Attached files
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| 8-K - FORM 8K - COMMERCE BANCSHARES INC /MO/ | cbsh33120128k.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 12, 2012
COMMERCE BANCSHARES, INC. ANNOUNCES FIRST QUARTER
EARNINGS PER SHARE OF $.74
Commerce Bancshares, Inc. announced record earnings of $.74 per share for the three months ended March 31, 2012 compared to $.66 per share in the first quarter of 2011, or an increase of 12.1%. Net income for the first quarter amounted to $65.8 million compared to $60.5 million in the same quarter last year. For the quarter, the return on average assets totaled 1.29%, the return on average equity was 12.0% and the efficiency ratio was 58.9%.
In announcing these results, David W. Kemper, Chairman and CEO, said, “We were pleased to report record first quarter earnings per share of $.74. The growth over last year resulted mainly from a decline in our provision for loan losses of $7.6 million coupled with revenue growth in our corporate card, capital markets and money management businesses of 17%, 46% and 6%, respectively. Additionally, non-interest expense declined 2% compared to the same period last year. Average loans grew $70.8 million, or 1%, this quarter compared to the previous quarter, as a result of growth in business, business real estate and personal real estate loans. Average deposits also grew by $270.2 million this quarter, or 2%. While net interest income declined 1% compared to the previous quarter, the margin remained stable.”
Further, Mr. Kemper noted, “Net loan charge-offs for the current quarter totaled $11.2 million, compared to $15.6 million in the previous quarter and $18.8 million in the first quarter of 2011. Commercial net loan charge-offs totaled $1.8 million this quarter, down $2.2 million from the previous quarter, while bankcard net loan charge-offs totaled $6.2 million, or 3.4% of average bankcard loans. During the current quarter, the provision for loan losses totaled $8.2 million, or $3.0 million less than net loan charge-offs, and reflected the improving credit trends in our loan portfolio. Our allowance for loan losses amounted to $181.5 million this quarter, representing 2.6 times our non-performing loans. Total non-performing assets decreased $6.3 million to $87.5 million this quarter. At March 31, 2012, our ratio of tangible common equity to assets remained strong at 10.1%, and during the quarter we repurchased approximately 811,000 shares of Company stock at an average price per share of $39.”
Total assets at March 31, 2012 were $20.5 billion, total loans were $9.3 billion, and total deposits were $16.8 billion.
(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) | 12/31/2011 | 3/31/2012 | 3/31/2011 | |||||||||
Non-Accrual Loans | $ | 75,482 | $ | 68,875 | $ | 77,914 | ||||||
Foreclosed Real Estate | $ | 18,321 | $ | 18,585 | $ | 25,061 | ||||||
Total Non-Performing Assets | $ | 93,803 | $ | 87,460 | $ | 102,975 | ||||||
Non-Performing Assets to Loans | 1.02 | % | .95 | % | 1.10 | % | ||||||
Non-Performing Assets to Total Assets | .45 | % | .43 | % | .54 | % | ||||||
Loans 90 Days & Over Past Due — Still Accruing | $ | 14,958 | $ | 16,428 | $ | 18,717 | ||||||
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
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
For the Three Months Ended | ||||||||||
(Unaudited) | December 31, 2011 | March 31, 2012 | March 31, 2011 | |||||||
FINANCIAL SUMMARY (In thousands, except per share data) | ||||||||||
Net interest income | $161,757 | $159,737 | $160,973 | |||||||
Taxable equivalent net interest income | 167,940 | 165,666 | 166,479 | |||||||
