Attached files
| file | filename |
|---|---|
| 8-K - 8-K - COMMERCE BANCSHARES INC /MO/ | cbsh93020128k.htm |
Exhibit 99.1
 CBSH |
1000 Walnut Street / Post Office Box 419248 / Kansas City, Missouri 64151-6248 / 816.234.2000 |
 |
FOR IMMEDIATE RELEASE:
Tuesday, October 16, 2012
COMMERCE BANCSHARES, INC. ANNOUNCES THIRD
QUARTER EARNINGS PER SHARE OF $.75
Commerce Bancshares, Inc. announced earnings of $.75 per share for the three months ended September 30, 2012 compared to $.72 per share in the third quarter of 2011, or an increase of 4.2%. Net income for the third quarter amounted to $66.0 million compared to $65.4 million in the same quarter last year and $70.7 million in the prior quarter. For the quarter, the return on average assets totaled 1.28%, the return on average equity was 11.6% and the efficiency ratio was 60.0%.
For the nine months ended September 30, 2012, earnings per share totaled $2.29 compared to $2.13 in the first nine months of 2011, an increase of 7.5%. Net income amounted to $202.5 million for the first nine months of 2012 compared with $194.8 million for the same period last year, or an increase of $7.7 million. The return on average assets for the first nine months of 2012 was 1.32%, the return on average equity was 12.1% and the efficiency ratio was 59.1%.
In announcing these results, David W. Kemper, Chairman and CEO, said, “Although record low interest rates continued to pressure our net interest income, we were pleased to report solid quarterly earnings which benefited from loan growth, low credit losses and good expense management. Compared to the previous quarter, the decline in net interest income was partly due to non-recurring interest received last quarter and a reduction of $6.2 million in interest on our inflation-protected government securities. Also, while non-interest income continued to be affected by recent debit card interchange regulations, commercial card fees grew 21.8% compared to last year and remained strong, while trust fees also increased 7.1%. Non-interest expense was flat compared to the same quarter of last year. Average loans for the quarter grew $209.4 million, or 2.3%, this quarter compared to the previous quarter and resulted from growth in business, personal real estate loans and consumer loans. Average deposits declined by $111.7 million this quarter, or .7%.”
Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $9.1 million, compared to $8.2 million in the previous quarter and $14.9 million in the third quarter of 2011. The increase in net loan charge-offs this quarter resulted from several large commercial loan recoveries totaling $3.6 million which were recorded during the second quarter. Overall commercial and consumer loan charge-offs remained low this quarter. During the current quarter, the provision for loan losses totaled $5.6 million, or $3.5 million less than net loan charge-offs, reflecting improved credit trends in our loan portfolio. Our allowance for loan losses amounted to $175.0 million this quarter, representing 3.2 times our non-performing loans. Total non-performing assets also decreased $8.8 million from the previous quarter to $73.4 million this quarter.”
(more)
Total assets at September 30, 2012 were $20.9 billion, total loans were $9.6 billion, and total deposits were $16.8 billion. During the quarter the Company repurchased approximately 98,000 shares of Company stock at an average price per share of $39.66.
