DESCRIPTION OF BUSINESS
First Commerce Bancshares, Inc. (the Company) is a multi-bank holding company
organized as a Nebraska corporation. The Company's primary business is the
ownership and management of seven commercial bank subsidiaries, a mortgage
company and an asset management company. These subsidiaries provide a
comprehensive range of trust, commercial, consumer, correspondent, and mortgage
banking services. The Company provides computer services to banks throughout
Nebraska and surrounding states through its subsidiary, First Commerce
Technologies, Inc. First Commerce Technologies presently has four computer
centers in Nebraska, one in Colorado, two in Kansas, and one in Arkansas.
The Company is geographically located throughout Nebraska with a market presence
in Alliance, Bridgeport, Grand Island, Hastings, Kearney, Lincoln, McCook, North
Platte, and West Point.
[CAPTION]
FINANCIAL HIGHLIGHTS (In Thousands Except Per Share Data)
PERCENT
AT DECEMBER 31, 1995 1994 CHANGE
Assets $1,815,575 $1,624,138 11.8%
Investments 566,176 537,797 5.3
Loans 1,017,367 850,292 19.6
Deposits 1,463,205 1,355,965 7.9
Stockholders' equity 180,021 149,354 20.5
Per share data:
Stockholders' equity before net unrealized gains
(losses) on securities available for sale 12.58 11.49 9.5
Total stockholders' equity 13.27 11.26 17.9
Closing bid price
Class A 20.00 15.50 29.0
Class B 14.25 10.50 35.7
PERCENT PERCENT
YEAR ENDED DECEMBER 31, 1995 CHANGE 1994 CHANGE 1993
Net interest income $60,889 5.4% $57,793 .1% $57,727
Provision for loan losses 3,495 952.7 332 (71.0) 1,143
Noninterest income 33,850 7.9 31,363 (5.9) 33,345
Noninterest expense 64,393 7.9 59,663 (1.9) 60,806
Net income 17,420 (8.5) 19,032 (3.7) 19,760
Return on average equity before
net unrealized gains (losses) on
securities available for sale 10.5% 13.4% 15.8%
Per share data:
Net income $1.29 $1.46 $1.52
Dividends .227 .216 .20
DEAR STOCKHOLDERS,
This past year was a year of superior growth for our Company. Total assets
on December 31, 1995, were $1.82 billion, up $191 million or 11.8 percent over a
year ago. Stockholders' equity at year end 1995 was $180 million, up $31
million or 20.5 percent for the year, and loan volume during 1995 increased $167
million or 19.6 percent.
Unfortunately, this wonderful asset
A Normal and Flat
growth did not result in bottom line U.S. Government
8
earnings improvement. Net income for the
7
Company was $17.4 million, down $1.6 6
5
million from net income of $19.0 million
4
earned in 1994. There are two main 3
reasons earnings were off for the year. 23 6 1 2 3 5 10 30
MO MO YR YR YR YR YR YR
First, during the year we operated in a 1/8/93 2/7/96
very flat interest rate environment which
reduced our spreads to the lowest levels in ten years. Secondly, we began to
increase loan loss reserves at the National Bank of Commerce to keep pace with
the rapid loan growth we have generated during the past few years. Flat rate
environments generally cause us to pay more for our deposits relative to our
yield on our investments and loans. A flat yield curve means that there is
little yield difference between short term U.S. government treasury bills and
notes versus what the yields are for three, seven, ten or thirty years out.
Two months ago I developed a report for our Board showing the impact on our
earnings of the uniquely low interest spreads caused by the flat yield curve. In
this report, I normalized or averaged spreads over the past ten years and used
the average spread figures to determine what would have been our level of net
interest income for the past five years, and then what the resultant net income
for the Company would have been. In the table below is a copy of that report.
COMPARISON OF NET INTEREST MARGIN
AGAINST TEN YEAR AVERAGE
Net Interest Spread Including DDA
1994 4.14%
1993 4.40%
1992 4.68%
1991 4.43%
1990 4.25%
1989 4.21%
1988 4.37%
1987 4.43%
1986 4.56%
1985 4.53%
Average 4.40%
Net Interest Margin Using The Average of The Net Interest Spread Including DDA
for 10 Years Prior to 1995:
EARNINGS PRO FORMA ACTUAL PRE-TAX AFTER-TAX ACTUAL ADJUSTED
ASSETS MARGIN MARGIN INCREASE INCREASE EARNINGS EARNINGS
-----------------------------------------------------------------------
1995 $1,551,029 $68,245 $60,889 $7,356 $4,781 $17,420 $22,201
1994 1,396,765 61,458 57,793 3,665 2,382 19,032 21,414
1993 1,324,360 58,272 57,727 545 354 19,760 20,114
1992 1,207,282 53,120 55,303 (2,183) (1,419) 19,150 17,731
1991 1,094,664 48,165 47,547 618 402 12,980 13,382
What this report shows is that with interest rates ``normalized,'' the Company
from 1991 shows a steady rise in net income, achieving record earnings each year
including the year of 1995 where earnings would have been $22.2 million.
Loan Gro Another observation which can be drawn from
1025
975 this exercise is that the very large increase
M 925
875 in net income in 1992 of $6.2 million, to
825
725 $19.1 million from the $12.9 million earned
675
625 in 1991, was a very unusual increase caused
575
by uniquely high spreads compared to the
199199219931994199
average. When unusual spreads work for you,
it makes managers look smarter than they really are. Over long periods of time,
spreads will average out. In the short run, as happened in 1995, narrow spreads
can create disappointing bottom line results.
Loan volume during the year was up $167 million or 19.6 percent over year end
1994 to $1,017 million. This strong growth in loan volume this year, along with
the robust growth over the past few years, creates strong future earning power
as the yield curve `normalizes.''
As mentioned earlier, stockholders' equity increased $31 million, or 20.5
percent to end the year at $180 million. This solid capital growth reflects the
net income of the Company, less the dividends of $3 million, the change in the
market value of our bond portfolio classified as Available for Sale of $6.3
million, and the increase in market value of our Global Fund investments which
rose 25 percent or $6.3 million, on a pre-tax basis, during the year.
Accounting rule changes, which we adopted two years ago, require us to
classify our bonds in three categories: 1) bonds held in a `trading account,''
2) bonds which are classified `available for sale,'' and 3) bonds which will be
`held to maturity.'' We do not have a trading account. If we did, however,
any bonds in this category which gain or lose value due to market fluctuations
must be reflected monthly in the net income of the Company. The change, net of
tax, in market value of our bonds classified Available for Sale must be added to
or subtracted from the capital account of the bank or Company, but not reflected
in net income. The net increase in market value of our bonds classified
Available for Sale in 1995 was $8.5 million and is included in the $180 million
capital account. The determination used for placing bonds in this Available for
Sale category is based on whether the bonds may be sold prior to maturity.
Generally, we don't sell our bonds prior to maturity, but liquidity needs within
our banks, or an opportunity to restructure our portfolio to generate a long run
profit opportunity, could prompt us to sell. Since the likelihood of such a
sale is remote, I generally do not include, for my determination of the
Company's success or lack thereof, the increase or decrease in market value of
our Available for Sale bonds.
As mentioned earlier, also included in the change in stockholders' equity or
book value of our Company is the change in market value of our Global Fund. This
past year, our investments that make up the Global Fund increased in value $6.3
million or 25% on a pre-tax basis.
The increase in Global Fund market value, if sold, would have increased
Company earnings $4 million and we would have reported
Global Fu
Level of Inv record earnings. Over a three to five year time
35,000
30,000 horizon, some of our investment positions may be sold
25,000
as many investment ideas mature within that time
20,000
15,000 period. As these investments are sold, the gains are
10,000
5,000 included in First Commerce Bancshares' net income.
0
Accordingly, I do include Global results (i.e. the
1992 19931994 199
Cost Market change in market value) over periods of time along with
Company net income when I assess overall corporate per-
formance. I should again mention that the price of equity investments in Global
are subject to price shifts caused at times by over optimism in stock markets,
and downward shifts during periods of over pessimistic judgments. Over the long
run, we believe that the markets will reflect reasonable true value of Global.
We hope to average 12% compound growth rates providing another vehicle for
growth in Company net income and book value. This investment business also
provides the Company with unique diversification away from the highly regulated
banking industry and diversification from our general concentration of business
in the ag oriented midwest.
As you can see from the graph, Global has done reasonably well the past few
years. Fifty-two percent of our equity positions are non U. S. based companies.
We began to invest in "emerging markets" last year and now have an eight percent
investment position through an emerging market mutual fund called `City of
London.'' Cam Hinds, President of First Commerce Investors, Inc.; Peter Kinney
and James Stuart, III, our Chicago based investment consultants, have done a
good job helping us with stock selections for this important corporate activity.
If we compound at 10% per year, and add annually three million dollars of
additional corporate funds to Global, our pool of funds will grow to $400
million in twenty years. Don't forget Global!
Now, a few comments on other important Company matters.
As I have discussed in past letters, the maintenance of good asset quality is
key to the success of any banking organization. Our performance in this area
has been excellent. Although the general economy has been good, the credit
culture of our Company managed by Brad Korell, President of National Bank of
Commerce; Stuart Bartruff, Executive Vice President of First Commerce
Bancshares, Inc.; Mark Hansen, Executive Vice President and Senior Loan Officer
of National Bank of Commerce; and Mary Gerdes, Vice President and Loan Services
Manager of First Commerce Bancshares, Inc., has enabled us to keep loan losses
low, problem credits to a minimum, and at the same time keep loan volume growing
at a rapid pace.
Net Charge Classified A
to Average As A Percent O
One of the 3.0%
0.45% 2.5%
important and 0.40%
0.35% 2.0%
continuing 0.25% 1.5%
0.20% 1.0%
challenges in 0.10%
0.05% 0.5%
banking is to 0.00% 0.0%
keep loan 1991992199199419 1991199219931994199
quality high while keeping the volume of good loans increasing. Less successful
companies keep losses down, but slow or eliminate loan growth. An opposite
strategy of developing rapid loan growth while allowing credit quality to
deteriorate courts disaster. This past year, the only area of credit quality
reduction for the Company was in our BankCard Division where our card losses
increased to levels more reflecting industry norms. At this point, the loss
levels are not cause for concern, but are more reflective of general consumer
debt levels, spending habits, and the highly competitive nature of the credit
card industry.
There will be periods of time when the economic environment gets tough, and
our overall loss rates will be greater than they currently are, as you can't be
a competitor without taking some risk. You also can't plan for the true
economic disaster or you won't have the courage to get your doors open. We
think our balance is about as good as it can be given today's environment.
Prior to the time our report is printed, it is highly likely that First Bank
Systems, a very large Minneapolis based bank holding company, will complete
their purchase of FirsTier Financial, Inc., one of our major competitors. This
ownership shift, as well as other ownership changes in both Lincoln and other
Nebraska banking markets, has caused general customer instability in the
marketplace. Our organization has generally benefited from our stability during
this period of destabilizing ownership change for our competitors. We have
stepped up our advertising campaigns and officer call programs to continue to
capitalize on this competitive advantage. We are opening lots of new accounts!
As reported in our quarterly reports, we acquired the $40 million Western
Bank this year with offices in Alliance and Bridgeport. The bank was merged
into our North Platte bank and the bank name was changed to Western Nebraska
National Bank (quite a mouthful). I call it `Western.'' Mike Jacobson,
President of Western has hired some wonderful people from competitor banks and
has generated a rapid shift of customers, loans and business activity to
Western. The growth has been wonderful (see graph below). Mike and our new
people deserve a royal salute for their achievements this past year. Although
the very rapid growth is likely behind us, our commitment to the people and
businesses in the Panhandle and the Sandhills remains strong, and we thus see
continued important market share growth in the years ahead. We have built a new
building in Bridgeport to house our business activity and an important new
building will be started in North Platte this year for our Western headquarters.
WESTERN NEBRASKA NATIONAL BAN
Year-End Assets
Another exciting area of growth which has 180
M160
excellent profit potential took place last i140
l120
year in our credit card area as we entered i100
o 60
into a new credit card partnership with n 40
s 20
Cabela's, one of the largest, most 0
successful, wholesalers of hunting and
fishing supplies in the world. Cabela's is headquartered in Sidney, Nebraska,
and was founded by Jim and Dick Cabela in 1961. They are great people and good
partners. Our new company completed its first mailing of cards in August to one
of the Cabela's customer lists. We are very pleased at this point with the
progress made. Our entire credit card team and the Cabela's team are to be
congratulated for this successful beginning. I will look forward to keeping you
posted on this exciting new business activity.
Servicing V
900
Our mortgage company, First Commerce 800
Mortgage, had another excellent year in M700
600
1995. Net income for the year was 500
400
$885,000, and loan servicing increased $108 300
million to $812 million. An accounting 200
100
change, FASB 122, went into effect on July 0
1, 1995, which enables First Commerce
Mortgage to capitalize the fair value of originated servicing from our affiliate
banks which generate home loan volume for First Commerce Mortgage. This
accounting change enhances the front end profitability of the Company and more
appropriately reflects true earnings of the Company.
First Commerce Mortgage, capably led by President Douglas Alford, currently buys
mortgages from over 85 originators - mostly located in Nebraska. We continue to
operate under our original policy of not selling our mortgage servicing to
others which reduces current profit, but will likely enhance long term company
net income. The current market value of this servicing owned by FCM is
estimated to be $8 million in excess of the value carried on our books.
Our data processing company, newly named First Commerce Technologies,
experienced a frustrating 1995. Earnings fell to $634,000 from $947,000 earned
in 1994, as expenses were increased to improve customer service and to continue
our shift to the new IBM mainframe systems. Of course, service quality is key
to our success, and our shift to the IBM systems is proving to create even more
efficiency and flexibility than we had originally planned. A new sales force
was created during the year and our new sales people did achieve some success in
generating new business and new customers during the year. Major improvements
in our product offerings were also made. Some important new business is pending
at this writing, and our profit plan returns the company to respectable earnings
levels in 1996.