Non-interest income | 94,035 | 94,583 | 95,906 | |||||||
Investment securities gains, net | 4,942 | 4,040 | 1,327 | |||||||
Provision for loan losses | 12,143 | 8,165 | 15,789 | |||||||
Non-interest expense | 156,030 | 150,461 | 153,960 | |||||||
Net income attributable to Commerce Bancshares, Inc. | 61,504 | 65,799 | 60,453 | |||||||
Cash dividends | 19,504 | 20,438 | 20,054 | |||||||
Net total loan charge-offs | 15,649 | 11,165 | 18,789 | |||||||
Business | 650 | 110 | 2,010 | |||||||
Real estate — construction and land | 2,624 | 220 | 1,986 | |||||||
Real estate — business | 731 | 1,495 | 1,064 | |||||||
Consumer credit card | 6,986 | 6,173 | 9,038 | |||||||
Consumer | 2,682 | 2,631 | 4,013 | |||||||
Revolving home equity | 884 | 360 | 367 | |||||||
Real estate — personal | 798 | 69 | 274 | |||||||
Overdraft | 294 | 107 | 37 | |||||||
Per common share: | ||||||||||
Net income — basic | $.69 | $.74 | $.66 | |||||||
Net income — diluted | $.69 | $.74 | $.66 | |||||||
Cash dividends | $.219 | $.230 | $.219 | |||||||
Diluted wtd. average shares o/s | 88,653 | 88,556 | 91,178 | |||||||
RATIOS | ||||||||||
Average loans to deposits (1) | 56.01 | % | 55.53 | % | 62.47 | % | ||||
Return on total average assets | 1.19 | % | 1.29 | % | 1.32 | % | ||||
Return on total average equity | 11.39 | % | 12.04 | % | 11.95 | % | ||||
Non-interest income to revenue (2) | 36.76 | % | 37.19 | % | 37.34 | % | ||||
Efficiency ratio (3) | 60.71 | % | 58.91 | % | 59.64 | % | ||||
AT PERIOD END | ||||||||||
Book value per share based on total equity | $24.40 | $24.83 | $22.64 | |||||||
Market value per share | $38.12 | $40.52 | $38.51 | |||||||
Allowance for loan losses as a percentage of loans | 2.01 | % | 1.96 | % | 2.08 | % | ||||
Tier I leverage ratio | 9.55 | % | 9.70 | % | 10.27 | % | ||||
Tangible common equity to assets ratio (4) | 9.91 | % | 10.12 | % | 10.24 | % | ||||
Common shares outstanding | 88,952,166 | 88,583,809 | 91,444,081 | |||||||
Shareholders of record | 4,218 | 4,213 | 4,302 | |||||||
Number of bank/ATM locations | 363 | 360 | 365 | |||||||
Full-time equivalent employees | 4,745 | 4,713 | 4,814 | |||||||
OTHER QTD INFORMATION | ||||||||||
High market value per share | $38.67 | $41.28 | $40.64 | |||||||
Low market value per share | $31.49 | $37.57 | $36.70 | |||||||
(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, 2011 | March 31, 2012 | March 31, 2011 | |||||||||
Interest income | $173,223 | $169,966 | $175,826 | |||||||||
Interest expense | 11,466 | 10,229 | 14,853 | |||||||||
Net interest income | 161,757 | 159,737 | 160,973 | |||||||||
Provision for loan losses | 12,143 | 8,165 | 15,789 | |||||||||
Net interest income after provision for loan losses | 149,614 | 151,572 | 145,184 | |||||||||
NON-INTEREST INCOME | ||||||||||||
Bank card transaction fees | 36,162 | 34,733 | 37,462 | |||||||||
Trust fees | 22,095 | 22,814 | 21,572 | |||||||||
Deposit account charges and other fees | 20,623 | 19,336 | 19,300 | |||||||||
Capital market fees | 4,591 | 6,871 | 4,720 | |||||||||
Consumer brokerage services | 2,142 | 2,526 | 2,663 | |||||||||
Loan fees and sales | 1,647 | 1,561 | 1,824 | |||||||||
Other | 6,775 | 6,742 | 8,365 | |||||||||
Total non-interest income | 94,035 | 94,583 | 95,906 | |||||||||
INVESTMENT SECURITIES GAINS (LOSSES), NET | ||||||||||||
Impairment (losses) reversals on debt securities | (796 | ) | 5,587 | 6,305 | ||||||||
Noncredit-related losses (reversals) on securities not expected to be sold | 14 | (5,907 | ) | (6,579 | ) | |||||||
Net impairment losses | (782 | ) | (320 | ) | (274 | ) | ||||||
Realized gains on sales and fair value adjustments | 5,724 | 4,360 | 1,601 | |||||||||