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 approximately 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
(Dollars in thousands) | 6/30/2012 | 9/30/2012 | 9/30/2011 | |||||||||
Non-Accrual Loans | $ | 62,177 | $ | 55,201 | $ | 75,912 | ||||||
Foreclosed Real Estate | $ | 20,095 | $ | 18,234 | $ | 23,813 | ||||||
Total Non-Performing Assets | $ | 82,272 | $ | 73,435 | $ | 99,725 | ||||||
Non-Performing Assets to Loans | .88 | % | .76 | % | 1.10 | % | ||||||
Non-Performing Assets to Total Assets | .40 | % | .35 | % | .48 | % | ||||||
Loans 90 Days & Over Past Due — Still Accruing | $ | 11,297 | $ | 12,232 | $ | 20,104 | ||||||
This financial news release, including management's discussion of third quarter results, is posted to the Company's 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
2
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(Unaudited) | June 30, 2012 | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | |||||||||||
FINANCIAL SUMMARY (In thousands, except per share data) | ||||||||||||||||
Net interest income | $165,105 | $153,811 | $158,630 | $478,653 | $484,313 | |||||||||||
Taxable equivalent net interest income | 171,186 | 159,934 | 164,317 | 496,786 | 501,575 | |||||||||||
Non-interest income | 100,816 | 100,922 | 101,632 | 296,321 | 298,882 | |||||||||||
Investment securities gains, net | 1,336 | 3,180 | 2,587 | 8,556 | 5,870 | |||||||||||
Provision for loan losses | 5,215 | 5,581 | 11,395 | 18,961 | 39,372 | |||||||||||
Non-interest expense | 156,340 | 153,391 | 153,746 | 460,192 | 461,219 | |||||||||||
Net income attributable to Commerce Bancshares, Inc. | 70,733 | 66,006 | 65,352 | 202,538 | 194,839 | |||||||||||
Cash dividends | 20,216 | 20,165 | 19,526 | 60,819 | 59,636 | |||||||||||
Net total loan charge-offs (recoveries) | 8,214 | 9,082 | 14,895 | 28,461 | 48,872 | |||||||||||
Business | (3,600 | ) | 202 | 889 | (3,288 | ) | 4,338 | |||||||||
Real estate — construction and land | 116 | (102 | ) | 1,215 | 234 | 4,326 | ||||||||||
Real estate — business | 1,839 | (25 | ) | 1,429 | 3,309 | 2,832 | ||||||||||
Consumer credit card | 5,930 | 6,277 | 7,103 | 18,380 | 24,631 | |||||||||||
Consumer | 1,974 | 1,791 | 3,232 | 6,396 | 9,474 | |||||||||||
Revolving home equity | 943 | 314 | 72 | 1,617 | 783 | |||||||||||
Real estate — personal | 679 | 267 | 673 | 1,015 | 1,974 | |||||||||||
Overdraft | 333 | 358 | 282 | 798 | 514 | |||||||||||
Per common share: | ||||||||||||||||
Net income — basic | $.80 | $.75 | $.72 | $2.29 | $2.14 | |||||||||||
Net income — diluted | $.80 | $.75 | $.72 | $2.29 | $2.13 | |||||||||||
Cash dividends | $.230 | $.230 | $.219 | $.690 | $.657 | |||||||||||
Diluted wtd. average shares o/s | 87,672 | 87,192 | 89,737 | 87,804 | 90,724 | |||||||||||
RATIOS | ||||||||||||||||
Average loans to deposits (1) | 55.26 | % | 56.89 | % | 58.29 | % | 55.89 | % | 60.27 | % | ||||||
Return on total average assets | 1.38 | % | 1.28 | % | 1.32 | % | 1.32 | % | 1.37 | % | ||||||
Return on total average equity | 12.80 | % | 11.57 | % | 12.15 | % | 12.13 | % | 12.41 | % | ||||||
Non-interest income to revenue (2) | 37.91 | % | 39.62 | % | 39.05 | % | 38.24 | % | 38.16 | % | ||||||
Efficiency ratio (3) | 58.53 | % | 59.99 | % | 58.71 | % | 59.14 | % | 58.57 | % | ||||||
AT PERIOD END | ||||||||||||||||
Book value per share based on total equity | $25.47 | $26.33 | $23.95 | |||||||||||||
Market value per share | $37.90 | $40.33 | $33.10 | |||||||||||||
Allowance for loan losses as a percentage of loans | 1.90 | % | 1.82 | % | 2.07 | % | ||||||||||
