Commerce Bancshares, Inc. (NSADAQ: CBSH) announced earnings of $.70 per common share for the three months ended June 30, 2014 compared to $.69 per share in the second quarter of 2013 and $.67 per share in the previous quarter. Net income for the second quarter amounted to $66.5 million, compared to $65.8 million in the same quarter last year and $64.3 million last quarter. For the current quarter, the return on average assets totaled 1.18%, the return on average equity was 11.7%, and the efficiency ratio was 60.3%.
For the six months ended June 30, 2014, earnings per common share totaled $1.37 compared to $1.32 in the first six months of 2013. Net income amounted to $130.8 million for the first six months of 2014 compared to $126.8 million for the same period last year. The return on average assets for the first six months of 2014 was 1.17% and the return on average equity was 11.6%.
In making this announcement, David W. Kemper, Chairman and CEO, said, “This quarter we saw good top line revenue growth when compared to the previous quarter along with solid loan growth. Net loan charge-offs declined and expenses remained well-controlled. Loans outstanding increased $265 million, or 9% annualized, this quarter to $11.5 billion as demand remained solid for commercial and consumer-related loans. Net interest income grew by $7.4 million compared to the previous quarter due to the aforementioned loan growth and higher earnings on the Company’s inflation-protected securities. Our net interest margin grew this quarter to 3.13%. Also, non-interest income grew 6%, or $6.1 million, mainly on growth from bank card, trust and deposit fees. Non-interest expense was mostly unchanged from the previous quarter, and our efficiency ratio declined to 60%.”
Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $7.6 million, compared to $9.7 million in the previous quarter and $9.4 million in the second quarter of 2013. The decrease in net loan charge-offs compared to the previous quarter is mainly due to an increase in net recoveries on commercial-related loans of $936 thousand coupled with lower consumer net loan charge-offs. During the current quarter, the provision for loan losses totaled $7.6 million and matched net loan charge-offs. The allowance for loan losses amounted to $161.5 million this quarter, or 1.41% of period end loans, and was 3.7 times non-performing loans. Total non-performing assets decreased $2.7 million from the previous quarter to $51.7 million this quarter.”
Total assets at June 30, 2014 were $23.0 billion, total loans were $11.5 billion, and total deposits were $19.0 billion. Through its normal treasury repurchase program, the Company repurchased 1.1 million shares of its common stock at an average price per share of $43.55 during the quarter and paid a cash dividend of $.225 per common share, an increase of 5% over the rate paid in 2013. Also, the Company issued $150 million in 6% non-cumulative perpetual preferred stock and concurrently entered into a $200 million accelerated share repurchase agreement with another financial institution.
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 over 350 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) | 3/31/2014 | 6/30/2014 | 6/30/2013 | ||||||||||||
| Non-Accrual Loans | $ | 47,573 | $ | 43,260 | $ | 39,092 | |||||||||
| Foreclosed Real Estate | $ | 6,871 | $ | 8,445 | $ | 13,434 | |||||||||
| Total Non-Performing Assets | $ | 54,444 | $ | 51,705 | $ | 52,526 | |||||||||
| Non-Performing Assets to Loans | .49 | % | .45 | % | .51 | % | |||||||||
| Non-Performing Assets to Total Assets | .24 | % | .22 | % | .24 | % | |||||||||
| Loans 90 Days & Over Past Due — Still Accruing | $ | 12,487 | $ | 11,629 | $ | 12,509 | |||||||||
This financial news release, including management's discussion of second quarter results, is posted to the Company's web site at www.commercebank.com.
