 4.32 1,339,261 62,902 4.70 1,284,850 60,201 4.69
Short-term borrowings 236,407 11,625 4.92 182,922 9,181 5.02 174,759 8,706 4.98
Federal Home Loan Bank borrowings 177,232 9,403 5.31 116,166 6,313 5.43 53,596 3,206 5.98
Long-term debt 13,216 942 7.13 14,489 1,367 9.43 17,102 1,470 8.60
-------- ------ -------- ------ -------- ------
Total interest-bearing liabilities 1,841,659 83,132 4.51 1,652,838 79,763 4.83 1,530,307 73,583 4.81
-------- ------ ------ ------
Noninterest bearing demand deposits 343,118 320,619 293,474
Other liabilities 41,391 42,595 33,237
-------- -------- --------
Total liabilities 2,226,168 2,016,052 1,857,018
Total stockholders' equity 248,679 238,999 213,046
-------- -------- --------
Total liabilities and
stockholders' equity $2,474,847 $2,255,051 $2,070,064
======== ======== ========
Net interest income $ 87,922 $ 82,197 $ 76,586
====== ====== ======
Net interest spread 3.21% 3.14% 3.24%
==== ==== ====
Net yield on interest-earning assets 3.97% 4.05% 4.11%
==== ==== ====
Selected Quarterly Financial Data
(In Thousands Except Per Share Data)
First Second Third Fourth Annual
Quarter Quarter Quarter Quarter Total (1)
-------- -------- -------- -------- --------
(Unaudited)
1999
Total interest income $40,736 $42,131 $43,511 $44,676 $171,054
Net interest income 21,196 21,854 22,451 22,421 87,922
Provision for loan losses 1,595 1,607 1,663 2,012 6,877
Gains on securities sales 1,747 940 761 1,177 4,625
Noninterest income 16,828 17,350 17,105 19,476 70,759
Noninterest expense 25,228 26,419 26,648 30,578 108,873
Net income 8,488 7,825 7,788 6,826 30,927
Basic net income per share .63 .58 .58 .54 2.33
Dividends declared per share .09 .09 .09 .09 .36
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
Dividends declared per share .085 .085 .085 .085 .34
(1) Quarterly per share amounts may not add to annual total due to rounding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
On February 1, 2000 the Company entered into a Definitive Agreement with Wells
Fargo & Company (Wells Fargo) for the acquisition of all the outstanding Class A
and Class B common stock of the Company. The purchase price is approximately
$480 million or $35.95 per Class A and Class B common share, payable in shares
of Wells Fargo common stock. The acquisition is subject to regulatory approval
and the approval of Company stockholders. Management expects the acquisition to
be completed during 2000.
The Company's net income during 1999 was $30,927,000 as compared to $29,035,000
in 1998 and $26,597,000 during 1997. On a per share basis this equates to $2.33,
$2.15, and $1.96, for 1999, 1998 and 1997, respectively. The Company experienced
moderate growth as year-end assets reached $2,609,590,000 as compared to
$2,384,745,000, in 1998. The Company continued its history of raising its annual
dividend rate. The 1999 cash dividend was $0.36 per share versus $0.34 per share
in 1998 and $0.30 per share in 1997. In December 1999, the Company raised its
annualized dividend to 40 cents.
The $1.9 million or 6.5% increase in net income in 1999 from 1998 can be
primarily attributed to an increase in net interest income combined with a
decrease in the provision for loan losses. The net yield on interest-earning
assets decreased from 4.05% in 1998 to 3.97% in 1999. However, average earning
assets increased $185 million during 1999 compared to an increase of $166
million during 1998. This resulted in a $5.7 million or 7% increase in net
interest income in 1999.
Although average loans increased $75 million in 1999 from 1998, loans at
December 31, 1999 increased $157 million from December 31, 1998. The year-end
loan increase is up from the $48 million increase in 1998 from 1997, and the
$115 million increase during 1997. Average deposit growth continued to lag
earning asset growth. Average deposits increased 5.9% or $98 million in 1999 and
5.2% or $82 million in 1998. Therefore, the Company has utilized other 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
$142 million at the end of 1999. Average short-term borrowings, made up
primarily of securities sold under repurchase agreements, have increased $53
million since 1998. Average Federal Home Loan Bank borrowings were $177 million
in 1999, as compared to $116 million in 1998 and $54 million in 1997.
Earning Assets
- --------------
Average earning assets in 1999 were $2.22 billion, a 9.1% increase over 1998
primarily caused by loan growth of $75 million and an increase in taxable
investment securities of $93 million. Average earning assets were $2.03 billion
in 1998, an 8.9% increase over 1997. Average loans were $1,307 million, $1,232
million and $1,140 million in 1999, 1998 and 1997, respectively, a 6.1%, 8.0%,
and 6.9% 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 1999 was primarily in the real estate mortgage, commercial and
financial markets. Average loans accounted for 59% and 61% of average earning
assets during 1999 and 1998. Average investment securities were $827 million
during 1999, a $110 million increase over 1998. Investment securities accounted
for 37% of average earning assets during 1999 and 35% during 1998.
Security Portfolio
- ------------------
The Company's investment securities portfolio consists of high quality
securities which are primarily government sponsored agencies and mortgage-backed
securities. Anticipated cash flow from callable agencies and mortgage-backed
securities was reduced due to the rising interest rate environment of 1999.
Therefore, the overall duration of the portfolio has extended and the market
value of the portfolio has decreased. Purchases made during the latter half of
1999 were focused on buying securities that would be less impacted by changing
interest rates. The Company's average yield on its security portfolio was
approximately 6.7% during 1999.
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,
---------------------------
1999 1998 1997
------ ------ ------
U.S. Treasury $ 15,903 $ 77,069 $103,366
U.S. Agency 254,644 158,290 239,389
State and municipal 45,965 36,802 27,448
Mortgage-backed securities 436,607 401,782 243,614
Marketable equity securities 60,520 52,057 43,217
Other securities 199 290 425
------- ------- -------
$813,838 $726,290 $657,459
======= ======= =======
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, 1999
--------------------------------------------------
After 1 After 5
Under through through After
1 Year 5 Years 10 Years 10 Years Total
------ ------ ------ ------ ------
Securities held to maturity:
U.S. Treasury and Agency $5,502 $20,979 $58,719 $ - $ 85,200
State and municipal 3,025 6,059 12,139 20,057 41,280
Other securities - 61 68 70 199
------ ------- ----- ----- -------
$8,527 $27,099 $70,926 $20,127 $126,679
===== ====== ====== ====== =======
Weighted average yield to maturity:
U.S. Treasury and Agency 5.9% 7.4% 7.6% - % 7.4%
State and municipal (1) 4.3 5.0 5.2 5.6 5.3
Other securities - 7.4 8.6 7.1 7.7
Securities available for sale:
U.S. Treasury and Agency $16,954 $30,459 $137,934 $ - $185,347
State and municipal - - 2,588 2,097 4,685
------ ------- ----- ----- -------
$16,954 $30,459 $140,522 $2,097 $190,032
====== ====== ====== ===== =======
Weighted average yield to maturity:
U.S. Treasury and Agency 5.6% 6.8% 7.4% -% 7.2%
State and municipal (1) - - 5.3 5.5 5.4
(1) Not based on taxable equivalents.
The Company owned $437 million in mortgage-backed securities at December 31,
1999. Yields and cash flow on these securities can be impacted by prepayment
rates. A large portion of the mortgage-backed securities is collateralized
mortgage obligations (CMO). These types of securities are divided into various
tranches which are affected by prepayments and the overall structure of the CMO.
A portion of the Company's CMO portfolio experienced deterioration in its
structure caused by the high prepayment rates in 1998 and the slower prepayments
in 1999. Therefore, the average duration of these securities has extended and
has made the cash flows less predictable.
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,
-------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Real estate mortgage $ 470,209 $ 408,380 $ 375,044 $ 332,913 $ 295,268
Consumer 310,903 276,837 281,697 271,906 263,320
Commercial and financial 312,845 258,898 259,045 245,873 201,910
Agricultural 183,380 180,029 180,310 130,071 126,414
Credit card 120,809 109,176 106,737 98,895 108,641
Real estate construction 42,867 50,687 33,610 41,581 21,814
--------- --------- --------- -------- -------
1,441,013 1,284,007 1,236,443 1,121,239 1,017,367
Less allowance for loan losses (24,952) (24,292) (22,458) (20,157) (19,017)
--------- --------- --------- -------- -------
$1,416,061 $1,259,715 $1,213,985 $1,101,082 $ 998,350
========= ========= ========= ======== =======
As a percentage of total loans:
Real estate mortgage 32.6% 31.8% 30.3% 29.7% 29.0%
Consumer 21.6 21.6 22.8 24.3 25.9
Commercial and financial 21.7 20.2 21.0 21.9 19.9
Agricultural 12.7 14.0 14.6 11.6 12.4
Credit card 8.4 8.5 8.6 8.8 10.7
Real estate construction 3.0 3.9 2.7 3.7 2.1
------ ------ ------ ------ ------
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, 1999
--------------------------------------------------
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 $192,040 $102,306 $18,499 $85,136 $35,669
Agricultural 134,485 46,211 2,684 39,002 9,893
Real estate construction 8,575 32,794 1,498 9,867 24,425
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 $3.3 million at December 31, 1999, as
compared to $3.6 million at the end of 1998. As a percentage of total loans,
nonperforming loans represent only .2% and .3% of the loan portfolio at December
31, 1999 and 1998, respectively.
Virtually all of the Company's loans, except credit card loans, which are
concentrated in the Midwest, are to Nebraska-based organizations. The Nebraska
economy is 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
1999. Prices received for crops were in their second year of decline during
1999. Commodity prices during 1999 were such that ranchers and cattle feeders
had a profitable year in 1999, due to lower grain prices, higher fat cattle
prices and increased consumer demand for beef. Hog producers experienced a
second consecutive year of losses, while grain farmers reported improved
earnings, primarily due to additional government payments. 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 remained relatively stable after increasing significantly in the
second half of 1998. In 2000, grain prices are not expected to rebound, but
government payments will help to keep operations closer to "breakeven" levels.
