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8-K - FORM 8-K - COMMERCE BANCSHARES INC /MO/ | c65473e8vk.htm |
Exhibit 99.1
FOR
IMMEDIATE RELEASE: {PRIVATE}
Thursday, July 14, 2011
Thursday, July 14, 2011
COMMERCE BANCSHARES, INC. ANNOUNCES RECORD SECOND
QUARTER EARNINGS PER SHARE OF $.79
QUARTER EARNINGS PER SHARE OF $.79
Commerce Bancshares, Inc. announced record earnings of $.79 per share for the three
months ended June 30, 2011 compared to $.68 per share in the second quarter of 2010, or an increase
of 16.2%. Net income for the second quarter amounted to $69.0 million compared to $59.7 million in
the same quarter last year. For the quarter, the return on average assets totaled 1.47%, the
return on average equity was 13.1% and the efficiency ratio was 57.4%.
For the six months ended June 30, 2011, earnings per share totaled $1.48 compared to $1.18 for
the first six months of 2010, an increase of 25.4%. Net income amounted to $129.5 million for the
first six months of 2011 compared with $103.9 million for the same period last year, or an increase
of $25.6 million. The return on average assets for the first six months was 1.40%.
In making this announcement, David W. Kemper, Chairman and CEO, said, We are pleased to
report a 15.6% increase in net income in the second quarter of 2011 compared with the same period
last year. This solid growth in net income was mainly the result of a decline in our provision for
loan losses of $10.0 million, strong fee income growth in bankcard and trust fees, and good expense
control. In an environment of continued low loan demand, our net interest income grew $1.6 million
compared to last year and the margin remained stable at 3.85%. Compared to the previous quarter,
average deposit balances increased $283.6 million, or 7.5% annualized, reflecting growth in both
consumer and business deposits, while average loans declined $179.0 million, or 7.5% annualized.
Revenues from bankcard, trust and brokerage grew 9.7%, 10.7% and 21.4%, respectively, this quarter
compared to the same quarter last year but deposit fees were lower this quarter due to regulatory
changes in 2010. Non-interest expense declined $2.3 million compared to the same quarter last year
reflecting lower costs, especially for salaries and benefits, deposit insurance and other operating
expenses.
Further, Mr. Kemper noted, Net loan charge-offs for the current quarter totaled $15.2
million, compared to $18.8 million in the previous quarter and $22.2 million in the second quarter
of 2010. When compared to the previous quarter, net loan charge-offs were lower in nearly all loan
categories. As a result of this improved credit environment, our allowance for loan losses
declined by $3.0 million during the current quarter to $191.5 million, and represents 2.4 times our
non-performing loans. Total non-performing assets increased slightly this quarter to $103.3
million, but represents only 1.1% of our total loans. Our ratio of tangible common equity to
assets was 10.3%, while our loans to deposits ratio totaled 60.2%, reflecting strong capital and
liquidity positions.
(more)
Total assets at June 30, 2011 were $19.6 billion, total loans were $9.3 billion, and total
deposits were $15.7 billion.
Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking
services, including investment management and securities brokerage. The Company currently operates
in over 360 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has
operating subsidiaries involved in mortgage banking, credit related insurance, and private equity
activities.
Summary of Non-Performing Assets and Past Due Loans
{PRIVATE}(Dollars in thousands) |
3/31/11 | 6/30/11 | 6/30/10 | |||
Non-Accrual Loans |
$77,914 | $79,717 | $90,267 | |||
Foreclosed Real Estate |
$25,061 | $23,551 | $12,920 | |||
Total Non-Performing Assets |
$102,975 | $103,268 | $103,187 | |||
Non-Performing Assets to Loans |
1.10% | 1.12% | 1.06% | |||
Non-Performing Assets to Total Assets |
.54% | .53% | .56% | |||
Loans 90 Days & Over Past Due
Still Accruing |
$18,717 | $23,598 | $42,315 | |||
This financial news release, including managements discussion of second quarter results,
is posted to the Companys web site at www.commercebank.com.
