SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the Quarter ended March 31, 2000 Commission File No. 0-14277
First Commerce Bancshares, Inc.
Nebraska 47-0683029
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1248 O Street, Lincoln, Nebraska 68508-1424
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (402) 434-4110
-----------------------------
None
Former name, former address, and former fiscal year, if changes since last
report.
"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 and Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-------------- ----------------
Common stock, $.20 par value; outstanding at March 31, 2000
Class A Common 2,568,892 shares.
Class B Common 10,769,926 shares.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Columnar Amounts In Thousands)
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
ASSETS
Cash and due from banks $ 128,110 $ 151,619
Federal funds sold 20,445 36,075
----------- -----------
Cash and cash equivalents 148,555 187,694
Securities available for sale (cost of
$648,715,000 and $587,090,000) 647,609 588,944
Securities held to maturity (fair value of
$214,206,000 and $221,270,000) 217,502 226,748
Mortgage loans held for sale 23,876 25,734
Loans 1,435,082 1,441,013
Less allowance for loan losses 25,004 24,952
----------- -----------
Net loans 1,410,078 1,416,061
Federal Home Loan Bank stock, at cost 13,136 12,603
Premises and equipment 74,939 72,957
Other assets 84,648 78,849
----------- -----------
$ 2,620,343 $ 2,609,590
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 350,779 $ 350,743
Interest bearing 1,449,336 1,462,113
----------- -----------
1,800,115 1,812,856
Short-term borrowings 258,063 260,650
Federal Home Loan Bank borrowings 244,188 229,016
Accrued expenses and other liabilities 40,392 36,869
Long-term debt 12,054 12,536
----------- -----------
Total liabilities 2,354,812 2,351,927
Stockholders' equity:
Common stock:
Class A voting, $.20 par value; authorized
10,000,000 shares; issued and outstanding
2,568,892 shares 514 514
Class B non-voting, $.20 par value; authorized
40,000,000 shares; issued and outstanding
10,769,926 shares 2,154 2,154
Paid in capital 21,379 21,379
Retained earnings 242,203 232,411
Accumulated other comprehensive (loss)income (719) 1,205
----------- -----------
Total stockholders' equity 265,531 257,663
----------- -----------
$ 2,620,343 $ 2,609,590
=========== ===========
See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Income
(Unaudited)
(In Thousands Except Per Share Data)
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
Interest income:
Loans $31,424 $26,888
Securities:
Taxable 12,338 11,191
Nontaxable 575 465
Dividends 666 529
Mortgage loans held for sale 501 1,054
Federal funds sold 373 609
-------- --------
Total interest income 45,877 40,736
Interest expense:
Deposits 16,134 14,866
Short-term borrowings 3,466 2,421
Federal Home Loan Bank borrowings 3,239 1,963
Long-term debt 200 290
-------- --------
Total interest expense 23,039 19,540
-------- --------
Net interest income 22,838 21,196
Provision for loan losses 1,516 1,595
-------- --------
Net interest income after provision for loan losses 21,322 19,601
Noninterest income:
Service charges and fees 9,047 9,624
Credit card 7,130 4,960
Trust services 1,430 1,571
Gains on securities sales 8,064 1,747
Other income 314 673
-------- --------
Total noninterest income 25,985 18,575
-------- --------
Noninterest expense:
Salaries and employee benefits 12,655 11,553
Occupancy and equipment 3,236 3,025
Credit card 5,434 3,723
Other expenses 9,194 6,927
-------- --------
Total noninterest expense 30,519 25,228
-------- --------
Income before income taxes 16,788 12,948
Income tax provision 5,662 4,460
-------- --------
Net income $ 11,126 $ 8,488
======== ========
Weighted average shares outstanding 13,339 13,507
======== ========
Basic and diluted net income per share $ .83 $ .63
======== ========
See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited) (In Thousands)
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
Net cash flows from operating activities $ 7,807 $ 12,392
Cash flows from investing activities:
Proceeds from maturities of held to maturity securities 9,328 24,579
Purchase of held to maturity securities (82) (7,091)
Proceeds from maturities of available for sale securities 17,916 20,223
Proceeds from sales of available for sale securities 10,934 19,466
Purchase of available for sale securities (82,411) (140,924)
Net increase in loans 4,467 35,010
Capital expenditures (3,742) (3,473)
