Attached files
| file | filename |
|---|---|
| 8-K - COMMERCE BANCSHARES INC /MO/ | cbsh123120118k.htm |
Exhibit 99.1
 CBSH |
1000 Walnut Street / Post Office Box 419248 / Kansas City, Missouri 64151-6248 / 816.234.2000 |
 |
FOR IMMEDIATE RELEASE:
Tuesday, January 24, 2012
COMMERCE BANCSHARES, INC. ANNOUNCES RECORD
EARNINGS PER SHARE OF $2.82 FOR 2011
Commerce Bancshares, Inc. announced record earnings of $2.82 per share for the year ended December 31, 2011, an increase of 17.5% compared to $2.40 in 2010. Net income amounted to $256.3 million in 2011 compared to $221.7 million in 2010, or an increase of 15.6%. The return on average assets was 1.32% in 2011, the return on average equity was 12.15%, and the efficiency ratio totaled 59.1%.
For the fourth quarter, earnings per share amounted to $.69 compared to $.67 in the fourth quarter of 2010 and $.72 per share in the previous quarter. Net income for the fourth quarter amounted to $61.5 million compared to $61.9 million in the same period last year and $65.4 million in the previous quarter. The return on average assets for the three months ended December 31, 2011 was 1.19%, and the return on average equity was 11.39%.
In announcing these results, David W. Kemper, Chairman and CEO, said, “We are pleased to report record earnings in 2011, which was achieved despite a difficult operating environment of weak loan demand and record low interest rates. These solid earnings occurred as a result of growth in average deposits, which increased 9.1% this year, and higher revenues from our corporate card and money management businesses, which grew by 19.7% and 9.1%, respectively. Also, our provision for loan losses declined 48.5% this year as loan losses decreased significantly, and non-interest expense declined by $13.9 million, or 2.2%. During the fourth quarter, net interest income grew slightly on continued strong core deposit growth. While loan growth remains soft, we saw some increased demand for both auto and commercial real estate loans this quarter. Also during the quarter, we reached a settlement totaling $18.3 million in a class action lawsuit regarding debit overdraft transactions, which resulted in an additional charge this quarter of $7.4 million pre-tax.”
Mr. Kemper continued, “During the quarter, net loan charge-offs totaled $15.6 million compared to $14.9 million in the previous quarter and $21.6 million in the same period last year. Bankcard net loan charge-offs this quarter decreased to $7.0 million, or 3.8% of average bankcard loans, while business net loan charge-offs totaled only $5.0 million for the year. Because of these current positive trends, our allowance for loan losses declined by $3.5 million this quarter to $184.5 million, or 2.0% of total loans outstanding. Non-performing assets at December 31, 2011 totaled $93.8 million compared to $99.7 million in the previous quarter. Our capital and liquidity positions remain strong, and at year end, the ratio of tangible common equity to assets amounted to 9.9%, while our average loans to deposits ratio amounted to 59.15%.”
(more)
Total assets at December 31, 2011 were $20.6 billion, total loans were $9.2 billion, and total deposits were $16.8 billion.
Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in 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) | 09/30/11 | 12/31/11 | 12/31/10 | |||
Non-Accrual Loans | $75,912 | $75,482 | $85,275 | |||
Foreclosed Real Estate | $23,813 | $18,321 | $12,045 | |||
Total Non-Performing Assets | $99,725 | $93,803 | $97,320 | |||
Non-Performing Assets to Loans | 1.10% | 1.02% | 1.03% | |||
Non-Performing Assets to Total Assets | .48% | .45% | .53% | |||
Loans 90 Days & Over Past Due — Still Accruing | $20,104 | $14,958 | $20,466 | |||
This financial news release, including management’s discussion of fourth 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 Year Ended | ||||||||||||||
(Unaudited) | Sept. 30, 2011 | Dec. 31, 2011 | Dec. 31, 2010 | Dec. 31, 2011 | Dec. 31, 2010 | ||||||||||
FINANCIAL SUMMARY (In thousands, except per share data) | |||||||||||||||
Net interest income | $158,630 | $161,757 | $160,677 | $646,070 | $645,932 | ||||||||||
Taxable equivalent net interest income | 164,317 | 167,940 | 166,010 | 669,515 | 666,143 | ||||||||||
Non-interest income | 101,632 | 94,035 | 110,454 | 392,917 | 405,111 | ||||||||||
Investment securities gains (losses), net | 2,587 | 4,942 | 1,204 | 10,812 | (1,785 | ) | |||||||||
Provision for loan losses | 11,395 | 12,143 | 21,647 | 51,515 | 100,000 | ||||||||||
Non-interest expense | 153,746 | 156,030 | 164,031 | 617,249 | 631,134 | ||||||||||
Net income attributable to | |||||||||||||||
Commerce Bancshares, Inc. | 65,352 | 61,504 | 61,921 | 256,343 | 221,710 | ||||||||||
Cash dividends | 19,526 | 19,504 | 19,395 | 79,140 | 78,231 | ||||||||||
Net total loan charge-offs | 14,895 | 15,649 | 21,647 | 64,521 | 96,942 | ||||||||||
Business | 889 | 650 | 1,514 | 4,988 | 4,586 | ||||||||||
Real estate — construction and land | 1,215 | 2,624 | 1,589 | 6,950 | 15,006 | ||||||||||
Real estate — business | 1,429 | 731 | 1,829 | 3,563 | 4,058 | ||||||||||
Consumer credit card | 7,103 | 6,986 | 9,736 | 31,617 | 47,731 | ||||||||||
Consumer | 3,232 | 2,682 | 5,295 | 12,156 | 20,479 | ||||||||||
Revolving home equity | 72 | 884 | 469 | 1,667 | 1,975 | ||||||||||
Real estate — personal | 673 | 798 | 961 | 2,772 | 2,056 | ||||||||||
Overdraft | 282 | 294 | 254 | 808 | 1,051 | ||||||||||
Per common share: | |||||||||||||||
Net income — basic | $.72 | $.69 | $.67 | $2.83 | $2.41 | ||||||||||
Net income — diluted | $.72 | $.69 | $.67 | $2.82 | $2.40 | ||||||||||
Cash dividends | $.219 | $.219 | $.213 | $.876 | $.853 | ||||||||||
Diluted wtd. average shares o/s | 89,737 | 88,653 | 91,274 | 90,202 | 91,751 | ||||||||||
RATIOS | |||||||||||||||
Average loans to deposits (1) | 58.29 | % | 56.01 | % | 64.63 | % | 59.15 | % | 70.02 | % | |||||
Return on total average assets | 1.32 | % | 1.19 | % | 1.34 | % | 1.32 | % | 1.22 | % | |||||
Return on total average equity | 12.15 | % | 11.39 | % | 11.99 | % | 12.15 | % | 11.15 | % | |||||
Non-interest income to revenue (2) | 39.05 | % | 36.76 | % | 40.74 | % | 37.82 | % | 38.54 | % | |||||
Efficiency ratio (3) | 58.71 | % | 60.71 | % | 60.33 | % | 59.10 | % | 59.71 | % | |||||
AT PERIOD END | |||||||||||||||
Book value per share based on total equity | $23.95 | $24.40 | $22.25 | ||||||||||||
Market value per share | $33.10 | $38.12 | $37.84 | ||||||||||||
Allowance for losses as a percentage | |||||||||||||||
of loans | 2.07 | % | 2.01 | % | 2.10 | % | |||||||||
Tier I leverage ratio | 9.74 | % | 9.55 | % | 10.17 | % | |||||||||
Tangible common equity to assets ratio (4) | 9.72 | % | 9.91 | % | 10.27 | % | |||||||||
Common shares outstanding | 88,924,563 | 88,952,166 | 90,955,390 | ||||||||||||
Shareholders of record | 4,224 | 4,218 | 4,284 | ||||||||||||
Number of bank/ATM locations | 363 | 363 | 367 | ||||||||||||
Full-time equivalent employees | 4,762 | 4,745 | 4,979 | ||||||||||||
OTHER QTD INFORMATION | |||||||||||||||
