SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the Quarter ended March 31, 1996 Commission File No. 0-14277
FIRST COMMERCE BANCSHARES, INC.
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NEBRASKA 47-0683029
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1248 O STREET, LINCOLN, NEBRASKA 68508-1424
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (402) 434-4110
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NONE
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Former name, former address, and former fiscal year, if changes since last
report.
"Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Common stock, $.20 par value; outstanding at March 31, 1996
Class A Common 2,606,336 shares.
Class B Common 10,963,348 shares.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
[CAPTION]
(UNAUDITED)
MARCH 31, 1996 DECEMBER 31, 1995
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Cash and due from banks $ 94,824 $ 102,451
Federal funds sold 55,531 32,738
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Cash and cash equivalents 150,355 135,189
Mortgages held for sale 36,928 25,574
Securities available for sale (cost of
$383,729,000 and $351,076,000) 394,883 365,494
Securities held to maturity (fair value of
$187,060,000 and $200,739,000) 187,626 200,682
Loans 1,030,352 1,017,367
Less allowance for loan losses 20,267 19,017
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Net loans 1,010,085 998,350
Premises and equipment 47,971 48,036
Other assets 45,016 42,250
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$ 1,872,864 $ 1,815,575
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Deposits:
Non-interest bearing $ 267,505 $ 277,679
Interest bearing 1,203,421 1,185,526
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1,470,926 1,463,205
Securities sold under agreement to
repurchase 135,508 92,726
Fed funds purchased and other short-term
borrowings 7,340 5,214
Accrued expenses and other liabilities 20,827 18,890
Long-term debt 55,519 55,519
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Total liabilities 1,690,120 1,635,554
Stockholders' equity:
Common stock:
Class A voting, $.20 par value;
authorized 10,000,000 shares;
issued 2,606,336 shares; 521 521
Class B non-voting, $.20 par value;
authorized 40,000,000 shares;
issued 10,963,348 2,193 2,193
Paid in capital 21,665 21,665
Retained earnings 151,114 146,269
Net unrealized gains/(losses) on secur-
ities available for sale (net of tax) 7,251 9,373
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Total stockholders' equity 182,744 180,021
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$ 1,872,864 $ 1,815,575
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See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In Thousands Except Per Share Data)
[CAPTION]
THREE MONTHS ENDED
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MARCH 31,
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1996 1995
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Interest income:
Loans, including fees $ 23,705 $ 19,343
Investment securities:
Taxable 7,740 7,739
Non-taxable 416 356
Dividends 76 57
Mortgages held for sale 518 91
Short-term investments 542 545
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Total interest income 32,997 28,131
Interest expense:
Deposits 14,037 11,845
Short-term borrowings 1,321 1,032
Long-term debt 953 637
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Total interest expense 16,311 13,514
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Net interest income 16,686 14,617
Provision for loan losses 1,821 696
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Net interest income after provision
for loan losses 14,865 13,921
Noninterest income:
Service charges and fees to
customers 8,212 6,389
Trust services 1,764 1,260
Gains/(losses) on securities sales 767 184
Other income 430 152
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Total noninterest income 11,173 7,985
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Noninterest expense:
Salaries and employee benefits 8,764 7,930
Fees and insurance 2,452 2,484
Other expenses 6,339 5,292
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Total noninterest expense 17,555 15,706
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Income before income taxes 8,483 6,200
Income tax provision 2,756 2,102
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Net income $ 5,727 $ 4,098
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Weighted average shares outstanding 13,570 13,268
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Net income per share $ .42 $ .31
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See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
[CAPTION]
THREE MONTHS
ENDED MARCH 31,
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1996 1995
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Net cash from operating activities $(3,142) $ 2,441
Cash flows from investing activities:
Proceeds from maturities of held to maturity
securities 20,624 20,241
Proceeds from sales of held to maturity
securities - -
Purchase of held to maturity securities (7,568) (1,954)
Proceeds from maturities of available for sale
securities 12,682 23,706
Proceeds from sales of available for sale
securities 2,509 11,064
Purchase of available for sale securities (46,992) (50,453)
Net increase in loans (13,556) (15,534)
Capital expenditures (1,213) (776)
Other (9) (184)
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Net cash from investing activities (33,523) (13,890)
Cash flows from financing activities:
Increase/(decrease) in deposits 7,721 (22,112)
Increase/(decrease) in other short term
borrowings 42,782 (9,982)
Net increase in federal funds purchased 2,126 2,500
Cash dividends paid (882) (716)
Other 84 (60)
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Net cash from financing activities 51,831 (30,370)
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Net increase/(decrease) in cash and cash
equivalents 15,166 (41,819)
Cash and cash equivalents at January 1 135,189 168,305
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Cash and cash equivalents at March 31 $150,355 $ 126,486
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See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
[CAPTION]
1996 1995
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(Amounts in Thousands)
Balance, January 1 $ 180,021 $ 149,354
(Decrease)/increase in net unrealized
gains on securities available for sale (2,122) 3,681
Cash dividends declared ($.065 and $.054
per share) (882) (716)
Net income 5,727 4,098
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Balance, March 31 $ 182,744 $ 156,417
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. GENERAL
The accompanying unaudited consolidated condensed financial statements and notes
thereto contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company and its
subsidiaries as of March 31, 1996, and the results of their operations. The
consolidated condensed financial statements should be read in conjunction with the
annual consolidated financial statements and the notes thereto included in the
Company's 1995 annual report and Form 10-K. The results of operations for the
unaudited three-month period ended March 31, 1996, are not necessarily indicative of
the results which may be expected for the entire calendar year 1996.