During the past year, expense control committees were established in each of our
banks to work on ways to improve efficiency and reduce costs without seriously
impairing service levels to our customers. In November I installed a flexible
hiring freeze to punctuate the importance of our objective of better expense
control. Our excellent growth has created healthy increases in costs. Some of
the growth, such as new NBC branches and loan growth at Western, have been front
end loaded with expense to create the growth. In addition, we have made
significant and important investments in technology. This has been expensive as
well, but critical to our survival and future growth. You should see
significantly less increase in expense levels in 1996 and the years ahead.
During the past year, Stuart Bartruff and I looked at a number of bank
acquisition opportunities in Colorado and Nebraska. We made bids on three at
prices that we felt would enable us to earn a reasonable rate of return on the
dollars invested. Not surprising to us, we were not successful in our bids as
the banks were sold for 30%-40% higher prices than we were willing to pay. In
some instances, we are at a competitive disadvantage with our bids, due to
having two classes of stock, which eliminates our ability to use "pooling"
accounting treatment for acquisitions if we use the Class B non voting shares.
According to current accounting rules, we must use "purchase" accounting which
requires us to amortize over 15 years, via monthly charges against earnings, the
amount paid for the acquired company or bank in excess of fair value of assets
acquired. Although this amortization is but a paper entry on the books, it is
not a tax deductible charge, and it does put downward pressure on earnings.
Needless to say, I don't agree with this accounting rule, but no one from the
Accounting Principles Board has called to ask my views. There will likely be
more merger activity in the years ahead, and First Commerce will continue to
look for acquisition opportunities where we find good synergies or where rapid
growth opportunities are probable.
In October your First Commerce Bancshares Board voted to increase the cash
dividend from 22 cents per share to 26 cents per share. This dividend amounts
to $3.5 million per year, about 20 percent of this past year's level of
earnings. This level of earnings payout allows us to do all the things we need
and want to do at the Company level such as make debt payments, acquire other
banks, invest in venture companies, make additional contributions to Global,
allow for good growth of our subsidiary banks, and maintain adequate capital.
We recently began an Employee Stock Purchase Plan and have 99 Company employees
enrolled in the Plan at this time. The performance of Company A and B shares
over the past few years has been pleasing as well.
Stock Prices - Year
20.00 Historical Dividend
18.00 0.25
14.00
12.00 0.20
10.00
6.00 0.15
4.00 0.10
0.00
0.05
198191988919919919929191995 0.00
Our capital accounts remain strong with December 31, 1995, equity of $180
million. On a capital to asset ratio, this equates to 9.9 percent, one of the
highest capital levels in our peer group. Included in this $180 million capital
account is the increased value of our bonds classified as Available for Sale of
$8.5 million. The market value of the Available for Sale bonds can decline in a
rising interest rate environment, or even go negative. Our regulators don't
count unrealized gains or losses on our Available for Sale bond portfolio when
calculating our capital ratios. On a monthly basis, we review the impact of
rapidly changing rate environments and the impact on our capital accounts to be
certain that we keep our banks well capitalized.
Over the past few years, and last year, the general economic environment for
our customers has been mostly good. The exceptions to this generalization have
been cattle feeders and now ranchers as they battle a cyclical over supply pro-
blem. Some of our farm customers have been hurt by weather problems over the
past two years which have reduced crop yields and thus there has been little
wealth or liquidity created across vast portions of our agricultural state. The
problems for most have not hit critical levels. Land prices remain stable, and
farm and ranch liquidations continue to be very rare. It is likely that the
cattle cycle will take two or three more years to return our cattle producers
back to reasonable levels of profitability. Our farmers could use a good
growing season in 1996 with reasonable prices to put some profits back into
their operations. Continuing and unsurprising fuzzy thinking in Washington makes
proper assessment of the financial impact of an undefined "new" Farm Bill most
difficult. If the economy does not deteriorate significantly from current
levels, earnings at First Commerce should not be impacted negatively due to more
than expected losses. Where earnings are vulnerable is at the macro economic
level. For First Commerce to return to good earnings growth, we must have
improvement in our margins. Integrated in our profit plans for 1996 is the
anticipation of continued reduction of short term interest rates. The Fed has
already set out on this path of rate reduction as the general U. S. economy has
begun to slow and inflation rates remain subdued at relatively low levels.
Conventional wisdom suggests slow GDP growth for the U. S. at 2% - 2.5%, and
lower short rates as the Federal Reserve continues to stimulate a lackluster
economy. And, don't forget, this is an election year. We continue to have our
"growth programs" in third gear. If our spreads improve as we anticipate, 1996
should be a year of good earnings improvement.
Although it's a lot more fun to run this Company when the earnings go up,
managing First Commerce has and continues to be a fulfilling and rewarding life
activity for me. As I have mentioned before, this is and has been both a public
and a private trust. All of you are my business partners and thus will receive
the best of my skills along with an unwavering dose of fairness and honesty as
we go forward. I enjoy our people immensely, which includes a wonderful group
of directors. They care about their kids, their schools, their communities, and
they care about our customers. They have gotten used to winning - and like it.
Our leaders for the most part are seasoned, stable, and have learned to be
opportunistic as well.
Key to our continued success will be a reasonable economic environment,
continued asset growth, and continued stability of our leaders. We have done a
good job of delivering quality financial services to our customers, building our
communities, and creating important wealth for our stockholders. Many, many
people have been part of this wonderful success and I am very appreciative of
the contribution that each has made. I look forward to reporting to you on our
progress in our quarterly reports. Please drop me a note if you have any good
ideas.
Sincerely,
James Stuart, Jr.
Chairman and CEO
THE FIRST COMMERCE BANCSHARES ORGANIZATION
The multi-resource organization we are National Bank of Commerce
today traces its roots to the founding
of Lincoln's National Bank of Commerce
City National Bank and
in 1902. The indivi-
dual subsidiaries that now comprise
First Commerce Bancshares include:
First National Bank and
The Overland National
First Commerce Western Nebraska National
Bancshares
First National Bank
First National Bank
First Commerce
First Commerce Mortgage
INDEX TO FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS.First.Commerce.Investors,...12
CONSOLIDATED STATEMENTS OF INCOME.......................13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.........14
CONSOLIDATED STATEMENTS OF CASH FLOWS...................15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............16
INDEPENDENT AUDITORS' REPORT............................30
SELECTED QUARTERLY FINANCIAL DATA.......................31
SELECTED FINANCIAL DATA.................................32
MANAGEMENT'S DISCUSSION AND ANALYSIS....................36
OFFICERS AND DIRECTORS..................................49
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1995 1994
(Amounts In Thousands)
ASSETS
Cash and due from banks $ 102,451 $ 89,305
Federal funds sold 32,738 79,000
Cash and cash equivalents 135,189 168,305
Mortgages held for sale 25,574 4,803
Securities available for sale (cost of
$351,076,000 and $275,171,000) 365,494 270,213
Securities held to maturity (fair value of
$200,739,000 and $259,249,000) 200,682 267,584
Loans 1,017,367 850,292
Less allowance for loan losses 19,017 17,190
--------- -------
Net loans 998,350 833,102
Accrued interest receivable 18,690 14,043
Premises and equipment 48,036 44,451
Other assets 23,560 21,637
--------- ----------
$1,815,575 $1,624,138
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 277,679 $ 288,306
Interest bearing 1,185,526 1,067,659
--------- ---------
1,463,205 1,355,965
Securities sold under agreement to repurchase 92,726 73,132
Federal funds purchased and other short-term borrowings 5,214 -
Accrued interest payable 7,530 5,719
Accrued expenses and other liabilities 11,360 6,968
Long-term debt 55,519 33,000
--------- ---------
Total liabilities 1,635,554 1,474,784
Commitments and contingencies
Stockholders' equity:
Common stock:
Class A voting, $.20 par value; authorized
10,000,000 shares; issued 2,606,336 and
2,606,473 shares; 521 521
Class B nonvoting, $.20 par value; authorized
40,000,000 shares, issued 10,963,348 and
10,750,763 shares 2,193 2,150
Paid-in capital 21,665 18,012
Retained earnings 146,269 132,908
Net unrealized gains (losses) on securities
available for sale (net of tax) 9,373 (3,149)
------- --------
180,021 150,442
Less cost of 137 Class A and 89,541 Class B
shares of treasury stock in 1994 - 1,088
------- -------
Total stockholders' equity 180,021 149,354
---------- ----------
$1,815,575 $1,624,138
========= =========
[FN]
See notes to consolidated financial statements.
[CAPTION]
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
1995 1994 1993
(Amounts In Thousands Except Per Share Data)
Interest income:
Loans $85,494 $68,380 $62,559
Securities:
Taxable 31,943 28,264 31,441
Nontaxable 1,610 1,510 1,463
Dividends 771 602 462
Mortgages held for sale 1,213 865 1,444
Federal funds sold 2,966 2,161 2,243
------- ------- ------
Total interest income 123,997 101,782 99,612
Interest expense:
Deposits 55,156 38,833 37,635
Short-term borrowings 4,835 3,195 2,204
Long-term debt 3,117 1,961 2,046
------ ------ ------
Total interest expense 63,108 43,989 41,885
------ ------ ------
Net interest income 60,889 57,793 57,727
Provision for loan losses 3,495 332 1,143
------ ------ ------
Net interest income after provision for loan losses 57,394 57,461 56,584
Noninterest income:
Computer services 8,147 8,293 8,290
Credit card 4,965 4,289 3,991
Mortgage banking 3,571 2,997 3,693
Service charges on deposits 4,893 4,849 4,766
Other services charges and fees 5,293 5,007 5,566
Trust services 5,272 5,007 4,883
Gains on securities sales 581 182 551
Other income 1,128 739 1,605
------ ------ ------
Total noninterest income 33,850 31,363 33,345
Noninterest expense:
Salaries and employee benefits 33,101 29,647 28,972
Net occupancy expense 3,815 3,552 3,613
Equipment rentals, depreciation and maintenance 4,770 4,900 5,727
Communications 3,647 3,215 3,085
Business development 2,649 2,624 3,841
Supplies 2,395 1,911 1,820
Fees and insurance 9,616 10,293 10,776
Net cost of other real estate owned 27 (187) (991)
Other expenses 4,373 3,708 3,963
------ ------ ------
Total noninterest expense 64,393 59,663 60,806
------ ------ ------
Income before income taxes 26,851 29,161 29,123
Income tax provision 9,431 10,129 9,363
------ ------- -------
Net income $17,420 $19,032 $19,760
====== ======= =======
Weighted average shares outstanding 13,497 13,071 13,032
Net income per share $1.29 $1.46 $1.52
------ ------ ------
[CAPTION]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET
UNREALIZED
CLASS A CLASS B GAINS (LOSSES)
COMMON COMMON PAID-IN RETAINED TREASURY ON SECURITIES
STOCK STOCK CAPITAL EARNINGS STOCK AVAILABLE FOR SALE
(Amounts in Thousands)
Balance, January 1, 1993 $3,093 $ 0 $16,829 $109,670 $(13,257) $ 0
Retirement of treas. stock (487) - (2,646) (10,124) 13,257 -
Stock dividend (2,085) 2,085 - - - -
Cash dividends declared
($.20 per share) - - - (2,607) - -
Net unrealized gains on
securities available for
sale, net of tax effect
of $2,049,000 - - - - - 3,805
Net income - - - 19,760 - -
------ ------ ------ ------- -------- ---------
Balance, December 31, 1993 521 2,085 14,183 116,699 - 3,805
Purchase of treasury stock - - - - (1,088) -
Issuance of Class B common
stock in bank acquisition,
net of cost of $87,000 - 65 3,829 - - -
Cash dividends ($.216
per share) - - - (2,823) - -
Change in net unrealized
gains (losses) on
securities available for
sale, net of tax effect
of ($3,744,000) - - - - - (6,954)
Net income - - - 19,032 - -
------ ------ ------ ------- ------- --------
Balance, December 31, 1994 521 2,150 18,012 132,908 (1,088) (3,149)
Purchase of treasury stock - - - - (82) -
Retirement of treasury stock - (19) (154) (997) 1,170 -
Cash dividends ($.227
per share) - - - (3,062) - -
Issuance of Class B common
stock in bank acquisition,
net of cost of $35,000 - 62 3,807 - - -
Change in net unrealized
gains (losses) on securites
available for sale, net of
tax effect of $6,742,000 - - - - - 12,522
Net income - - - 17,420 - -
------ ------ ------- -------- ------- --------
Balance, December 31, 1995 $ 521 $2,193 $21,665 $146,269 $ - $ 9,373
====== ====== ======= ======== ======== ========
[FN]
See notes to consolidated financial statements.