High market value per share | $41.90 | $38.67 | $38.66 | ||||||||||||
Low market value per share | $31.65 | $31.49 | $32.71 | ||||||||||||
(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 Year Ended | |||||||||||||||||||
(Unaudited) (In thousands, except per share data) | September 30, 2011 | December 31, 2011 | December 31, 2010 | December 31, 2011 | December 31, 2010 | |||||||||||||||
Interest income | $170,835 | $173,223 | $177,436 | $697,971 | $729,478 | |||||||||||||||
Interest expense | 12,205 | 11,466 | 16,759 | 51,901 | 83,546 | |||||||||||||||
Net interest income | 158,630 | 161,757 | 160,677 | 646,070 | 645,932 | |||||||||||||||
Provision for loan losses | 11,395 | 12,143 | 21,647 | 51,515 | 100,000 | |||||||||||||||
Net interest income after provision for loan losses | 147,235 | 149,614 | 139,030 | 594,555 | 545,932 | |||||||||||||||
NON-INTEREST INCOME | ||||||||||||||||||||
Bank card transaction fees | 42,149 | 36,162 | 41,016 | 157,077 | 148,888 | |||||||||||||||
Trust fees | 22,102 | 22,095 | 21,117 | 88,313 | 80,963 | |||||||||||||||
Deposit account charges and other fees | 21,939 | 20,623 | 21,491 | 82,651 | 92,637 | |||||||||||||||
Bond trading income | 5,556 | 4,591 | 5,574 | 19,846 | 21,098 | |||||||||||||||
Consumer brokerage services | 2,333 | 2,142 | 2,311 | 10,018 | 9,190 | |||||||||||||||
Loan fees and sales | 2,034 | 1,647 | 11,975 | 7,580 | 23,116 | |||||||||||||||
Other | 5,519 | 6,775 | 6,970 | 27,432 | 29,219 | |||||||||||||||
Total non-interest income | 101,632 | 94,035 | 110,454 | 392,917 | 405,111 | |||||||||||||||
INVESTMENT SECURITIES | ||||||||||||||||||||
GAINS (LOSSES), NET | ||||||||||||||||||||
Impairment (losses) reversals on debt securities | (1,200 | ) | (796 | ) | 1,703 | 2,190 | 13,058 | |||||||||||||
Noncredit-related losses (reversals) on securities not expected to be sold | 369 | 14 | (2,594 | ) | (4,727 | ) | (18,127 | ) | ||||||||||||
Net impairment losses | (831 | ) | (782 | ) | (891 | ) | (2,537 | ) | (5,069 | ) | ||||||||||
Realized gains on sales and fair value adjustments | 3,418 | 5,724 | 2,095 | 13,349 | 3,284 | |||||||||||||||
Investment securities gains (losses), net | 2,587 | 4,942 | 1,204 | 10,812 | (1,785 | ) | ||||||||||||||
NON-INTEREST EXPENSE | ||||||||||||||||||||
Salaries and employee benefits | 85,700 | 88,010 | 86,562 | 345,325 | 346,550 | |||||||||||||||
Net occupancy | 11,510 | 11,674 | 11,290 | 46,434 | 46,987 | |||||||||||||||
Equipment | 5,390 | 5,583 | 5,776 | 22,252 | 23,324 | |||||||||||||||
Supplies and communication | 5,674 | 5,550 | 6,222 | 22,448 | 27,113 | |||||||||||||||
Data processing and software | 16,232 | 17,873 | 16,999 | 68,103 | 67,935 | |||||||||||||||
Marketing | 4,545 | 3,469 | 3,377 | 16,767 | 18,161 | |||||||||||||||
Deposit insurance | 2,772 | 2,680 | 4,801 | 13,123 | 19,246 | |||||||||||||||
Debit overdraft litigation | 5,900 | 7,400 | — | 18,300 | — | |||||||||||||||
Debt extinguishment | — | — | 11,784 | — | 11,784 | |||||||||||||||
Indemnification obligation | — | (3,073 | ) | (2,722 | ) | (4,432 | ) | (4,405 | ) | |||||||||||
Other | 16,023 | 16,864 | 19,942 | 68,929 | 74,439 | |||||||||||||||
Total non-interest expense | 153,746 | 156,030 | 164,031 | 617,249 | 631,134 | |||||||||||||||
Income before income taxes | 97,708 | 92,561 | 86,657 | 381,035 | 318,124 | |||||||||||||||
Less income taxes | 31,699 | 29,514 | 24,432 | 121,412 | 96,249 | |||||||||||||||
Net income | 66,009 | 63,047 | 62,225 | 259,623 | 221,875 | |||||||||||||||
Less non-controlling interest expense | 657 | 1,543 | 304 | 3,280 | 165 | |||||||||||||||
Net income attributable to | ||||||||||||||||||||
Commerce Bancshares, Inc. | $65,352 | $61,504 | $61,921 | $256,343 | $221,710 | |||||||||||||||
Net income per common share — basic | $.72 | $.69 | $.67 | $2.83 | $2.41 | |||||||||||||||