This situation will result in continued 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. Credit card charge-offs have stabilized in the last two years
after experiencing a significant increase in 1997 and 1996. Credit card loans
had $4.7 million in net charge-offs during 1999, $4.8 million in 1998 and $5.0
million in 1997. The Company's credit card charge-offs are slightly below
industry averages. Consumer loan charge-offs decreased in 1999 from 1998, but
increased in 1998 from 1997. 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 doubtful. 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 1999, 1998 and
1997, the Company received approximately $277,000, $491,000 and $398,000 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:
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
1. Nonaccrual, Past Due and Restructured Loans
(a) Loans accounted for on a nonaccrual basis $ 986 $ 538 $1,581 $3,429 $1,700
(b) Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 1,124 1,584 1,106 846 690
(c) Loans not included above which are
"troubled debt restructurings" 1,224 1,465 1,530 1,597 1,256
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 263 202 529 628 350
ii.Amount of interest income on loans listed in
categories (a) and (c) that was included in net
income for the period. 183 150 244 395 155
2. Potential Problem Loans(1) 9,474 19,980 4,631 6,660 7,953
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 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
economic conditions. The Company expensed $6,877,000, $7,658,000 and $8,297,000
for estimated loan losses in 1999, 1998 and 1997, respectively.
Average loans increased 6.1% in 1999, 8.0% during 1998 and 6.9% in 1997. Net
charge-offs were $6.2 million, $5.8 million and $6.0 million during 1999, 1998
and 1997, respectively. The loan loss reserve as a percentage of loans was
1.73%, 1.89% and 1.82% at December 31, 1999, 1998 and 1997, respectively.
The following table presents an analysis of loan loss experience.
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Average loans and leases for the year $1,306,715 $1,231,931 $1,140,439 $1,066,896 $917,742
========= ========= ========= ======== =======
Reserve for loan losses:
Balance, beginning of year $24,292 $22,458 $20,157 $19,017 $17,190
Provision charged to expense 6,877 7,658 8,297 6,839 3,495
Bank acquisition - - - - 843
Loans charged off:
Real estate construction - - - - -
Real estate mortgage (208) (50) (100) (43) (66)
Agricultural (197) (243) (158) (73) (98)
Commercial and financial (1,311) (782) (1,159) (734) (70)
Consumer (1,602) (1,541) (1,452) (2,117) (1,168)
Credit card (5,891) (5,885) (5,760) (4,827) (3,255)
Loan recoveries:
Real estate construction - - - - -
Real estate mortgage 14 81 84 282 185
Agricultural 155 225 225 77 186
Commercial and financial 803 725 839 193 438
Consumer 814 604 736 897 636
Credit card 1,206 1,042 749 646 701
------- ------- ------- ------- -------
Net loans charged off (6,217) (5,824) (5,996) (5,699) (2,511)
------- ------- ------- ------- -------
Balance, end of year $24,952 $24,292 $22,458 $20,157 $19,017
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans .48% .47% .53% .53% .27%
=== === === === ===
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.
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Real estate construction $ 784 $ 718 $ 330 $ 628 $ 419
Real estate mortgage 3,620 3,514 3,009 2,493 2,902
Agricultural 3,782 3,700 3,286 3,169 3,941
Commercial and financial 5,471 5,020 4,690 4,896 3,781
Consumer 4,176 3,387 3,478 3,302 3,152
Credit card 6,922 7,607 7,175 5,398 4,623
Unallocated 197 346 490 271 199
------ ------ ------ ------ ------
$24,952 $24,292 $22,458 $20,157 $19,017
====== ====== ====== ====== ======
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, 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 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, 1999
------------------------
Change in Economic Value Actual Percent
Interest Rates of Equity Change Change
-------------- --------------- --------- --------
200 basis point increase $162,515 $(94,182) (36.7)%
150 basis point increase 183,600 (73,097) (28.5)
100 basis point increase 202,417 (54,280) (21.1)
50 basis point increase 221,943 (34,754) (13.5)
Base scenario 256,697 - -
50 basis point decrease 265,859 9,162 3.6
100 basis point decrease 284,562 27,865 10.9
150 basis point decrease 292,994 36,297 14.1
200 basis point decrease 295,308 38,611 15.0
As of December 31, 1998
-----------------------
Change in Economic Value Actual Percent
Interest Rates of Equity Change Change
-------------- -------------- --------- ----------
200 basis point increase $222,998 $(30,480) (12.0)%
150 basis point increase 230,033 (23,445) (9.2)
100 basis point increase 238,150 (15,328) (6.0)
50 basis point increase 246,200 (7,278) (2.9)
Base scenario 253,478 - -
50 basis point decrease 257,332 3,854 1.5
100 basis point decrease 259,256 5,778 2.3
150 basis point decrease 261,947 8,469 3.3
200 basis point decrease 264,680 11,202 4.4
The preceding table indicates that at December 31, 1999 and 1998, 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, 1999, the Company was generally more sensitive to rising
interest rates than was evident at December 31, 1998. The increased sensitivity
was due to an overall increase in rates at December 31, 1999 as compared to
December 31, 1998, the reduced anticipated cash flow from callable agencies and
mortgage-backed securities from the increase in interest rates and the increased
reliance on short-term funding sources. In addition, most of the Company's
long-term Federal Home Loan Bank borrowings had call features, which shortens
the life of these borrowings in a rising rate environment. The Company has begun
buying more structured CMO planned amortization class (PAC) bonds and U.S.
government agencies with no call features to help reduce the Company's change in
EVE in rising rate environments.
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 $ 62,969 $ 28,933 $ 42,510 $299,069 $380,357 $ 813,838
Loans 651,117 132,797 101,451 524,969 21,162 1,431,496
Mortgage loans held for sale 25,734 - - - - 25,734
Federal funds sold 36,075 - - - - 36,075
Federal Home Loan Bank stock - - - - 12,603 12,603
------- ------- ------- ------- ------- --------
775,895 161,730 143,961 824,038 414,122 2,319,746
Liabilities:
Interest-bearing demand deposits 106,856 - 57,649 275,230 - 439,735
Savings deposits 9,287 - - 89,403 - 98,690
Time deposits 317,125 245,436 246,865 114,159 103 923,688
Short-term borrowings 260,650 - - - - 260,650
Federal Home Loan Bank borrowings 98,400 13,000 75,900 40,500 1,216 229,016
Long-term debt 482 482 965 7,716 2,891 12,536
------- ------- ------- ------- ------- --------
792,800 258,918 381,379 527,008 4,210 1,964,315
------- ------- ------- ------- ------- --------
Repricing gap $ (16,905) $ (97,188) $(237,418) $297,030 $409,912 $ 355,431
======= ======= ======= ======= ======= ========
Cumulative repricing gap $ (16,905) $(114,093) $(351,511) $(54,481) $355,431 $ 355,431
======= ======= ======= ======= ======= ========
GAP as a % of earning assets (.7)% (4.9)% (15.1)% (2.3)% 15.3% 15.3%
=== ==== ==== ==== ==== ====
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
negative by $351.5 million dollars. Generally, during a period of rising
interest rates, a negative gap could adversely effect net interest income.
Conversely, during a period of falling interest rates, a negative 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.
Anticipated cash flow from the Company's investment portfolio for the year 2000
was reduced due to the rising interest rate environment of 1999. This has
negatively impacted the Company's one-year cumulative gap.
The Company owns $89 million and $72 million of marketable equity securities at
December 31, 1999 and 1998, 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, 1999 December 31, 1998
----------------- -----------------
Fair Actual Fair Actual
Change in Prices Value Change Value Change
---------------- ----- ------ ----- ------
15% increase $101,826 $ 13,282 $83,097 $ 10,839
10% increase 97,398 8,854 79,484 7,226
5% increase 92,971 4,427 75,871 3,613
Current fair value 88,544 - 72,258 -
5% decrease 84,117 (4,427) 68,645 (3,613)
10% decrease 79,690 (8,854) 65,032 (7,226)
15% decrease 75,262 (13,282) 61,419 (10,839)
Within the Company's public equity investment portfolio, a 5% or less increase
in the value of the portfolio has occurred in one quarter 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 33% of the quarters in the past three years; a 5%
or less decrease has occurred in 33% 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 an increase in interest rates.
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 2000, the Banks have retained
defined net income from the previous two years of approximately $19.4 million.
The parent company holds approximately $96.0 million in cash, short-term
investments and marketable securities as of December 31, 1999. The Company has
the ability to issue commercial paper, which could be used to provide liquidity
to subsidiary banks. The Company has issued $9.6 million in commercial paper as
of December 31, 1999. Long-term debt at December 31, 1999 includes a term loan
of $12.5 million which has payments totaling $1.9 million due in 2000, and
$216.1 million of FHLB borrowings (at subsidiary banks) which have expected
effective maturity dates in 2000 in the amount of $174.4 million. Because most
of the FHLB borrowings have call dates much shorter than the maturity date, if
interest rates rise, these call options by the FHLB will probably 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 13.5% and
15.5%, respectively, at December 31, 1999. These ratios compare to 14.0% and
15.4%, respectively, at December 31, 1998, and 13.5% and 14.9%, respectively, at
December 31, 1997. In accordance with the regulatory guidelines, unrealized
gains and losses on the securities available for sale portfolio are excluded
from the Tier I risk-based capital calculations; total risk-based capital
calculations include 45% of pretax net unrealized holding gains on equity
securities available for sale.
The Company's leverage ratio, the ratio of Tier 1 capital to total quarterly
average assets, was 9.9% at December 31, 1999 and 10.0% at December 31, 1998.
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, 1999.
During 1994, the Board of Directors announced its intentions of purchasing
shares of its common stock when appropriate and at a price believed to be
advantageous to the Company. During 1999, the Company acquired 14,427 shares of
its Class A stock and 159,025 shares of its Class B stock at an average price of
$24.67. All outstanding treasury stock was retired as of December 31, 1999.
Leverage Ratios
- ---------------
These ratios measure the extent to which the Company has been financed by
long-term debt (before accumulated other comprehensive income).
1999 1998 1997
------- ------- -------
Long-term debt to long-term debt plus equity 47.1% 39.8% 20.5%
Total long-term debt to equity 89.2 66.0 25.7
Long-term debt to equity (parent only) 4.9 5.8 7.7
Funding Sources
- ---------------
Average deposits were $1.76 billion in 1999 as compared to $1.66 billion during
1998 and $1.58 billion in 1997, a 5.9% and 5.2% increase, respectively. Average
interest-bearing deposits increased from $1,285 million in 1997 to $1,339
million in 1998, to $1,415 million in 1999, a 4.2% and 5.6% increase,
respectively. Noninterest-bearing demand deposits increased $22.5 million or
7.0% in 1999 from 1998 and increased 9.2% or $27.1 million in 1998 from 1997.
