e10vq
SECURITIES AND EXCHANGE COMMISSION
------------------------------------------------------
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to
Commission File No. 0-2989
COMMERCE BANCSHARES, INC.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
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Missouri
(State of Incorporation) |
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43-0889454
(IRS Employer Identification No.) |
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1000 Walnut,
Kansas City, MO
(Address of principal executive offices) |
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64106
(Zip Code) |
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(816) 234-2000
(Registrants telephone number, including area code) |
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by checkmark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Act. (Check one):
Large accelerated
filer X Accelerated
filer Non-accelerated
filer
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange Act).
Yes No X
As of April 28, 2006, the registrant had outstanding
66,784,953 shares of its $5 par value common stock,
registrants only class of common stock.
Commerce Bancshares, Inc. and Subsidiaries
Form 10-Q
2
PART I: FINANCIAL INFORMATION
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Item 1. |
FINANCIAL STATEMENTS |
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
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March 31 |
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December 31 |
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2006 |
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2005 |
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(Unaudited) |
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(In thousands) |
ASSETS |
Loans, net of unearned income
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$ |
9,138,239 |
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$ |
8,899,183 |
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Allowance for loan losses
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(128,468 |
) |
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(128,447 |
) |
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Net loans
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9,009,771 |
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8,770,736 |
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Investment securities:
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Available for sale
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3,401,823 |
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3,667,901 |
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Trading
|
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25,559 |
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24,959 |
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Non-marketable
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84,353 |
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77,321 |
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Total investment securities
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3,511,735 |
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3,770,181 |
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Federal funds sold and securities purchased under agreements to
resell
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89,385 |
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128,862 |
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Cash and due from banks
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484,456 |
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545,273 |
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Land, buildings and equipment, net
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368,209 |
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374,192 |
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Goodwill
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48,522 |
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48,522 |
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Other assets
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219,044 |
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247,779 |
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Total assets
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$ |
13,731,122 |
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$ |
13,885,545 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
Deposits:
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Non-interest bearing demand
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$ |
1,418,387 |
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$ |
1,399,934 |
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Savings, interest checking and money market
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6,449,831 |
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6,490,326 |
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Time open and C.D.s of less than $100,000
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1,925,755 |
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1,831,980 |
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Time open and C.D.s of $100,000 and over
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1,360,383 |
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1,129,573 |
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Total deposits
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11,154,356 |
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10,851,813 |
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Federal funds purchased and securities sold under agreements to
repurchase
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901,923 |
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1,326,427 |
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Other borrowings
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258,616 |
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269,390 |
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Other liabilities
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97,982 |
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100,077 |
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Total liabilities
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12,412,877 |
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12,547,707 |
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Stockholders equity:
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Preferred stock, $1 par value
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Authorized and unissued 2,000,000 shares
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Common stock, $5 par value
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Authorized 100,000,000 shares; issued 69,409,882 shares
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347,049 |
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347,049 |
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Capital surplus
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384,535 |
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388,552 |
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Retained earnings
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729,586 |
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693,021 |
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Treasury stock of 2,545,479 shares in 2006 and
1,716,413 shares in 2005, at cost
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(128,662 |
) |
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(86,901 |
) |
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Accumulated other comprehensive loss
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(14,263 |
) |
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(3,883 |
) |
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Total stockholders equity
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1,318,245 |
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1,337,838 |
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Total liabilities and stockholders equity
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$ |
13,731,122 |
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$ |
13,885,545 |
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See accompanying notes to consolidated financial
statements.
3
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
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For the Three Months |
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Ended March 31 |
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(In thousands, except per share data) |
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2006 |
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2005 |
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(Unaudited) |
INTEREST INCOME
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Interest and fees on loans
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$ |
149,874 |
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$ |
118,523 |
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Interest on investment securities
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37,130 |
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41,746 |
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Interest on federal funds sold and securities purchased
under agreements to resell
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1,623 |
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|
584 |
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Total interest income
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188,627 |
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160,853 |
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INTEREST EXPENSE
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Interest on deposits:
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Savings, interest checking and money market
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19,607 |
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10,457 |
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Time open and C.D.s of less than $100,000
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16,731 |
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10,392 |
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Time open and C.D.s of $100,000 and over
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13,187 |
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6,352 |
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Interest on federal funds purchased and securities sold
under agreements to repurchase
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12,581 |
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9,418 |
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Interest on other borrowings
|
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2,786 |
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|
2,757 |
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Total interest expense
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64,892 |
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39,376 |
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Net interest income
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123,735 |
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|
121,477 |
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Provision for loan losses
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4,432 |
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2,368 |
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Net interest income after provision for loan losses
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|
119,303 |
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|
119,109 |
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NON-INTEREST INCOME
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|
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|
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Deposit account charges and other fees
|
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|
27,497 |
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24,301 |
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Bank card transaction fees
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|
21,708 |
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|
|
19,507 |
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Trust fees
|
|
|
17,819 |
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|
16,394 |
|
Trading account profits and commissions
|
|
|
2,565 |
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|
|
2,614 |
|
Consumer brokerage services
|
|
|
2,389 |
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|
|
2,825 |
|
Loan fees and sales
|
|
|
3,743 |
|
|
|
3,440 |
|
Investment securities gains, net
|
|
|
2,403 |
|
|
|
3,612 |
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Other
|
|
|
11,324 |
|
|
|
7,998 |
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|
Total non-interest income
|
|
|
89,448 |
|
|
|
80,691 |
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NON-INTEREST EXPENSE
|
|
|
|
|
|
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Salaries and employee benefits
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|
71,725 |
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|
70,180 |
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Net occupancy
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|
10,977 |
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|
9,778 |
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Equipment
|
|
|
5,949 |
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|
|
5,691 |
|
Supplies and communication
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|
8,393 |
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|
8,213 |
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Data processing and software
|
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|
12,393 |
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|
11,455 |
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Marketing
|
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|
4,318 |
|
|
|
3,862 |
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Other
|
|
|
16,206 |
|
|
|
14,743 |
|
|
Total non-interest expense
|
|
|
129,961 |
|
|
|
123,922 |
|
|
Income before income taxes
|
|
|
78,790 |
|
|
|
75,878 |
|
Less income taxes
|
|
|
25,846 |
|
|
|
26,032 |
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|
Net income
|
|
$ |
52,944 |
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|
$ |
49,846 |
|
|
Net income per share basic
|
|
$ |
.79 |
|
|
$ |
.70 |
|
Net income per share diluted
|
|
$ |
.78 |
|
|
$ |
.69 |
|
|
See accompanying notes to consolidated financial
statements.
4
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
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|
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|
|
|
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Accumulated |
|
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Number of |
|
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Other |
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|
(Dollars in thousands, |
|
Shares |
|
Common |
|
Capital |
|
Retained |
|
Treasury |
|
Comprehensive |
|
|
except per share data) |
|
Issued |
|
Stock |
|
Surplus |
|
Earnings |
|
Stock |
|
Income/(Loss) |
|
Total |
|
|
|
(Unaudited) |
Balance January 1, 2006
|
|
|
69,409,882 |
|
|
$ |
347,049 |
|
|
$ |
388,552 |
|
|
$ |
693,021 |
|
|
$ |
(86,901 |
) |
|
$ |
(3,883 |
) |
|
$ |
1,337,838 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,944 |
|
|
|
|
|
|
|
|
|
|
|
52,944 |
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,380 |
) |
|
|
(10,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,111 |
) |
|
|
|
|
|
|
(51,111 |
) |
Issuance of stock under purchase and equity compensation plans
|
|
|
|
|
|
|
|
|
|
|
(4,532 |
) |
|
|
|
|
|
|
8,427 |
|
|
|
|
|
|
|
3,895 |
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
|
|
|
|
639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
639 |
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
799 |
|
Issuance of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
(923 |
) |
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.245 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,379 |
) |
|
|
|
|
|
|
|
|
|
|
(16,379 |
) |
|
Balance March 31, 2006
|
|
|
69,409,882 |
|
|
$ |
347,049 |
|
|
$ |
384,535 |
|
|
$ |
729,586 |
|
|
$ |
(128,662 |
) |
|
$ |
(14,263 |
) |
|
$ |
1,318,245 |
|
|
Balance January 1, 2005
|
|
|
69,409,882 |
|
|
$ |
347,049 |
|
|
$ |
388,614 |
|
|
$ |
703,293 |
|
|
$ |
(51,646 |
) |
|
$ |
39,570 |
|
|
$ |
1,426,880 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,846 |
|
|
|
|
|
|
|
|
|
|
|
49,846 |
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,152 |
) |
|
|
(34,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,830 |
) |
|
|
|
|
|
|
(60,830 |
) |
Issuance of stock under purchase and equity compensation plans
|
|
|
|
|
|
|
|
|
|
|
(4,835 |
) |
|
|
|
|
|
|
7,885 |
|
|
|
|
|
|
|
3,050 |
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135 |
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
2,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,773 |
|
Issuance of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
(895 |
) |
|
|
|
|
|
|
895 |
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.229 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,133 |
) |
|
|
|
|
|
|
|
|
|
|
(16,133 |
) |
|
Balance March 31, 2005
|
|
|
69,409,882 |
|
|
$ |
347,049 |
|
|
$ |
385,792 |
|
|
$ |
737,006 |
|
|
$ |
(103,696 |
) |
|
$ |
5,418 |
|
|
$ |
1,371,569 |
|
|
See accompanying notes to consolidated financial
statements.
5
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
Ended March 31 |
|
|
|
(In thousands) |
|
2006 |
|
2005 |
|
|
|
|
|
(Unaudited) |
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
52,944 |
|
|
$ |
49,846 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
4,432 |
|
|
|
2,368 |
|
|
Provision for depreciation and amortization
|
|
|
11,466 |
|
|
|
10,456 |
|
|
Amortization of investment security premiums, net
|
|
|
3,249 |
|
|
|
6,951 |
|
|
Investment securities gains,
net(A)
|
|
|
(2,403 |
) |
|
|
(3,612 |
) |
|
Net gains on sales of loans held for sale
|
|
|
(2,923 |
) |
|
|
(2,512 |
) |
|
Originations of loans held for sale
|
|
|
(129,138 |
) |
|
|
(127,904 |
) |
|
Proceeds from sales of loans held for sale
|
|
|
131,880 |
|
|
|
105,270 |
|
|
Net increase in trading securities
|
|
|
(47 |
) |
|
|
(12,292 |
) |
|
Stock based compensation
|
|
|
799 |
|
|
|
2,773 |
|
|
Decrease in interest receivable
|
|
|
1,417 |
|
|
|
6,249 |
|
|
Increase in interest payable
|
|
|
5,354 |
|
|
|
3,115 |
|
|
Increase in income taxes payable
|
|
|
25,886 |
|
|
|
26,182 |
|
|
Net tax benefit related to equity compensation plans
|
|
|
(639 |
) |
|
|
(135 |
) |
|
Other changes, net
|
|
|
10,098 |
|
|
|
(4,727 |
) |
|
Net cash provided by operating activities
|
|
|
112,375 |
|
|
|
62,028 |
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from sales of investment
securities(A)
|
|
|
5 |
|
|
|
926,069 |
|
Proceeds from maturities/pay downs of investment
securities(A)
|
|
|
307,606 |
|
|
|
304,611 |
|
Purchases of investment
securities(A)
|
|
|
(66,425 |
) |
|
|
(978,281 |
) |
Net increase in loans
|
|
|
(243,320 |
) |
|
|
(79,572 |
) |
Purchases of land, buildings and equipment
|
|
|
(7,643 |
) |
|
|
(32,922 |
) |
Sales of land, buildings and equipment
|
|
|
80 |
|
|
|
404 |
|
|
Net cash provided by (used in) investing activities
|
|
|
(9,697 |
) |
|
|
140,309 |
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net decrease in non-interest bearing demand, savings, interest
checking and money market deposits
|
|
|
(29,364 |
) |
|
|
(120,512 |
) |
Net increase in time open and C.D.s
|
|
|
324,585 |
|
|
|
366,837 |
|
Net decrease in federal funds purchased and securities sold
under agreements to repurchase
|
|
|
(424,504 |
) |
|
|
(346,964 |
) |
Repayment of long-term borrowings
|
|
|
(10,827 |
) |
|
|
(1,171 |
) |
Net increase in short-term borrowings
|
|
|
94 |
|
|
|
|
|
Purchases of treasury stock
|
|
|
(51,111 |
) |
|
|
(60,830 |
) |
Issuance of stock under stock purchase and equity compensation
plans
|
|
|
3,895 |
|
|
|
3,050 |
|
Net tax benefit related to equity compensation plans
|
|
|
639 |
|
|
|
135 |
|
Cash dividends paid on common stock
|
|
|
(16,379 |
) |
|
|
(16,133 |
) |
|
Net cash used in financing activities
|
|
|
(202,972 |
) |
|
|
(175,588 |
) |
|
Increase (decrease) in cash and cash equivalents
|
|
|
(100,294 |
) |
|
|
26,749 |
|
Cash and cash equivalents at beginning of year
|
|
|
674,135 |
|
|
|
654,720 |
|
|
Cash and cash equivalents at March 31
|
|
$ |
573,841 |
|
|
$ |
681,469 |
|
|
(A) Available
for sale and non-marketable securities
|
|
|
|
|
|
|
|
|
|
Income tax net payments (refunds)
|
|
$ |
(8 |
) |
|
$ |
444 |
|
Interest paid on deposits and borrowings
|
|
$ |
59,538 |
|
|
$ |
36,261 |
|
|
See accompanying notes to consolidated financial
statements.