COMMERCE BANCSHARES, INC. and SUBSIDIARIES FINANCIAL HIGHLIGHTS | ||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| (Unaudited) |
March 31, 2014 | June 30, 2014 |
June 30, 2013 | June 30, 2014 |
June 30, 2013 | |||||||||||
| FINANCIAL SUMMARY (In thousands, except per share data) | ||||||||||||||||
| Net interest income | $153,066 | $160,493 | $159,458 | $313,559 | $309,801 | |||||||||||
| Taxable equivalent net interest income | 159,761 | 167,889 | 165,942 | 327,650 | 322,650 | |||||||||||
| Non-interest income | 102,627 | 108,763 | 102,676 | 211,390 | 202,553 | |||||||||||
| Investment securities gains (losses), net | 10,037 | (2,558 | ) | (1,568 | ) | 7,479 | (3,733 | ) | ||||||||
| Provision for loan losses | 9,660 | 7,555 | 7,379 | 17,215 | 10,664 | |||||||||||
| Non-interest expense | 162,340 | 162,931 | 156,966 | 325,271 | 312,003 | |||||||||||
| Net income attributable to Commerce Bancshares, Inc. | 64,313 | 66,531 | 65,805 | 130,844 | 126,822 | |||||||||||
| Earnings per common share: | ||||||||||||||||
| Net income — basic | $.67 | $.70 | $.69 | $1.37 | $1.33 | |||||||||||
| Net income — diluted | $.67 | $.70 | $.69 | $1.37 | $1.32 | |||||||||||
| Cash dividends | $.225 | $.225 | $.214 | $.450 | $.429 | |||||||||||
| Cash dividends on common stock | 21,590 | 21,331 | 20,431 | 42,921 | 40,866 | |||||||||||
| Diluted wtd. average shares o/s | 95,194 | 93,913 | 94,667 | 94,550 | 94,816 | |||||||||||
| RATIOS | ||||||||||||||||
| Average loans to deposits (1) | 59.35 | % | 59.71 | % | 56.68 | % | 59.53 | % | 55.66 | % | ||||||
| Return on total average assets | 1.16 | % | 1.18 | % | 1.20 | % | 1.17 | % | 1.17 | % | ||||||
| Return on total average equity | 11.56 | % | 11.69 | % | 12.07 | % | 11.62 | % | 11.73 | % | ||||||
| Return on average common equity (2) | 11.56 | % | 11.79 | % | 12.07 | % | 11.67 | % | 11.73 | % | ||||||
| Non-interest income to revenue (3) | 40.14 | % | 40.39 | % | 39.17 | % | 40.27 | % | 39.53 | % | ||||||
| Efficiency ratio (4) | 63.28 | % | 60.30 | % | 59.73 | % | 61.75 | % | 60.72 | % | ||||||
| NET LOAN CHARGE-OFFS (RECOVERIES) | ||||||||||||||||
| Net total loan charge-offs (recoveries) | 9,660 | 7,555 | 9,379 | 17,215 | 17,164 | |||||||||||
| Business | (106 | ) | 381 | (87 | ) | 275 | (137 | ) | ||||||||
| Real estate — construction and land | 55 | (978 | ) | (744 | ) | (923 | ) | (1,276 | ) | |||||||
| Real estate — business | 426 | 36 | 1,253 | 462 | 1,149 | |||||||||||
| Consumer credit card | 6,447 | 6,291 | 6,935 | 12,738 | 12,983 | |||||||||||
| Consumer | 2,505 | 1,689 | 1,452 | 4,194 | 3,161 | |||||||||||
| Revolving home equity | 113 | (351 | ) | 156 | (238 | ) | 295 | |||||||||
| Real estate — personal | 6 | 176 | 172 | 182 | 545 | |||||||||||
| Overdraft | 214 | 311 | 242 | 525 | 444 | |||||||||||
| AT PERIOD END | ||||||||||||||||
| Book value per share based on total equity | $23.75 | $24.69 | $22.13 | |||||||||||||
| Market value per share | $46.42 | $46.50 | $41.48 | |||||||||||||
| Allowance for loan losses as a percentage of loans | 1.44 | % | 1.41 | % | 1.60 | % | ||||||||||
| Tier I leverage ratio | 9.41 | % | 9.12 | % | 9.08 | % | ||||||||||
| Tangible common equity to assets ratio (5) | 9.36 | % | 8.60 | % | 9.06 | % | ||||||||||
| Common shares outstanding | 95,722,655 | 91,609,363 | 95,207,651 | |||||||||||||
| Shareholders of record | 4,143 | 4,113 | 4,107 | |||||||||||||
| Number of bank/ATM locations | 356 | 354 | 356 | |||||||||||||
| Full-time equivalent employees | 4,745 | 4,733 | 4,720 | |||||||||||||
| OTHER QTD INFORMATION | ||||||||||||||||
