Attached files
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| 8-K - 8-K - COMMERCE BANCSHARES INC /MO/ | cbsh033120138k.htm |
Exhibit 99.1
 CBSH |
1000 Walnut Street / Post Office Box 419248 / Kansas City, Missouri 64151-6248 / 816.234.2000 |
 |
FOR IMMEDIATE RELEASE:
Thursday, April 11, 2013
COMMERCE BANCSHARES, INC. ANNOUNCES FIRST
QUARTER EARNINGS PER SHARE OF $.67
Commerce Bancshares, Inc. announced earnings of $.67 per share for the three months ended March 31, 2013 compared to $.70 per share in the first quarter of 2012, or a decrease of 4.3%. Net income for the first quarter amounted to $61.0 million, compared to $65.8 million in the same quarter last year. For the quarter, the return on average assets totaled 1.13%, the return on average equity was 11.4% and the efficiency ratio was 61.8%.
In announcing these results, David W. Kemper, Chairman and CEO, said, “We continued to see solid growth in both our loan and deposit balances. Compared to the previous quarter, average loans increased $248 million, or 10.4% annualized, while average deposits grew by $735 million. Loan growth came from both consumer and commercial lending activities. Low interest rates, affecting both loans and investments, coupled with a decline in interest on our inflation-protected government securities of $4.8 million, resulted in a decline in net interest income of $10.9 million from the previous quarter. However, this decrease in net interest income was somewhat offset by a decline in credit costs of $5.0 million and a decline in non-interest expense of $3.2 million as a result of lower compensation costs and continuous expense control efforts. Furthermore, we continued to see strong revenue growth from our corporate card, merchant and trust fee businesses which grew by 19%, 12% and 10%, respectively, compared to the first quarter of last year.
Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $7.8 million, compared to $11.2 million in the first quarter of 2012 and $10.8 million in the previous quarter. Consumer net loan charge-offs declined slightly this quarter compared to the previous quarter and totaled $8.5 million, while commercial loans recorded net recoveries of $686 thousand. During the current quarter, the provision for loan losses totaled $3.3 million, or $4.5 million less than net loan charge-offs, reflecting lower commercial loan loss trends and continued positive delinquency results. Our allowance for loan losses amounted to $168.0 million this quarter, representing 3.8 times our non-performing loans. Total non-performing assets also decreased $5.9 million from the previous quarter to $58.9 million this quarter.”
Total assets at March 31, 2013 were $22.2 billion, total loans were $10.0 billion, and total deposits were $18.5 billion. During the quarter, the Company repurchased approximately 808,000 shares of its common stock at an average price per share of $37.13.
(more)
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) | 12/31/2012 | 3/31/2013 | 3/31/2012 | |||||||||
Non-Accrual Loans | $ | 51,410 | $ | 44,739 | $ | 68,875 | ||||||
Foreclosed Real Estate | $ | 13,453 | $ | 14,191 | $ | 18,585 | ||||||
Total Non-Performing Assets | $ | 64,863 | $ | 58,930 | $ | 87,460 | ||||||
Non-Performing Assets to Loans | .66 | % | .59 | % | .95 | % | ||||||
Non-Performing Assets to Total Assets | .29 | % | .27 | % | .43 | % | ||||||
Loans 90 Days & Over Past Due — Still Accruing | $ | 15,347 | $ | 15,015 | $ | 16,428 | ||||||
This financial news release, including management's discussion of first 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 | ||||||||||
