Commerce Bancshares, Inc. Announces Third Quarter Earnings Per Common Share of $.66

KANSAS CITY, Mo.--()--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.66 per common share for the three months ended September 30, 2015 compared to $.75 per share in the prior quarter and $.69 per share in the third quarter of 2014. Net income attributable to Commerce Bancshares, Inc. for the third quarter amounted to $64.6 million, compared to $74.4 million in the prior quarter and $68.2 million in the same quarter last year. For the quarter, the return on average assets was 1.09%, the return on average common equity was 11.25% and the efficiency ratio was 62.5%.

For the nine months ended September 30, 2015, earnings per common share totaled $2.02 compared to $1.99 in 2014. Net income attributable to Commerce Bancshares, Inc. amounted to $200.0 million for the nine months ended September 30, 2015 compared to $199.0 million in 2014. For the first nine months of 2015, the return on average assets was 1.13%, and the return on average common equity was 11.6%.

In announcing these results, David W. Kemper, Chairman and CEO, said, “We continue to experience solid loan growth in both our commercial and consumer businesses. Average loans this quarter grew by $211.0 million, or 7% annualized, as a result of increased business, construction, personal real estate, automobile and credit card lending activities. Our net interest margin declined to 3.0% this quarter, down 4 basis points due to lower earnings on our inflation-protected securities. However, growth in average loans has increased net interest income and helped to stabilize our margin. Non-interest income decreased 1.0% from the third quarter of 2014, mostly due to the sale of several branches last year and lower credit card fees this quarter, but trust and brokerage revenues continue to grow. Non-interest expense increased 5.8% over the same period last year, mainly due to investments made in both people and technology which support a number of initiatives in process.”

Mr. Kemper continued, “Net loan charge-offs this quarter remain low, totaling $8.4 million compared to $8.8 million in the prior quarter and $7.7 million in the same quarter last year. Total net loan charge-offs to average loans also remained stable and totaled .28% this quarter compared to .30% in the previous quarter and .27% last year. During the current quarter, the provision for loan losses totaled $8.4 million and the allowance for loan losses amounted to $151.5 million, or 1.24% of period-end loans. Total non-performing assets declined $2.0 million this quarter and totaled $28.8 million at September 30, 2015.”

Total assets at September 30, 2015 were $24.0 billion, total loans were $12.2 billion, and total deposits were $19.0 billion. During the quarter, the Company paid a common cash dividend of $.225 per share and a 6% cash dividend on its preferred stock, issued in 2014. Also, in August 2015 the Company completed its previously announced $100 million accelerated stock repurchase agreement, as more fully described in the accompanying “Management Discussion of Third Quarter Results.”

Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in approximately 350 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in mortgage banking, credit related insurance, and private equity activities.

This financial news release, including management's discussion of third quarter results, is posted to the Company's web site at www.commercebank.com.

* * * * * * * * * * * * * * *
For additional information, contact
Jeffery Aberdeen, Controller
at 1000 Walnut Street, Suite 700
Kansas City, MO 64106
or by telephone at (816) 234-2081
Web Site: http://www.commercebank.com
Email: mymoney@commercebank.com

   