Purchase of mortgage servicing rights (840) (2,332)
Purchase of Federal Home Loan Bank stock (533) (147)
------- --------
Net cash flows from investing activities (44,963) (54,689)
Cash flows from financing activities:
Increase/(decrease) in deposits (12,741) 9,840
Increase/(decrease) in short-term borrowings (2,587) 41,936
Net increase in Federal Home Loan Bank borrowings 15,172 14,875
Cash dividends paid (1,334) (1,216)
Repurchase of common stock - (663)
Repayment of long-term debt (482) -
Other (11) (769)
------- --------
Net cash flows from financing activities (1,983) 64,003
------- --------
Net increase/(decrease) in cash and cash equivalents (39,139) 21,706
Cash and cash equivalents at January 1 187,694 167,596
------- --------
Cash and cash equivalents at March 31 $148,555 $189,302
======== ========
See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
A. GENERAL
The accompanying unaudited consolidated condensed financial statements and notes
thereto contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
and its subsidiaries as of March 31, 2000, and the results of their operations.
The consolidated condensed financial statements should be read in conjunction
with the annual consolidated financial statements and the notes thereto included
in the Company's 1999 annual report and Form 10-K. Certain 1999 amounts have
been reclassified to conform to 2000 classifications. The results of operations
for the unaudited three-month period ended March 31, 2000, are not necessarily
indicative of the results which may be expected for the entire calendar year
2000.
B. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses are summarized as follows:
2000 1999
------ ------
(Amounts in Thousands)
Balance, January 1 $24,952 $24,292
Provision for loan losses 1,516 1,595
Charge-offs (2,497) (2,087)
Recoveries 1,033 703
------- -------
Balance, March 31 $25,004 $24,503
======= =======
C. COMPREHENSIVE INCOME
The Company's "other comprehensive income" is comprised of unrealized gains and
losses on debt and equity securities classified as available for sale. "Other
comprehensive income" for the first three months of 2000 and 1999 was a negative
$1,924,000, net of tax; and a negative $6,555,000, net of tax, respectively.
Thereby, total "comprehensive income" for the first three months of 2000 was
$9,202,000 as compared to book net income of $11,126,000. For the first three
months of 1999 total "comprehensive income" was $1,933,000 as compared to book
net income of $8,488,000.
D. SUBSEQUENT EVENTS
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 late in the second quarter.
On May 4, 2000, the Company announced an agreement had been signed to transfer
approximately $104 million in deposits and one National Bank of Commerce branch
in Lincoln to Pinnacle Bank. On May 8, 2000, the Company announced an agreement
to transfer City National Bank and Trust Company in Hastings, Nebraska to
Heritage Group, Inc., a bank holding company with six existing banking offices
in central Nebraska. The transfers are required in order to comply with the U.
S. Department of Justice and the Federal Reserve Board anti-trust guidelines
applicable to the merger between Wells Fargo & Company and First Commerce
Bancshares, Inc. which is expected to close late in the second quarter. The
transfers will be completed shortly after the closing of the Wells Fargo &
Company and First Commerce Bancshares, Inc. merger and are subject to federal
regulatory approval.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
FINANCIAL REVIEW
Three Months Ended March 31, 2000 and 1999
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 late in the second quarter.
On May 4, 2000, the Company announced an agreement had been signed to transfer
approximately $104 million in deposits and one National Bank of Commerce branch
in Lincoln to Pinnacle Bank. On May 8, 2000, the Company announced an agreement
to transfer City National Bank and Trust Company in Hastings, Nebraska to
Heritage Group, Inc., a bank holding company with six existing banking offices
in central Nebraska. The transfers are required in order to comply with the U.
S. Department of Justice and the Federal Reserve Board anti-trust guidelines
applicable to the merger between Wells Fargo & Company and First Commerce
Bancshares, Inc. which is expected to close late in the second quarter. The
transfers will be completed shortly after the closing of the Wells Fargo &
Company and First Commerce Bancshares, Inc. merger and are subject to federal
regulatory approval.