(Unaudited) | December 31, 2012 | March 31, 2013 | March 31, 2012 | |||||||
FINANCIAL SUMMARY (In thousands, except per share data) | ||||||||||
Net interest income | $161,253 | $150,343 | $159,737 | |||||||
Taxable equivalent net interest income | 168,428 | 156,708 | 165,666 | |||||||
Non-interest income | 103,309 | 99,877 | 94,583 | |||||||
Investment securities gains (losses), net | (3,728 | ) | (2,165 | ) | 4,040 | |||||
Provision for loan losses | 8,326 | 3,285 | 8,165 | |||||||
Non-interest expense | 158,277 | 155,037 | 150,461 | |||||||
Net income attributable to Commerce Bancshares, Inc. | 66,791 | 61,017 | 65,799 | |||||||
Cash dividends | 150,789 | 20,435 | 20,438 | |||||||
Net total loan charge-offs (recoveries) | 10,826 | 7,785 | 11,165 | |||||||
Business | 791 | (50 | ) | 110 | ||||||
Real estate — construction and land | (517 | ) | (532 | ) | 220 | |||||
Real estate — business | 1,799 | (104 | ) | 1,495 | ||||||
Consumer credit card | 6,095 | 6,048 | 6,173 | |||||||
Consumer | 1,731 | 1,709 | 2,631 | |||||||
Revolving home equity | 187 | 139 | 360 | |||||||
Real estate — personal | 411 | 373 | 69 | |||||||
Overdraft | 329 | 202 | 107 | |||||||
Per common share: | ||||||||||
Net income — basic | $.73 | $.67 | $.70 | |||||||
Net income — diluted | $.72 | $.67 | $.70 | |||||||
Cash dividends | $1.648 | $.225 | $.219 | |||||||
Diluted wtd. average shares o/s | 90,999 | 90,444 | 92,984 | |||||||
RATIOS | ||||||||||
Average loans to deposits (1) | 55.53 | % | 54.65 | % | 55.53 | % | ||||
Return on total average assets | 1.25 | % | 1.13 | % | 1.29 | % | ||||
Return on total average equity | 11.62 | % | 11.38 | % | 12.04 | % | ||||
Non-interest income to revenue (2) | 39.05 | % | 39.92 | % | 37.19 | % | ||||
Efficiency ratio (3) | 59.62 | % | 61.76 | % | 58.91 | % | ||||
AT PERIOD END | ||||||||||
Book value per share based on total equity | $23.76 | $24.02 | $23.64 | |||||||
Market value per share | $35.06 | $40.83 | $38.59 | |||||||
Allowance for loan losses as a percentage of loans | 1.75 | % | 1.68 | % | 1.96 | % | ||||
Tier I leverage ratio | 9.14 | % | 8.92 | % | 9.70 | % | ||||
Tangible common equity to assets ratio (4) | 9.25 | % | 9.26 | % | 10.12 | % | ||||
Common shares outstanding | 91,414,306 | 90,739,038 | 93,012,999 | |||||||
Shareholders of record | 4,135 | 4,127 | 4,213 | |||||||
Number of bank/ATM locations | 362 | 359 | 360 | |||||||
Full-time equivalent employees | 4,708 | 4,725 | 4,713 | |||||||
OTHER QTD INFORMATION | ||||||||||
High market value per share | $38.70 | $40.89 | $39.31 | |||||||
Low market value per share | $34.69 | $35.40 | $35.78 | |||||||
(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 | ||||||||||||
(Unaudited) (In thousands, except per share data) | December 31, 2012 | March 31, 2013 | March 31, 2012 | |||||||||
Interest income | $170,185 | $158,745 | $169,966 | |||||||||
Interest expense | 8,932 | 8,402 | 10,229 | |||||||||
Net interest income | 161,253 | 150,343 | 159,737 | |||||||||
Provision for loan losses | 8,326 | 3,285 | 8,165 | |||||||||
Net interest income after provision for loan losses | 152,927 | 147,058 | 151,572 | |||||||||
NON-INTEREST INCOME | ||||||||||||
Bank card transaction fees | 41,542 | 38,550 | 34,733 | |||||||||
Trust fees | 24,351 | 25,169 | 22,814 | |||||||||
Deposit account charges and other fees | 20,301 | 18,712 | 19,336 | |||||||||
Capital market fees | 4,075 | 4,391 | 6,871 | |||||||||
Consumer brokerage services | 2,619 | 2,686 | 2,526 | |||||||||
Loan fees and sales | 1,412 | 1,473 | 1,561 | |||||||||
Other | 9,009 | 8,896 | 6,742 | |||||||||
Total non-interest income | 103,309 | 99,877 | 94,583 | |||||||||