B: ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses are summarized as follows:
1996 1995
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(Amounts in Thousands)
Balance, January 1 $ 19,017 $ 17,190
Provision for loan losses 1,821 696
Charge-offs (1,266) (1,010)
Recoveries 695 488
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Balance, March 31 $ 20,267 $ 17,364
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C. INVESTMENT SECURITIES
During the first three months of 1996 and 1995, the Company realized $767,000 and
$184,000, respectively, in profits on the sale of securities available for sale.
During the first three months of 1996 and 1995, the Company did not sell any held to
maturity securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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For the first three months of 1996, First Commerce Bancshares, Inc. and
subsidiaries (the "Company") recorded net income of $5,727,000 or $.42 per share
compared to $4,098,000 or $.31 per share for the same period one year ago.
NET INTEREST INCOME
Net interest income (interest income less interest expense) was $16,686,000 for
the first quarter of 1996 compared to $14,617,000 for the first quarter of 1995,
a 14.2% increase due primarily to a $244 million increase in earning assets from
March 31, 1995. Included in interest income is $327,000 of interest on a loan
previously charged off. The net yield on earning assets (net interest income
divided by earning assets) was approximately 4.1% and 4.2% as of March 31, 1996
and 1995, respectively. Loans were $1,030 million at March 31, 1996, compared
to $865 million at the same time one year ago, a 19% increase.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1,821,000 for the first quarter of 1996, as
compared to $696,000 for the first quarter of 1995, a 162% increase. The
increase was necessary to keep pace with the increased loan growth and
management's desire to maintain the reserve at adequate levels. As a percentage
of loans outstanding, the loan loss reserve was 2.0% as of March 31, 1996 and
1995. Total first quarter 1996 net charge-offs were $571,000 compared to
$522,000 for the same period a year ago. Net credit card charge offs totaled
$876,000 or 3.0% of average outstanding credit card balances. There has been no
major change in the overall quality of the loan portfolio since December 31,
1995.
The following table presents the amount of non performing loans:
March 31, 1996 December 31, 1995
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[S] [C] [C]
Loans accounted for on a non
accrual basis $1,710,000 $1,700,000
Accruing loans which are contractually
past due 90 days or more as to
principal or interest payment $1,961,000 $1,099,000
Loans not included above which
are "troubled debt restructurings" $1,758,000 $1,256,000
As a result of the farm and ranching economic conditions and the timing of ag
loan renewals, the increase in loan delinquencies is made up primarily of
agricultural loans. The Company is in the process of resolving the
delinquencies and material losses are not expected. The increase in troubled
debt restructurings is related to one livestock operation. Additional
collateral secured in the restructuring strenthens the Company's position and
decreases risks associated with the loan. 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.
NONINTEREST INCOME
Noninterest income for the first three months was $11,173,000 as compared to
$7,985,000 for the first three months of 1995, a 39.9% increase. Credit card
fees increased $1,111,000 primarily due to an increase in merchant discount
income. This is primarily the result of adding one major new merchant customer.
Mortgage banking revenues increased $353,000 because of additional underwriting
and servicing income. Extra liquidity in the banking system is partially
responsible for the $259,000 increase in other service charges and fees
including fees paid by correspondent banks related to fed funds and bond
investments purchased through the National Bank of Commerce. Increased long-
term interest yields also contributed to the additional bond investment
purchases by correspondent banks. First quarter 1996 trust services fees
increased over $500,000 compared to the same period a year ago due primarily to
an increase in activity and an increase in the value of assets being managed.