Results of Operations
Net income for the three months ended March 31, 2000, was $11,126,000 or $.83
per share compared to $8,488,000 or $.63 per share for the three months ended
March 31, 1999. Net income for the first three months of 2000 includes
$8,064,000 in gains primarily from the sale of investments in the Company's
Global Fund, as compared to gains of $1,747,000 for the same period one year
ago. In addition, the first three months of 2000 includes approximately
$1,427,000 of costs associated with the acquisition of the Company by Wells
Fargo, which is scheduled to be completed in the second quarter. If the
securities gains were excluded for both periods and the merger costs were
excluded from the first quarter of 2000, net income would have been $6,812,000
and $7,352,000, respectively. On a per share basis, earnings would have been
$.51 per share and $.54 per share, respectively.
Net Interest Income
Net interest income for the three months ended March 31, 2000 and 1999 was
$22,838,000 and $21,196,000, respectively. The increase in net interest income
reflects an increase in total earning assets. Earning assets March 31, 2000 and
March 31, 1999 were $2.36 billion and $2.20 billion, respectively, a 7.2%
increase. The net yield on earning assets (net interest income divided by
earning assets) was approximately 3.9% for both periods. Loans were $1.435
billion at March 31, 2000, compared to $1.248 billion at the same time a year
ago, a 15.0% increase. Investments were $865 million at March 31, 2000 compared
to $823 million at March 31, 1999, a 5.1% increase.
Provision for Loan Losses
The provision for loan losses was $1,516,000 for the three months ended March
31, 2000, compared to $1,595,000 for the three months ended March 31, 1999, a
5.0% decrease. For the three months ended March 31, 2000 net charge-offs were
$1,464,000 compared to $1,384,000 for the same period a year ago. Credit card
charge-offs have decreased. Net credit card charge-offs totaled $1,072,000 for
the three-month period ended March 31, 2000, compared to $1,360,000 for the same
period of 1999. Other consumer loan charge-offs totaled $224,000 for the first
quarter of 2000, while commercial loan charge-offs totaled $243,000 for the same
time period.
The following table presents the amount of non-performing loans:
March 31, 2000 December 31, 1999
-------------- -----------------
Loans accounted for on a non
accrual basis $1,223,000 $ 986,000
Accruing loans which are contractually
past due 90 days or more as to
principal or interest payment 1,663,000 1,124,000
Loans not included above which
are "troubled debt restructurings" 1,087,000 1,224,000
The increase in nonaccrual loans can be attributed to one agricultural loan and
one real estate loan, all of which are in the process of resolution. The
increase in loans 90 days or more past due is primarily due to several
agricultural loans which are in the process of recommitment for the
2000-operating year. Virtually all of the Company's loans are to Midwest-based
organizations, although the loan portfolio is well diversified by industry. The
Midwestern economy is partially dependent upon the general state of the
agricultural economy. The Company has $186 million in agricultural loans,
excluding agricultural real estate loans. The cattle feeding and ranching
sectors of the agricultural economy have been profitable in 2000. However, the
Company continues to be concerned about low grain commodity prices and below
normal rainfall as farmers head into the 2000 planting and growing season.
Although low grain prices are beneficial to cattle feeders, when coupled with
government program payments, grain prices continue to be near or below breakeven
levels for the producer.
Noninterest Income
Noninterest income for the three months ended March 31, 2000 was $25,985,000
compared to $18,575,000 for the three months ended March 31, 1999, a 39.9%
increase. If securities gains were excluded, noninterest income would have been
$17,921,000 compared to $16,828,000, a 6.5% increase. When compared to the same
period one year ago, credit card fees increased $2,170,000 or 43.8% primarily
due to the increase managed balances as well as total activity, increases in
late, overlimit and cash advance fees, and an increase in merchant discounts
income. In addition, there has been a significant increase in the number of
Cabela's joint-venture cards outstanding due to a new marketing program
implemented in 1999. The 14.5% decrease in other service charges and fees is due
to primarily to a decline in bond sales and a decline in ATM transaction fees.