INVESTMENT SECURITIES GAINS (LOSSES), NET | ||||||||||||
Impairment (losses) reversals on securities | (356 | ) | 1,389 | 5,587 | ||||||||
Noncredit-related losses (reversals) on securities not expected to be sold | 93 | (1,831 | ) | (5,907 | ) | |||||||
Net impairment losses | (263 | ) | (442 | ) | (320 | ) | ||||||
Realized gains (losses) on sales and fair value adjustments | (3,465 | ) | (1,723 | ) | 4,360 | |||||||
Investment securities gains (losses), net | (3,728 | ) | (2,165 | ) | 4,040 | |||||||
NON-INTEREST EXPENSE | ||||||||||||
Salaries and employee benefits | 94,553 | 90,881 | 89,543 | |||||||||
Net occupancy | 11,581 | 11,235 | 11,260 | |||||||||
Equipment | 4,983 | 4,683 | 5,189 | |||||||||
Supplies and communication | 5,641 | 5,589 | 5,613 | |||||||||
Data processing and software | 18,768 | 18,951 | 17,469 | |||||||||
Marketing | 2,715 | 3,359 | 3,822 | |||||||||
Deposit insurance | 2,692 | 2,767 | 2,520 | |||||||||
Other | 17,344 | 17,572 | 15,045 | |||||||||
Total non-interest expense | 158,277 | 155,037 | 150,461 | |||||||||
Income before income taxes | 94,231 | 89,733 | 99,734 | |||||||||
Less income taxes | 27,628 | 28,925 | 32,920 | |||||||||
Net income | 66,603 | 60,808 | 66,814 | |||||||||
Less non-controlling interest expense (income) | (188 | ) | (209 | ) | 1,015 | |||||||
Net income attributable to Commerce Bancshares, Inc. | $66,791 | $61,017 | $65,799 | |||||||||
Net income per common share — basic | $.73 | $.67 | $.70 | |||||||||
Net income per common share — diluted | $.72 | $.67 | $.70 | |||||||||
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands) | December 31, 2012 | March 31, 2013 | March 31, 2012 | |||||||||
ASSETS | ||||||||||||
Loans | $9,831,384 | $9,982,686 | $9,247,971 | |||||||||
Allowance for loan losses | (172,532 | ) | (168,032 | ) | (181,532 | ) | ||||||
Net loans | 9,658,852 | 9,814,654 | 9,066,439 | |||||||||
Loans held for sale | 8,827 | 9,085 | 9,673 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 9,522,248 | 9,572,751 | 9,120,399 | |||||||||
Trading | 28,837 | 23,400 | 34,178 | |||||||||
Non-marketable | 118,650 | 118,620 | 120,734 | |||||||||
Total investment securities | 9,669,735 | 9,714,771 | 9,275,311 | |||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 27,595 | 7,820 | 40,925 | |||||||||
Long-term securities purchased under agreements to resell | 1,200,000 | 1,200,000 | 850,000 | |||||||||
Interest earning deposits with banks | 179,164 | 199,956 | 12,038 | |||||||||
Cash and due from banks | 573,066 | 413,019 | 381,462 | |||||||||
Land, buildings and equipment — net | 357,612 | 355,464 | 353,866 | |||||||||
Goodwill | 125,585 | 125,585 | 125,585 | |||||||||
Other intangible assets — net | 5,300 | 4,870 | 7,070 | |||||||||
Other assets | 353,853 | 381,984 | 404,548 | |||||||||
Total assets | $ | 22,159,589 | $ | 22,227,208 | $ | 20,526,917 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Deposits: | ||||||||||||
Non-interest bearing | $6,299,903 | $6,170,274 | $5,209,381 | |||||||||
Savings, interest checking and money market | 9,817,943 | 9,802,838 | 9,038,283 | |||||||||
Time open and C.D.’s of less than $100,000 | 1,074,618 | 1,061,350 | 1,143,687 | |||||||||
Time open and C.D.’s of $100,000 and over | 1,156,189 | 1,480,405 | 1,380,409 | |||||||||
Total deposits | 18,348,653 | 18,514,867 | 16,771,760 | |||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,083,550 | 1,126,858 | 1,122,988 | |||||||||
Other borrowings | 103,710 | 102,783 | 111,520 | |||||||||
Other liabilities | 452,102 | 303,509 | 321,443 | |||||||||
Total liabilities | 19,988,015 | 20,048,017 | 18,327,711 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 458,646 | 458,646 | 446,387 | |||||||||