[CAPTION]
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1995 1994 1993
(Amounts in Thousands)
Net income $ 17,420 $ 19,032 $ 19,760
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 6,034 5,868 7,273
Provision for loan losses 3,495 332 1,143
Provision for deferred taxes (81) 512 29
Gain on sales of mortgages and securities (605) (17) (1,322)
Changes in assets and liabilities:
Interest receivable (3,725) (1,097) 166
Interest payable 1,623 1,541 (494)
Other assets (3,581) 1,558 (1,902)
Accrued expenses and other liabilities 1,187 (973) 123
Purchase of mortgages held for sale (216,875) (154,550) (274,422)
Proceeds from sales of mortgages held for sale 196,128 174,760 271,135
Other 2,871 (345) 800
------- --------
Total adjustments (13,529) 27,589 2,529
------- --------
Net cash from operating activities 3,891 46,621 22,289
Cash flows from investing activities:
Proceeds from sale of securities held to maturity 6,015 21,038 14,409
Proceeds from maturities of securities held to maturity 91,751 131,443 236,339
Purchases of securities held to maturity (33,659) (129,548) (255,491)
Proceeds from sale of securities available for sale 18,706 76,264 7,318
Proceeds from maturities of securities available for sale 80,850 53,348 (10,114)
Purchases of securities available for sale (165,555) (166,591) -
Net increase in loans (140,074) (59,341) (104,495)
Purchase of premises and equipment (7,761) (3,368) (6,093)
Cash and cash equivalents from bank acquisition,
net of cash expenses 1,775 3,939 -
Other (2,457) 562 683
-------- --------
Net cash from investing activities (150,409) (72,254) (117,444)
-------- --------
Cash flows from financing activities:
Net increase in deposits 69,550 300 128,085
Change in short-term borrowings 24,808 (1,267) (26,066)
Proceeds from long-term debt 24,269 10,000 -
Repayment of long-term debt (2,000) (2,000) (1,500)
Purchase of treasury stock (82) (1,088) -
Cash dividends paid (3,062) (2,823) (3,258)
Other (81) (97) (103)
------- --------
Net cash from financing activities 113,402 3,025 97,158
------- --------
Net change in cash and cash equivalents (33,116) (22,608) 2,003
Cash and cash equivalents at beginning of year 168,305 190,913 188,910
-------- --------
Cash and cash equivalents at end of year $135,189 $168,305 $190,913
-------- -------- --------
Supplemental disclosure:
Interest paid $61,422 $42,380 $42,452
Income taxes paid 9,484 10,186 9,025
Common stock exchanged for acquisition of bank
net of cash and cash equivalents 3,869 3,894 -
[FN]
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Columnar amounts in footnotes are in thousands except per share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - First Commerce Bancshares, Inc. (the Company) is a multi-bank holding
company whose primary business is providing the normal banking functions of
trust, commercial, consumer, correspondent, and mortgage banking services
through its Nebraska based banks and affiliated organizations.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and all of its wholly-owned and majority-owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation. Certain prior years' amounts have been
reclassified to conform to current year's classifications.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses 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.
Assets held in agency or fiduciary capacities are not assets of the subsidiary
banks and accordingly, are not included in the accompanying financial
statements.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows, the
Company considers cash, due from banks, federal funds sold and certain
securities that are purchased and sold for one-day periods to be cash
equivalents.
MORTGAGES HELD FOR SALE - Mortgages held for sale are stated at the lower of
aggregate cost or market. Net unrealized losses are recognized through a
valuation allowance by charges to expense.
SECURITIES - Debt securities for which the Company has the positive intent and
ability to hold to maturity are classified as held to maturity, and are reported
at amortized cost. Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at their fair values, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either held to
maturity or trading securities are classified as available for sale securities
and reported at fair value, with unrealized gains and losses reported, net of
tax, as a separate component of stockholders' equity. Realized gains and losses
on investments are recognized on the specific identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
LOANS - Loans are stated at the principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by the interest
method on the daily outstanding principal balance. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful. Certain direct loan
costs and fees are deferred and recognized over the life of the loan on the
interest method. Annual bank card fees are recognized on a straight-line basis
over the period that cardholders may use the card.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through
a provision for loan losses charged to expenses. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. The allowance is an estimate of the amount that
management believes will be adequate to absorb possible losses based on prior
loan loss experience, the nature and volume of the loan portfolio, review of
specific problem loans and an evaluation of the overall portfolio quality under
current economic conditions. A change in the economy can quickly affect the
financial status of borrowers and loan quality. Such changes can require
significant adjustments in the allowance for loan losses on very short notice
and are possible in the future.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 (SFAS 114), `Accounting by Creditors for Impairment of a
Loan''and No. 118 (SFAS 118) ``Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures.'' These statements require that certain
impaired loans be 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 fair value of the underlying collateral if the loan is collateral
dependent. The statements further require that specific reserves be established
for any impaired loan for which the recorded investment exceeds the measured
value of the loan. SFAS 114 and SFAS 118 do not apply to smaller balance,
homogenous loans, which the Company has identified as consumer loans, such as
home equity, credit card, installment and 1-4 family residential loans. The
effect of adopting SFAS 114 and SFAS 118 was not significant to the financial
statements or results of operations.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the terms of the
respective leases or the useful lives of the improvements, whichever is shorter.
OTHER REAL ESTATE OWNED - Other real estate owned is carried at the lower of
fair value, minus estimated costs to sell, or the balance of the loan on the
property at the date of acquisition. Gains or losses from the sale of other
real estate owned or further reductions in the carrying value from a decline in
the property value are charged against operating expenses. The Company did not
have any other real estate owned at December 31, 1995 and 1994.
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE - The Company enters into sales of
securities under agreement to repurchase with customers of the subsidiary banks,
which provide for the repurchase of the same security. These agreements may be
open ended or of a specific term in length. Securities sold under agreement to
repurchase identical securities are collateralized by assets which are held in a
safekeeping agent account at the Federal Reserve.
LOAN SERVICING - Effective July 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 122 (SFAS 122), `Accounting for Mortgage
Servicing Rights, an amendment to FASB Statement No. 65,''on a prospective
basis. SFAS 122 provides that an institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
Mortgage servicing rights should be amortized in proportion to and over the
period of estimated net servicing income and should be evaluated for impairment
based on their fair value. The impairment evaluation should stratify the
mortgage servicing rights based upon one or more of the predominant risk
characteristics of the underlying loans. The effect of adopting SFAS 122 was not
significant to the financial statements or results of operations.
The unamortized purchased servicing rights included in other assets were $2,999,000 and $1,454,000 at
December 31, 1995 and 1994, respectively. The amount of loans serviced for
others approximated $812,351,000, $707,327,000 and $650,198,000 at December 31,
1995, 1994, and 1993, respectively.
As of December 31, 1995, the fair value of the Company's capitalized mortgage
servicing rights (including mortgage servicing rights purchased) was
approximately $11.0 million. 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 uses the asset and liability approach for financial
accounting and reporting of income taxes which recognizes the amount of taxes
payable or refundable in the current year, and recognizes deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in the financial statements or tax returns. Deferred tax assets and
liabilities are recognized for the estimated future tax effects attributable to
temporary differences between the tax basis of assets or liabilities and their
reported amounts in the financial statements and carryforwards using the current
enacted tax rates. The Company and its subsidiaries file a consolidated income
tax return. Taxes of the subsidiaries, computed on a separate return basis, are
remitted to the Company.
NET INCOME PER SHARE - Net income per share is based on the weighted average
number of shares of common stock outstanding.
ACCOUNTING PRONOUNCEMENTS - In March 1995, Statement of Financial Accounting
Standards No. 121, `Accounting for Long-lived Assets and Long-lived Assets To
Be Disposed Of,''was issued. The statement establishes accounting standards
for the impairment of long-lived assets and goodwill related to those assets to
be held and used, and for long-lived assets to be disposed of. The Company does
not expect the adoption of this statement to have a material effect on the
financial condition or results of operations.
B. RESTRICTED CASH BALANCES
The average compensating balances held at correspondent banks during 1995 and
1994 were $9,844,000 and $14,720,000 respectively. The subsidiary banks
maintain such compensating balances to offset charges for services rendered by
the correspondent banks. In addition, the Federal Reserve Bank required the
subsidiary banks to maintain average balances of $23,717,000 and $27,060,000 for
1995 and 1994, respectively, as a reserve requirement.
C. SECURITIES
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The amortized cost of securities and
their estimated fair values at December 31 were as follows.
GROSS GROSS ESTIMATED
AMORTIZEDUNREALIZEDUNREALIZED FAIR
COST GAINS LOSSES VALUE
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 1995
- -----------------
U.S. government and agency securities $210,976 $ 8,415 $ (86)$219,305
Mortgage-backed securities 109,345 223 (1,031) 108,537
Marketable equity securities 30,755 7,193 (296) 37,652
-------- ------- ------- --------
Totals $351,076 $15,831 $(1,413)$365,494
DECEMBER 31, 1994
- -----------------
U.S. government and agency securities $129,543 $ 436 $(1,229) $128,750
States and political subdivision securities 800 - (4) 796
Mortgage-backed securities 118,868 77 (5,710) 113,235
Marketable equity securities 25,960 2,811 (1,339) 27,432
-------- ------- -------- -------
Totals $275,171 $3,324 $(8,282) $270,213
-------- ------ ------- --------
SECURITIES HELD TO MATURITY:
DECEMBER 31, 1995
- -----------------
U.S. government and agency securities $ 39,188 $ 491 $ (89)$ 39,590
States and political subdivision
securities 32,777 499 (90) 33,186
Mortgage-backed securities 126,752 209 (970) 125,991
Other 1,965 23 (16) 1,972
-------- ------ ------- --------
Totals $200,682 $1,222 $(1,165) $200,739
-------- ------ ------- --------
DECEMBER 31, 1994
- -----------------
U.S. government and agency securities $ 96,532 $231 $(1,888) $ 94,875
States and political subdivision
securities 28,876 213 (440) 28,649
Mortgage-backed securities 139,851 78 (6,549) 133,380
Other 2,325 26 (6) 2,345
-------- ------ -------- --------
Totals $267,584 $548 $(8,883) $259,249
-------- ------ ------- --------
The amortized cost and estimated fair value of debt securities at December 31,
1995, 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
[S] [C] [C] [C] [C]
Due in one year or less $ 32,347 $ 32,512 $ 12,001 $ 12,006
Due after one year through five years 31,448 31,925 186,078 193,883
Due after five years through ten years 9,056 9,217 12,897 13,416
Due after ten years 1,079 1,094 - -
-------- -------- -------- -------
73,930 74,748 210,976 219,305
Mortgage-backed securities 126,752 125,991 109,345 108,537
-------- -------- -------- --------
$200,682 $200,739 $320,321 $327,842
-------- -------- -------- --------
During 1995 and 1994, respectively, proceeds from sales of securities held to
maturity were $6,015,000 and $21,038,000 and proceeds from sales of securities
available for sale were $18,706,000 and $76,264,000. Gross gains of $20,000 and
$73,000 on securities held to maturity and $1,069,000 and $943,000 on securities
available for sale and gross losses of $6,000 and $30,000 on securities held to
maturity and $502,000 and $804,000 on securities available for sale were
realized on 1995 and 1994 sales, respectively. Income taxes on securities held
to maturity net gains were $5,000 and $15,000 during 1995 and 1994,
respectively. Income taxes on securities available for sale net gains were
$198,000 and $49,000 during 1995 and 1994, respectively. All sales of
securities held to maturity were within three months of the securities'
maturities, or were early calls of the securities.
Prior to the adoption of SFAS 115 on December 31, 1993, proceeds from sales of
investments in debt securities including securities held for sale were
$21,727,000 during 1993. Gross gains of $97,000 and gross losses of $9,000 were
realized on those sales in 1993. Income taxes on net security gains were $31,000
for 1993.
Securities with a carrying value of $437,476,000 at December 31, 1995, and
$363,444,000 at December 31, 1994, were pledged to secure obligations under
repurchase agreements or to secure public or trust deposits in the normal course
of business.
At December 31, 1995 and 1994, state and political subdivision securities with
an amortized cost of $27,667,000 and $25,223,000, respectively, and an estimated
fair value of $27,854,000 and $24,907,000, respectively, were issued by State of
Nebraska political subdivisions.
In connection with the adoption of `A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities,''the
Company reclassified $3 million of U.S. Treasury securities from securities held
to maturity to securities available for sale.
D. LOANS
Loans at December 31 are summarized as follows:
1995 1994
[S] [C] [C]
Real estate mortgage $ 295,268 $270,603
Consumer 263,320 228,332
Commercial and financial 201,910 166,682
Agricultural 126,414 87,758
Credit card 108,641 80,135
Real estate construction 21,814 16,782
---------- --------
$1,017,367 $850,292
--------- --------
Virtually all of the Company's loans are to Nebraska-based organizations,
although 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, 1995 and 1994, there were $1,700,000 and $1,150,000, respectively,
of nonaccruing loans. The amount of restructured loans as of December 31, 1995
and 1994 was not significant.
The Company's policy for requiring collateral and guarantees varies with the
creditworthiness of each borrower. The portfolio is generally secured by
accounts receivable, inventory, property, plant and equipment, income producing
commercial properties, marketable securities or interest-bearing time deposits.
Impairment of loans having recorded investments of $2,472,000 at December 31,
1995 has been recognized in conformity with FASB Statement No. 114 as amended by
FASB Statement No. 118. The total allowance for loan losses related to these
loans was $463,000 at December 31, 1995. Interest income on impaired loans of
$192,000 was recognized for cash payments received in 1995. Average impaired
loans for the year ended December 31, 1995 was $1,844,000.
E. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses are summarized as follows:
1995 1994 1993
[S] [C] [C] [C]
Balance, January 1 $17,190 $18,461 $18,470
Provision for loan losses 3,495 332 1,143
Bank acquisition 843 326 -
------ ------ ------
Total 21,528 19,119 19,613
Net charge-offs:
Loans charged-off 4,657 3,723 3,126
Less recoveries 2,146 1,794 1,974
------- ------ -------
Net loans charged-off 2,511 1,929 1,152
------- ------- -------
Balance, December 31 $19,017 $17,190 $18,461
======= ======= =======
F. PREMISES AND EQUIPMENT
Premises and equipment at December 31 consists of the following:
1995 1994
[S] [C] [C]
Land $ 6,973 $ 6,064
Buildings and leasehold improvements 53,450 51,196
Equipment and furnishings 34,420 34,515
------ ------
94,843 91,775
Less accumulated depreciation 46,807 47,324
------ ------
$48,036 $44,451
------- -------
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, 1995, 1994 and
1993, was approximately $1,352,000, $1,361,000, and $1,033,000, respectively.