| High market value per share | $47.31 | $47.45 | $42.50 | |||||||||||||
| Low market value per share | $41.66 | $42.09 | $36.63 | |||||||||||||
(1) | Includes loans held for sale. | |
(2) | Annualized net income available to common shareholders divided by average total equity less preferred stock. | |
(3) | Revenue includes net interest income and non-interest income. | |
(4) | The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue. | |
(5) | The tangible common equity ratio is calculated as stockholders’ equity reduced by preferred stock, goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights). | |
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, 2014 | June 30, 2014 |
June 30, 2013 | June 30, 2014 |
June 30, 2013 | |||||||||||||||
| Interest income | $159,998 | $167,567 | $167,255 | $327,565 | $326,000 | |||||||||||||||
| Interest expense | 6,932 | 7,074 | 7,797 | 14,006 | 16,199 | |||||||||||||||
| Net interest income | 153,066 | 160,493 | 159,458 | 313,559 | 309,801 | |||||||||||||||
| Provision for loan losses | 9,660 | 7,555 | 7,379 | 17,215 | 10,664 | |||||||||||||||
| Net interest income after provision for loan losses | 143,406 | 152,938 | 152,079 | 296,344 | 299,137 | |||||||||||||||
| NON-INTEREST INCOME | ||||||||||||||||||||
| Bank card transaction fees | 41,717 | 44,444 | 40,700 | 86,161 | 79,250 | |||||||||||||||
| Trust fees | 26,573 | 27,765 | 25,734 | 54,338 | 50,903 | |||||||||||||||
| Deposit account charges and other fees | 18,590 | 19,709 | 19,602 | 38,299 | 38,314 | |||||||||||||||
| Capital market fees | 3,870 | 3,246 | 3,305 | 7,116 | 7,696 | |||||||||||||||
| Consumer brokerage services | 2,747 | 2,972 | 2,853 | 5,719 | 5,539 | |||||||||||||||
| Loan fees and sales | 1,209 | 1,211 | 1,314 | 2,420 | 2,787 | |||||||||||||||
| Other | 7,921 | 9,416 | 9,168 | 17,337 | 18,064 | |||||||||||||||
| Total non-interest income | 102,627 | 108,763 | 102,676 | 211,390 | 202,553 | |||||||||||||||
| INVESTMENT SECURITIES GAINS (LOSSES), NET | ||||||||||||||||||||
| Change in fair value of other-than-temporarily impaired securities | (63 | ) | (785 | ) | (293 | ) | (848 | ) | 1,096 | |||||||||||
| Portion recognized in other comprehensive income | (283 | ) | 154 | (195 | ) | (129 | ) | (2,026 | ) | |||||||||||
| Net impairment losses recognized in earnings | (346 | ) | (631 | ) | (488 | ) | (977 | ) | (930 | ) | ||||||||||
| Realized gains (losses) on sales and fair value adjustments | 10,383 | (1,927 | ) | (1,080 | ) | 8,456 | (2,803 | ) | ||||||||||||
| Investment securities gains (losses), net | 10,037 | (2,558 | ) | (1,568 | ) | 7,479 | (3,733 | ) | ||||||||||||
| NON-INTEREST EXPENSE | ||||||||||||||||||||
| Salaries and employee benefits | 94,263 | 94,849 | 89,569 | 189,112 | 180,450 | |||||||||||||||
| Net occupancy | 11,616 | 11,151 | 11,234 | 22,767 | 22,469 | |||||||||||||||
| Equipment | 4,504 | 4,525 | 4,680 | 9,029 | 9,363 | |||||||||||||||
| Supplies and communication | 5,699 | 5,486 | 5,797 | 11,185 | 11,386 | |||||||||||||||
| Data processing and software | 19,087 | 19,578 | 19,584 | 38,665 | 38,535 | |||||||||||||||
| Marketing | 3,681 | 3,949 | 4,048 | 7,630 | 7,407 | |||||||||||||||
| Deposit insurance | 2,894 | 2,892 | 2,790 | 5,786 | 5,557 | |||||||||||||||
| Other | 20,596 | 20,501 | 19,264 | 41,097 | 36,836 | |||||||||||||||
| Total non-interest expense | 162,340 | 162,931 | 156,966 | 325,271 | 312,003 | |||||||||||||||
| Income before income taxes | 93,730 | 96,212 | 96,221 | 189,942 | 185,954 | |||||||||||||||