Capital surplus | 1,102,507 | 1,101,445 | 1,032,985 | |||||||||
Retained earnings | 477,210 | 517,792 | 620,780 | |||||||||
Treasury stock | (7,580 | ) | (32,501 | ) | (22,872 | ) | ||||||
Accumulated other comprehensive income | 136,344 | 129,763 | 118,056 | |||||||||
Total stockholders’ equity | 2,167,127 | 2,175,145 | 2,195,336 | |||||||||
Non-controlling interest | 4,447 | 4,046 | 3,870 | |||||||||
Total equity | 2,171,574 | 2,179,191 | 2,199,206 | |||||||||
Total liabilities and equity | $ | 22,159,589 | $ | 22,227,208 | $ | 20,526,917 | ||||||
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
(Unaudited) (Dollars in thousands) | For the Three Months Ended | |||||||||||||||||||
December 31, 2012 | March 31, 2013 | March 31, 2012 | ||||||||||||||||||
Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | |||||||||||||||
ASSETS: | ||||||||||||||||||||
Loans: | ||||||||||||||||||||
Business (A) | $ | 3,041,700 | 3.29 | % | $ | 3,156,594 | 3.17 | % | $ | 2,893,973 | 3.52 | % | ||||||||
Real estate — construction and land | 345,608 | 4.11 | 351,573 | 3.87 | 380,484 | 4.34 | ||||||||||||||
Real estate — business | 2,200,088 | 4.33 | 2,230,453 | 4.17 | 2,184,893 | 4.57 | ||||||||||||||
Real estate — personal | 1,571,860 | 4.15 | 1,600,138 | 4.08 | 1,441,520 | 4.58 | ||||||||||||||
Consumer | 1,272,831 | 5.35 | 1,343,210 | 5.03 | 1,107,878 | 5.93 | ||||||||||||||
Revolving home equity | 436,671 | 4.13 | 428,696 | 4.08 | 454,782 | 4.18 | ||||||||||||||
Consumer credit card | 748,754 | 11.42 | 755,167 | 11.38 | 731,030 | 11.78 | ||||||||||||||
Overdrafts | 5,908 | — | 5,406 | — | 7,587 | — | ||||||||||||||
Total loans (B) | 9,623,420 | 4.64 | 9,871,237 | 4.49 | 9,202,147 | 4.95 | ||||||||||||||
Loans held for sale | 8,818 | 3.74 | 9,096 | 3.79 | 12,147 | 3.48 | ||||||||||||||
Investment securities: | ||||||||||||||||||||
U.S. government and federal agency obligations | 341,537 | 5.11 | 398,215 | (.59 | ) | (C) | 328,106 | 2.08 | ||||||||||||
Government-sponsored enterprise obligations | 400,387 | 1.72 | 468,608 | 1.86 | 283,494 | 2.01 | ||||||||||||||
State and municipal obligations (A) | 1,531,754 | 3.67 | 1,603,064 | 3.79 | 1,263,303 | 4.17 | ||||||||||||||
Mortgage-backed securities | 3,447,995 | 2.79 | 3,514,370 | 2.59 | 4,190,982 | 2.85 | ||||||||||||||
Asset-backed securities | 3,157,988 | .99 | 3,206,907 | .93 | 2,761,896 | 1.16 | ||||||||||||||
Other marketable securities (A) | 138,066 | 5.35 | 193,413 | 3.21 | 162,616 | 4.11 | ||||||||||||||
Total available for sale securities (B) | 9,017,727 | 2.39 | 9,384,577 | 2.07 | 8,990,397 | 2.48 | ||||||||||||||
Trading securities (A) | 20,771 | 2.01 | 27,729 | 1.90 | 32,628 | 2.95 | ||||||||||||||
Non-marketable securities (A) | 118,802 | 17.51 | 119,407 | 6.20 | 116,873 | 8.55 | ||||||||||||||
Total investment securities | 9,157,300 | 2.59 | 9,531,713 | 2.12 | 9,139,898 | 2.56 | ||||||||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 10,371 | .46 | 8,680 | .42 | 13,695 | .50 | ||||||||||||||
Long-term securities purchased under agreements to resell | 1,021,741 | 2.10 | 1,178,333 | 2.01 | 850,000 | 2.02 | ||||||||||||||
Interest earning deposits with banks | 208,930 | .25 | 130,357 | .24 | 87,919 | .25 | ||||||||||||||
Total interest earning assets | 20,030,580 | 3.52 | 20,729,416 | 3.23 | 19,305,806 | 3.66 | ||||||||||||||
Non-interest earning assets (B) | 1,234,609 | 1,196,078 | 1,160,906 | |||||||||||||||||
Total assets | $ | 21,265,189 | $ | 21,925,494 | $ | 20,466,712 | ||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||
Savings | $ | 581,174 | .13 | $ | 603,644 | .12 | $ | 549,998 | .15 | |||||||||||
