Attached files
| file | filename |
|---|---|
| 8-K - 8-K - COMMERCE BANCSHARES INC /MO/ | cbsh063020138k.htm |
Exhibit 99.1
 CBSH |
1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000 |
 |
FOR IMMEDIATE RELEASE:
Thursday, July 11, 2013
COMMERCE BANCSHARES, INC. ANNOUNCES SECOND
QUARTER EARNINGS PER SHARE OF $.72
Commerce Bancshares, Inc. announced earnings of $.72 per share for the three months ended June 30, 2013 compared to $.76 per share in the second quarter of 2012 and $.67 per share in the previous quarter. Net income for the second quarter amounted to $65.8 million, compared to $70.7 million in the same quarter last year and $61.0 million last quarter. For the quarter, the return on average assets totaled 1.20%, the return on average equity was 12.1% and the efficiency ratio was 59.7%.
For the six months ended June 30, 2013, earnings per share totaled $1.39 compared to $1.46 in the first six months of 2012. Net income amounted to $126.8 million for the first six months of 2013 compared with $136.5 million for the same period last year. The return on average assets for the first six months was 1.17% and the return on average equity was 11.7%.
In making this announcement, David W. Kemper, Chairman and CEO, said, “Our second quarter was highlighted by continued strong growth in loans, improved net interest income and continued fee income growth. Compared to the previous quarter, average loans increased $242 million, or 10.0% annualized, with growth coming from both commercial and consumer lending activities. Over the past two quarters, we have had strong loan demand with an improving economy and average loans have grown $490 million, or over 10% annualized. We continue to see growth in revenues from our trust and corporate card businesses which grew by 8.0% and 8.6%, respectively, compared to the second quarter of last year, while non-interest expense remained flat with the same quarter last year.”
Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $9.4 million, compared to $8.2 million in the second quarter of 2012 and $7.8 million in the previous quarter. Consumer net loan charge-offs increased by $486 thousand this quarter on higher credit card loan losses but lower losses on consumer and personal real estate loans. Commercial loan losses increased $1.1 million due to higher business real estate loan losses. During the current quarter, the provision for loan losses totaled $7.4 million, or $2.0 million less than net loan charge-offs. Our allowance for loan losses amounted to $166.0 million this quarter, representing 3.2 times our non-performing assets. Total non-performing assets decreased $6.4 million from the previous quarter to $52.5 million this quarter.”
(more)
Total assets at June 30, 2013 were $21.9 billion, total loans were $10.4 billion, and total deposits were $17.9 billion. During the quarter, the Company repurchased approximately 383,000 shares of its common stock at an average price per share of $39.90. Also on May 15, 2013, the Company announced plans to acquire Summit Bancshares, Inc., Tulsa, Oklahoma with loans of $213 million and deposits of $231 million. It is expected that this transaction will be completed in the third quarter of 2013.
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) | 3/31/2013 | 6/30/2013 | 6/30/2012 | |||||||||
Non-Accrual Loans | $ | 44,739 | $ | 39,092 | $ | 62,177 | ||||||
Foreclosed Real Estate | $ | 14,191 | $ | 13,434 | $ | 20,095 | ||||||
Total Non-Performing Assets | $ | 58,930 | $ | 52,526 | $ | 82,272 | ||||||
Non-Performing Assets to Loans | .59 | % | .51 | % | .88 | % | ||||||
Non-Performing Assets to Total Assets | .27 | % | .24 | % | .40 | % | ||||||
Loans 90 Days & Over Past Due — Still Accruing | $ | 15,015 | $ | 12,509 | $ | 11,297 | ||||||
This financial news release, including management's discussion of second quarter results, is posted to the Company's web site at www.commercebank.com.