* * * * * * * * * * * * * * *
For additional information, contact
Jeffery Aberdeen, Controller
at PO Box 419248, Kansas City, MO
or by telephone at (816) 234-2081
Web Site: http://www.commercebank.com
Email: mymoney@commercebank.com
Jeffery Aberdeen, Controller
at PO Box 419248, Kansas City, MO
or by telephone at (816) 234-2081
Web Site: http://www.commercebank.com
Email: mymoney@commercebank.com
2
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
March 31 | June 30 | June 30 | June 30 | June 30 | ||||||||||||||||
(Unaudited) | 2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
FINANCIAL SUMMARY (In thousands, except per share data) |
||||||||||||||||||||
Net interest income |
$ | 160,973 | $ | 164,710 | $ | 163,108 | $ | 325,683 | $ | 325,818 | ||||||||||
Taxable equivalent net interest income |
166,479 | 170,779 | 167,826 | 337,258 | 335,360 | |||||||||||||||
Non-interest income |
95,906 | 101,344 | 101,458 | 197,250 | 194,647 | |||||||||||||||
Investment securities gains (losses), net |
1,327 | 1,956 | 660 | 3,283 | (3,005 | ) | ||||||||||||||
Provision for loan losses |
15,789 | 12,188 | 22,187 | 27,977 | 56,509 | |||||||||||||||
Non-interest expense |
153,960 | 153,513 | 155,793 | 307,473 | 311,517 | |||||||||||||||
Net income attributable to |
||||||||||||||||||||
Commerce Bancshares, Inc. |
60,453 | 69,034 | 59,734 | 129,487 | 103,904 | |||||||||||||||
Cash dividends |
20,054 | 20,056 | 19,615 | 40,110 | 39,215 | |||||||||||||||
Net total loan charge-offs |
18,789 | 15,188 | 22,187 | 33,977 | 53,451 | |||||||||||||||
Business |
2,010 | 1,439 | 2,223 | 3,449 | 2,490 | |||||||||||||||
Real estate construction and land |
1,986 | 1,125 | 480 | 3,111 | 11,446 | |||||||||||||||
Real estate business |
1,064 | 339 | 1,022 | 1,403 | 1,453 | |||||||||||||||
Consumer credit card |
9,038 | 8,490 | 12,338 | 17,528 | 25,403 | |||||||||||||||
Consumer |
4,013 | 2,229 | 4,743 | 6,242 | 10,267 | |||||||||||||||
Revolving home equity |
367 | 344 | 650 | 711 | 1,230 | |||||||||||||||
Student |
| | | | 3 | |||||||||||||||
Real estate personal |
274 | 1,027 | 515 | 1,301 | 716 | |||||||||||||||
Overdraft |
37 | 195 | 216 | 232 | 443 | |||||||||||||||
Per common share: |
||||||||||||||||||||
Net income basic |
$ | 0.69 | $ | 0.80 | $ | 0.69 | $ | 1.49 | $ | 1.19 | ||||||||||
Net income diluted |
$ | 0.69 | $ | 0.79 | $ | 0.68 | $ | 1.48 | $ | 1.18 | ||||||||||
Cash dividends |
$ | 0.230 | $ | 0.230 | $ | 0.224 | $ | 0.460 | $ | 0.448 | ||||||||||
Diluted wtd. average shares o/s |
86,836 | 86,927 | 87,554 | 86,882 | 87,523 | |||||||||||||||
RATIOS |
||||||||||||||||||||
Average loans to deposits (1) |
62.47 | % | 60.17 | % | 71.96 | % | 61.30 | % | 73.44 | % | ||||||||||
Return on total average assets |
1.32 | % | 1.47 | % | 1.33 | % | 1.40 | % | 1.16 | % | ||||||||||
Return on total average equity |
11.95 | % | 13.12 | % | 12.21 | % | 12.54 | % | 10.79 | % | ||||||||||
Non-interest income to revenue (2) |
37.34 | % | 38.09 | % | 38.35 | % | 37.72 | % | 37.40 | % | ||||||||||
Efficiency ratio (3) |
59.64 | % | 57.40 | % | 58.45 | % | 58.50 | % | 59.45 | % | ||||||||||
AT PERIOD END |
||||||||||||||||||||
Book value per share based on total equity |
$ | 23.77 | $ | 24.55 | $ | 22.72 | ||||||||||||||
Market value per share |
$ | 40.44 | $ | 43.00 | $ | 34.28 | ||||||||||||||
Allowance for loan losses
as a percentage of loans |
2.08 | % | 2.07 | % | 2.03 | % | ||||||||||||||
Tier I leverage ratio |
10.27 | % | 10.32 | % | 10.01 | % | ||||||||||||||
Tangible common equity to assets ratio (4) |
10.24 | % | 10.27 | % | 10.15 | % | ||||||||||||||
Common shares outstanding |
87,089,601 | 86,840,077 | 87,539,583 | |||||||||||||||||
Shareholders of record |
