Commerce Bancshares, Inc. Announces Record Second Quarter Earnings Per Common Share of $.75

KANSAS CITY, Mo.--()--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced record earnings of $.75 per common share for the three months ended June 30, 2015 compared to $.61 per share in the prior quarter and $.66 per share in the second quarter of 2014. Net income attributable to Commerce Bancshares, Inc. for the second quarter amounted to $74.4 million, compared to $61.1 million in the prior quarter and $66.5 million in the same quarter last year. For the quarter, the return on average assets was 1.26%, the return on average common equity was 12.9% and the efficiency ratio was 59.4%.

For the six months ended June 30, 2015, earnings per common share totaled $1.36 compared to $1.30 for the first six months of 2014. Net income attributable to Commerce Bancshares, Inc. amounted to $135.4 million for the six months ended June 30, 2015 compared to $130.8 million for the same period in 2014. For the first six months of 2015, the return on average assets was 1.15%, and the return on average common equity was 11.8%.

In making this announcement, David W. Kemper, Chairman and CEO, said, “This quarter we are pleased to report continued solid loan growth coupled with growth in top line revenues. Compared to the previous quarter, average loans grew by $210.3 million, or 7% annualized, as a result of increased business, construction, personal real estate and automobile lending. Net interest income grew this quarter by $17.5 million compared to the prior quarter, mostly due to increased earnings on our inflation-protected securities and higher loan interest. Non-interest income increased 4.9% over the the second quarter of 2014 due to solid growth in fees from trust, bank card, brokerage, interest rate swap and mortgage banking activities. Non-interest expense increased 1.0% over the previous quarter and was up 1.7% compared with the second quarter of 2014.”

Mr. Kemper continued, “Credit results remain strong as net loan charge-offs for the current quarter totaled $8.8 million, compared to $7.4 million in the previous quarter and $7.6 million in the same quarter last year. The increase in net loan charge-offs this quarter compared to the previous quarter was mainly due to a $1.0 million charge-down of a business real estate loan. During the current quarter, the provision for loan losses totaled $6.8 million, or $2.0 million less than net loan charge-offs. Total non-performing assets decreased $10.0 million from the previous quarter to $30.8 million this quarter. The allowance for loan losses amounted to $151.5 million at June 30, 2015, or 1.27% of period- end loans, and was 5.7 times non-performing loans.”

Total assets at June 30, 2015 were $23.7 billion, total loans were $11.9 billion, and total deposits were $19.3 billion. During the quarter, the Company paid a common cash dividend of $.225 per share, representing a 5% increase over the rate paid in 2014, and also paid a 6% cash dividend on its preferred stock, issued in 2014. Also, in May 2015, the Company entered into a new $100 million accelerated stock repurchase agreement, as more fully described in the accompanying “Management Discussion of Second Quarter Results”.

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 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)   3/31/2015     6/30/2015     6/30/2014
Non-Accrual Loans   $ 35,818     $ 26,645     $ 43,260
Foreclosed Real Estate   $ 4,967       $ 4,185       $ 8,445  
Total Non-Performing Assets   $ 40,785       $ 30,830       $ 51,705  
Non-Performing Assets to Loans   .35 %     .26 %     .45 %
Non-Performing Assets to Total Assets   .17 %     .13 %     .22 %
Loans 90 Days & Over Past Due — Still Accruing   $ 12,181       $ 14,218       $ 11,629  
 