6
Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
|
|
1. |
Principles of Consolidation and Presentation |
The accompanying consolidated financial statements include the
accounts of Commerce Bancshares, Inc. and all majority-owned
subsidiaries (the Company). The consolidated financial
statements in this report have not been audited. All significant
intercompany accounts and transactions have been eliminated.
Certain reclassifications were made to 2005 data to conform to
current year presentation. In the opinion of management, all
adjustments necessary to present fairly the financial position
and the results of operations for the interim periods have been
made. All such adjustments are of a normal recurring nature. The
results of operations for the three month period ended
March 31, 2006 are not necessarily indicative of results to
be attained for the full year or any other interim periods.
The significant accounting policies followed in the preparation
of the quarterly financial statements are disclosed in the 2005
Annual Report on
Form 10-K.
On April 4, 2006, Commerce Bank, N.A., (Missouri) (the
Bank) a subsidiary of the Company, entered into an agreement
with Boone National Savings and Loan Association (Boone)
whereby the Bank will acquire the banking businesses of Boone.
Boone operates four branches in Columbia, Missouri, and loan
production offices in Ashland and Lake Ozark, Missouri. Under
the terms of the agreement, the Bank will acquire loans and
deposits of approximately $132 million and
$108 million, respectively, assume other liabilities of
approximately $30 million, and will pay a purchase price
premium of approximately $16 million. Pending regulatory
approval, the transaction is expected to close in July 2006.
On April 13, 2006, the Company and West Pointe Bancorp,
Inc. (West Pointe) signed a definitive merger agreement in which
West Pointe will merge with the Company in a transaction valued
at $80.9 million in stock and cash. Simultaneously, West
Pointes wholly-owned subsidiary, West Pointe Bank And
Trust Company, will merge into the Bank. The Companys
acquisition of West Pointe will add approximately
$477 million in assets (including $256 million in
loans), $402 million in deposits, and five branch locations
and 25 ATMs in St. Clair County, Illinois (Southwestern Illinois
region of Metropolitan St. Louis).
Under terms of the agreement, shareholders of West Pointe will
be entitled to elect to receive either cash or stock, with the
cash portion of the transaction not to exceed 25% of the total
consideration. Elections will be subject to proration
procedures. It is anticipated that the transaction will be
completed either late in the third quarter or in the fourth
quarter of 2006, pending regulatory approvals and certain
closing conditions. As part of the transaction, West Pointe has
granted the Company an option to purchase 19.9% of its
common stock under certain conditions.
7
|
|
3. |
Loans and Allowance for Loan Losses |
Major classifications of loans at March 31, 2006 and
December 31, 2005 are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
December 31 |
(In thousands) |
|
2006 |
|
2005 |
|
Business
|
|
$ |
2,603,831 |
|
|
$ |
2,527,654 |
|
Real estate construction
|
|
|
493,279 |
|
|
|
424,561 |
|
Real estate business
|
|
|
1,998,746 |
|
|
|
1,919,045 |
|
Real estate personal
|
|
|
1,369,385 |
|
|
|
1,358,511 |
|
Consumer
|
|
|
1,309,072 |
|
|
|
1,287,348 |
|
Home equity
|
|
|
444,206 |
|
|
|
448,507 |
|
Student
|
|
|
330,351 |
|
|
|
330,238 |
|
Credit card
|
|
|
570,559 |
|
|
|
592,465 |
|
Overdrafts
|
|
|
18,810 |
|
|
|
10,854 |
|
|
Total loans
|
|
$ |
9,138,239 |
|
|
$ |
8,899,183 |
|
|
Held for sale loans consisted of certain fixed rate residential
mortgage loans, included in the Real estate-personal
category above, and student loans. Total held for sale loans
outstanding amounted to $337,742,000 at March 31, 2006 and
$336,410,000 at December 31, 2005.
The following is a summary of the allowance for loan losses for
the three months ended March 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
2005 |
|
Balance, January 1
|
|
$ |
128,447 |
|
|
$ |
132,394 |
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
4,432 |
|
|
|
2,368 |
|
|
Total additions
|
|
|
4,432 |
|
|
|
2,368 |
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
9,346 |
|
|
|
9,500 |
|
|
Less recoveries on loans
|
|
|
4,935 |
|
|
|
5,698 |
|
|
Net loans charged off
|
|
|
4,411 |
|
|
|
3,802 |
|
|
Balance, March 31
|
|
$ |
128,468 |
|
|
$ |
130,960 |
|
|
Investment securities, at fair value, consist of the following
at March 31, 2006 and December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
December 31 |
(In thousands) |
|
2006 |
|
2005 |
|
Available for sale
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$ |
62,083 |
|
|
$ |
61,803 |
|
|
Government-sponsored enterprise obligations
|
|
|
651,852 |
|
|
|
772,854 |
|
|
State and municipal obligations
|
|
|
277,024 |
|
|
|
249,018 |
|
|
Mortgage-backed securities
|
|
|
1,546,308 |
|
|
|
1,631,675 |
|
|
Other asset-backed securities
|
|
|
625,961 |
|
|
|
684,724 |
|
|
Other debt securities
|
|
|
39,748 |
|
|
|
40,017 |
|
|
Equity securities
|
|
|
198,847 |
|
|
|
227,810 |
|
Trading
|
|
|
25,559 |
|
|
|
24,959 |
|
Non-marketable
|
|
|
84,353 |
|
|
|
77,321 |
|
|
Total investment securities
|
|
$ |
3,511,735 |
|
|
$ |
3,770,181 |
|
|
Available for sale equity securities included short-term
investments in money market mutual funds of $93,226,000 at
March 31, 2006 and $111,736,000 at December 31, 2005.
Equity securities also included
8
FNMA and other corporate preferred stock of $29,700,000 at
March 31, 2006 and $36,850,000 at December 31, 2005.
Non-marketable securities included securities held for debt and
regulatory purposes, which amounted to $45,014,000 and
$45,417,000 at March 31, 2006 and December 31, 2005,
respectively, in addition to venture capital and private equity
investments, which amounted to $39,260,000 and $31,836,000 at
the respective dates.
The following table presents information about the
Companys intangible assets which have estimable useful
lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
|
|
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Accumulated |
(In thousands) |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$ |
519 |
|
|
$ |
(474 |
) |
|
$ |
522 |
|
|
$ |
(475 |
) |
|
The Company does not have any intangible assets that are not
currently being amortized. Aggregate amortization expense on
intangible assets was $1,000 and $381,000, respectively, for the
three month periods ended March 31, 2006 and 2005.
Estimated annual amortization expense for the years 2006 through
2010 is as follows.
|
|
|
|
|
|
(In thousands) |
|
|
|
2006
|
|
$ |
13 |
|
2007
|
|
|
13 |
|
2008
|
|
|
13 |
|
2009
|
|
|
8 |
|
2010
|
|
|
|
|
|
The Company, as a provider of financial services, routinely
issues financial guarantees in the form of financial and
performance standby letters of credit. Standby letters of credit
are contingent commitments issued by the Company generally to
guarantee the payment or performance obligation of a customer to
a third party. While these represent a potential outlay by the
Company, a significant amount of the commitments may expire
without being drawn upon. The Company has recourse against the
customer for any amount it is required to pay to a third party
under a standby letter of credit. The letters of credit are
subject to the same credit policies, underwriting standards and
approval process as loans made by the Company. Most of the
standby letters of credit are secured and in the event of
nonperformance by the customers, the Company has rights to the
underlying collateral, which could include commercial real
estate, physical plant and property, inventory, receivables,
cash and marketable securities.
Upon issuance of standby letters of credit, the Company
recognizes a liability equivalent to the amount of fees received
from the customer, which at March 31, 2006 amounted to
$6,283,000. This amount will be amortized into income over the
life of the commitment. The contract amount of these letters of
credit, which represents the maximum potential future payments
guaranteed by the Company, was $423,729,000 at March 31,
2006.
The Company guarantees payments to holders of certain trust
preferred securities issued by a wholly owned grantor trust. The
securities are due in 2030 and may be redeemed beginning in
2010. The maximum potential future payments guaranteed by the
Company, which include future interest and principal payments
through maturity, was approximately $14,410,000 at
March 31, 2006. At March 31,
9
2006, the Company had a recorded liability of $4,036,000 in
principal and accrued interest to date, representing amounts
owed to the security holders.
The amount of net pension cost (income) for the three months
ended March 31, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months |
|
|
Ended March 31 |
|
|
|
(In thousands) |
|
2006 |
|
2005 |
|
Service cost benefits earned during the period
|
|
$ |
276 |
|
|
$ |
365 |
|
Interest cost on projected benefit obligation
|
|
|
1,191 |
|
|
|
1,170 |
|
Expected return on plan assets
|
|
|
(1,800 |
) |
|
|
(1,705 |
) |
Amortization of unrecognized net loss
|
|
|
258 |
|
|
|
280 |
|
|
Net periodic pension cost (income)
|
|
$ |
(75 |
) |
|
$ |
110 |
|
|
Substantially all benefits under the Companys defined
benefit pension plan were frozen effective January 1, 2005.
During the first three months of 2006, the Company made no
funding contributions to its defined benefit pension plan, and
made minimal funding contributions to a supplemental executive
retirement plan (the CERP), which carries no segregated assets.
The Company has no plans to make any further contributions,
other than those related to the CERP, during the remainder of
2006. The income recognized for the defined benefit pension plan
for the first three months of 2006 was primarily due to the
greater than expected return on plan assets for the year ended
September 30, 2005 (the valuation date).
Presented below is a summary of the components used to calculate
basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months |
|
|
Ended March 31 |
|
|
|
(In thousands, except per share data) |
|
2006 |
|
2005 |
|
Basic earnings per share: |
Net income available to common shareholders
|
|
$ |
52,944 |
|
|
$ |
49,846 |
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
66,990 |
|
|
|
71,023 |
|
|
Basic earnings per share
|
|
$ |
.79 |
|
|
$ |
.70 |
|
|
Diluted earnings per share: |
Net income available to common shareholders
|
|
$ |
52,944 |
|
|
$ |
49,846 |
|
|
|
|
Weighted average common shares outstanding
|
|
|
66,990 |
|
|
|
71,023 |
|
Net effect of nonvested restricted stock and the assumed
exercise of stock options based on the treasury
stock method using the average market price for the respective
periods
|
|
|
937 |
|
|
|
988 |
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
67,927 |
|
|
|
72,011 |
|
|
|
|
|
Diluted earnings per share
|
|
$ |
.78 |
|
|
$ |
.69 |
|
|
10
|
|
9. |
Comprehensive Income (Loss) |
The Companys only component of other comprehensive income
(loss) during the periods presented below was the unrealized
holding gains and losses on available for sale securities.
|
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months |
|
|
Ended March 31 |
|
|
|
(In thousands) |
|
2006 |
|
2005 |
|
Unrealized holding gains (losses)
|
|
$ |
(16,742 |
) |
|
$ |
(52,255 |
) |
Reclassification adjustment for gains included in net income
|
|
|
|
|
|
|
(2,829 |
) |
|
Net unrealized gains (losses) on securities
|
|
|
(16,742 |
) |
|
|
(55,084 |
) |
Income tax expense (benefit)
|
|
|
(6,362 |
) |
|
|
(20,932 |
) |
|
Other comprehensive income (loss)
|
|
$ |
(10,380 |
) |
|
$ |
(34,152 |
) |
|
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments. The Consumer segment includes the retail
branch network, consumer finance, bank card, student loans, and
discount brokerage services. The Commercial segment provides
corporate lending, leasing, and international services, as well
as business, government deposit, and cash management services.