Tier I leverage ratio | 9.73 | % | 10.00 | % | 9.74 | % | ||||||||||
Tangible common equity to assets ratio (4) | 10.16 | % | 10.47 | % | 9.72 | % | ||||||||||
Common shares outstanding | 87,588,533 | 87,608,391 | 88,924,563 | |||||||||||||
Shareholders of record | 4,184 | 4,146 | 4,224 | |||||||||||||
Number of bank/ATM locations | 361 | 362 | 363 | |||||||||||||
Full-time equivalent employees | 4,702 | 4,707 | 4,762 | |||||||||||||
OTHER QTD INFORMATION | ||||||||||||||||
High market value per share | $41.00 | $42.74 | $41.90 | |||||||||||||
Low market value per share | $36.17 | $37.71 | $31.65 | |||||||||||||
(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
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||
(Unaudited) (In thousands, except per share data) | June 30, 2012 | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | |||||||||||||||
Interest income | $174,624 | $163,194 | $170,835 | $507,784 | $524,748 | |||||||||||||||
Interest expense | 9,519 | 9,383 | 12,205 | 29,131 | 40,435 | |||||||||||||||
Net interest income | 165,105 | 153,811 | 158,630 | 478,653 | 484,313 | |||||||||||||||
Provision for loan losses | 5,215 | 5,581 | 11,395 | 18,961 | 39,372 | |||||||||||||||
Net interest income after provision for loan losses | 159,890 | 148,230 | 147,235 | 459,692 | 444,941 | |||||||||||||||
NON-INTEREST INCOME | ||||||||||||||||||||
Bank card transaction fees | 38,434 | 39,488 | 42,149 | 112,655 | 120,915 | |||||||||||||||
Trust fees | 23,833 | 23,681 | 22,102 | 70,328 | 66,218 | |||||||||||||||
Deposit account charges and other fees | 19,975 | 19,873 | 21,939 | 59,184 | 62,028 | |||||||||||||||
Capital market fees | 5,010 | 5,110 | 5,556 | 16,991 | 15,255 | |||||||||||||||
Consumer brokerage services | 2,576 | 2,441 | 2,333 | 7,543 | 7,876 | |||||||||||||||
Loan fees and sales | 1,706 | 1,358 | 2,034 | 4,625 | 5,933 | |||||||||||||||
Other | 9,282 | 8,971 | 5,519 | 24,995 | 20,657 | |||||||||||||||
Total non-interest income | 100,816 | 100,922 | 101,632 | 296,321 | 298,882 | |||||||||||||||
INVESTMENT SECURITIES GAINS (LOSSES), NET | ||||||||||||||||||||
Impairment (losses) reversals on debt securities | 3 | 5,989 | (1,200 | ) | 11,579 | 2,986 | ||||||||||||||
Noncredit-related losses (reversals) on securities not expected to be sold | (353 | ) | (6,546 | ) | 369 | (12,806 | ) | (4,741 | ) | |||||||||||
Net impairment losses | (350 | ) | (557 | ) | (831 | ) | (1,227 | ) | (1,755 | ) | ||||||||||
Realized gains on sales and fair value adjustments | 1,686 | 3,737 | 3,418 | 9,783 | 7,625 | |||||||||||||||
Investment securities gains, net | 1,336 | 3,180 | 2,587 | 8,556 | 5,870 | |||||||||||||||
NON-INTEREST EXPENSE | ||||||||||||||||||||
Salaries and employee benefits | 87,511 | 89,292 | 85,700 | 266,346 | 257,315 | |||||||||||||||
Net occupancy | 11,105 | 11,588 | 11,510 | 33,953 | 34,760 | |||||||||||||||
Equipment | 4,999 | 4,976 | 5,390 | 15,164 | 16,669 | |||||||||||||||
Supplies and communication | 5,667 | 5,400 | 5,674 | 16,680 | 16,898 | |||||||||||||||
Data processing and software | 18,282 | 19,279 | 16,232 | 55,030 | 50,230 | |||||||||||||||
Marketing | 4,469 | 4,100 | 4,545 | 12,391 | 13,298 | |||||||||||||||
Deposit insurance | 2,618 | 2,608 | 2,772 | 7,746 | 10,443 | |||||||||||||||
Other | 21,689 | 16,148 | 21,923 | 52,882 | 61,606 | |||||||||||||||
Total non-interest expense | 156,340 | 153,391 | 153,746 | 460,192 | 461,219 | |||||||||||||||
Income before income taxes | 105,702 | 98,941 | 97,708 | 304,377 | 288,474 | |||||||||||||||