| Less income taxes | 29,609 | 30,312 | 30,182 | 59,921 | 59,107 | |||||||||||||||
| Net income | 64,121 | 65,900 | 66,039 | 130,021 | 126,847 | |||||||||||||||
| Less non-controlling interest expense (income) | (192 | ) | (631 | ) | 234 | (823 | ) | 25 | ||||||||||||
| Net income attributable to Commerce Bancshares, Inc. | 64,313 | 66,531 | 65,805 | 130,844 | 126,822 | |||||||||||||||
| Less preferred stock dividends | — | — | — | — | — | |||||||||||||||
| Net income available to common shareholders | $64,313 | $66,531 | $65,805 | $130,844 | $126,822 | |||||||||||||||
| Net income per common share — basic | $.67 | $.70 | $.69 | $1.37 | $1.33 | |||||||||||||||
| Net income per common share — diluted | $.67 | $.70 | $.69 | $1.37 | $1.32 | |||||||||||||||
COMMERCE BANCSHARES, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | |||||||||||||||
| (Unaudited) (In thousands) |
March 31, 2014 | June 30, 2014 |
June 30, 2013 | ||||||||||||
| ASSETS | |||||||||||||||
| Loans | $ | 11,222,038 | $ | 11,486,674 | $ | 10,370,155 | |||||||||
| Allowance for loan losses | (161,532 | ) | (161,532 | ) | (166,032 | ) | |||||||||
| Net loans | 11,060,506 | 11,325,142 | 10,204,123 | ||||||||||||
| Loans held for sale | — | — | 8,941 | ||||||||||||
| Investment securities: | |||||||||||||||
| Available for sale | 9,115,116 | 9,282,640 | 8,927,815 | ||||||||||||
| Trading | 15,740 | 15,684 | 14,670 | ||||||||||||
| Non-marketable | 126,119 | 93,748 | 113,470 | ||||||||||||
| Total investment securities | 9,256,975 | 9,392,072 | 9,055,955 | ||||||||||||
| Short-term federal funds sold and securities purchased under agreements to resell | 19,525 | 29,490 | 22,990 | ||||||||||||
| Long-term securities purchased under agreements to resell | 950,000 | 950,000 | 1,200,000 | ||||||||||||
| Interest earning deposits with banks | 198,417 | 18,877 | 6,816 | ||||||||||||
| Cash and due from banks | 530,244 | 516,509 | 399,687 | ||||||||||||
| Land, buildings and equipment — net | 344,790 | 346,363 | 352,462 | ||||||||||||
| Goodwill | 138,921 | 138,921 | 125,585 | ||||||||||||
| Other intangible assets — net | 8,811 | 8,249 | 4,517 | ||||||||||||
| Other assets | 328,931 | 306,191 | 529,275 | ||||||||||||
| Total assets | $ | 22,837,120 | $ | 23,031,814 | $ | 21,910,351 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
| Deposits: | |||||||||||||||
| Non-interest bearing | $ | 6,552,085 | $ | 6,439,796 | $ | 5,811,473 | |||||||||
| Savings, interest checking and money market | 10,328,912 | 10,085,460 | 9,573,390 | ||||||||||||
| Time open and C.D.’s of less than $100,000 | 967,272 | 942,233 | 1,039,131 | ||||||||||||
| Time open and C.D.’s of $100,000 and over | 1,389,065 | 1,498,982 | 1,472,944 | ||||||||||||
| Total deposits | 19,237,334 | 18,966,471 | 17,896,938 | ||||||||||||
| Federal funds purchased and securities sold under agreements to repurchase | 927,152 | 1,154,323 | 1,620,694 | ||||||||||||
| Other borrowings | 105,114 | 105,096 | 102,766 | ||||||||||||
| Other liabilities | 294,009 | 543,771 | 183,166 | ||||||||||||
| Total liabilities | 20,563,609 | 20,769,661 | 19,803,564 | ||||||||||||
| Stockholders’ equity: | |||||||||||||||
| Preferred stock | — | 144,816 | — | ||||||||||||
| Common stock | 481,224 | 481,224 | 458,646 | ||||||||||||
| Capital surplus | 1,273,290 | 1,214,836 | 1,094,922 | ||||||||||||
| Retained earnings | 492,559 | 537,759 | 563,166 | ||||||||||||
| Treasury stock | (17,193 | ) | (203,174 | ) | (35,771 | ) | |||||||||
| Accumulated other comprehensive income | 40,499 | 84,314 | 21,864 | ||||||||||||