The approximate future minimum rental commitments under noncancelable leases are
as follows:
PREMISES EQUIPMENT TOTAL
[C] [C] [C] [C]
1996 $ 537 $398 $ 935
1997 377 115 492
1998 323 56 379
1999 287 26 313
2000 202 22 224
Thereafter 4,152 4 4,156
G. DEPOSIT MATURITIES
Maturities of time deposits at December 31, 1995 are as follows:
1996 $693,081
1997 68,164
1998 18,256
1999 7,918
2000 4,424
Thereafter 67
H. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Amounts and interest rates related to securities sold under agreement to
repurchase are as follows:
1995 1994 1993
[S] [C] [C] [C]
Amount outstanding at year-end $ 92,726 $73,132 $ 74,399
Average interest rate outstanding at year-end 5.0% 4.5% 2.6%
Highest amount outstanding as of any month-end
during the year 101,912 95,998 105,648
Average amount outstanding during the year 85,384 78,651 72,152
Approximate average interest rate 5.1% 3.4% 2.8%
I. LONG-TERM DEBT
Long-term debt at December 31 is as follows:
1995 1994
[S] [C] [C]
Capital notes, 6.40% to 8.70%, due 1995 to 2002 $21,000 $23,000
Federal Home Loan Bank advances, due 1996 and 1997 34,269 10,000
Other 250 -
------- -------
$55,519 $33,000
------- -------
The capital notes were issued on June 1, 1992, in series pursuant to an
indenture dated May 1, 1992. Each series of capital notes is payable May 1.
Interest is payable semi-annually on May 1 and November 1. The capital notes
are subject to redemption at the option of the Company at any time on or after
May 1, 1999, at a redemption price equal to 100% of the principal amount thereof
together with the accrued interest to the redemption date. The indenture
provides that the Company will not create, assume, incur or suffer to exist any
mortgage or other liens upon the shares of capital stock of any significant bank
subsidiary (of which the National Bank of Commerce is the only one at present)
owned by the Company unless certain conditions are met. The indenture also
provides that the Company will not permit its debt to tangible equity ratio to
exceed 30%. The Company's debt to tangible equity ratio was 12% as of December
31, 1995.
The Federal Home Loan Bank (FHLB) advances of $34,269,000 were made to
subsidiary banks. These advances are due in 1996 and 1997. Interest is paid
monthly of which $20,000,000 bears interest based upon national prime rates
6.15% to 6.25% at December 31, 1995. The balance bears fixed interest rates of
5.80% to 6.15%. The advances are collateralized by a blanket pledge of mortgage
loans and certain investment securities.
Scheduled principal payments for the five years following December 31, 1995 are:
1996 $12,500
1997 26,769
1998 2,500
1999 2,500
2000 2,500
J. SHAREHOLDERS' EQUITY
TREASURY STOCK -- In 1993, 486,196 shares of treasury stock acquired in prior
years were constructively retired at the aggregate cost. In 1994, 137 Class A
Common shares and 89,541 Class B Common shares were acquired at a cost of
$1,088,000. In 1995, 7,140 shares of Class B Common shares were acquired at a
cost of $82,000. At the end of 1995, all shares of treasury stock were again
retired at the aggregate cost.
STOCK DIVIDEND -- The Board of Directors authorized a dividend, accounted for as
a stock split, of four shares of nonvoting Class B Common Stock for each share
of Class A Common Stock of record on October 20, 1993. At a special meeting of
shareholders held October 19, 1993, the shareholders approved a reclassification
amendment to the Company's Articles of Incorporation. The amendment (1)
reclassified the existing common shares of the Company as Class A Common Stock;
(2) authorized a new class of nonvoting common shares designated as nonvoting
Class B Common Stock; (3) increased the number of authorized shares of common
stock from 6,250,000 to 50,000,000 shares, consisting of 10,000,000 shares of
Class A Common Stock and 40,000,000 shares of nonvoting Class B Common Stock;
(4) established the rights, powers and limitations of the Class A Common Stock
and the nonvoting Class B Common Stock; and (5) reduced the par value of the
Common Stock from $1.00 per share to $.20 per share. All share and per share
data appearing in the consolidated financial statements and notes thereto have
been retroactively adjusted for this stock dividend.
K. INCOME TAXES
Consolidated income tax expense for the years ended December 31 consists of the
following:
1995 1994 1993
Current provision:
[S] [C] [C] [C]
Federal $8,857 $ 8,985 $8,735
State 655 632 599
----- ----- -----
9,512 9,617 9,334
Deferred income taxes (81) 512 29
----- ------ -----
Total consolidated income tax provision $9,431 $10,129 $9,363
------ ------- -----
The effective rate of total tax expense differs from the statutory federal tax
rate as follows:
1995 1994 1993
[S] [C] [C] [C]
Tax at federal statutory rate 35% 35% 35%
Tax-exempt interest on obligations
of state and political subdivisions (2) (2) (2)
Other 2 2 (1)
-- -- --
Effective tax rate 35% 35% 32%
-- -- --
Significant items comprising the Company's net deferred tax asset as of December
31, 1995, 1994 and 1993 are as follows:
DEFERRED TAX ASSETS: 1995 1994 1993
[S] [C] [C] [C]
Allowance for loan losses $6,509 $5,912 $6,349
Net unrealized gains and losses on
securities available for sale - 1,696 -
Other 1,132 1,213 855
----- ----- -----
Total deferred tax assets 7,641 8,821 7,204
DEFERRED TAX LIABILITIES:
Net unrealized gains and losses on
securities available for sale 5,046 - 2,049
Premises and equipment differences between
book and tax basis of property 2,133 2,175 2,001
Other 328 255 246
----- ----- -----
Total deferred tax liabilities 7,507 2,430 4,296
----- ----- -----
Net deferred tax asset $ 134 $6,391 $2,908
----- ----- -----
L. ADVERTISING COSTS
The Company expenses costs of advertising, except for direct-response
advertising relating to its bankcard joint venture, which is capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consists primarily of direct-response mailings and telemarketing
costs. The capitalized costs of the advertising are amortized over the five year
period following completion of the advertising campaign. At December 31, 1995
and 1994, $1,700,000 and $0 of advertising costs are reported in other assets.
M. COMMITMENTS AND CONTINGENT LIABILITIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business to meet the financing needs of customers. These include commitments to
extend credit and standby letters of credit. These instruments involve, in
varying degrees, elements of credit, interest rate and liquidity risk in excess
of the amount recognized in the consolidated balance sheet. The extent of the
Company's involvement in various commitments or contingent liabilities is
expressed by the contract amount of such instruments.
Commitments to extend credit, excluding mortgage banking operations, amounted to
$341,073,000 and $265,657,000 (exclusive of $718,957,000 and $275,079,000 of
unused approved lines of credit related to credit card loan agreements) at
December 31, 1995 and 1994, 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 $51,800,000, and $12,500,000 at December 31, 1995 and
1994, respectively. Credit policies in the Company's mortgage banking operations
are designed to satisfy the requirements of the secondary mortgage market.
These requirements, among others, include that the loans which are subject to
these commitments be secured by a first position in the underlying property and
meet certain maximum loan-to-value and insurance requirements.
Mandatory commitments to deliver residential mortgages are binding agreements to
sell mortgage loans to investors at fixed prices and expiration dates. The
Company could incur pair-off costs should it be unable to fulfill its
obligation, which could occur if an insufficient level of conforming closed
loans is available for delivery by the specified date. This exposure is less
than the contract amount of the commitment and is determined by the delivery
shortfall and the then current market interest rates. The Company monitors its
position relative to these commitments to deliver on a daily basis. The Company
had mandatory commitments to deliver residential mortgage loans totaling
approximately $54,105,000 and $8,916,000 as of December 31, 1995 and 1994,
respectively. The Company has an agreement to sell on a best efforts basis
$1,100,000 as of December 31, 1995.
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 $18,238,000 and $15,687,000 in letters of credit outstanding at
December 31, 1995 and 1994, respectively.
N. RELATED PARTY TRANSACTIONS
As of December 31, 1995, the subsidiary banks had various loans outstanding to
related parties (executive officers, directors, loans guaranteed by directors
and companies employing a director of a bank). 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, 1995 is shown
below:
BEGINNING ENDING
BALANCE ADDITIONS PAYMENTS BALANCE
$26,466 $92,360 $85,800 $33,026
O. 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
$968,000 in 1995, $953,000 in 1994, and $928,000 in 1993.
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 $1,009,000 in 1995, $1,016,000 in
1994, and $1,273,000 in 1993.
P. 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 1996, the
subsidiary banks have retained defined net income from 1995 and 1994 of
approximately $17,359,000.
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.
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).
CAPITAL ADEQUACY
REQUIRED ACTUAL
AMOUNT (RATIO) AMOUNT (RATIO)
As of December 31, 1995:
Tier I Capital (to Quarterly Average Assets) $70,379 (4.0%) $161,128 (9.16%)
Tier I Capital (to Risk Weighted Assets) 48,118 (4.0%) 161,128 (13.39%)
Total Capital (to Risk Weighted Assets) 96,236 (8.0%) 178,307 (14.82%)
As of December 31, 1994:
Tier I Capital (to Quarterly Average Assets) $62,576 (4.0%) $144,434 (9.23%)
Tier I Capital (to Risk Weighted Assets) 39,077 (4.0%) 144,434 (14.78%)
Total Capital (to Risk Weighted Assets) 78,153 (8.0%) 158,839 (16.26%)
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
provides for, among other things, enhanced federal supervision of depository
institutions, including greater authority for the appointment of a conservator
or receiver for undercapitalized institutions; the adoption of safety and
soundness standards by the federal banking regulators; the establishment of
risk-based deposit insurance premiums; and mandated consumer protection
disclosures with respect to deposit accounts. The prompt corrective action
regulations of the statute specifies five capital categories with the highest
rating being "well capitalized." At December 31, 1995 and 1994, each of the
Company's subsidiary banks exceeded the financial requirements for the "well
capitalized" category under such regulations.
Q. CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS (Parent Company Only) DECEMBER 31,
1995 1994
ASSETS
Cash on deposit with subsidiaries $ 56 $ 83
Securities purchased under agreement to resell
to subsidiary bank 4,130 5,720
Short-term investments 1,375 131
Cash and cash equivalents 5,561 5,934
Securities available for sale (cost of $29,704,000 and $28,242,000) 36,568 29,703
Investment in subsidiaries:
Equity in net assets of bank subsidiaries 137,135 116,771
Equity in net assets of nonbank subsidiaries 9,202 8,697
Excess cost over fair value of net assets 8,903 6,483
Premises and equipment 12,234 11,214
Other assets 3,477 2,449
-------- --------
$213,080 $181,251
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 4,459 $ 1,997
Short-term borrowings from non-bank subsidiaries 7,350 6,900
Long-term debt 21,250 23,000
Total liabilities 33,059 31,897
Stockholders' equity 180,021 149,354
-------- --------
$213,080 $181,251
-------- --------
CONDENSED STATEMENTS OF INCOME (Parent Company Only)
YEAR ENDED DECEMBER 31,
1995 1994 1993
Income:
Dividends from bank subsidiaries $11,220 $11,055 $10,304
Dividends from nonbank subsidiaries 300 1,200 -
Rent:
Subsidiaries 1,760 1,748 1,728
Other 1,162 1,152 1,076
Interest and dividend income 1,335 1,130 939
Other 415 259 356
------ ------ ------
16,192 16,544 14,403
Expenses:
Salaries and employee benefits 1,758 1,782 1,611
Interest 1,811 1,939 2,046
Interest paid to subsidiaries 554 222 -
Building expense 2,079 2,188 2,164
Other 1,850 1,703 1,659
----- ----- -----
8,052 7,834 7,480
----- ----- -----
Income before income tax benefit
and equity in undistributed
earnings of subsidiaries 8,140 8,710 6,923
Income tax benefit 1,097 1,227 1,404
----- ----- -----
Income before equity in undistributed
earnings of subsidiaries 9,237 9,937 8,327
Equity in undistributed earnings
of subsidiaries 8,183 9,095 11,433
------ ------ ------
Net income $17,420 $19,032 $19,760
------- ------- -------
CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only)
YEAR ENDED DECEMBER 31,
1995 1994 1993
Net income $17,420 $19,032 $19,760
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 728 751 601
Equity in undistributed earnings of subsidiaries (8,183) (9,095) (11,433)
Other (681) 184 (657)
------- ------- --------
Total adjustments (8,136) (8,160) (11,489)
------- ------- --------
Net cash from operating activities 9,284 10,872 8,271
Cash flows from investing activities:
Proceeds from sales and maturities of
securities available for sale 12,065 12,181 3,537
Purchase of securities available for sale (13,014) (22,529) (5,923)
Purchase of premises and equipment (1,597) (119) (360)
Other (2,417) (89) (1)
-------- -------- -------
Net cash from investing activities (4,963) (10,556) (2,747)
-------- -------- -------
Cash flows from financing activities:
Changes in short-term borrowings 450 6,900 -
Repayment of long-term debt (2,000) (2,000) (1,500)
Purchase of treasury stock (82) (1,088) -
Cash dividends paid (3,062) (2,823) (3,258)
------- ------- -------
Net cash from financing activities (4,694) 989 (4,758)
------- ------- -------
Net change in cash and cash equivalents (373) 1,305 766
Cash and cash equivalents at beginning of year 5,934 4,629 3,863
------ ------ ------
Cash and cash equivalents at end of year $ 5,561 $ 5,934 $ 4,629
------ ------ ------
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $1,842 $1,940 $1,986
Income taxes 8,805 9,521 8,641
Common stock exchanged for acquisition of bank 3,869 3,894 -
Debt exchanged for other assets 250 - -
R. 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, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
DECEMBER 31, 1995 DECEMBER 31, 1994
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
ASSETS:
Cash and cash equivalents $135,189 $ 135,189 $168,305 $168,305
Mortgages held for sale 25,574 25,731 4,803 4,803
Securities available for sale 365,494 365,494 270,213 270,213
Securities held to maturity 200,682 200,739 267,584 259,249
Net loans 998,350 1,000,930 833,102 827,276
Other financial instruments 25,210 25,210 18,188 18,188
LIABILITIES:
Demand deposits with no stated maturities 668,305 668,305 710,820 710,820
Time deposits 794,900 798,283 645,145 644,044
Securities sold under agreement to repurchase 92,726 92,726 73,132 73,132
Other short-term borrowings 5,214 5,214 - -
Long-term debt 55,519 56,760 33,000 32,540
Other financial instruments 16,318 16,318 11,929 11,929
CASH AND CASH EQUIVALENTS. For cash and cash equivalents, the carrying amount is
considered a reasonable estimate of fair value.