The increase in noninterest-bearing demand deposits can be attributed to growth
in correspondent deposit accounts, business accounts, and individual customer
accounts. The increase in the correspondent bank accounts and business accounts
is primarily a result of a decline in average short-term interest rates in 1999,
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 4.6% during 1999 and 1.4% during 1998.
Interest-bearing demand and savings deposits increased 7.4% during 1999 compared
to 9.7% during 1998. 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, 1999
------------------------------------------------------------
Over 3 Over 6
3 Months through through Over
or Less 6 Months 12 Months 12 Months Total
--------- --------- --------- --------- -------
$149,168 $101,591 $70,947 $8,113 $329,819
The Company utilizes the National Bank of Commerce Master Credit Card Trust
(Trust) to sell up to $175,000,000 of credit card receivables. As these loans
are securitized, the Company's on-balance sheet funding needs are reduced by the
amount of loans securitized. As of December 31, 1999 and 1998, the Company had
sold $142 million and $98 million, respectively, of credit card receivables to
the Trust.
Earnings Performance
- ---------------------
The Company's net income was $30,927,000, up 6.5% or $1,892,000 from 1998. The
Company's net income for 1998 was $29,035,000, up $2,438,000 from 1997's net
income of $26,597,000. The increase in net income in 1999 from 1998 can be
attributed to several factors. The net yield on interest earning assets
decreased from 4.05% in 1998 to 3.97% in 1999, but average-earning assets
increased $185 million during 1999, resulting in a $5.7 million increase in net
interest income. Loan loss expense decreased $.8 million, which resulted in a
net increase in net interest income after provision for loan losses of $6.5
million.
The $2.4 million or 9.2% increase in 1998 income over 1997 income was due
primarily to a $166 million increase in interest earning assets coupled with a
$.6 million decrease in loan loss expense, which resulted in a net increase in
net interest income after provision for loan losses of $6.3 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 1999 was
$87.9 million as compared $82.2 million and $76.6 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 4.11% in 1997, decreased to 4.05% in 1998
and decreased to 3.97% in 1999. The Federal Reserve increased short-term rates
in the fourth quarter of 1999, which could increase the Company's cost of funds
if they remain at current levels. Competition for quality loan growth could
continue to hurt the yield on earning assets.
The following tables attribute changes in net interest income either to changes
in average balances or to changes in average rates for earning assets and
interest-bearing liabilities. The change in interest due jointly to volume and
rate has been allocated to volume and rate in proportion to the relationship of
the absolute dollar amount of change in each.
1999/98 1998/97
------------------------------- ------------------------------
Amounts Amounts
Attributable Attributable
to Changes in to Changes in
----------------- -----------------
Total Total
Volume Rate Change Volume Rate Change
------ ------ ------ ------ ------ ------
Interest on loans $ 6,615 $(3,853) $2,762 $ 8,280 $ (903) $ 7,377
Interest on taxable securities 6,309 (387) 5,922 2,279 (107) 2,172
Interest on nontaxable securities 575 (43) 532 142 (20) 122
Interest on fed funds sold 445 (147) 298 13 (95) (82)
Interest on mortgage loans
held for sale (619) 66 (553) 1,918 (173) 1,745
Equity securities 68 (27) 41 210 117 327
FHLB stock 127 (35) 92 131 (1) 130
------ ------ ----- ------ ------ ------
Total interest income 13,520 (4,426) 9,094 12,973 (1,182) 11,791
------ ------ ------ ------ ------ ------
Interest on deposits:
Interest-bearing demand 867 (395) 472 1,205 515 1,720
Savings deposits 153 (224) (71) 216 2 218
Other time deposits 2,198 (4,339) (2,141) 672 91 763
Interest on short-term borrowings 2,634 (190) 2,444 410 65 475
Interest on FHLB borrowings 3,243 (153) 3,090 3,425 (318) 3,107
Interest on long-term debt (112) (313) (425) (238) 135 (103)
------ ------ ----- ------ ------ ------
Total interest expense 8,983 (5,614) 3,369 5,690 490 6,180
------ ------ ----- ------ ------ ------
Net interest income $ 4,537 $ 1,188 $5,725 $ 7,283 $(1,672) $ 5,611
====== ====== ===== ====== ====== ======
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 emphasized 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 46%, 44%, and 41% during 1999,
1998 and 1997, respectively.
The following table shows the breakdown of noninterest income and the percentage
changes.
Percent Increase
(Decrease)
-----------------
1999 1998 1997 1999/98 1998/97
------ ------ ------ ------- -------
Credit card $23,636 $15,759 $13,047 50.0% 20.8%
Computer services 12,377 11,427 8,904 8.3 28.3
Other service charges and fees 11,787 10,682 7,829 10.3 36.4
Mortgage banking 8,113 8,853 5,425 (8.4) 63.2
Trust services 6,305 6,085 6,469 3.6 (5.9)
Service charges on deposits 5,918 5,427 5,562 9.0 (2.4)
Gains on securities sales 4,625 4,635 4,861 (.2) (4.6)
Other income 2,623 2,846 1,742 (7.8) 63.4
------ ------ ------
Total noninterest income $75,384 $65,714 $53,839 14.7 22.1
====== ====== ======
Noninterest income in 1999 was $75,384,000 compared to $65,714,000 in 1998, a
14.7% increase. If securities gains of $4,625,000 and $4,635,000 in 1999 and
1998, respectively, were excluded, noninterest income would have been $70.8
million in 1999 compared to $61.1 million in 1998, a 15.8% increase. In both
1999 and 1998, the securities gains were primarily the result of selling certain
positions held in the Company's Global Fund. Credit card fees increased
$7,877,000 or 50.0% due to the increase in balances as well as total activity,
and increases in late, over limit and cash advance fees. Computer services fees
increased $950,000 or 8.3% due to various fees generated from installation
services, conversions, profit on resale of equipment, and out-of-Nebraska item
processing centers operated by First Commerce Technologies. The 10.3% increase
in other service charges and fees is due to several factors: growth in bond
sales, increased discount brokerage sales, and increased real estate lending
fees. The increase in discount brokerage sales is due to steady growth and a
generally strong stock market. Mortgage banking revenue decreased 8.4% from 1998
primarily because of the smaller volume of mortgage refinancings in 1999. Loans
serviced by First Commerce Mortgage were $1.904 billion at December 31, 1999
compared to $1.607 billion at December 31, 1998. Other income decreased $223,000
due primarily to venture capital losses in the first quarter of 1999.
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. 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 services 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 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 for 1999, 1998 and 1997, and the percentage
changes.
Percent Increase
(Decrease)
------------------
1999 1998 1997 1999/98 1998/97
------ ------ ------ ------- -------
Salaries and employee benefits $ 48,672 $44,123 $39,475 10.3% 11.8%
Credit card 17,043 11,403 7,921 49.5 44.0
Equipment expense 8,154 6,289 5,538 29.7 13.6
Amortization of mortgage servicing rights 5,038 4,782 2,067 5.4 131.3
Communications 4,113 4,447 4,221 (7.5) 5.4
Net occupancy expense 4,375 4,353 4,496 .5 (3.2)
Business development 4,651 4,343 3,695 7.1 17.5
Fees and insurance 4,780 4,266 3,802 12.0 12.2
Supplies 2,754 2,786 2,539 (1.1) 9.7
Other expenses 6,655 6,919 5,297 (3.8) 30.6
Minority interest 2,127 1,064 1,541 99.9 (31.0)
Goodwill amortization 511 511 511 - -
------- ------ ------
Total noninterest expense $108,873 $95,286 $81,103 14.3 17.5
======= ====== ======
Efficiency ratio (1) 66.9% 65.4% 63.1%
Average number of full-time equivalent employees 1,238 1,211 1,108
Personnel expense per employee (in dollars) $39,315 $36,435 $35,627
(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 $108,873,000 in 1999 compared to $95,286,000 in 1998.
This is an increase of $13.6 million or 14.3%. Salaries and employee benefits
increased $4,549,000 or 10.3% from the prior year. The increase is due to
general increases in the levels of pay and number of employees, plus the
addition of banks in Valentine, Nebraska and Colorado Springs, Colorado. Credit
card expenses increased $5,640,000 or 49.5% 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 $1,865,000 or 29.7% due to maintenance
and depreciation expense on the significant equipment purchases of the last two
years, primarily computer systems and software. Fees and insurance increased
$514,000 or 12.0% due primarily to overall growth in the organization. The
increase in minority interest expense is directly related to the increase in
profits in the Cabela's credit card joint venture.
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. 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 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.
Income Taxes
- ------------
The provision for income taxes was $16,629,000 in 1999, $15,932,000 in 1998 and
$14,428,000 in 1997. 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, it has and will continue to react to minimize any
adverse effects of inflation.
TRENDS AND UNCERTAINTIES
- -------------------------
ECONOMY. Recent economic data show that the economy remains strong in the
Omaha/Lincoln metro areas, but there are some signs of sluggishness in some of
the rural counties. A lack of qualified applicants hinders economic growth
across the state. Construction activity has been strong, while retail sales
growth has been favorable. The manufacturing base in the state continues to
operate at expanding levels. Motor vehicle sales have been favorable. 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 may
begin to realize moderate growth as the Federal Reserve Board attempts to
maintain balance between growth and inflation. Agricultural exports are
beginning to show some signs of recovery.
The financial results of the 1999 Nebraska farm sector were mixed. Crop prices
are below the cost of production, while crop yields were fair. Loan deficiency
payments and market transition payments significantly helped to soften the
impact of lower grain prices. Cattle feeders and ranch operations reflected
profits throughout 1999. Hog producers experienced a year of losses in 1999.
Personal bankruptcy filings have begun to decline. Farm implement sales were
weak throughout the year.
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 agricultural practices.
YEAR 2000. A significant technological issue impacting all companies worldwide
was the need to modify computer information systems to properly process
transactions relating to the Year 2000 and beyond. The Company 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. The Company's systems have operated normally, and no system problems have
been experienced as a result of the Year 2000 issue. In addition, the Company
believes the systems are ready for any ongoing Year 2000 related issues, and
that no significant systems interruptions will be experienced as a result of the
Year 2000 issue.
Through December 31, 1999, cumulative costs relating directly to Year 2000
issues since the project's inception totaled approximately $11.5 million. A
portion of the total includes both the cost of existing staff who were
redeployed to the Year 2000 project from other projects and consultants or other
independent programmers who were 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. No further Year
2000 costs are anticipated.