| Total stockholders’ equity | 2,270,379 | 2,259,775 | 2,102,827 | ||||||||||||
| Non-controlling interest | 3,132 | 2,378 | 3,960 | ||||||||||||
| Total equity | 2,273,511 | 2,262,153 | 2,106,787 | ||||||||||||
| Total liabilities and equity | $ | 22,837,120 | $ | 23,031,814 | $ | 21,910,351 | |||||||||
COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS | |||||||||||||||||||||||||||
| (Unaudited) (Dollars in thousands) | For the Three Months Ended | ||||||||||||||||||||||||||
| March 31, 2014 | June 30, 2014 | June 30, 2013 | |||||||||||||||||||||||||
| Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | ||||||||||||||||||||||
| ASSETS: | |||||||||||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||
| Business (A) | $ | 3,843,377 | 2.90 | % | $ | 3,941,572 | 2.85 | % | $ | 3,253,577 | 3.07 | % | |||||||||||||||
| Real estate — construction and land | 419,628 | 3.77 | 431,819 | 3.76 | 373,359 | 3.94 | |||||||||||||||||||||
| Real estate — business | 2,323,208 | 3.90 | 2,292,919 | 3.86 | 2,216,876 | 4.14 | |||||||||||||||||||||
| Real estate — personal | 1,778,573 | 3.86 | 1,790,678 | 3.80 | 1,664,988 | 3.97 | |||||||||||||||||||||
| Consumer | 1,533,485 | 4.41 | 1,602,136 | 4.24 | 1,430,832 | 4.69 | |||||||||||||||||||||
| Revolving home equity | 423,656 | 3.82 | 419,581 | 3.93 | 425,762 | 3.96 | |||||||||||||||||||||
| Consumer credit card | 757,423 | 11.43 | 746,485 | 11.42 | 741,793 | 11.20 | |||||||||||||||||||||
| Overdrafts | 5,429 | — | 4,669 | — | 6,369 | — | |||||||||||||||||||||
| Total loans (B) | 11,084,779 | 4.12 | 11,229,859 | 4.05 | 10,113,556 | 4.34 | |||||||||||||||||||||
| Loans held for sale | — | — | — | — | 9,003 | 4.05 | |||||||||||||||||||||
| Investment securities: | |||||||||||||||||||||||||||
| U.S. government and federal agency obligations | 497,333 | 1.71 | 493,880 | 6.55 | 400,027 | 5.15 | |||||||||||||||||||||
| Government-sponsored enterprise obligations | 774,749 | 1.66 | 789,575 | 1.66 | 439,075 | 1.74 | |||||||||||||||||||||
| State and municipal obligations (A) | 1,605,752 | 3.69 | 1,665,275 | 3.41 | 1,634,196 | 3.61 | |||||||||||||||||||||
| Mortgage-backed securities | 3,019,157 | 2.80 | 3,080,464 | 2.69 | 3,272,580 | 2.77 | |||||||||||||||||||||
| Asset-backed securities | 2,854,201 | .89 | 2,860,083 | .89 | 3,199,393 | .91 | |||||||||||||||||||||
| Other marketable securities (A) | 153,068 | 2.50 | 149,736 | 2.42 | 188,267 | 2.97 | |||||||||||||||||||||
| Total available for sale securities (B) | 8,904,260 | 2.18 | 9,039,013 | 2.37 | 9,133,538 | 2.33 | |||||||||||||||||||||
| Trading securities (A) | 19,183 | 2.28 | 18,920 | 2.14 | 22,355 | 2.40 | |||||||||||||||||||||
| Non-marketable securities (A) | 109,932 | 6.42 | 110,338 | 18.12 | 118,888 | 16.92 | |||||||||||||||||||||
| Total investment securities | 9,033,375 | 2.24 | 9,168,271 | 2.56 | 9,274,781 | 2.52 | |||||||||||||||||||||
| Short-term federal funds sold and securities purchased under agreements to resell | 24,464 | .43 | 23,947 | .40 | 23,429 | .48 | |||||||||||||||||||||
| Long-term securities purchased under agreements to resell | 1,102,222 | 1.53 | 968,680 | 1.22 | 1,200,000 | 1.94 | |||||||||||||||||||||
| Interest earning deposits with banks | 161,117 | .25 | 140,917 | .25 | 116,510 | .26 | |||||||||||||||||||||
| Total interest earning assets | 21,405,957 | 3.16 | 21,531,674 | 3.26 | 20,737,279 | 3.36 | |||||||||||||||||||||
| Non-interest earning assets (B) | 1,039,777 | 1,064,336 | 1,184,066 | ||||||||||||||||||||||||
| Total assets | $ | 22,445,734 | $ | 22,596,010 | $ | 21,921,345 | |||||||||||||||||||||