Less income taxes | 34,466 | 32,155 | 31,699 | 99,541 | 91,898 | |||||||||||||||
Net income | 71,236 | 66,786 | 66,009 | 204,836 | 196,576 | |||||||||||||||
Less non-controlling interest expense | 503 | 780 | 657 | 2,298 | 1,737 | |||||||||||||||
Net income attributable to Commerce Bancshares, Inc. | $70,733 | $66,006 | $65,352 | $202,538 | $194,839 | |||||||||||||||
Net income per common share — basic | $.80 | $.75 | $.72 | $2.29 | $2.14 | |||||||||||||||
Net income per common share — diluted | $.80 | $.75 | $.72 | $2.29 | $2.13 | |||||||||||||||
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands) | June 30, 2012 | September 30, 2012 | September 30, 2011 | |||||||||
ASSETS | ||||||||||||
Loans | $9,376,915 | $9,638,645 | $9,073,123 | |||||||||
Allowance for loan losses | (178,533 | ) | (175,032 | ) | (188,038 | ) | ||||||
Net loans | 9,198,382 | 9,463,613 | 8,885,085 | |||||||||
Loans held for sale | 8,874 | 8,741 | 39,576 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 9,206,451 | 9,020,951 | 9,278,066 | |||||||||
Trading | 14,313 | 13,595 | 9,695 | |||||||||
Non-marketable | 116,190 | 117,540 | 111,808 | |||||||||
Total investment securities | 9,336,954 | 9,152,086 | 9,399,569 | |||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 7,455 | 10,475 | 11,400 | |||||||||
Long-term securities purchased under agreements to resell | 850,000 | 850,000 | 850,000 | |||||||||
Interest earning deposits with banks | 92,544 | 132,144 | 133,419 | |||||||||
Cash and due from banks | 410,666 | 426,742 | 424,861 | |||||||||
Land, buildings and equipment — net | 350,897 | 350,040 | 368,965 | |||||||||
Goodwill | 125,585 | 125,585 | 125,585 | |||||||||
Other intangible assets — net | 6,381 | 5,804 | 8,452 | |||||||||
Other assets | 355,253 | 353,539 | 391,756 | |||||||||
Total assets | $ | 20,742,991 | $ | 20,878,769 | $ | 20,638,668 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Deposits: | ||||||||||||
Non-interest bearing | $5,637,373 | $5,814,932 | $5,003,587 | |||||||||
Savings, interest checking and money market | 8,983,090 | 9,025,688 | 8,416,839 | |||||||||
Time open and C.D.’s of less than $100,000 | 1,113,824 | 1,094,215 | 1,204,896 | |||||||||
Time open and C.D.’s of $100,000 and over | 1,097,346 | 914,795 | 1,388,755 | |||||||||
Total deposits | 16,831,633 | 16,849,630 | 16,014,077 | |||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,305,745 | 1,257,949 | 1,057,728 | |||||||||
Other borrowings | 111,292 | 103,744 | 111,869 | |||||||||
Other liabilities | 263,552 | 360,374 | 1,325,029 | |||||||||
Total liabilities | 18,512,222 | 18,571,697 | 18,508,703 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 446,387 | 446,387 | 436,481 | |||||||||
Capital surplus | 1,033,523 | 1,033,515 | 980,176 | |||||||||
Retained earnings | 671,297 | 717,138 | 690,981 | |||||||||
Treasury stock | (61,388 | ) | (60,644 | ) | (96,205 | ) | ||||||
Accumulated other comprehensive income | 136,732 | 166,040 | 115,781 | |||||||||
Total stockholders’ equity | 2,226,551 | 2,302,436 | 2,127,214 | |||||||||
Non-controlling interest | 4,218 | 4,636 | 2,751 | |||||||||
Total equity | 2,230,769 | 2,307,072 | 2,129,965 | |||||||||
Total liabilities and equity | $ | 20,742,991 | $ | 20,878,769 | $ | 20,638,668 | ||||||
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
(Unaudited) (Dollars in thousands) | For the Three Months Ended | |||||||||||||||||||
June 30, 2012 | September 30, 2012 | September 30, 2011 | ||||||||||||||||||
Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | |||||||||||||||
ASSETS: | ||||||||||||||||||||