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, 1999, the Company and all of its bank subsidiaries exceed the minimum
capital requirements as mandated by regulatory agencies (See Footnote O).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7, Pages 22 through 25, and captioned "Management's Discussion and
Analysis--Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index To Financial Information
Consolidated Balance Sheets....................................... 32
Consolidated Statements of Income................................. 33
Consolidated Statements of Stockholders' Equity................... 34
Consolidated Statements of Cash Flows............................. 35
Notes to Consolidated Financial Statements........................ 36
Independent Auditors' Report...................................... 51
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
1999 1998
--------- --------
(Amounts In Thousands)
ASSETS
Cash and due from banks $ 151,619 $ 135,731
Federal funds sold 36,075 31,865
--------- ---------
Cash and cash equivalents 187,694 167,596
Securities available for sale (cost of
$587,090,000 and $430,747,000) 588,944 452,301
Securities held to maturity (fair value of
$221,270,000 and $300,502,000) 226,748 295,543
Mortgage loans held for sale 25,734 66,178
Loans 1,441,013 1,284,007
Less allowance for loan losses 24,952 24,292
--------- ---------
Net loans 1,416,061 1,259,715
Federal Home Loan Bank stock, at cost 12,603 9,347
Accrued interest receivable 22,216 22,257
Premises and equipment, net 72,957 62,392
Other assets 56,633 49,416
--------- ---------
$2,609,590 $2,384,745
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 350,743 $ 365,782
Interest bearing 1,462,113 1,362,718
--------- ---------
1,812,856 1,728,500
Short-term borrowings 260,650 213,470
Federal Home Loan Bank borrowings 229,016 143,625
Accrued interest payable 8,665 7,442
Accrued expenses and other liabilities 28,204 29,562
Long-term debt 12,536 13,500
--------- ---------
Total liabilities 2,351,927 2,136,099
Commitments and contingencies
Stockholders' equity:
Common stock:
Class A voting, $.20 par value; authorized
10,000,000 shares; issued and outstanding 2,568,892
and 2,583,319 shares; 514 517
Class B nonvoting, $.20 par value; authorized
40,000,000 shares, issued and outstanding 10,769,926
and 10,928,951 shares 2,154 2,186
Paid-in capital 21,379 21,572
Retained earnings 232,411 210,361
Accumulated other comprehensive income 1,205 14,010
--------- ---------
Total stockholders' equity 257,663 248,646
--------- ---------
$2,609,590 $2,384,745
========= =========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
----------------------------
1999 1998 1997
------ ------ ------
(Amounts In Thousands Except Per Share Data)
Interest income:
Loans $114,157 $111,395 $104,018
Securities:
Taxable 47,557 41,635 39,463
Nontaxable 2,035 1,503 1,381
Dividends 2,243 2,110 1,653
Mortgage loans held for sale 2,866 3,419 1,67
Federal funds sold 2,196 1,898 1,980
------- ------- -------
Total interest income 171,054 161,960 150,169
Interest expense:
Deposits 61,162 62,902 60,201
Short-term borrowings 11,625 9,181 8,706
Federal Home Loan Bank borrowings 9,403 6,313 3,206
Long-term debt 942 1,367 1,470
------- ------- -------
Total interest expense 83,132 79,763 73,583
------- ------- -------
Net interest income 87,922 82,197 76,586
Provision for loan losses 6,877 7,658 8,297
------- ------- -------
Net interest income after provision for loan losses 81,045 74,539 68,289
Noninterest income:
Credit card 23,636 15,759 13,047
Computer services 12,377 11,427 8,904
Other service charges and fees 11,787 10,682 7,829
Mortgage banking 8,113 8,853 5,425
Trust services 6,305 6,085 6,469
Service charges on deposits 5,918 5,427 5,562
Gains on securities sales 4,625 4,635 4,861
Other income 2,623 2,846 1,742
------- ------- -------
Total noninterest income 75,384 65,714 53,839
------- ------- -------
Noninterest expense:
Salaries and employee benefits 48,672 44,123 39,475
Credit card 17,043 11,403 7,921
Equipment expense 8,154 6,289 5,538
Amortization of mortgage servicing rights 5,038 4,782 2,067
Communications 4,113 4,447 4,221
Net occupancy expense 4,375 4,353 4,496
Business development 4,651 4,343 3,695
Fees and insurance 4,780 4,266 3,802
Supplies 2,754 2,786 2,539
Other expenses 9,293 8,494 7,349
------- ------- -------
Total noninterest expense 108,873 95,286 81,103
------- ------- -------
Income before income taxes 47,556 44,967 41,025
Income tax provision 16,629 15,932 14,428
------- ------- -------
Net income $ 30,927 $ 29,035 $ 26,597
======= ======= =======
Weighted average shares outstanding 13,262 13,529 13,541
======= ======= =======
Basic and diluted net income per share $2.33 $2.15 $1.96
======= ======= =======
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, 1997 $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 - - - - $39,608 -
======
Cash dividends ($.26 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 - - - - $21,149 -
======
Cash dividends ($.30 per share) - - - (4,600) -
---- ----- ------ ------- ------
Balance, December 31, 1998 517 2,186 21,572 210,361 14,010
---- ----- ------ ------- ------
Purchase and retirement of stock (3) (33) (282) (4,051) -
Issuance of Class B common stock - 1 89 - -
Comprehensive income:
Net income - - - 30,927 $30,927 -
Unrealized gains on securities,
net of reclassification
adjustment (see disclosure) - - - - (12,805) (12,805)
------
Comprehensive income - - - - $18,122 -
======
Cash dividends ($.36 per share) - - - (4,826) -
---- ----- ------ ------- ------
Balance, December 31, 1999 $514 $2,154 $21,379 $232,411 $ 1,205
==== ===== ====== ======= ======
Disclosure of reclassification amount:
(Amounts in Thousands)
Year ended December 31, 1997 1998 1999
---- ---- ----
Unrealized holding gains arising during period, net of tax of
$8,708, $(2,624), and $(5,276), respectively $16,171 $(4,873) $ (9,799)
Less: reclassification adjustment for gains included in net income,
net of tax of $(1,701), $(1,622), and $(1,619), respectively (3,160) (3,013) (3,006)
------ ------ ------
Net unrealized gains on securities, net of tax of
$7,008, $(4,246), and $(6,895), respectively $13,011 $(7,886) $(12,805)
====== ====== ======
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998 1997
------- ------- -------
(Amounts in Thousands)
Net income $ 30,927 $ 29,035 $ 26,597
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization 14,031 12,217 8,472
Provision for loan losses 6,877 7,658 8,297
Provision for deferred taxes 834 1,792 1,188
Gain on sales of mortgage loans held for sale and securities (5,477) (5,498) (4,906)
Changes in assets and liabilities:
Purchases of mortgage loans held for sale (503,420) (847,580) (307,025)
Proceeds from sales of mortgage loans held for sale 544,716 813,625 292,003
Accrued interest receivable 41 (781) (1,283)
Accrued interest payable 1,223 (292) 84
Other assets 146 (1,039) (3,329)
Accrued expenses and other liabilities (338) 122 1,277
Other (1,778) 56 (271)
------- ------- -------
Total adjustments 56,855 (19,720) (5,493)
------- ------- -------
Net cash flows from operating activities 87,782 9,315 21,104
Cash flows from investing activities:
Proceeds from sales of securities held to maturity - - 180
Proceeds from maturities of securities held to maturity 83,392 157,844 50,031
Purchases of securities held to maturity (14,597) (90,619) (142,967)
Proceeds from sales of securities available for sale 78,604 31,971 101,701
Proceeds from maturities of securities available for sale 111,769 55,183 67,403
Purchases of securities available for sale (341,831) (219,269) (99,784)
Net increase in loans (207,223) (76,388) (140,200)
Securitization and sale of credit card loans 44,000 23,000 19,000
Purchases of premises and equipment (17,348) (13,966) (11,054)
Purchases of mortgage servicing rights (7,093) (11,663) (3,922)
Other (3,317) 347 (459)
------- ------- -------
Net cash flows from investing activities (273,644) (143,560) (160,071)
Cash flows from financing activities:
Net increase in deposits 84,356 79,006 74,950
Net increase in short-term borrowings 47,180 15,075 57,003
Net increase in Federal Home Loan Bank borrowings 85,391 23,175 47,381
Repayment of long-term debt (14,464) (2,670) (2,534)
Proceeds from long-term debt 13,500 - -
Repurchase of common stock (4,369) (483) (360)
Cash dividends paid (4,826) (4,600) (4,066)
Other (808) (821) (85)
------- ------- -------
Net cash flows from financing activities 205,960 108,682 172,289
------- ------- -------
Net change in cash and cash equivalents 20,098 (25,563) 33,322
Cash and cash equivalents at beginning of year 167,596 193,159 159,837
------- ------- -------
Cash and cash equivalents at end of year $187,694 $167,596 $193,159
======= ======= =======
Supplemental disclosure:
Interest paid $81,909 $79,911 $73,540
Income taxes paid 15,365 13,290 13,465
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 and Colorado based banks and affiliated
organizations. The majority of the Company's operations and assets are related
to its 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 inter-company 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.
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 securities available for sale 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 - An interest rate swap agreement is utilized
by the Company to reduce the exposure to fluctuations in the interest rate on
its variable rate, long-term debt. The differential to be received or paid under
such agreement is recognized in income over the life of the agreement as an
adjustment to interest expense.
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.
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 generally 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 $142,000,000 and $98,000,000 of credit card loans at December 31,
1999 and 1998, respectively, through a master trust securitization program.
These securitizations have been recorded as sales in accordance with Statement
of Financial Accounting Standards (SFAS) 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 in relation 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 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 the expected period of future benefit.
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, 1999 and 1998, $5,789,000 and $3,301,000, respectively, 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.
The Company recognizes 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. The Company's mortgage servicing rights acquired
through either the purchase or origination of mortgage loans allocates 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
$16,457,000 and $14,402,000 at December 31, 1999 and 1998, respectively. The
amount of loans serviced for others approximated $1,903,670,000, $1,606,829,000
and $1,174,357,000 at December 31, 1999, 1998, and 1997, respectively.
As of December 31, 1999 and 1998, the fair value of the Company's capitalized
mortgage servicing rights (including mortgage servicing rights purchased) was
approximately $28.9 million and $19.1 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. The Company has no common
stock equivalents.