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,
2015
    June 30,
2015
    June 30,
2014
    June 30,
2015
    June 30,
2014
FINANCIAL SUMMARY (In thousands, except per share data)    
Net interest income $146,138     $163,657     $160,493 $309,795 $313,559
Taxable equivalent net interest income 153,348 171,037 167,889 324,385 327,650
Non-interest income 106,426 114,092 108,763 220,518 211,390
Investment securities gains (losses), net 6,035 2,143 (2,558 ) 8,178 7,479
Provision for loan losses 4,420 6,757 7,555 11,177 17,215
Non-interest expense 163,697 165,320 162,553 329,017 324,515
Net income attributable to Commerce Bancshares, Inc. 61,055 74,353 66,531 135,408 130,844
Net income available to common shareholders 58,805 72,103 66,531 130,908 130,844
Earnings per common share:
Net income — basic $.61 $.75 $.67 $1.36 $1.31
Net income — diluted $.61 $.75 $.66 $1.36 $1.30
Cash dividends $.225 $.225 $.214 $.450 $.429
Cash dividends on common stock 21,752 21,353 21,331 43,105 42,921
Cash dividends on preferred stock 2,250 2,250 4,500
Diluted wtd. average shares o/s   95,588       94,702       98,609       95,143       99,278  
RATIOS
Average loans to deposits (1) 59.71 % 60.75 % 59.71 % 60.24 % 59.53 %
Return on total average assets 1.05 % 1.26 % 1.18 % 1.15 % 1.17 %
Return on average common equity (2) 10.69 % 12.91 % 11.79 % 11.81 % 11.67 %
Non-interest income to revenue (3) 42.14 % 41.08 % 40.39 % 41.58 % 40.27 %
Efficiency ratio (4)   64.63 %     59.36 %     60.16 %     61.87 %     61.61 %
NET LOAN CHARGE-OFFS (RECOVERIES)
Net total loan charge-offs (recoveries) 7,420 8,757 7,555 16,177 17,215
Business 159 (239 ) 381 (80 ) 275
Real estate — construction and land (946 ) (309 ) (978 ) (1,255 ) (923 )
Real estate — business (249 ) 764 36 515 462
Consumer credit card 6,352 6,424 6,291 12,776 12,738
Consumer 1,743 1,849 1,689 3,592 4,194
Revolving home equity 40 103 (351 ) 143 (238 )
Real estate — personal 99 (47 ) 176 52 182
Overdraft   222       212       311       434       525  
AT PERIOD END
Book value per common share $23.42 $23.26 $22.01
Market value per common share $42.32 $46.77 $44.29
Allowance for loan losses as a percentage of loans 1.31 % 1.27 % 1.41 %
Tier I leverage ratio (5) 9.31 % 9.08 % 9.12 %
Tangible common equity to assets ratio (6) 8.83 % 8.58 % 8.61 %
Common shares outstanding 96,541,799 93,332,921 96,189,831
Number of bank/ATM locations 353 349 354
Full-time equivalent employees   4,769       4,768       4,733  
OTHER QTD INFORMATION
High market value per common share $43.95 $48.00 $45.19
Low market value per common share   $39.53       $41.53       $40.09  

(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 2015 Tier I leverage ratios were prepared under Basel III capital requirements, which were effective January 1, 2015. Prior year ratios were prepared under Basel I requirements.

(6)