MORTGAGES HELD FOR SALE. The estimated fair value of these instruments is based
upon current quoted prices for the instrument or similar instruments.
SECURITIES. The estimated fair value of securities is based on quoted market
prices, dealer quotes and prices obtained from independent pricing services.
LOANS. For those loans with floating interest rates, carrying value was used as
approximate fair value. For all other loans, the estimated fair value is based
on the discounted value of projected cash flows. When using the discounting
method, loans are gathered by homogeneous groups and discounted at a rate that
would be used for similar loans at December 31, 1995 and 1994. In addition, when
computing the estimated fair value for all loans, general reserves for loan
losses are subtracted from the calculated fair value for consideration of credit
issues.
DEPOSITS. The estimated fair value of deposits with no stated maturity, such as
noninterest bearing, savings, NOW and money market checking accounts, is the
amount payable on demand. The estimated fair value of time deposits is based on
the discounted value of projected cash flows. The discount rate is the market
rate currently offered for deposits with similar original maturities.
SHORT-TERM BORROWINGS. Due to the short-term nature of repricing and maturities
of these instruments, fair value is considered carrying value.
LONG-TERM DEBT. The estimated fair value of long-term debt is based on rates
currently believed to be available to the Company for debt with similar terms
and maturities.
OTHER FINANCIAL INSTRUMENTS. All other financial instruments of a material
nature, including both assets and liabilities shown above, fall into the
definition of short-term and fair value is estimated as carrying value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS. The estimated fair value of these
instruments such as loan commitments and standby letters of credit approximates
their off-balance sheet carrying value because of repricing ability and other
terms of the contracts.
S. ACQUISITIONS
As of the close of business March 31, 1995, the Company acquired Western
Banshares, Inc. (Western) in Alliance and Bridgeport, Nebraska. Western's
subsidiary bank was immediately merged into the North Platte National Bank with
the two facilities being operated as branches starting April 1, 1995. The name
of North Platte National Bank was changed to Western Nebraska National Bank. The
Company issued 309,266 shares of First Commerce Bancshares Class B common stock
(fair value of $3,904,483) and paid $1,989,317 in cash and cash in lieu of
fractional shares, for all the outstanding common stock of Western. The
transaction has been accounted for as a purchase with resulting goodwill of
approximately $2,883,000 being amortized over 15 years. As of the close of
business on March 31, 1995, Western had total assets of $41 million.
The following unaudited pro forma consolidated financial information gives
effect to the Western Bank purchase as if it had taken place on January 1, 1994.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually would
have resulted had the combination been in effect on the dates indicated, or
which may result in the future.
1995 1994
[S] [C] [C]
Net interest income $61,217 $59,267
Noninterest income 33,873 31,378
Net income 17,401 19,137
Net income per share 1.28 1.43
As of the close of business September 30, 1994, the Company acquired Lincoln
Bank South, Lincoln, Nebraska. Lincoln Bank South was immediately merged into
the National Bank of Commerce, with the facility operated as a branch. The
Company issued 324,871 shares of its Class B Common Stock ($3,980,000 fair
market value) and paid out $2,000 in lieu of fractional shares to the common
stock shareholders of Lincoln Bank South, in exchange for their shares of
Lincoln Bank South common stock ($3,982,000 fair market value). The transaction
was accounted for as a purchase with resulting goodwill of approximately
$1,567,000 being amortized over 15 years. At September 30, 1994, Lincoln Bank
South had total assets of $34 million.
The following unaudited pro forma consolidated financial information gives
effect to the Lincoln Bank South purchase as if it had taken place on January 1,
1993. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect on the dates indicated,
or which may result in the future.
1994 1993
[S] [C] [C]
Net interest income $58,752 $57,834
Noninterest income 33,302 35,159
Net income 19,191 20,034
Net income per share 1.44 1.50
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, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Lincoln, Nebraska
February 9, 1996
SELECTED QUARTERLY FINANCIAL DATA
(In Thousands Except Per Share Data)
FIRST SECOND THIRD FOURTH ANNUAL
QUARTER QUARTER QUARTER QUARTER TOTAL
--------
(Unaudited)
1995
Total interest income $28,131 $31,286 $32,284 $32,296 $123,997
Net interest income 14,617 15,113 15,430 15,729 60,889
Provision for loan losses 696 686 700 1,413 3,495
Noninterest income 7,985 8,351 8,107 9,407 33,850
Noninterest expense 15,706 15,827 15,530 17,330 64,393
Net income 4,098 4,467 4,739 4,116 17,420
Net income per share .31 .33 .35 .30 1.29
Common stock market value *
Class A voting
high 18.50 16.25 18.50 20.00 20.00
low 15.50 16.00 16.25 17.00 15.50
Class B nonvoting
high 12.50 12.00 12.25 14.25 14.25
low 10.50 10.50 11.00 12.00 10.50
Dividends declared per share .054 .054 .054 .065 .227
1994
Total interest income $24,025 $25,252 $25,672 $26,833 $101,782
Net interest income 14,062 14,858 14,323 14,550 57,793
Provision for loan losses 71 81 81 99 332
Noninterest income 7,687 8,499 7,575 7,602 31,363
Noninterest expense 14,968 14,846 14,898 14,951 59,663
Net income 4,400 5,470 4,519 4,643 19,032
Net income per share .34 .42 .35 .35 1.46
Common stock market value*
Class A voting
high 15.25 15.75 16.00 15.50 16.00
low 13.50 13.50 15.25 14.50 13.50
Class B nonvoting
high 13.00 12.25 12.25 11.50 13.00
low 11.25 11.00 11.50 10.00 10.00
Dividends declared per share .054 .054 .054 .054 .216
[FN]
* The Company's common stock is traded in the over-the-counter market under the
NASDAQ symbol "FCBIA" for the Class A voting common stock and "FCBIB" for the
Class B nonvoting common stock. The market value ranges are based upon the high
and low closing bid prices per share for the calendar quarters indicated as
reported by NASDAQ. These quotations represent quoted prices between dealers,
do not include retail mark-up, mark-downs or commissions, and may not represent
actual transactions. As of December 31, 1995, the Company had 591 Class A
stockholders of record and 945 Class B shareholders of record.
SELECTED FINANCIAL DATA
Three-Year Average Balance Sheets / Yields and Rates
YEAR ENDED DECEMBER 31,
1995
AVERAGE AVERAGE
BALANCE INTEREST RATE
(Amounts in thousands)
ASSETS
Interest-earning assets:
Loans,
including non-accrual loans $ 917,742 $ 85,494 9.32%
Taxable investment securities 512,193 31,943 6.24
Nontaxable investment securities
(non-taxable basis) 31,788 1,610 5.06
Federal funds sold 47,134 2,966 6.29
Mortgages held for sale 12,533 1,213 9.68
Equity securities 29,639 771 2.60
--------- -------
Total interest-earning assets 1,551,029 123,997 7.99
Less allowance for loan losses (18,306)
Cash and due from banks 94,107
Premises and equipment 45,809
Other assets 37,569
---------
Total assets $1,710,208
---------
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Interest-bearing demand $ 312,994 8,350 2.67%
Savings 80,049 2,269 2.83
Time 758,347 44,537 5.87
--------- ------
Total interest-bearing deposits 1,151,390 55,156 4.79
Federal funds purchased 10,231 595 5.82
Securities sold under agreement to repurchase
and other short-term liabilities 81,992 4,240 5.17
Long-term debt 42,036 3,117 7.42
--------- ------
Total interest-bearing liabilities 1,285,649 63,108 4.91
------
Noninterest bearing demand deposits 242,602
Other liabilities 16,414
---------
Total liabilities 1,544,665
Total stockholders' equity 165,543
---------
Total liabilities and stockholders' equity $1,710,208
---------
Net interest income $60,889
------
Net interest spread 3.08%
----
Net yield on interest-earning assets 3.93%
----
SELECTED FINANCIAL DATA
Three-Year Average Balance Sheets / Yields and Rates
YEAR ENDED DECEMBER 31,
1994 1993
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
(Amounts in thousands)
$ 797,369 $ 68,380 8.58% $ 701,305 $62,559 8.92%
486,918 28,264 5.80 495,426 31,441 6.35
29,980 1,510 5.04 26,462 1,463 5.53
50,866 2,161 4.25 73,525 2,243 3.05
9,435 865 9.17 15,974 1,444 9.04
22,197 602 2.71 11,668 462 3.96
--------- ------- --------- ------
1,396,765 101,782 7.29 1,324,360 99,612 7.52
(17,988) (18,784)
98,908 96,081
44,475 44,938
34,582 34,780
--------- ---------
$1,556,742 $1,481,375
--------- ---------
$ 333,987 8,401 2.52% $ 322,066 9,070 2.82%
82,865 2,270 2.74 74,436 2,221 2.98
598,918 28,162 4.70 567,590 26,344 4.64
--------- ------ ------- ------
1,015,770 38,833 3.82 964,092 37,635 3.90
12,135 534 4.40 5,469 174 3.18
78,651 2,661 3.38 72,152 2,030 2.81
24,023 1,961 8.16 25,600 2,046 7.99
--------- ------ --------- ------
1,130,579 43,989 3.89 1,067,313 41,885 3.92
------ ------
268,053 273,583
15,745 15,173
--------- ---------
1,414,377 1,356,069
142,365 125,306
--------- ---------
$1,556,742 $1,481,375
--------- ---------
$ 57,793 $57,727
------- -------
3.40% 3.60%
---- ----
4.14% 4.36%
---- ----
[CAPTION]
SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
1995 1994 1993 1992
At December 31,
Assets $1,815,575 $1,624,138 $1,572,298 $1,452,058
Investments 566,176 537,797 520,176 495,784
Loans 1,017,367 850,292 777,695 674,352
Deposits 1,463,205 1,355,965 1,324,196 1,196,111
Long-term debt 55,519 33,000 25,000 26,500
Stockholders' equity 180,021 149,354 137,293 116,335
Year Ended December 31,
Net interest income $60,889 $57,793 $57,727 $55,303
Provision for loan losses 3,495 332 1,143 3,152
Total noninterest income 33,850 31,363 33,345 33,767
Total noninterest expenses 64,393 59,663 60,806 57,304
Net income 17,420 19,032 19,760 19,150
Per share data:
Net income $ 1.29 $ 1.46 $ 1.52 $1.47
Dividends .227 .216 .20 .188
Stockholders' equity before net unrealized gains
and losses on available for sale securities 12.58 11.49 10.24 8.93
Total stockholders' equity 13.27 11.26 10.53 8.93
Selected Ratios:
Rate of return on average:
Total assets 1.02% 1.22% 1.33% 1.41%
Stockholders' equity(1) 10.52 13.37 15.77 17.69
Average total stockholders' equity
to average total assets(1) 9.46 9.15 8.46 7.96
Common dividends payout ratio 17.58 14.83 13.19 12.79
Allowance for loan
losses to total loans 1.87 2.02 2.37 2.74
Nonaccrual and restructured
loans as a percentage of total loans .29 .30 .34 .50
Net charge-offs to
average total loans .27 .24 .16 .25
Capital Ratios:
Core capital (Tier I) (2) 13.39% 14.78% 13.43% 12.70%
Total risk based capital (3) 14.82 16.26 14.90 13.95
Leverage (4) 9.16 9.23 8.31 7.98
[FN]
(1) Stockholders' equity before net unrealized gains and losses on securities
available for sale
(2) Stockholders' equity before net unrealized gains and losses on securities
available for sale, plus minority interest, less goodwill and deposit
intangibles to risk-weighted assets (using 1995 requirements).
(3) Tier I capital plus allowance for loan losses (limited to 1.25% of risk-
weighted assets) to risk-weighted assets (using 1995 requirements).
(4) Tier I capital to quarterly average assets less goodwill.
SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
1991 1990 1989 1988 1987 1986
$1,309,613 $1,106,354 $1,019,288 $955,367 $946,037 $919,251
384,951 375,624 354,865 400,485 439,213 392,482
631,713 538,056 489,537 423,333 384,887 376,343
1,123,728 938,881 864,011 788,962 781,307 744,064
11,725 10,583 10,757 12,956 14,907 19,889
99,702 95,576 88,578 83,008 75,134 69,873
$47,547 $37,933 $34,648 $35,309 $34,456 $33,300
3,810 1,770 1,630 2,146 6,800 14,991
27,722 24,293 22,378 20,048 18,230 27,002
52,239 44,896 40,930 39,698 37,186 38,908
12,980 10,672 10,025 9,669 6,482 5,198
$ .93 $ .75 $ .69 $ .64 $ .43 $ .34
.136 .112 .102 .10 .061 .05
7.65 6.78 6.13 5.52 4.97 4.59
7.65 6.78 6.13 5.52 4.97 4.59
1.06% 1.02% 1.04% 1.03% .72% .59%
12.84 11.49 11.75 12.08 8.94 7.63
8.23 8.88 8.82 8.56 8.03 7.72
14.25 15.05 14.76 15.60 14.29 14.62
2.68 2.74 2.94 3.37 3.40 2.75
.73 .43 .85 .71 1.50 3.22
.48 .37 .26 .19 1.11 4.25
10.05% 11.16%
11.30 12.41
7.40 8.59
MANAGEMENT'S DISCUSSION AND ANALYSIS
CORPORATE RESULTS SUMMARY (Columnar amounts are in thousands)
The Company's net income during 1995 was $17,420,000 versus $19,032,000 in 1994
and $19,760,000 during 1993. On a per share basis this equates to $1.29, $1.46,
and $1.52 for 1995, 1994 and 1993, respectively. Additionally, year-end assets
reached $1,815,575,000, versus $1,624,138,000 in 1994. Average stockholders'
equity to average assets was approximately 9.5% for 1995 and 9.2% for 1994. The
cash dividend was $0.227 per share versus $0.216 per share. During the fourth
quarter the Company raised its annualized dividend from 21.6 cents to 26 cents.