Net income per common share — diluted | $.72 | $.69 | $.67 | $2.82 | $2.40 | |||||||||||||||
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands) | September 30, 2011 | December 31, 2011 | December 31, 2010 | |||||||||
ASSETS | ||||||||||||
Loans | $9,073,123 | $9,177,478 | $9,410,982 | |||||||||
Allowance for loan losses | (188,038 | ) | (184,532 | ) | (197,538 | ) | ||||||
Net loans | 8,885,085 | 8,992,946 | 9,213,444 | |||||||||
Loans held for sale | 39,576 | 31,076 | 63,751 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 9,278,066 | 9,224,702 | 7,294,303 | |||||||||
Trading | 9,695 | 17,853 | 11,710 | |||||||||
Non-marketable | 111,808 | 115,832 | 103,521 | |||||||||
Total investment securities | 9,399,569 | 9,358,387 | 7,409,534 | |||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 11,400 | 11,870 | 10,135 | |||||||||
Long-term securities purchased under agreements to resell | 850,000 | 850,000 | 450,000 | |||||||||
Interest earning deposits with banks | 133,419 | 39,853 | 122,076 | |||||||||
Cash and due from banks | 424,861 | 465,828 | 328,464 | |||||||||
Land, buildings and equipment — net | 368,965 | 360,146 | 383,397 | |||||||||
Goodwill | 125,585 | 125,585 | 125,585 | |||||||||
Other intangible assets — net | 8,452 | 7,714 | 10,937 | |||||||||
Other assets | 391,756 | 405,962 | 385,016 | |||||||||
Total assets | $ | 20,638,668 | $ | 20,649,367 | $ | 18,502,339 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Deposits: | ||||||||||||
Non-interest bearing | $5,003,587 | $5,377,549 | $4,494,028 | |||||||||
Savings, interest checking and money market | 8,416,839 | 8,933,941 | 7,846,831 | |||||||||
Time open and C.D.’s of less than $100,000 | 1,204,896 | 1,166,104 | 1,465,050 | |||||||||
Time open and C.D.’s of $100,000 and over | 1,388,755 | 1,322,289 | 1,279,112 | |||||||||
Total deposits | 16,014,077 | 16,799,883 | 15,085,021 | |||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,057,728 | 1,256,081 | 982,827 | |||||||||
Other borrowings | 111,869 | 111,817 | 112,273 | |||||||||
Other liabilities | 1,325,029 | 311,225 | 298,754 | |||||||||
Total liabilities | 18,508,703 | 18,479,006 | 16,478,875 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 436,481 | 446,387 | 433,942 | |||||||||
Capital surplus | 980,176 | 1,042,065 | 971,293 | |||||||||
Retained earnings | 690,981 | 575,419 | 555,778 | |||||||||
Treasury stock | (96,205 | ) | (8,362 | ) | (2,371 | ) | ||||||
Accumulated other comprehensive income | 115,781 | 110,538 | 63,345 | |||||||||
Total stockholders’ equity | 2,127,214 | 2,166,047 | 2,021,987 | |||||||||
Non-controlling interest | 2,751 | 4,314 | 1,477 | |||||||||
Total equity | 2,129,965 | 2,170,361 | 2,023,464 | |||||||||
Total liabilities and equity | $ | 20,638,668 | $ | 20,649,367 | $ | 18,502,339 | ||||||
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
(Unaudited) (Dollars in thousands) | For the Three Months Ended | |||||||||||||||||||
September 30, 2011 | December 31, 2011 | December 31, 2010 | ||||||||||||||||||
Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | |||||||||||||||
ASSETS: | ||||||||||||||||||||
Loans: | ||||||||||||||||||||
Business (A) | $ | 2,815,064 | 3.56 | % | $ | 2,819,598 | 3.53 | % | $ | 2,919,553 | 3.77 | % | ||||||||
Real estate — construction and land | 412,490 | 4.42 | 386,738 | 4.52 | 498,296 | 4.17 | ||||||||||||||
Real estate — business | 2,123,034 | 4.74 | 2,162,052 | 4.67 | 2,002,721 | 5.01 | ||||||||||||||
Real estate — personal | 1,430,014 | 4.75 | 1,421,296 | 4.64 | 1,443,998 | 5.00 | ||||||||||||||
Consumer | 1,104,684 | 6.20 | 1,111,299 | 6.08 | 1,190,862 | 6.61 | ||||||||||||||
Revolving home equity | 466,503 | 4.27 | 464,694 | 4.24 | 483,195 | 4.31 | ||||||||||||||
Student | — | — | — | — | 22,307 | 2.10 | ||||||||||||||
Consumer credit card | 735,179 | 11.59 | 733,712 | 11.62 | 776,426 | 10.82 | ||||||||||||||