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,
2015
    June 30,
2015
    June 30,
2014
    June 30,
2015
    June 30,
2014
Interest income $152,982     $170,577     $167,567 $323,559     $327,565
Interest expense 6,844   6,920   7,074   13,764   14,006  
Net interest income 146,138 163,657 160,493 309,795 313,559
Provision for loan losses 4,420   6,757   7,555   11,177   17,215  
Net interest income after provision for loan losses 141,718   156,900   152,938   298,618   296,344  
NON-INTEREST INCOME
Bank card transaction fees 42,299 45,672 44,444 87,971 86,161
Trust fees 29,586 30,531 27,765 60,117 54,338
Deposit account charges and other fees 18,499 19,637 19,709 38,136 38,299
Capital market fees 3,002 2,738 3,246 5,740 7,116
Consumer brokerage services 3,188 3,364 2,972 6,552 5,719
Loan fees and sales 2,089 2,183 1,211 4,272 2,420
Other 7,763   9,967   9,416   17,730   17,337  
Total non-interest income 106,426   114,092   108,763   220,518   211,390  
INVESTMENT SECURITIES GAINS (LOSSES), NET
Change in fair value of other-than-temporarily impaired securities (227 ) (88 ) (785 ) (315 ) (848 )
Portion recognized in other comprehensive income 210   (378 ) 154   (168 ) (129 )
Net impairment losses recognized in earnings (17 ) (466 ) (631 ) (483 ) (977 )
Realized gains (losses) on sales and fair value adjustments 6,052   2,609   (1,927 ) 8,661   8,456  
Investment securities gains (losses), net 6,035   2,143   (2,558 ) 8,178   7,479  
NON-INTEREST EXPENSE
Salaries and employee benefits 98,074 99,655 94,849 197,729 189,112
Net occupancy 11,561 10,999 11,151 22,560 22,767
Equipment 4,703 4,679 4,525 9,382 9,029
Supplies and communication 5,581 5,226 5,486 10,807 11,185
Data processing and software 19,506 21,045 19,578 40,551 38,665
Marketing 3,918 4,307 3,949 8,225 7,630
Deposit insurance 3,001 3,019 2,892 6,020 5,786
Other 17,353   16,390   20,123   33,743   40,341  
Total non-interest expense 163,697   165,320   162,553   329,017   324,515  
Income before income taxes 90,482 107,815 96,590 198,297 190,698
Less income taxes 28,468   32,492   30,690   60,960   60,677  
Net income 62,014 75,323 65,900 137,337 130,021
Less non-controlling interest expense (income) 959   970   (631 ) 1,929   (823 )
Net income attributable to Commerce Bancshares, Inc. 61,055 74,353 66,531 135,408 130,844
Less preferred stock dividends 2,250   2,250     4,500    
Net income available to common shareholders $58,805   $72,103   $66,531   $130,908   $130,844  
Net income per common share — basic $.61   $.75   $.67   $1.36   $1.31  
Net income per common share — diluted     $.61       $.75       $.66       $1.36       $1.30  
 
           

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
(Unaudited)

(In thousands)

    March 31,
2015
    June 30,
2015
    June 30,
2014
ASSETS
Loans $ 11,721,960 $ 11,928,481 $ 11,460,039
Allowance for loan losses (153,532 ) (151,532 ) (161,532 )
Net loans 11,568,428   11,776,949   11,298,507  
Loans held for sale 2,770 7,852
Investment securities:
Available for sale 9,917,242 9,221,821 9,282,640
Trading 15,501 18,971 15,684
Non-marketable 110,560   108,346   93,748  
Total investment securities 10,043,303   9,349,138   9,392,072  
Federal funds sold and short-term securities purchased under agreements to resell 12,450 26,875 29,490
Long-term securities purchased under agreements to resell 1,050,000 1,050,000 950,000
Interest earning deposits with banks 123,712 264,683 18,877
Cash and due from banks 416,109 409,791 516,509
Land, buildings and equipment — net 356,309 353,366 346,363
Goodwill 138,921 138,921 138,921
Other intangible assets — net 7,143 6,978 8,249
Other assets 330,338   321,382   306,191  
Total assets $ 24,049,483   $ 23,705,935   $ 23,005,179  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 6,785,221 $ 6,886,509 $ 6,413,161
Savings, interest checking and money market 10,656,139 10,369,031 10,085,460
Time open and C.D.’s of less than $100,000 853,842 833,161 942,233
Time open and C.D.’s of $100,000 and over 1,281,297   1,200,008   1,498,982  
Total deposits 19,576,499 19,288,709 18,939,836
Federal funds purchased and securities sold under agreements to repurchase 1,610,463 1,666,043 1,154,323
Other borrowings 103,854 103,843 105,096
Other liabilities 353,260   331,980   543,771  
Total liabilities 21,644,076   21,390,575   20,743,026  
Stockholders’ equity:
Preferred stock 144,784 144,784 144,816
Common stock 484,155 484,155 481,224
Capital surplus 1,223,125 1,261,307 1,214,836
Retained earnings 463,701 514,451 537,759
Treasury stock (6,868 ) (143,565 ) (203,174 )
Accumulated other comprehensive income 91,717   48,789   84,314  
Total stockholders’ equity 2,400,614 2,309,921 2,259,775
Non-controlling interest 4,793   5,439   2,378  
Total equity 2,405,407   2,315,360   2,262,153  
Total liabilities and equity     $ 24,049,483       $ 23,705,935       $ 23,005,179  
 