This equates to a 20% increase on a per share basis.
Net income was down $1,612,000 from 1994. This can be attributed to an increase
in loan loss expense of over
$3 million and noninterest expense increases which completely offset the
increase in net interest income. Even though loan quality remains high in the
organization, significant growth in loans created the need to provide additional
expense to keep reserves at desired levels.
Year-end loans increased almost $73 million in 1994 from 1993 and increased
another $167 million during 1995. Approximately $40 million of the increase in
loans during 1995 can be attributed to the acquisition of Western Banshares,
Inc. (Western) with banking facilities in Bridgeport and Alliance, Nebraska.
Western's subsidiary bank was immediately merged into the North Platte National
Bank. The name of the new organization was changed to Western Nebraska National
Bank. During 1995, the Company also entered into a joint venture with
Cabela's, a catalog sales company, for the purpose of issuing a co-branded
credit card. This joint venture was successful in obtaining 75,000 accounts
from Cabela's customers. These accounts had almost $40 million in outstanding
receivables at year-end 1995.
Along with this increase in loans the Company saw its spread between yields on
earning assets and rates paid on interest bearing liabilities decrease. A flat
yield curve and stiff competition for deposits contributed to this decline.
EARNING ASSETS
Average earning assets in 1995 were $1.55 billion, an 11% increase over 1994
primarily caused by the loan growth referred to above. Average earning assets
were $1.40 billion in 1994, a 5.5% increase over 1993. Average loans were
$918 million and $797 million in 1995 and 1994, respectively, a 15.1% and 13.7%
increase. Loan demand has been strong during the past two years as shown by
these increases in average loans. Loan demand was led by the real estate
mortgage, commercial and consumer markets. The increase in agricultural loans in
1995 can primarily be attributed to the Western Bank acquisition. The increase
in credit card loans can be attributed to a new joint venture with Cabela's in
the issuance of a new Cabela's co-branded credit card. Average loans accounted
for 59% of average earning assets during 1995 and 57% in 1994. Average
investment securities were $574 million at December 31, 1995, a 6.4% increase
over 1994. Investment securities accounted for 37% of average earning assets
during 1995 and 39% during 1994.
SECURITY PORTFOLIO
The Company's investment securities portfolio consists of high quality
securities with primarily short to medium maturities. The Company's securities
portfolio averaged 37% of its total earning assets during 1995. As securities
matured during the year, they were reinvested in maturities up to seven years
early in the year. As rates began to drop later in the year, securities were
reinvested in relatively short term (two to three year) U.S. Treasury
securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table presents the amortized cost of the securities portfolio by
type of security as of December 31, for the years indicated.
DECEMBER 31,
1995 1994 1993
[S] [C] [C] [C]
U.S. Treasury $183,580 $226,075 $211,736
U.S. Agency 66,584 - -
State and municipal 32,777 29,676 28,164
Mortgage-backed securities 236,097 258,719 257,697
Corporate bonds 1,000 999 998
Marketable equity securities 30,755 25,960 12,999
Other securities 965 1,326 2,728
------- ------- -------
$551,758 $542,755 $514,322
------- ------- -------
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, 1995
AFTER 1 AFTER 5
UNDER THROUGH THROUGH AFTER
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
Securities held to maturity:
[S] [C] [C] [C] [C] [C]
U.S. Treasury and Agency $23,132 $15,377 $ 679 $ - $39,188
State and municipal 8,068 15,877 8,016 816 32,777
Corporate bonds 1,000 - - - 1,000
Other securities 148 193 361 263 965
------ ------ ----- ----- ------
$32,348 $31,447 $9,056 $1,079 $73,930
------ ------- ----- ----- -------
Weighted average yield to maturity:
U.S. Treasury 6.0 6.1 7.1 - 6.2
State and municipal (1) 5.0 4.9 5.5 6.0 5.1
Corporate bonds 8.7 - - - 8.7
Other securities 6.9 7.6 6.1 6.8 6.7
Securities available for sale:
U.S. Treasury and Agency $12,001 $186,078 $12,897 $ - $210,976
------ ------- ----- ----- -------
Weighted average yield to maturity:
U.S. Treasury and Agency 5.2 7.1 7.2 - 7.0
(1) Not based on taxable equivalents.
The Company owned $236 million in mortgage-backed securities at December 31,
1995. Yields in these securities can be reduced due to early prepayment. The
prepayment risk associated with mortgage-backed securities, is monitored
continuously by updating the analytics concerning prepayment speeds. Bond
accounting and asset/liability reports are adjusted accordingly.
A large portion of the mortgage-backed securities are collateralized mortgage
obligations (CMO's) which are planned amortization class (PAC) bonds. Under the
terms of a PAC contract, if the collateral prepays faster or slower than the
defined range, the contract is suspended until the collateral prepayment speed
returns to the defined range.
MANAGEMENT'S DISCUSSION AND ANALYSIS
In addition, high premium CMO's are avoided. Therefore, the risk of significant
yield adjustments because of accelerated pay downs have been moderated, but the
Company did see some yield adjustments due to early prepayments during 1993,
especially during the fourth quarter. With the rise in interest rates during
1994, the Company saw prepayments slow significantly, and the average lives
lengthened back out. The Company did not see a significant amount of prepayment
in 1995.
LOANS
As indicated previously, the Company experienced strong internal loan growth in
1995 and 1994, which for 1995 was assisted by the Western Bank acquisition and
the Cabela's joint venture. The following table presents the amount of loans by
categories and percentage of loans by categories as of December 31, for the year
indicated.
DECEMBER 31,
1995 1994 1993 1992 1991
[S] [C] [C] [C] [C] [C]
Real estate mortgage $ 295,268 $270,603 $236,202 $214,264$179,674
Consumer 263,320 228,332 187,021 173,920 158,567
Commercial and financial 201,910 166,682 169,466 124,942 133,809
Agricultural (except loans secured by
real estate; includes loans for household
and other personal expenditures) 126,414 87,758 87,338 72,346 69,786
Credit card 108,641 80,135 81,932 73,480 69,382
Real estate construction 21,814 16,782 15,736 15,400 20,495
--------- ------- ------- ------- -------
1,017,367 850,292 777,695 674,352 631,713
Less allowance for loan losses (19,017) (17,190) (18,461) (18,470)(16,912)
--------- -------- -------- -------- -------
$ 998,350 $833,102 $759,234 $655,882$614,801
------- ------- ------- ------- -------
DECEMBER 31,
1995 1994 1993 1992 1991
As a percentage of total loans:
[S] [C] [C] [C] [C] [C]
Real estate mortgage 29.0% 31.8% 30.4% 31.8% 28.4%
Consumer 25.9 26.9 24.1 25.7 25.1
Commercial and financial 19.9 19.6 21.8 18.5 21.2
Agricultural (except loans secured by
real estate; includes loans for household
and other personal expenditures) 12.4 10.3 11.2 10.7 11.1
Credit card 10.7 9.4 10.5 11.0 11.0
Real estate construction 2.1 2.0 2.0 2.3 3.2
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
The Company has no foreign loans.
The following table presents loan maturities by ranges (except for real estate
mortgage loans, credit card loans and consumer loans). Also included for loans
due after one year are the amounts which have predetermined interest rates and
floating or adjustable rates.
AS OF DECEMBER 31, 1995
DUE AFTER 1 YEAR
PRE- FLOATING
DUE DUE 1 DUE DETERMINED OR
WITHIN THROUGH AFTER INTERESTADJUSTABLE
1 YEAR 5 YEARS 5 YEARS RATE RATE
[S] [C] [C] [C] [C] [C]
Commercial and financial $113,626 $58,119 $30,165 $38,872 $49,412
Agricultural 99,396 23,112 3,906 19,024 7,994
Real estate construction 11,717 9,335 762 6,764 3,333
MANAGEMENT'S DISCUSSION AND ANALYSIS
RISK MANAGEMENT
Overall risk management is an essential part of the operation of any financial
services organization. There are three primary risk exposures: credit quality,
interest rate sensitivity and liquidity risk. Credit quality risk involves the
risk of either not collecting interest when it is due or not receiving the
principal balance of the loan or investment when it matures or is due. Interest
rate sensitivity risk is the risk of reduced net interest income because of
differences in the repricing characteristics of assets and liabilities, as well
as the change in the market value of assets and liabilities as interest rates
fluctuate. Liquidity risk is the risk that the Company will not be able to fund
its obligations.
ASSET QUALITY
The quality of the Company's loan portfolio remains exceptionally strong. A key
measure of the effectiveness of credit risk management is the percentage of the
loan portfolio that is classified as nonperforming. Nonperforming loans include
nonaccrual loans, loans 90 days or more past due and restructured loans. The
Company's nonperforming loans totaled $3.6 million at December 31, 1995, as
compared to $2.9 million at the end of 1994. As a percentage of total loans,
nonperforming loans represents only .4% and .3% of the loan portfolio at
December 31, 1995 and 1994, respectively.
Virtually all of the Company's loans, except credit cards, are to Nebraska-based
organizations. The Nebraska economy is somewhat dependent upon the general state
of the agricultural economy, which has been good in the past several years. The
agricultural economy is dependent upon government support programs, commodity
prices, weather and energy costs. Crop yields varied throughout the region
during 1995, being hurt by late planting due to a wet spring, spotty rainfall
during the summer, and an early killing frost. The prices for crops
strengthened significantly which helped to offset part of the yield reduction
from the prior year. Most of the Company's cattle feeders made some money
during 1995. Loans to cattle feeders represent the Company's largest loan
segment concentration, but the Company has been applying selective underwriting
criteria to this segment. The Company's direct agricultural loans grew almost
$40 million during 1995, primarily due to the acquisition of Western Bank in
Bridgeport and Alliance. In addition to the Company's direct agricultural
loans, 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. Farm income represents 7% of
Nebraska's personal income.
Another area of loan concentration of the Company is in real estate related
activities. This is normally one of the first areas affected by a downturn in
the economy, but the Company applies selective underwriting in evaluating
projects. Another area of significant risk in a downturn of the economy would be
in the consumer and credit card areas. Credit card loans traditionally have a
higher ratio of net charge-offs to loans outstanding than other areas in the
loan portfolio. Credit card loans had $2.6 million total net charge-offs during
1995, versus $2.3 million in 1994. The Company's level of charge-offs for credit
card loans is comparable to industry averages. Consumer loan charge-offs
increased in 1995 from abnormally low levels in the prior years. Consumer loan
charge-offs are below industry levels.
Management reviews loans regularly, placing them on nonaccrual when it considers
the collection of principal or interest questionable. Thereafter, income is not
recorded unless it is received in cash or until such time as the borrower
demonstrates an ability to pay interest and principal. During 1995, 1994 and
1993, the Company received approximately $458,000, $186,000 and $663,000 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 loan are
evaluated for charge-off once the delinquency period reaches 90 days.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management is not aware of any significant risks in the current commercial loan
portfolio due to concentrations within any particular industry other than those
previously discussed. Loans classified as commercial could be affected by
downturns in the real estate, agricultural and consumer economies due to being
directly or indirectly related to these areas.
Management believes that it carries adequate, even reasonably conservative, loan
loss reserves. However, such reserves are estimates and a change in the economy
can quickly affect the financial status of borrowers and loan quality. Such
changes can require significant adjustments in the loan loss reserve on very
short notice and are possible in the future.
The following table presents the amount of nonperforming loans for the periods
indicated:
1995 1994 1993 1992 1991
1. Nonaccrual, Past Due and
Restructured Loans
(a) Loans accounted for on
[S] [C] [C] [C] [C] [C]
a nonaccrual basis $1,700 $1,150 $1,315 $1,944 $2,400
(b) Accruing loans which are
contractually past due 90 days
or more as to principal or
interest payments 690 384 432 782 1,097
(c) Loans not included above which
are "troubled debt restructurings" 1,256 1,377 1,342 1,449 2,201
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 350 285 305 405
ii.Amount of interest income on
loans listed in categories (a) and (c)
that was included in net income
for the period. 155 153 140 198
2. Potential Problem Loans(1) 7,953 6,265 6,162 8,058
3. Foreign Outstandings - - - -
4. Loan Concentrations - - - -
(1)Balances shown are loans in which the primary source of repayment may not be
sufficient to meet the present terms of the loan. The Company believes it has
sufficient security collateral to support the current loan balance.
MANAGEMENT'S DISCUSSION AND ANALYSIS
PROVISION FOR LOAN LOSSES
The Company maintains an allowance for loan losses at a level considered by
management to be adequate to provide for the risk of possible loan losses. The
amount of the provision charged to operating expense is determined on the basis
of several factors, including reviews of individual loans, past due and
nonaccruing loans outstanding, the level of the allowance for losses in relation
to loans, actual loss experience, appraisals of the loan portfolio conducted by
the Company's internal audit staff and by Federal bank examiners, and
management's estimate of the impact of the current and future economic
conditions. The Company expensed $3,495,000, $332,000 and $1,143,000 for
estimated loan losses in 1995, 1994 and 1993, respectively.
Average loans increased $96.1 million or 13.7% during 1994 from 1993 and
increased another $120.4 million or 15.1% during 1995. Net charge-offs were
$2.5 million, $1.9 million and $1.2 million during 1995, 1994 and 1993,
respectively. In total dollars the net-charges have been increasing slightly
for the last two years, although as a percentage of average outstanding loans,
net charge-offs have not changed significantly. Management feels the overall
credit quality of the Company's loan portfolio remains very good. The increase
in loan loss expense during 1995 is primarily due to the significant growth in
loans in order to keep the loan loss reserve at desired levels. The loan loss
reserve as a percentage of loans was 1.87%, 2.02% and 2.37% at December 31,
1995, 1994 and 1993, respectively.
The following table presents an analysis of loan loss experience.
