Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.67 per share for the three months ended March 31, 2014 compared to $.63 per share in the first quarter of 2013, or an increase of 6.3%. Net income for the first quarter amounted to $64.3 million, compared to $61.0 million in the same quarter last year, an increase of 5.4%. For the quarter, the return on average assets totaled 1.16%, the return on average equity was 11.6% and the efficiency ratio was 63.3%.
In announcing these results, David W. Kemper, Chairman and CEO, said, “Loan demand remained strong this quarter as average loans increased $288 million, or 10.8% annualized, with most of this growth occurring in commercial and industrial and automobile lending. Average deposits also grew by $293 million, an annualized increase of 6.4%. Commercial card revenue increased 13% in the quarter from a year ago while trust revenue increased 6% compared to the first quarter last year. Our net interest margin has begun to stabilize, declining 3 basis points this quarter to 3.03%. During the quarter, unrealized net gains due to fair value adjustments on the Company’s private equity investments totaled $15.7 million. However, these gains were offset by securities losses of $5.2 million and write downs in fair value on certain bank-owned real estate totaling $1.4 million.”
Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $9.7 million, compared to $7.5 million in the previous quarter and $7.8 million in the first quarter of 2013. The increase in net loan charge-offs compared to the previous quarter is mainly due to a decline of $2.6 million in commercial loan recoveries received coupled with an increase in consumer credit card losses of $550 thousand. During the current quarter, the provision for loan losses totaled $9.7 million and matched net loan charge-offs. The allowance for loan losses amounted to $161.5 million this quarter, or 1.44% of period end loans, and was 3.4 times non-performing loans. Total non-performing assets decreased $995 thousand from the previous quarter to $54.4 million this quarter.”
Total assets at March 31, 2014 were $22.8 billion, total loans were $11.2 billion, and total deposits were $19.2 billion. During the quarter, the Company repurchased 474,854 shares of its common stock at an average price per share of $44.01 and paid a cash dividend of $.225 per share, an increase of 5% over the rate paid in 2013.
Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in approximately 360 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in mortgage banking, credit related insurance, and private equity activities.
Summary of Non-Performing Assets and Past Due Loans
| (Dollars in thousands) | 12/31/2013 | 3/31/2014 | 3/31/2013 | ||||||||||||
| Non-Accrual Loans | $ | 48,814 | $ | 47,573 | $ | 44,739 | |||||||||
| Foreclosed Real Estate | $ | 6,625 | $ | 6,871 | $ | 14,191 | |||||||||
| Total Non-Performing Assets | $ | 55,439 | $ | 54,444 | $ | 58,930 | |||||||||
| Non-Performing Assets to Loans | .51 | % | .49 | % | .59 | % | |||||||||
| Non-Performing Assets to Total Assets | .24 | % | .24 | % | .27 | % | |||||||||
| Loans 90 Days & Over Past Due — Still Accruing | $ | 13,966 | $ | 12,487 | $ | 15,015 | |||||||||
This financial news release, including management's discussion of first 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 | ||||||||||||
| (Unaudited) |
December 31, 2013 | March 31, 2014 |
March 31, 2013 | |||||||||
| FINANCIAL SUMMARY (In thousands, except per share data) | ||||||||||||
| Net interest income | $154,865 | $153,066 | $150,343 | |||||||||