* * * * * * * * * * * * * * *
For additional information, contact
Jeffery Aberdeen, Controller
at 1000 Walnut Street, Suite 700
Kansas City, MO 64106
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 Six Months Ended | |||||||||||||||
(Unaudited) | March 31, 2013 | June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||||||||
FINANCIAL SUMMARY (In thousands, except per share data) | ||||||||||||||||
Net interest income | $150,343 | $159,458 | $165,105 | $309,801 | $324,842 | |||||||||||
Taxable equivalent net interest income | 156,708 | 165,942 | 171,186 | 322,650 | 336,852 | |||||||||||
Non-interest income | 99,877 | 102,676 | 100,816 | 202,553 | 195,399 | |||||||||||
Investment securities gains (losses), net | (2,165 | ) | (1,568 | ) | 1,336 | (3,733 | ) | 5,376 | ||||||||
Provision for loan losses | 3,285 | 7,379 | 5,215 | 10,664 | 13,380 | |||||||||||
Non-interest expense | 155,037 | 156,966 | 156,340 | 312,003 | 306,801 | |||||||||||
Net income attributable to Commerce Bancshares, Inc. | 61,017 | 65,805 | 70,733 | 126,822 | 136,532 | |||||||||||
Cash dividends | 20,435 | 20,431 | 20,216 | 40,866 | 40,654 | |||||||||||
Net total loan charge-offs (recoveries) | 7,785 | 9,379 | 8,214 | 17,164 | 19,379 | |||||||||||
Business | (50 | ) | (87 | ) | (3,600 | ) | (137 | ) | (3,490 | ) | ||||||
Real estate — construction and land | (532 | ) | (744 | ) | 116 | (1,276 | ) | 336 | ||||||||
Real estate — business | (104 | ) | 1,253 | 1,839 | 1,149 | 3,334 | ||||||||||
Consumer credit card | 6,048 | 6,935 | 5,930 | 12,983 | 12,103 | |||||||||||
Consumer | 1,709 | 1,452 | 1,974 | 3,161 | 4,605 | |||||||||||
Revolving home equity | 139 | 156 | 943 | 295 | 1,303 | |||||||||||
Real estate — personal | 373 | 172 | 679 | 545 | 748 | |||||||||||
Overdraft | 202 | 242 | 333 | 444 | 440 | |||||||||||
Per common share: | ||||||||||||||||
Net income — basic | $.67 | $.72 | $.77 | $1.39 | $1.47 | |||||||||||
Net income — diluted | $.67 | $.72 | $.76 | $1.39 | $1.46 | |||||||||||
Cash dividends | $.225 | $.225 | $.219 | $.450 | $.438 | |||||||||||
Diluted wtd. average shares o/s | 90,444 | 90,159 | 92,056 | 90,301 | 92,520 | |||||||||||
RATIOS | ||||||||||||||||
Average loans to deposits (1) | 54.65 | % | 56.68 | % | 55.26 | % | 55.66 | % | 55.39 | % | ||||||
Return on total average assets | 1.13 | % | 1.20 | % | 1.38 | % | 1.17 | % | 1.34 | % | ||||||
Return on total average equity | 11.38 | % | 12.07 | % | 12.80 | % | 11.73 | % | 12.42 | % | ||||||
Non-interest income to revenue (2) | 39.92 | % | 39.17 | % | 37.91 | % | 39.53 | % | 37.56 | % | ||||||
Efficiency ratio (3) | 61.76 | % | 59.73 | % | 58.53 | % | 60.72 | % | 58.72 | % | ||||||
AT PERIOD END | ||||||||||||||||
Book value per share based on total equity | $24.02 | $23.23 | $24.26 | |||||||||||||
Market value per share | $40.83 | $43.55 | $36.10 | |||||||||||||
Allowance for loan losses as a percentage of loans | 1.68 | % | 1.60 | % | 1.90 | % | ||||||||||
Tier I leverage ratio | 8.92 | % | 9.08 | % | 9.73 | % | ||||||||||
Tangible common equity to assets ratio (4) | 9.26 | % | 9.06 | % | 10.16 | % | ||||||||||
Common shares outstanding | 90,739,038 | 90,673,953 | 91,967,960 | |||||||||||||
Shareholders of record | 4,127 | 4,107 | 4,184 | |||||||||||||