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS

         
For the Three Months Ended For the Nine Months Ended
(Unaudited)   June 30,
2015 		 

September 30,
2015

  September 30,
2014 		  September 30,
2015 		  September 30,
2014
FINANCIAL SUMMARY (In thousands, except per share data)  
Net interest income $163,657   $162,038   $154,716 $471,833 $468,275
Taxable equivalent net interest income 171,037 169,512 161,827 493,897 489,477
Non-interest income 114,092 111,148 112,286 331,666 323,676
Investment securities gains (losses), net 2,143 (378 ) 2,995 7,800 10,474
Provision for loan losses 6,757 8,364 7,652 19,541 24,867
Non-interest expense 165,320 171,262 161,840 500,279 486,355
Net income attributable to Commerce Bancshares, Inc. 74,353 64,612 68,185 200,020 199,029
Net income available to common shareholders 72,103 62,362 66,385 193,270 197,229
Earnings per common share:
Net income — basic $.75 $.67 $.69 $2.03 $2.00
Net income — diluted $.75 $.66 $.69 $2.02 $1.99
Cash dividends $.225 $.225 $.214 $.675 $.643
Cash dividends on common stock 21,353 20,936 20,654 64,041 63,575
Cash dividends on preferred stock 2,250 2,250 1,800 6,750 1,800
Diluted wtd. average shares o/s   94,702     92,269     95,516     94,174     98,010  
RATIOS
Average loans to deposits (1) 60.75 % 62.44 % 60.72 % 60.97 % 59.93 %
Return on total average assets 1.26 % 1.09 % 1.20 % 1.13 % 1.18 %
Return on average common equity (2) 12.91 % 11.25 % 12.30 % 11.62 % 11.88 %
Non-interest income to revenue (3) 41.08 % 40.69 % 42.05 % 41.28 % 40.87 %
Efficiency ratio (4)   59.36 %   62.53 %   60.43 %   62.10 %   61.21 %
NET LOAN CHARGE-OFFS (RECOVERIES)
Net total loan charge-offs (recoveries) $8,757 $8,364 $7,652 $24,541 $24,867
Business (239 ) (175 ) (145 ) (255 ) 130
Real estate — construction and land (309 ) (67 ) (477 ) (1,322 ) (1,400 )
Real estate — business 764 (22 ) (123 ) 493 339
Consumer credit card 6,424 5,784 5,898 18,560 18,636
Consumer 1,849 2,435 2,054 6,027 6,248
Revolving home equity 103 49 150 192 (88 )
Real estate — personal (47 ) (69 ) 153 (17 ) 335
Overdraft   212     429     142     863     667  
AT PERIOD END
Book value per common share $23.26 $23.97 $22.27
Market value per common share $46.77 $45.56 $42.51
Allowance for loan losses as a percentage of loans 1.27 % 1.24 % 1.41 %
Tier I leverage ratio (5) 9.08 % 9.31 % 9.37 %
Tangible common equity to assets ratio (6) 8.58 % 8.72 % 8.85 %
Common shares outstanding 93,332,921 92,867,931 96,271,327
Number of bank/ATM locations 349 347 351
Full-time equivalent employees   4,768     4,770     4,740  
OTHER QTD INFORMATION
High market value per common share $48.00 $48.70 $45.38
Low market value per common share   $41.53     $42.45     $42.23  

(1)

 

Includes loans held for sale.

(2)

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(3)

Revenue includes net interest income and non-interest income.

(4)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(5)

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

(6)

The tangible common equity ratio is calculated as stockholders’ equity reduced by preferred stock, goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

         
  For the Three Months Ended   For the Nine Months Ended
(Unaudited)

(In thousands, except per share data)