Investment securities gains, net | 4,942 | 4,040 | 1,327 | |||||||||
NON-INTEREST EXPENSE | ||||||||||||
Salaries and employee benefits | 88,010 | 89,543 | 87,392 | |||||||||
Net occupancy | 11,674 | 11,260 | 12,037 | |||||||||
Equipment | 5,583 | 5,189 | 5,577 | |||||||||
Supplies and communication | 5,550 | 5,613 | 5,532 | |||||||||
Data processing and software | 17,873 | 17,469 | 16,467 | |||||||||
Marketing | 3,469 | 3,822 | 4,258 | |||||||||
Deposit insurance | 2,680 | 2,520 | 4,891 | |||||||||
Debit overdraft litigation | 7,400 | — | — | |||||||||
Indemnification obligation | (3,073 | ) | — | (1,359 | ) | |||||||
Other | 16,864 | 15,045 | 19,165 | |||||||||
Total non-interest expense | 156,030 | 150,461 | 153,960 | |||||||||
Income before income taxes | 92,561 | 99,734 | 88,457 | |||||||||
Less income taxes | 29,514 | 32,920 | 27,507 | |||||||||
Net income | 63,047 | 66,814 | 60,950 | |||||||||
Less non-controlling interest expense | 1,543 | 1,015 | 497 | |||||||||
Net income attributable to Commerce Bancshares, Inc. | $61,504 | $65,799 | $60,453 | |||||||||
Net income per common share — basic | $.69 | $.74 | $.66 | |||||||||
Net income per common share — diluted | $.69 | $.74 | $.66 | |||||||||
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands) | December 31, 2011 | March 31, 2012 | March 31, 2011 | |||||||||
ASSETS | ||||||||||||
Loans | $9,177,478 | $9,247,971 | $9,374,923 | |||||||||
Allowance for loan losses | (184,532 | ) | (181,532 | ) | (194,538 | ) | ||||||
Net loans | 8,992,946 | 9,066,439 | 9,180,385 | |||||||||
Loans held for sale | 31,076 | 9,673 | 53,411 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 9,224,702 | 9,120,399 | 7,499,577 | |||||||||
Trading | 17,853 | 34,178 | 17,000 | |||||||||
Non-marketable | 115,832 | 120,734 | 104,721 | |||||||||
Total investment securities | 9,358,387 | 9,275,311 | 7,621,298 | |||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 11,870 | 40,925 | 3,600 | |||||||||
Long-term securities purchased under agreements to resell | 850,000 | 850,000 | 700,000 | |||||||||
Interest earning deposits with banks | 39,853 | 12,038 | 203,940 | |||||||||
Cash and due from banks | 465,828 | 381,462 | 362,148 | |||||||||
Land, buildings and equipment — net | 360,146 | 353,866 | 378,721 | |||||||||
Goodwill | 125,585 | 125,585 | 125,585 | |||||||||
Other intangible assets — net | 7,714 | 7,070 | 10,182 | |||||||||
Other assets | 405,962 | 404,548 | 378,026 | |||||||||
Total assets | $ | 20,649,367 | $ | 20,526,917 | $ | 19,017,296 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Deposits: | ||||||||||||
Non-interest bearing | $5,377,549 | $5,209,381 | $4,558,630 | |||||||||
Savings, interest checking and money market | 8,933,941 | 9,038,283 | 8,074,055 | |||||||||
Time open and C.D.’s of less than $100,000 | 1,166,104 | 1,143,687 | 1,388,004 | |||||||||
Time open and C.D.’s of $100,000 and over | 1,322,289 | 1,380,409 | 1,518,786 | |||||||||
Total deposits | 16,799,883 | 16,771,760 | 15,539,475 | |||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,256,081 | 1,122,988 | 923,014 | |||||||||
Other borrowings | 111,817 | 111,520 | 111,972 | |||||||||
Other liabilities | 311,225 | 321,443 | 372,345 | |||||||||
Total liabilities | 18,479,006 | 18,327,711 | 16,946,806 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 446,387 | 446,387 | 436,043 | |||||||||
Capital surplus | 1,042,065 | 1,032,985 | 976,101 | |||||||||
Retained earnings | 575,419 | 620,780 | 596,177 | |||||||||
Treasury stock | (8,362 | ) | (22,872 | ) | (733 | ) | ||||||
Accumulated other comprehensive income | 110,538 | 118,056 | 61,134 | |||||||||