Loans: | ||||||||||||||||||||
Business (A) | $ | 2,895,167 | 3.58 | % | $ | 3,018,475 | 3.39 | % | $ | 2,815,064 | 3.56 | % | ||||||||
Real estate — construction and land | 360,000 | 4.24 | 339,908 | 4.30 | 412,490 | 4.42 | ||||||||||||||
Real estate — business | 2,205,561 | 4.71 | 2,182,584 | 4.39 | 2,123,034 | 4.74 | ||||||||||||||
Real estate — personal | 1,475,930 | 4.46 | 1,523,148 | 4.31 | 1,430,014 | 4.75 | ||||||||||||||
Consumer | 1,134,838 | 5.73 | 1,205,318 | 5.54 | 1,104,684 | 6.20 | ||||||||||||||
Revolving home equity | 449,416 | 4.17 | 444,076 | 4.17 | 466,503 | 4.27 | ||||||||||||||
Consumer credit card | 712,708 | 11.87 | 730,104 | 11.83 | 735,179 | 11.59 | ||||||||||||||
Overdrafts | 5,663 | — | 5,353 | — | 6,936 | — | ||||||||||||||
Total loans (B) | 9,239,283 | 4.95 | 9,448,966 | 4.76 | 9,093,904 | 5.07 | ||||||||||||||
Loans held for sale | 9,053 | 3.91 | 8,753 | 3.86 | 41,677 | 2.57 | ||||||||||||||
Investment securities: | ||||||||||||||||||||
U.S. government and federal agency obligations | 330,648 | 7.58 | 329,172 | (.07 | ) | (C) | 327,916 | 3.40 | ||||||||||||
Government-sponsored enterprise obligations | 265,620 | 2.06 | 276,505 | 1.65 | 262,087 | 2.92 | ||||||||||||||
State and municipal obligations (A) | 1,322,987 | 4.03 | 1,387,624 | 3.89 | 1,185,263 | 4.20 | ||||||||||||||
Mortgage-backed securities | 4,010,276 | 2.89 | 3,766,602 | 2.62 | 3,764,822 | 2.95 | ||||||||||||||
Asset-backed securities | 2,900,122 | 1.13 | 2,878,941 | 1.10 | 2,403,062 | 1.15 | ||||||||||||||
Other marketable securities (A) | 135,930 | 4.92 | 121,596 | 4.50 | 172,588 | 4.27 | ||||||||||||||
Total available for sale securities (B) | 8,965,583 | 2.67 | 8,760,440 | 2.21 | 8,115,738 | 2.64 | ||||||||||||||
Trading securities (A) | 22,748 | 2.65 | 24,337 | 2.34 | 20,770 | 2.52 | ||||||||||||||
Non-marketable securities (A) | 122,651 | 8.60 | 117,210 | 7.54 | 110,585 | 6.59 | ||||||||||||||
Total investment securities | 9,110,982 | 2.75 | 8,901,987 | 2.29 | 8,247,093 | 2.69 | ||||||||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 22,139 | .53 | 19,400 | .49 | 10,927 | .47 | ||||||||||||||
Long-term securities purchased under agreements to resell | 850,000 | 2.17 | 847,829 | 2.31 | 850,000 | 1.83 | ||||||||||||||
Interest earning deposits with banks | 163,075 | .28 | 81,139 | .20 | 326,302 | .26 | ||||||||||||||
Total interest earning assets | 19,394,532 | 3.75 | 19,308,074 | 3.49 | 18,569,903 | 3.77 | ||||||||||||||
Non-interest earning assets (B) | 1,154,720 | 1,209,295 | 1,094,161 | |||||||||||||||||
Total assets | $ | 20,549,252 | $ | 20,517,369 | $ | 19,664,064 | ||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||
Savings | $ | 584,196 | .12 | $ | 581,819 | .15 | $ | 534,295 | .19 | |||||||||||
Interest checking and money market | 8,369,306 | .21 | 8,401,165 | .21 | 7,756,104 | .32 | ||||||||||||||
Time open & C.D.’s of less than $100,000 | 1,128,716 | .71 | 1,101,399 | .70 | 1,231,280 | .78 | ||||||||||||||
Time open & C.D.’s of $100,000 and over | 1,250,164 | .59 | 1,004,708 | .69 | 1,372,842 | .62 | ||||||||||||||
Total interest bearing deposits | 11,332,382 | .30 | 11,089,091 | .30 | 10,894,521 | .40 | ||||||||||||||
Borrowings: | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,109,693 | .06 | 1,217,036 | .07 | 1,016,623 | .11 | ||||||||||||||
Other borrowings | 111,336 | 3.16 | 108,819 | 3.11 | 111,930 | 3.28 | ||||||||||||||
Total borrowings | 1,221,029 | .35 | 1,325,855 | .32 | 1,128,553 | .43 | ||||||||||||||