Overdrafts | 6,936 | — | 7,101 | — | 8,068 | — | ||||||||||||||
Total loans (B) | 9,093,904 | 5.07 | 9,106,490 | 5.01 | 9,345,426 | 5.22 | ||||||||||||||
Loans held for sale | 41,677 | 2.57 | 36,987 | 2.55 | 93,041 | 2.38 | ||||||||||||||
Investment securities: | ||||||||||||||||||||
U.S. government & federal agency obligations | 327,916 | 3.40 | 328,641 | 2.49 | 436,349 | 2.32 | ||||||||||||||
Government-sponsored enterprise obligations | 262,087 | 2.92 | 305,003 | 1.93 | 186,753 | 2.25 | ||||||||||||||
State & municipal obligations (A) | 1,185,263 | 4.20 | 1,239,330 | 4.16 | 1,090,639 | 4.45 | ||||||||||||||
Mortgage-backed securities | 3,764,822 | 2.95 | 4,453,362 | 2.71 | 2,904,697 | 3.89 | ||||||||||||||
Asset-backed securities | 2,403,062 | 1.15 | 2,645,538 | 1.12 | 2,316,610 | 1.56 | ||||||||||||||
Other marketable securities (A) | 172,588 | 4.27 | 164,545 | 5.39 | 176,628 | 5.01 | ||||||||||||||
Total available for sale securities (B) | 8,115,738 | 2.64 | 9,136,419 | 2.46 | 7,111,676 | 3.11 | ||||||||||||||
Trading securities (A) | 20,770 | 2.52 | 19,785 | 2.87 | 31,537 | 3.35 | ||||||||||||||
Non-marketable securities (A) | 110,585 | 6.59 | 110,486 | 10.81 | 107,275 | 5.98 | ||||||||||||||
Total investment securities | 8,247,093 | 2.69 | 9,266,690 | 2.56 | 7,250,488 | 3.15 | ||||||||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 10,927 | .47 | 10,162 | .39 | 5,219 | .61 | ||||||||||||||
Long-term securities purchased under agreements to resell | 850,000 | 1.83 | 850,000 | 1.97 | 396,739 | 1.69 | ||||||||||||||
Interest earning deposits with banks | 326,302 | .26 | 122,953 | .25 | 87,371 | .25 | ||||||||||||||
Total interest earning assets | 18,569,903 | 3.77 | 19,393,282 | 3.67 | 17,178,284 | 4.22 | ||||||||||||||
Non-interest earning assets (B) | 1,094,161 | 1,121,569 | 1,116,547 | |||||||||||||||||
Total assets | $ | 19,664,064 | $ | 20,514,851 | $ | 18,294,831 | ||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||
Savings | $ | 534,295 | .19 | $ | 529,027 | .17 | $ | 480,417 | .14 | |||||||||||
Interest checking and money market | 7,756,104 | .32 | 8,068,003 | .29 | 7,010,940 | .40 | ||||||||||||||
Time open & C.D.’s of less than $100,000 | 1,231,280 | .78 | 1,186,324 | .75 | 1,533,324 | 1.18 | ||||||||||||||
Time open & C.D.’s of $100,000 and over | 1,372,842 | .62 | 1,367,472 | .59 | 1,231,865 | .93 | ||||||||||||||
Total interest bearing deposits | 10,894,521 | .40 | 11,150,826 | .37 | 10,256,546 | .57 | ||||||||||||||
Borrowings: | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,016,623 | .11 | 1,147,421 | .05 | 1,125,258 | .12 | ||||||||||||||
Other borrowings | 111,930 | 3.28 | 112,024 | 3.26 | 230,469 | 2.96 | ||||||||||||||
Total borrowings | 1,128,553 | .43 | 1,259,445 | .33 | 1,355,727 | .61 | ||||||||||||||
Total interest bearing liabilities | 12,023,074 | .40 | % | 12,410,271 | .37 | % | 11,612,273 | .57 | % | |||||||||||
Non-interest bearing deposits | 4,778,780 | 5,173,106 | 4,346,238 | |||||||||||||||||
Other liabilities | 728,974 | 789,564 | 286,675 | |||||||||||||||||
Equity | 2,133,236 | 2,141,910 | 2,049,645 | |||||||||||||||||
Total liabilities and equity | $ | 19,664,064 | $ | 20,514,851 | $ | 18,294,831 | ||||||||||||||
Net interest income (T/E) | $ | 164,317 | $ | 167,940 | $ | 166,010 | ||||||||||||||
Net yield on interest earning assets | 3.51 | % | 3.44 | % | 3.83 | % | ||||||||||||||
(A) | Stated on a tax equivalent basis using a federal income tax rate of 35%. |
(B) | The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets. |
6
COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2011