The Money Management segment provides traditional trust and
estate tax planning services, and advisory and discretionary
investment management services.
The following table presents selected financial information by
segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment
revenues among the three segments. Management periodically makes
changes to methods of assigning costs and income to its business
segments to better reflect operating results. If appropriate,
these changes are reflected in prior year information presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money |
|
Segment |
|
Other/ |
|
Consolidated |
(In thousands) |
|
Consumer |
|
Commercial |
|
Management |
|
Totals |
|
Elimination |
|
Totals |
|
Three Months Ended March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
89,049 |
|
|
$ |
49,636 |
|
|
$ |
2,624 |
|
|
$ |
141,309 |
|
|
$ |
(17,574 |
) |
|
$ |
123,735 |
|
Provision for loan losses
|
|
|
5,666 |
|
|
|
(1,247 |
) |
|
|
|
|
|
|
4,419 |
|
|
|
13 |
|
|
|
4,432 |
|
Non-interest income
|
|
|
43,512 |
|
|
|
19,138 |
|
|
|
21,686 |
|
|
|
84,336 |
|
|
|
5,112 |
|
|
|
89,448 |
|
Non-interest expense
|
|
|
71,077 |
|
|
|
35,535 |
|
|
|
15,712 |
|
|
|
122,324 |
|
|
|
7,637 |
|
|
|
129,961 |
|
|
Income before income taxes
|
|
$ |
55,818 |
|
|
$ |
34,486 |
|
|
$ |
8,598 |
|
|
$ |
98,902 |
|
|
$ |
(20,112 |
) |
|
$ |
78,790 |
|
|
Three Months Ended March 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
77,187 |
|
|
$ |
46,305 |
|
|
$ |
1,938 |
|
|
$ |
125,430 |
|
|
$ |
(3,953 |
) |
|
$ |
121,477 |
|
Provision for loan losses
|
|
|
6,627 |
|
|
|
(2,833 |
) |
|
|
|
|
|
|
3,794 |
|
|
|
(1,426 |
) |
|
|
2,368 |
|
Non-interest income
|
|
|
37,793 |
|
|
|
17,994 |
|
|
|
20,129 |
|
|
|
75,916 |
|
|
|
4,775 |
|
|
|
80,691 |
|
Non-interest expense
|
|
|
69,180 |
|
|
|
34,781 |
|
|
|
14,815 |
|
|
|
118,776 |
|
|
|
5,146 |
|
|
|
123,922 |
|
|
Income before income taxes
|
|
$ |
39,173 |
|
|
$ |
32,351 |
|
|
$ |
7,252 |
|
|
$ |
78,776 |
|
|
$ |
(2,898 |
) |
|
$ |
75,878 |
|
|
The information presented above was derived from the internal
profitability reporting system used by management to monitor and
manage the financial performance of the Company. This
information is based on internal management accounting policies,
which have been developed to reflect the underlying economics of
the businesses. The policies address the methodologies applied
in connection with funds transfer pricing and assignment of
overhead costs among segments. Funds transfer pricing was used
in the determination of net interest income by assigning a
standard cost (credit) for funds used (provided) by
assets and liabilities based on their maturity, prepayment
and/or repricing characteristics.
The performance measurement of the operating segments is based
on the management structure of the Company and is not
necessarily comparable with similar information for any other
financial institu-
11
tion. The information is also not necessarily indicative of the
segments financial condition and results of operations if
they were independent entities.
|
|
11. |
Derivative Instruments |
The Companys interest rate risk management strategy
includes the ability to modify the re-pricing characteristics of
certain assets and liabilities so that changes in interest rate
do not adversely affect the net interest margin and cash flows.
Interest rate swaps are used on a limited basis as part of this
strategy. At March 31, 2006, the Company had entered into
two interest rate swaps with a notional amount of $15,069,000,
which are designated as fair value hedges of certain fixed rate
loans. The Company also sells swap contracts to customers who
wish to modify their interest rate sensitivity. These swaps are
offset by matching contracts purchased by the Company from other
financial institutions. Because of the matching terms of the
offsetting contracts, the effect of these transactions on net
income is minimal. The notional amount of these types of swaps
at March 31, 2006 was $144,626,000.
Through its International Department, the Company enters into
foreign exchange contracts consisting mainly of contracts to
purchase or deliver foreign currencies for customers at specific
future dates. Also, mortgage loan commitments and forward sales
contracts result from the Companys mortgage banking
operation, in which fixed rate personal real estate loans are
originated and sold to other institutions.
The Companys derivative instruments are listed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
Positive |
|
Negative |
|
|
|
Positive |
|
Negative |
|
|
Notional |
|
Fair |
|
Fair |
|
Notional |
|
Fair |
|
Fair |
(In thousands) |
|
Amount |
|
Value |
|
Value |
|
Amount |
|
Value |
|
Value |
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
$ |
159,695 |
|
|
$ |
1,279 |
|
|
$ |
(1,876 |
) |
|
$ |
162,698 |
|
|
$ |
798 |
|
|
$ |
(1,782 |
) |
|
Option contracts
|
|
|
6,970 |
|
|
|
15 |
|
|
|
(15 |
) |
|
|
6,970 |
|
|
|
6 |
|
|
|
(6 |
) |
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
2,228 |
|
|
|
25 |
|
|
|
(9 |
) |
|
|
14,184 |
|
|
|
159 |
|
|
|
(77 |
) |
|
Option contracts
|
|
|
2,560 |
|
|
|
|
|
|
|
|
|
|
|
2,560 |
|
|
|
3 |
|
|
|
(3 |
) |
Mortgage loan commitments
|
|
|
7,253 |
|
|
|
|
|
|
|
(30 |
) |
|
|
5,353 |
|
|
|
12 |
|
|
|
|
|
Mortgage loan forward sale contracts
|
|
|
11,410 |
|
|
|
64 |
|
|
|
|
|
|
|
9,251 |
|
|
|
7 |
|
|
|
(18 |
) |
|
Total
|
|
$ |
190,116 |
|
|
$ |
1,383 |
|
|
$ |
(1,930 |
) |
|
$ |
201,016 |
|
|
$ |
985 |
|
|
$ |
(1,886 |
) |
|
For the first quarter of 2006 income tax expense amounted to
$25,846,000, compared to $26,032,000 in the first quarter of
2005. The effective income tax rate for the Company was 32.8% in
the current quarter compared to 34.3% in the same quarter last
year.
|
|
13. |
Stock-Based Compensation |
During 2005 and previous years, stock-based awards were issued
to key employees under several stock option and award plans, all
of which had been approved by shareholders. During this period,
awards were comprised of stock options and restricted stock. At
December 31, 2005, these plans were replaced by the
Companys 2005 Equity Incentive Plan which was approved by
shareholders on April 20, 2005. The new plan allows for
issuance of various types of awards, including stock options,
stock appreciation rights, restricted stock and restricted stock
units, performance awards and stock-based awards. During the
first quarter of 2006, stock-based compensation was issued in
the form of stock appreciation rights (SARs) and restricted
stock, and at March 31, 2006, 3,723,295 shares
remained available for issuance under the new plan. The
stock-based compensation expense that has been charged against
income was $799,000 in the first three months of 2006 and
$2,773,000 in the first three months of 2005. The total income
tax benefit recognized in the income statement for share-based
compensation arrangements was $300,000 in the first
12
three months of 2006 and $1,041,000 in the first three months of
2005. The decline in stock-based compensation occurred because
of a change in the vesting period of certain awards granted in
the first quarter of 2006, in addition to the effects of the
forfeiture accounting requirements of Statement of Financial
Accounting Standards No. 123 (revised), Share-Based
Payment, both of which are discussed below.
In determining compensation cost, the Black-Scholes
option-pricing model is used to estimate the fair value of
options and SARs on date of grant. The Black-Scholes model is a
closed-end model that uses the assumptions in the following
table. Expected volatility is based on historical volatility of
the Companys stock and a consideration of other factors.
The Company uses historical exercise behavior and other factors
to estimate the expected term of the options and SARs, which
represents the period of time that the options and SARs granted
are expected to be outstanding. The risk-free rate for the
expected term is based on the U.S. Treasury zero coupon
spot rates in effect at the time of grant.
Below are the fair values of SARs and stock options granted,
using the Black-Scholes option-pricing model, during the first
three months of 2006 and 2005, including the model assumptions
for those grants. SARs and stock options were granted with an
exercise price equal to the market price of the Companys
stock at the date of grant and have
10-year contractual
terms. SARs, which were granted for the first time in 2006, vest
on a graded basis over 4 years of continuous service. All
SARs must be settled in stock under provisions of the plan.
Stock options, which were granted in 2005 and previous years,
vest on a graded basis over 3 years of continuous service.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31 |
|
|
|
|
|
2006 |
|
2005 |
|
Weighted per share average fair value at grant date
|
|
|
$14.08 |
|
|
|
$11.89 |
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
1.7 |
% |
|
|
2.0 |
% |
|
Volatility
|
|
|
21.1 |
% |
|
|
23.4 |
% |
|
Risk-free interest rate
|
|
|
4.6 |
% |
|
|
4.2 |
% |
|
Expected term
|
|
|
7.4 years |
|
|
|
7.1 years |
|
|
A summary of option activity during the first three months of
2006 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Weighted |
|
Average |
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
Exercise |
|
Contractual |
|
Intrinsic |
(Dollars in thousands, except per share data) |
|
Shares |
|
Price |
|
Term |
|
Value |
|
Outstanding at January 1, 2006
|
|
|
3,412,808 |
|
|
$ |
33.86 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(3,024 |
) |
|
|
44.17 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(167,602 |
) |
|
|
23.55 |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006
|
|
|
3,242,182 |
|
|
$ |
34.38 |
|
|
|
5.8 years |
|
|
$ |
56,063 |
|
Exercisable at March 31, 2006
|
|
|
2,891,983 |
|
|
$ |
33.08 |
|
|
|
5.4 years |
|
|
$ |
53,773 |
|
Vested and expected to vest at March 31, 2006
|
|
|
3,229,422 |
|
|
$ |
34.34 |
|
|
|
5.7 years |
|
|
$ |
55,979 |
|
|
13
A summary of SAR activity during the first three months of 2006
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Weighted |
|
Average |
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
Exercise |
|
Contractual |
|
Intrinsic |
(Dollars in thousands, except per share data) |
|
Shares |
|
Price |
|
Term |
|
Value |
|
Outstanding at January 1, 2006
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
458,450 |
|
|
|
51.75 |
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006
|
|
|
458,450 |
|
|
$ |
51.75 |
|
|
|
9.9 years |
|
|
$ |
27 |
|
Exercisable at March 31, 2006
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Vested and expected to vest at March 31, 2006
|
|
|
382,430 |
|
|
$ |
51.75 |
|
|
|
9.9 years |
|
|
$ |
23 |
|
|
Additional information about stock options exercised is
presented below. The SARs granted during the first quarter of
2006 are not exercisable until 2007.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended March 31 |
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Intrinsic value of options exercised
|
|
$ |
4,619 |
|
|
$ |
4,806 |
|
Cash received from options exercised
|
|
$ |
3,895 |
|
|
$ |
3,049 |
|
Tax benefit realized from options exercised
|
|
$ |
639 |
|
|
$ |
135 |
|
|
Restricted stock is awarded to key employees, by action of the
Board of Directors. These awards generally vest after
5 years of continued employment. There are restrictions as
to transferability, sale, pledging, or assigning, among others,
prior to the end of the 5 year vesting period. Dividend and
voting rights are conferred upon grant. A summary of the status
of the Companys restricted stock awards, or nonvested
shares, as of March 31, 2006, and changes during the three
month period then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Grant Date |
|
|
Shares |
|
Fair Value |
|
Nonvested at January 1, 2006
|
|
|
163,420 |
|
|
$ |
39.37 |
|
|
Granted
|
|
|
18,255 |
|
|
|
51.80 |
|
Vested
|
|
|
(24,997 |
) |
|
|
30.93 |
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2006
|
|
|
156,678 |
|
|
$ |
42.16 |
|
|
As of March 31, 2006, there was $4,634,000 of total
unrecognized compensation cost related to restricted nonvested
shares. That cost is expected to be recognized over a
weighted-average period of 3.6 years. The total fair value
(at vest date) of shares vested during the three month periods
ended March 31, 2006 and 2005 was $1,297,000 and
$1,127,000, respectively.