1995 1994 1993 1992 1991
Average loans and leases
for the year $917,742 $797,369 $701,305 $649,167 $589,776
-------- -------- ------- -------- --------
Reserve for loan losses:
Balance, beginning of year $17,190 $18,461 $18,470 $16,912 $14,725
Provision charged to expense 3,495 332 1,143 3,152 3,810
Bank acquisitions 843 326 - - 1,211
Loans charged off:
Real estate construction - - (332) (300) (6)
Real estate mortgage (66) (27) (102) (70) (646)
Agricultural (98) (120) (142) (101) (115)
Commercial and financial (70) (64) (135) (279) (1,262)
Consumer (1,168) (631) (502) (1,048) (1,311)
Credit card (3,255) (2,881) (1,913) (1,579) (1,393)
Loan recoveries:
Real estate construction - - 632 - -
Real estate mortgage 185 245 41 196 243
Agricultural 186 176 223 64 160
Commercial and financial 438 397 340 665 879
Consumer 636 431 370 481 351
Credit card 701 545 368 377 266
------ ------ ------ ------ ------
Net loans charged off (2,511) (1,929) (1,152) (1,594) (2,834)
------ ------ ------ ------ ------
Balance, end of year $19,017 $17,190 $18,461 $18,470 $16,912
------- ------- ------ ------- -------
Ratio of net charge-offs to
average loans .27% .24% .16% .25% .48%
--- --- --- --- ---
MANAGEMENT'S DISCUSSION AND ANALYSIS
This table presents an allocation for loan losses by loan categories; however,
the breakdown is based on a number of qualitative factors, and the amounts as
such are not necessarily indicative of actual future charge-offs in any
particular category.
1995 1994 1993 1992 1991
[S] [C] [C] [C] [C] [C]
Real estate construction $ 419 $ 331 $ 221 $ 121 $ 17
Real estate mortgage 2,902 2,927 2,476 2,073 1,077
Agricultural 3,941 2,658 2,468 1,501 1,213
Commercial and financial 3,781 3,887 4,790 4,931 4,755
Consumer 3,152 2,472 2,162 1,791 856
Credit card 4,623 3,511 2,712 1,638 1,336
Unallocated 199 1,404 3,632 6,415 7,658
------ ------ ------ ------ ------
$19,017 $17,190 $18,461 $18,470 $16,912
------ ------ ------ ------ ------
INTEREST RATE RISK
The Company's principal objective for interest rate risk management is to
control exposure of net interest income to risks associated with interest rate
movements. The Company trys to limit this exposure by matching the maturities
of its assets and liabilities, along with the use of floating rate assets which
will move with interest rate movements.
Interest rate risk is measured and reported to each of the Company's subsidiary
banks' Asset and Liability Management Committees (ALCO) through the use of
traditional gap analysis which measures the difference between assets and
liabilities that reprice in a given time period, simulation modeling which
produces projections of net interest income under various interest rate
scenarios and balance sheet strategies, and valuation modeling which measures
the sensitivity of various components to the balance sheet under various rate
scenarios. Significant assumptions include rate sensitivities, prepayment
risks, and the timing of changes in prime and deposit rates compared with
changes in money market rates.
Below is a table showing the Company's interest rate-sensitive assets (excluding
assets on nonaccrual and overdrafts) and liabilities for various time periods in
which they either mature or are repriceable (in thousands):
1 TO 91 TO 181 TO 1 TO 5 OVER
90 DAYS 180 DAYS 360 DAYS YEARS 5 YEARS TOTAL
Assets:
Investments $ 82,424 $ 23,835 $ 81,414 $353,421 $ 25,082 $ 566,176
Loans 425,136 101,264 115,199 335,081 37,646 1,014,326
Mortgages held for sale 25,574 - - - - 25,574
Federal funds sold 32,738 - - - - 32,738
565,872 125,099 196,613 688,502 62,728 1,638,814
Liabilities:
Interest-bearing
demand deposits 157,863 - - 157,863 - 315,726
Savings deposits 38,945 - - 38,945 - 77,890
Time deposits 277,070 169,158 246,853 98,762 67 791,910
Short-term
borrowings 97,940 - - - - 97,940
Long-term debt - 12,500 - 34,269 8,750 55,519
------- ------- -------- ------- ------- ---------
571,818 181,658 246,853 329,839 8,817 1,338,985
Repricing gap $ (5,946) $(56,559)$ (50,240) $358,663 $ 53,911 $ 299,829
-------- ------- ------- ------- ------- --------
Cumulative repricing gap $ (5,946) $(62,505) $(112,745) $245,918 $299,829 $ 299,829
------- ------- ------- ------- ------- --------
GAP as a % of earning assets (.36)% (3.81)% (6.88)% 15.0% 18.3% 18.3%
--- ---- ---- ---- ---- ----
[FN]
This table estimates the repricing maturities of the Company's interest
sensitive assets and liabilities based upon the company's interest rate-
sensitive assets and liabilities, based upon the Company's assessment of the
repricing characteristics of contractual and non-contractual instruments. Non-
contractual deposit liabilities are allocated among the various maturity ranges
by putting fifty per cent in 1 to 90 days and fifty per cent in 1 to 5 years.
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary business is ownership of banks. The assets of any
commercial bank are primarily funded through the use of borrowings in the form
of demand and time deposits, negotiable certificates of deposit, and short-term
funds. The Banks have demonstrated the ability to acquire short-term funds when
needed and rely primarily upon negotiable certificates of deposit, federal funds
acquired from correspondent banks, securities sold under agreement to
repurchase, and borrowed funds from the Federal Home Loan Bank. These sources
should remain accessible as long as the Banks offer competitive rates. In
addition, the Company is exploring the use of securitization of credit card
receivables to provide liquidity and fund the anticipated 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 1996, the Banks have retained
defined net income from the previous two years of approximately $17.4 million.
The parent company holds approximately $42.1 million in cash, short-term
investments and marketable securities as of December 31, 1995. The Company has
the ability to issue commercial paper which could be used to provide liquidity
to subsidiary banks. Long-term debt at December 31, 1995 consists of $21.0
million of capital notes which have a payment of $2.5 million due in 1996 and
$34.2 million of FHLB borrowings (at subsidiary banks) which have a payment of
$10 million in December of 1996.
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 13.4% and
14.8%, respectively, at December 31, 1995. These ratios are down slightly from
the 14.8% and the 16.3%, respectively, at December 31, 1994, and the 13.4% and
the 14.9%, respectively, at December 31, 1993, due to the significant loan
growth the organization incurred during 1995. Loans typically carry a higher
risk rating than other earning assets. In accordance with the regulatory
guidelines, unrealized gains and losses on the available for sale securities
portfolio are excluded from the risk-based capital calculations.
The Company's leverage ratio, the ratio of Tier 1 capital to total quarterly
average assets, was 9.2% at December 31, 1995 and 1994.
The Federal Deposit Insurance Corporation typically defines a bank to be `well
capitalized''if it maintains a Tier 1 capital ratio of a least 6.0%, a total
risk-based capital ratio of at least 10.0% and a leverage ratio of at least
5.0%. It is the Company's intention to maintain sufficient capital in each of
its subsidiary banks to permit them to maintain a `well-capitalized''
designation. All of the Company's bank subsidiaries met the `well-
capitalized''designation at December 31, 1995.
LEVERAGE RATIOS
These ratios measure the extent to which the Company has been financed by long-
term debt (before net unrealized gains and losses on securities available for
sale).
1995 1994 1993
[S] [C] [C] [C]
Long-term debt to long-term debt plus equity 24.5% 17.8% 15.8%
Total long-term debt to equity 32.5 21.6 18.7
Long-term debt to equity (parent only) 12.4 15.1 18.7
FUNDING SOURCES
Average deposits were $1.39 billion in 1995 as compared to $1.28 billion during
1994 as compared to $1.24 billion in 1993, an 8.6% and 3.7% increase,
respectively. Average interest-bearing deposits increased from $964 million in
1993 to $1,016 million in 1994, to $1,151 million in 1995, a 5.4% and 13.3%
increase, respectively. Noninterest-bearing demand deposits decreased $5.5
million or 2% in 1994 from 1993 and decreased another $25.4 million in 1995 or
9.5%. The decrease in noninterest-bearing demand deposits can be primarily
attributed to the increase in short-term interest rates during 1994 and 1995.
The Company's largest subsidiary bank, the National Bank of Commerce, provides
many services to nonaffiliated banks which are paid for by maintaining balances
in the National Bank of Commerce. As interest rates declined during 1993 and
1992, the National Bank of Commerce required the nonaffiliated banks to maintain
higher balances to pay for the services being provided. As interest rates began
to rise in 1994 these deposits started to decline.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Rates again started to decline in the latter part of 1995, which will cause non-
interest bearing deposits to increase if the trend continues.
Average time deposits increased 26.6% during 1995 as compared to 1994, while
interest-bearing demand and savings deposits decreased 5.7%. The increase in
time deposits was the result of customers switching their money from shorter-
term deposits to longer-term deposits during 1995. 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, 1995
OVER 3 OVER 6
3 MONTHS THROUGH THROUGH OVER
OR LESS 6 MONTHS12 MONTHS12 MONTHS TOTAL
------- ------ ------ ------ -------
$105,027 $53,706 $38,985 $12,609 $210,327
EARNINGS PERFORMANCE
The Company's net income for 1995 was $17,420,000, down $1,612,000 from 1994.
Net income for 1994 was $19,032,000 versus $19,760,000 in 1993. The decline in
income in 1995 was due to an increase in loan loss expense of over $3 million in
order to keep reserves at desired levels given the loan growth experienced by
the Company. Increases in noninterest expenses offset increases in net interest
income.
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 1995 was
$60.9 million as compared to $57.8 million in the prior two years. While net
interest income increased as a result of the growth in loan volume and other
earning assets previously discussed, this increase was mitigated as a result of
declining spreads.
The Company's net yield on interest-earning assets (net interest income as a
percent of average earning assets) decreased from 4.36% in 1993 to 4.14% in 1994
and to 3.93% in 1995. A flat yield curve and stiff competition for deposits
contributed to the decline in spreads and the net yield on earning assets in
1995. The Company's growth in earning assets forced it to run deposit specials
at rates higher than it would normally pay on deposits with comparable length
maturities. These specials were run early in the year and by the end of 1995
most of these specials had matured with the deposits retained at more normal
rates. With this and the Federal Reserve beginning to move short-term rates
down in the fourth quarter of 1995, the Company was starting to experience
increased spread.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The impact of these strategies can be seen in the table shown below. 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.
1995/94 1994/93
AMOUNTS AMOUNTS
ATTRIBUTABLE ATTRIBUTABLE
TO CHANGES IN TO CHANGES IN
TOTAL TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
Interest and fees on loans $10,890 $6,224 $17,114 $8,311 $(2,490) $5,821
Interest on taxable
investment securities 1,512 2,166 3,678 (532) (2,644) (3,176)
Interest on state
and municipal obligations 92 8 100 184 (137) 47
Interest on mortgages held for sale (169) 974 805 346 (785) (439)
Interest on short-term investments 496 21 517 305 (388) (83)
------ ----- ------
Total interest income 12,821 9,393 22,214 8,614 (6,444) 2,170
------ ----- ------
Interest on deposits:
Interest-bearing demand (544) 493 (51) 326 (995) (669)
Savings deposits (78) 77 (1) 240 (191) 49
Other time deposits 8,461 7,914 16,375 1,469 349 1,818
Interest on federal funds purchased (93) 154 61 274 86 360
Interest on short-term borrowings 117 1,462 1,579 194 437 631
Interest on long-term debt 1,350 (194) 1,156 (129) 44 (85)
----- ----- ------
Total interest expense 9,213 9,906 19,119 2,374 (270) 2,104
----- ----- ------
Net interest income $ 3,608 $ (513) $ 3,095 $6,240 $(6,174) $ 66
------ ------- ------ ----- ------ -----
[FN]
Nonaccruing loans have been included in average total loans. Loan fees on new
loans have been included in interest income, but the amounts of such fees are
not deemed material to total interest income. Tax-exempt interest is not on a
tax-equivalent basis.
NONINTEREST INCOME
Noninterest income continues to be a significant source of revenues. Management
has stressed the importance of growth of noninterest income to enhance the
Company's profitability. As a percentage of net revenues (net interest income
plus noninterest income), fee income was 36%, 35%, and 37% during 1995, 1994 and
1993, respectively. The following table shows the breakdown of noninterest
income and the percentage change for 1995, 1994
and 1993.
PERCENT INCREASE
(DECREASE)
1995 1994 1993 1995/94 1994/93
[S] [C] [C] [C] [C] [C]
Computer services $8,147 $ 8,293$ 8,290 (1.8)% .0%
Credit card 4,965 4,289 3,991 15.8 7.5
Mortgage banking 3,571 2,997 3,693 19.2 (18.8)
Service charges on deposits 4,893 4,849 4,766 .9 1.7
Other service charges and fees 5,293 5,007 5,566 5.7 (10.0)
Trust services 5,272 5,007 4,883 5.3 2.5
Gains on securities sales 581 182 551 219.2 (67.0)
Other income 1,128 739 1,605 52.6 (54.0)
------ ------ ------
Total noninterest income $33,850 $31,363$33,345 7.9 (5.9)
------ ------ ------
MANAGEMENT'S DISCUSSION AND ANALYSIS
The increase in noninterest income in 1995 from 1994 can be primarily attributed
to an increase in activity and rates charged. Credit card income increased
$676,000 primarily due to an increase in merchant discount income. As discussed
previously, during 1995 the Company joined in a joint venture with a large
catalog sales organization to issue a co-branded credit card to its customer
base. During the year the Company issued almost 75,000 cards from this activity
which caused an increase in bank card fee income. During the year the Company's
mortgage banking subsidiary adopted SFAS 122. The Company estimates this caused
an increase in pre-tax profits of approximately $550,000. The increase in other
income can be attributed to a $371,000 settlement from a class action lawsuit
related to a loss on bonds in 1990.
The decrease in noninterest income in 1994 from 1993 is due primarily to the
sale of mortgages in the mortgage company, resulting in a $165,000 net loss in
1994 compared to a $771,000 net gain in 1993 (included in other income above).