| Taxable equivalent net interest income | 162,182 | 159,761 | 156,708 | |||||||||
| Non-interest income | 109,522 | 102,627 | 99,877 | |||||||||
| Investment securities gains (losses), net | (1,342 | ) | 10,037 | (2,165 | ) | |||||||
| Provision for loan losses | 5,543 | 9,660 | 3,285 | |||||||||
| Non-interest expense | 161,318 | 162,340 | 155,037 | |||||||||
| Net income attributable to Commerce Bancshares, Inc. | 65,915 | 64,313 | 61,017 | |||||||||
| Cash dividends | 20,568 | 21,590 | 20,435 | |||||||||
| Net total loan charge-offs (recoveries) | 7,543 | 9,660 | 7,785 | |||||||||
| Business | (76 | ) | (106 | ) | (50 | ) | ||||||
| Real estate — construction and land | (1,781 | ) | 55 | (532 | ) | |||||||
| Real estate — business | (255 | ) | 426 | (104 | ) | |||||||
| Consumer credit card | 6,110 | 6,447 | 6,048 | |||||||||
| Consumer | 2,311 | 2,505 | 1,709 | |||||||||
| Revolving home equity | 596 | 113 | 139 | |||||||||
| Real estate — personal | 358 | 6 | 373 | |||||||||
| Overdraft | 280 | 214 | 202 | |||||||||
| Per common share: | ||||||||||||
| Net income — basic | $.69 | $.67 | $.64 | |||||||||
| Net income — diluted | $.69 | $.67 | $.63 | |||||||||
| Cash dividends | $.214 | $.225 | $.214 | |||||||||
| Diluted wtd. average shares o/s | 95,321 | 95,194 | 94,966 | |||||||||
| RATIOS | ||||||||||||
| Average loans to deposits (1) | 58.73 | % | 59.35 | % | 54.65 | % | ||||||
| Return on total average assets | 1.18 | % | 1.16 | % | 1.13 | % | ||||||
| Return on total average equity | 11.81 | % | 11.56 | % | 11.38 | % | ||||||
| Non-interest income to revenue (2) | 41.42 | % | 40.14 | % | 39.92 | % | ||||||
| Efficiency ratio (3) | 60.81 | % | 63.28 | % | 61.76 | % | ||||||
| AT PERIOD END | ||||||||||||
| Book value per share based on total equity | $23.10 | $23.75 | $22.87 | |||||||||
| Market value per share | $44.91 | $46.42 | $38.89 | |||||||||
| Allowance for loan losses as a percentage of loans | 1.47 | % | 1.44 | % | 1.68 | % | ||||||
| Tier I leverage ratio | 9.43 | % | 9.41 | % | 8.92 | % | ||||||
| Tangible common equity to assets ratio (4) | 9.00 | % | 9.36 | % | 9.26 | % | ||||||
| Common shares outstanding | 95,881,165 | 95,722,655 | 95,275,990 | |||||||||
| Shareholders of record | 4,116 | 4,143 | 4,127 | |||||||||
| Number of bank/ATM locations | 358 | 356 | 359 | |||||||||
| Full-time equivalent employees | 4,727 | 4,745 | 4,725 | |||||||||
| OTHER QTD INFORMATION | ||||||||||||
| High market value per share | $45.77 | $47.31 | $38.94 | |||||||||
| Low market value per share | $40.80 | $41.66 | $33.71 | |||||||||
| (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). | |
COMMERCE BANCSHARES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
| For the Three Months Ended | ||||||||||||
| (Unaudited) (In thousands, except per share data) |
December 31, 2013 | March 31, 2014 |
March 31, 2013 | |||||||||
| Interest income | $162,141 | $159,998 | $158,745 | |||||||||
| Interest expense | 7,276 | 6,932 | 8,402 | |||||||||
| Net interest income | 154,865 | 153,066 | 150,343 | |||||||||
| Provision for loan losses | 5,543 | 9,660 | 3,285 | |||||||||
| Net interest income after provision for loan losses | 149,322 | 143,406 | 147,058 | |||||||||
| NON-INTEREST INCOME | ||||||||||||
| Bank card transaction fees | 43,486 | 41,717 | 38,550 | |||||||||
| Trust fees | 26,308 | 26,573 | 25,169 | |||||||||
| Deposit account charges and other fees | 20,506 | 18,590 | 18,712 | |||||||||
| Capital market fees | 3,195 | 3,870 | 4,391 | |||||||||