Accounting Pronouncements - Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" as amended by
SFAS No. 137, has been 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 2001 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 1999 and
1998 were $14,558,000 and $11,957,000, respectively. The subsidiary banks
maintain such compensating balances to offset charges for services rendered by
correspondent banks. In addition, the Federal Reserve Bank required the
subsidiary banks to maintain average balances of $28,147,000 and $26,568,000 for
1999 and 1998, 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, 1999
- -----------------
U.S. government and agency securities $185,347 $ 101 $ (5,630) $179,818
States and political subdivision securities 4,685 4 (44) 4,645
Mortgage-backed securities 336,538 24 (20,625) 315,937
Marketable equity securities 60,520 32,445 (4,421) 88,544
------- ------ ------- -------
Totals $587,090 $32,574 $(30,720) $588,944
======= ====== ======= =======
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
======= ====== ====== =======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
Securities held to maturity:
December 31, 1999
- ------------------
U.S. government and agency securities $ 85,200 $ 12 $(1,779) $ 83,433
States and political subdivision securities 41,280 59 (1,474) 39,865
Mortgage-backed securities 100,069 183 (2,480) 97,772
Other 199 1 - 200
------- ---- ------ -------
Totals $226,748 $255 $(5,733) $221,270
======= ==== ====== =======
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
======= ====== ==== =======
The amortized cost and estimated fair value of debt securities at December 31,
1999, 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 $ 8,527 $ 8,547 $ 16,954 $ 17,002
Due after one year through five years 27,099 26,905 30,459 30,043
Due after five years through ten years 70,926 69,164 140,522 135,337
Due after ten years 20,127 18,882 2,097 2,081
------- ------- ------- -------
126,679 123,498 190,032 184,463
Mortgage-backed securities 100,069 97,772 336,538 315,937
------- ------- ------- -------
$226,748 $221,270 $526,570 $500,400
======= ======= ======= =======
The following table presents the securities portfolio sales activities for the
years ended December 31, 1999, 1998 and 1997. All sales of securities held to
maturity were within three months of the securities' maturities, or were early
calls of the securities.
1999 1998 1997
------------------ ----------------- --------------------
Held Available Held Available Held Available
to for to for to for
Maturity Sale Maturity Sale Maturity Sale
------- ----- -------- ------ ------- -------
Proceeds from sales of securities $ - $78,604 $ - $31,971 $180 $101,701
Gross gains on sales of securities - 5,780 - 6,187 - 5,270
Gross losses on sales of securities - (1,155) - (1,552) - (409)
Securities with a carrying value of $615,296,000 at December 31, 1999, and
$544,328,000 at December 31, 1998, 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 $71,122,000 and $81,592,000
were pledged to secure advances from the Federal Home Loan Bank as of December
31, 1999 and 1998, respectively.
At December 31, 1999 and 1998, state and political subdivision securities with
an amortized cost of $40,690,000 and $31,871,000, respectively, and an estimated
fair value of $39,508,000 and $32,344,000, respectively, were issued by State of
Nebraska political subdivisions.
D. LOANS
Loans at December 31 are summarized as follows:
1999 1998
------- -------
Real estate mortgage $ 470,209 $ 408,380
Consumer 310,903 276,837
Commercial and financial 312,845 258,898
Agricultural 183,380 180,029
Credit card 120,809 109,176
Real estate construction 42,867 50,687
--------- ---------
$1,441,013 $1,284,007
========= =========
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, 1999 and 1998, there were
$986,000 and $538,000, respectively, of nonaccruing loans. The amount of
impaired loans and the amount of restructured loans as of December 31, 1999 and
1998 were 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 $150,090,000 and $159,619,000 were
pledged against advances from the Federal Home Loan Bank as of December 31, 1999
and 1998, respectively.
E. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses are summarized as follows:
1999 1998 1997
------- ------- -------
Balance, January 1 $24,292 $22,458 $20,157
Provision for loan losses 6,877 7,658 8,297
------- ------- -------
Total 31,169 30,116 28,454
Net charge-offs:
Loans charged off 9,209 8,501 8,630
Less recoveries 2,992 2,677 2,634
------- ------- -------
Net loans charged off 6,217 5,824 5,996
------- ------- -------
Balance, December 31 $24,952 $24,292 $22,458
======= ======= =======
F. PREMISES AND EQUIPMENT
Premises and equipment at December 31 consists of the following:
1999 1998
------- -------
Land $ 9,396 $ 7,307
Buildings and leasehold improvements 66,714 65,849
Equipment and furnishings 50,426 41,076
------- -------
126,536 114,232
Less accumulated depreciation 53,579 51,840
------- -------
$72,957 $62,392
======= =======
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, 1999, 1998 and
1997, was approximately $1,469,000, $1,787,000, and $1,646,000, respectively.
The approximate future minimum rental commitments under noncancelable leases are
as follows:
Premises Equipment Total
--------- --------- ---------
2000 $ 905 $173 $1,078
2001 680 77 757
2002 612 71 683
2003 509 39 548
2004 336 24 360
Thereafter 2,367 10 2,377
G. DEPOSIT MATURITIES
Maturities of time deposits at December 31, 1999 are as follows:
2000 $809,426
2001 92,604
2002 14,409
2003 5,730
2004 1,416
Thereafter 103
-------
$923,688
=======
H. SHORT-TERM BORROWINGS
Amounts and interest rates related to securities sold under agreement to
repurchase are as follows:
1999 1998 1997
------ ------ ------
Amount outstanding at year-end $223,388 $188,661 $142,941
Average interest rate outstanding at year-end 4.9% 4.8% 4.9%
Highest amount outstanding as of any month-end during the year $243,272 $188,661 $176,572
Average amount outstanding during the year 203,052 159,159 143,666
Approximate average interest rate 4.9% 4.9% 4.9%
Other short-term borrowings consisted of federal funds purchased of $8,600,000
and $14,880,000 at December 31, 1999 and 1998, respectively; commercial paper
totaling $9,597,000 and $9,929,000 at December 31, 1999 and 1998, respectively;
and other notes payable of $19,065,000 at December 31, 1999.
I. FEDERAL HOME LOAN BANK BORROWINGS
Short-term Federal Home Loan Bank (FHLB) advances made to subsidiary banks
totaled $12,900,000 and $2,225,000 at December 31, 1999 and 1998, respectively.
Subsidiary banks had unused lines of credit with the FHLB of $48,235,000 and
$41,610,000 as of December 31, 1999 and 1998, respectively.
FHLB long-term advances of $216,116,000 and $141,400,000 were made to subsidiary
banks at December 31, 1999 and 1998, respectively. These advances mature in 2000
to 2014. Interest is paid monthly. The balance bears fixed interest rates of
4.22% to 6.80% (5.36% weighted average). Virtually all the advances held at
December 31, 1999 are callable at the option of the FHLB within the next nine
years. The advances are collateralized by a blanket pledge of mortgage loans and
certain investment securities.
Scheduled principal payments based on expected effective maturity dates of the
FHLB advances for the five years following December 31, 1999 are:
2000 $187,300
2001 7,000
2002 -
2003 29,500
2004 4,000
Thereafter 1,216
-------
$229,016
=======
J. LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of a term loan that bears interest
at the Federal Funds Rate plus 0.84% (6.34% at December 31, 1999) and matures in
May 2006. The loan is secured by the stock of two of the Company's subsidiary
banks. The term loan agreement provides that the Company will not permit its
debt to equity ratio to exceed 35%, will maintain a return on assets ratio in
excess of 1% and not allow non-performing assets to exceed 10% of capital. The
Company was in compliance with all covenants as of December 31, 1999. The
$13,500,000 of capital notes outstanding at December 31, 1998 were redeemed
during 1999.
Scheduled principal payments for the five years following December 31, 1999 are:
2000 $ 1,929
2001 1,929
2002 1,929
2003 1,929
2004 1,929
Thereafter 2,891
------
$12,536
======
During 1999, the Company entered into an Interest Rate Swap Agreement with a
notional amount equal to outstanding principal on the related long-term debt
($12,536,000 as of December 31, 1999). The agreement hedges interest rate
exposure on the 1999 term loan agreement, and would have cost the counter-party
to the agreement approximately $399,000 to liquidate at December 31, 1999. This
agreement effectively changed the interest rate exposure on the $12,536,000
variable rate term loan agreement to a 6.3% fixed rate. The Interest Rate Swap
Agreement matures ratably as the related debt matures through 2006. The Company
is exposed to credit loss in the event of nonperformance by the other party to
the interest rate swap agreement. However, the Company does not anticipate
nonperformance by the counter-party and the exposure is limited to the interest
rate differential.
K. INCOME TAXES
Consolidated income tax expense for the years ended December 31 consists of the
following:
1999 1998 1997
------ ------ ------
Current provision:
Federal $14,956 $13,359 $12,503
State 839 781 737
------ ------ ------
15,795 14,140 13,240
Deferred income tax 834 1,792 1,188
------ ------ ------
Total consolidated income tax provision $16,629 $15,932 $14,428
====== ====== ======
The effective rate of total tax expense differs from the statutory federal tax
rate as follows:
1999 1998 1997
------ ------ ------
Tax at federal statutory rate 35% 35% 35%
Tax-exempt interest on obligations
of state and political subdivisions (2) (1) (2)
Other 2 1 2
-- -- --
Effective tax rate 35% 35% 35%
== == ==
Significant items comprising the Company's net deferred tax asset (liability) as
of December 31, 1999 and 1998 are as follows:
Deferred tax assets: 1999 1998
------ ------
Allowance for loan losses $ 8,652 $ 8,421
Other 2,666 2,218
------ ------
Total deferred tax assets 11,318 10,639
Deferred tax liabilities:
Net unrealized gains on
securities available for sale 649 7,544
Mortgage servicing rights 5,635 4,843
Premises and equipment 1,599 1,508
Other 2,228 1,598
------ ------
Total deferred tax liabilities 10,111 15,493
------ ------
Net deferred tax asset (liability) $ 1,207 $(4,854)
====== ======
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
$734,723,000 and $617,940,000 (exclusive of $1,458,592,000 and $928,372,000 of
unused approved lines of credit related to credit card loan agreements) at
December 31, 1999 and 1998, 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 $29,354,000, and $108,696,000 at December 31, 1999 and
1998, 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 $45,081,000 and $146,510,000 as of December 31, 1999 and 1998,
respectively. The Company has an agreement to sell on a best effort basis
$2,245,000 as of December 31, 1999.