Total stockholders’ equity | 2,166,047 | 2,195,336 | 2,068,722 | |||||||||
Non-controlling interest | 4,314 | 3,870 | 1,768 | |||||||||
Total equity | 2,170,361 | 2,199,206 | 2,070,490 | |||||||||
Total liabilities and equity | $ | 20,649,367 | $ | 20,526,917 | $ | 19,017,296 | ||||||
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
(Unaudited) (Dollars in thousands) | For the Three Months Ended | |||||||||||||||||||
December 31, 2011 | March 31, 2012 | March 31, 2011 | ||||||||||||||||||
Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | |||||||||||||||
ASSETS: | ||||||||||||||||||||
Loans: | ||||||||||||||||||||
Business (A) | $ | 2,819,598 | 3.53 | % | $ | 2,893,973 | 3.52 | % | $ | 3,052,611 | 3.65 | % | ||||||||
Real estate — construction and land | 386,738 | 4.52 | 380,484 | 4.34 | 451,536 | 4.49 | ||||||||||||||
Real estate — business | 2,162,052 | 4.67 | 2,184,893 | 4.57 | 2,081,359 | 4.92 | ||||||||||||||
Real estate — personal | 1,421,296 | 4.64 | 1,441,520 | 4.58 | 1,443,707 | 5.00 | ||||||||||||||
Consumer | 1,111,299 | 6.08 | 1,107,878 | 5.93 | 1,147,049 | 6.47 | ||||||||||||||
Revolving home equity | 464,694 | 4.24 | 454,782 | 4.18 | 475,437 | 4.28 | ||||||||||||||
Consumer credit card | 733,712 | 11.62 | 731,030 | 11.78 | 775,271 | 10.92 | ||||||||||||||
Overdrafts | 7,101 | — | 7,587 | — | 7,121 | — | ||||||||||||||
Total loans (B) | 9,106,490 | 5.01 | 9,202,147 | 4.95 | 9,434,091 | 5.15 | ||||||||||||||
Loans held for sale | 36,987 | 2.55 | 12,147 | 3.48 | 58,148 | 2.08 | ||||||||||||||
Investment securities: | ||||||||||||||||||||
U.S. government and federal agency obligations | 328,641 | 2.49 | 328,106 | 2.08 | 434,656 | 3.84 | ||||||||||||||
Government-sponsored enterprise obligations | 305,003 | 1.93 | 283,494 | 2.01 | 208,866 | 2.07 | ||||||||||||||
State and municipal obligations (A) | 1,239,330 | 4.16 | 1,263,303 | 4.17 | 1,112,740 | 4.63 | ||||||||||||||
Mortgage-backed securities | 4,453,362 | 2.71 | 4,190,982 | 2.85 | 2,929,270 | 3.93 | ||||||||||||||
Asset-backed securities | 2,645,538 | 1.12 | 2,761,896 | 1.16 | 2,321,312 | 1.44 | ||||||||||||||
Other marketable securities (A) | 164,545 | 5.39 | 162,616 | 4.11 | 175,860 | 5.91 | ||||||||||||||
Total available for sale securities (B) | 9,136,419 | 2.46 | 8,990,397 | 2.48 | 7,182,704 | 3.22 | ||||||||||||||
Trading securities (A) | 19,785 | 2.87 | 32,628 | 2.95 | 19,016 | 2.88 | ||||||||||||||
Non-marketable securities (A) | 110,486 | 10.81 | 116,873 | 8.55 | 103,810 | 7.04 | ||||||||||||||
Total investment securities | 9,266,690 | 2.56 | 9,139,898 | 2.56 | 7,305,530 | 3.28 | ||||||||||||||
Short-term federal funds sold and securities purchased under agreements to resell | 10,162 | .39 | 13,695 | .50 | 5,100 | .80 | ||||||||||||||
Long-term securities purchased under agreements to resell | 850,000 | 1.97 | 850,000 | 2.02 | 567,778 | 1.54 | ||||||||||||||
Interest earning deposits with banks | 122,953 | .25 | 87,919 | .25 | 146,493 | .25 | ||||||||||||||
Total interest earning assets | 19,393,282 | 3.67 | 19,305,806 | 3.66 | 17,517,140 | 4.20 | ||||||||||||||
Non-interest earning assets (B) | 1,121,569 | 1,160,906 | 1,034,350 | |||||||||||||||||
Total assets | $ | 20,514,851 | $ | 20,466,712 | $ | 18,551,490 | ||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||
Savings | $ | 529,027 | .17 | $ | 549,998 | .15 | $ | 500,386 | .14 | |||||||||||
Interest checking and money market | 8,068,003 | .29 | 8,311,734 | .24 | 7,398,662 | .37 | ||||||||||||||
Time open & C.D.’s of less than $100,000 | 1,186,324 | .75 | 1,155,882 | .73 | 1,426,157 | 1.06 | ||||||||||||||
