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 June 30, 1998 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 June 30, 1998 Class A Common
2,591,336 shares.
Class B Common 10,938,951 shares.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In Thousands)
(Unaudited)
June 30, 1998 December 31, 1997
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Cash and due from banks $ 142,428 $ 156,664
Federal funds sold 26,785 36,495
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Cash and cash equivalents 169,213 193,159
Mortgages held for sale 51,701 31,360
Securities available for sale (cost of
$304,078,000 and $303,172,000) 327,308 336,857
Securities held to maturity (fair value of
$393,172,000 and $367,489,000) 388,265 362,768
Loans 1,222,916 1,236,443
Less allowance for loan losses 22,691 22,458
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Net loans 1,200,225 1,213,985
Premises and equipment 57,869 54,468
Other assets 65,029 58,503
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$ 2,259,610 $ 2,251,100
=========== ===========
Deposits:
Noninterest bearing $ 350,569 $ 353,109
Interest bearing 1,336,604 1,296,385
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1,687,173 1,649,494
Securities sold under agreement to repurchase and
other short-term borrowings 169,507 198,395
Federal Home Loan Bank borrowings 117,750 120,450
Accrued expenses and other liabilities 31,849 34,011
Long-term debt 13,669 16,170
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Total liabilities 2,019,948 2,018,520
Stockholders' equity:
Common stock:
Class A voting, $.20 par value; authorized
10,000,000 shares; issued and outstanding
2,591,336 shares; 518 518
Class B non-voting, $.20 par value; authorized
40,000,000 shares; issued and outstanding
10,938,951 shares 2,188 2,188
Paid in capital 21,601 21,601
Retained earnings 199,802 186,377
Net unrealized gains on securities available for
sale (net of tax) 15,553 21,896
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Total stockholders' equity 239,662 232,580
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$ 2,259,610 $ 2,251,100
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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)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- ---------
Interest income:
Loans $ 27,681 $25,381 $55,299$ $49,934
Investment securities:
Taxable 10,277 10,075 20,275 19,746
Non-taxable 365 357 716 716
Dividends 606 374 1,056 580
Mortgages held for sale 945 325 1,658 599
Short-term investments 611 754 985 1,209
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Total interest income 40,485 37,266 79,989 72,784
Interest expense:
Deposits 15,896 15,105 31,177 29,509
Short-term borrowings 2,191 2,261 4,474 3,940
Federal Home Loan Bank borrowings 1,444 438 2,914 1,242
Long-term debt 317 368 662 765
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Total interest expense 19,848 18,172 39,227 35,456
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Net interest income 20,637 19,094 40,762 37,328
Provision for loan losses 1.484 1,640 2,980 4,224
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Net interest income after provision for loan losses 19,153 17,454 37,782 33,104
Noninterest income:
Service charges and fees to customers 12,400 9,445 24,308 18,940
Trust services 1,642 1,690 3,378 3,665
Gains on securities sales 1,457 1,358 2,296 4,613
Other income 512 168 1,021 634
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Total noninterest income 16,011 12,661 31,003 27,852
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Noninterest expense:
Salaries and employee benefits 10,731 9,695 21,435 19,397
Occupancy and equipment 2,520 2,340 4,848 4,498
Fees and insurance 3,644 2,600 7,046 5,257
Other expenses 5,679 4,763 11,086 9,395
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Total noninterest expense 22,574 19,398 44,415 38,547
-------- ------- -------- --------
Income before income taxes 12,590 10,717 24,370 22,409
Income tax provision 4,485 3,817 8,645 7,946
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Net income $ 8,105 $ 6,900 $ 15,725 $ 14,463
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Weighted average shares outstanding 13,530 13,546 13,530 13,547
======== ======= ======== ========
Basic net income per share $ .60 $ .51 $ 1.16 $ 1.07
======= ====== ======= =======
See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited) (In Thousands)
Six Months Ended
June 30,
1998 1997
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Net cash flows from operating activities $ (6,175) $ 13,507
Cash flows from investing activities:
Proceeds from maturities of held to maturity securities 53,435 26,810
Purchase of held to maturity securities (78,932) (84,290)
Proceeds from maturities of available for sale securities 27,684 26,476
Proceeds from sales of available for sale securities 10,903 37,421
Purchase of available for sale securities (36,889) (11,619)
Net decrease/(increase) in loans 10,780 (6,677)
Capital expenditures (5,951) (5,019)
Proceeds from derivative financial instrument 697 -
Other (5) (12)
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Net cash flows from investing activities (18,278) (16,910)
Cash flows from financing activities:
Increase in deposits 37,679 21,928
(Decrease)/Increase in securities sold under agreement
to repurchase and other short-term borrowings (28,888) 42,418
Net decrease in Federal Home Loan Bank borrowings (2,700) (41,444)
Cash dividends paid (2,300) (2,034)
Repayment of long term debt (2,501) (2,535)
Other (783) (69)
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Net cash flows from financing activities 507 18,264
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Net (decrease)/increase in cash and cash equivalents (23,946) 14,861
Cash and cash equivalents at January 1 193,159 159,837
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Cash and cash equivalents at June 30 $169,213 $174,698
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See notes to consolidated condensed financial statements.