Mortgage banking revenue decreased 7.8% over the same period one year ago
primarily due a decrease in underwriting and origination fees. Service charges
on deposits increased primarily to an increase in activity and an increase in
fees. Trust fees decreased by 9.0% due to a decline in employee benefit fees and
a decrease in non-recurring estate income. Gains on the sale of securities were
$8,064,000 in the three-month period ended March 31, 2000 compared to $1,747,000
in the same period one year ago, a $6,317,000 increase. These gains were
primarily the result of selling certain positions held in the Company's Global
Fund. Other income decreased $359,000 due primarily to a decrease in profit on
the sale of mortgage loans held for sale.
The following table shows the breakdown of noninterest income and the percentage
change:
Three Months Ended March 31, Percent
----------------------------
2000 1999 Increase/
---- ----
(Amounts in Thousands) (Decrease)
----------
Credit card $ 7,130 $ 4,960 43.8%
Computer services 3,052 3,134 (2.6)
Other service charges and fees 2,756 3,222 (14.5)
Mortgage banking 1,822 1,976 (7.8)
Service charges on deposits 1,417 1,292 9.7
Trust services 1,430 1,571 (9.0)
Gains on securities sales 8,064 1,747 361.6
Other income 314 673 (53.3)
-------- -------
Total noninterest income $25,985 $18,575 39.9
======= =======
Noninterest Expense
Noninterest expenses were $30,519,000 for the three months ended March 31, 2000,
as compared to $25,228,000 for the same period one year ago. This is an increase
of $5,291,000 or 21.0% from a year ago. Salary and employee benefits increased
$1,102,000 or 9.5% from the same period one year ago. The increase is due to
general increases in the levels of pay and number of employees, plus the
addition of a bank in Colorado Springs, Colorado. Credit card fees increased
$1,710,000 or 45.9% due to increased activity and an increase in Cabela's Bucks
expense, points earned from using the Cabela's credit card, which can be
redeemed for merchandise at Cabela's. The increase in Cabela's Bucks expense is
directly related to adding 136,000 new credit card accounts since September
1999. Equipment expenses increased $205,000 or 10.5% due to maintenance and
additional depreciation and amortization expense on the significant computer
equipment and software purchases of the last two years. Amortization of mortgage
servicing rights decreased $76,000 or 5.9% due to a decrease in refinancing
volume which reduces the amount of write off of servicing rights. Fees and
insurance increased $225,000 or 19.9% due primarily to paying service charge
fees to correspondent banks rather than keeping balances on deposit to pay for
services. Communications expenses increased by $292,000 or 31.0%, primarily due
to increased postage costs associated with adding 136,000 new Cabela credit card
accounts since September 1999.
The following table shows the breakdown of noninterest expense and the
percentage change:
Three Months Ended March 31, Percent
----------------------------
2000 1999 Increase/
---- ----
(Amounts in Thousands) (Decrease)
----------
Salaries and employee benefits $12,655 $11,553 9.5%
Equipment expense 2,153 1,948 10.5
Net occupancy expense 1,083 1,077 .6
Credit card 5,434 3,724 45.9
Fees and insurance 1,354 1,129 19.9
Amortization of mortgage servicing rights 1,213 1,289 (5.9)
Business development 1,358 949 43.1
Communications 1,233 941 31.0
Supplies 688 619 11.1
Other expenses 1,468 1,557 (5.7)
Merger related costs 1,427 - 100.0
Minority interest 326 315 3.5
Goodwill amortization 127 127 --
-------- -------
Total noninterest expense $30,519 $25,228 21.0
======= =======
The Company's efficiency ratio -- noninterest expense (excluding net cost of
other real estate, merger related costs, minority interest and goodwill
amortization) divided by the sum of net interest income and noninterest income
(excluding securities gains/losses) -- was 70.3% and 65.2% for the three months
ended March 31, 2000 and 1999, respectively.
Financial Condition at March 31, 2000
Total assets at March 31, 2000, were $2,620 million, compared to $2,447 million
at March 31, 1999, a 7.1% increase. Total assets at December 31, 1999, were
$2,610 million.