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 $28,731,000 and $22,587,000 in letters of credit outstanding at
December 31, 1999 and 1998, 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, 1999, 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, 1999 is shown below:
Beginning Ending
Balance Additions Payments Balance
-------- -------- -------- --------
$36,629 $146,367 $142,743 $40,253
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
$1,285,000 in 1999, $1,193,000 in 1998 and $1,156,000 in 1997.
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 $1,104,000 in 1999, $1,497,000 in
1998 and $1,308,000 in 1997.
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 2000, the
subsidiary banks have retained defined net income from 1999 and 1998 of
approximately $19,400,000.
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, 1999, 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, 1999, 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, 1999:
Total Capital (to Risk Weighted Assets):
Consolidated $291,804 15.5% $150,301 8.0% N/A N/A
National Bank of Commerce 124,686 11.4 87,412 8.0 $109,265 10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated 253,888 13.5 75,150 4.0 N/A N/A
National Bank of Commerce 111,012 10.2 43,706 4.0 65,559 6.0
Tier I Capital (to Quarterly Average Assets):
Consolidated 253,888 9.9 102,250 4.0 N/A N/A
National Bank of Commerce 111,012 7.7 57,619 4.0 72,024 5.0
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
P. CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS (Parent Company Only) December 31,
--------------------
1999 1998
------ ------
ASSETS
Cash on deposit with subsidiaries $ 154 $ 226
Securities purchased under agreement to resell to subsidiary bank 4,930 5,055
------- -------
Cash and cash equivalents 5,084 5,281
Securities available for sale (cost of $60,317,000 and $55,882,000) 88,308 75,889
Investment in subsidiaries:
Equity in net assets of bank subsidiaries 170,727 172,587
Equity in net assets of nonbank subsidiaries 2,126 1,848
Premises and equipment, net 11,211 11,477
Other assets 13,943 13,903
------- -------
$291,399 $280,985
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 11,603 $ 8,911
Commercial paper outstanding 9,597 9,928
Long-term debt 12,536 13,500
------- -------
Total liabilities 33,736 32,339
Stockholders' equity 257,663 248,646
------- -------
$291,399 $280,985
======= =======
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Parent Company Only)
Year ended December 31,
-----------------------------
1999 1998 1997
------ ------ ------
Income:
Dividends from bank subsidiaries $18,067 $18,278 $15,542
Dividends from nonbank subsidiaries 805 400 225
Rent:
Subsidiaries 1,632 1,664 1,635
Other 1,649 1,514 1,449
Interest and dividend income 2,486 2,502 1,963
Other 4,257 4,613 4,733
------- ------- -------
28,896 28,971 25,547
Expenses:
Salaries and employee benefits 2,992 2,803 2,682
Interest 1,382 1,866 1,780
Building expense 2,294 2,321 2,412
Other 1,723 1,515 1,597
------- ------- -------
8,391 8,505 8,471
------- ------- -------
Income before income taxes and equity
in undistributed earnings of subsidiaries 20,505 20,466 17,076
Income tax provision 517 537 327
------- ------- -------
Income before equity in undistributed earnings of subsidiaries 19,988 19,929 16,749
Equity in undistributed earnings of subsidiaries 10,939 9,106 9,848
------- ------- -------
Net income 30,927 29,035 26,597
------- ------- -------
Other comprehensive income, net of tax (12,805) (7,886) 13,011
------- ------- -------
Comprehensive income $18,122 $21,149 $39,608
======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only)
Year ended December 31,
-----------------------------
1999 1998 1997
------ ------ ------
Net income $30,927 $29,035 $26,597
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 807 1,016 884
Equity in undistributed earnings of subsidiaries (10,939) (9,106) (9,848)
Gains on sale of securities (4,457) (4,595) (4,717)
Other 336 (98) (450)
------ ------ ------
Total adjustments (14,253) (12,783) (14,131)
------ ------ ------
Net cash flows from operating activities 16,674 16,252 12,466
Cash flows from investing activities:
Proceeds from sales and maturities of securities available for sale 50,272 30,687 17,824
Purchase of securities available for sale (49,990) (35,603) (22,892)
Purchase of premises and equipment (385) (790) (365)
Purchase of loans from subsidiary bank - (4,731) (360)
Investments in subsidiaries (5,530) (4,089) (13)
Other (748) 697 (447)
------ ------ ------
Net cash flows from investing activities (6,381) (13,829) (6,253)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings (331) 5,089 934
Repayment of long-term debt (14,464) (2,670) (2,534)
Proceeds from long-term debt 13,500 - -
Repurchase of common stock (4,369) (483) (360)
Cash dividends paid (4,826) (4,600) (4,066)
------ ------ ------
Net cash flows from financing activities (10,490) (2,664) (6,026)
------ ------ ------
Net change in cash and cash equivalents (197) (241) 187
Cash and cash equivalents at beginning of year 5,281 5,522 5,335
------ ------ ------
Cash and cash equivalents at end of year $ 5,084 $ 5,281 $ 5,522
====== ====== ======
Supplemental disclosures of cash flow information: Cash paid during year for:
Interest $ 1,325 $ 1,798 $ 1,763
Income taxes 14,455 13,062 12,708
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, 1999 and 1998. 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, 1999 December 31, 1998
------------------ -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------- ------- -------
Assets:
Cash and cash equivalents $ 187,694 $ 187,694 $ 167,596 $ 167,596
Mortgage loans held for sale 25,734 25,744 66,178 66,388
Securities available for sale 588,944 588,944 452,301 452,301
Securities held to maturity 226,748 221,270 295,543 300,502
Net loans 1,416,061 1,412,488 1,259,715 1,261,759
Other financial instruments 50,240 50,240 48,371 48,371
Liabilities:
Demand deposits with no stated maturities 889,168 889,168 879,711 879,711
Time deposits 923,688 919,670 848,789 851,084
Short-term borrowings 260,650 260,650 213,470 213,470
Federal Home Loan Bank borrowings 229,016 225,708 143,625 143,711
Long-term debt 12,536 11,787 13,500 13,500
Other financial instruments 29,265 29,265 26,295 26,295
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.
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, 1999 and 1998.
DEPOSITS. The estimated fair value of deposits with no stated maturity, such as
noninterest bearing, savings, NOW and money market checking accounts, is the
amount payable on demand. The estimated fair value of time deposits is based on
the discounted value of projected cash flows. The discount rate is the market
rate currently offered for deposits with similar original maturities.
SHORT-TERM BORROWINGS. Due to the short-term nature of repricing and maturities
of these instruments, fair value is considered carrying value.
Long-term Debt. The estimated fair value of long-term debt is based on rates
currently believed to be available to the Company for debt with similar terms
and maturities.
OTHER FINANCIAL INSTRUMENTS. All other financial instruments of a material
nature, including both assets and liabilities shown above, fall into the
definition of short-term and fair value is estimated as carrying value.
Off-Balance Sheet Financial Instruments. The estimated fair value of these
instruments such as loan commitments and standby letters of credit approximates
their off-balance sheet carrying value because of repricing ability and other
terms of the contracts.
R. SUBSEQUENT EVENT
On February 1, 2000 the Company entered into a Definitive Agreement with Wells
Fargo & Company (Wells Fargo) for the acquisition of all the outstanding Class A
and Class B common stock of the Company. The purchase price is approximately
$480 million or $35.95 per Class A and Class B common share, payable in shares
of Wells Fargo common stock. The acquisition is subject to regulatory approval
and the approval of Company stockholders. Management expects the acquisition to
be completed during 2000.
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, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Lincoln, Nebraska
February 11, 2000
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
The Board of Directors of the Company is divided into three classes, designated
Class I, Class II and Class III, serving staggered three-year terms. The
Company's Articles of Incorporation require that such classes be as nearly equal
in number of directors as possible. The terms of the Company's three current
Class III Directors, Connie Lapaseotes, Kenneth W. Staab, and James Stuart, Jr.,
expire at an Annual Meeting to be held in the year 2000.
Set forth below is information concerning the principal occupation or employment
of each nominee for election as a Class III Director for the past five years,
and the year each was first elected as a Director; similar information is
included for all other members of the Board of Directors who will continue in
office. The Company was organized in 1985 and acquired a controlling stock
interest in Commerce Group, Inc., in 1985. Directors shown below elected prior
to 1985 were Directors of Commerce Group, Inc., prior to the organization of the
Company.
CLASS III DIRECTORS
Term Expiring in 2000
CONNIE LAPASEOTES, Age 63. Mr. Lapaseotes has served as a Director of the
Company since April of 1994. Mr. Lapaseotes serves as a General Partner in
Lapaseotes Limited, Bridgeport, Nebraska. He is engaged in cattle feeding,
ranching and farming.
KENNETH W. STAAB, Age 58. Mr. Staab has served as a Director of the Company
since April of 1994. Mr. Staab is a franchisee of Pizza Hut and Wendy's
Restaurants in Nebraska, a business he operates from offices in Grand Island,
Nebraska.
JAMES STUART, JR., Age 57. Mr. Stuart has served as a Director of the Company
since 1975. Mr. Stuart has served as Chairman of the Board and Chief Executive
Officer of the Company since January of 1988. Prior to that time he had served
as President and Chief Executive Officer of the Company since May of 1985. Mr.
Stuart also serves as Chairman and Chief Executive Officer of National Bank of
Commerce Trust and Savings Association, Lincoln, Nebraska, a subsidiary of the
Company, and as a Director of each of the Company's other subsidiary banks,
except for the First National Bank of West Point, Nebraska.
INCUMBENT CLASS II DIRECTORS
Term Expiring in 2002
DAVID T. CALHOUN, Age 61. Mr. Calhoun has served as a Director of the Company
since April of 1993. Mr. Calhoun is Chairman and Chief Executive Officer of
Jacob North Printing Company, a commercial printing firm in Lincoln, Nebraska.
JOHN C. OSBORNE, Age 59. Mr. Osborne has served as a Director of the Company
since April of 1990. Mr. Osborne is the owner and President of Industrial
Irrigation Services, Hastings, Nebraska, a wholesaler of engines for industrial
and irrigation applications.
SCOTT STUART, Age 53. Scott Stuart has served as a Director of the Company since
1978. Mr. Stuart served as the Manager of KJS, L.L.C., until the company was
sold in February of 1999; the company operated outdoor advertising businesses in
Lincoln and Omaha, Nebraska.
INCUMBENT CLASS I DIRECTORS
Term Expiring in 2001
JOHN G. LOWE, III, Age 68. Mr. Lowe has served as a Director of the Company
since April of 1992. Mr. Lowe is the owner of Lowe Investment Co., an investment
firm in Kearney, Nebraska.