Total interest bearing liabilities | 12,553,411 | .30 | % | 12,414,946 | .30 | % | 12,023,074 | .40 | % | |||||||||||
Non-interest bearing deposits | 5,404,687 | 5,536,274 | 4,778,780 | |||||||||||||||||
Other liabilities | 367,763 | 296,178 | 728,974 | |||||||||||||||||
Equity | 2,223,391 | 2,269,971 | 2,133,236 | |||||||||||||||||
Total liabilities and equity | $ | 20,549,252 | $ | 20,517,369 | $ | 19,664,064 | ||||||||||||||
Net interest income (T/E) | $ | 171,186 | $ | 159,934 | $ | 164,317 | ||||||||||||||
Net yield on interest earning assets | 3.55 | % | 3.30 | % | 3.51 | % | ||||||||||||||
(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.
(C) Includes ($1.4 million) in inflation income on U.S. Treasury inflation-protected securities in the third quarter of 2012.
6
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2012
For the quarter ended September 30, 2012, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $66.0 million, an increase of $654 thousand over the same quarter last year, and a decrease of $4.7 million compared to the previous quarter. The decrease in net income from the previous quarter resulted mainly from non-recurring interest income of $2.4 million reported in the 2nd quarter of 2012 coupled with a $6.2 million decline in interest income on the Company's holdings of inflation-protected securities. For the current quarter, the return on average assets was 1.28%, the return on average equity was 11.57%, and the efficiency ratio was 59.99%.
Compared to the same quarter last year, net interest income (tax equivalent) decreased by $4.4 million to $159.9 million, while non-interest income increased slightly to $100.9 million. Securities gains from private equity activities totaled $3.7 million in the 3rd quarter of 2012, compared to $3.4 million in the same period last year and $1.7 million in the prior quarter. Non-interest expense for the current quarter totaled $153.4 million, a decrease of $355 thousand from the same period last year. The provision for loan losses totaled $5.6 million, representing a decline of $5.8 million from the amount recorded in the same quarter last year.
Balance Sheet Review
During the 3rd quarter of 2012, average loans, including loans held for sale, increased $209.4 million compared to the previous quarter and increased $322.1 million, or 3.5%, compared to the same period last year. The increase in average loans over the previous quarter resulted from growth in business (up $123.3 million), personal real estate (up $47.2 million) and consumer loans (up $70.5 million, mainly in automobile and fixed rate home equity loans). Consumer credit card loans also increased on average by $17.4 million. Wholesale auto floor plan, lease and tax-free loans all contributed to the growth in business loans. Demand for consumer automobile lending remained solid as average outstanding balances grew by $71.1 million. Marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $24.4 million, while construction loans declined by $20.1 million and business real estate loans declined by $23.0 million.
Total available for sale investment securities (excluding fair value adjustments) averaged $8.8 billion this quarter, down $205.1 million when compared to the previous quarter. Purchases of new securities, totaling $636.4 million in the 3rd quarter of 2012, were offset by maturities and pay downs of $849.7 million. At September 30, 2012, the duration of the investment portfolio was 2.0 years, and maturities and pay downs of approximately $2.1 billion are expected to occur during the next 12 months.