FIRST COMMERCE BANCSHARES, INC. & SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
A. GENERAL
The accompanying unaudited consolidated condensed financial statements and notes
thereto contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
and its subsidiaries as of June 30, 1998, 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 1997 annual report and Form 10-K. Certain 1997 amounts have
been reclassified to conform to 1998 classifications. The results of operations
for the unaudited six-month period ended June 30, 1998, are not necessarily
indicative of the results which may be expected for the entire calendar year
1998.
B. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for the loan losses are summarized as follows:
1998 1997
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(Amounts in Thousands)
Balance, January 1 $22,458 $20,157
Provision for loan losses 2,980 4,224
Charge-offs (4,071) (4,187)
Recoveries 1,324 1,540
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Balance, June 30 $22,691 $21,734
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C. INVESTMENT SECURITIES
During the first six months of 1998 and 1997, the Company realized $2,296,000
and $4,613,000, respectively, in profits on the sale of securities available for
sale. During the first six months of 1998 and 1997, the Company did not sell any
held to maturity securities.
D. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS130), "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. The Company's "other
comprehensive income" is comprised of unrealized gains and losses on debt and
equity securities classified as available for sale. "Other comprehensive income"
for the first six months of 1998 and 1997 was a negative $6,343,000, net of tax;
and a positive $5,431,000, net of tax, respectively. Thereby, total
"comprehensive income" for the first six months of 1998 was $9,382,000 as
compared to book net income of $15,725,000. For the first six months of 1997
total "comprehensive income" was $19,894,000 as compared to book net income of
$14,463,000.
The 1998 decrease in unrealized gains and losses on debt and equity securities
classified as available for sale since December 31, 1997, was due principally to
the decline in the market value of Transcrypt International, Inc., a Lincoln,
Nebraska based company that first sold shares in the public stock market in
1997. At December 31, 1997, the Company's original investment of $429,000 had a
market value of $17 million; at June 30, 1998, the stock had a market value of
$2.5 million. The decline in the market value of Transcrypt was partially offset
by a net increase in market value of other available for sale securities of
$4,031,000. During the first quarter of 1998, the Company settled a collar on
200,000 shares of Transcrypt and realized $697,000. Under the deferral method of
accounting, the gain, net of tax, was deferred and will be recognized in the
same period as the gains or losses on the item being hedged.
FINANCIAL REVIEW
Six Months Ended June 30, 1998 and 1997
Results of Operations
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Net income for the six months ended June 30, 1998, was $15,725,000 or $1.16 per
share as compared to $14,463,000 or $1.07 per share for the same period one year
ago. Net income for the three months ended June 30, 1998, was $8,105,000 or $.60
per share as compared to $6,900,000 or $.51 per share for the same period one
year ago. Net income for the first six months of 1998 includes $2,296,000 in
pre-tax gains primarily from the sale of investments in the Company's Global
Fund, as compared to pre-tax gains of $4,613,000 for the same period one year
ago. If the securities gains were excluded for both periods, net income would
have been $14,233,000 and $11,465,000, respectively. On a per share basis,
earnings would have been $1.05 per share and $.85 per share respectively.