Number of bank/ATM locations | 359 | 356 | 361 | |||||||||||||
Full-time equivalent employees | 4,725 | 4,720 | 4,702 | |||||||||||||
OTHER QTD INFORMATION | ||||||||||||||||
High market value per share | $40.89 | $44.62 | $39.05 | |||||||||||||
Low market value per share | $35.40 | $38.46 | $34.45 | |||||||||||||
(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 Six Months Ended | |||||||||||||||||||
(Unaudited) (In thousands, except per share data) | March 31, 2013 | June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||||||||||||
Interest income | $158,745 | $167,255 | $174,624 | $326,000 | $344,590 | |||||||||||||||
Interest expense | 8,402 | 7,797 | 9,519 | 16,199 | 19,748 | |||||||||||||||
Net interest income | 150,343 | 159,458 | 165,105 | 309,801 | 324,842 | |||||||||||||||
Provision for loan losses | 3,285 | 7,379 | 5,215 | 10,664 | 13,380 | |||||||||||||||
Net interest income after provision for loan losses | 147,058 | 152,079 | 159,890 | 299,137 | 311,462 | |||||||||||||||
NON-INTEREST INCOME | ||||||||||||||||||||
Bank card transaction fees | 38,550 | 40,700 | 38,434 | 79,250 | 73,167 | |||||||||||||||
Trust fees | 25,169 | 25,734 | 23,833 | 50,903 | 46,647 | |||||||||||||||
Deposit account charges and other fees | 18,712 | 19,602 | 19,975 | 38,314 | 39,311 | |||||||||||||||
Capital market fees | 4,391 | 3,305 | 5,010 | 7,696 | 11,881 | |||||||||||||||
Consumer brokerage services | 2,686 | 2,853 | 2,576 | 5,539 | 5,102 | |||||||||||||||
Loan fees and sales | 1,473 | 1,314 | 1,706 | 2,787 | 3,267 | |||||||||||||||
Other | 8,896 | 9,168 | 9,282 | 18,064 | 16,024 | |||||||||||||||
Total non-interest income | 99,877 | 102,676 | 100,816 | 202,553 | 195,399 | |||||||||||||||
INVESTMENT SECURITIES GAINS (LOSSES), NET | ||||||||||||||||||||
Impairment (losses) reversals on securities | 1,389 | (293 | ) | 3 | 1,096 | 5,590 | ||||||||||||||
Noncredit-related reversals on securities not expected to be sold | (1,831 | ) | (195 | ) | (353 | ) | (2,026 | ) | (6,260 | ) | ||||||||||
Net impairment losses | (442 | ) | (488 | ) | (350 | ) | (930 | ) | (670 | ) | ||||||||||
Realized gains (losses) on sales and fair value adjustments | (1,723 | ) | (1,080 | ) | 1,686 | (2,803 | ) | 6,046 | ||||||||||||
Investment securities gains (losses), net | (2,165 | ) | (1,568 | ) | 1,336 | (3,733 | ) | 5,376 | ||||||||||||
NON-INTEREST EXPENSE | ||||||||||||||||||||
Salaries and employee benefits | 90,881 | 89,569 | 87,511 | 180,450 | 177,054 | |||||||||||||||
Net occupancy | 11,235 | 11,234 | 11,105 | 22,469 | 22,365 | |||||||||||||||
Equipment | 4,683 | 4,680 | 4,999 | 9,363 | 10,188 | |||||||||||||||
Supplies and communication | 5,589 | 5,797 | 5,667 | 11,386 | 11,280 | |||||||||||||||
Data processing and software | 18,951 | 19,584 | 18,282 | 38,535 | 35,751 | |||||||||||||||
Marketing | 3,359 | 4,048 | 4,469 | 7,407 | 8,291 | |||||||||||||||
Deposit insurance | 2,767 | 2,790 | 2,618 | 5,557 | 5,138 | |||||||||||||||
Other | 17,572 | 19,264 | 21,689 | 36,836 | 36,734 | |||||||||||||||
Total non-interest expense | 155,037 | 156,966 | 156,340 | 312,003 | 306,801 | |||||||||||||||
Income before income taxes | 89,733 | 96,221 | 105,702 | 185,954 | 205,436 | |||||||||||||||