  June 30,
2015 		 

September 30,
2015

  September 30,
2014 		  September 30,
2015 		  September 30,
2014
Interest income $170,577   $169,115   $161,811 $492,674   $489,376
Interest expense 6,920   7,077   7,095     20,841   21,101  
Net interest income 163,657 162,038 154,716 471,833 468,275
Provision for loan losses 6,757   8,364   7,652     19,541   24,867  
Net interest income after provision for loan losses 156,900   153,674   147,064     452,292   443,408  
NON-INTEREST INCOME
Bank card transaction fees 45,672 44,635 44,802 132,606 130,963
Trust fees 30,531 29,630 28,560 89,747 82,898
Deposit account charges and other fees 19,637 20,674 20,161 58,810 58,460
Capital market fees 2,738 2,620 2,783 8,360 9,899
Consumer brokerage services 3,364 3,547 3,098 10,099 8,817
Loan fees and sales 2,183 1,855 1,367 6,127 3,787
Other 9,967   8,187   11,515     25,917   28,852  
Total non-interest income 114,092   111,148   112,286     331,666   323,676  
INVESTMENT SECURITIES GAINS (LOSSES), NET
Change in fair value of other-than-temporarily impaired securities (88 ) (568 ) (770 ) (883 ) (1,618 )
Portion recognized in other comprehensive income (378 ) 568   399     400   270  
Net impairment losses recognized in earnings (466 ) — (371 ) (483 ) (1,348 )
Realized gains (losses) on sales and fair value adjustments 2,609   (378 ) 3,366     8,283   11,822  
Investment securities gains (losses), net 2,143   (378 ) 2,995     7,800   10,474  
NON-INTEREST EXPENSE
Salaries and employee benefits 99,655 100,874 95,462 298,603 284,574
Net occupancy 10,999 11,247 11,585 33,807 34,352
Equipment 4,679 4,789 4,593 14,171 13,622
Supplies and communication 5,226 5,609 5,302 16,416 16,487
Data processing and software 21,045 21,119 19,968 61,670 58,633
Marketing 4,307 4,343 4,074 12,568 11,704
Deposit insurance 3,019 2,981 2,899 9,001 8,685
Other 16,390   20,300   17,957     54,043   58,298  
Total non-interest expense 165,320   171,262   161,840     500,279   486,355  
Income before income taxes 107,815 93,182 100,505 291,479 291,203
Less income taxes 32,492   27,969   31,484     88,929   92,161  
Net income 75,323 65,213 69,021 202,550 199,042
Less non-controlling interest expense 970   601   836     2,530   13  
Net income attributable to Commerce Bancshares, Inc. 74,353 64,612 68,185 200,020 199,029
Less preferred stock dividends 2,250   2,250   1,800     6,750   1,800  
Net income available to common shareholders $72,103   $62,362   $66,385     $193,270   $197,229  
Net income per common share — basic $.75   $.67   $.69     $2.03   $2.00  
Net income per common share — diluted   $.75     $.66     $.69     $2.02     $1.99  
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

             
(Unaudited)

(In thousands)

  June 30,
2015 		  September 30,
2015 		  September 30,
2014
ASSETS      
Loans $ 11,928,481 $ 12,224,274 $ 11,445,715
Allowance for loan losses (151,532 ) (151,532 ) (161,532 )
Net loans 11,776,949   12,072,742   11,284,183  
Loans held for sale 7,852 4,143 —
Investment securities:
Available for sale 9,221,821 9,472,959 8,878,414
Trading 18,971 14,463 16,510
Non-marketable 108,346   116,634   101,705  
Total investment securities 9,349,138   9,604,056   8,996,629  
Federal funds sold and short-term securities purchased under agreements to resell 26,875 32,550 37,760
Long-term securities purchased under agreements to resell 1,050,000 975,000 900,000
Interest earning deposits with banks 264,683 42,078 239,429
Cash and due from banks 409,791 384,122 445,268
Land, buildings and equipment — net 353,366 351,946 357,122
Goodwill 138,921 138,921 138,921
Other intangible assets — net 6,978 6,826 7,771
Other assets 321,382   355,264   294,462  
Total assets $ 23,705,935   $ 23,967,648   $ 22,701,545  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 6,886,509 $ 6,699,873 $ 6,446,704
Savings, interest checking and money market 10,369,031 10,295,260 9,977,055
Time open and C.D.’s of less than $100,000 833,161 808,210 909,246
Time open and C.D.’s of $100,000 and over 1,200,008   1,183,417   1,253,633  
Total deposits 19,288,709 18,986,760 18,586,638
Federal funds purchased and securities sold under agreements to repurchase 1,666,043 2,193,197 1,395,160
Other borrowings 103,843 103,831 105,077
Other liabilities 331,980   312,817   325,801  
Total liabilities 21,390,575   21,596,605   20,412,676  
Stockholders’ equity:
Preferred stock 144,784 144,784 144,784
Common stock 484,155 484,155 481,224
Capital surplus 1,261,307 1,283,346 1,215,732
Retained earnings 514,451 555,877 583,490
Treasury stock (143,565 ) (168,493 ) (199,630 )
Accumulated other comprehensive income 48,789   65,636   60,231  
Total stockholders’ equity 2,309,921 2,365,305 2,285,831
Non-controlling interest 5,439   5,738   3,038  
Total equity 2,315,360   2,371,043   2,288,869  
Total liabilities and equity   $ 23,705,935     $ 23,967,648     $ 22,701,545  
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