Time open & C.D.’s of $100,000 and over | 1,367,472 | .59 | 1,444,252 | .53 | 1,433,564 | .76 | ||||||||||||||
Total interest bearing deposits | 11,150,826 | .43 | 11,461,866 | .32 | 10,758,769 | .50 | ||||||||||||||
Borrowings: | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 1,147,421 | .05 | 1,287,245 | .07 | 1,022,784 | .25 | ||||||||||||||
Other borrowings | 112,024 | 3.26 | 111,800 | 3.26 | 112,381 | 3.30 | ||||||||||||||
Total borrowings | 1,259,445 | .33 | 1,399,045 | .33 | 1,135,165 | .55 | ||||||||||||||
Total interest bearing liabilities | 12,410,271 | .37 | % | 12,860,911 | .32 | % | 11,893,934 | .51 | % | |||||||||||
Non-interest bearing deposits | 5,173,106 | 5,132,305 | 4,437,032 | |||||||||||||||||
Other liabilities | 789,564 | 275,349 | 168,248 | |||||||||||||||||
Equity | 2,141,910 | 2,198,147 | 2,052,276 | |||||||||||||||||
Total liabilities and equity | $ | 20,514,851 | $ | 20,466,712 | $ | 18,551,490 | ||||||||||||||
Net interest income (T/E) | $ | 167,940 | $ | 165,666 | $ | 166,479 | ||||||||||||||
Net yield on interest earning assets | 3.44 | % | 3.45 | % | 3.85 | % | ||||||||||||||
(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 First Quarter Results
March 31, 2012
For the quarter ended March 31, 2012, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $65.8 million, an increase of $5.3 million over the same quarter last year, and an increase of $4.3 million compared to the previous quarter. During the current quarter, the Company recorded a loss in fair value of $3.0 million pre-tax on an office building which formerly housed its operations center, which is held for sale. Also, the Company recognized certain incentives totaling $1.1 million, pre-tax, associated with new bankcard network agreements that became effective in the first quarter. The after-tax effect of these items amounted to a decrease in net income for the quarter of $1.3 million, or $.01 per share. For the current quarter, the return on average assets was 1.29%, the return on average equity was 12.0%, and the efficiency ratio was 58.9%.
Compared to the same quarter last year, net interest income (tax equivalent) decreased by $813 thousand to $165.7 million, while non-interest income decreased slightly to $94.6 million, and included both the fair value adjustment on the office building noted above and a decline of $5.9 million in debit card interchange income due to regulatory changes in 2011. Investment securities gains this quarter totaled $4.0 million compared to gains of $1.3 million in the same period last year, with virtually all of these gains due to fair value adjustments on the Company's private equity investments. Non-interest expense for the current quarter totaled $150.5 million, a decrease of $3.5 million from the same period last year. The provision for loan losses totaled $8.2 million, representing a decline of $7.6 million from the amount recorded in the same quarter last year.
Balance Sheet Review
During the 1st quarter of 2012, average loans, including loans held for sale, increased $70.8 million compared to the previous quarter but decreased $277.9 million, or 2.9%, 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, business real estate and personal real estate loans of $74.4 million, $22.8 million and $20.2 million, respectively. Within the consumer loan portfolio, marine/RV loans continued to run off this quarter by approximately $24.0 million on average; however, consumer auto loans increased $16.8 million due to higher new loan originations. The demand for construction loans continues to be affected by the weak housing industry and, overall, these loans declined by 1.6% this quarter.