Gains on the sale of available for sale securities were $767,000 in the first
quarter of 1996 as compared to $184,000 in the first quarter of 1995, a $583,000
increase. These gains were the result of selling certain positions held in the
Company's Global Fund. Losses on the sale of mortgages were $41,000 for the
first three months of 1995 while the first three months of 1996 showed gains on
the sale of mortgages of $77,000. Other noninterest income of $430,000 through
March 31, 1996, includes $257,000 interest received on a federal income tax
refund.
The following table shows the breakdown of noninterest income and the percentage
change:
Percent
(In Thousands) Increase/
1996 1995 (Decrease)
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[S] [C] [C] [C]
Computer services $ 2,200 $2,160 1.9%
Credit card 2,003 892 124.6
Mortgage banking 1,184 831 42.5
Service charges on deposits 1,234 1,174 5.1
Other service charges and fees 1,591 1,332 19.4
Trust services 1,764 1,260 40.0
Gains on securities sales 767 184 316.8
Other income 430 152 182.9
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Total noninterest income $ 11,173 $7,985 39.9
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NONINTEREST EXPENSE
Noninterest expenses increased $1,849,000 or 11.8% from a year ago. Salaries
and employee benefits increased $834,000 or 10.5% due to increases in the levels
of pay, an increase in the number of employees -- especially bank card employees
and employees related to the April 1, 1995 bank acquisition -- and to increased
accruals for the Company's profit sharing plan. Fees and insurance expenses
decreased 37.5%. Because of lower assessment rates beginning in June 1995,
first quarter 1996 FDIC fees were $59,000 compared to $744,000 for the first
quarter of 1995. Bank card processing fees increased $373,000 due to increased
activity. Supplies expense increased $161,000 due primarily to increased paper
costs. In addition, First Commerce Technologies image operations and backroom
operation expenses, not in existence at the same time one year ago, increased
comparative supplies expense. Business development expenses increased $293,000
mainly due to increased bank card marketing.
Other expenses increased 26.2% from a year ago. In accordance with generally
accepted accounting principles, First Commerce Mortgage expensed $241,000 to
mark to market its pipeline and loans held for sale, compared to $27,000 expense
reversal in the first quarter of 1995. In addition, due to a change in an
accounting principle in 1995, and subsequent increase in capitalized mortgage
servicing rights, service release fees amortization increased $198,000 over the
same quarter one year ago. The April 1995 bank acquisition is the cause of the
62% increase in goodwill amortization expense.
The following table shows the breakdown of noninterest expense and the
percentage change:
Percent
(In Thousands) Increase/
March 31, 1996 March 31, 1995 (Decrease)
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Salaries and employee benefits $ 8,764 $ 7,930 10.5%
Net occupancy expense 1,075 931 15.5
Equipment expense 1,345 1,221 10.2
Fees and insurance 1,008 1,612 (37.5)
Bank card fees 1,104 731 51.0
Communications 989 849 16.5
Supplies 643 482 33.4
Business development 872 579 50.6
Other expenses 1,625 1,288 26.2
Goodwill amortization 128 79 62.0
Net cost of other real estate owned 2 4 (50.0)
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Total noninterest expense $ 17,555 $ 15,706 11.8
========= ========
The Company's efficiency ratio -- noninterest expense (excluding net cost of
ther real estate and goodwill amortization) divided by the sum of net interest
ncome and noninterest income -- was 62.5% and 69.1% at March 31, 1996 and 1995,
respectively.
An unexpected and unaccrued for $238,000 federal income tax refund was received
by the Company, which decreased the first quarter income tax provision.
FINANCIAL CONDITION AT MARCH 31, 1996
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Total assets at March 31, 1996, were $1,873 million, compared to $1,816 million
at December 31, 1995, a 3.1% increase. Cash and cash equivalents increased $15
million, investments increased $16 million, mortgages held for resale increased
$22 million, and loans increased $13 million. Total assets at March 31, 1995,
were $1,601 million.
Since March 31, 1995, loans have increased from $865 million to $1,030 million,
a 19% increase. Approximately $40 million of this came from the acquisition of
the Western Banshares, Inc. in Alliance and Bridgeport in April 1995, and new
business relationships generated in that area since that time. In addition,
another $48 million is the result of a joint venture with Cabela's in Sidney,
NE. The two organizations entered into an agreement to issue a co-branded
credit card in 1995, which has resulted in the issuance of over 85,000 new
credit cards with almost $48 million in receivable balances as of March 31,
1996. First quarter 1996 also recorded a significant number of new banking
relationships due primarily to a local major competitor ownership change.