   

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

 
(Unaudited)

(Dollars in thousands)

For the Three Months Ended
March 31, 2015   June 30, 2015     June 30, 2014

Average
Balance

   

Avg. Rates
Earned/Paid

Average
Balance

   

Avg. Rates
Earned/Paid

Average
Balance

   

Avg. Rates
Earned/Paid

ASSETS:            
Loans:
Business (A) $ 4,031,904 2.82 % $ 4,135,362 2.79 % $ 3,941,572 2.85 %
Real estate — construction and land 414,908 3.81 432,008 3.65 431,819 3.76
Real estate — business 2,281,777 3.73 2,287,885 3.83 2,292,919 3.86
Real estate — personal 1,877,580 3.83 1,891,109 3.77 1,790,678 3.80
Consumer 1,731,146 4.05 1,815,699 3.92 1,602,136 4.24
Revolving home equity 430,525 3.63 429,644 3.60 419,581 3.93
Consumer credit card 748,831 11.62 734,289 11.74 746,485 11.42
Overdrafts 5,612         4,510         4,669        
Total loans (B) 11,522,283       3.99   11,730,506       3.95   11,229,859       4.05  
Loans held for sale 1,851 4.65 3,969 3.94
Investment securities:
U.S. government and federal agency obligations 455,633 (5.32 ) (C) 424,823 6.09 493,880 6.55
Government-sponsored enterprise obligations 1,057,666 1.90 988,120 1.82 789,575 1.66
State and municipal obligations (A) 1,759,511 3.55 1,799,355 3.49 1,665,275 3.41
Mortgage-backed securities 2,938,575 2.62 3,161,050 2.61 3,080,464 2.69
Asset-backed securities 3,140,086 .88 2,839,483 1.03 2,860,083 .89
Other marketable securities (A) 160,634       2.50   249,075       2.61   149,736       2.42  
Total available for sale securities (B) 9,512,105 1.76 9,461,906 2.38 9,039,013 2.37
Trading securities (A) 16,719 2.74 19,758 2.86 18,920 2.14
Non-marketable securities (A) 107,511       8.94   109,522       8.90   110,338       18.12  
Total investment securities 9,636,335       1.84   9,591,186       2.45   9,168,271       2.56  
Federal funds sold and short-term securities purchased under agreements to resell 12,092 .30 12,812 .47 23,947 .40
Long-term securities purchased under agreements to resell 1,049,998 1.18 1,049,999 1.40 968,680 1.22
Interest earning deposits with banks 288,589       .25   198,407       .25   140,917       .25  
Total interest earning assets 22,511,148   2.89   22,586,879   3.16   21,531,674   3.26  
Non-interest earning assets (B) 1,141,253   1,152,646   1,064,336  
Total assets $ 23,652,401   $ 23,739,525   $ 22,596,010  
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 701,987 .12 $ 738,769 .11 $ 685,134 .12
Interest checking and money market 9,828,203 .13 9,759,608 .13 9,488,405 .13
Time open & C.D.’s of less than $100,000 868,179 .41 844,675 .39 953,789 .45
Time open & C.D.’s of $100,000 and over 1,280,110       .45   1,227,322       .49   1,450,069       .42  
Total interest bearing deposits 12,678,479       .18   12,570,374       .18   12,577,397       .19  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1,558,118 .10 1,674,682 .10 1,169,322 .09
Other borrowings 103,999      

3.43

  103,846       3.44   105,101       3.34  
Total borrowings 1,662,117       .30   1,778,528       .30   1,274,423       .36  
Total interest bearing liabilities 14,340,596   .19 % 14,348,902   .19 % 13,851,820   .20 %
Non-interest bearing deposits 6,621,110 6,744,536 6,231,003
Other liabilities 314,163 260,945 230,497
Equity 2,376,532   2,385,142   2,282,690  
Total liabilities and equity $ 23,652,401   $ 23,739,525   $ 22,596,010  
Net interest income (T/E) $ 153,348   $ 171,037   $ 167,889  
Net yield on interest earning assets           2.76 %           3.04 %           3.13 %

(A)

 

Stated on a tax equivalent basis using a federal income tax rate of 35%.