Less income taxes | 28,925 | 30,182 | 34,466 | 59,107 | 67,386 | |||||||||||||||
Net income | 60,808 | 66,039 | 71,236 | 126,847 | 138,050 | |||||||||||||||
Less non-controlling interest expense (income) | (209 | ) | 234 | 503 | 25 | 1,518 | ||||||||||||||
Net income attributable to Commerce Bancshares, Inc. | $61,017 | $65,805 | $70,733 | $126,822 | $136,532 | |||||||||||||||
Net income per common share — basic | $.67 | $.72 | $.77 | $1.39 | $1.47 | |||||||||||||||
Net income per common share — diluted | $.67 | $.72 | $.76 | $1.39 | $1.46 | |||||||||||||||
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands) | March 31, 2013 | June 30, 2013 | June 30, 2012 | |||||||||
ASSETS | ||||||||||||
Loans | $9,982,686 | $10,370,155 | $9,376,915 | |||||||||
Allowance for loan losses | (168,032 | ) | (166,032 | ) | (178,533 | ) | ||||||
Net loans | 9,814,654 | 10,204,123 | 9,198,382 | |||||||||
Loans held for sale | 9,085 | 8,941 | 8,874 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 9,572,751 | 8,927,815 | 9,206,451 | |||||||||
Trading | 23,400 | 14,670 | 14,313 | |||||||||
Non-marketable | 118,620 | 113,470 | 116,190 | |||||||||
Total investment securities | 9,714,771 | 9,055,955 | 9,336,954 | |||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 7,820 | 22,990 | 7,455 | |||||||||
Long-term securities purchased under agreements to resell | 1,200,000 | 1,200,000 | 850,000 | |||||||||
Interest earning deposits with banks | 199,956 | 6,816 | 92,544 | |||||||||
Cash and due from banks | 413,019 | 399,687 | 410,666 | |||||||||
Land, buildings and equipment — net | 355,464 | 352,462 | 350,897 | |||||||||
Goodwill | 125,585 | 125,585 | 125,585 | |||||||||
Other intangible assets — net | 4,870 | 4,517 | 6,381 | |||||||||
Other assets | 381,984 | 529,275 | 355,253 | |||||||||
Total assets | $ | 22,227,208 | $ | 21,910,351 | $ | 20,742,991 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Deposits: | ||||||||||||
Non-interest bearing | $6,170,274 | $5,811,473 | $5,637,373 | |||||||||
Savings, interest checking and money market | 9,802,838 | 9,573,390 | 8,983,090 | |||||||||
Time open and C.D.’s of less than $100,000 | 1,061,350 | 1,039,131 | 1,113,824 | |||||||||
Time open and C.D.’s of $100,000 and over | 1,480,405 | 1,472,944 | 1,097,346 | |||||||||
Total deposits | 18,514,867 | 17,896,938 | 16,831,633 | |||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,126,858 | 1,620,694 | 1,305,745 | |||||||||
Other borrowings | 102,783 | 102,766 | 111,292 | |||||||||
Other liabilities | 303,509 | 183,166 | 263,552 | |||||||||
Total liabilities | 20,048,017 | 19,803,564 | 18,512,222 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 458,646 | 458,646 | 446,387 | |||||||||
Capital surplus | 1,101,445 | 1,094,922 | 1,033,523 | |||||||||
Retained earnings | 517,792 | 563,166 | 671,297 | |||||||||
Treasury stock | (32,501 | ) | (35,771 | ) | (61,388 | ) | ||||||
Accumulated other comprehensive income | 129,763 | 21,864 | 136,732 | |||||||||
Total stockholders’ equity | 2,175,145 | 2,102,827 | 2,226,551 | |||||||||
Non-controlling interest | 4,046 | 3,960 | 4,218 | |||||||||
Total equity | 2,179,191 | 2,106,787 | 2,230,769 | |||||||||
Total liabilities and equity | $ | 22,227,208 | $ | 21,910,351 | $ | 20,742,991 | ||||||