     

(Unaudited)
(Dollars in thousands)

 

  For the Three Months Ended
June 30, 2015   September 30, 2015   September 30, 2014

Average
Balance

 

Avg. Rates
Earned/Paid

Average
Balance

 

Avg. Rates
Earned/Paid

Average
Balance

 

Avg. Rates
Earned/Paid

ASSETS:      
Loans:
Business (A) $ 4,135,362 2.79 % $ 4,221,478 2.73 % $ 3,964,115 2.81 %
Real estate — construction and land 432,008 3.65 476,331 3.52 422,241 3.78
Real estate — business 2,287,885 3.83 2,284,928 3.71 2,285,520 3.80
Real estate — personal 1,891,109 3.77 1,911,469 3.73 1,834,502 3.77
Consumer 1,815,699 3.92 1,861,636 4.00 1,645,434 4.16
Revolving home equity 429,644 3.60 434,355 3.50 428,928 3.77
Consumer credit card 734,289 11.74 746,066 11.59 755,289 11.47
Overdrafts 4,510   —   5,233   —   4,412   —  
Total loans (B) 11,730,506   3.95   11,941,496   3.89   11,340,441   4.01  
Loans held for sale 3,969 3.94 4,471 4.26 — —
Investment securities:

U.S. government and federal agency
  obligations

424,823 6.09 402,591 4.39 498,926 3.10
Government-sponsored enterprise obligations 988,120 1.82 887,631 1.77 763,621 1.63
State and municipal obligations (A) 1,799,355 3.49 1,805,931 3.44 1,787,463 3.42
Mortgage-backed securities 3,161,050 2.61 3,217,589 2.47 2,953,762 2.68
Asset-backed securities 2,839,483 1.03 2,546,982 1.15 2,804,362 .89

Other marketable securities (A)

249,075   2.61   302,323   2.65   147,832   2.43  

Total available for sale securities (B)

9,461,906 2.38 9,163,047 2.32 8,955,966 2.20

Trading securities (A)

19,758 2.86 22,283 2.72 19,736 2.35
Non-marketable securities (A) 109,522   8.90   114,062   8.28   94,759   7.74  
Total investment securities 9,591,186   2.45   9,299,392   2.39   9,070,461   2.25  

Federal funds sold and short-term securities
  purchased under agreements to resell

12,812 .47 21,012 .40 36,804 .32

Long-term securities purchased under
  agreements to resell

1,049,999 1.40 1,007,606 1.29 923,912 1.15
Interest earning deposits with banks 198,407   .25   160,687   .25   113,964   .25  
Total interest earning assets 22,586,879 3.16   22,434,664 3.12   21,485,582 3.12  
Non-interest earning assets (B) 1,152,646 1,074,253 1,096,008
Total assets $ 23,739,525 $ 23,508,917 $ 22,581,590
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 738,769 .11 $ 739,172 .13 $ 675,276 .14
Interest checking and money market 9,759,608 .13 9,619,621 .13 9,355,788 .13
Time open & C.D.’s of less than $100,000 844,675 .39 820,792 .38 923,250 .43
Time open & C.D.’s of $100,000 and over 1,227,322   .49   1,171,617   .53   1,427,499   .42  
Total interest bearing deposits 12,570,374   .18   12,351,202   .18   12,381,813   .19  
Borrowings:

Federal funds purchased and securities sold
  under agreements to repurchase

1,674,682 .10 1,677,322 .11 1,329,397 .09
Other borrowings 103,846   3.44   103,875   3.43   105,085   3.32  
Total borrowings 1,778,528   .30   1,781,197   .31   1,434,482   .32  
Total interest bearing liabilities 14,348,902 .19 % 14,132,399 .20 % 13,816,295 .20 %
Non-interest bearing deposits 6,744,536 6,781,592 6,293,402
Other liabilities 260,945 250,626 185,329
Equity 2,385,142 2,344,300 2,286,564
Total liabilities and equity $ 23,739,525 $ 23,508,917 $ 22,581,590
Net interest income (T/E) $ 171,037 $ 169,512 $ 161,827
Net yield on interest earning assets       3.04 %       3.00 %       2.99 %

(A)

 

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

(B)

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

 

COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2015

For the quarter ended September 30, 2015, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $64.6 million, compared to $74.4 million in the previous quarter and $68.2 million in the same quarter last year. The decrease in net income from the previous quarter resulted mainly from lower net interest income and non-interest income of $1.6 million and $2.9 million, respectively. Also, non-interest expense grew by $5.9 million over the previous quarter to $171.3 million, while the provision for loan losses increased $1.6 million. Net securities losses totaled $378 thousand this quarter compared to net gains of $2.1 million in the previous quarter. For the current quarter, the return on total average assets was 1.09%, the return on average common equity was 11.25%, and the efficiency ratio was 62.5%.

Balance Sheet Review

During the 3rd quarter of 2015, average loans increased $211.0 million, or 7.2% annualized, compared to the previous quarter and increased $601.1 million, or 5.3%, compared to the same period last year. Compared to the previous quarter, the increase in average loans resulted from growth in business (up $86.1 million), construction (up $44.3 million), and auto and other consumer loans (up $57.5 million). The increase in business loans came from growth in commercial and industrial, leasing and tax-free lending activities while growth in construction loans mostly involved commercial construction projects. Average personal real estate loans grew $20.4 million this quarter; however, the Company also sold certain fixed rate loans of $29.1 million during the quarter, as part of its new origination initiative in 2015. The balance of marine and RV loans, included in the consumer loan portfolio, continued to run-off this quarter by $12.7 million and now totals $152.3 million.

During the 3rd quarter of 2015, total average available for sale investment securities (excluding fair value adjustments) declined by $298.9 million to $9.2 billion as of September 30, 2015. The decrease in securities during the quarter was mainly used to fund loan growth and offset some deposit run-off. Purchases of new securities totaled $830.4 million in the 3rd quarter of 2015 and were offset by sales, maturities and pay downs of $600.6 million. At September 30, 2015, the duration of the investment portfolio was 2.8 years, and maturities and pay downs of approximately $1.8 billion are expected to occur during the next 12 months.

Total average deposits declined $182.1 million, or .9% this quarter compared to the previous quarter. The decrease in average deposits resulted mainly from declines in interest checking (decline of $40.9 million), certificates of deposit (decline of $79.6 million) and money market (decline of $99.1 million) accounts, partly offset by higher non-interest bearing deposit accounts (increase of $37.1 million). Compared to the previous quarter, total average consumer and private banking deposits decreased $105.9 million and $112.0 million, respectively, while average commercial banking deposits increased by $67.9 million. The average loans to deposits ratio in the current quarter was 62.4%, compared to 60.8% in the previous quarter.

The Company’s average borrowings remained stable and totaled $1.8 billion in both the current quarter and in the previous quarter.

Net Interest Income

Net interest income (tax equivalent) in the 3rd quarter of 2015 amounted to $169.5 million compared with $171.0 million in the previous quarter, a decrease of $1.5 million. Net interest income (tax equivalent) for the current quarter increased by $7.7 million compared to the 3rd quarter of last year. During the 3rd quarter of 2015, the net yield on earning assets (tax equivalent) was 3.00%, compared with 3.04% in the previous quarter and 2.99% in the same period last year.