Net Interest Income
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Net interest income (interest income less interest expense) was $20,637,000 for
the second quarter of 1998, compared to $19,094,000 for the second quarter of
1997, and $20,125,000 for the first quarter of 1998. The primary reason for the
increase in net interest income was an increase in earning assets. Earning
assets at June 30, 1998, June 30, 1997, and December 31, 1997 were $2,017
million, $1,865 million, and $2,004 million, respectively. The net yield on
earning assets (net interest income divided by earning assets) decreased
slightly to approximately 4.14% as of June 30, 1998 from 4.22% as of June 30,
1997. Loans were $1.223 billion at the end of June 1998, as compared to $1.125
billion at the same time a year ago, an 8.7% increase. Investments were $716
million at June 30, 1998, compared to $669 million at June 30, 1997, a 7.0%
increase.
Provision for Loan Losses
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The provision for loan losses was $2,980,000 for the first half of 1998, as
compared to $4,224,000 for the first half of 1997, a 29.5% decrease. For the
first six months of 1998 net charge-offs were $2,747,000 compared to $2,647,000
for the same period a year ago. Credit card charge offs have stabilized in the
past year. Net credit card charge offs totaled $2.5 million for the first half
of 1998 and for the first half of 1997. As a percentage of loans outstanding,
the loan loss reserve was 1.9% as of June 30, 1998 and 1997. Overall, management
believes the credit quality of the loan portfolio remains sound, with no major
change in the overall quality of the loan portfolio since December 31, 1997,
although management will continue to monitor credit card quality and other loan
trends.
The following table presents the amount of non-performing loans:
June 30, 1998 December 31, 1997
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Loans accounted for on a non
accrual basis $1,280,000 $1,581,000
Accruing loans which are contractually
past due 90 days or more as to
principal or interest payment 1,301,000 1,106,000
Loans not included above which
are "troubled debt restructurings" 1,466,000 1,530,000
The accruing loans that are contractually past due 90 days or more are in the
process of resolution. Non accrual loans and troubled debt restructurings have
decreased since December 31, 1997, due primarily to the pay off of one
agricultural 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. The Company has $168 million in agricultural loans. The Company is
concerned about low agricultural commodity prices. Fat cattle feeders have lost
money for thirteen consecutive months. Although overall yields look good for
grain producers, grain prices are at three-year lows. Current weather conditions
and world economic conditions are such that improvement in the general
agricultural economy is not likely over the near term. Although the Company's
borrowers are in relatively good financial condition, the tough environment they
are working under will have a negative effect on agricultural producers in
general, and will have a negative impact on the entire farm economy, and thus
could have a negative impact on the Company.
Noninterest Income
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Noninterest income for the first six months was $31,003,000 compared to
$27,852,000 for the first six months of 1997, an 11.3% increase. If securities
gains were excluded, noninterest income would have been $28,707,000 compared to
$23,239,000, a 23.5% increase. Computer fees increased $1,015,000 or 24.5% due
to an increase in conversion and annual processing fees. Credit card fees
increased $1,141,000 primarily due to an increase in interchange and merchant
income. Mortgage banking income increased 66.0% over the same period one year
ago because of the large volume of mortgage refinancings in the first half of
1998. In September 1997, the Company converted its common trust funds to mutual
funds, the "Great Plains Family of Funds." Fees earned from these mutual funds
are included in other service charges and fees, which accounts for the 44.8%
increase in this income category. This also accounts for the 7.8% decrease in
trust services income. Gains on the sale of securities were $2,296,000 in the
first six months of 1998 as compared to $4,613,000 in the first six months of
1997, a $2,317,000 decrease. These gains were primarily the result of selling
certain positions held in the Company's Global Fund. Other income increased
61.0% from the same period a year ago, primarily due to an increase in the gain
on sale of mortgages held for sale.