4,302 | 4,253 | 4,369 | |||||||||||||||||
Number of bank/ATM locations |
365 | 364 | 373 | |||||||||||||||||
Full-time equivalent employees |
4,814 | 4,786 | 5,051 | |||||||||||||||||
OTHER QTD INFORMATION |
||||||||||||||||||||
High market value per share |
$ | 42.67 | $ | 43.90 | $ | 41.16 | ||||||||||||||
Low market value per share |
$ | 38.54 | $ | 40.05 | $ | 33.83 | ||||||||||||||
(1) | Includes loans held for sale | |
(2) | Revenue includes net interest income and non-interest income. | |
(3) | The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue. | |
(4) | The tangible common equity ratio is calculated as stockholders equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights). |
3
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
(Unaudited) | March 31 | June 30 | June 30 | June 30 | June 30 | |||||||||||||||
(In thousands, except per share data) | 2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Interest income |
$ | 175,826 | $ | 178,087 | $ | 185,057 | $ | 353,913 | $ | 373,126 | ||||||||||
Interest expense |
14,853 | 13,377 | 21,949 | 28,230 | 47,308 | |||||||||||||||
Net interest income |
160,973 | 164,710 | 163,108 | 325,683 | 325,818 | |||||||||||||||
Provision for loan losses |
15,789 | 12,188 | 22,187 | 27,977 | 56,509 | |||||||||||||||
Net interest income after
provision for loan losses |
145,184 | 152,522 | 140,921 | 297,706 | 269,309 | |||||||||||||||
NON-INTEREST INCOME |
||||||||||||||||||||
Bank card transaction fees |
37,462 | 41,304 | 37,659 | 78,766 | 70,149 | |||||||||||||||
Trust fees |
21,572 | 22,544 | 20,358 | 44,116 | 39,676 | |||||||||||||||
Deposit account charges and other fees |
19,300 | 20,789 | 25,472 | 40,089 | 49,453 | |||||||||||||||
Bond trading income |
4,720 | 4,979 | 5,387 | 9,699 | 10,391 | |||||||||||||||
Consumer brokerage services |
2,663 | 2,880 | 2,372 | 5,543 | 4,489 | |||||||||||||||
Loan fees and sales |
1,824 | 2,075 | 3,472 | 3,899 | 5,311 | |||||||||||||||
Other |
8,365 | 6,773 | 6,738 | 15,138 | 15,178 | |||||||||||||||
Total non-interest income |
95,906 | 101,344 | 101,458 | 197,250 | 194,647 | |||||||||||||||
INVESTMENT SECURITIES
GAINS (LOSSES), NET |
||||||||||||||||||||
Impairment (losses) reversals on debt securities |
6,305 | (2,119 | ) | 4,415 | 4,186 | 5,710 | ||||||||||||||
Noncredit-related losses (reversals) on
securities not expected to be sold |
(6,579 | ) | 1,469 | (5,091 | ) | (5,110 | ) | (7,843 | ) | |||||||||||
Net impairment losses |
(274 | ) | (650 | ) | (676 | ) | (924 | ) | (2,133 | ) | ||||||||||
Realized gains (losses) on sales and
fair value adjustments |
1,601 | 2,606 | 1,336 | 4,207 | (872 | ) | ||||||||||||||
Investment securities gains (losses), net |
1,327 | 1,956 | 660 | 3,283 | (3,005 | ) | ||||||||||||||
NON-INTEREST EXPENSE |
||||||||||||||||||||
Salaries and employee benefits |
87,392 | 84,223 | 87,108 | 171,615 | 174,546 | |||||||||||||||
Net occupancy |
12,037 | 11,213 | 11,513 | 23,250 | 23,611 | |||||||||||||||
Equipment |
5,577 | 5,702 | 5,938 | 11,279 | 11,839 | |||||||||||||||
Supplies and communication |
5,532 | 5,692 | 6,829 | 11,224 | 14,167 | |||||||||||||||
Data processing and software |
16,467 | 17,531 | 17,497 | 33,998 | 34,103 | |||||||||||||||
Marketing |
4,258 | 4,495 | 5,002 | 8,753 | 9,720 | |||||||||||||||
Deposit insurance |
4,891 | 2,780 | 4,939 | 7,671 | 9,689 | |||||||||||||||
Indemnification obligation |
(1,359 | ) | | (1,683 | ) | (1,359 | ) | (1,683 | ) | |||||||||||
Other |
19,165 | 21,877 | 18,650 | 41,042 | 35,525 | |||||||||||||||
Total non-interest expense |
153,960 | 153,513 | 155,793 | 307,473 | 311,517 | |||||||||||||||
Income before income taxes |
88,457 | 102,309 | 87,246 | 190,766 | 149,434 | |||||||||||||||