RICHARD C. SCHMOKER, Age 59. Mr. Schmoker has served as a Director of the
Company since 1977. Mr. Schmoker is an attorney and a partner with the firm of
Faegre & Benson, Minneapolis, Minnesota.
WILLIAM CHARLES SCHMOKER, Age 33. Mr. Schmoker has served as a Director of the
Company since April of 1997. Mr. Schmoker has served as an Assistant Vice
President for Norwest Investment Management, Inc. since January 1995. Prior to
that time, Mr. Schmoker served as a Trust Officer for Norwest Bank Minnesota,
N.A. since 1992.
JAMES STUART, III, Age 36. Mr. Stuart has served as a Director of the Company
since April of 1997. Mr. Stuart has served as Chairman and Chief Executive
Officer of First Commerce Investors, a First Commerce wholly owned investment
management subsidiary based in Lincoln, NE, since July 1996. Prior to that date,
Mr. Stuart served as an investment consultant officed in Chicago, IL. Mr. Stuart
provided consulting services to the Company and others.
For information concerning the Executive Officers, see Item 4 at Page 12.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers, directors and greater than 10% shareholders
("Reporting Persons") to file certain reports ("Section 16 Reports") with
respect to beneficial ownership of the Company's equity securities. Based solely
on its review of the Section 16 Reports furnished to the Company by its
Reporting Persons and, where applicable, any written representations by any of
them that no Form 5 was required, all Section 16(a) filing requirements
applicable to the Company's Reporting Persons during and with respect to 1999
have been complied with on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning compensation
paid or accrued by the Company and its subsidiaries, to or on behalf of the
Company's chief executive officer and each of the three other most highly
compensated executive officers of the Company whose compensation exceeded
$100,000 (determined as of the end of the last fiscal year) for the fiscal years
ended December 31, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
All Other
Annual Compensation Compensation (1)
----------------------------------- ------------
Name and
Principal Position Year Salary Bonus
- ------------------ ----- ------- ---------
James Stuart, Jr.
Chairman and 1999 $315,000 $135,000 $37,535
Chief Executive 1998 305,000 120,000 39,350
Officer 1997 305,000 110,000 39,720
Brad Korell
President, 1999 $220,000 $95,406(2) $23,680
National Bank 1998 210,000 85,406(2) 28,890
of Commerce 1997 205,000 80,406(2) 29,175
Trust & Savings
Association
Stuart L. Bartruff
Exec Vice President 1999 $165,000 $64,294(2) $17,685
and Secretary 1998 155,000 44,294(2) 19,850
1997 150,000 39,294(2) 18,300
Mark Hansen
Exec Vice President 1999 $165,000 $69,731(2) $17,685
and Sr. Lending 1998 155,000 54,731(2) 21,245
Officer, National 1997 150,000 49,731(2) 20,550
Bank of Commerce
Trust and Savings Assn.
(1) These amounts reported for 1999, 1998, and 1997, respectively, include
contributions to the Company's (i) Defined Contribution Pension Plan - Mr.
Stuart, Jr., $8,500, $8,500, and $8,500; Mr. Korell, $8,500, $8,500, and
$8,500; Mr. Bartruff, $8,500, $8,225, and $7,950; Mr. Hansen $8,500,
$8,225, and $7,950; (ii) Profit Sharing and Thrift Plan - Mr. Stuart, Jr.,
$12,500, $12,500, and $10,925 Mr. Korell, $9,000, $14,000, and $13,300; Mr.
Bartruff, $8,640, $11,625, and $10,350; Mr. Hansen, $8,640, $13,020, and
$12,600; and (iii) Supplemental Executive Retirement Plan - Mr. Stuart,
Jr., $16,535, $18,350, and $20,295; Mr. Korell, $6,180, $6,390, and $7,375,
Mr. Bartruff, $545, 0, and 0, Mr. Hansen, $545, 0, and 0
(2) These amounts include the Company's contribution to a Deferred Compensation
Plan for the individual named.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
The Compensation Committee of the Company, and also the Compensation Committee
of the Company's Subsidiary Bank, National Bank of Commerce Trust and Savings
Association, is comprised of four members, David T. Calhoun, John C. Osborne,
Richard Schmoker, and Scott Stuart. Each member of the Compensation Committee is
a non-employee director. Decisions on the compensation of the Company's
executives (including executives of the Company's Subsidiary Bank) are based on
recommendations of the Compensation Committee and are reviewed and approved by
the full Board.
The Compensation Committee's executive compensation policies are designed to
provide competitive compensation levels for the Company's chief executive
officer and other highly compensated officers of the Company and its Subsidiary
Bank. Significant consideration is given to the following criteria in
determining appropriate levels of compensation:
o Earnings and growth performance of the Company, both short and long term,
as compared to peer group and industry averages.
o Comparability of compensation packages with companies of similar
size and complexity.
o General skill level and leadership ability of officers.
o Longevity, loyalty, integrity, commitment to excellence and long term
success of the Company.
At present, the executive compensation program is comprised of salary, annual
cash bonus, and certain qualified plans, including a Defined Contribution
Pension Plan, a Profit Sharing and Thrift Plan, and a Supplemental Executive
Retirement Plan. Certain of the executive officers (i.e., Messrs. Korell,
Hansen, and Bartruff) are provided a non-qualified deferred compensation plan
designed to enhance long-term commitment to the Company.
Salaries for the 1999 year were set in December 1998 and cash bonuses were
awarded to the executive officers in December 1999. The Company's total cash
compensation to its executive officers, i.e., the total of the salary plus cash
bonus was based both on objective and subjective performance criteria. Objective
factors reviewed by the Compensation Committee included a comparison of the
Company's growth and profits over the last three years as compared to peer group
and industry standards. Significant consideration was also given to the increase
in the Company's stock price during the time period of 1987 through 1999. The
foregoing objective factors are not included in a mathematical formula; rather,
such factors are considered by the Compensation Committee together with
subjective performance criteria in arriving at a recommended total cash
compensation package for each officer. Subjective performance criteria encompass
evaluation of each officer's initiative and contribution to overall corporate
performance, the officer's managerial ability, and the officer's performance in
any special projects that the officer may have undertaken. Although the Board in
1986 directed the President to investigate and recommend to the Board an
incentive plan for key employees of the Company and its subsidiaries which would
be either a stock bonus plan or a stock option plan, the Committee does not
believe that such an incentive plan is necessary for the Company's chief
executive officer. The Committee believes that James Stuart, Jr.'s significant
ownership in the Company provides sufficient incentive. In 1993, the Company did
adopt deferred compensation plans for Messrs. Korell, Hansen, and Bartruff, that
will provide benefits to these officers if they continue to work for the Company
for ten years or more.
The only component of compensation of the executive officers, including Mr.
Stuart, Jr., that is specifically and mathematically tied to objective
performance criteria is the Company's contribution to the Profit Sharing and
Thrift Plan. All salaried employees of the Company and its subsidiaries who have
completed at least six months of service and who agree to contribute a
percentage of their compensation to the Plan are participants in the Plan.
Employees may elect to contribute up to 12% of salary. The Company's
contribution is based on a percentage of the employee's contribution, depending
upon the Company's profitability as a percentage of budgeted profitability.
In December 1999 the Compensation Committee recommended and the Board of
Directors of the Company adopted a Retention Bonus Program (Program). Under the
Program, certain selected key officers of the Company and its Subsidiary Banks
will be paid a Retention Bonus in the event that a Qualifying Transaction, such
as the Wells Fargo transaction, closes, and in the further event that the
respective officer is still employed by the Company, or its successors, on the
date which is four months after the date of closing. The Retention Bonuses are
also payable in the further event the transaction closes, and in the event the
employee is terminated without cause (as defined in the Program) or in the event
the employee terminates his or her employment for good reason (as defined in the
Program). Each officer's Retention Bonus is a multiple of his or her annual
compensation, defined to include the salary paid to the employee for the year
1999, plus the cash bonus paid to that employee for the year 1998. Payment of a
portion of the Retention Bonus is discretionary with the Board of Directors of
the Company based upon the Board's evaluation of the employee's services and
cooperation during the period from December 1999 through the Closing Date. For
the executive officers named in the Compensation Table appearing at page 51,
other than James Stuart, Jr., the amount of the Retention Bonus is three times
Annual Compensation (as defined); of this amount, an amount equal to one times
Annual Compensation is discretionary with the Board. The Retention Bonus for
James Stuart, Jr. is $500,000, payable on the date of closing.
DAVID T. CALHOUN JOHN C. OSBORNE RICHARD C. SCHMOKER SCOTT STUART
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the number of shares of
Class A and Class B Common Stock of the Company beneficially owned as of
February 29, 2000, by each director, and certain executive officers,
individually, and by all directors and executive officers of the Company as a
group:
Number of Number of
Name and Address Class A Percent of Class B Percent of
of Beneficial Owner Shares (1) Class (2) Shares(1) Class (3)
- ------------------- ------------- --------- --------- -----------
Stuart L. Bartruff 1,050 (6) * 2,950 (6) *
Lincoln, Nebraska
David T. Calhoun 1,122 * 10,225 (7) 0.1%
Lincoln, Nebraska
Mark Hansen 0 * 2,772.2955 (8) *
Lincoln, Nebraska
Brad Korell 584 (9) * 4,412.9471 (9) *
Lincoln, Nebraska
Connie Lapaseotes 1,000 * 45,478 0.3%
Bridgeport, Nebraska
John G. Lowe, III 346 * 1,984 *
Kearney, Nebraska
John C. Osborne 1,132 (5) * 6,538 (5) *
Hastings, Nebraska
Richard C. Schmoker 1,559,232 (4) 60.3% 5,904,461(4) 54.8%
Minneapolis, Minnesota
William C. Schmoker 1,559,232 (4) 60.3% 5,904,461(4) 54.8%
Minneapolis, Minnesota
Kenneth W. Staab 400 * 3,600 *
Grand Island, Nebraska
James Stuart, Jr. 1,559,232 (4) 60.3% 5,904,461(4) 54.8%
Lincoln, Nebraska
James Stuart, III 1,559,232 (4) 60.3% 5,904,461(4) 54.8%
Lincoln, Nebraska
Scott Stuart 1,559,232 (4) 60.3% 5,904,461(4) 54.8%
Lincoln, Nebraska
All Executive Officers 1,564,866 60.6% 5,982,421.2426 55.5%
and Directors (13 persons)
*Less than one percent.