| LIABILITIES AND EQUITY: | |||||||||||||||||||||||||||
| Interest bearing deposits: | |||||||||||||||||||||||||||
| Savings | $ | 649,292 | .12 | $ | 685,134 | .12 | $ | 639,747 | .11 | ||||||||||||||||||
| Interest checking and money market | 9,473,680 | .13 | 9,488,405 | .13 | 8,932,987 | .14 | |||||||||||||||||||||
| Time open & C.D.’s of less than $100,000 | 975,640 | .47 | 953,789 | .45 | 1,052,574 | .63 | |||||||||||||||||||||
| Time open & C.D.’s of $100,000 and over | 1,339,808 | .44 | 1,450,069 | .42 | 1,464,384 | .46 | |||||||||||||||||||||
| Total interest bearing deposits | 12,438,420 | .19 | 12,577,397 | .19 | 12,089,692 | .22 | |||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||
| Federal funds purchased and securities sold under agreements to repurchase | 1,209,180 | .07 | 1,169,322 | .09 | 1,544,623 | .07 | |||||||||||||||||||||
| Other borrowings | 105,187 | 3.28 | 105,101 | 3.34 | 103,019 | 3.23 | |||||||||||||||||||||
| Total borrowings | 1,314,367 | .33 | 1,274,423 | .36 | 1,647,642 | .27 | |||||||||||||||||||||
| Total interest bearing liabilities | 13,752,787 | .20 | % | 13,851,820 | .20 | % | 13,737,334 | .23 | % | ||||||||||||||||||
| Non-interest bearing deposits | 6,237,479 | 6,231,003 | 5,768,455 | ||||||||||||||||||||||||
| Other liabilities | 198,383 | 230,497 | 228,966 | ||||||||||||||||||||||||
| Equity | 2,257,085 | 2,282,690 | 2,186,590 | ||||||||||||||||||||||||
| Total liabilities and equity | $ | 22,445,734 | $ | 22,596,010 | $ | 21,921,345 | |||||||||||||||||||||
| Net interest income (T/E) | $ | 159,761 | $ | 167,889 | $ | 165,942 | |||||||||||||||||||||
| Net yield on interest earning assets | 3.03 | % | 3.13 | % | 3.21 | % | |||||||||||||||||||||
(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. | |
COMMERCE BANCSHARES, INC.
Management Discussion of Second
Quarter Results
June 30, 2014
For the quarter ended June 30, 2014, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $66.5 million, an increase of $2.2 million compared to the previous quarter, and an increase of $726 thousand over the same quarter last year. The increase in net income over the previous quarter resulted mainly from growth in net interest income of $7.4 million, a lower provision for loan losses of $2.1 million, and an increase in non-interest income of $6.1 million. Non-interest expense was relatively flat with the previous quarter, however, net securities losses totaled $2.6 million in the current quarter compared to net gains of $10.0 million in the previous quarter. For the current quarter, the return on average assets was 1.18%, the return on average equity was 11.69%, and the efficiency ratio was 60.3%.
Balance Sheet Review
During the 2nd quarter of 2014, outstanding loans increased $264.6 million, or 9.6% annualized, compared to the previous quarter and increased $1.1 billion, or 10.9%, compared to the same period last year. Compared to the previous quarter, the increase in period end loans resulted from growth in business (up $153.9 million), personal real estate (up $36.4 million), construction (up $18.4 million), and consumer loans (up $75.9 million, mainly in automobile and other consumer loans). Business real estate loans declined $37.3 million from the previous quarter. The increase in business loans mainly resulted from growth in commercial and industrial loans and leasing activities. Demand for consumer automobile loans remained strong this quarter, as these loans grew by $59.8 million. However, marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $17.0 million.