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
(Unaudited) (Dollars in thousands) | For the Three Months Ended | |||||||||||||||||||
March 31, 2013 | June 30, 2013 | June 30, 2012 | ||||||||||||||||||
Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | |||||||||||||||
ASSETS: | ||||||||||||||||||||
Loans: | ||||||||||||||||||||
Business (A) | $ | 3,156,594 | 3.17 | % | $ | 3,253,577 | 3.07 | % | $ | 2,895,167 | 3.58 | % | ||||||||
Real estate — construction and land | 351,573 | 3.87 | 373,359 | 3.94 | 360,000 | 4.24 | ||||||||||||||
Real estate — business | 2,230,453 | 4.17 | 2,216,876 | 4.14 | 2,205,561 | 4.71 | ||||||||||||||
Real estate — personal | 1,600,138 | 4.08 | 1,664,988 | 3.97 | 1,475,930 | 4.46 | ||||||||||||||
Consumer | 1,343,210 | 5.03 | 1,430,832 | 4.69 | 1,134,838 | 5.73 | ||||||||||||||
Revolving home equity | 428,696 | 4.08 | 425,762 | 3.96 | 449,416 | 4.17 | ||||||||||||||
Consumer credit card | 755,167 | 11.38 | 741,793 | 11.20 | 712,708 | 11.87 | ||||||||||||||
Overdrafts | 5,406 | — | 6,369 | — | 5,663 | — | ||||||||||||||
Total loans (B) | 9,871,237 | 4.49 | 10,113,556 | 4.34 | 9,239,283 | 4.95 | ||||||||||||||
Loans held for sale | 9,096 | 3.79 | 9,003 | 4.05 | 9,053 | 3.91 | ||||||||||||||
Investment securities: | ||||||||||||||||||||
U.S. government and federal agency obligations | 398,215 | (.59 | ) | (C) | 400,027 | 5.15 | 330,648 | 7.58 | ||||||||||||
Government-sponsored enterprise obligations | 468,608 | 1.86 | 439,075 | 1.74 | 265,620 | 2.06 | ||||||||||||||
State and municipal obligations (A) | 1,603,064 | 3.79 | 1,634,196 | 3.61 | 1,322,987 | 4.03 | ||||||||||||||
Mortgage-backed securities | 3,514,370 | 2.59 | 3,272,580 | 2.77 | 4,010,276 | 2.89 | ||||||||||||||
Asset-backed securities | 3,206,907 | .93 | 3,199,393 | .91 | 2,900,122 | 1.13 | ||||||||||||||
Other marketable securities (A) | 193,413 | 3.21 | 188,267 | 2.97 | 135,930 | 4.92 | ||||||||||||||
Total available for sale securities (B) | 9,384,577 | 2.07 | 9,133,538 | 2.33 | 8,965,583 | 2.67 | ||||||||||||||
Trading securities (A) | 27,729 | 1.90 | 22,355 | 2.40 | 22,748 | 2.65 | ||||||||||||||
Non-marketable securities (A) | 119,407 | 6.20 | 118,888 | 16.92 | 122,651 | 8.60 | ||||||||||||||
Total investment securities | 9,531,713 | 2.12 | 9,274,781 | 2.52 | 9,110,982 | 2.75 | ||||||||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 8,680 | .42 | 23,429 | .48 | 22,139 | .53 | ||||||||||||||
Long-term securities purchased under agreements to resell | 1,178,333 | 2.01 | 1,200,000 | 1.94 | 850,000 | 2.17 | ||||||||||||||
Interest earning deposits with banks | 130,357 | .24 | 116,510 | .26 | 163,075 | .28 | ||||||||||||||
Total interest earning assets | 20,729,416 | 3.23 | 20,737,279 | 3.36 | 19,394,532 | 3.75 | ||||||||||||||
Non-interest earning assets (B) | 1,196,078 | 1,184,066 | 1,154,720 | |||||||||||||||||
Total assets | $ | 21,925,494 | $ | 21,921,345 | $ | 20,549,252 | ||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||
Savings | $ | 603,644 | .12 | $ | 639,747 | .11 | $ | 584,196 | .12 | |||||||||||
Interest checking and money market | 9,142,100 | .17 | 8,932,987 | .14 | 8,369,306 | .21 | ||||||||||||||