The following table shows the breakdown of noninterest income and the percentage
change:
(In Thousands) Percent
June 30, Increase/
1998 1997 (Decrease)
------- ------- ----------
Computer services $ 5,158 $ 4,143 24.5%
Credit card 7,173 6,032 18.9
Mortgage banking 4,116 2,479 66.0
Service charges on deposits 2,644 2,684 (1.5)
Other service charges and fees 5,217 3,602 44.8
Trust services 3,378 3,665 (7.8)
Gains on securities sales 2,296 4,613 (50.2)
Other income 1,021 634 61.0
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Total noninterest income $31,003 $27,852 11.3
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Noninterest Expense
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Noninterest expenses were $44,415,000 for the first six months of 1998 as
compared to $38,547,000 for the same period one year ago. This is an increase of
$5.9 million or 15.2% from a year ago. Salaries and employee benefits increased
$2,038,000 or 10.5% generally due to increases in the levels of pay and number
of employees. Equipment expenses increased $396,000 or 16.4% due to additional
equipment purchases, primarily computer related. Fees and insurance increased
$292,000 or 16.1% from the same period one year ago primarily due to increased
legal, credit report and filing fees. Credit card processing fees increased
$1,497,000 due to increased activity and an increase in Cabela's bucks expense,
points earned from using the Cabela's credit card, which can be redeemed for
merchandise at Cabela's. A decrease in minority interest expense is related to
the decrease in profits in the Cabela's credit card joint venture. Amortization
of mortgage servicing rights increased $1,159,000 or 129.1% due to an increase
in the volume of mortgages serviced by First Commerce Mortgage combined with a
significant increase in refinancings during the first half of 1998, which
results in the early write-off of capitalized mortgage servicing rights on loans
being refinanced.
The following table shows the breakdown of noninterest expense and the
percentage change:
(In Thousands) Percent
June 30, Increase/
1998 1997 (Decrease)
-------- --------- ----------
Salaries and employee benefits $21,435 $19,397 10.5%
Net occupancy expense 2,037 2,083 (2.2)
Equipment expense 2,811 2,415 16.4
Fees and insurance 2,101 1,809 16.1
Credit card fees 4,945 3,448 43.4
Communications 2,144 2,180 (1.7)
Supplies 1,319 1,230 7.2
Business development 1,992 1,658 20.1
Other expenses 2,826 2,521 12.1
Minority interest 493 653 (24.5)
Goodwill amortization 255 255 --
Amortization of mortgage servicing rights 2,057 898 129.1
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Total noninterest expense $44,415 $38,547 15.2
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The Company's efficiency ratio -- noninterest expense (excluding net cost of
other real estate, minority interest and goodwill amortization) divided by the
sum of net interest income and noninterest income (excluding securities
gains/losses) -- was 62.8% and 62.4% at June 30, 1998 and 1997, respectively.
Financial Condition at June 30, 1998
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Total assets at June 30, 1998, were $2,260 million, compared to $2,068 million
at June 30, 1997, a 9.3% increase. Total assets at December 31, 1997, were
$2,251 million.
Since June 30, 1997, loans have increased from $1,125 million to $1,223 million,
an 8.7% increase. Managed loans at June 30, 1998 were $1,307 million.
Loans are summarized as follows: June 30, 1998 June 30, 1997
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(In thousands)
Real estate mortgage $ 400,892 $ 359,901
Consumer 269,475 276,930
Commercial and financial 257,290 249,498
Agricultural 168,634 109,828
Credit card 89,209 96,853
Real estate construction 37,416 32,259
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$1,222,916 $1,125,269
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The increase in agricultural loans is primarily in the cattle feeding sector
reflecting higher cattle inventories at June 30, 1998. Decreases in the consumer
and bankcard portfolios are due primarily to increased competition in these
markets as well as significant debt refinancings via home equity loans and home
loan refinancings. Increases in the balance of the loan portfolio are
attributable to the overall good economic growth in the State of Nebraska.
Deposits have increased from $1,596 million at June 30, 1997 to $1,687 million
at June 30, 1998, a 5.7% increase. The loan to deposit ratio was 72.5% as of
June 30, 1998, compared to 70.1% at June 30, 1997. Repurchase agreements and
other short-term borrowings totaled $170 million at June 30, 1998, compared to
$184 million at June 30, 1997, and $198 million at December 31, 1997. Federal
Home Loan Bank borrowings totaled $118 million at June 30, 1998, compared to $32
million at June 30, 1997, and $120 million at December 31, 1997. Long-term debt
consisting of Company capital notes decreased $2.5 million since June 30, 1997
and December 31, 1997 because of the annual principal payment. In addition to
repurchase agreements and Federal Home Loan Bank borrowings, the Company has
utilized commercial paper and the securitization of credit card receivables to
provide liquidity.
