Commerce Bancshares, Inc. Reports First Nine Months Earnings Per Share Growth of 3%.KANSAS CITY Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). , Mo. -- Commerce Bancshares This article is about the bank headquartered in Kansas City, Missouri. For other uses, see Commerce Bank. Commerce Bancshares (NASDAQ: CBSH) is a Kansas City, Missouri based bank with branches in Kansas, Missouri, Illinois, and Oklahoma. , Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : CBSH) announced earnings of $2.41 per share for the nine months ended September September: see month. 30, 2006, an increase of 3% compared to $2.35 per share during the same period in 2005. Net income for the first nine months of 2006 amounted to $162.8 million compared with $167.0 million in the same period last year. The return on average assets for the first nine months ended September 30, 2006 was 1.56%, and the return on average equity was 16.1%. The efficiency ratio was 61.1%. For the three months ended September 30, 2006, earnings per share totaled $.81, a decrease of 9% compared with $.89 in the third quarter of 2005. Net income amounted to $54.5 million compared with $62.8 million in the same period last year, which included non-recurring tax benefits of $10.3 million or $.14 per share. The return on average assets for the three months ended September 30, 2006 was 1.50% and the return on average equity was 15.6%. In making this announcement, David W. Kemper, Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , said, "Despite a difficult interest rate environment, total revenues grew 3% for the first nine months when compared to the same period last year. Over this same period, average loans grew by 9%. This growth enhanced our earning asset Earning asset An asset that generates income, e.g., income from rental property. mix while offsetting pressure on our interest margin. For the first nine months, fee revenue, led by our payment systems business, increased 6%. These factors, as well as low levels of net loan charge-offs, generated net income growth of 4% year over year, exclusive of one-time tax benefits recognized in the third quarter last year. Excluding these tax benefits, earnings per share for the first nine months of 2006 has grown 9%." Mr. Kemper added, "Asset quality remained strong in the third quarter with annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. net loan charge-offs totaling .33% of average loans compared with .42% in the same quarter last year, as a result of lower losses in our credit card loan portfolio. Our allowance for loan losses totaled $131.8 million, or 1.34% of total outstanding loans, at the end of the third quarter." Total assets at September 30, 2006 were $15.2 billion, total loans were $9.8 billion, and total deposits were $11.6 billion. At September 30, 2006, non-performing loans A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms. totaled $18.8 million or .19% of total loans. During the quarter, the Company completed the merger of West Pointe pointe n. In ballet, dancing that is performed on the tips of the toes. [From French pointe (des pieds), point (of the feet), tiptoe; see point.] Bancorp, Inc., Belleville, Illinois Belleville is a city in St. Clair County, Illinois, United States. The population was 41,410 at the 2000 census. It is the county seat of St. Clair County,GR6 , a one bank holding company with assets of $460 million, loans of $255 million and deposits of $381 million. Also, the Company completed the purchase of the banking business of Boone National Savings This article is about the economic term. For the United Kingdom government-run savings institution previously known as National Savings, see National Savings and Investments. and Loan Association, Columbia, Missouri
Columbia (IPA: /kə.lʌm.bi.ə) is the fifth largest city in Missouri and the largest city in central Missouri. which had total loans and deposits of $127 million and $101 million, respectively. Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in approximately 360 locations in Missouri Missouri, state, United States Missouri (mĭz  r`ē, –ə), one of the midwestern states of the United States. , Illinois Illinois, river, United StatesIllinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. , and Kansas. The Company also has operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. involved in mortgage banking, credit related insurance, venture capital, and real estate activities. Posted to the Company's web site is management's discussion of third quarter results. To see this information, please visit our web site at www.commercebank.com. [TABLE OMITTED] COMMERCE BANCSHARES, INC. Management Discussion of Third Quarter Results September 30, 2006 For the quarter ended September 30, 2006, net income amounted to $54.5 million, a decrease of 13.1% from the same quarter last year. Excluding non-recurring tax benefits of $10.3 million recorded in the 3rd quarter of 2005, net income in the current quarter increased 3.9% over the same period last year. For the current quarter, the return on average assets was 1.5%, the return on average equity was 15.6%, and the efficiency ratio was 61.2%. Compared to the 3rd quarter of last year, net interest income increased 2.3%, while non-interest income was up 4.3% and the provision for loan losses declined by 15.2%. Additionally, non-interest expense grew by 8.1% over the same period last year. During the quarter the Company completed its acquisition of West Pointe Bancorp Inc. and the purchase of the banking business of Boone National Savings and Loan Association. Balance Sheet Review During the 3rd quarter of 2006, average loans increased $318.7 million, or 3.5%, compared to the previous quarter, representing annualized growth of 13.8%. Average loans also increased $938.3 million, or 10.9%, compared to the same period last year. As part of the acquisition of both West Pointe and Boone, the Company added loans with a combined quarterly average balance