Loans are summarized as follows: March 31, 1996 December 31, 1995
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(In thousands)
Real estate mortgage $296,836 $295,268
Consumer 268,408 263,320
Commercial and financial 216,726 201,910
Agricultural 100,798 126,414
Credit card 118,246 108,641
Real estate construction 29,338 21,814
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$1,030,352 $1,017,367
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The decline in agricultural loans is primarily the result of seasonal
fluctuations. As grain farmers go into the planting season, these loans could
increase during the next quarter. In addition, due to high corn prices, cattle
feeders have been reducing the amount of cattle on feed, which contributed to
the decrease in total agricultural loans. The increase in credit card loans is
due to the maturing of the Cabela's credit cards issued in the fourth quarter of
1995.
The loan to deposit ratio was 70% at March 31, 1996, compared to 69.5% at
December 31, 1995, and 64.9% at March 31, 1995. Short-term borrowings
consisting chiefly of repurchase agreements totaled $143 million at March 31,
1996, compared to $98 million at December 31, 1995. The increase in repurchase
agreements was due primarily to a short-term increase from public funds. A
substantial portion has flowed back out since the end of the quarter. Long-term
debt has not changed since December 31, 1995, but has increased since March 31,
1995, due to additional borrowings from the Federal Home Loan Bank by the
subsidiary banks.
In order to fund the increase in loan activity which is unmatched by similar
deposit growth, as well as address interest rate risk inherent in the Company's
core banking activities (lending and deposit products), future additional off-
balance sheet strategies include the use of a credit card securitization
program. In the second quarter, the Company will enter into an agreement to
sell a portion of the Company's credit card receivables, approximately
$50,000,000, to investors through the use of a credit card master trust and sale
of collateralized certificates of ownership in the trust. The Company will
retain no liability via establishing a loss reserve fund. A portion of the
interest, fees and interchange income on the receivables will be allocated to a
reserve fund. In case of defaults, proceeds will be taken from the reserve to
pay investors. In addition, the Company has received a D2 (strong degree of
safety) Duff & Phelps credit rating which will allow the Company to issue
commercial paper. This issuance of commercial paper is expected to provide $10
million of short term borrowings to meet operational needs in the next year.
Stockholders' equity to assets was 9.4% as of March 31, 1996 and December 31,
1995. The net unrealized gains on available for sale securities decreased
$2,122,000 since December 31, 1995, due to an increase in interest rates and the
resultant decline in the value of the investment portfolio.
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
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Required Actual
Amount (Ratio) Amount (Ratio)
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As of March 31, 1996: (In Thousands)
Tier I Capital (to Quarterly Average Assets) $ 72,704 (4.0%) $ 166,702 (9.17%)
Tier I Capital (to Risk Weighted Assets) 49,681 (4.0%) 166,702 (13.42%)
Total Capital (to Risk Weighted Assets) 99,362 (8.0%) 184,360 (14.84%)
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%)
The Company is undertaking a new building project at Western Nebraska National
Bank. The Bridgeport branch recently moved into a new building and held a grand
opening in January 1996. Construction has started on a new North Platte
building with an estimated total cost of $4,000,000 and an estimated completion
date in first quarter of 1997. Funds for the capital expenditures are expected
come from operations.
NEBRASKA ECONOMY
The outlook for the Nebraska economy is for moderate growth in employment (low
unemployment), personal income, and retail sales. Construction activity has
improved. 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. Property tax relief is being proposed (tax shift?).
The outlook of the 1996 Nebraska farm sector is mixed. Although crop prices are
much higher relative to last year, crop yields will depend on growing conditions
(precipitation to date is below normal). Cattle feeders and ranch operations
have been realizing losses. Agricultural real estate values are higher, but
ranch land values have come under some pressure. Personal bankruptcy filings
have increased during the past few months (overextended credit). The impact of
the new farm program legislation should be favorable in the short-run.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a)Exhibits - none
(b)None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMERCE BANCSHARES, INC.
Date: May 8, 1996 By: James Stuart, Jr.
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James Stuart, Jr., Chairman and CEO
Date: May 8, 1996 By: Donald Kinley
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Donald Kinley, Vice President and
Treasurer (Chief Accounting Officer)