Total available for sale investment securities, at fair value, averaged $9.2 billion this quarter, an increase of $173.8 million when compared to the previous quarter. Purchases of new securities, totaling $569.4 million in the 2nd quarter of 2014, were offset by sales, maturities and pay downs of $464.1 million. At June 30, 2014, the duration of the investment portfolio was 2.7 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next 12 months.
Total average deposits increased $132.5 million during the 2nd quarter of 2014 compared to the previous quarter. The increase in average deposits resulted mainly from growth in interest checking accounts (increase of $46.3 million), jumbo certificates of deposit (increase of $110.3 million), and savings accounts (increase of $35.8 million), but was offset by declines in money market accounts (decrease of $31.6 million) and non-interest bearing business demand deposits (decrease of $38.8 million). Compared to the previous quarter, total average consumer and commercial deposits increased $123.7 million and $48.1 million, respectively, while private banking deposits declined on average by $53.0 million. The average loans to deposits ratio in the current quarter was 59.7%, compared to 59.4% in the previous quarter.
During the current quarter, the Company’s average borrowings decreased $39.9 million compared to the previous quarter, mainly due to a decline in the average balance of repurchase agreements.
Net Interest Income
Net interest income (tax equivalent) in the 2nd quarter of 2014 amounted to $167.9 million compared with $159.8 million in the previous quarter, or an increase of $8.1 million. Net interest income (tax equivalent) for the current quarter increased $1.9 million compared to the 2nd quarter of last year. During the 2nd quarter of 2014, the net yield on earning assets (tax equivalent) was 3.13%, compared with 3.03% in the previous quarter and 3.21% in the same period last year.
The increase in net interest income (tax equivalent) in the 2nd quarter of 2014 compared to the previous quarter was due mainly to an increase in inflation income of $5.7 million on the Company’s inflation-protected securities as a result of a higher Consumer Price Index published this quarter. Additionally, the Company received a special dividend of $1.9 million related to the sale of a private equity investment which settled this quarter. Also this quarter, premium amortization expense was reduced by $218 thousand due to prepayment speed adjustments on various mortgage-backed securities.
Compared to the previous quarter, interest on loans increased $814 thousand (tax-equivalent) as a result of higher volumes on automobile and business loans but offset by lower overall rates earned, especially on consumer loans. The average yield on the loan portfolio declined 7 basis points this quarter. The average rate earned on the investment securities portfolio increased 32 basis points to 2.56% this quarter, largely due to higher rates earned on inflation-protected securities and the special dividend mentioned above.
Interest expense on deposits increased $58 thousand in the 2nd quarter of 2014 compared with the previous quarter, due mainly to growth in jumbo certificate of deposit balances.
Non-Interest Income
In the 2nd quarter of 2014, total non-interest income amounted to $108.8 million, an increase of $6.1 million, or 5.9%, compared to the same period last year. Also, current quarter non-interest income increased $6.1 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 growth in bank card and trust fees.
Total bank card fees in the current quarter increased $3.7 million, or 9.2%, over the same period last year. Corporate card fees increased 16.5%, or $3.2 million, while debit and credit card fees grew by 6.5% and 3.7%, respectively. Trust fees for the quarter increased $2.0 million, or 7.9%, compared to the same period last year, resulting mainly from continued growth in both private client and institutional trust fees.
Deposit account fees grew slightly, mostly from account service charges, while fees from corporate cash management and overdraft services were flat. Capital market fees declined slightly, and fees from sales of tax credits declined $976 thousand, mostly due to strong sales in the same period last year.
Investment Securities Gains and Losses
The Company recorded net securities losses of $2.6 million this quarter compared with net losses of $1.6 million in the 2nd quarter of last year. The Company recorded net securities gains of $10.0 million in the previous quarter. Net securities losses this quarter were comprised of adjustments for net losses of $4.7 million on the Company’s private equity portfolio, offset by securities gains of $1.6 million related to the donation of appreciated securities. Additionally, the Company completed its sale of one large private equity investment (large fair value write up noted in the first quarter of 2014) and recorded an additional $1.1 million in realized securities gains. Also during the current quarter, credit-related impairment losses recorded on the Company’s non-agency guaranteed mortgage-backed securities which have been identified as other-than-temporarily impaired totaled $631 thousand. The cumulative credit-related impairment on these bonds totaled $13.8 million at quarter end. At June 30, 2014, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $62.0 million, compared to $66.1 million at March 31, 2014.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $162.9 million, an increase of $6.0 million, or 3.8%, over the same period last year but only a small increase compared to the previous quarter. The increase over the previous year was mainly due to higher salaries expense coupled with an increase in medical costs. Non-interest expense in the current quarter included expenses related to Summit Bancshares totaling $1.3 million which were not present in the same quarter last year.