The Company adopted Financial Accounting Statement No. 123R
on January 1, 2006. As a result of adoption, the Company
recorded a reduction of $543,000 in stock-based compensation
expense in the first quarter of 2006. This adjustment resulted
from a change by the Company from its former policy of
recognizing the effect of forfeitures only as they occurred to
the Statements requirement to estimate the number of
outstanding instruments for which the requisite service is not
expected to be rendered. The adjustment was not considered to be
material to the Companys financial statements and,
accordingly, was not presented separately as the cumulative
effect of a change in accounting principle in the accompanying
consolidated income statement.
14
The Company has a stock repurchase program under which
5,000,000 shares of common stock were authorized for
repurchase by the Board of Directors in October 2005. At
March 31, 2006, 3,074,293 shares remain available to
be purchased under this authorization. A portion of shares
repurchased during the next twelve months will be used to
satisfy share option exercises, which are expected to range from
700,000 to 800,000 shares.
On April 21, 2006, the Company sold a parking garage, which
included some retail space, located in downtown Kansas City. The
sale price was $1,600,000, and a gain of $1,330,000 was
recognized.
|
|
Item 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
related notes and with the statistical information and financial
data appearing in this report as well as the Companys 2005
Annual Report on
Form 10-K. Results
of operations for the three month period ended March 31,
2006 are not necessarily indicative of results to be attained
for any other period.
Forward Looking Information
This report may contain forward-looking statements
that are subject to risks and uncertainties and include
information about possible or assumed future results of
operations. Many possible events or factors could affect the
future financial results and performance of the Company. This
could cause results or performance to differ materially from
those expressed in the forward-looking statements. Words such as
expects, anticipates,
believes, estimates, variations of such
words and other similar expressions are intended to identify
such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers should not rely solely on
the forward-looking statements and should consider all
uncertainties and risks discussed throughout this report.
Forward-looking statements speak only as of the date they are
made. The Company does not undertake to update forward-looking
statements to reflect circumstances or events that occur after
the date the forward-looking statements are made or to reflect
the occurrence of unanticipated events. Such possible events or
factors include: changes in economic conditions in the
Companys market area, changes in policies by regulatory
agencies, governmental legislation and regulation, fluctuations
in interest rates, changes in liquidity requirements, demand for
loans in the Companys market area, and competition with
other entities that offer financial services.
Critical Accounting Policies
The Companys consolidated financial statements are
prepared based on the application of certain accounting
policies, some of which require numerous estimates and strategic
or economic assumptions that may prove inaccurate or be subject
to variations which may significantly affect the Companys
reported results and financial position for the current period
or future periods. The use of estimates, assumptions, and
judgments are necessary when financial assets and liabilities
are required to be recorded at, or adjusted to reflect, fair
value. Assets and liabilities carried at fair value inherently
result in more financial statement volatility. Fair values and
the information used to record valuation adjustments for certain
assets and liabilities are based on either quoted market prices
or are provided by other independent third-party sources, when
available. When such information is not available, management
estimates valuation adjustments primarily by using internal cash
flow and other financial modeling techniques. Changes in
underlying factors, assumptions, or estimates in any of these
areas could have a material impact on the Companys future
financial condition and results of operations.
15
The Company has identified several policies as being critical
because they require management to make particularly difficult,
subjective and/or complex judgments about matters that are
inherently uncertain and because of the likelihood that
materially different amounts would be reported under different
conditions or using different assumptions. These policies relate
to the allowance for loan losses, the valuation of certain
non-marketable investments, and accounting for income taxes.
The Company performs periodic and systematic detailed reviews of
its loan portfolio to assess overall collectability. The level
of the allowance for loan losses reflects the Companys
estimate of the losses inherent in the loan portfolio at any
point in time. While these estimates are based on substantive
methods for determining allowance requirements, actual outcomes
may differ significantly from estimated results, especially when
determining allowances for business, lease, construction and
business real estate loans. These loans are normally larger and
more complex, and their collection rates are harder to predict.
Personal loans, including personal mortgage, credit card and
consumer loans, are individually smaller and perform in a more
homogenous manner, making loss estimates more predictable.
Further discussion of the methodologies used in establishing the
allowance is provided in the Provision and Allowance for Loan
Losses section of this discussion.
The Company, through its direct holdings and its Small Business
Investment subsidiaries, has numerous private equity and venture
capital investments, which totaled $43.9 million at
March 31, 2006. These private equity and venture capital
securities are reported at estimated fair values in the absence
of readily ascertainable fair values. The values assigned to
these securities where no market quotations exist are based upon
available information and managements judgment. Although
management believes its estimates of fair value reasonably
reflect the fair value of these securities, key assumptions
regarding the projected financial performance of these
companies, the evaluation of the investee companys
management team, and other economic and market factors may
affect the amounts that will ultimately be realized from these
investments.
The objectives of accounting for income taxes are to recognize
the amount of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an
entitys financial statements or tax returns. Judgment is
required in assessing the future tax consequences of events that
have been recognized in the Companys financial statements
or tax returns. Fluctuations in the actual outcome of these
future tax consequences, including the effects of IRS
examinations and examinations by other state agencies, could
materially impact the Companys financial position and its
results of operations. Further discussion of income taxes is
presented in the Income Taxes section of this discussion.
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31 |
|
|
|
|
|
2006 |
|
2005 |
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$ |
.79 |
|
|
$ |
.70 |
|
|
Net income diluted
|
|
|
.78 |
|
|
|
.69 |
|
|
Cash dividends
|
|
|
.245 |
|
|
|
.229 |
|
|
Book value
|
|
|
19.74 |
|
|
|
19.45 |
|
|
Market price
|
|
|
51.67 |
|
|
|
45.90 |
|
Selected Ratios
|
|
|
|
|
|
|
|
|
(Based on average balance sheets)
|
|
|
|
|
|
|
|
|
|
Loans to deposits
|
|
|
83.32 |
% |
|
|
79.45 |
% |
|
Non-interest bearing deposits to total deposits
|
|
|
5.53 |
|
|
|
7.34 |
|
|
Equity to loans
|
|
|
14.77 |
|
|
|
16.85 |
|
|
Equity to deposits
|
|
|
12.31 |
|
|
|
13.38 |
|
|
Equity to total assets
|
|
|
9.71 |
|
|
|
10.01 |
|
|
Return on total assets
|
|
|
1.57 |
|
|
|
1.44 |
|
|
Return on total stockholders equity
|
|
|
16.14 |
|
|
|
14.35 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31 |
|
|
|
|
|
2006 |
|
2005 |
|
(Based on end-of-period data)
|
|
|
|
|
|
|
|
|
|
Efficiency ratio*
|
|
|
61.66 |
% |
|
|
62.22 |
% |
|
Tier I capital ratio
|
|
|
11.97 |
|
|
|
12.09 |
|
|
Total capital ratio
|
|
|
13.36 |
|
|
|
13.45 |
|
|
Leverage ratio
|
|
|
9.43 |
|
|
|
9.46 |
|
|
|
|
* |
The efficiency ratio is calculated as non-interest expense
(excluding intangibles amortization) as a percent of net
interest income and non-interest income (excluding net
securities gains/losses) |
Results of Operations
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Increase |
|
|
March 31 |
|
(decrease) |
|
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Amount |
|
Percent |
|
Net interest income
|
|
$ |
123,735 |
|
|
$ |
121,477 |
|
|
$ |
2,258 |
|
|
|
1.9 |
% |
Provision for loan losses
|
|
|
(4,432 |
) |
|
|
(2,368 |
) |
|
|
2,064 |
|
|
|
87.2 |
|
Non-interest income
|
|
|
89,448 |
|
|
|
80,691 |
|
|
|
8,757 |
|
|
|
10.9 |
|
Non-interest expense
|
|
|
(129,961 |
) |
|
|
(123,922 |
) |
|
|
6,039 |
|
|
|
4.9 |
|
Income taxes
|
|
|
(25,846 |
) |
|
|
(26,032 |
) |
|
|
(186 |
) |
|
|
(.7 |
) |
|
Net income
|
|
$ |
52,944 |
|
|
$ |
49,846 |
|
|
$ |
3,098 |
|
|
|
6.2 |
% |
|
For the quarter ended March 31, 2006, net income amounted
to $52.9 million, an increase of $3.1 million, or
6.2%, over the first quarter of the previous year. For the
current quarter, the annualized return on average assets was
1.57%, the annualized return on average equity was 16.14%, and
the efficiency ratio was 61.66%. The increase in net income over
the first quarter of last year resulted mainly from an increase
in net interest income of 1.9%, while non-interest income,
excluding net securities gains, grew by 12.9%. Additionally, the
provision for loan losses was $4.4 million for the quarter,
while non-interest expense grew by 4.9%. Diluted earnings per
share was $.78, an increase of 13.0% over $.69 per share in
the first quarter of 2005.
On April 4, 2006, Commerce Bank, N.A., (Missouri) (the
Bank) a subsidiary of the Company, entered into an agreement
with Boone National Savings and Loan Association (Boone)
whereby the Bank will acquire the banking businesses of Boone.
Boone operates four branches in Columbia, Missouri, and loan
production offices in Ashland and Lake Ozark, Missouri. Under
the terms of the agreement, the Bank will acquire loans and
deposits of approximately $132 million and
$108 million, respectively, assume other liabilities of
approximately $30 million, and will pay a purchase price
premium of approximately $16 million. Pending regulatory
approval, the transaction is expected to close in July 2006.
On April 13, 2006, the Company and West Pointe Bancorp,
Inc. signed a definitive merger agreement in which West Pointe
will merge with the Company in a transaction valued at
$80.9 million in stock and cash. Simultaneously, West
Pointes wholly-owned subsidiary, West Pointe Bank And
Trust Company, will merge into the Bank. The Companys
acquisition of West Pointe will add approximately
$477 million in assets (including $256 million in
loans), $402 million in deposits, and five branch locations
and 25 ATMs in St. Clair County, Illinois (Southwestern
Illinois region of Metropolitan St. Louis).
17
Under terms of the agreement, shareholders of West Pointe will
be entitled to elect to receive either cash or stock, with the
cash portion of the transaction not to exceed 25% of the total
consideration. Elections will be subject to proration
procedures. It is anticipated that the transaction will be
completed either late in the third quarter or in the fourth
quarter of 2006, pending regulatory approvals and certain
closing conditions. As part of the transaction, West Pointe has
granted the Company an option to purchase 19.9% of its
common stock under certain conditions.
Net Interest Income
The following table summarizes the changes in net interest
income on a fully taxable equivalent basis, by major category of
interest earning assets and interest bearing liabilities,
identifying changes related to volumes and rates. Changes not
solely due to volume or rate changes are allocated to rate.
Analysis of Changes in Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2006 vs. 2005 |
|
|
|
|
|
Change due to |
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
(In thousands) |
|
Volume |
|
Rate |
|
Total |
|
Interest income, fully taxable equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
9,199 |
|
|
$ |
22,251 |
|
|
$ |
31,450 |
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
|
(4,871 |
) |
|
|
452 |
|
|
|
(4,419 |
) |
|
State and municipal obligations
|
|
|
2,137 |
|
|
|
(43 |
) |
|
|
2,094 |
|
|
Mortgage and asset-backed securities
|
|
|
(5,295 |
) |
|
|
2,393 |
|
|
|
(2,902 |
) |
|
Other securities
|
|
|
(15 |
) |
|
|
1,279 |
|
|
|
1,264 |
|
|
|
|
Total interest on investment securities
|
|
|
(8,044 |
) |
|
|
4,081 |
|
|
|
(3,963 |
) |
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
160 |
|
|
|
879 |
|
|
|
1,039 |
|
|
Total interest income
|
|
|
1,315 |
|
|
|
27,211 |
|
|
|
28,526 |
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
(15 |
) |
|
|
214 |
|
|
|
199 |
|
|
Interest checking and money market
|
|
|
(296 |
) |
|
|
9,247 |
|
|
|
8,951 |
|
|
Time open & C.D.s of less than $100,000
|
|
|
1,341 |
|
|
|
4,998 |
|
|
|
6,339 |
|
|
Time open & C.D.s of $100,000 and over
|
|
|
1,930 |
|
|
|
4,905 |
|
|
|
6,835 |
|
|
|
|
Total interest on deposits
|
|
|
2,960 |
|
|
|
19,364 |
|
|
|
22,324 |
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
(2,958 |
) |
|
|
6,121 |
|
|
|
3,163 |
|
Other borrowings
|
|
|
(910 |
) |
|
|
855 |
|
|
|
(55 |
) |
|
Total interest expense
|
|
|
(908 |
) |
|
|
26,340 |
|
|
|
25,432 |
|
|
Net interest income, fully taxable equivalent basis
|
|
$ |
2,223 |
|
|
$ |
871 |
|
|
$ |
3,094 |
|
|
Net interest income for the first quarter of 2006 was
$123.7 million, a 1.9% increase over the first quarter of
2005. The increase in net interest income was the result of
higher rates earned on loans coupled with loan growth, partially
offset by an increase in rates incurred on interest bearing
deposits and short-term borrowings. Additionally, net interest
income was decreased due to a reduction in investment securities
income resulting from lower average balances, partially offset
by higher rates earned. The net interest rate margin was 3.97%
for the first quarter of 2006, compared to 3.79% in the first
quarter of 2005 and 3.97% in the fourth quarter of 2005.