The decrease in net interest income (tax equivalent) in the 3rd quarter of 2015 compared to the previous quarter was due mainly to a decrease in inflation income of $1.8 million on inflation-protected securities as a result of a decline in the Consumer Price Index published this quarter. Interest related to inflation income totaled $3.3 million this quarter compared to $5.1 million in the previous quarter and $2.4 million in the same period last year. Excluding the effects of inflation income, the net yield on earning assets would have been 2.94% in the current quarter, 2.95% in the prior quarter and 2.94% in the same period last year. During the quarter, adjustments to premium amortization expense on certain mortgage-backed and asset-backed securities, due to slower prepayment speed assumptions, increased interest income by $275 thousand compared with an increase of $1.2 million in the prior quarter.

Compared to the previous quarter, interest income (tax-equivalent) on loans increased $1.6 million, mainly due to higher loan balances of business, construction, personal real estate and consumer- related loans. However, these increases in interest income were offset by lower yields, mainly on business, business real estate and construction loans offset by higher rates earned on consumer loans. Overall, the average yield on the loan portfolio decreased 6 basis points this quarter to 3.89%. Total interest income (tax-equivalent) on investment securities decreased $2.5 million from the previous quarter and resulted mainly from lower securities balances and lower inflation income on inflation-protected securities, as noted above. Excluding the effects of inflation income, the average rate earned on the investment securities portfolio would have been 2.25% in the current quarter, compared to 2.24% in the previous quarter.

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

Non-Interest Income

In the 3rd quarter of 2015, total non-interest income amounted to $111.1 million, a decrease of $1.1 million, or 1.0%, compared to the same period last year. Also, current quarter non-interest income decreased $2.9 million when compared to amounts recorded in the previous quarter. The decrease in non-interest income from the same period last year was mainly due to several non-recurring transactions recorded in 2014, in addition to lower bank card and capital market fees. These reductions were partly offset by growth in trust, deposit, and mortgage banking fees.

In the current quarter, trust fees increased $1.1 million, or 3.7%, compared to the same period last year, resulting mainly from continued growth in both private client and institutional trust activities. Deposit account fees also increased $513 thousand compared to the same period last year as a result of higher corporate cash management fees and other deposit service charges. Overdraft fees were down slightly from the prior year but grew 9.5% over the previous quarter.

Total bank card fees in the current quarter decreased $167 thousand, or .4%, from the same period last year. This decline was mainly the result of lower corporate card interchange fees, which declined 3.1%. Debit card fees grew by 3.9%, while credit card fees grew 2.3%. Bank card fees this quarter were comprised of fees for corporate card ($22.0 million), debit card ($9.7 million), merchant ($6.7 million) and credit card ($6.2 million) transactions. Capital market fees declined $163 thousand on lower sales volumes. Mortgage banking revenue increased $689 thousand this quarter compared to last year, mainly from sales of newly-originated residential mortgages, as the Company began a new program of selling longer-term fixed rate mortgages in 2015. Year to date fees from this initiative totaled $2.9 million compared to $205 thousand in 2014. Brokerage fees also grew this quarter by 14.5% over the same period last year.

Fees from sales of interest rate swaps (included in other non-interest income) totaled $684 thousand this quarter, an increase of $481 thousand compared to the same period last year, but $1.0 million less than the previous quarter, as customer demand for this product was stronger in the 2nd quarter of 2015. Fees from sales of tax credits totaled $306 thousand in the current quarter, a decline of $173 thousand from both the previous quarter and the same quarter last year. In the 3rd quarter of 2014, a gain of $2.1 million was recorded on sales of branches and income of $885 thousand was recorded on the settlement of outstanding litigation. Neither of these transactions recurred in 2015. Non-interest income comprised 40.7% of the Company’s total revenues this quarter.