Compared to the 2nd quarter of last year, salaries expense grew $3.2 million, or 4.2%, mainly due to higher full-time salaries expense coupled with growth in equity compensation costs. Exclusive of salaries costs for Summit Bancshares of $745 thousand (acquired in September 2013), salaries expense grew 3.2%. Benefits expense grew $2.1 million mainly due to higher medical costs which the Company self-insures. Growth in salaries expense resulted partly from staffing additions in commercial banking, wealth, commercial card and IT departments. Full-time equivalent employees totaled 4,733 and 4,720 at June 30, 2014 and 2013, respectively.
Compared to the 2nd quarter of last year, occupancy costs declined slightly while supplies and communication and equipment costs declined by 5.4% and 3.3%, respectively. Data processing costs remained virtually unchanged from previous year’s levels mostly due to lower bank card related processing costs. Compared to the previous year, other expense included an increase in credit card rewards costs of $807 thousand coupled with higher costs for leasing activities, legal, and foreclosed property expense, but offset by operating loss recoveries of $1.0 million realized this quarter. The current quarter also included donation expense of $1.7 million related to the contribution of appreciated securities noted above in the investment securities gains and losses section.
Income Taxes
The effective tax rate for the Company was 31.3% in the current quarter compared to 31.5% in the previous quarter and 31.4% in the 2nd quarter of 2013.
Credit Quality
Net loan charge-offs in the 2nd quarter of 2014 amounted to $7.6 million, compared with $9.7 million in the prior quarter and $9.4 million in the 2nd quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .27% in the current quarter compared to .35% in the previous quarter.
In the 2nd quarter of 2014, annualized net loan charge-offs on average consumer credit card loans amounted to 3.38%, compared with 3.45% in the previous quarter and 3.75% in the same period last year. Consumer loan net charge-offs in the quarter amounted to .42% of average consumer loans, compared to .66% in the previous quarter and .41% in the same quarter last year. The provision for loan losses in the current quarter totaled $7.6 million, a decrease of $2.1 million from the previous quarter and was slightly higher than in the same period last year. The current quarter provision for loan losses matched net loan charge-offs, while in the 2nd quarter of 2013, the provision was $2.0 million less than net loan charge-offs. At June 30, 2014, the allowance was 1.41% of total loans and was 373% of total non-accrual loans.
At June 30, 2014, total non-performing assets amounted to $51.7 million, a decrease of $2.7 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($43.3 million) and foreclosed real estate ($8.4 million). At June 30, 2014, the balance of non-accrual loans, which represented .38% of loans outstanding, included business real estate loans of $16.5 million, business loans of $11.1 million, and construction and land loans of $8.2 million. Loans more than 90 days past due and still accruing interest totaled $11.6 million at June 30, 2014.
Other
Through its normal treasury repurchase program, the Company purchased 1.1 million shares of treasury stock at an average cost of $43.55, and the Company declared and paid a $.225 per share cash dividend, representing an increase of 5% over the rate paid in 2013.
This quarter the Company also completed the issuance of $150 million in 6% non-cumulative perpetual preferred stock and concurrently entered into a $200 million accelerated share repurchase (ASR) agreement with another financial institution. Under the terms of the ASR agreement, the Company paid $200 million to the financial institution on June 19, 2014 and received 3.1 million shares of its common stock in treasury, representing a substantial majority of shares expected to be delivered from the overall ASR program. The ASR program is expected to be completed within the next twelve months at which time any additional shares would be delivered to the Company. The total number of shares that the Company will receive and the total consideration per share paid ultimately will be determined based on the volume-weighted daily average price of its common stock during the repurchase program. The Company also increased the number of shares under its stock buyback program to 5,000,000 shares to accommodate this program.
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.
Contacts:
Jeffery Aberdeen, 816-234-2081
Controller
mymoney@commercebank.com
Web
Site: http://www.commercebank.com