(B)

The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets.

(C)

Includes losses of $7.0 million in inflation interest on U.S. Treasury inflation-protected securities in the first quarter of 2015.

 

COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2015

For the quarter ended June 30, 2015, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $74.4 million, compared to $61.1 million in the previous quarter and $66.5 million in the same quarter last year. The increase in net income over the previous quarter resulted mainly from an increase in net interest income and non-interest income of $17.5 million and $7.7 million, respectively. Non-interest expense grew by 1.0% over the previous quarter to $165.3 million, while the provision for loan losses increased $2.3 million this quarter compared to the previous quarter. Securities gains totaled $2.1 million this quarter compared to $6.0 million in the previous quarter. The increase in net interest income over the previous quarter resulted mainly from an increase in inflation income of $12.1 million on the Company’s inflation-protected securities. For the current quarter, the return on total average assets was 1.26%, the return on average common equity was 12.9%, and the efficiency ratio was 59.4%.

Balance Sheet Review

During the 2nd quarter of 2015, average loans increased $210.3 million, or 7.3% annualized, compared to the previous quarter and increased $504.6 million, or 4.5%, compared to the same period last year. Compared to the previous quarter, the increase in average loans resulted from growth in business (up $103.5 million), construction (up $17.1 million), and auto and other consumer loans (up $89.1 million). Average personal real estate loans grew $13.5 million this quarter; however, the Company also sold certain fixed rate loans of $27.9 million during the quarter, as part of a new initiative in 2015. Demand for auto and other consumer-related loans was strong this quarter as these average loan balances have grown 23% over the last twelve months and now total over $1.3 billion. The average balance of marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $14.1 million and now totals $172.0 million.

Total available for sale investment securities declined by $695.4 million during the 2nd quarter of 2015 to $9.2 billion as of June 30, 2015. The decrease in securities during the quarter was mainly used to fund loan growth. Purchases of new securities totaled $583.1 million in the 2nd quarter of 2015 and were offset by sales, maturities and pay downs of $1.2 billion. At June 30, 2015, the duration of the investment portfolio was 2.86 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next twelve months.

Total average deposits were relatively stable this quarter, increasing .1%, or $15.3 million, compared to the previous quarter. The increase in average deposits resulted mainly from growth in demand, savings and interest checking deposits of $123.4 million, $36.8 million and $38.8 million, respectively, offset by declines in money market (decrease of $107.4 million) and certificates of deposit accounts (decrease of $76.3 million). Compared to the previous quarter, total average consumer and commercial deposits increased $104.1 million and $65.6 million, respectively, while private banking deposits declined on average by $147.6 million. The average loans to deposits ratio in the current quarter was 60.8%, compared to 59.7% in the previous quarter.

During the current quarter, the Company’s average borrowings totaled $1.8 billion, an increase of $116.4 million over the previous quarter, due to higher federal funds purchased and repurchase agreements.

Net Interest Income

Net interest income (tax equivalent) in the 2nd quarter of 2015 amounted to $171.0 million compared with $153.3 million in the previous quarter, or an increase of $17.7 million. Net interest income (tax equivalent) for the current quarter also increased by $3.1 million compared to the 2nd quarter of last year. During the 2nd quarter of 2015, the net yield on earning assets (tax equivalent) was 3.04%, compared with 2.76% in the previous quarter and 3.13% in the same period last year.