Interest checking and money market | 8,638,073 | .19 | 9,142,100 | .17 | 8,311,734 | .24 | ||||||||||||||
Time open & C.D.’s of less than $100,000 | 1,083,492 | .68 | 1,068,695 | .66 | 1,155,882 | .73 | ||||||||||||||
Time open & C.D.’s of $100,000 and over | 1,030,184 | .65 | 1,336,952 | .52 | 1,444,252 | .53 | ||||||||||||||
Total interest bearing deposits | 11,332,923 | .28 | 12,151,391 | .25 | 11,461,866 | .32 | ||||||||||||||
Borrowings: | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,130,210 | .07 | 1,200,818 | .07 | 1,287,245 | .07 | ||||||||||||||
Other borrowings | 103,766 | 3.25 | 103,329 | 3.19 | 111,800 | 3.26 | ||||||||||||||
Total borrowings | 1,233,976 | .33 | 1,304,147 | .32 | 1,399,045 | .33 | ||||||||||||||
Total interest bearing liabilities | 12,566,899 | .28 | % | 13,455,538 | .25 | % | 12,860,911 | .32 | % | |||||||||||
Non-interest bearing deposits | 6,013,165 | 5,929,229 | 5,132,305 | |||||||||||||||||
Other liabilities | 399,160 | 366,562 | 275,349 | |||||||||||||||||
Equity | 2,285,965 | 2,174,165 | 2,198,147 | |||||||||||||||||
Total liabilities and equity | $ | 21,265,189 | $ | 21,925,494 | $ | 20,466,712 | ||||||||||||||
Net interest income (T/E) | $ | 168,428 | $ | 156,708 | $ | 165,666 | ||||||||||||||
Net yield on interest earning assets | 3.35 | % | 3.07 | % | 3.45 | % | ||||||||||||||
(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 ($1.7 million) in inflation income on U.S.Treasury inflation-protected securities in the first quarter of 2013.
6
COMMERCE BANCSHARES, INC.
Management Discussion of First Quarter Results
March 31, 2013
For the quarter ended March 31, 2013, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $61.0 million, a decrease of $4.8 million from the same quarter last year, and a decrease of $5.8 million compared to the previous quarter. The decrease in net income from the previous quarter resulted mainly from lower net interest income of $10.9 million coupled with a decline in fee income due to higher seasonal activity in the previous quarter, but offset by a lower provision for loan losses of $5.0 million and a decline in non-interest expense of $3.2 million. Part of the decline in net interest income this quarter resulted from a decline in interest of $4.8 million on the Company's inflation-protected government securities. Also, net securities losses totaled $2.2 million mainly due to fair value adjustments on the Company's private equity investments. For the current quarter, the return on average assets was 1.13%, the return on average equity was 11.38%, and the efficiency ratio was 61.76%.
Balance Sheet Review
During the 1st quarter of 2013, average loans, including loans held for sale, increased $248.1 million (10.4% annualized) compared to the previous quarter and increased $666.0 million, or 7.2%, compared to the same period last year. The increase in average loans over the previous quarter resulted from increases in business (up $114.9 million), business real estate and construction (up $36.3 million), personal real estate (up $28.3 million) and consumer loans (up $70.4 million, mainly in automobile and fixed rate home equity loans). Consumer credit card loans also increased slightly. The increase in business loans mainly resulted from growth in agribusiness lending and leasing activities, while demand for business real estate loans also improved this quarter. Demand for consumer automobile lending remained strong as average outstanding balances grew by $91.0 million. However, marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $18.0 million, while home equity lines of credit also declined by $8.0 million.