Total interest income increased $27.8 million, or 17.3%,
over the first quarter of 2005. The increase was the result of a
100 basis point increase in rates earned on loans and a
$646.2 million increase in
18
average loan balances. The growth in average loans occurred
mainly due to increases of $296.2 million in business loans
and $213.1 million in business real estate loans. The
increase in rates earned on loans contributed a
$22.3 million increase in tax equivalent income in the
first quarter of 2006. The rate increase was a result of a
200 basis point rate increase initiated by the Federal
Reserve throughout 2005 and an additional 50 basis point
increase initiated by the Federal Reserve in the first quarter
of 2006. The increase in interest income earned on loans was
partially offset by decreases in interest income on investment
securities primarily due to a reduction in average balances of
investment securities. Compared to the first quarter of 2005,
investment securities declined on average by $957.9 million
as maturities and pay downs were used to fund loan growth and
reduce borrowings. This resulted in a decrease in tax equivalent
interest income from securities of $8.0 million, which was
partially offset by a 54 basis point increase in the
average rate earned. The average tax equivalent yield on
interest earning assets was 6.03% in the first quarter of 2006
compared to 5.02% in the first quarter of 2005.
Total interest expense increased $25.5 million, or 64.8%,
compared to the first quarter of 2005, primarily due to an
84 basis point increase in average rates paid on interest
bearing deposits coupled with an increase in average balances.
Certificates of deposit of less than $100,000 increased
$216.5 million in average balances and incurred a
108 basis point increase in the average interest rate,
resulting in an increase to interest expense of approximately
$6.3 million. The average balance of certificates of
deposit of $100,000 and over increased $307.1 million and
the average interest rate increased 153 basis points,
resulting in an increase in interest expense of
$6.8 million. The increase in the average balance of
certificates of deposit was a result of various campaigns and
strategies to raise deposits to fund loan growth and reduce
borrowings. Additionally, a 55 basis point increase in
average rates paid on interest checking and money market
accounts resulted in an increase in interest expense of
approximately $9.2 million. Average balances of federal
funds purchased and securities sold under agreements to
repurchase decreased $428.2 million in the first quarter of
2006 compared to the first quarter of 2005, and incurred a
185 basis point increase in the interest rates. This
resulted in a net increase of $3.2 million in interest
expense. Increases in rates incurred on interest bearing
liabilities were a result of the rate increases initiated by the
Federal Reserve discussed above. Average rates incurred on all
interest bearing liabilities increased to 2.25% in the first
quarter of 2006 compared to 1.36% in the first quarter of 2005.
Summaries of average assets and liabilities and the
corresponding average rates earned/paid appear on the last page
of this discussion.
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
Ended March 31 |
|
Increase (decrease) |
|
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Amount |
|
Percent |
|
Deposit account charges and other fees
|
|
$ |
27,497 |
|
|
$ |
24,301 |
|
|
$ |
3,196 |
|
|
|
13.2 |
% |
Bank card transaction fees
|
|
|
21,708 |
|
|
|
19,507 |
|
|
|
2,201 |
|
|
|
11.3 |
|
Trust fees
|
|
|
17,819 |
|
|
|
16,394 |
|
|
|
1,425 |
|
|
|
8.7 |
|
Trading accounts profits and commissions
|
|
|
2,565 |
|
|
|
2,614 |
|
|
|
(49 |
) |
|
|
(1.9 |
) |
Consumer brokerage services
|
|
|
2,389 |
|
|
|
2,825 |
|
|
|
(436 |
) |
|
|
(15.4 |
) |
Loan fees and sales
|
|
|
3,743 |
|
|
|
3,440 |
|
|
|
303 |
|
|
|
8.8 |
|
Investment securities gains, net
|
|
|
2,403 |
|
|
|
3,612 |
|
|
|
(1,209 |
) |
|
|
(33.5 |
) |
Other
|
|
|
11,324 |
|
|
|
7,998 |
|
|
|
3,326 |
|
|
|
41.6 |
|
|
Total non-interest income
|
|
$ |
89,448 |
|
|
$ |
80,691 |
|
|
$ |
8,757 |
|
|
|
10.9 |
% |
|
Non-interest as a % of total revenue*
|
|
|
41.3 |
% |
|
|
38.8 |
% |
|
|
|
|
|
|
|
|
Total revenue per full-time equivalent employee
|
|
$ |
43.3 |
|
|
$ |
41.1 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
Total revenue is calculated as net interest income plus
non-interest income, excluding net securities gains/losses. |
19
For the first quarter of 2006, total non-interest income
amounted to $89.4 million compared with $80.7 million
in the same quarter last year, which was an increase of
$8.8 million, or 10.9%. Excluding net securities gains,
non-interest income grew 12.9% over the same period last year.
This growth over last year was mainly the result of higher
deposit account fees, bank card fees and trust fee income.
Deposit account fees in the first quarter of 2006 increased
$3.2 million, or 13.2%, over the same quarter last year as
a result of growth in deposit account overdraft fees, which grew
$3.7 million, or 23.6%, this year. This growth over last
year was the result of increasing transaction volumes during the
year and pricing changes initiated in the third quarter of 2005.
Offsetting this growth was a slight decline in corporate cash
management fee income which continues to be affected by an
increasing interest rate environment. Bank card fees for the
quarter increased $2.2 million, or 11.3%, over the same
period last year, primarily resulting from higher fees earned on
debit, credit and corporate card transactions, which grew by
19.3%, 4.6% and 33.4%, respectively. Trust fees for the quarter
increased $1.4 million, or 8.7%, compared to the same
period last year mainly as a result of higher fees on both
personal and institutional trust accounts. Bond trading income
decreased slightly, while consumer brokerage services revenue
declined $436 thousand, or 15.4%, mainly due to lower fixed
annuity commissions. Loan fees and sales revenue increased $303
thousand, or 8.8%, mainly due to gains on the sales of student
loans, which totaled $2.7 million in the first quarter of
2006 and compares with $2.3 million in the same period last
year. Other non-interest income for the quarter included income
from leasing activities which grew $1.1 million over the
same quarter last year, and the receipt of $1.2 million in
non-recurring income from a parent company equity investment.
Net securities gains in the first quarter of 2006 amounted to
$2.4 million compared with net securities gains of
$3.6 million in the same period last year. The current
quarter gains related entirely to realized gains and fair value
adjustments on certain private equity investments held by the
Companys majority-owned venture capital subsidiaries.
Minority interest pertaining to this income totaled $714
thousand and was reported in other non-interest expense. There
were no other realized gains or losses on the Companys
investment securities portfolio.
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31 |
|
Increase (decrease) |
|
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Amount |
|
Percent |
|
Salaries and employee benefits
|
|
$ |
71,725 |
|
|
$ |
70,180 |
|
|
$ |
1,545 |
|
|
|
2.2 |
% |
Net occupancy
|
|
|
10,977 |
|
|
|
9,778 |
|
|
|
1,199 |
|
|
|
12.3 |
|
Equipment
|
|
|
5,949 |
|
|
|
5,691 |
|
|
|
258 |
|
|
|
4.5 |
|
Supplies and communication
|
|
|
8,393 |
|
|
|
8,213 |
|
|
|
180 |
|
|
|
2.2 |
|
Data processing and software
|
|
|
12,393 |
|
|
|
11,455 |
|
|
|
938 |
|
|
|
8.2 |
|
Marketing
|
|
|
4,318 |
|
|
|
3,862 |
|
|
|
456 |
|
|
|
11.8 |
|
Other
|
|
|
16,206 |
|
|
|
14,743 |
|
|
|
1,463 |
|
|
|
9.9 |
|
|
Total non-interest expense
|
|
$ |
129,961 |
|
|
$ |
123,922 |
|
|
$ |
6,039 |
|
|
|
4.9 |
% |
|
Non-interest expense for the first quarter of 2006 amounted to
$130.0 million, an increase of $6.0 million, or 4.9%,
compared with $123.9 million recorded in the first quarter
of last year. Compared with the first quarter of last year,
salaries and benefits expense increased $1.5 million, or
2.2%, mainly due to normal merit increases, higher incentives,
payroll taxes and medical insurance costs. Full-time equivalent
employees increased to 4,863 at March 31, 2006 compared to
4,836 at March 31, 2005. In the first quarter of previous
years, the Companys practice was to grant stock options to
certain Company employees. This year, the Company issued stock
appreciation rights with a slightly longer vesting period. This
vesting change, combined with the adoption of FAS 123R
estimated forfeiture accounting requirements, resulted in a
reduction in stock-based compensation of $2.0 million.
FAS 123R is discussed further in the Stock-Based
Compensation note to the consolidated financial statements.
Occupancy costs grew $1.2 million, or 12.3%, over the same
period last year, mainly as a result of additional depreciation
expense on two new office buildings and an impairment charge on
a branch that is expected to be sold. Data processing and
software costs increased $938 thousand, or 8.2%, mainly as a
result of higher costs for bank card and online banking
20
processing fees. Smaller increases occurred in costs for
equipment, supplies and communication, and marketing. Other
non-interest expense increased $1.5 million, or 9.9%, over
the same quarter last year primarily due to increases in travel
and entertainment costs, charitable contributions and minority
interest expense on venture capital investment gains.
Provision and Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
(Dollars in thousands) |
|
Mar. 31, 2006 |
|
Mar. 31, 2005 |
|
Dec. 31, 2005 |
|
Provision for loan losses
|
|
$ |
4,432 |
|
|
$ |
2,368 |
|
|
$ |
11,980 |
|
|
Net loan charge-offs (recoveries):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
(1,081 |
) |
|
|
(2,621 |
) |
|
|
(480 |
) |
|
Credit card
|
|
|
3,748 |
|
|
|
4,597 |
|
|
|
8,506 |
|
|
Personal banking*
|
|
|
1,649 |
|
|
|
1,948 |
|
|
|
3,541 |
|
|
Real estate
|
|
|
(255 |
) |
|
|
(206 |
) |
|
|
260 |
|
|
Overdrafts
|
|
|
350 |
|
|
|
84 |
|
|
|
1,012 |
|
|
Total net loan charge-offs
|
|
$ |
4,411 |
|
|
$ |
3,802 |
|
|
$ |
12,839 |
|
|
Annualized total net charge-offs as a percentage of average loans
|
|
|
.20 |
% |
|
|
.18 |
% |
|
|
.58 |
% |
|
|
|
* |
Includes consumer, student and home equity loans |
The Company has an established process to determine the amount
of the allowance for loan losses, which assesses the risks and
losses inherent in its portfolio. The Company combines estimates
of the reserves needed for loans evaluated on an individual
basis for impairment with estimates of the reserves needed for
pools of loans with similar risk characteristics. This process
to determine reserves uses such tools as the Companys
watch loan list and actual loss experience to
identify both individual loans and pools of loans and the amount
of reserves that are needed. Additionally, management determines
the amount of reserves necessary to offset credit risk issues
associated with loan concentrations, economic uncertainties,
industry concerns, adverse market changes in estimated or
appraised collateral values, and other subjective factors.
In using this process and the information available, management
must consider various assumptions and exercise considerable
judgment to determine the overall level of the allowance for
loan losses. Because of these subjective factors, actual
outcomes of inherent losses can differ from original estimates.
The process of determining adequate levels of the allowance for
loan losses is subject to regular review by the Companys
Credit Administration personnel and outside regulators.
Net loan charge-offs were $4.4 million in the first three
months of 2006, compared to $12.8 million in the fourth
quarter of 2005 and $3.8 million in the first quarter of
2005. Total annualized net charge-offs for the first three
months of 2006 were .20% of total average loans, compared to
..58% in the fourth quarter of 2005 and .18% in the first quarter
of 2005. Compared to the fourth quarter of 2005, net charge-offs
were down this quarter due to a decrease in personal banking and
credit card loan net charge-offs and an increase in business
loan recoveries.