Less income taxes |
27,507 | 32,692 | 27,428 | 60,199 | 45,805 | |||||||||||||||
Net income |
60,950 | 69,617 | 59,818 | 130,567 | 103,629 | |||||||||||||||
Less non-controlling interest
expense (income) |
497 | 583 | 84 | 1,080 | (275 | ) | ||||||||||||||
Net income attributable to
Commerce Bancshares, Inc. |
$ | 60,453 | $ | 69,034 | $ | 59,734 | $ | 129,487 | $ | 103,904 | ||||||||||
Net income per common share basic |
$ | 0.69 | $ | 0.80 | $ | 0.69 | $ | 1.49 | $ | 1.19 | ||||||||||
Net income per common share diluted |
$ | 0.69 | $ | 0.79 | $ | 0.68 | $ | 1.48 | $ | 1.18 | ||||||||||
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
(Unaudited) | March 31 | June 30 | June 30 | |||||||||
(In thousands) | 2011 | 2011 | 2010 | |||||||||
ASSETS |
||||||||||||
Loans |
$ | 9,374,923 | $ | 9,237,078 | $ | 9,735,049 | ||||||
Allowance for loan losses |
(194,538 | ) | (191,538 | ) | (197,538 | ) | ||||||
Net loans |
9,180,385 | 9,045,540 | 9,537,511 | |||||||||
Loans held for sale |
53,411 | 42,359 | 489,826 | |||||||||
Investment securities: |
||||||||||||
Available for sale |
7,499,577 | 7,717,634 | 6,649,890 | |||||||||
Trading |
17,000 | 32,074 | 17,245 | |||||||||
Non-marketable |
104,721 | 109,867 | 107,343 | |||||||||
Total investment securities |
7,621,298 | 7,859,575 | 6,774,478 | |||||||||
Short-term federal funds sold and securities
purchased under agreements to resell |
3,600 | 10,845 | 9,300 | |||||||||
Long-term securities purchased under
agreements to resell |
700,000 | 850,000 | | |||||||||
Interest earning deposits with banks |
203,940 | 535,696 | 302,354 | |||||||||
Cash and due from banks |
362,148 | 340,594 | 339,990 | |||||||||
Land, buildings and equipment net |
378,721 | 374,732 | 393,133 | |||||||||
Goodwill |
125,585 | 125,585 | 125,585 | |||||||||
Other intangible assets net |
10,182 | 9,394 | 12,278 | |||||||||
Other assets |
378,026 | 376,540 | 394,856 | |||||||||
Total assets |
$ | 19,017,296 | $ | 19,570,860 | $ | 18,379,311 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||
Deposits: |
||||||||||||
Non-interest bearing |
$ | 4,558,630 | $ | 4,834,750 | $ | 4,013,005 | ||||||
Savings, interest checking and money market |
8,074,055 | 8,139,989 | 7,285,072 | |||||||||
Time open and C.D.s of less than $100,000 |
1,388,004 | 1,273,961 | 1,677,251 | |||||||||
Time open and C.D.s of $100,000 and over |
1,518,786 | 1,407,866 | 1,510,819 | |||||||||
Total deposits |
15,539,475 | 15,656,566 | 14,486,147 | |||||||||
Federal
funds purchased and securities sold under agreements to repurchase |
923,014 | 1,282,470 | 1,006,356 | |||||||||
Other borrowings |
111,972 | 111,929 | 363,997 | |||||||||
Other liabilities |
372,345 | 388,328 | 534,197 | |||||||||
Total liabilities |
16,946,806 | 17,439,293 | 16,390,697 | |||||||||
Stockholders equity: |
||||||||||||
Preferred stock |
| | | |||||||||
Common stock |
436,043 | 436,481 | 417,617 | |||||||||
Capital surplus |
976,101 | 979,247 | 862,965 | |||||||||
Retained earnings |
596,177 | 645,155 | 633,221 | |||||||||
Treasury stock |
(733 | ) | (14,515 | ) | (2,153 | ) | ||||||
Accumulated other comprehensive income |
61,134 | 83,000 | 75,797 | |||||||||
Total stockholders equity |
2,068,722 | 2,129,368 | 1,987,447 | |||||||||
Non-controlling interest |
1,768 | 2,199 | 1,167 | |||||||||
Total equity |
2,070,490 | 2,131,567 | 1,988,614 | |||||||||
Total liabilities and equity |
$ | 19,017,296 | $ | 19,570,860 | $ | 18,379,311 | ||||||
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS AVERAGE RATES AND YIELDS
AVERAGE BALANCE SHEETS AVERAGE RATES AND YIELDS
For the Three Months Ended | ||||||||||||||||||||||||
March 31, 2011 | June 30, 2011 | June 30, 2010 | ||||||||||||||||||||||