Total average deposits decreased $111.7 million, or .7%, during the 3rd quarter of 2012 compared to the previous quarter. This decrease in average deposits resulted mainly from a decline in certificates of deposit (CD) of $272.8 million, but was partly offset by growth in business demand (increase of $189.4 million), money market (increase of $21.8 million) and interest checking accounts (increase of $10.1 million). The majority of the decline in average CD balances was in short-term jumbo CD's, which are not considered core deposits. The average loans to deposits ratio in the current quarter was 56.9%, compared to 55.3% in the previous quarter.
During the current quarter, the Company's average borrowings increased $104.8 million compared to the previous quarter, mainly due to higher federal funds purchased and customer repurchase agreement balances.
Net Interest Income
Net interest income (tax equivalent) in the 3rd quarter of 2012 amounted to $159.9 million compared with $171.2 million in the previous quarter, or a decrease of $11.3 million. Net interest income this quarter decreased $4.4 million compared to the 3rd quarter of last year. During the 3rd quarter of 2012, the net yield on earning assets (tax equivalent) was 3.30%, compared with 3.55% in the previous quarter and 3.51% in the same period last year.
The decrease in net interest income (tax equivalent) in the 3rd quarter of 2012 compared to the previous quarter, which amounted to $11.3 million, was mainly due to a decrease in inflation interest of $6.2 million on the Company's inflation-protected securities (TIPs). The lower inflation interest was directly related to the lower Consumer Price Indices published this quarter, on which this interest is based. Also, the Company received interest in the 2nd quarter totaling $2.4 million from several non-performing commercial loans and the early pay off of a commercial real estate loan which did not re-occur in the current quarter. Excluding the effects of the inflation income on the TIPs and the non-recurring interest mentioned above, the net yield on earning assets in the 2nd quarter would have been 3.40% (tax-equivalent) and would compare more directly to the net yield of 3.30% reported in the current quarter.
Compared to the previous quarter, interest on loans declined by $550 thousand (tax-equivalent) due mainly to lower rates earned on most commercial loan types but offset by higher average balances on business, consumer, consumer credit card, and personal real estate loans. Interest on investment securities declined $11.1 million (tax-equivalent) this quarter, partly due to the effects of the TIPs mentioned above of $6.2 million coupled with lower rates on most security types and lower balances of mortgage-backed securities. The effects on premium amortization on mortgage and asset-backed securities due to change in pre-payment speeds this quarter was not significant.
Interest expense on deposits declined $155 thousand in the 3rd quarter of 2012 compared with the previous quarter mainly due to a decrease in average CD balances, which reduced interest expense by approximately $205 thousand. Overall rates paid on total interest bearing deposits totaled .30% and was unchanged from the previous quarter. Interest expense on borrowings increased slightly this quarter, due mainly to higher average balances of federal funds purchased.
Non-Interest Income
In the 3rd quarter of 2012, total non-interest income amounted to $100.9 million, a decrease of $710 thousand when compared to $101.6 million in the same period last year. Also, current quarter non-interest income increased slightly when compared to $100.8 million recorded in the previous quarter. The decrease in non-interest income from the same period last year was mainly due to a decline in debit card interchange fees of $6.8 million, coupled with lower overdraft fees, but offset by higher corporate card and trust fees.
7
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2012
Total bank card fees in the current quarter declined $2.7 million, or 6.3%, from the same period last year as a result of a 43.8% decline in debit card interchange fees noted above (effect of new regulations in the 4th quarter of 2011) but was partly offset by growth in corporate card fees of $3.3 million, or 21.8%. Corporate card and debit card fees for the current quarter totaled $18.5 million and $8.7 million, respectively. Merchant fees grew by 8.1%, totaling $6.5 million for the quarter, while credit card fees grew 6.2% and totaled 5.8 million.
Trust fees for the quarter increased 7.1% compared to the same period last year, resulting mainly from growth in personal, institutional and corporate trust fees. Deposit account fees declined $2.1 million, or 9.4%, compared to last year as overdraft fees declined by $2.9 million, but were offset by growth in various other deposit fees of $759 thousand, or 29.2%. Other non-interest income in the current quarter increased $3.5 million compared to the same period last year, partly due to higher fees on leasing and international activities and sales of state tax credits to customers. Also, in the third quarter of 2011 the Company wrote down the value of certain banking properties held for sale by $1.7 million.