For the first quarter of 2006, net charge-offs on average credit
card loans amounted to 2.63%, compared with 6.02% in the fourth
quarter of 2005 and 3.41% in the first quarter of 2005. Personal
banking loan net charge-offs amounted to .32% of average
personal banking loans this quarter compared to .68% in the
fourth quarter of 2005 and .39% in the first quarter of 2005.
Consistent with industry trends, higher charge-off levels
occurred in the fourth quarter of 2005 in personal banking and
credit card loans when the new bankruptcy legislation took
effect.
21
The provision for loan losses was $4.4 million in the first
three months of 2006, compared to $2.4 million in the same
period in 2005 and $12.0 million in the fourth quarter of
2005. The amount of the provision to expense in each quarter was
determined by managements review and analysis of the
adequacy of the allowance for loan losses, involving all the
activities and factors described above regarding that process.
For comparative purposes, the provision in the first quarter of
2006 was $2.1 million higher than in the first quarter of
2005, but $7.5 million lower than the provision in the
fourth quarter of 2005. For a similar comparison of net
charge-offs, first quarter 2006 was $609 thousand higher than
first quarter of 2005, but $8.4 million lower than net
charge-offs during the fourth quarter of 2005. The increased
expense in the fourth quarter of 2005 was greatly influenced by
the high volume of bankruptcies experienced in that period, as
discussed above.
The allowance for loan losses at March 31, 2006 was
$128.5 million, or 1.41% of total outstanding loans
compared to $128.4 million, or 1.44%, at December 31,
2005 and $131.0 million, or 1.56%, at March 31, 2005.
The decrease in the allowance for loan losses at March 31,
2006 compared to March 31, 2005 is a result of increased
credit quality. The Company considers the allowance for loan
losses adequate to cover losses inherent in the loan portfolio
at March 31, 2006.
Risk Elements of Loan Portfolio
The following table presents non-performing assets and loans
which are past due 90 days and still accruing interest.
Non-performing assets include non-accruing loans and foreclosed
real estate. Loans are placed on non-accrual status when
management does not expect to collect payments consistent with
acceptable and agreed upon terms of repayment. Loans that are
90 days past due as to principal and/or interest payments
are generally placed on non-accrual, unless they are both
well-secured and in the process of collection, or they are 1-4
family first mortgage loans or consumer loans that are exempt
under regulatory rules from being classified as non-accrual.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
March 31 |
|
December 31 |
(Dollars in thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Non-accrual loans
|
|
$ |
8,750 |
|
|
$ |
17,333 |
|
|
$ |
9,845 |
|
Foreclosed real estate
|
|
|
1,870 |
|
|
|
1,262 |
|
|
|
1,868 |
|
|
Total non-performing assets
|
|
$ |
10,620 |
|
|
$ |
18,595 |
|
|
$ |
11,713 |
|
|
Non-performing assets to total loans
|
|
|
.12 |
% |
|
|
.22 |
% |
|
|
.13 |
% |
Non-performing assets to total assets
|
|
|
.08 |
% |
|
|
.13 |
% |
|
|
.08 |
% |
|
Loans past due 90 days and still accruing interest
|
|
$ |
15,288 |
|
|
$ |
15,972 |
|
|
$ |
14,088 |
|
|
Non-accrual loans, which are also considered impaired, totaled
$8.8 million at March 31, 2006, and declined
$8.6 million from March 31, 2005 and $1.1 million
from December 31, 2005. The decline from March 31,
2005 was the result of decreases occurring in 2005 in
non-accrual business real estate, business and lease-related
loans. The decline from December 31, 2005 resulted mainly
from a decrease in business and lease-related non-accrual loans.
Lease-related loans comprised 27.8% of the March 31, 2006
non-accrual loan total, with the remainder primarily relating to
other business loans (27.6%) and business real estate loans
(34.2%).
Total loans past due 90 days or more and still accruing
interest amounted to $15.3 million as of March 31,
2006, which was $684 thousand lower than at March 31, 2005
and $1.2 million higher than at December 31, 2005. The
increase in the past due totals at March 31, 2006 compared
to December 31, 2005 resulted from growth of $763 thousand
in credit card loan delinquencies and $349 thousand in business
loan delinquencies.
In addition to the non-accrual loans mentioned above, the
Company also has identified loans for which management has
concerns about the ability of the borrowers to meet existing
repayment terms. They are primarily classified as substandard
for regulatory purposes. The loans are generally secured by
either real estate or other borrower assets, reducing the
potential for loss should they become non-performing. Although
these loans are generally identified as potential problem loans,
they may never become non-
22
performing. These loans totaled $46.5 million at
March 31, 2006 compared with $52.8 million at
December 31, 2005 and $68.9 million at March 31,
2005. The lower balance at March 31, 2006 resulted
primarily from customer payments or from changes in credit grade.
Income Taxes
Income tax expense was $25.8 million in the first quarter
of 2006, compared to $20.2 million in the fourth quarter of
2005 and $26.0 million in the first quarter of 2005. The
effective income tax rate on income from operations was 32.8% in
the first quarter of 2006, compared with 26.4% in the fourth
quarter of 2005 and 34.3% in the first quarter of 2005. The
effective tax rate was lower in the first quarter of 2006
compared to the same period in the previous year because of
earnings on higher average balances in state and municipal
investment securities, coupled with higher levels of income from
the Companys real estate investment trust subsidiaries,
which are not taxable in some states.
Financial Condition
Balance Sheet
Total assets of the Company were $13.7 billion at
March 31, 2006 compared to $13.9 billion at
December 31, 2005. Earning assets amounted to
$12.8 billion at both March 31, 2006 and
December 31, 2005, and at March 31, 2006 consisted of
72% loans and 28% investment securities.
During the first quarter of 2006, average loans increased
$223.1 million, or 2.5%, compared with the previous
quarter, and were up $646.2 million, or 7.7%, compared to
the same period last year. Compared to the fourth quarter of
2005, average business (includes commercial, lease and tax-free)
and business real estate loans grew by $106.3 million and
$94.4 million, respectively, as a result of both new
business and additional borrowings from existing customers.
Offsetting this growth was a decrease in average construction
loans of $41.3 million due to pay downs or transfers to
permanent status. Average student loans increased
$34.8 million due to seasonal borrowing activity. Average
credit card loans increased from the previous quarter by
$17.0 million, but average personal real estate loans
decreased from the previous quarter by $2.3 million due to
a decline in loan originations.
Available for sale investment securities, excluding fair value
adjustments, decreased on average $347.6 million, or 9.0%,
this quarter compared with the previous quarter. Investment
securities continue to decrease as maturities and pay downs are
used to fund loan growth. Purchases of available for sale
investment securities during the current quarter totaled
$57.9 million, and consisted of $20.5 million in
treasury and agency securities and $31.2 million in tax
free municipal obligations.
Total average deposits grew by $339.5 million, or 3.2%,
during the first quarter of 2006 compared to the fourth quarter
of last year, and were up 2.7% compared to the same period last
year. The increase over the fourth quarter of last year was the
result of growth in certificates of deposit, primarily in jumbo
certificates of deposit.
During the first quarter of 2006, average borrowings decreased
$416.5 million from the previous quarter, primarily due to
a decrease in federal funds purchased of $417.9 million, or
36.8%, and a decrease in Federal Home Loan advances of
$63.7 million, or 20.7%. The growth in deposits coupled
with the decline in investment securities provided the liquidity
to reduce this debt.
Liquidity and Capital Resources
Liquidity Management
The Companys most liquid assets are comprised of available
for sale marketable investment securities, federal funds sold,
and securities purchased under agreements to resell (resale
agreements). Federal funds sold and resale agreements totaled
$89.4 million at March 31, 2006. These investments
normally have overnight maturities and are used for general
daily liquidity purposes. The fair value of the available for
sale investment portfolio was $3.4 billion at
March 31, 2006, and included an unrealized loss of
$23.0 million. The portfolio includes maturities of
approximately $610 million over the next 12 months,
23
which offer substantial resources to meet either new loan demand
or reductions in the Companys deposit funding base. The
Company pledges portions of its investment securities portfolio
to secure public fund deposits, securities sold under agreements
to repurchase, trust funds, and borrowing capacity at the
Federal Reserve. At March 31, 2006, total investment
securities pledged for these purposes comprised 67% of the total
investment portfolio, leaving $1.2 billion of unpledged
securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
March 31 |
|
December 31 |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Liquid assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$ |
64,385 |
|
|
$ |
179,107 |
|
|
$ |
108,862 |
|
|
Securities purchased under agreements to resell
|
|
|
25,000 |
|
|
|
|
|
|
|
20,000 |
|
|
Available for sale investment securities
|
|
|
3,401,823 |
|
|
|
4,442,210 |
|
|
|
3,667,901 |
|
|
|
Total
|
|
$ |
3,491,208 |
|
|
$ |
4,621,317 |
|
|
$ |
3,796,763 |
|
|
Liquidity is also available from the Companys large base
of core customer deposits, defined as demand, interest checking,
savings, and money market deposit accounts. At March 31,
2006, such deposits totaled $7.9 billion and represented
70.5% of the Companys total deposits. These core deposits
are normally less volatile and are often tied to other products
of the Company through long lasting relationships. Time open and
certificates of deposit of $100,000 and over totaled
$1.4 billion at March 31, 2006. These accounts are
normally considered more volatile and higher costing, but
comprise just 12.2% of total deposits at March 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
March 31 |
|
December 31 |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Core deposit base:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$ |
1,418,387 |
|
|
$ |
1,347,994 |
|
|
$ |
1,399,934 |
|
|
Interest checking
|
|
|
464,597 |
|
|
|
438,419 |
|
|
|
511,583 |
|
|
Savings and money market
|
|
|
5,985,234 |
|
|
|
6,113,750 |
|
|
|
5,978,743 |
|
|
|
Total
|
|
$ |
7,868,218 |
|
|
$ |
7,900,163 |
|
|
$ |
7,890,260 |
|
|
Other important components of liquidity are the level of
borrowings from third party sources and the availability of
future credit. The Companys outside borrowings are
comprised of federal funds purchased, securities sold under
agreements to repurchase, and longer-term debt. Federal funds
purchased and securities sold under agreements to repurchase are
generally borrowed overnight, and amounted to
$901.9 million at March 31, 2006. Federal funds
purchased are obtained mainly from upstream correspondent banks
with whom the Company maintains approved lines of credit, while
securities sold under agreements to repurchase are comprised of
non-insured customer funds secured by a portion of the
Companys investment portfolio. The Companys
long-term debt is relatively small compared to the
Companys overall liability position. It is comprised
mainly of advances from the Federal Home Loan Bank of Des
Moines (FHLB), which totaled $241.7 million at
March 31, 2006. Most of these advances have floating rates
and mature in 2006. Other outstanding long-term borrowings
relate mainly to the Companys leasing and venture capital
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
March 31 |
|
December 31 |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$ |
438,879 |
|
|
$ |
1,225,070 |
|
|
$ |
849,504 |
|
|
Securities sold under agreements to repurchase
|
|
|
463,044 |
|
|
|
341,844 |
|
|
|
476,923 |
|
|
FHLB advances
|
|
|
241,733 |
|
|
|
366,886 |
|
|
|
251,776 |
|
|
Subordinated debentures
|
|
|
4,000 |
|
|
|
4,000 |
|
|
|
4,000 |
|
|
Other long-term debt
|
|
|
12,789 |
|
|
|
17,442 |
|
|
|
13,614 |
|
|
Other short-term debt
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,160,539 |
|
|
$ |
1,955,242 |
|
|
$ |
1,595,817 |
|
|
24
In addition to those mentioned above, several other sources of
liquidity are available. The Company believes that its sound
debt ratings of A-1
from Standard & Poors and
Prime-1 from
Moodys would ensure the ready marketability of its
commercial paper, should the need arise. No commercial paper has
been issued or outstanding during the past ten years. In
addition, the Company has temporary borrowing capacity at the
Federal Reserve discount window, for which it has pledged
$335.7 million in loans and $796.8 million in
investment securities. Also, because of its lack of significant
long-term debt, the Company believes that it could generate
additional liquidity through its Capital Markets Group from
sources such as jumbo certificates of deposit or privately
placed debt offerings. Future financing could also include the
issuance of common or preferred stock.