Time open & C.D.’s of less than $100,000 | 1,068,695 | .66 | 1,052,574 | .63 | 1,128,716 | .71 | ||||||||||||||
Time open & C.D.’s of $100,000 and over | 1,336,952 | .52 | 1,464,384 | .46 | 1,250,164 | .59 | ||||||||||||||
Total interest bearing deposits | 12,151,391 | .25 | 12,089,692 | .22 | 11,332,382 | .30 | ||||||||||||||
Borrowings: | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,200,818 | .07 | 1,544,623 | .07 | 1,109,693 | .06 | ||||||||||||||
Other borrowings | 103,329 | 3.19 | 103,019 | 3.23 | 111,336 | 3.16 | ||||||||||||||
Total borrowings | 1,304,147 | .32 | 1,647,642 | .27 | 1,221,029 | .35 | ||||||||||||||
Total interest bearing liabilities | 13,455,538 | .25 | % | 13,737,334 | .23 | % | 12,553,411 | .30 | % | |||||||||||
Non-interest bearing deposits | 5,929,229 | 5,768,455 | 5,404,687 | |||||||||||||||||
Other liabilities | 366,562 | 228,966 | 367,763 | |||||||||||||||||
Equity | 2,174,165 | 2,186,590 | 2,223,391 | |||||||||||||||||
Total liabilities and equity | $ | 21,925,494 | $ | 21,921,345 | $ | 20,549,252 | ||||||||||||||
Net interest income (T/E) | $ | 156,708 | $ | 165,942 | $ | 171,186 | ||||||||||||||
Net yield on interest earning assets | 3.07 | % | 3.21 | % | 3.55 | % | ||||||||||||||
(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 Second Quarter Results
June 30, 2013
For the quarter ended June 30, 2013, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $65.8 million, an increase of $4.8 million over the previous quarter and a decrease of $4.9 million compared to the same quarter last year. The increase in net income over the previous quarter resulted mainly from higher net interest income of $9.1 million coupled with an increase in fee income of $2.8 million, but offset by a higher provision for loan losses of $4.1 million and growth in non-interest expense of $1.9 million. The increase in net interest income this quarter resulted from an increase in inflation related interest of $5.4 million on the Company's inflation-protected government securities, coupled with the reclassification of $2.6 million in interest received on the sale of a private equity investment which had been previously recorded as securities gains. For the current quarter, the return on average assets was 1.20%, the return on average equity was 12.07%, and the efficiency ratio was 59.73%.
Balance Sheet Review
During the 2nd quarter of 2013, average loans, including loans held for sale, increased $242.2 million (10.0% annualized) compared to the previous quarter and increased $874.2 million, or 9.5%, compared to the same period last year. On a period-end basis, loans increased $387.3 million over the previous quarter. This increase resulted from growth in business (up $208.8 million), construction (up $45.0 million), personal real estate (up $74.0 million) and consumer loans (up $42.5 million, mainly in automobile and fixed rate home equity loans). The increase in business loans mainly resulted from growth in tax-advantaged lending, aircraft lending, dealer floor plan and leasing activities. Demand for consumer automobile and fixed rate home equity lending remained strong as outstanding balances grew by $38.6 million and $25.2 million, respectively. However, marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $21.3 million.