Total available for sale investment securities (excluding fair value adjustments) averaged $9.0 billion this quarter, down $146.0 million compared to the previous quarter. The decrease in the average balance was mainly the result of maturities and pay-downs totaling $643.2 million in the 1st quarter of 2012, offset by purchases of new securities of $540.9 million during the current quarter. At March 31, 2012, the duration of the investment portfolio was 2.3 years, and maturities of approximately $1.6 billion are expected to occur during the next 12 months.
Total average deposits increased $270.2 million, or 1.7%, during the 1st quarter of 2012 compared to the previous quarter. This increase in average deposits resulted mainly from growth in money market deposit balances of $232.0 million. Also, certificate of deposit (CD) average balances increased $46.3 million. The average loans to deposits ratio in the current quarter was 55.5%, compared to 56.0% in the previous quarter.
During the current quarter, the Company's average borrowings increased $139.6 million compared to the previous quarter. This increase was mainly due to an increase in customer repurchase agreement balances.
Net Interest Income
Net interest income (tax equivalent) in the 1st quarter of 2012 amounted to $165.7 million, compared with $167.9 million in the previous quarter, or a decrease of $2.3 million. Net interest income this quarter was down $813 thousand compared to the 1st quarter of last year. During the 1st quarter of 2012, the net yield on earning assets (tax equivalent) was 3.45%, compared with 3.44% in the previous quarter and 3.85% in the same period last year.
The decrease in net interest income (tax equivalent) in the 1st quarter of 2012 from the previous quarter was mainly due to fewer days in the current quarter and lower rates earned on loans, which were partly offset by a decline in rates paid on deposit accounts. Interest on loans, including held for sale loans, declined $2.0 million (tax equivalent), mainly due to lower average rates earned on business real estate, personal real estate and consumer loans, but partly offset by higher average balances of business, business real estate and personal real estate loans. When compared to the previous quarter, interest income on investment securities declined by $1.5 million (tax equivalent), mainly due to lower average balances of mortgage-backed securities and lower rates earned on U.S. government and non-marketable securities. Inflation income earned on inflation-protected securities declined by $358 thousand this quarter and was not significant.
Interest expense on deposits declined $1.3 million in the 1st quarter of 2012 compared with the previous quarter mainly due to lower rates paid on money market and CD accounts. Overall rates paid on total interest bearing deposits declined 5 basis points to .32% this quarter. Interest expense on borrowings increased slightly this quarter, due mainly to higher average rates paid on repurchase agreement balances.
The tax equivalent yield on interest earning assets of 3.66% in the 1st quarter of 2012 was consistent with the yield earned in the 4th quarter of 2011, while the overall cost of interest bearing liabilities decreased 5 basis points to .32%.
Non-Interest Income
For the 1st quarter of 2012, total non-interest income amounted to $94.6 million, a decrease of $1.3 million when compared to $95.9 million in the same period last year. Also, current quarter non-interest income increased $548 thousand when compared to $94.0 million recorded in the previous quarter. The decrease in non-interest income from the same period last year was mainly due to a decline in debit card interchange fees this quarter, coupled with a loss of $3.0 million due to fair value adjustments recorded on an office building mentioned above, but offset by higher corporate card and capital market fees.
Bank card fees in the current quarter declined $2.7 million, or 7.3%, from the same period last year as a result of a decline in debit card interchange fees of $5.9 million, or 41.4%, (effect of new regulations in 2011) but was partly offset by growth in corporate card fees of $2.3 million, or 16.8%. Corporate card and debit card fees for the current quarter totaled $15.7 million and $8.4 million, respectively. Merchant fees grew by 15.1% and totaled $5.7 million for the quarter.
7
COMMERCE BANCSHARES, INC.