The increase in net interest income (tax equivalent) in the 2nd quarter of 2015 compared to the previous quarter was due mainly to an increase in inflation income of $12.1 million on inflation-protected securities as a result of an increase in the Consumer Price Index published this quarter. Interest related to inflation income totaled $5.1 million this quarter compared to $6.4 million in the same period last year and a loss of $7.0 million in the prior quarter. Excluding the effects of inflation income, the net yield on earning assets would have been 2.95% in the current quarter, 2.89% in the prior quarter and 3.01% in the same period last year. During the quarter, adjustments to premium amortization expense on certain mortgage-backed and asset-backed securities, due to slower prepayment speed assumptions, increased interest income by $1.2 million.

Compared to the previous quarter, interest income (tax-equivalent) on loans increased $2.2 million, mainly due to higher loan balances of business, construction, personal real estate and consumer- related loans. The current quarter also included a one-time interest receipt of $678 thousand on a non-accrual loan. However, these increases in interest income were offset by lower yields, mainly on consumer and construction loans. Overall, the average yield on the loan portfolio decreased 4 basis points this quarter to 3.95%. Total interest income (tax-equivalent) on investment securities increased $15.0 million and resulted mainly from higher inflation income on inflation-protected securities, as noted above. Excluding the effects of inflation income, the average rate earned on the investment securities portfolio would have been 2.24% in the current quarter, compared to 2.13% in the previous quarter.

Interest expense on deposits increased slightly this quarter compared with the previous quarter as deposit rates remained mostly constant, amounting to .18% in both the current and prior quarters. Other borrowing costs increased slightly due to higher average balances.

Non-Interest Income

In the 2nd quarter of 2015, total non-interest income amounted to $114.1 million, an increase of $5.3 million, or 4.9%, compared to the same period last year. Also, current quarter non-interest income increased $7.7 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 trust fees, which increased 10.0%, as well as higher fees earned on interest rate swap, bank card, mortgage banking, and brokerage transactions.

Total bank card fees in the current quarter increased $1.2 million, or 2.8%, over the same period last year. This growth was mainly the result of higher corporate card and merchant fees, which grew 2.8% and 7.4%, respectively. Bank card fees this quarter were comprised of fees for corporate card ($23.1 million), debit card ($9.7 million), merchant ($6.8 million) and credit card ($6.1 million) transactions. Trust fees for the current quarter increased $2.8 million, or 10.0%, compared to the same period last year, resulting mainly from solid growth in both private client and institutional trust fees. Fees from sales of interest rate swaps totaled $1.7 million this quarter, an increase of $1.2 million compared to the same period last year, as customer demand for this product continued to be strong this quarter. Mortgage banking revenue increased $1.1 million this quarter, mainly from sales of newly-originated residential mortgages, as the Company began a new program of selling longer-term fixed rate mortgages in 2015. Year to date fees from this initiative totaled $2.2 million compared to $145 thousand in 2014. Brokerage fees also grew this quarter by 13.2% over the same period last year.

In the current quarter, deposit account fees declined slightly compared to the same period last year as a result of lower overdraft and deposit service charges, which were offset by higher corporate cash management fees, which grew 3.2%, totaling $8.8 million this quarter. During the current quarter, capital market fees declined $508 thousand on lower sales volumes. In the previous quarter, other non-interest income included the write-down of $1.6 million on two bank properties, which are being marketed for sale or re-developed. Non-interest income comprised 41.1% of the Company’s total revenues this quarter.

Investment Securities Gains and Losses

The Company recorded net securities gains of $2.1 million this quarter, compared with net gains of $6.0 million last quarter and a net loss of $2.6 million in the 2nd quarter of last year. This quarter, net securities gains on the Company’s private equity portfolio totaled $2.3 million, while gains on sales of other investment securities totaled $287 thousand. Credit-related impairment losses on certain non-agency guaranteed mortgage-backed securities totaled $466 thousand this quarter.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $165.3 million, an increase of $2.8 million, or 1.7%, over the same period last year, and was higher than the previous quarter’s total by $1.6 million, or 1.0%. The increase over the same period in the previous year was mainly due to higher salaries and benefits expense of $4.8 million and higher data processing costs, but offset by lower costs for legal, credit card rewards, foreclosed property, supplies and communications, occupancy and contribution expense.