The loss on mortgage sales is due to interest rate increases affecting the sales
price of mortgages committed at a lower rate. In addition, the net gains from
the sale of investment securities decreased $369,000 to $182,000 in 1994.
Mortgage banking fees decreased due to a decrease in origination and other fees
associated with the refinancing phenomenon in 1993 which came to a halt with the
turnaround in interest rates in 1994. Credit card fees increased steadily due to
increased activity. Other service charges and fees decreased due to the sale of
the farm and ranch management company on January 1, 1994.
NONINTEREST EXPENSE
The emphasis on growth in fee-based services income requires significant
investments in staff, training and technology. The following table shows the
breakdown of noninterest expense and the percentage change for 1995, 1994 and
1993.
PERCENT INCREASE
(DECREASE)
1995 1994 1993 1995/94 1994/93
[S] [C] [C] [C] [C] [C]
Salaries and employee benefits $33,101 $29,647 $28,972 11.7% 2.3%
Net occupancy expense 3,815 3,552 3,613 7.4 (1.7)
Equipment expense 4,770 4,900 5,727 (2.7) (14.4)
Fees and insurance 9,616 10,293 10,776 (6.6) (4.5)
Communications 3,647 3,215 3,085 13.4 4.2
Supplies 2,395 1,911 1,820 25.3 5.0
Business development 2,649 2,624 3,841 1.0 (31.7)
Other expenses 4,373 3,708 3,963 17.9 (6.4)
64,366 59,850 61,797 7.5 (3.2)
Net cost of other real estate owned 27 (187) (991) 114.4 (81.1)
------ ------ ------
Total noninterest expense $64,393 $59,663 $60,806 7.9 (1.9)
------ ------ ------
Efficiency ratio * 68.0% 67.1% 67.8%
Average number of full-time
equivalent employees 1,015 966 960
Personnel expense per
employee (in dollars) $32,612 $30,690 $30,179
[FN]
* Computed as noninterest expense (excluding net cost of other real estate)
divided by the sum of net interest income and noninterest income.
Noninterest expenses, excluding the net cost of the other real estate owned,
were $64.4 million in 1995, $59.9 million in 1994 and $61.8 million in 1993. The
increase in salary costs is due to an increase in the number of employees and
normal year-to-year increases in the levels of pay. The increase in the number
of employees can be primarily attributed to the Western Bank acquisition and the
Cabela's joint venture which required the Company to increase its bankcard staff
to service this increase in bankcard activity. The increase in communications
is due to a general increase in telephone and courier expenses due to normal
business expansion and price inflation. The decrease in equipment expense is due
primarily to the State of Nebraska L.B. 775 agreement which refunds sales tax
based on qualified investment property purchased by the Company. These refunds
impact equipment expense through a reduction in basis and subsequent lowering of
depreciation expense. Fees and insurance expenses included bankcard processing
fees of $3.8 million in 1995, up from $3.1 million in 1994 and $2.9 million in
1993. The increase in bankcard processing fees is primarily due to the Cabela's
joint venture initiated in 1995. The increase in bankcard processing fees was
offset by decreases in FDIC assessments due to a decrease in the amount
MANAGEMENT'S DISCUSSION AND ANALYSIS
assessed per $100 of deposits from 23 cents to 4.4 cents in May 1995. The
decrease in FDIC expense in 1995 from 1994 was $1.3 million. Supplies increased
primarily due to the Company implementing check imaging on statements during the
year and the related up front costs associated with this change, combined with a
significant increase in paper costs during 1995. The increase in occupancy
expense can be attributed to the Western Bank acquisition and the NBC Superior
Street branch being open for a full year.
The decrease in noninterest expenses in 1994 from 1993 can be attributed to
several significant factors. The increase in salary costs is due to normal
year-to-year increases in the levels of pay. The increases in communications
and supplies are due to a general increase in telephone, courier, and supplies
expenses due to normal business expansion and price inflation. The decrease in
equipment expense is due primarily to the State of Nebraska L.B. 775 agreement
which refunds sales tax based on qualified investment property purchased by the
Company. Fees and insurance expenses decreased due to a decrease in the
amortization of purchased mortgage servicing rights of $570,000, which was
partially offset by an increase in FDIC assessments of $170,000 due to increased
volume of deposits and other normal inflationary cost increases, and an increase
in bank card processing fees of $460,000. The Company did not make a
contribution to the NBC Foundation in 1994 compared to a $1.0 million
contribution in 1993, explaining the decrease in business development expenses.
The net cost of real estate owned was positive (income) for 1994 and 1993. The
income in 1994 and 1993 primarily resulted from gains on property disposals. At
December 31, 1995, no other real estate property was held by the Company.
The Company believes its efficiency ratios are too high and has started an
expense reduction program. The Company has asked each of its subsidiaries to
try and reduce its efficiency ratio to sixty per cent or below, which will help
reduce the Company's overall efficiency ratio.
INCOME TAXES
The provision for income taxes was $9,431,000 in 1995, $10,129,000 in 1994 and
$9,363,000 in 1993. An increase in certain nondeductible tax expenses as set
forth in the 1993 Tax Act took effect beginning January 1, 1994. The net tax
effect of the Company's nondeductible expenses increased taxes by approximately
$60,000 in 1994 and $75,000 in 1995. The decrease in 1995 from 1994 can be
primarily attributed to a decrease in income before income taxes.
Several significant items affected 1993 income tax expense. Income taxes for
1993 were reduced by $300,000 which was the effect of adopting SFAS 109 as of
January 1, 1993. Additionally, in 1993, the Company received $172,000 in refunds
of federal income taxes paid in prior years. During 1993, Congress increased
corporate income tax rates by 1%. This increased earnings by $155,000 since
deferred income taxes are a net asset and increasing the asset produces a
benefit to earnings.
IMPACT OF INFLATION
The assets and liabilities of a financial institution are primarily monetary in
nature. As such, future changes in prices do not affect the obligations to pay
or receive fixed and determinable amounts of money. During periods of
inflation, monetary assets lose value in terms of purchasing power while
monetary liabilities have corresponding purchasing power gains. Since banks
generally have an excess of monetary assets over monetary liabilities, inflation
will, in theory, cause a loss of purchasing power in the value of shareholders'
equity. However, the concept of purchasing power is not an adequate indicator
of the effect of inflation on banks because it does not take into account
changes in interest rates, which are a more important determinant of bank
earnings. Other sections of the Management's Discussion and Analysis discuss
how the Company monitors the effect of changing interest rates on the Company's
earnings.
Noninterest related expenses are also influenced by the current rate of
inflation since they represent the Company's purchase of goods and services from
others. It is difficult to assess the true effect of inflation on the Company.
The Company believes, however, that based on past history, it has and will
continue to react to minimize any adverse effects of inflation.
MANAGEMENT'S DISCUSSION AND ANALYSIS
TRENDS AND UNCERTAINTIES
ECONOMY. The projected outlook for the Nebraska economy over the next couple of
years is for moderate growth in employment (1.6% growth), personal income (5%
annual growth), and retail sales (5% growth). Construction activity has
moderated. Many communities have a need for additional and affordable housing.
The manufacturing base in the state continues to operate at acceptable
capacities. Motor vehicle and farm equipment sales have moderated. The state's
fiscal position appears to be less certain from the standpoint of tax receipts
and possible federal funding reductions. The U. S. economy should realize
modest growth as the Federal Reserve Board attempts to control inflation and
governmental spending growth is reduced.
The results of the 1995 Nebraska farm sector should be mixed. Although crop
prices are much higher relative to last year, crop yields varied by geographic
location. Cattle feeders were modestly profitable in 1995, while ranch
operations have been realizing losses. In 1996, the "Farm Program" will be
subjected to new legislation. The necessity of reducing government spending
will reduce the "price support programs" over the course of seven years. During
the past few years, Nebraska farmers have received almost $400 million annually
in price support payments. Agricultural real estate values are stable, but
ranch land values may come under some pressure. Personal bankruptcy filings
have increased during the past few months (overextended credit).
ENVIRONMENTAL. Many environmental issues are being discussed on the national
and local level. In Nebraska, water is used to irrigate nearly six million acres
of semi-arid cropland. The state is now discussing issues relating to domestic,
agricultural, and environmental uses of water. Legislation has also been
introduced to recognize the inter-relationship between ground and surface water.
Discussions and regulations have also focused on water quality and preserving
wildlife habitat. These discussions may ultimately have an impact on the
agricultural practices.
EXPANSION ACTIVITIES. The Company is making efforts to expand activities and to
grow in order to increase net income. The Company has the capacity to expand
its computer processing business and continues to pursue and obtain additional
customers. The Company has obtained data processing business from Florida (a
new geographic client area) banks in 1996. The Company has actively attempted
to increase its mortgage banking and mortgage servicing business including the
creation of a mortgage loan origination company that is jointly owned with a
Lincoln realty company. The Company may also attempt to acquire servicing from
other servicing companies in the future. The Western Nebraska National Bank
opened a new facility in Bridgeport and a new bank facility is planned for North
Platte (Western Nebraska National Bank). The National Bank of Commerce and
Cabela's, a catalog sales company, created a joint company in 1995 for the
purpose of issuing a "co-branded" credit card. This joint company has been
successful in obtaining 75,000 accounts from Cabela's clients. In 1996, the
Company is expanding its efforts to fund vehicle leases originated by vehicle
dealerships, given that leasing is becoming a popular consumer option for
acquiring vehicles. The Company expects to make further acquisitions in the
future although there are no identified opportunities at this time.
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 statutorily-mandated 1.25 percent
reserve ratio. All of the Company's subsidiary banks presently meet the
conditions required under the new system to pay the lowest possible rate ($1,000
per six month period). Pending legislation may require the banking industry to
be assessed a portion of the FICO bond debt service costs. The plethora of
recent bank regulations has resulted in the employment of greater company
resources to ensure regulatory compliance. Risk-based capital guidelines
established by regulatory agencies set minimum capital standards based on the
level of risk associated with a financial institution's assets. As of December
31, 1995, the Company and all of its bank subsidiaries exceed the minimum
capital requirements as mandated by regulatory agencies (See Footnote P).
STOCK REPURCHASE PROGRAM. During 1994, the Board of Directors announced its
intentions of purchasing shares of its common stock when appropriate and at a
price management believes advantageous to the Company. During the year, the
Company acquired 7,140 shares of its Class B stock at an average price of
$11.60. All outstanding treasury stock was retired as of December 31, 1995.
SENIOR OFFICERS
* JAMES STUART JR.
Chairman and Chief Executive Officer
* STUART BARTRUFF
Executive Vice President and Secretary
* BRAD KORELL
Executive Vice President
* MARK HANSEN
Senior Vice President
JOAN CROMWELL
Senior Vice President and Senior Auditor
MARY GERDES
Vice President and Loan Services Manager
DONALD D. KINLEY
Vice President and Treasurer
* Executive Officer
DIRECTORS
David Calhoun
Chairman and Chief Executive Officer
Jacob North Printing
Connie Lapaseotes
Lapaseotes, Ltd.
Cattle Feeding, Ranching and Farming
John G. Lowe, III
Owner, Lowe Investment Co.
Investment Firm
Jack Osborne
President, Industrial Irrigation Services
Kenneth W. Staab
Staab Restaurant Management
James Stuart
Chairman, Stuart Management Co.
Managing of Outdoor Advertising Companies
James Stuart, Jr.
Chairman and Chief Executive Officer
First Commerce Bancshares, Inc.
Scott Stuart
Managing Partner
KJS Partnership, Outdoor Advertising
Advisory Director
Harold Wimmer
SUBSIDIARY SENIOR OFFICERS
BRAD KORELL, President
National Bank of Commerce
Lincoln, Nebraska
LARRY KLEAGER, President
First Commerce Technologies
Lincoln, Nebraska
DOUGLAS G. ALFORD, President
First Commerce Mortgage Company
Lincoln, Nebraska
NORMAN NACKERUD, Chairman
ROBERT MORRIS, President
and Chief Executive Officer
City National Bank
Hastings, Nebraska
LARRY L. JEPSON, Chairman
and Chief Executive Officer
JOHN CANNON, President
First National Bank
Kearney, Nebraska
RICK HARBAUGH, President
and Chief Executive Officer
The Overland National Bank
Grand Island, Nebraska
KENNETH W. FOSTER, Chairman
MARK JEPSON, President
and Chief Executive Officer
First National Bank
McCook, Nebraska
MICHAEL B. JACOBSON, President
Western Nebraska National Bank
North Platte - Alliance - Bridgeport, Nebraska
GERALD C. HUNKE, Chairman
ALLAN MCCLURE, President
and Chief Executive Officer
First National Bank
West Point, Nebraska
H. CAMERON HINDS, President
First Commerce Investors
Lincoln, Nebraska
CORPORATE FACTS
CORPORATE OFFICE:
NBC Center
1248 O Street
Lincoln, NE 68508
Telephone: (402) 434-4110
TRANSFER AGENT:
Chemical Mellon Shareholder Services
Mellon Bank, N.A.
P. O. Box 444
Pittsburgh, PA 15230
Telephone: (412) 236-8173
STOCK:
The Company's common stock is traded
on the over-the-counter market. Quotations
are furnished by NASDAQ Symbol FCBIA
and FCBIB.
FORM 10-K AVAILABLE:
A copy of the Company's Annual Report on
Form 10-K for the year ended December 31,
1995, as filed with the Securities and
Exchange Commission may be obtained
without charge by any shareholder requesting
it in writing. Please direct your request
to Donald Kinley, Vice President and
Treasurer, at the Corporate office.
ANNUAL SHAREHOLDERS MEETING:
April 16, 1996
Country Club of Lincoln
Lincoln, Nebraska
DIVIDEND REINVESTMENT PLAN:
The Company offers a dividend reinvestment
plan as a convenient method of investing cash
dividends paid and to make optional cash
contributions in additional shares of Class B
non-voting stock. For information on enrolling,
contact the plan administrator at the following
address:
ATTN: Dividend Reinvestment
Plan Administration
Mellon Bank, N.A.
P.O. Box 750