Since March 31, 1999, loans have increased from $1,248 million to $1,435
million, a 15.0% increase. Managed loans were $1,605 million at March 31, 2000
compared to $1,347 million at March 31, 1999. Managed loans include securitized
credit card loans of $170 million and $99 million at March 31, 2000 and 1999,
respectively.
Loans are summarized as follows: March 31, 2000 March 31, 1999
-------------- --------------
(Amounts in Thousands)
Real estate mortgage $ 472,792 $ 405,866
Consumer 293,849 279,791
Commercial and financial 313,298 245,106
Agricultural 185,629 167,267
Credit card 107,784 98,314
Real estate construction 61,730 51,269
------- -------
$1,435,082 $1,247,613
========== ==========
The increase in real estate and construction loans is due primarily to the
strong commercial real estate activity in the Omaha and Lincoln markets, in
addition to a strong real estate demand in the Colorado Springs market.
Increased indirect installment loans through vehicle dealerships have been the
primary source of the consumer loan portfolio growth. Agricultural loan growth
largely reflects higher cattle inventories due to improved cattle feeding
economics. The commercial and financial loan portfolio growth is due to a strong
economy in the Lincoln market and a significant increase in the bank stock loan
portfolio.
Deposits have increased from $1,738 million at March 31, 1999 to $1,800 million
at March 31, 2000, a 3.6% increase. The loan to deposit ratio was 79.7% as of
March 31, 2000, compared to 71.8% at March 31, 1999. Short-term borrowings
totaled $258 million at March 31, 2000, compared to $255 million at March 31,
1999, and $261 million at December 31, 1999. Federal Home Loan Bank borrowings
totaled $244 million at March 31, 1999, compared to $159 million at March 31,
1999, and $229 million at December 31, 1999. The Company increased in
securitized credit card portfolio in the first quarter from $142 million at
December 31, 1999 to $170 million at March 31, 2000.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Tier I capital (as defined in the regulations) to total average
assets (as defined), and minimum ratios of Tier I and total capital (as defined)
to risk-weighted assets (as defined). 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
------ ----- -------- ----- ------- -----
(Amounts in Thousands)
As of March 31, 2000:
---------------------
Total Capital (to Risk Weighted Assets):
Consolidated $299,825 15.7% $152,414 8.0% N/A
National Bank of Commerce 126,697 11.4 88,849 8.0 $111,061 10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated 264,086 13.9 76,207 4.0 N/A
National Bank of Commerce 112,800 10.2 44,424 4.0 66,637 6.0
Tier I Capital (to Quarterly Average Assets):
Consolidated 264,086 10.2 103,229 4.0 N/A
National Bank of Commerce 112,800 7.7 58,367 4.0 72,959 5.0
As of December 31, 1999:
-----------------------
Total Capital (to Risk Weighted Assets):
Consolidated $291,804 15.5% $150,301 8.0% 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
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
National Bank of Commerce 111,012 7.7 57,619 4.0 72,024 5.0
ECONOMY
Recent economic data show that the economy continues to show positive growth in
the Omaha/Lincoln metro areas. Businesses in rural areas have shown some
weakness, especially those that are dependent on agriculture, such as farm
equipment dealers. Employment growth remains solid despite stagnant population
growth. There is a constant demand for trained workers, as there is a shortage
of qualified applicants at all occupational levels.
Construction activity is about even with last year, while retail sales growth
has been positive (except in rural areas). The manufacturing base in the state
continues to operate at expanding levels. Motor vehicle sales are ahead of last
year's pace. The state's fiscal position is favorable from the standpoint of tax
receipts and budgeted expenditures.
The U.S. economy may realize moderate growth as the Federal Reserve Board raises
interest rates in an attempt to maintain balance between growth and inflation.
Agricultural exports are showing some signs of recovery, but world supplies of
grain continue to be burdensome. Personal bankruptcy filings may be starting to
increase after declining in 1999.