Cash and cash equivalents (defined as Cash and due from
banks and Federal funds sold and securities
purchased under agreements to resell as segregated in the
accompanying balance sheets) was $573.8 million at
March 31, 2006 compared to $674.1 million at
December 31, 2005. The $100.3 million decline resulted
from changes in the various cash flows resulting from the
operating, investing and financing activities of the Company, as
shown in the accompanying statement of cash flows for
March 31, 2006. The cash flow provided by operating
activities is considered a very stable source of funds and
consists mainly of net income adjusted for certain non-cash
items. Operating activities provided cash flow of
$112.4 million during the current quarter. Investing
activities, consisting mainly of purchases, sales and maturities
of available for sale securities and changes in the level of the
loan portfolio, used cash of $9.7 million. Most of the cash
outflow was due to a $243.3 million increase in the loan
portfolio and $66.4 million in purchases of investment
securities, partly offset by $307.6 million in proceeds
from sales and maturities of investment securities. Financing
activities used cash of $203.0 million, mainly due to a
$424.5 million decrease in overnight borrowings. In
addition, cash of $51.1 million was required by the
Companys treasury stock repurchase program. These cash
outflows were partly offset by a $295.2 million increase in
deposits. Future short-term liquidity needs arising from daily
operations are not expected to vary significantly, and the
Company believes it will be able to meet these cash flow needs.
Capital Management
The Company maintains strong regulatory capital ratios,
including those of its principal banking subsidiaries, which
exceed the well-capitalized guidelines under federal banking
regulations. Information about the Companys risk-based
capital is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Ratios |
|
|
for Well- |
|
|
March 31 |
|
December 31 |
|
Capitalized |
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Banks |
|
Risk-adjusted assets
|
|
$ |
10,752,849 |
|
|
$ |
10,611,322 |
|
|
|
|
|
Tier I capital
|
|
|
1,287,026 |
|
|
|
1,295,898 |
|
|
|
|
|
Total capital
|
|
|
1,436,277 |
|
|
|
1,446,408 |
|
|
|
|
|
Tier I capital ratio
|
|
|
11.97 |
% |
|
|
12.21 |
% |
|
|
6.00 |
% |
Total capital ratio
|
|
|
13.36 |
% |
|
|
13.63 |
% |
|
|
10.00 |
% |
Leverage ratio
|
|
|
9.43 |
% |
|
|
9.43 |
% |
|
|
5.00 |
% |
|
The Company maintains a treasury stock buyback program, and in
October 2005 was authorized by the Board of Directors to
repurchase up to 5,000,000 shares of its common stock. The
Company has routinely used these shares to fund its annual 5%
stock dividend and various stock compensation programs. During
the quarter ended March 31, 2006 the Company purchased
1,013,923 shares of treasury stock at an average cost of
$50.41 per share. At March 31, 2006,
3,074,293 shares remained available for purchase under the
current Board authorization.
The Companys common stock dividend policy reflects its
earnings outlook, desired payout ratios, the need to maintain
adequate capital levels, and alternative investment options. The
Company increased its per share cash dividend to $.245 in the
first quarter of 2006, an increase of 7% compared to the fourth
quarter of 2005, making 2006 the 38th consecutive year of
per share dividend increases.
25
Commitments and Off-Balance Sheet Arrangements
Various commitments and contingent liabilities arise in the
normal course of business which are not required to be recorded
on the balance sheet. The most significant of these are loan
commitments, which at March 31, 2006 totaled
$7.0 billion (including approximately $3.4 billion in
unused approved credit card lines). In addition, the Company
enters into standby and commercial letters of credit. These
contracts amounted to $423.7 million and
$19.4 million, respectively, at March 31, 2006. Since
many commitments expire unused or only partially used, these
totals do not necessarily reflect future cash requirements. The
carrying value of the guarantee obligations associated with the
standby letters of credit, which has been recorded as a
liability on the balance sheet, amounted to $6.3 million at
March 31, 2006. Management does not anticipate any material
losses arising from commitments and contingent liabilities and
believes there are no material commitments to extend credit that
represent risks of an unusual nature.
The Company periodically purchases various state tax credits
arising from third-party property redevelopment. Most of the tax
credits are resold to third parties, although some are retained
for use by the Company. During the first three months of 2006,
purchases and sales of tax credits amounted to $7.8 million
and $8.1 million, respectively, and at March 31, 2006,
outstanding purchase commitments totaled $58.7 million. The
Company has additional funding commitments arising from several
investments in private equity concerns, classified as
non-marketable investment securities in the accompanying
consolidated balance sheets, amounting to $3.0 million at
March 31, 2006. The Company also has unfunded commitments
relating to its investments in low-income housing partnerships,
which amounted to $2.2 million at March 31, 2006.
Segment Results
The table below is a summary of segment pre-tax income results
for the first three months of 2006 and 2005. Please refer to
Note 10 in the notes to the consolidated financial
statements for additional information about the Companys
operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31 |
|
Increase (decrease) |
|
|
|
|
|
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Amount |
|
Percent |
|
Consumer
|
|
$ |
55,818 |
|
|
$ |
39,173 |
|
|
$ |
16,645 |
|
|
|
42.5 |
% |
Commercial
|
|
|
34,486 |
|
|
|
32,351 |
|
|
|
2,135 |
|
|
|
6.6 |
|
Money management
|
|
|
8,598 |
|
|
|
7,252 |
|
|
|
1,346 |
|
|
|
18.6 |
|
|
|
Total segments
|
|
|
98,902 |
|
|
|
78,776 |
|
|
|
20,126 |
|
|
|
25.5 |
|
Other/elimination
|
|
|
(20,112 |
) |
|
|
(2,898 |
) |
|
|
(17,214 |
) |
|
|
(594.0 |
) |
|
Income before income taxes
|
|
$ |
78,790 |
|
|
$ |
75,878 |
|
|
$ |
2,912 |
|
|
|
3.8 |
% |
|
For the three months ended March 31, 2006, income before
income taxes for the Consumer segment increased
$16.6 million, or 42.5%. The growth was mainly due to an
$11.9 million, or 15.4%, increase in net interest income
and a $5.7 million increase in non-interest income. The
increase in net interest income resulted mainly from a
$29.4 million increase in allocated funding credits
assigned to the Consumer segment deposit portfolio, which more
than offset growth of $16.8 million in deposit interest
expense. The rising interest rate environment assigns a greater
value, and thus income, to customer deposits in this segment.
The increase in non-interest income resulted mainly from
increases in bank card fees (primarily debit card and corporate
card) and overdraft and return item charges. Non-interest
expense grew $1.9 million, or 2.7%, over the previous year
due to higher salaries expense, loan servicing costs, corporate
marketing expense, and assigned processing costs. These
increases were partly offset by a decline in corporate
management fees. Net loan charge-offs declined $961 thousand,
mainly relating to credit card loans.
For the three months ended March 31, 2006, income before
taxes for the Commercial segment increased $2.1 million, or
6.6%, compared to the same period in the previous year. Most of
the increase was due to a $3.3 million, or 7.2%, increase
in net interest income and a $1.1 million increase in
non-interest
26
income. Included in net interest income were higher allocated
funding credits, which increased for the same reasons as
mentioned in the Consumer segment above. Also, while interest on
loans grew by $21.5 million, this growth was offset by
higher assigned funding costs. Non-interest income increased as
a result of higher operating lease-related income. Non-interest
expense increased $754 thousand, or 2.2%, largely due to higher
salaries expense, partly offset by declines in loan servicing
costs and the provision for off-balance sheet credit exposures.
Net loan recoveries were $1.2 million in the first three
months of 2006, compared to net recoveries of $2.8 million
in the first three months of 2005.
Money Management segment pre-tax profitability for the three
months ended March 31, 2006 increased $1.3 million, or
18.6% over the previous year mainly due to higher non-interest
income, which was up $1.6 million, or 7.7%, mainly in trust
fees. Net interest income increased $686 thousand over the prior
year largely due to higher assigned funding credits assigned to
the deposit portfolio of this segment. Non-interest expense
increased $897 thousand mainly due to higher salaries expense
and proprietary mutual fund expense subsidies.
As shown in the table above, the pre-tax profitability in the
Other/ Elimination category decreased $17.2 million in the
first three months of 2006 compared to the same period in 2005.
This decrease was mainly the result of higher cost of funds
charges assigned to this category related to investment
securities.
Impact of Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 123 (revised), Share-Based Payment. The
revision requires entities to recognize the cost in their
statements of income of employee services received in exchange
for awards of equity instruments, based on the grant date fair
value of those awards. The Statement requires several accounting
changes in the areas of award modifications and forfeitures. It
contains additional guidance in several areas, including
measuring fair value, classifying an award as equity or as a
liability, and attributing compensation cost to reporting
periods. For calendar year companies, the Statement was
effective January 1, 2006. The Company implemented
provisions of the original Statement 123 beginning in 2003
and has recorded the cost of stock-based awards in its
statements of income. The Companys adoption of
Statement 123 (revised) is further discussed in the
Stock-Based Compensation note to the consolidated financial
statements, and did not have a material effect on its
consolidated financial statements in 2006.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error
Corrections. The Statement changes the requirements for
the accounting for and reporting of a change in accounting
principle. This Statement requires retrospective application to
prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions.
The Statement carries forward previously issued guidance on
reporting changes in accounting estimate (which shall be
accounted for in the period of change and future periods, if
affected) and errors in previously issued financial statements
(which shall be reported as a prior period adjustment by
restating the prior period financial statements). For calendar
year companies, the Statement was effective for accounting
changes and corrections of errors made after January 1,
2006. The Companys adoption of the Statement did not have
a material effect on its consolidated financial statements.
In February 2006, the FASB issued Statement of Financial
Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140. The Statement permits
fair value remeasurement for certain hybrid financial
instruments containing embedded derivatives, and clarifies the
derivative accounting requirements for interest and
principal-only strip securities and interests in securitized
financial assets. It also clarifies that concentrations of
credit risk in the form of subordination are not embedded
derivatives and eliminates a previous prohibition on qualifying
special-purpose entities from holding certain derivative
financial instruments. For calendar year companies, the
Statement is effective for all financial instruments acquired or
issued after January 1,
27
2007. The Company does not expect that adoption of the Statement
will have a material effect on its consolidated financial
statements.
In March 2006, the FASB issued Statement of Financial Accounting
Standards No. 156, Accounting for Servicing of
Financial Assets an amendment of FASB Statement
No. 140. The Statement specifies under what
situations servicing assets and servicing liabilities must be
recognized. It requires these assets and liabilities to be
initially measured at fair value and specifies acceptable
measurement methods subsequent to their recognition. Separate
presentation in the financial statements and additional
disclosures are also required. For calendar year companies, the
Statement is effective beginning January 1, 2007. The
Company does not expect that adoption of the Statement will have
a material effect on its consolidated financial statements.
Also in March 2006, the FASB issued Staff Position 85-4-1, which
provides initial and subsequent measurement guidance and
financial statement presentation and disclosure guidance for
investments by third-party investors in life settlement
contracts. The investments must be accounted for by either
(a) recognizing the initial investment at transaction price
plus direct external costs and capitalizing continuing costs,
with no gain recognized in earnings until the insured dies, or
(b) recognizing the initial investment at transaction price
and remeasuring the investment at fair value at each reporting
period, with fair value changes recognized in earnings as they
occur. For calendar year companies, the guidance in this Staff
Position must be applied beginning January 1, 2007. The
Company does not expect that adoption of the Staff Position will
have a material effect on its consolidated financial statements.