Investment Securities Gains and Losses
Net securities gains (which related mostly to private equity activities) amounted to $3.2 million in the 3rd quarter of 2012, compared to net gains of $1.3 million in the previous quarter and net gains of $2.6 million in the same quarter last year. The current quarter included a gain of $3.7 million related to fair value adjustments and sales of the Company's private equity investments. Minority interest expense related to these gains totaled $525 thousand and is included in non-controlling interest expense. Year to date net gains and fair value adjustments on private equity investments totaled $9.4 million in 2012 compared with $7.4 million in 2011.
Also during the current quarter, the Company recorded credit-related impairment losses of $557 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $350 thousand in the previous quarter and $831 thousand in the same quarter last year. The cumulative credit-related impairment on these bonds totaled $11.1 million at quarter end. At September 30, 2012, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $108.1 million, compared to $134.7 million at September 30, 2011.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $153.4 million, a decrease of $355 thousand from the same quarter last year and a decrease of $2.9 million compared to the previous quarter. Compared to the 3rd quarter of last year, salaries and benefits expense increased $3.6 million, or 4.2%, mainly due to an increase in salary costs of $1.7 million, or 2.3%, coupled with an increase in medical costs which grew by $1.1 million. Full-time equivalent employees totaled 4,707 and 4,762 at September 30, 2012 and 2011, respectively.
Compared to the 3rd quarter of last year, occupancy, supplies and equipment expense declined $610 thousand on a combined basis mainly due to lower depreciation, postage and communication costs. Data processing and software costs grew by $3.0 million, or 18.8%, mainly due to $2.5 million in higher bank card-related costs. Other non-interest expense in the 3rd quarter of 2011
included an expense accrual of $5.9 million related to a loss contingency for litigation that was ultimately resolved later in 2011, while other expense in the prior quarter included a charge of $5.7 million related to certain VISA U.S.A., Inc. litigation costs.
Income Taxes
The effective tax rate for the Company was 32.8% in the current quarter, compared with 32.8% in the previous quarter and 32.7% in the 3rd quarter of 2011.
Credit Quality
Net loan charge-offs in the 3rd quarter of 2012 amounted to $9.1 million, compared with $8.2 million in the prior quarter and $14.9 million in the 3rd quarter of last year. Net loan charge-offs in the 2nd quarter of 2012 included several large commercial loan recoveries totaling $3.6 million and reduced overall net loan losses in that quarter. The ratio of annualized net loan charge-offs to total average loans was .38% in the current quarter compared to .36% in the previous quarter.
For the 3rd quarter of 2012, annualized net loan charge-offs on average consumer credit card loans amounted to 3.42%, compared with 3.35% in the previous quarter and 3.83% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .59% of average consumer loans, compared to .70% in the previous quarter and 1.16% in the same quarter last year. The provision for loan losses for the current quarter totaled $5.6 million, an increase of $366 thousand over the previous quarter and $5.8 million lower than in the same period last year. The current quarter provision for loan losses was $3.5 million less than net loan charge-offs for the current quarter due to improved credit trends in the loan portfolio, thereby reducing the allowance for loan losses to $175.0 million. At September 30, 2012 the allowance was 1.82% of total loans, excluding loans held for sale, and was 317% of total non-accrual loans.
At September 30, 2012, total non-performing assets amounted to $73.4 million, a decrease of $8.8 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($55.2 million) and foreclosed real estate ($18.2 million). At September 30, 2012, the balance of non-accrual loans, which represented .57% of loans outstanding, included business real estate loans of $18.4 million, construction and land loans of $15.4 million and business loans of $14.1 million. Loans more than 90 days past due and still accruing interest totaled $12.2 million at September 30, 2012.
Other
During the quarter ended September 30, 2012, the Company purchased approximately 98,000 shares of treasury stock at an average cost of $39.66.
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 Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statement.
8