Total available for sale investment securities (excluding fair value adjustments) averaged $9.1 billion this quarter, down $251.0 million when compared to the previous quarter. This decline was the result of loan growth coupled with a decline in average deposits this quarter. Purchases of new securities, totaling $336.7 million in the 2nd quarter of 2013, were offset by maturities and pay downs of $794.9 million. At June 30, 2013, the duration of the investment portfolio was 2.7 years, and maturities and pay downs of approximately $1.9 billion are expected to occur during the next 12 months.
Total average deposits decreased $222.5 million, or 1.2%, during the 2nd quarter of 2013 compared to the previous quarter. Average deposits have increased $1.1 billion over the past 12 months on strong growth late in 2012. The decrease in average deposits this quarter resulted mainly from declines in business demand (decrease of $207.1 million) and money market accounts (decrease of $258.3 million) but partly offset by higher savings, interest checking accounts and jumbo certificates of deposit. Compared to the previous quarter, total average commercial deposits declined $178.0 million while private banking deposits declined $244.4 million. However, retail banking deposits grew by $160.0 million. The average loans to deposits ratio in the current quarter was 56.7%, compared to 54.7% in the previous quarter.
During the current quarter, the Company's average borrowings
increased $343.5 million compared to the previous quarter, mainly due to an increase in average balances of federal funds purchased.
Net Interest Income
Net interest income (tax equivalent) in the 2nd quarter of 2013 amounted to $165.9 million compared with $156.7 million in the previous quarter, or an increase of $9.2 million. Net interest income (tax equivalent) for the current quarter decreased $5.2 million compared to the 2nd quarter of last year. During the 2nd quarter of 2013, the net yield on earning assets (tax equivalent) was 3.21%, compared with 3.07% in the previous quarter and 3.55% in the same period last year.
The increase in net interest income (tax equivalent) in the 2nd quarter of 2013 compared to the previous quarter was mainly due to an increase in inflation interest of $5.4 million on the Company's inflation-protected securities as a result of the higher Consumer Price Indices published this quarter, on which this interest is based. Inflation income totaled $3.7 million this quarter. As previously mentioned, interest on non-marketable securities increased mainly due to the reclassification of interest received on the sale of a private equity investment this quarter. Also, premium amortization expense was lower this quarter by $1.7 million due to a slowing of prepayment speeds on mortgage-backed securities resulting from an increase in interest rates this quarter.
Compared to the previous quarter, interest on loans increased $291 thousand (tax-equivalent) as a result of higher loan volumes but offset by the effects of lower rates, especially on consumer loans. The average rate earned on investment securities increased 40 basis points to 2.52% this quarter largely due to higher interest on inflation-protected securities and non-marketable securities, and lower premium amortization expense in the current quarter. These effects were partially offset by a decline in average securities balances.
Interest expense on deposits declined $674 thousand in the 2nd quarter of 2013 compared with the previous quarter as overall rates continued to decline slightly.
Non-Interest Income
In the 2nd quarter of 2013, total non-interest income amounted to $102.7 million, an increase of $1.9 million, or 1.8%, compared to the same period last year. Also, current quarter non-interest income increased $2.8 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 $2.3 million, or 5.9%, over the same period last year as a result of an 8.6% increase in corporate card fees, which totaled $19.3 million this quarter. Credit card fees also grew by 5.8% while debit card fees grew 3.2%; however, debit card fees grew almost 10% compared to the previous quarter.
Trust fees for the quarter increased 8.0% compared to the same period last year, resulting mainly from continued growth in private client (up 9.3%) and institutional (up 7.9%) trust fees. Deposit
7
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2013
account fees declined $373 thousand, or 1.9%, compared to last year as overdraft fees declined by $1.2 million, but were offset by
combined growth in corporate cash management and other deposit fees of $847 thousand, or 7.5%. Year to date, overdraft fees have declined $2.2 million mainly as a result of a new posting routine on debit transactions which took effect in late February, but the effect of this change on overdraft fees has been better than expected. Capital market fees declined $1.7 million from the same quarter last year as demand from correspondent banks and other customers slowed later in the 2nd quarter.