Avg. Rates | Avg. Rates | Avg. Rates | ||||||||||||||||||||||
(Unaudited) | Average | Earned/ | Average | Earned/ | Average | Earned/ | ||||||||||||||||||
(Dollars in thousands) | Balance | Paid | Balance | Paid | Balance | Paid | ||||||||||||||||||
ASSETS: |
||||||||||||||||||||||||
Loans: |
||||||||||||||||||||||||
Business (A) |
$ | 3,052,611 | 3.65 | % | $ | 2,959,012 | 3.64 | % | $ | 2,880,616 | 3.93 | % | ||||||||||||
Real estate construction and land |
451,536 | 4.49 | 429,649 | 4.51 | 568,417 | 3.90 | ||||||||||||||||||
Real estate business |
2,081,359 | 4.92 | 2,100,726 | 4.94 | 2,028,799 | 5.08 | ||||||||||||||||||
Real estate personal |
1,443,707 | 5.00 | 1,440,747 | 4.87 | 1,484,155 | 5.25 | ||||||||||||||||||
Consumer |
1,147,049 | 6.47 | 1,112,315 | 6.32 | 1,270,243 | 6.72 | ||||||||||||||||||
Revolving home equity |
475,437 | 4.28 | 468,380 | 4.24 | 482,847 | 4.32 | ||||||||||||||||||
Student |
| | | | 322,010 | 2.38 | ||||||||||||||||||
Consumer credit card |
775,271 | 10.92 | 743,317 | 11.13 | 737,798 | 12.32 | ||||||||||||||||||
Overdrafts |
7,121 | | 6,654 | | 6,817 | | ||||||||||||||||||
Total loans (B) |
9,434,091 | 5.15 | 9,260,800 | 5.12 | 9,781,702 | 5.33 | ||||||||||||||||||
Loans held for sale |
58,148 | 2.08 | 52,390 | 2.37 | 557,032 | 1.63 | ||||||||||||||||||
Investment securities: |
||||||||||||||||||||||||
U.S. government & federal agency |
643,522 | 3.26 | 576,693 | 6.67 | 668,454 | 3.00 | ||||||||||||||||||
State & municipal obligations (A) |
1,112,740 | 4.63 | 1,160,164 | 4.75 | 893,224 | 4.87 | ||||||||||||||||||
Mortgage and asset-backed securities |
5,250,582 | 2.83 | 5,460,506 | 2.61 | 4,389,863 | 3.47 | ||||||||||||||||||
Other marketable securities (A) |
175,860 | 5.91 | 172,754 | 4.18 | 192,647 | 4.55 | ||||||||||||||||||
Total available for sale securities (B) |
7,182,704 | 3.22 | 7,370,117 | 3.30 | 6,144,188 | 3.66 | ||||||||||||||||||
Trading securities (A) |
19,016 | 2.88 | 20,456 | 2.78 | 19,545 | 2.93 | ||||||||||||||||||
Non-marketable securities (A) |
103,810 | 7.04 | 105,015 | 6.24 | 113,601 | 4.26 | ||||||||||||||||||
Total investment securities |
7,305,530 | 3.28 | 7,495,588 | 3.34 | 6,277,334 | 3.67 | ||||||||||||||||||
Short-term federal funds sold and securities
purchased under agreements to resell |
5,100 | 0.80 | 16,513 | 0.53 | 6,840 | 0.76 | ||||||||||||||||||
Long-term securities purchased under
agreements to resell |
567,778 | 1.54 | 803,846 | 1.58 | | | ||||||||||||||||||
Interest earning deposits with banks |
146,493 | 0.25 | 179,763 | 0.25 | 321,763 | 0.25 | ||||||||||||||||||
Total interest earning assets |
17,517,140 | 4.20 | 17,808,900 | 4.15 | 16,944,671 | 4.49 | ||||||||||||||||||
Non-interest earning assets (B) |
1,034,350 | 1,054,328 | 1,113,372 | |||||||||||||||||||||
Total assets |
$ | 18,551,490 | $ | 18,863,228 | $ | 18,058,043 | ||||||||||||||||||
LIABILITIES AND EQUITY: |
||||||||||||||||||||||||
Interest bearing deposits: |
||||||||||||||||||||||||
Savings |
$ | 500,386 | 0.14 | $ | 537,364 | 0.14 | $ | 490,463 | 0.11 | |||||||||||||||
Interest checking and money market |
7,398,662 | 0.37 | 7,580,895 | 0.33 | 6,809,251 | 0.45 | ||||||||||||||||||
Time open & C.D.s of less than $100,000 |
1,426,157 | 1.06 | 1,324,192 | 0.90 | 1,702,895 | 1.43 | ||||||||||||||||||
Time open & C.D.s of $100,000 and over |
1,433,564 | 0.76 | 1,466,214 | 0.67 | 1,323,064 | 1.08 | ||||||||||||||||||
Total interest bearing deposits |
10,758,769 | 0.50 | 10,908,665 | 0.43 | 10,325,673 | 0.67 | ||||||||||||||||||
Borrowings: |
||||||||||||||||||||||||
Federal funds purchased and securities
sold under agreements to repurchase |
1,022,784 | 0.25 | 952,032 | 0.29 | 1,026,763 | 0.32 | ||||||||||||||||||