28
AVERAGE BALANCE SHEETS AVERAGE RATES AND
YIELDS
Three Months Ended March 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2006 |
|
First Quarter 2005 |
|
|
|
|
|
|
|
|
|
Interest |
|
Avg. Rates |
|
|
|
Interest |
|
Avg. Rates |
|
|
Average |
|
Income/ |
|
Earned/ |
|
Average |
|
Income/ |
|
Earned/ |
(Dollars in thousands) |
|
Balance |
|
Expense |
|
Paid |
|
Balance |
|
Expense |
|
Paid |
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$ |
2,542,482 |
|
|
$ |
39,085 |
|
|
|
6.23 |
% |
|
$ |
2,246,288 |
|
|
$ |
27,453 |
|
|
|
4.96 |
% |
|
Real estate construction
|
|
|
441,489 |
|
|
|
7,624 |
|
|
|
7.00 |
|
|
|
442,471 |
|
|
|
5,664 |
|
|
|
5.19 |
|
|
Real estate business
|
|
|
1,971,197 |
|
|
|
31,617 |
|
|
|
6.50 |
|
|
|
1,758,141 |
|
|
|
24,083 |
|
|
|
5.56 |
|
|
Real estate personal
|
|
|
1,358,445 |
|
|
|
18,630 |
|
|
|
5.56 |
|
|
|
1,335,024 |
|
|
|
17,447 |
|
|
|
5.30 |
|
|
Consumer
|
|
|
1,288,378 |
|
|
|
21,545 |
|
|
|
6.78 |
|
|
|
1,193,063 |
|
|
|
18,556 |
|
|
|
6.31 |
|
|
Home equity
|
|
|
447,188 |
|
|
|
7,966 |
|
|
|
7.22 |
|
|
|
412,356 |
|
|
|
5,560 |
|
|
|
5.47 |
|
|
Student
|
|
|
359,961 |
|
|
|
5,177 |
|
|
|
5.83 |
|
|
|
410,020 |
|
|
|
4,355 |
|
|
|
4.31 |
|
|
Credit card
|
|
|
577,537 |
|
|
|
18,576 |
|
|
|
13.04 |
|
|
|
546,946 |
|
|
|
15,652 |
|
|
|
11.61 |
|
|
Overdrafts
|
|
|
20,114 |
|
|
|
|
|
|
|
|
|
|
|
16,297 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
9,006,791 |
|
|
|
150,220 |
|
|
|
6.76 |
|
|
|
8,360,606 |
|
|
|
118,770 |
|
|
|
5.76 |
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government & federal agency
|
|
|
784,754 |
|
|
|
6,924 |
|
|
|
3.58 |
|
|
|
1,374,440 |
|
|
|
11,343 |
|
|
|
3.35 |
|
|
State & municipal obligations(A)
|
|
|
260,162 |
|
|
|
2,799 |
|
|
|
4.36 |
|
|
|
64,506 |
|
|
|
705 |
|
|
|
4.43 |
|
|
Mortgage and asset-backed securities
|
|
|
2,292,834 |
|
|
|
24,294 |
|
|
|
4.30 |
|
|
|
2,847,744 |
|
|
|
27,196 |
|
|
|
3.87 |
|
|
Trading securities
|
|
|
19,012 |
|
|
|
194 |
|
|
|
4.15 |
|
|
|
11,369 |
|
|
|
102 |
|
|
|
3.66 |
|
|
Other marketable securities(A)
|
|
|
193,850 |
|
|
|
2,496 |
|
|
|
5.22 |
|
|
|
217,628 |
|
|
|
1,680 |
|
|
|
3.13 |
|
|
Non-marketable securities
|
|
|
84,007 |
|
|
|
1,430 |
|
|
|
6.90 |
|
|
|
76,853 |
|
|
|
1,074 |
|
|
|
5.67 |
|
|
Total investment securities
|
|
|
3,634,619 |
|
|
|
38,137 |
|
|
|
4.26 |
|
|
|
4,592,540 |
|
|
|
42,100 |
|
|
|
3.72 |
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
141,750 |
|
|
|
1,623 |
|
|
|
4.64 |
|
|
|
84,987 |
|
|
|
584 |
|
|
|
2.79 |
|
|
Total interest earning assets
|
|
|
12,783,160 |
|
|
|
189,980 |
|
|
|
6.03 |
|
|
|
13,038,133 |
|
|
|
161,454 |
|
|
|
5.02 |
|
|
Less allowance for loan losses
|
|
|
(128,433 |
) |
|
|
|
|
|
|
|
|
|
|
(131,872 |
) |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
(8,744 |
) |
|
|
|
|
|
|
|
|
|
|
47,966 |
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
480,609 |
|
|
|
|
|
|
|
|
|
|
|
560,346 |
|
|
|
|
|
|
|
|
|
Land, buildings and equipment, net
|
|
|
371,538 |
|
|
|
|
|
|
|
|
|
|
|
353,732 |
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
208,123 |
|
|
|
|
|
|
|
|
|
|
|
202,080 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
13,706,253 |
|
|
|
|
|
|
|
|
|
|
$ |
14,070,385 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$ |
383,869 |
|
|
|
509 |
|
|
|
.54 |
|
|
$ |
403,844 |
|
|
|
310 |
|
|
|
.31 |
|
|
Interest checking and money market
|
|
|
6,660,495 |
|
|
|
19,098 |
|
|
|
1.16 |
|
|
|
6,702,221 |
|
|
|
10,147 |
|
|
|
.61 |
|
|
Time open & C.D.s of less than $100,000
|
|
|
1,881,277 |
|
|
|
16,731 |
|
|
|
3.61 |
|
|
|
1,664,823 |
|
|
|
10,392 |
|
|
|
2.53 |
|
|
Time open & C.D.s of $100,000 and over
|
|
|
1,286,151 |
|
|
|
13,187 |
|
|
|
4.16 |
|
|
|
979,011 |
|
|
|
6,352 |
|
|
|
2.63 |
|
|
Total interest bearing deposits
|
|
|
10,211,792 |
|
|
|
49,525 |
|
|
|
1.97 |
|
|
|
9,749,899 |
|
|
|
27,201 |
|
|
|
1.13 |
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,226,822 |
|
|
|
12,581 |
|
|
|
4.16 |
|
|
|
1,655,050 |
|
|
|
9,418 |
|
|
|
2.31 |
|
|
Other borrowings(B)
|
|
|
260,580 |
|
|
|
2,786 |
|
|
|
4.34 |
|
|
|
388,771 |
|
|
|
2,841 |
|
|
|
2.96 |
|
|
Total borrowings
|
|
|
1,487,402 |
|
|
|
15,367 |
|
|
|
4.19 |
|
|
|
2,043,821 |
|
|
|
12,259 |
|
|
|
2.43 |
|
|
Total interest bearing liabilities
|
|
|
11,699,194 |
|
|
|
64,892 |
|
|
|
2.25 |
% |
|
|
11,793,720 |
|
|
|
39,460 |
|
|
|
1.36 |
% |
|
Non-interest bearing demand deposits
|
|
|
597,492 |
|
|
|
|
|
|
|
|
|
|
|
772,869 |
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
79,233 |
|
|
|
|
|
|
|
|
|
|
|
95,382 |
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,330,334 |
|
|
|
|
|
|
|
|
|
|
|
1,408,414 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
13,706,253 |
|
|
|
|
|
|
|
|
|
|
$ |
14,070,385 |
|
|
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
|
|
|
|
$ |
125,088 |
|
|
|
|
|
|
|
|
|
|
$ |
121,994 |
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
3.79 |
% |
|
|
|
(A) |
Stated on a tax equivalent basis using a federal income tax
rate of 35%. |
(B) |
Interest expense capitalized on construction projects is not
deducted from the interest expense shown above. |
29
|
|
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
Interest rate risk management focuses on maintaining consistent
growth in net interest income within Board-approved policy
limits. The Company primarily uses earnings simulation models to
analyze net interest sensitivity to movement in interest rates.
The Company performs monthly simulations which model interest
rates movements and risk in accordance with changes to its
balance sheet composition. For further discussion of the
Companys market risk, see the Interest Rate Sensitivity
section of Managements Discussion and Analysis of
Consolidated Financial Condition and Results of Operations
included in the Companys 2005 Annual Report on
Form 10-K.
The table below shows the effect that gradual rising and/or
falling interest rates over a twelve month period would have on
the Companys net interest income given a static balance
sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
March 31, 2005 |
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
$ Change in |
|
% Change in |
|
$ Change in |
|
% Change in |
|
$ Change in |
|
% Change in |
|
|
Net Interest |
|
Net Interest |
|
Net Interest |
|
Net Interest |
|
Net Interest |
|
Net Interest |
(Dollars in millions) |
|
Income |
|
Income |
|
Income |
|
Income |
|
Income |
|
Income |
|
200 basis points rising
|
|
$ |
(2.6 |
) |
|
|
(.52 |
)% |
|
$ |
(8.4 |
) |
|
|
(1.69 |
)% |
|
$ |
(5.8 |
) |
|
|
(1.14 |
)% |
100 basis points rising
|
|
|
(.2 |
) |
|
|
(.04 |
) |
|
|
(3.8 |
) |
|
|
(.77 |
) |
|
|
(1.9 |
) |
|
|
(.37 |
) |
100 basis points falling
|
|
|
(1.5 |
) |
|
|
(.29 |
) |
|
|
1.4 |
|
|
|
.30 |
|
|
|
(1.7 |
) |
|
|
(.33 |
) |
200 basis points falling
|
|
|
(4.9 |
) |
|
|
(.96 |
) |
|
|
NM |
|
|
|
NM |
|
|
|
(4.7 |
) |
|
|
(.93 |
) |
|
NM At March 31, 2005, a projection under a
200 basis points falling scenario was not meaningful due to
the low interest rate environment at the time.
The table reflects a slight decrease in the exposure of the
Companys net interest income to rising rates during the
first quarter of 2006. As of March 31, 2006, under a
200 basis point rising rate scenario, net interest income
is expected to decrease by $2.6 million, compared with a
decline of $5.8 million at December 31, 2005 and a
decline of $8.4 million at March 31, 2005. Under a
100 basis point increase, as of March 31,
2006 net interest income is expected to decline only
slightly compared with declines of $1.9 million at
December 31, 2005 and $3.8 million at March 31,
2005. The Companys exposure to declining rates during the
current quarter remained relatively unchanged from the prior
quarter, as under a 100 basis point falling rate scenario
net interest income would decrease by $1.5 million compared
with a $1.7 million decline in the previous quarter, while
under a 200 basis point decline, net interest income would
decline by $4.9 million compared with $4.7 million in
the prior quarter.
The improvement in overall interest rate risk in the current
quarter, as it relates to rising rates, results from a number of
factors, including growth in variably priced loans, the
continued reduction in the Companys investment securities
portfolio (which is comprised mostly of fixed rate investments)
and growth in certificate of deposit accounts with specific
terms. Also, the Company was able to reduce its average balance
of short-term borrowings this quarter, mainly in federal funds
purchased which are impacted by increases in short-term interest
rates. The same factors which reduce interest rate risk in a
rising rate environment also slightly increase risk in a falling
rate environment, as a greater proportion of interest sensitive
assets are susceptible to repricing while a greater percentage
of deposit accounts have fixed rates and specified maturities.
The Company believes that its approach to interest rate risk has
appropriately considered its susceptibility to both rising and
falling rates and has adopted strategies which minimized impacts
to overall interest rate risk.
Item 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in
Exchange Act
Rules 13a-15(e)
and 15d-15(e)) as of
March 31, 2006. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were
effective. There were not any significant changes in the
Companys internal control over
30
financial reporting that occurred during the last fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
PART II: OTHER INFORMATION
|
|
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS |
The following table sets forth information about the
Companys purchases of its $5 par value common stock,
its only class of stock registered pursuant to Section 12
of the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Total Number of |
|
Maximum Number |
|
|
Number |
|
Average |
|
Shares Purchased |
|
that May Yet Be |
|
|
of Shares |
|
Price Paid |
|
as part of Publicly |
|
Purchased Under the |
Period |
|
Purchased |
|
per Share |
|
Announced Program |
|
Program |
|
January 1 31, 2006
|
|
|
386,792 |
|
|
$ |
50.40 |
|
|
|
386,792 |
|
|
|
3,701,424 |
|
February 1 28, 2006
|
|
|
620,785 |
|
|
$ |
50.40 |
|
|
|
620,785 |
|
|
|
3,080,639 |
|
March 1 31, 2006
|
|
|
6,346 |
|
|
$ |
51.87 |
|
|
|
6,346 |
|
|
|
3,074,293 |
|
|
Total
|
|
|
1,013,923 |
|
|
$ |
50.41 |
|
|
|
1,013,923 |
|
|
|
3,074,293 |
|
|
In October 2005, the Board of Directors approved the purchase of
up to 5,000,000 shares of the Companys common stock.
At March 31, 2006, 3,074,293 shares remain available
to be purchased under the current authorization.
Item 6. EXHIBITS
See Index to Exhibits
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
Commerce Bancshares, Inc.
|
|
|
|
|
By |
/s/ J. Daniel Stinnett
|
|
|
|
|
|
J. Daniel Stinnett |
|
Vice President & Secretary |
Date: May 8, 2006
|
|
|
|
By |
/s/ Jeffery D. Aberdeen
|
|
|
|
|
|
Jeffery D. Aberdeen |
|
Controller |
|
(Chief Accounting Officer) |
Date: May 8, 2006
32
INDEX TO EXHIBITS
31.1 Certification of CEO pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of CFO pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certifications of CEO and CFO pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
33