Management Discussion of First Quarter Results
March 31, 2012
Trust fees for the quarter increased 5.8% compared to the same period last year resulting mainly from growth in both personal and institutional trust fees. Deposit account fees increased slightly this quarter compared to last year as corporate cash management and other personal account fees grew by $925 thousand but overdraft fees declined $888 thousand, or 9.6%. Capital market fees increased $2.2 million this quarter compared to last year as a result of growth in sales of mainly fixed income securities to correspondent banks and other commercial customers. Other non-interest income included the $3.0 million fair value loss on the office building mentioned above.
Investment Securities Gains and Losses
Net securities gains amounted to $4.0 million in the 1st quarter of 2012, compared to net gains of $4.9 million in the previous quarter and net gains of $1.3 million in the same quarter last year. The current quarter included a pre-tax gain of $4.1 million related to quarterly fair value adjustments on the Company's private equity investments. Minority interest expense related to these gains totaled $893 thousand and is included in non-controlling interest expense.
Also during the current quarter, the Company recorded credit-related impairment losses of $320 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $782 thousand in the previous quarter and $274 thousand in the same quarter last year. The cumulative credit-related impairment reserve on these bonds totaled $10.2 million at quarter end. At March 31, 2012, the par value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $131.7 million, compared to $169.4 million at March 31, 2011.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $150.5 million, a decrease of $3.5 million, or 2.3%, from the same quarter last year and a decrease of $5.6 million compared to the previous quarter. During the current quarter, the Company signed new bankcard network agreements and realized incentives which reduced data processing expense by $1.1 million this quarter.
Compared to the 1st quarter of last year, salaries and benefits expense increased $2.2 million, or 2.5%, mainly due to higher incentive compensation of $725 thousand and higher medical costs, payroll taxes, and 401K expense which totaled $817 thousand. Full-time equivalent employees totaled 4,713 and 4,814 at March 31, 2012 and 2011, respectively.
Occupancy and equipment expense declined $1.2 million on a combined basis partly due to the mild winter and lower depreciation costs, while FDIC insurance expense declined $2.4 million as a result of new assessment rules which became effective in the 2nd quarter of 2011. Expense related to foreclosed property declined $852 thousand, mainly due to lower losses on fair value adjustments in the first quarter of 2012.
Income Taxes
The effective tax rate for the Company was 33.3% in the current quarter, compared with 32.4% in the previous quarter and 31.3% in the 1st quarter of 2011.
Credit Quality
Net loan charge-offs in the 1st quarter of 2012 amounted to $11.2 million, compared with $15.6 million in the prior quarter and $18.8 million in the 1st quarter of last year. The $4.5 million decline in net loan charge-offs in the 1st quarter of 2012 compared to the previous quarter was mainly the result of lower net loan charge-offs on construction loans of $2.4 million, coupled with lower losses on consumer credit card, business and personal real estate loans. Net loan charge-offs on business real estate loans increased modestly to $1.5 million this quarter. The ratio of annualized net loan charge-offs to total average loans was .49% in the current quarter compared to .68% in the previous quarter.
For the 1st quarter of 2012, annualized net loan charge-offs on average consumer credit card loans amounted to 3.40%, compared with 3.78% in the previous quarter and 4.73% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .96% of average consumer loans, compared to .96% in the previous quarter and 1.42% in the same quarter last year. The provision for loan losses for the current quarter totaled $8.2 million, a decrease of $4.0 million from the previous quarter and $7.6 million lower than in the same period last year. The current quarter provision for loan losses was $3.0 million less than net loan charge-offs for the current quarter, thereby reducing the allowance for loan losses to $181.5 million. At March 31, 2012 this allowance was 1.96% of total loans, excluding loans held for sale, and was 264% of total non-accrual loans.
At March 31, 2012, total non-performing assets amounted to $87.5 million, a decrease of $6.3 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($68.9 million) and foreclosed real estate ($18.6 million). At March 31, 2012, the balance of non-accrual loans, which represented .7% of loans outstanding, included construction and land loans of $21.1 million, business loans of $20.1 million and business real estate loans of $20.7 million. Loans more than 90 days past due and still accruing interest totaled $16.4 million at March 31, 2012.
Other
During the quarter ended March 31, 2012, the Company purchased 810,642 shares of treasury stock at an average cost of $38.98.
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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