The financial prospects for the grain farmers are not favorable as crop prices
are below cost of production levels. Crop yields were good in 1999, but
commodity prices were lower than in 1998. Additional market loss payments in
late 1999 provided a modest level of financial relief for many grain farmers.
Cattle feeders realized consistent profitability during 1999 and on into the
first quarter of 2000. Hog operations have returned to profitable levels after
realizing losses since late 1998. Ranchers are expected to continue to realize
good profits given the reduced herd size. Overall the livestock sector has
benefited from a strong economy and increased consumer demand for meat.
The commercial and residential real estate markets remain in reasonable
supply/demand balance. There has been a modest overbuilding of multi-family
units in Lincoln and an increased supply of motel/hotel units on a regional
basis. Higher interest rates have not affected commercial real estate projects,
but residential real estate of higher value may be somewhat softer.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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
approximately $702 million of assets where interest rates are repriceable within
90 days.
One measure of interest rate sensitivity is an evaluation of the sensitivity of
the Economic Value of Equity (EVE). The interest rate risk is measured from the
dispersion of equity values above and below the value produced using current or
base rates. EVE is the difference between the total present values of cash
flowing into the Company and the total present values of cash flowing out of the
Company in the future. The analysis performed by the Company assesses the risk
of loss in interest rate sensitive instruments in the event of a sudden and
sustained 50 to 200 basis points increase or decrease in the market interest
rates. The Company's Board of Directors reviews and monitors interest rate risk
analysis on a quarterly basis.
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 March 31, 2000
--------------------
Economic Value Actual
Change in Interest Rates Of Equity Change Percent Change
------------------------ ------------ --------- --------------
(Amounts in Thousands)
200 basis point increase $149,983 $(90,348) (37.6)%
150 basis point increase 167,714 (72,617) (30.2)
100 basis point increase 193,660 (46,671) (19.4)
50 basis point increase 216,841 (23,490) (9.8)
Base scenario 240,331 - -
50 basis point decrease 262,223 21,892 9.1
100 basis point decrease 280,196 39,865 16.6
150 basis point decrease 289,208 48,877 20.3
200 basis point decrease 296,452 56,121 23.4
As of December 31, 1999
-----------------------
Economic Value Actual
Change in Interest Rates Of Equity Change Percent Change
------------------------ ------------- ------ --------------
(Amounts in Thousands)
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
The preceding table indicates that at March 31, 2000, 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. Since December 31, 1999, the Company's estimated changes in EVE have
improved slightly.
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.
The Company owns $91 million of marketable equity securities March 31, 2000. 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.
March 31, 2000 December 31, 1999
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Fair Actual Fair Actual
Change in Prices Value Change Value Change
---------------- -------- -------- -------- --------
(Amounts in Thousands)
15% increase $105,111 $ 13,710 $101,826 $ 13,282
10% increase 100,541 9,140 97,398 8,854
5% increase 95,971 4,570 92,971 4,427
Current fair value 91,401 - 88,544 -
5% decrease 86,831 (4,570) 84,117 (4,427)
10% decrease 82,261 (9,140) 79,690 (8,854)
15% decrease 77,691 (13,710) 75,262 (13,282)
Within the Company's public equity investment portfolio, a 5% or less increase
in the value of the portfolio has occurred in 8% of the quarters over the past
three years; a 5% to 10% increase in the value of the portfolio has occurred in
17% of the quarters over the past three years; a 10% to 15% increase in the
value of the portfolio has occurred in 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, rate shock analysis as of March 31, 2000, indicates the Company's
earnings could be adversely affected by an increase in interest rates, due to
the effect it would have on the Company's investment portfolio
FORWARD LOOKING INFORMATION
When used or incorporated by reference in disclosure documents, the words
"anticipate," "estimate," "expect," "project," "target," "goal," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. These forward-looking statements
speak only as of the date of the document. The Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectation with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) None.
SIGNATURES
Pursuant to the requirements 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.
Date May 12, 2000 By: James Stuart, Jr.
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James Stuart, Jr., Chairman and CEO
Date: May 12, 2000 By: Donald Kinley
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Donald Kinley, Senior Vice President and
Treasurer (Chief Accounting Officer)