| Consumer brokerage services | 2,596 | 2,747 | 2,686 | |||||||||
| Loan fees and sales | 1,525 | 1,209 | 1,473 | |||||||||
| Other | 11,906 | 7,921 | 8,896 | |||||||||
| Total non-interest income | 109,522 | 102,627 | 99,877 | |||||||||
| INVESTMENT SECURITIES GAINS (LOSSES), NET | ||||||||||||
| Change in fair value of other-than-temporarily impaired securities | (230 | ) | (63 | ) | 1,389 | |||||||
| Portion recognized in other comprehensive income | 206 | (283 | ) | (1,831 | ) | |||||||
| Net impairment losses recognized in earnings | (24 | ) | (346 | ) | (442 | ) | ||||||
| Realized gains (losses) on sales and fair value adjustments | (1,318 | ) | 10,383 | (1,723 | ) | |||||||
| Investment securities gains (losses), net | (1,342 | ) | 10,037 | (2,165 | ) | |||||||
| NON-INTEREST EXPENSE | ||||||||||||
| Salaries and employee benefits | 95,012 | 94,263 | 90,881 | |||||||||
| Net occupancy | 11,838 | 11,616 | 11,235 | |||||||||
| Equipment | 4,597 | 4,504 | 4,683 | |||||||||
| Supplies and communication | 5,676 | 5,699 | 5,589 | |||||||||
| Data processing and software | 19,723 | 19,087 | 18,951 | |||||||||
| Marketing | 2,921 | 3,681 | 3,359 | |||||||||
| Deposit insurance | 2,814 | 2,894 | 2,767 | |||||||||
| Other | 18,737 | 20,596 | 17,572 | |||||||||
| Total non-interest expense | 161,318 | 162,340 | 155,037 | |||||||||
| Income before income taxes | 96,184 | 93,730 | 89,733 | |||||||||
| Less income taxes | 30,359 | 29,609 | 28,925 | |||||||||
| Net income | 65,825 | 64,121 | 60,808 | |||||||||
| Less non-controlling interest expense (income) | (90 | ) | (192 | ) | (209 | ) | ||||||
| Net income attributable to Commerce Bancshares, Inc. | $65,915 | $64,313 | $61,017 | |||||||||
| Net income per common share — basic | $.69 | $.67 | $.64 | |||||||||
| Net income per common share — diluted | $.69 | $.67 | $.63 | |||||||||
COMMERCE BANCSHARES, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | ||||||||||||
| (Unaudited) (In thousands) |
December 31, 2013 | March 31, 2014 |
March 31, 2013 | |||||||||
| ASSETS | ||||||||||||
| Loans | $10,956,836 | $11,222,038 | $9,982,686 | |||||||||
| Allowance for loan losses | (161,532 | ) | (161,532 | ) | (168,032 | ) | ||||||
| Net loans | 10,795,304 | 11,060,506 | 9,814,654 | |||||||||
| Loans held for sale | — | — | 9,085 | |||||||||
| Investment securities: | ||||||||||||
| Available for sale | 8,915,680 | 9,115,116 | 9,572,751 | |||||||||
| Trading | 19,993 | 15,740 | 23,400 | |||||||||
| Non-marketable | 107,324 | 126,119 | 118,620 | |||||||||
| Total investment securities | 9,042,997 | 9,256,975 | 9,714,771 | |||||||||
Short-term federal funds sold and securities purchased under | 43,845 | 19,525 | 7,820 | |||||||||
| Long-term securities purchased under agreements to resell | 1,150,000 | 950,000 | 1,200,000 | |||||||||
| Interest earning deposits with banks | 707,249 | 198,417 | 199,956 | |||||||||
| Cash and due from banks | 518,420 | 530,244 | 413,019 | |||||||||
| Land, buildings and equipment — net | 349,654 | 344,790 | 355,464 | |||||||||
| Goodwill | 138,921 | 138,921 | 125,585 | |||||||||
| Other intangible assets — net | 9,268 | 8,811 | 4,870 | |||||||||
| Other assets | 316,378 | 328,931 | 381,984 | |||||||||
| Total assets | $23,072,036 | $22,837,120 | $22,227,208 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Deposits: | ||||||||||||
| Non-interest bearing | $6,750,674 | $6,552,085 | $6,170,274 | |||||||||
| Savings, interest checking and money market | 10,108,236 | 10,328,912 | 9,802,838 | |||||||||
| Time open and C.D.’s of less than $100,000 | 983,689 | 967,272 | 1,061,350 | |||||||||