Other borrowings |
112,381 | 3.30 | 112,099 | 3.29 | 502,191 | 3.02 | ||||||||||||||||||
Total borrowings |
1,135,165 | 0.55 | 1,064,131 | 0.61 | 1,528,954 | 1.21 | ||||||||||||||||||
Total interest bearing liabilities |
11,893,934 | 0.51 | % | 11,972,796 | 0.45 | % | 11,854,627 | 0.74 | % | |||||||||||||||
Non-interest bearing deposits |
4,437,032 | 4,570,721 | 4,042,157 | |||||||||||||||||||||
Other liabilities |
168,248 | 208,606 | 198,909 | |||||||||||||||||||||
Equity |
2,052,276 | 2,111,105 | 1,962,350 | |||||||||||||||||||||
Total liabilities and equity |
$ | 18,551,490 | $ | 18,863,228 | $ | 18,058,043 | ||||||||||||||||||
Net interest income (T/E) |
$ | 166,479 | $ | 170,779 | $ | 167,826 | ||||||||||||||||||
Net yield on interest earning assets |
3.85 | % | 3.85 | % | 3.97 | % | ||||||||||||||||||
(A) | Stated on a tax equivalent basis using a federal income tax rate of 35%. | |
(B) | The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets. |
6
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2011
Management Discussion of Second Quarter Results
June 30, 2011
For the quarter ended June 30, 2011, net income attributable to Commerce Bancshares, Inc. (net
income) amounted to $69.0 million, an increase of $9.3 million over the same quarter last year, and
an increase of $8.6 million compared to the previous quarter. For the current quarter, the return
on average assets was 1.47%, the return on average equity was 13.1%, and the efficiency ratio was
57.4%. Compared to the same quarter last year, net interest income (tax equivalent) increased by
$3.0 million to $170.8 million, while non-interest income decreased slightly to $101.3 million.
Non-interest expense for the current quarter totaled $153.5 million, a decrease of $2.3 million
from the same period last year. The provision for loan losses totaled $12.2 million, representing
a decline of $10.0 million from the amount recorded in the same quarter last year.
Balance Sheet Review
During the 2nd quarter of 2011, average loans, including loans held for sale, decreased
$179.0 million, or 1.9%, compared to the previous quarter. Also, these same loans decreased $1.0
billion, or 9.9%, this quarter compared to the same period last year, primarily due to $823.8
million in student loan sales, most of which were sold in 2010. The decrease in average loans
compared to the previous quarter was mainly due to declines in business, construction, consumer and
consumer credit cards loans but offset by growth of $19.4 million in business real estate loans.
The decline in consumer credit card loans from the previous quarter was primarily seasonal, while
the decline in consumer loans resulted from the Companys decision to exit the marine/RV loan
origination business. Demand for business and construction loans remained weak as customers
continue to pay down balances.
Total available for sale investment securities (excluding fair value adjustments) averaged $7.4
billion this quarter, up $187.4 million compared to the previous quarter. The increase was mainly
the result of purchases of agency mortgage-backed and other asset-backed securities, totaling
$435.1 million and $313.4 million, respectively, in the 2nd quarter. At June 30, 2011,
the duration of the investment portfolio was 2.3 years, and maturities of approximately $601.9
million are expected to occur during the remainder of 2011. Total average long-term securities
purchased under agreements to resell (reverse repurchase agreements) increased $236.1 million this
quarter and totaled $803.8 million. These agreements, which are collateralized and due from other
large financial institutions, have remaining lives ranging from 1 to 3 years.