of $178.6 million comprised mainly of business, business real estate and personal real estate loans. Compared to the 2nd quarter of 2006 and excluding these acquired loans, average loans grew by $140.1 million, or 6.1%, on an annualized basis. This internal growth was from increased construction, personal real estate, consumer banking and credit card lending, which grew $53.3 million, $35.3 million, $34.5 million, and $22.4 million respectively. Business loans declined on average by $14.9 million, while home equity loans declined by $5.4 million. Available for sale investment securities, excluding fair value adjustments, increased on average by $43.1 million, or 1.3%, this quarter compared with the previous quarter. As part of the West Pointe acquisition, $46.8 million was added to the overall investment portfolio quarterly average balances. During the quarter, the Company sold securities comprised mainly of asset-backed securities Asset-backed security A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate. asset-backed security A debt security collateralized by specific assets. with a par value of $145.2 million and recorded a pre-tax loss of $2.1 million. Also in the current quarter, the Company purchased investments of approximately $433 million, mainly consisting of CMO's and municipal securities. Total average deposits increased by $234.0 million, or 2.1%, during the 3rd quarter compared to the previous quarter and included the acquisition of West Pointe and Boone average deposits of approximately $198.6 million. Excluding these acquired balances, average deposits grew by $35.4 million over the previous quarter mainly due to growth in certificates of deposit ($135.5 million) and premium money market accounts ($19.7 million), partially offset by a decline in interest checking and other money market type deposits. The average loans to deposits ratio for the quarter amounted to 85.4%. Average borrowings increased $324.8 million in the current quarter compared to the prior quarter mainly due to an increase of $324.0 million in repurchase agreement Repurchase agreement An agreement with a commitment by the seller (dealer) to buy a security back from the purchaser (customer) at a specified price at a designated future date. liabilities. This growth is partly due to increased customer activity, but also the result of the Company acquiring $288.0 million in structured repurchase agreements to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. interest rate risk. The increase in repurchase agreement borrowings
reduced overnight Federal Funds Federal FundsFunds deposited to regional Federal Reserve Banks by commercial banks, including funds in excess of reserve requirements. Notes: These non-interest bearing deposits are lent out at the Fed funds rate to other banks unable to meet overnight reserve purchases. Net Interest Income Net interest income in the 3rd quarter of 2006 amounted to $128.8 million, an increase of $2.3 million, or 1.8%, compared with the previous quarter and an increase of $2.9 million, or 2.3%, compared to the 3rd quarter of last year. During the 3rd quarter of 2006, the net yield on earning assets Earning Assets Any income-earning asset owned by a company. Notes: These assets are generally interest-bearing accounts, bonds, and securities available for sale. See also: Asset, Asset Valuation, Earnings, Net Interest Margin (tax-equivalent) was 3.84%, compared with 3.98% in the previous quarter and 3.86% in the same period last year. The increase of $2.3 million in net interest income in the 3rd quarter of 2006 over the previous quarter was mainly the result of growth in loan interest income of approximately $12.2 million due to increases in both rates and average balances, coupled with an increase in interest income on both investment securities and reverse repurchase agreement Reverse Repurchase Agreement The purchase of securities with the agreement to sell them at a higher price at a specific future date. For the party selling the security (and agreeing to repurchase it in the future) it is a repo for the party on the other end of the assets, which also earned higher rates on increased balances. Offsetting this increase in interest income was higher interest expense of $8.9 million on interest-bearing deposits due to higher rates on most deposit products and growth in balances in various certificate of deposit products. Also, interest expense increased on other borrowings $5.9 million due to higher balances and rates on both Federal funds and repurchase agreement borrowings. During the current quarter, the overall tax equivalent yield on interest earning assets increased 17 basis points to 6.42%, while the overall cost of interest bearing liabilities increased 34 basis points to 2.83%. Non-Interest Income For the 3rd quarter of 2006, total non-interest income amounted to $90.7 million, an increase of 4.3% compared to $86.9 million in the same period last year, and decreased slightly from $91.5 million in the previous quarter. Compared with the same period last year, this growth was mainly the result of higher bank card and trust fee income and higher gains on venture capital investments, partially offset by lower deposit account fees and lower gains on sales of student loans. Bank card fees for the quarter increased 10.0% over the same period last year, mainly from continued growth in fees earned on debit A monetary amount that is subtracted from an account balance. A debit from one account is a credit to another. See credit. and corporate card transactions, which grew by 21.7% and 18.9%, respectively. Trust fees for the quarter increased 2.6% over the same quarter last year as a result of higher fees on personal and corporate trust accounts. Deposit account fees decreased $1.5 million, or 4.8%, compared with the 3rd quarter of 2005, due to lower fees earned on overdrafts, which were down $1.3 million as a result of lower overdraft A check that is drawn on an account