| Time open and C.D.’s of $100,000 and over | 1,204,749 | 1,389,065 | 1,480,405 | |||||||||
| Total deposits | 19,047,348 | 19,237,334 | 18,514,867 | |||||||||
| Federal funds purchased and securities sold under agreements to repurchase | 1,346,558 | 927,152 | 1,126,858 | |||||||||
| Other borrowings | 107,310 | 105,114 | 102,783 | |||||||||
| Other liabilities | 356,423 | 294,009 | 303,509 | |||||||||
| Total liabilities | 20,857,639 | 20,563,609 | 20,048,017 | |||||||||
| Stockholders’ equity: | ||||||||||||
| Preferred stock | — | — | — | |||||||||
| Common stock | 481,224 | 481,224 | 458,646 | |||||||||
| Capital surplus | 1,279,948 | 1,273,290 | 1,101,445 | |||||||||
| Retained earnings | 449,836 | 492,559 | 517,792 | |||||||||
| Treasury stock | (10,097 | ) | (17,193 | ) | (32,501 | ) | ||||||
| Accumulated other comprehensive income | 9,731 | 40,499 | 129,763 | |||||||||
| Total stockholders’ equity | 2,210,642 | 2,270,379 | 2,175,145 | |||||||||
| Non-controlling interest | 3,755 | 3,132 | 4,046 | |||||||||
| Total equity | 2,214,397 | 2,273,511 | 2,179,191 | |||||||||
| Total liabilities and equity | $23,072,036 | $22,837,120 | $22,227,208 | |||||||||
COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS | ||||||||||||||||||||||||
| (Unaudited) (Dollars in thousands) | For the Three Months Ended | |||||||||||||||||||||||
| December 31, 2013 | March 31, 2014 | March 31, 2013 | ||||||||||||||||||||||
| Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | Average Balance | Avg. Rates Earned/Paid | |||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||
| Business (A) | $ | 3,635,223 | 3.04 | % | $ | 3,843,377 | 2.90 | % | $ | 3,156,594 | 3.17 | % | ||||||||||||
| Real estate — construction and land | 391,315 | 3.98 | 419,628 | 3.77 | 351,573 | 3.87 | ||||||||||||||||||
| Real estate — business | 2,299,746 | 4.02 | 2,323,208 | 3.90 | 2,230,453 | 4.17 | ||||||||||||||||||
| Real estate — personal | 1,782,834 | 3.80 | 1,778,573 | 3.86 | 1,600,138 | 4.08 | ||||||||||||||||||
| Consumer | 1,500,404 | 4.52 | 1,533,485 | 4.41 | 1,343,210 | 5.03 | ||||||||||||||||||
| Revolving home equity | 420,910 | 3.88 | 423,656 | 3.82 | 428,696 | 4.08 | ||||||||||||||||||
| Consumer credit card | 759,917 | 11.20 | 757,423 | 11.43 | 755,167 | 11.38 | ||||||||||||||||||
| Overdrafts | 6,708 | — | 5,429 | — | 5,406 | — | ||||||||||||||||||
| Total loans (B) | 10,797,057 | 4.22 | 11,084,779 | 4.12 | 9,871,237 | 4.49 | ||||||||||||||||||
| Loans held for sale | — | — | — | — | 9,096 | 3.79 | ||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||
| U.S. government and federal agency obligations | 404,622 | 1.12 | 497,333 | 1.71 | 398,215 | (.59 | ) | |||||||||||||||||
| Government-sponsored enterprise obligations | 663,504 | 1.63 | 774,749 | 1.66 | 468,608 | 1.86 | ||||||||||||||||||
| State and municipal obligations (A) | 1,628,758 | 3.53 | 1,605,752 | 3.69 | 1,603,064 | 3.79 | ||||||||||||||||||
| Mortgage-backed securities | 2,944,310 | 2.78 | 3,019,157 | 2.80 | 3,514,370 | 2.59 | ||||||||||||||||||
| Asset-backed securities | 2,843,772 | .87 | 2,854,201 | .89 | 3,206,907 | .93 | ||||||||||||||||||
| Other marketable securities (A) | 167,900 | 3.25 | 153,068 | 2.50 | 193,413 | 3.21 | ||||||||||||||||||
| Total available for sale securities (B) | 8,652,866 | 2.14 | 8,904,260 | 2.18 | 9,384,577 | 2.07 | ||||||||||||||||||
| Trading securities (A) | 18,081 | 2.44 | 19,183 | 2.28 | 27,729 | 1.90 | ||||||||||||||||||
| Non-marketable securities (A) | 113,925 | 11.65 | 109,932 | 6.42 | 119,407 | 6.20 | ||||||||||||||||||