Total average deposits increased $283.6 million, or 1.9%, during the 2nd quarter of
2011 compared to the previous quarter. This increase in average deposits resulted mainly from
growth in non-interest bearing and money market deposit balances of $133.7 million and $182.2
million, respectively, however certificates of deposit (CD) balances declined $69.3 million.
Approximately 61% of the deposit growth this quarter came from consumer type accounts. The average
loans to deposits ratio in the current quarter was 60.2%, compared to 62.5% in the previous
quarter.
Certain non-interest bearing deposit accounts, which were previously included in interest bearing
money market deposit totals, were reclassified to non-interest bearing deposits effective January
1, 2011. All prior periods have been revised to reflect this reclassification. The effect of this
reclassification for the quarter ended June 30, 2010 was to increase average non-interest bearing
deposits by $3.1 billion.
During the current quarter, the Companys average borrowings decreased $71.0 million compared
to the previous quarter. This decrease was mainly due to a decline in the average balance of
federal funds purchased and repurchase agreements.
Net Interest Income
Net interest income (tax equivalent) in the 2nd quarter of 2011 amounted to $170.8
million, compared with $166.5 million in the previous quarter, or an increase of $4.3 million. Net
interest income this quarter was also up $3.0 million compared to the 2nd quarter of
last year. During the 2nd quarter of 2011, the net yield on earning assets (tax
equivalent) was 3.85%, compared with 3.85% in the previous quarter and 3.97% in the same period
last year.
The increase in net interest income (tax equivalent) in the 2nd quarter of 2011 over
the previous quarter was primarily due to higher inflation income received on the Companys
inflation protected securities (TIPS) coupled with lower rates paid, primarily on money market and
CD accounts, and lower average CD balances. Interest on loans, including held for sale loans,
declined $1.6 million, mainly due to lower average balances on business, consumer and consumer
credit card loans, and lower rates earned on personal real estate and consumer loans. Interest
income on investment securities increased $3.4 million compared to the previous quarter, mainly due
to a $3.9 million increase in inflation income earned on TIPS, coupled with higher average
balances, mainly in municipal, mortgage-backed and asset-backed securities. Offsetting these
increases were the effects of lower rates earned on mortgage-backed and asset-backed securities.
Also, interest on long-term reverse repurchase agreements increased $1.0 million, mainly due to
higher average balances.
Interest expense on deposits declined $1.5 million in the 2nd quarter of 2011 compared
with the previous quarter as a result of continued low rates paid on money market and CD accounts.
Overall rates paid on total interest bearing deposits declined 7 basis points to .43% this quarter.
Interest expense on borrowings increased slightly, due mainly to higher average rates paid on
repurchase agreement balances.
The tax equivalent yield on interest earning assets in the 2nd quarter of 2011 was
4.15%, a decline of 5 basis points from the 1st quarter of 2011, while the overall cost
of interest bearing liabilities decreased 6 basis points to .45%.
Non-Interest Income
For the 2nd quarter of 2011, total non-interest income amounted to $101.3 million, a
slight decrease compared to $101.5 million in the
same period last year. Also, current quarter non-interest income increased $5.4 million
compared to $95.9 million recorded in the previous quarter.
Bank card fees in the current quarter increased 9.7% over the 2nd quarter of last year
due to growth in transaction fees earned on corporate card (growth of 13.1%), debit card (growth of
7.8%) and merchant (growth of 12.5%) transactions. Corporate card fees, which totaled $14.1
million this quarter, saw continued expansion
7
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2011
Management Discussion of Second Quarter Results
June 30, 2011
in transaction volumes from existing customers and
activity from new customers. Debit card income in the 2nd quarter of 2011 totaled $15.7
million and reflected continued volume growth. In June 2011, the Federal Reserve finalized
regulations for pricing debit card transactions, which are effective October 1, 2011. As a result
the Company estimates that debit card revenues will decline approximately $7.0 million in the
4th quarter of 2011.
Trust fees for the quarter increased 10.7% compared to the same period last year and mainly
resulted from 11.8% growth in personal trust fees. Trust fees continue to be negatively affected
by low interest rates on money market investments held in trust accounts. Deposit account fees
decreased $4.7 million, or 18.4%, compared to the 2nd quarter of 2010, but increased
$1.5 million compared to the previous quarter. Compared to the same period last year, most of this
decline was due to lower overdraft fees, which declined $5.1 million. This decline resulted from
new regulations on overdraft fees which were not effective until the 2nd half of 2010,
and thus the overdraft fees recorded in the 2nd quarter of 2010 did not reflect the
impact of these rules. Bond trading income for the current quarter totaled $5.0 million, a
decrease of 7.6% from the same period last year, but consumer brokerage fees increased 21.4% on
higher equity and annuity sales.