For the quarter ended December 31, 2011, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $61.5 million, a slight decrease from the same quarter last year, and a decrease of $3.8 million compared to the previous quarter. During the current quarter, the Company recorded expense of $7.4 million related to the settlement of litigation regarding debit overdraft fees, which was previously announced in December 2011. Also during the quarter, the Company reduced its indemnification obligation related to VISA litigation costs by $3.1 million and recorded losses in fair value of $874 thousand on certain held for sale real estate property. After tax, these items amounted to a reduction in net income of approximately $3.3 million, or approximately $.04 per share. For the current quarter, the return on average assets was 1.19%, the return on average equity was 11.4%, and the efficiency ratio was 60.7%.
Compared to the same quarter last year, net interest income (tax equivalent) increased by $1.9 million to $167.9 million, while non-interest income decreased to $94.0 million and was affected by a decline in debit interchange income due to recent regulatory changes effective October 1, 2011. In addition, gains on student loan sales decreased $9.6 million, as the Company ceased most of its origination business due to new regulations in 2010. Investment securities gains this quarter increased by $3.7 million compared to the same period last year due mostly to sales and fair value adjustments of the Company's private equity investments. Non-interest expense for the current quarter totaled $156.0 million, a decrease of $8.0 million from the same period last year. The provision for loan losses totaled $12.1 million, representing a decline of $9.5 million from the amount recorded in the same quarter last year.
Balance Sheet Review
During the 4th quarter of 2011, average loans, including loans held for sale, increased slightly ($7.9 million) compared to the previous quarter but decreased $295.0 million, or 3.1%, compared to the same period last year. The increase in average loans compared to the previous quarter was mainly due to an increase in business real estate loans of $39.0 million and slightly higher business and consumer loans, but was partly offset by a decrease of $25.8 million in construction loans. Personal real estate, revolving home equity and consumer credit card loans also declined slightly. Within the consumer loan portfolio, marine/RV loans continued to run off this quarter by approximately $26.4 million; however, consumer auto loans increased $27.3 million due to higher new loan originations. The demand for personal real estate and construction loans continues to be affected by the weak housing industry.
Total available for sale investment securities (excluding fair value adjustments) averaged $9.1 billion this quarter, up $1.0 billion compared to the previous quarter. The increase in the average balance was mainly the result of purchases of $2.6 billion of new securities in the last six months, offset by maturities and pay-downs totaling $1.2 billion in the same period. During the 3rd quarter, the Company purchased $1.3 billion of agency mortgage-backed securities with forward settlement dates in both the 3rd and 4th quarters and, as of October 1, 2011 $1.0 billion remained unsettled. All of these mortgage-backed securities were settled by the end of the year. At December 31, 2011, the duration of the investment portfolio was 2.1 years, and maturities of approximately $1.6 billion
are expected to occur during the next 12 months.
Total average deposits increased $650.6 million, or 4.2%, during the 4th quarter of 2011 compared to the previous quarter. This increase in average deposits resulted mainly from growth in non-interest bearing business deposit accounts and money market deposit balances of $436.1 million and $289.8 million, respectively. However, certificate of deposit (CD) average balances declined $50.3 million. The average loans to deposits ratio in the current quarter was 56.0%, compared to 58.3% in the previous quarter.