(1) Unless otherwise noted, all shares were held with sole investment and
voting power.
(2) Based upon the 2,568,892 shares of Class A Common Stock issued and
outstand- ing.
(3) Based upon 10,769,926 shares of Class B Common Stock issued and
outstanding.
(4) Includes 1,559,232 shares of Class A Common Stock and 5,904,461 shares of
Class B Common Stock owned by the Stuart Family. (See Exhibit A)
(5) Includes 675 shares of Class A Common Stock and 5,350 shares of Class B
Common Stock owned by Industrial Irrigation Services; and 200 shares of
Class A Common Stock and 100 shares of Class B Common Stock owned by JPJ
Limited Partnership, as to which shares Mr. Osborne shares in the
investment and/or voting power.
(6) Includes 100 shares of Class A Common Stock and 400 shares of Class B
Common Stock owned by Stuart Bartruff, Custodian Tyler James S. Bartruff;
100 shares of Class A Common Stock and 400 shares of Class B Common Stock
owned by Stuart Bartruff, Custodian Blaine Bartruff; and 500 shares of
Class B Common Stock owned by Jill Bartruff, as to which shares Mr.
Bartruff shares in the investment and/or voting power.
(7) Includes 5,676 shares of Class B Common Stock owned by Leeco, Inc., as to
which shares Mr. Calhoun shares in the investment and/or voting power.
(8) Includes 204.8456 shares of Class B Common Stock owned by Mark Hansen,
Custodian Brian L. Hansen, 204.88456 shares of Class B Common Stock owned
by Mark Hansen Custodian Catherine A. Hansen, and 1,951.9356 shares of
Class B Common Stock owned by Laurie A. Hansen, as to which shares Mr.
Hansen shares in the investment and/or voting power.
(9) Includes 500 shares of Class A Common Stock and 3,777.4160 shares of Class
B Common Stock owned by Dianna K. Korell, 200.0000 shares of Class B Common
Stock owned by Kevin Korell, 200.0000 shares of Class B. Common Stock owned
by Melissa Korell, and 200.0000 shares of Class B Common Stock owned by
Ryan Korell, as to which shares Mr. Korell shares in the investment and/or
voting power.
(10) All information is as of December 31, 1999.
(11) James Stuart, Jr. and Scott Stuart are brothers; Richard C. Schmoker is
their brother-in-law. James Stuart, III, is the son of James Stuart, Jr.,
and William C. Schmoker is the son of Richard C. Schmoker.
EXHIBIT A
Shares of First Commerce Bancshares, Inc.
Owned by the Stuart Family
December 31. 1999
Class A Common Stock Class B Common Stock
-------------------- --------------------
Number Percent Number Percent
of of of of
Registered Owner Shares (1) Shares (2) Shares (1) Class (2)
- ---------------- ---------- --------- ---------- ---------
James Stuart 1 * --- ---
Helen Catherine Stuart --- --- 1,601 *
Catherine Stuart Schmoker --- --- 14,552 *
Richard C. Schmoker and
Catherine S. Hunnewell,
Trustees for Catherine S.
Hunnewell --- --- 867 *
Richard C. Schmoker and
William C. Schmoker,
Trustees for William C.
Schmoker --- --- 867 *
Richard C. Schmoker and
Lisa Stuart Schmoker Hesdorffer,
Trustees for Lisa Stuart Schmoker
Hesdorffer --- --- 863 *
James Stuart, Jr. --- --- 10,382 *
James Stuart III --- --- 967 *
James Stuart III, Custodian for
Robert David Stuart 98 * 392 *
James Stuart III, Custodian for
Carolyn Jean Stuart 98 * 392 *
James Stuart III and
Susan S. Seiler, Trustees for
Susan S. Seiler --- --- 867 *
James Stuart III, Custodian for
Megan Marie Stuart 99 * 396 *
James Stuart III, Custodian for
James Stuart IV --- --- 500 *
Leah Stuart 375 (5) * 1,500 (5) *
Scott Stuart 595 * 19,758 (4) *
The Stuart Family Partnership 1,553,166 (3) 60.5% 5,822,521 (3) 54.1%
Stuart Foundation --- --- 18,007 (6) *
Catherine Marie Schmoker Family
Foundation --- --- 2,531 (7) *
William C. Schmoker Family
Foundation 1,600 (8) * 298 (8) *
Lisa Stuart Schmoker Family
Foundation --- --- 2,400 (9) *
James Stuart III Family Foundation 1,600 (10) * --- ---
Susan Ann Stuart Family
Foundation --- --- 2,400 (11) *
Lee Rankin Stuart Family
Foundation 1,600 (12) * --- ---
William Scott Stuart, Jr. Family
Foundation --- --- 2,400 (13) *
--------- ---- --------- ----
TOTAL 1,559,232 60.7% 5,904,461 54.8%
========= ===== ========= ====
* Less than one percent.
(1) All shares are held by registered owner with sole investment and voting
power unless otherwise noted.
(2) Based upon 2,568,892 shares of Class A Common Stock and the 10,769,926
shares of Class B Common Stock issued and outstanding.
(3) James Stuart, Helen Catherine Stuart, The Catherine Stuart Schmoker Family
Partnership, The James Stuart, Jr. Family Partnership and The Scott Stuart
Family Partnership share in the investment and/or voting power with respect
to these shares by virtue of being partners in the Stuart Family
Partnership. Catherine Stuart Schmoker and Richard C. Schmoker,
individually, and Richard C. Schmoker, Catherine S. Hunnewell, James Stuart
III, William C. Schmoker and Lisa Stuart Schmoker Hesdorffer as Trustees,
share in the investment and/or voting power as to these shares by virtue of
being partners in The Catherine Stuart Schmoker Family Partnership. James
Stuart, Jr., individually, Susan S. Stuart, individually, James Stuart III,
as Trustee and as custodian, and Susan S. Seiler and Lee Rankin Stuart as
Trustees, share in the investment and/or voting power with respect to these
shares by virtue of being partners in The James Stuart, Jr. Family
Partnership. Scott Stuart, individually and as Trustee, and Scott Stuart,
Jr., and Mark
Hayes Stuart as Trustees, share in the investment and/or
voting power with respect to these shares by virtue of being partners in
The Scott Stuart Family Partnership.
(4) Includes 3,995 shares of Class B Common Stock held by the 401(k) Plan of
Stuart Management Co. for the account of Mr. Scott Stuart and Regina
Schirmer.
(5) James Stuart III shares in the investment and voting power with respect to
these shares.
(6) James Stuart, Helen Catherine Stuart, Scott Stuart, James Stuart III and
Regina Schirmer share in the investment and voting power with respect to
these shares as a result of being Trustees of the Stuart Foundation.
(7) Catherine S. Hunnewell, Catherine Stuart Schmoker and Regina Schirmer share
in the investment and voting power with respect to these shares as a result
of being Trustees of the Foundation.
(8) William C. Schmoker, Catherine Stuart Schmoker and Regina Schirmer share in
the investment and voting power with respect to these shares as a result of
being Trustees of the Foundation.
(9) Lisa Stuart Schmoker Hesdorffer, Catherine Stuart Schmoker and Regina
Schirmer share in the investment and voting power with respect to these
shares as a result of being Trustees of the Foundation.
(10) James Stuart III, Susan S. Seiler, Lee Rankin Stuart and Barbara Stuart
share in the investment and voting power with respect to these shares as a
result of being Trustees of the Foundation.
(11) Susan S. Seiler, James Stuart III, Lee Rankin Stuart and Kenneth Seiler
share in the investment and voting power with respect to these shares as a
result of being Trustees of the Foundation.
(12) Lee Rankin Stuart, James Stuart III, Susan S. Seiler and Debra K. Stuart
share in the investment and voting power with respect to these shares as a
result of being Trustees of the Foundation.
(13) William Scott Stuart, Jr., James Stuart III and Tiffany A. Stuart share in
the investment and voting power with respect to these shares as a result of
being Trustees of the Foundation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 8, Footnote M.
Certain Transactions
During the course of the year, the Company's subsidiaries had, and intend to
continue to have, banking transactions in the ordinary course of their business
with their directors, some of whom are also directors of the Company and their
associates. Such transactions, including loans, checking and savings accounts,
were made in the ordinary course of business, were made on comparable credit
terms, with similar interest rates and collateral as those prevailing at the
time for other customers of the banks, and did not involve more than the normal
risk of collectibility or present other unfavorable features.
Director Compensation
Directors who are not employees of the Company or one of its subsidiaries
received fees of $450.00 per month and $200 for each Audit Committee meeting
attended in 1999. In January 2000, Directors were paid a bonus of $1,500.00.
James Stuart, III, a director of the Company, is an employee of First Commerce
Investors, Inc. , a wholly-owned subsidiary of the Company. Mr. Stuart was paid
a total of $122,156 in the form of salary and bonus during the year 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
REPORTS ON FORM 8-K
There were no Form 8-K's filed in the fourth quarter of 1999.
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 21, 2000
----------------------------------------------- --------------
James Stuart, Jr.
Chairman, Chief Executive Officer
and Director
By: Stuart Bartruff Date: March 21, 2000
-------------------------------------------------- --------------
Stuart Bartruff
Executive Vice President and Secretary
(Principal Financial Officer)
By: Donald Kinley Date: March 21, 2000
-------------------------------------------------- --------------
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 21, 2000
- ----------------------------------------------------- --------------
David T. Calhoun, Director
_____________________________________________________ Date: March 21, 2000
--------------
Connie Lapaseotes, Director
John G. Lowe, III Date: March 21, 2000
- ----------------------------------------------------- --------------
John G. Lowe, III, Director
_____________________________________________________ Date: March 21, 2000
--------------
John C. Osborne, Director
Richard C. Schmoker Date: March 21, 2000
- ----------------------------------------------------- --------------
Richard C. Schmoker, Director
William C. Schmoker Date: March 21, 2000
- ----------------------------------------------------- --------------
William C. Schmoker, Director
Kenneth W. Staab Date: March 21, 2000
- ----------------------------------------------------- --------------
Kenneth W. Staab, Director
James Stuart, Jr. Date: March 21, 2000
- ----------------------------------------------------- --------------
James Stuart, Jr., Director
James Stuart, III Date: March 21, 2000
- ----------------------------------------------------- --------------
James Stuart, III, Director
Scott Stuart Date: March 21, 2000
- ----------------------------------------------------- --------------
Scott Stuart, Director