Investment Securities Gains and Losses

The Company recorded net securities losses of $378 thousand this quarter, compared with net gains of $2.1 million last quarter and net gains of $3.0 million in the same period last year. All securities transactions this quarter related to its private equity investments.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $171.3 million, an increase of $9.4 million, or 5.8%, over the same period last year, and was higher than the previous quarter’s total by $5.9 million, or 3.6%. The increase over the same period in the previous year was mainly due to higher salaries and benefits expense of $5.4 million and higher operating losses of $3.0 million, partly due to recoveries recorded in the prior year, but partly offset by lower costs for legal, occupancy, and foreclosed and branch properties held for sale.

Compared to the 3rd quarter of last year, salaries expense grew $4.5 million, or 5.5%, mainly due to higher full-time salaries, incentives and equity compensation. Benefit costs also increased $906 thousand mostly due to higher corporate 401(k) contributions. Growth in salaries expense resulted partly from staffing additions in residential lending, commercial banking, trust, information technology and other support units. Full-time equivalent employees totaled 4,770 and 4,740 at September 30, 2015 and 2014, respectively.

Compared to the 3rd quarter of last year, data processing costs increased $1.2 million this quarter, mainly due to higher bank card processing costs and software licensing, while supplies, equipment and marketing costs were also higher than the previous year. However, costs for occupancy, legal, loan collection and foreclosed and branch properties declined this quarter by $1.3 million. Costs for operating losses this quarter totaled $3.0 million compared to net recoveries of $18 thousand in the same period last year; however, in the 3rd quarter of 2014, operating loss recoveries of $1.5 million were recorded which did not repeat in 2015. Current quarter operating losses were mainly comprised of bank card fraud losses which totaled $2.2 million, an increase of $1.2 million over last year.

Income Taxes

The effective tax rate for the Company was 30.2% in the current quarter compared to 30.4% in the previous quarter and 31.6% in the 3rd quarter of 2014. The current quarter included a tax benefit of $1.5 million partly related to changes in state tax apportionment rules.

Credit Quality

Net loan charge-offs in the 3rd quarter of 2015 amounted to $8.4 million, compared with $8.8 million in the prior quarter and $7.7 million in the 3rd quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .28% in the current quarter compared to .30% in the previous quarter and .27% in the 3rd quarter of last year.

In the 3rd quarter of 2015, annualized net loan charge-offs on average consumer credit card loans were 3.08%, compared with 3.51% in the previous quarter and 3.10% in the same period last year. Consumer loan net charge-offs were .52% of average consumer loans in the current quarter, .41% in the prior quarter and .50% in the same quarter last year. The provision for loan losses in the current quarter totaled $8.4 million compared to $6.8 million in the prior quarter and $7.7 million in the 3rd quarter of last year. At September 30, 2015, the allowance totaled $151.5 million, was 1.24% of total loans, and was 588% of total non-accrual loans.

At September 30, 2015, total non-performing assets amounted to $28.8 million, a decrease of $2.0 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($25.8 million) and foreclosed real estate ($3.1 million). At September 30, 2015, the balance of non-accrual loans, which represented .21% of loans outstanding, included business real estate loans of $5.1 million, business loans of $11.7 million, personal real estate loans of $5.0 million and construction and land loans of $4.0 million. Loans more than 90 days past due and still accruing interest totaled $14.7 million at September 30, 2015.

Other

During the 3rd quarter of 2015, the Company paid a cash dividend per common share of $.225 and a cash dividend of $2.3 million on its preferred stock. In May 2015, the Company entered into an accelerated stock repurchase (ASR) program totaling $100.0 million and received 1.8 million shares of its common stock in treasury, representing approximately 80% of the total shares expected to be delivered in the overall ASR program. On August 24, 2015, the ASR program was completed according to its contract terms and the Company received an additional 351,620 shares, based on the average price of its common stock during the repurchase period. Additionally, the Company purchased 126,222 shares of treasury stock this quarter at an average price of $44.14.

Forward-Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.

Contacts

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

Contacts

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