Certain non-interest bearing deposit accounts, which were previously included in interest bearing money market deposit totals, were reclassified to non-interest bearing deposits effective January 1, 2011. All prior periods have been revised to reflect this reclassification. The effect of this reclassification for the quarter ended December 31, 2010 was to increase average non-interest bearing deposits by $3.3 billion.
During the current quarter, the Company's average borrowings increased $130.9 million compared to the previous quarter. This increase was mainly due to an increase in the average balance of federal funds purchased.
Net Interest Income
Net interest income (tax equivalent) in the 4th quarter of 2011 amounted to $167.9 million, compared with $164.3 million in the previous quarter, or an increase of $3.6 million. Net interest income this quarter was also up $1.9 million compared to the 4th quarter of last year. During the 4th quarter of 2011, the net yield on earning assets (tax equivalent) was 3.44%, compared with 3.51% in the previous quarter and 3.83% in the same period last year.
The increase in net interest income (tax equivalent) in the 4th quarter of 2011 over the previous quarter was mainly due to higher average balances of investment securities this quarter and lower rates paid on interest bearing liabilities, offset by lower rates earned on loans. Interest on loans, including held for sale loans, declined $1.1 million (tax equivalent), mainly due to lower average rates earned on business real estate, personal real estate and consumer loans, but was partly offset by higher average balances of business real estate, business and consumer loans. When compared to the previous quarter, interest income on investment securities increased by $3.8 million (tax equivalent), mainly as a result of higher average balances of municipal, mortgage-backed and asset-backed securities, but was partly offset by lower rates earned on mortgage-backed securities. Additionally, interest and dividends on non-marketable securities, mainly private equity investments, increased $1.2 million (tax equivalent) this quarter due in part to receipt of unanticipated interest and dividend payments. On October 1, 2011 there was approximately $1.0 billion in unsettled forward-purchased mortgage-backed securities that settled throughout the 4th quarter. Had these bonds all settled at the beginning of the quarter, interest on these bonds for the quarter would have been higher by $3.4 million and the net yield on earning assets for the quarter would have increased by 7 basis points. Also, inflation income earned on inflation-protected securities declined by $721 thousand this quarter, thus reducing net interest income and the net interest margin.
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COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2011
Interest expense on deposits declined $583 thousand in the 4th quarter of 2011 compared with the previous quarter as a result of continued low rates paid on money market and CD accounts. Overall rates paid on total interest bearing deposits declined 3 basis points to .37% this quarter. Interest expense on borrowings decreased by $156 thousand, due mainly to lower average rates paid on repurchase agreement balances.
The tax equivalent yield on interest earning assets in the 4th quarter of 2011 was 3.67%, a decline of 10 basis points from the 3rd quarter of 2011, while the overall cost of interest bearing liabilities decreased 3 basis points to .37%.
Non-Interest Income
For the 4th quarter of 2011, total non-interest income amounted to $94.0 million, a decrease of $16.4 million when compared to $110.5 million in the same period last year. Also, current quarter non-interest income decreased $7.6 million when compared to $101.6 million recorded in the previous quarter. The decrease in non-interest income from the previous quarter was mainly due to a decrease in debit interchange income of $7.1 million, resulting from new rules adopted in Dodd-Frank legislation which became effective in the current quarter. The decrease in non-interest income from last year was mainly due to a decline in debit interchange fees this quarter coupled with a reduction in gains on student loan sales.
Bank card fees in the current quarter decreased 11.8%, or $4.9 million, from the 4th quarter of last year due to a decline in debit interchange fees of $6.6 million (effect of new regulations mentioned above) which was partly offset by growth in corporate card fees of $1.9 million, or 14.8%. Corporate card and debit card fees for the quarter totaled $15.1 million and $8.4 million, respectively.
Trust fees for the quarter increased 4.6% compared to the same period last year and resulted mainly from 4.3% growth in personal trust fees and 7.0% growth in institutional trust fees. Trust fees continue to be negatively affected by low interest rates on money market investments held in trust accounts. Deposit account fees decreased 4.0% compared to the 4th quarter of 2010 mainly due to a decline in overdraft fees of $1.2 million, or 11.0%. Overdraft fees were also down $1.8 million compared to the previous quarter. Compared with last year, loan fees and sales declined $10.3 million due to a decline in gains on student loan sales, as the Company essentially exited the student loan origination business in 2010. Bond trading income for the current quarter totaled $4.6 million, down $983 thousand from the same period last year on lower securities sales to correspondent banks and other commercial customers. Other non-interest income included write downs totaling $874 thousand on various banking properties currently held for sale.