| Total investment securities | 8,784,872 | 2.26 | 9,033,375 | 2.24 | 9,531,713 | 2.12 | ||||||||||||||||||
| Short-term federal funds sold and securities purchased under agreements to resell | 34,385 | .39 | 24,464 | .43 | 8,680 | .42 | ||||||||||||||||||
| Long-term securities purchased under agreements to resell | 1,149,999 | 1.51 | 1,102,222 | 1.53 | 1,178,333 | 2.01 | ||||||||||||||||||
| Interest earning deposits with banks | 260,242 | .25 | 161,117 | .25 | 130,357 | .24 | ||||||||||||||||||
| Total interest earning assets | 21,026,555 | 3.20 | 21,405,957 | 3.16 | 20,729,416 | 3.23 | ||||||||||||||||||
| Non-interest earning assets (B) | 1,072,491 | 1,039,777 | 1,196,078 | |||||||||||||||||||||
| Total assets | $ | 22,099,046 | $ | 22,445,734 | $ | 21,925,494 | ||||||||||||||||||
| LIABILITIES AND EQUITY: | ||||||||||||||||||||||||
| Interest bearing deposits: | ||||||||||||||||||||||||
| Savings | $ | 627,802 | .12 | $ | 649,292 | .12 | $ | 603,644 | .12 | |||||||||||||||
| Interest checking and money market | 9,199,410 | .14 | 9,473,680 | .13 | 9,142,100 | .17 | ||||||||||||||||||
| Time open & C.D.’s of less than $100,000 | 998,376 | .48 | 975,640 | .47 | 1,068,695 | .66 | ||||||||||||||||||
| Time open & C.D.’s of $100,000 and over | 1,286,667 | .46 | 1,339,808 | .44 | 1,336,952 | .52 | ||||||||||||||||||
| Total interest bearing deposits | 12,112,255 | .20 | 12,438,420 | .19 | 12,151,391 | .25 | ||||||||||||||||||
| Borrowings: | ||||||||||||||||||||||||
| Federal funds purchased and securities sold under agreements to repurchase | 1,186,093 | .05 | 1,209,180 | .07 | 1,200,818 | .07 | ||||||||||||||||||
| Other borrowings | 105,441 | 3.27 | 105,187 | 3.28 | 103,329 | 3.19 | ||||||||||||||||||
| Total borrowings | 1,291,534 | .31 | 1,314,367 | .33 | 1,304,147 | .32 | ||||||||||||||||||
| Total interest bearing liabilities | 13,403,789 | .22 | % | 13,752,787 | .20 | % | 13,455,538 | .25 | % | |||||||||||||||
| Non-interest bearing deposits | 6,270,980 | 6,237,479 | 5,929,229 | |||||||||||||||||||||
| Other liabilities | 210,287 | 198,383 | 366,562 | |||||||||||||||||||||
| Equity | 2,213,990 | 2,257,085 | 2,174,165 | |||||||||||||||||||||
| Total liabilities and equity | $ | 22,099,046 | $ | 22,445,734 | $ | 21,925,494 | ||||||||||||||||||
| Net interest income (T/E) | $ | 162,182 | $ | 159,761 | $ | 156,708 | ||||||||||||||||||
| Net yield on interest earning assets | 3.06 | % | 3.03 | % | 3.07 | % | ||||||||||||||||||
| (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 First Quarter Results
March 31, 2014
For the quarter ended March 31, 2014, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $64.3 million, an increase of $3.3 million over the same quarter last year and a decrease of $1.6 million compared to the previous quarter. The decrease in net income from the previous quarter resulted mainly from a higher provision for loan losses of $4.1 million coupled with lower non-interest income of $6.9 million, but offset by an increase in net securities gains of $11.4 million. Net securities gains for the quarter were comprised of unrealized gains on the Company’s private equity portfolio of $15.7 million offset by realized losses of $5.2 million on the sale of certain available for sale securities. Also included in the quarter were write downs to fair value on certain bank-owned properties held for sale and a litigation provision of $1.5 million. For the current quarter, the return on average assets was 1.16%, the return on average equity was 11.56%, and the efficiency ratio was 63.3%.