containing less money than the amount stated on the check. The term overdraft is also used in reference to the condition that exists when vouchers volumes. During the current quarter, gains on sales of student loans totaled $900 thousand, compared with $1.1 million in the same period last year and $1.8 million in the previous quarter. Other non-interest income increased $563 thousand over the same period last year as a result of increased income on leasing activities, higher sweep, ATM, and check sale fees. The ratio of non-interest income to total revenue, excluding net securities gains, was 40.4% in the 3rd quarter of 2006. Net securities gains amounted to $3.3 million for the 3rd quarter of 2006, which compared to $3.3 million in the previous quarter and $289 thousand in the 3rd quarter of 2005. Included in the 3rd quarter of 2006 was a gain of $2.2 million on the sale of MasterCard Inc. restricted shares the Company recently received, as well as realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. and fair value adjustments of $3.3 million on certain private equity investments held by the Company's venture capital subsidiaries. Minority interests related to the private equity gains totaled $507 thousand and was reported in other expense. Additionally, the Company sold certain asset-backed securities this quarter and recorded a pre-tax loss of $2.1 million. Non-Interest Expense Non-interest expense for the current quarter amounted to $132.3 million, an increase of $9.9 million, or 8.1%, compared with amounts recorded in the same period last year and was $2.8 million higher than amounts recorded in the prior quarter. Compared with the 3rd quarter of last year, salaries and benefits expense increased $5.5 million, or 8.2%, mainly as a result of higher full-time salaries (partly due to bank acquisitions in the 3rd quarter) and higher medical insurance costs, which were up $1.4 million over the same period last year. Full-time equivalent Full-time equivalent (FTE) is a way to measure a worker's involvement in a project, or a student's enrollment at an educational institution. An FTE of 1.0 means that the person is equivalent to a full-time worker, while an FTE of 0.5 signals that the worker is only half-time. employees totaled 4,900 and 4,827 at September 30, 2006 and 2005, respectively. Occupancy costs Occupancy costs are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. Occupancy costs are those costs related to occupying a space including; rent, real estate taxes, personal grew 7.1% over the same quarter last year, mainly a result of higher depreciation and outside rent expense. Equipment expense increased $1.3 million, or 21.8%, due in part to equipment moving costs associated with the relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. of a check processing function in the 3rd quarter. Data processing data processing or information processing, operations (e.g., handling, merging, sorting, and computing) performed upon data in accordance with strictly defined procedures, such as recording and summarizing the financial transactions of a expenses increased 6.6% due to higher software amortization charges, while lower telephone and network costs resulted in a reduction in overall supplies and communication costs of 4.6%. The increase in other expense over the same quarter last year resulted mainly from higher costs for minority interests, operating lease Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. depreciation and legal and professional costs. Income Taxes During the 3rd quarter of 2006, income tax expense amounted to $25.0 million, a decrease of $2.4 million from the previous quarter, but $6.4 million greater than the same quarter last year. The effective tax rate for the Company was 31.4% for the current quarter, compared with a rate of 33.1% in the previous quarter, and 22.9% in the 3rd quarter of 2005. The low effective tax rate in the 3rd quarter of 2005 resulted from the recognition of non-recurring tax benefits of $10.3 million mentioned above. Credit Quality Net loan charge-offs for the 3rd quarter of 2006 amounted to $7.9 million, compared with $5.7 million in the prior quarter and $9.1 million in the 3rd quarter of last year. The increase in net charge-offs in the 3rd quarter of 2006 compared to the previous quarter was the result of higher personal banking, credit card and overdraft charge-offs. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. , the ratio of net loan charge-offs to total average loans was .26% compared to .31% last year. For the 3rd quarter of 2006, annualized net charge-offs on average credit card loans were 3.00%, compared with 4.19% in the same quarter last year and 3.01% in the 2nd quarter of 2006. The provision for loan losses for the quarter totaled $7.6 million, and was $1.9 million higher than the 2nd quarter 2006, but was $1.4 million lower than the 3rd quarter 2005 provision. The allowance for loan losses at September 30, 2006 amounted to $131.8 million, or 1.34%, of total loans. Total non-performing assets amounted to $20.2 million, an increase of $4.3 million over the previous quarter and .21% of loans outstanding. Non-performing assets are comprised of non-accrual loans ($18.8 million) and foreclosed real estate ($1.4 million). Loans past due more than 90 days and still accruing interest totaled $16.3 million at September 30, 2006. Other The Company maintains a treasury stock buyback Stock buyback A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share. stock buyback See buyback. program. In October 2005, the Board of Directors approved the purchase of up to 5,000,000 shares of the Company's common stock. During the quarter ended September 30, 2006, the Company purchased 82 thousand shares of treasury stock at an average cost of $50.25 per share. Forward Looking Information This information contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. [TABLE OMITTED] |
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