Stockholders' equity to assets was 9.9% as of June 30, 1998. The net unrealized
gains on available for sale securities decreased $6,343,000 since December 31,
1997.
The 1998 decrease in unrealized gains and losses on debt and equity securities
classified as available for sale since December 31, 1997, was due principally to
the decline in the market value of Transcrypt International, Inc., a Lincoln,
Nebraska based company that first sold shares in the public stock market in
1997. At December 31, 1997, the Company's original investment of $429,000 had a
market value of $17 million; at June 30, 1998, the stock had a market value of
$2.5 million. The decline in the market value of Transcrypt was partially offset
by a net increase in market value of other available for sale securities of
$4,031,000. During the first quarter of 1998, the Company settled a collar on
200,000 shares of Transcrypt and realized $697,000. Under the deferral method of
accounting, the gain, net of tax, was deferred and will be recognized in the
same period as the gains or losses on the item being hedged.
On June 29, 1998, the Company opened a new national-chartered bank, Western
Nebraska National Bank, Valentine, Nebraska. The new Valentine bank purchased
the assets and assumed the liabilities of the existing Loan Production Offices
in Valentine, Nebraska, and Mullen, Nebraska, from the Company's North Platte
Bank, Western Nebraska National Bank, North Platte, Nebraska. The new Valentine
bank opened with assets of approximately $14 million.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Tier I capital (as defined in the regulations) to total average
assets (as defined), and minimum ratios of Tier I and total capital (as defined)
to risk-weighted assets (as defined). The Company's and the National Bank of
Commerce's (the Company's most significant bank subsidiary) actual capital
amounts and ratios are presented in the following table:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ------------------ ------------------
As of June 30, 1998:
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Total Capital (to Risk Weighted Assets):
Consolidated $238,876 16.8% $114,035 8.0% N/A N/A
National Bank of Commerce 113,126 12.6 71,583 8.0 $89,479 10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated 218,932 15.4 57,017 4.0 N/A N/A
National Bank of Commerce 101,941 11.4 35,792 4.0 53,687 6.0
Tier I Capital (to Quarterly Average Assets):
Consolidated 218,932 9.9 88,885 4.0 N/A N/A
National Bank of Commerce 101,941 8.0 50,856 4.0 63,571 5.0
As of December 31, 1997:
- ------------------------
Total Capital (to Risk Weighted Assets):
Consolidated $226,623 14.9% $121,724 8.0% N/A N/A
National Bank of Commerce 108,772 12.1 71,956 8.0 $89,945 10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated 205,459 13.5 60,862 4.0 N/A N/A
National Bank of Commerce 97,499 10.8 35,978 4.0 53,967 6.0
Tier I Capital (to Quarterly Average Assets):
Consolidated 205,459 9.7 84,362 4.0 N/A N/A
National Bank of Commerce 97,499 8.1 48,046 4.0 60,058 5.0
Year 2000
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The Company's assessment of internal Year 2000 issues is complete and the
Company is in the process of upgrading any computer hardware, software, and
other systems that are not Year 2000 ready and intends to have the upgrades
completed by the end of 1998. The Company plans to have all systems modified if
necessary and tested well in advance of 2000. The Company will continue testing
its systems throughout 1999 to insure they will function properly. In addition,
connectivity testing will be performed between the Company and outsource service
providers during 1999. Contingency plans are already in place or will be
established for any outsource service providers failing to meet internal testing
criteria. The Company is addressing the Year 2000 issue with its major bank
customers to insure they will be Year 2000 ready.
The Company estimates the total costs, including costs incurred to date, of
addressing Year 2000 issues will be approximately $2 million. Scheduled systems
upgrades and enhancements, which would have taken place anyway, are not included
as a Year 2000 expense, even though some might include a Year 2000 solution.
Forward Looking Information
---------------------------
When used or incorporated by reference in disclosure documents, the words
"anticipate," "estimate," "expect," "project," "target," "goal," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. These forward-looking statements
speak only as of the date of the document. The Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectation with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMERCE BANCSHARES, INC.
Date: August 7, 1998 By: James Stuart Jr.
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James Stuart, Jr., Chairman and CEO
Date: August 7, 1998 By: Donald Kinley
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Donald Kinley, Vice President and
Treasurer (Chief Accounting Officer)