Balance Sheet Review
During the 1st quarter of 2014, average loans increased $287.7 million compared to the previous quarter and increased $1.2 billion, or 12.2%, compared to the same period last year. Compared to the previous quarter, the increase in average loans resulted from growth in business (up $208.2 million), construction and business real estate (up $51.8 million), and consumer loans (up $33.1 million, mainly in automobile loans). The increase in business loans mainly resulted from continued growth in commercial and industrial and tax-advantaged lending activities. Demand for consumer automobile loans increased in the 1st quarter as these loans grew by $49.8 million. However, average marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $14.5 million.
Total available for sale investment securities, at fair value, averaged $9.0 billion this quarter, an increase of $244.9 million when compared to the previous quarter. Much of this growth resulted from purchases occurring late in 2013. Purchases of new securities, totaling $649.6 million in the 1st quarter of 2014, were offset by sales, maturities and pay downs of $493.6 million. At March 31, 2014, the duration of the investment portfolio was 2.8 years, and maturities and pay downs of approximately $1.5 billion are expected to occur during the next 12 months.
Total average deposits increased $292.7 million during the 1st quarter of 2014 compared to the previous quarter. The increase in average deposits resulted mainly from growth in money market accounts (increase of $270.2 million), certificates of deposit (increase of $30.4 million) and savings accounts (increase of $21.5 million), but were offset by a decline in non-interest bearing demand deposits (decrease of $33.5 million). Compared to the previous quarter, total average consumer, private banking and commercial deposits increased $194.9 million, $42.4 million and $40.9 million, respectively. The average loans to deposits ratio in the current quarter was 59.4%, compared to 58.7% in the previous quarter.
During the current quarter, the Company’s average borrowings increased $22.8 million compared to the previous quarter, mainly due to an increase in the average balance of customer repurchase agreements.
Net Interest Income
Net interest income (tax equivalent) in the 1st quarter of 2014 amounted to $159.8 million compared with $162.2 million in the previous quarter, or a decrease of $2.4 million. Net interest income (tax equivalent) for the current quarter increased $3.1 million compared to the 1st quarter of last year. During the 1st quarter of 2014, the net yield on earning assets (tax equivalent) was 3.03%, compared with 3.06% in the previous quarter and 3.07% in the same period last year.
The decrease in net interest income (tax equivalent) in the 1st quarter of 2014 compared to the previous quarter was partly due to fewer days in the quarter, coupled with lower rates earned on loans and a decrease in interest and dividends received on the Company’s private equity investments. The Consumer price index published this quarter increased somewhat which increased inflation interest on the Company’s inflation-protected securities by $844 thousand compared to the previous quarter. Additionally, premium amortization expense was reduced by $539 thousand this quarter due to an adjustment reflecting slowing prepayment speeds on mortgage-backed securities.
Compared to the previous quarter, interest on loans decreased $2.2 million (tax-equivalent) as a result of lower rates earned, especially on business and business real estate loans, but offset by higher volumes on automobile and business loans. The average yield on the loan portfolio declined 10 basis points this quarter. The average rate earned on the investment securities portfolio decreased 2 basis points to 2.24% this quarter, largely due to lower private equity interest and dividends mentioned above, but offset by higher inflation income.
Interest expense on deposits declined $375 thousand in the 1st quarter of 2014 compared with the previous quarter, due mainly to slightly lower rates paid on money market accounts and certificates of deposit.
Non-Interest Income
In the 1st quarter of 2014, total non-interest income amounted to $102.6 million, an increase of $2.8 million, or 2.8%, compared to the same period last year. Also, current quarter non-interest income decreased $6.9 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 higher bank card and trust fees.
Total bank card fees in the current quarter increased $3.2 million, or 8.2%, over the same period last year as a result of a 12.8% increase in corporate card fees, which totaled $21.1 million this quarter. Trust fees for the quarter increased $1.4 million, or 5.6%, compared to the same period last year, resulting mainly from continued growth in both private client and institutional trust fees.
Deposit account fees decreased slightly compared to last year as overdraft fees declined by $718 thousand, or 9.7%, but were offset by combined growth in corporate cash management and other deposit fees of $596 thousand. Capital market fees declined $521 thousand from the same quarter last year but were up $675 thousand over the prior quarter. Revenue from sales of tax credits was strong this quarter, totaling $707 thousand and up 91.0% compared to last year. This revenue was down $1.6 million from the previous quarter, when it is seasonally the strongest. This quarter the Company recorded a reduction in fair value of $688 thousand on certain bank-owned properties held for sale. This compares with net gains related to branch facilities of $1.4 million and $809 thousand in the previous quarter and 1st quarter 2013, respectively.