Total available for sale investment securities (excluding fair value adjustments) averaged $9.4 billion this quarter, up $366.9 million when compared to the previous quarter. This growth was funded from continued growth in deposits. Purchases of new securities, totaling $735.7 million in the 1st quarter of 2013, were offset by maturities and pay downs of $675.4 million. At March 31, 2013, the duration of the investment portfolio was 2.5 years, and maturities and pay downs of approximately $2.1 billion are expected to occur during the next 12 months.
Total average deposits increased $734.5 million, or 4.2%, during the 1st quarter of 2013 compared to the 4th quarter of 2012 (which grew $720.7 million over the 3rd quarter of 2012). This increase in average deposits resulted mainly from growth in money market accounts (increase of $503.9 million) and short-term jumbo certificates of deposit (increase of $303.8 million). Overall, $198.0 million of the deposit growth this quarter came from commercial deposits while the remaining $536.5 million in deposit growth was mostly from private banking and retail banking customers. The average loans to deposits ratio in the current quarter was 54.7%, compared to 55.5% in the previous quarter.
During the current quarter, the Company's average borrowings increased $70.2 million compared to the previous quarter, mainly due to higher balances of federal funds purchased and repurchase agreements this quarter.
Net Interest Income
Net interest income (tax equivalent) in the 1st quarter of 2013 amounted to $156.7 million compared with $168.4 million in the previous quarter, or a decrease of $11.7 million. Net interest income (tax equivalent) for the current quarter also decreased $9.0 million compared to the 1st quarter of last year. During the 1st quarter of 2013, the net yield on earning assets (tax equivalent) was 3.07%, compared with 3.35% in the previous quarter and 3.45% in the same period last year.
The decrease in net interest income (tax equivalent) in the 1st quarter of 2013 compared to the previous quarter was mainly due to a decline in inflation interest of $4.8 million on the Company's inflation-protected securities as a result of the lower Consumer Price Indices published this quarter, on which this interest is based. Inflation income totaled ($1.7) million this quarter. Also, in the previous quarter the Company received a special dividend on a private equity investment totaling $2.2 million that did not re-occur, and premium amortization expense was lowered by $1.7 million due to a slowing of prepayment speeds on mortgage-backed securities.
Compared to the previous quarter, interest on loans declined $2.9 million (tax-equivalent) as a result of fewer days in the quarter, coupled with lower average rates of 15 basis points, which was partly offset by higher balances. The average rate earned on investment securities declined 47 basis points to 2.12% this quarter largely due to the lower inflation interest recorded this quarter, in addition to the special dividend and the lower premium amortization expense in the prior quarter. These effects were partially offset by higher overall average securities balances. In the current quarter, the prepayment speed adjustment on mortgage-backed securities reduced premium amortization expense by $291 thousand, compared to the reduction of $1.7 million in the previous quarter.
Interest expense on deposits declined $527 thousand in the 1st quarter of 2013 compared with the previous quarter as overall rates continued to decline slightly.
Non-Interest Income
In the 1st quarter of 2013, total non-interest income amounted to $99.9 million, an increase of $5.3 million, or 5.6%, compared to the same period last year. Also, current quarter non-interest income decreased $3.4 million when compared to amounts recorded in the previous quarter. The increase in non-interest income over the same period last year was mainly due to increased bank card and trust fees.
Total bank card fees in the current quarter increased $3.8 million, or 11.0%, over the same period last year as a result of a 19.4% increase in corporate card fees, which totaled $18.7 million this quarter. Merchant and credit card fees also grew by 12.2% and 5.5%, respectively.
Trust fees for the quarter increased 10.3% compared to the same period last year, resulting mainly from continued growth in private client (up 12.0%) and institutional (up 11.1%) trust fees. Deposit
account fees declined $624 thousand, or 3.2%, compared to last year as overdraft fees declined by $958 thousand, but were offset by growth in various other deposit fees of $310 thousand, or 10.4%.