Investment Securities Gains and Losses
Net securities losses totaled $1.6 million and, as mentioned above, included a reclassification of $2.6 million in interest received on a private equity investment which was sold this quarter and originally recorded as securities gains. In addition, during the quarter the Company donated appreciated securities and recognized a gain of $1.4 million. Other private equity fair value adjustments were minimal this quarter.
Also during the current quarter, the Company recorded credit-related impairment losses of $488 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $442 thousand in the previous quarter and $350 thousand in the same quarter last year. The cumulative credit-related impairment on these bonds totaled $12.2 million at quarter end. At June 30, 2013, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $86.2 million, compared to $109.9 million at June 30, 2012.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $157.0 million, an increase of $1.9 million over the previous quarter and an increase of $626 thousand compared to the same quarter last year. Compared to the 2nd quarter of last year, salaries and benefits expense increased $2.1 million, or 2.4%, mainly due to an increase in salary costs of $2.5 million but offset by lower medical costs of $988 thousand. Growth in salaries expense resulted from added staffing mainly in the areas of commercial banking, wealth and commercial card. Full-time equivalent employees totaled 4,720 and 4,702 at June 30, 2013 and 2012, respectively.
Compared to the 2nd quarter of last year, equipment and marketing expense declined $740 thousand on a combined basis, mainly due to lower depreciation and reduced marketing expenditures. Occupancy, supplies and communications costs increased a total of 1.5%. Data processing and software costs grew by $1.3 million, or 7.1%, partly due to higher variable processing costs related to commercial card revenues. Legal, loan collection and professional fees increased $1.2 million this quarter over the same period last year. Other non-interest expense included a provision of $898 thousand on a letter of credit exposure (in addition to a $1.0 million provision in the previous quarter) and also included a donation expense of $1.5 million referenced above. Also, the 2nd quarter of 2012 included a $5.7 million charge related to certain VISA, USA litigation that did not reoccur in 2013.
Income Taxes
The effective tax rate for the Company was 31.4% in the current
quarter, compared with 32.2% in the previous quarter and 32.8% in the 2nd quarter of 2012. The lower rate in the current quarter resulted mainly from higher levels of tax-exempt interest in the current quarter.
Credit Quality
Net loan charge-offs in the 2nd quarter of 2013 amounted to $9.4 million, compared with $7.8 million in the prior quarter and $8.2 million in the 2nd quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .37% in the current quarter compared to .32% in the previous quarter.
In the 2nd quarter of 2013, annualized net loan charge-offs on average consumer credit card loans amounted to 3.75%, compared with 3.25% in the previous quarter and 3.35% in the same period last year. Consumer loan net charge-offs in the quarter amounted to .41% of average consumer loans, compared to .52% in the previous quarter and .70% in the same quarter last year. The provision for loan losses in the current quarter totaled $7.4 million, an increase of $4.1 million over the previous quarter and $2.2 million higher than in the same period last year. The current quarter provision for loan losses was $2.0 million less than net loan charge-offs, thereby reducing the allowance for loan losses to $166.0 million. At June 30, 2013 the allowance was 1.60% of total loans, excluding loans held for sale, and was 425% of total non-accrual loans.
At June 30, 2013, total non-performing assets amounted to $52.5 million, a decrease of $6.4 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($39.1 million) and foreclosed real estate ($13.4 million). At June 30, 2013, the balance of non-accrual loans, which represented .51% of loans outstanding, included business real estate loans of $12.7 million, construction and land loans of $10.2 million and business loans of $11.3 million. Loans more than 90 days past due and still accruing interest totaled $12.5 million at June 30, 2013.
Other
During the quarter the Company purchased approximately 383,000 shares of treasury stock at an average cost of $39.90 per share. Also on May 15, 2013 the Company announced plans to acquire Summit Bancshares, Inc., Tulsa, Oklahoma, with locations in Tulsa and Oklahoma City, and loans and deposits of $213 million and $231 million, respectively. It is expected that this transaction will be completed in the 3rd quarter of 2013.
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