Investment Securities Gains and Losses
Net securities gains amounted to $4.9 million in the 4th quarter of 2011, compared to net gains of $2.6 million in the previous quarter and net gains of $1.2 million in the same quarter last year. The current quarter included a pre-tax gain of $5.7 million related to both sales and fair value adjustments of the Company's private equity investments. Minority interest expense related to these gains totaled $1.2 million and is included in non-controlling interest expense.
Also during the current quarter, the Company recorded additional
credit-related impairment losses of $782 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $831 thousand in the previous quarter and $891 thousand in the same quarter last year. The cumulative credit-related impairment reserve on these bonds totaled $9.9 million at quarter end. At December 31, 2011, the par value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $143.3 million, compared to $184.3 million at December 31, 2010.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $156.0 million, a decrease of $8.0 million, or 4.9%, from the same quarter last year and an increase of $2.3 million compared to the previous quarter. During the current quarter, the Company reached a class-wide settlement on a debit overdraft lawsuit. The settlement provides for a payment of $18.3 million and is subject to court approval. Accordingly, the Company accrued an additional $7.4 million this quarter related to the litigation. Additionally, the Company's VISA indemnification obligation was reduced by $3.1 million as a result of certain funding actions taken by VISA, bringing the balance of the Company's estimated obligation to zero.
Compared to the 4th quarter of last year, salaries and benefits expense increased $1.4 million, or 1.7%, mainly due to higher incentive compensation of $1.5 million, but offset by a decline in medical insurance costs of $1.1 million. Benefits costs this quarter also included a special $1.5 million contribution to the Company's 401(k) plan, which was based on the Company's performance this year. Full time equivalent employees totaled 4,745 and 4,979 at December 31, 2011 and 2010, respectively. Also, equipment and supplies and communication costs declined $865 thousand on a combined basis, while FDIC insurance expense declined $2.1 million as a result of new assessment rules which became effective in the 2nd quarter of 2011. Expense related to foreclosed property declined $2.2 million, mainly due to lower losses on fair value adjustments in 2011. Also, an early pay-off penalty of $11.8 million, incurred in the 4th quarter of 2010 upon the redemption of certain Federal Home Loan Bank borrowings, was not recurring in 2011.
Income Taxes
The effective tax rate for the Company was 32.4% in the current quarter, compared with 32.7% in the previous quarter and 28.3% in the 4th quarter of 2010.
Credit Quality
Net loan charge-offs in the 4th quarter of 2011 amounted to $15.6 million, compared with $14.9 million in the prior quarter and $21.6 million in the 4th quarter of last year. The $754 thousand increase in net loan charge-offs in the 4th quarter of 2011 compared to the previous quarter was mainly the result of higher net loan charge-offs on construction and home equity loans of $2.2 million, but was partly offset by lower consumer and business real estate net loan charge-offs. The ratio of annualized net loan charge-offs to total average loans was .68% in the current quarter compared to .65% in the previous quarter.
For the 4th quarter of 2011, annualized net loan charge-offs on average consumer credit card loans amounted to 3.78%, compared with 3.83% in the previous quarter and 4.97% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .96% of average consumer loans, compared to 1.16% in the previous quarter and 1.76% in the same quarter last year. The
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COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2011
provision for loan losses for the current quarter totaled $12.1 million, an increase of $748 thousand over the previous quarter and $9.5 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, thereby reducing the allowance for loan losses to $184.5 million. At December 31, 2011 this allowance was 2.01% of total loans, excluding loans held for sale, and was 244% of total non-accrual loans.
At December 31, 2011, total non-performing assets amounted to $93.8 million, a decrease of $5.9 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($75.5 million) and foreclosed real estate ($18.3 million). At December 31, 2011, the balance of non-accrual loans, which represented .8% of loans outstanding, included construction and land loans of $22.8 million, business loans of $25.7 million and business real estate
loans of $19.4 million. Loans more than 90 days past due and still accruing interest totaled $15.0 million at December 31, 2011.
Other
The Company's purchases of treasury stock during the current quarter were not significant and related mainly to employee stock option activity.
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 statements.
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