7
COMMERCE BANCSHARES, INC.
Management Discussion of First Quarter Results
March 31, 2013
A new debit posting routine mandated by a previously disclosed legal settlement took effect in late February and had the effect of reducing overdraft income by approximately $500 thousand this quarter. Capital market fees declined $2.5 million from the same quarter last year as fees were very strong last year and more recently have been affected by low interest rates, reducing customer demand. Other non-interest income grew by $2.2 million this quarter compared to the same period last year as a result of a $3.0 million fair value loss taken last year on an office building which was held for sale.
Investment Securities Gains and Losses
Net securities losses, related mostly to private equity fair value adjustments, amounted to $2.2 million in the 1st quarter of 2013, compared to net losses of $3.7 million in the previous quarter and net gains of $4.0 million in the same quarter last year. The current quarter included unrealized net losses of $1.8 million on these private equity investments, coupled with a reduction to minority interest expense related to these losses totaling $350 thousand.
Also during the current quarter, the Company recorded credit-related impairment losses of $442 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $263 thousand in the previous quarter and $320 thousand in the same quarter last year. The cumulative credit-related impairment on these bonds totaled $11.7 million at quarter end. At March 31, 2013, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $96.4 million, compared to $118.3 million at March 31, 2012.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $155.0 million, a decrease of $3.2 million from the previous quarter and an increase of $4.6 million compared to the same quarter last year. Compared to the 1st quarter of last year, salaries and benefits expense increased $1.3 million, or 1.5%, mainly due to an increase in salary costs of $2.0 million but offset by lower incentive compensation and medical costs. Full-time equivalent employees totaled 4,725 and 4,713 at March 31, 2013 and 2012, respectively.
Compared to the 1st quarter of last year, occupancy, equipment, supplies and marketing expense declined $1.0 million on a combined basis mainly due to lower depreciation and reductions in rent expense, office supplies and marketing expenditures. Data processing and software costs grew by $1.5 million, or 8.5%, partly due to higher variable processing costs related to commercial card revenues. Other non-interest expense increased this quarter due to a provision of $1.0 million on a letter of credit exposure and higher costs for professional and examination fees, in addition to a card network agreement incentive of $1.1 million received last year. The reduction in non-controlling interest expense of $1.2 million resulted from private equity activities mentioned above.
Income Taxes
The effective tax rate for the Company was 32.2% in the current quarter, compared with 29.3% in the previous quarter and 33.3% in the 1st quarter of 2012. The lower rate in the previous quarter resulted partly from tax benefits on the special dividend paid in the 4th quarter of 2012 to the Company's employee stock ownership plan.
Credit Quality
Net loan charge-offs in the 1st quarter of 2013 amounted to $7.8 million, compared with $10.8 million in the prior quarter and $11.2 million in the 1st quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .32% in the current quarter compared to .45% in the previous quarter.
For the 1st quarter of 2013, annualized net loan charge-offs on average consumer credit card loans amounted to 3.25%, compared with 3.24% in the previous quarter and 3.40% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .52% of average consumer loans, compared to .54% in the previous quarter and .96% in the same quarter last year. The provision for loan losses for the current quarter totaled $3.3 million, a decrease of $5.0 million from the previous quarter and $4.9 million lower than in the same period last year. The current quarter provision for loan losses was $4.5 million less than net loan charge-offs, and reflects continued improving credit trends in the loan portfolio and declining non-performing loans as discussed below. As a result, the allowance for loan losses was reduced to $168.0 million. At March 31, 2013 the allowance was 1.68% of total loans, excluding loans held for sale, and was 376% of total non-accrual loans.
At March 31, 2013, total non-performing assets amounted to $58.9 million, a decrease of $5.9 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($44.7 million) and foreclosed real estate ($14.2 million). At March 31, 2013, the balance of non-accrual loans, which represented .45% of loans outstanding, included business real estate loans of $14.3 million, construction and land loans of $13.0 million and business loans of $12.1 million. Loans more than 90 days past due and still accruing interest totaled $15.0 million at March 31, 2013.
Other
During the quarter the Company purchased approximately 808,000 shares of treasury stock at an average cost of $37.13 per share.
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.
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