Investment Securities Gains and Losses
Net securities gains this quarter totaled $10.0 million compared with losses of $2.2 million in the 1st quarter of last year. Net securities gains were comprised of net fair value adjustments of $15.7 million on the Company’s private equity portfolio coupled with net securities losses of $5.2 million on available for sale securities. 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 $346 thousand. The cumulative credit-related impairment on these bonds totaled $13.2 million at quarter end. At March 31, 2014, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $66.1 million, compared to $70.4 million at December 31, 2013.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $162.3 million, an increase of $7.3 million, or 4.7%, over the same period last year and an increase of $1.0 million compared to the previous quarter. In the current quarter the Company recorded a litigation provision of $1.5 million and write downs of $720 thousand on certain surplus branch properties. Exclusive of these two items, non-interest expense declined $1.2 million compared to the previous quarter, mainly due to lower salaries and benefits, data processing, and occupancy costs, partly offset by higher marketing expense. The decline in salaries and benefits costs resulted from lower incentive expense this quarter offset by seasonally higher payroll taxes.
Compared to the 1st quarter of last year, salaries and benefits expense increased $3.4 million, or 3.7%, on higher full-time salary (up $2.3 million, or 3.8%) and medical costs (up $546 thousand), partly offset by lower retirement plan expenses. Growth in salaries and benefits expense resulted partly from staffing additions in commercial banking, wealth and commercial card departments, coupled with higher staffing costs of $863 thousand related to the Summit acquisition that were not present in the 1st quarter of 2013. Full-time equivalent employees totaled 4,745 and 4,725 at March 31, 2014 and 2013, respectively.
Compared to the 1st quarter of last year, occupancy costs grew 3.4% on higher utilities and snow removal costs, while marketing costs grew 9.6% based on lower spending levels last year. Data processing costs grew less than 1% mainly due to lower software expense, partly offset by higher bankcard transaction processing costs. The current quarter included operating expenses related to Summit totaling $432 thousand (excluding salaries and benefits) which were not present in the same quarter last year.
Income Taxes
The effective tax rate for the Company was 31.5% in the current quarter and the previous quarter, compared to 32.2% in the 1st quarter of 2013.
Credit Quality
Net loan charge-offs in the 1st quarter of 2014 amounted to $9.7 million, compared with $7.5 million in the prior quarter and $7.8 million in the 1st quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .35% in the current quarter compared to .28% in the previous quarter.
In the 1st quarter of 2014, annualized net loan charge-offs on average consumer credit card loans amounted to 3.45%, compared with 3.19% in the previous quarter and 3.25% in the same period last year. Consumer loan net charge-offs in the quarter amounted to .66% of average consumer loans, compared to .61% in the previous quarter and .52% in the same quarter last year. The provision for loan losses in the current quarter totaled $9.7 million, an increase of $4.1 million over the previous quarter and $6.4 million higher than in the same period last year. The current quarter provision for loan losses matched net loan charge-offs, while in the previous quarter the provision was $2.0 million less than net loan charge-offs. At March 31, 2014, the allowance was 1.44% of total loans and was 340% of total non-accrual loans.
At March 31, 2014, total non-performing assets amounted to $54.4 million, a decrease of $995 thousand from the previous quarter. Non-performing assets are comprised of non-accrual loans ($47.6 million) and foreclosed real estate ($6.9 million). At March 31, 2014, the balance of non-accrual loans, which represented .42% of loans outstanding, included business real estate loans of $19.1 million, business loans of $11.0 million, and construction and land loans of $9.4 million. Loans more than 90 days past due and still accruing interest totaled $12.5 million at March 31, 2014.
Other
During the quarter the Company purchased 474,854 shares of treasury stock at an average cost of $44.01. The Company declared and paid a $.225 per share cash dividend, representing an increase of 5% over the rate paid in 2013.
Forward Looking Information
This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statement.
Contacts:
Jeffery Aberdeen, 816-234-2081
Controller
http://www.commercebank.com
mymoney@commercebank.com