Investment Securities Gains and Losses
Net securities gains amounted to $2.0 million in the 2nd quarter of 2011, compared to
net gains of $1.3 million in the previous quarter and net gains of $660 thousand in the same
quarter last year. During the current quarter, the Company recorded additional credit-related
impairment losses of $650 thousand on certain non-agency guaranteed mortgage-backed securities
identified as other-than-temporarily impaired, compared to losses of $274 thousand in the previous
quarter and $676 thousand in the same quarter last year. The cumulative credit-related impairment
reserve on these bonds totaled $8.4 million at quarter end. At June 30, 2011, the par value of
non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired
totaled $163.6 million, compared to $178.0 million at June 30, 2010.
The current quarter also included a pre-tax gain of $2.6 million, which mostly related to fair
value adjustments on certain of the Companys private equity investments.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $153.5 million, a decrease of $2.3
million, or 1.5%, from the same quarter last year and a decrease of $447 thousand compared to the
previous quarter. During the current quarter, the Company accrued $5.0 million related to
potential loss contingencies for litigation. Compared to the 2nd quarter of last year,
salaries and benefits expense declined $2.9 million, or 3.3%, mainly due to lower salaries and 401k
benefit plan expense. Full time equivalent employees totaled 4,786 and 5,051 at June 30, 2011 and
2010, respectively.
Compared to the 2nd quarter of last year, supplies and communication costs declined
16.6% to $5.7 million, reflecting a continuation of initiatives to reduce paper supplies, customer
checks, and postage costs. Costs for FDIC insurance declined $2.2 million as a result of new
assessment rules which became effective in the 2nd quarter of 2011. Also, costs for
foreclosed property declined $2.4 million, partly due to gains on sales of certain commercial
properties in the current quarter. Costs for occupancy, outside fees, and a number of other
smaller expenses declined from the previous year, as the Company continued its focus on expense
discipline.
Income Taxes
The effective tax rate for the Company was 32.1% in the current quarter, compared with 31.3% in the
previous quarter and 31.5% in the 2nd quarter of 2010.
Credit Quality
Net loan charge-offs in the 2nd quarter of 2011 amounted to $15.2 million, compared with
$18.8 million in the prior quarter and $22.2 million in the 2nd quarter of last year.
The $3.6 million decrease in net loan charge-offs in the 2nd quarter of 2011 compared to
the previous quarter was mainly the result of lower consumer and consumer credit card loan losses,
which decreased by $1.8 million and $548 thousand, respectively, reflecting continued improved
delinquency and loss rates. Business, business real estate and construction net loan charge-offs
also declined by $571 thousand, $725 thousand and $861 thousand, respectively. The ratio of
annualized net loan charge-offs to total average loans was .66% in
the current quarter compared to .81% in the previous quarter.
For the 2nd quarter of 2011, annualized net charge-offs on average consumer credit card
loans amounted to 4.58%, compared with 4.73% in the previous quarter and 6.71% in the same period
last year. Consumer loan net charge-offs for the quarter amounted to .80% of average consumer
loans, compared to 1.42% in the previous quarter and 1.50% in the same quarter last year. The
provision for loan losses for the current quarter totaled $12.2 million, a decrease of $3.6 million
from the previous quarter and $10.0 million lower than in the same period last year. The current
quarter provision for loan losses was $3.0 million less than net loan charge-offs for the current
quarter, thereby reducing the allowance to $191.5 million. At June 30, 2011 the allowance for loan
losses was 2.07% of total loans, excluding loans held for sale, and was 240% of total non-accrual
loans.
At June 30, 2011, total non-performing assets amounted to $103.3 million, an increase of $293
thousand over the previous quarter. Non-performing assets are comprised of non-accrual loans
($79.7 million) and foreclosed real estate ($23.6 million). At June 30, 2011, the balance of
non-accrual loans, which represented .9% of loans outstanding, included construction and land loans
of $28.7 million, business loans of $26.0 million and business real estate loans of $16.8 million.
Loans more than 90 days past due and still accruing interest totaled $23.6 million at June 30,
2011.
Other
During the quarter ended June 30, 2011, the Company purchased 343,270 shares of treasury stock at
an average cost of $40.87.
Forward Looking Information
This information contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other
statements that are not historical facts. Such statements are based on current beliefs and
expectations of the Companys management and are subject to significant risks and uncertainties.
Actual results may differ materially from those set forth in the forward-looking statements.
8