Compared to the 2nd quarter of last year, salaries expense grew $5.4 million, or 6.8%, mainly due to higher full-time salaries, incentives and stock-based compensation. Benefit costs declined $594 thousand, or 4.0%, mostly due to lower medical costs but offset by higher pension and 401(k) plan expense. Growth in salaries expense resulted partly from staffing additions in commercial banking, commercial card, information technology and other supporting units. Full-time equivalent employees totaled 4,768 and 4,733 at June 30, 2015 and 2014, respectively.

Compared to the 2nd quarter of last year, occupancy, supplies and communication, legal and credit card rewards costs declined by a combined $1.9 million. However, data processing and software costs increased by $1.5 million mainly due to higher software license costs and bank card processing fees. During the current quarter, the Company contributed $100 thousand to a charitable foundation, while in the same quarter last year, the Company donated appreciated securities for a total expense of $1.7 million, thus causing the reduced expense by $1.6 million in the current quarter. Operating and fraud losses increased by $2.6 million this quarter compared to the same period last year, partly due to operating loss recoveries in the prior year of $1.0 million coupled with an increase in debit and credit card operating and fraud losses of $1.3 million in the current quarter. The Company also recorded a recovery of $2.8 million in the current quarter related to a letter of credit exposure which had been drawn upon and subsequently paid off.

Income Taxes

The effective tax rate for the Company was 30.4% in the current quarter compared to 31.8% in the previous quarter and 31.6% in the 2nd quarter of 2014. The current quarter included a tax benefit of $2.0 million related to changes in state tax apportionment rules.

Credit Quality

Net loan charge-offs in the 2nd quarter of 2015 amounted to $8.8 million, compared with $7.4 million in the prior quarter and $7.6 million in the 2nd quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .30% in the current quarter compared to .26% in the previous quarter.

In the 2nd quarter of 2015, annualized net loan charge-offs on average consumer credit card loans were 3.51%, compared with 3.44% in the previous quarter and 3.38% in the same period last year. Consumer loan net charge-offs in the quarter were .41% of average consumer loans for both the current and prior quarters and .42% in the in the same quarter last year. The provision for loan losses in the current quarter totaled $6.8 million compared to $4.4 million in the prior quarter and $7.6 million in the 2nd quarter of last year. The current quarter provision for loan losses was $2.0 million lower than net loan charge-offs. At June 30, 2015, the allowance was 1.27% of total loans and was 569% of total non-accrual loans.

At June 30, 2015, total non-performing assets amounted to $30.8 million, a decrease of $10.0 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($26.6 million) and foreclosed real estate ($4.2 million). At June 30, 2015, the balance of non-accrual loans, which represented .22% of loans outstanding, included business real estate loans of $5.6 million, business loans of $11.9 million, personal real estate loans of $5.4 million and construction and land loans of $3.6 million. Loans more than 90 days past due and still accruing interest totaled $14.2 million at June 30, 2015.

Other

During the 2nd quarter of 2015, the Company paid a cash dividend of $.225 per common share and paid a cash dividend of $2.3 million on its preferred stock. On May 21, 2015, the Company entered into an accelerated stock repurchase (ASR) program. Under the terms of the ASR agreement, the Company paid $100 million in cash and received 1.8 million shares of its common stock in treasury, representing a substantial majority of shares expected to be delivered in the overall ASR program. The ASR program is expected to be completed within the next six 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.

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.

Contacts

Commerce Bancshares, Inc.
Jeffery Aberdeen, 816-234-2081
Controller
mymoney@commercebank.com
http://www.commercebank.com

Contacts

Commerce Bancshares, Inc.
Jeffery Aberdeen, 816-234-2081
Controller
mymoney@commercebank.com
http://www.commercebank.com