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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-2989
COMMERCE BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI
(STATE OF INCORPORATION) 43-0889454
(I.R.S. EMPLOYER IDENTIFICATION
NO.)
1000 WALNUT, KANSAS CITY, MO
(ADDRESS OF PRINCIPAL EXECUTIVE 64106
OFFICES) (ZIP CODE)
(816) 234-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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.
X
Yes------- No -------
As of August 4, 1995, the registrant had outstanding 36,082,987 shares of its
$5 par value common stock, registrant's only class of common stock.
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PART I: FINANCIAL INFORMATION
In the opinion of management, the consolidated financial statements of
Commerce Bancshares, Inc. and Subsidiaries as of June 30, 1995 and December 31,
1994 and the related notes include all material adjustments, which were
regularly recurring in nature and necessary for fair presentation of the
financial condition and the results of operations for the periods shown.
The consolidated financial statements of Commerce Bancshares, Inc. and
Subsidiaries and management's discussion and analysis of financial condition
and results of operations are presented in the schedules as follows:
Schedule 1: Comparison of Key Ratios and Selected Bank Data
Schedule 2: Consolidated Balance Sheets
Schedule 3: Consolidated Statements of Income
Schedule 4: Consolidated Statements of Changes in Stockholders' Equity
Schedule 5: Consolidated Statements of Cash Flows
Schedule 6: Notes to Consolidated Financial Statements
Schedule 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Commerce Bancshares, Inc. was held on
April 19, 1995. Proxies for the meeting were solicited pursuant to Regulation
14 of the Securities Exchange Act of 1934, and there was no solicitation in
opposition to management's nominees as listed in the proxy statement. The five
nominees for the five directorships (constituting one-third of the Board of
Directors) being elected at this meeting received the following votes:
NAME OF DIRECTOR VOTES FOR VOTES ABSTAIN
---------------- ---------- -------------
Fred L. Brown................................... 24,766,737 162,348
David W. Kemper................................. 24,769,874 159,211
B. Franklin Rassieur, Jr........................ 24,769,055 160,030
Andrew C. Taylor................................ 24,770,284 158,801
Robert H. West.................................. 24,770,284 158,801
At the same meeting, the shareholders approved, as set forth in the proxy
statement for the meeting, the adoption of (a) The Commerce Bancshares, Inc.
1996 Incentive Stock Option Plan with a vote of 21,807,140 shares (representing
87.5% of the shares present or represented and entitled to vote) voting in
favor and 821,615 shares voting against, 181,131 shares abstaining from voting,
and 2,119,199 shares representing broker non-votes; and (b) an amendment and
restatement of The Commerce Bancshares, Inc. 1987 Non-Qualified Stock Option
Plan with a vote of 21,903,124 shares (representing 87.9% of the shares present
or represented and entitled to vote) voting in favor and 724,251 shares voting
against, 284,857 shares abstaining, and 2,016,853 shares representing broker
non-votes.
1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts:
(c) Copy of Commerce Bancshares, Inc. 1987 Non-Qualified Stock Option
Plan as amended and re-stated in its entirety at the shareholder
meeting on April 19, 1995
(h) Copy of Commerce Bancshares, Inc. 1996 Incentive Stock Option
Plan--a new plan adopted by the shareholders on April 19, 1995
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and 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.
/s/ T. Alan Peschka
By __________________________________
T. Alan Peschka
Vice President & Secretary
Date: August 9, 1995
/s/ Charles E. Templer
By __________________________________
Charles E. Templer
Treasurer & Controller
(Chief Accounting Officer)
Date: August 9, 1995
2
SCHEDULE 1
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
COMPARISON OF KEY RATIOS AND SELECTED BANK DATA
(UNAUDITED)
COMPARISON OF KEY RATIOS
1995 1994
----- -----
RATIOS--THREE MONTHS ENDED JUNE 30
(Based on average balance sheets):
Return on total assets.......................................... 1.19% 1.26%
Return on realized stockholders' equity......................... 12.50 13.32
Return on total stockholders' equity............................ 12.66 13.46
RATIOS--SIX MONTHS ENDED JUNE 30
(Based on average balance sheets):
Loans and leases to deposits.................................... 67.95% 59.63%
Non-interest bearing deposits to total deposits................. 19.67 19.49
Equity to loans and leases...................................... 16.27 18.37
Equity to deposits.............................................. 11.06 10.95
Equity to total assets.......................................... 9.38 9.47
Return on total assets.......................................... 1.22 1.19
Return on realized stockholders' equity......................... 12.50 12.89
Return on total stockholders' equity............................ 12.99 12.60
SELECTED BANK DATA*
JUNE 30, 1995
COMMERCE BANK LOANS AND
PRIMARY LOCATIONS SITES ASSETS DEPOSITS LEASES
----------------- ----- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
St. Louis, MO........................... 55 $2,667,142 $2,282,863 $1,695,881
Kansas City Metro, MO/KS................ 51 2,582,537 2,045,845 1,260,256
Springfield, MO......................... 20 717,976 639,559 485,538
Wichita, KS............................. 19 685,052 529,417 394,093
Peoria, IL.............................. 11 488,126 424,626 260,787
Bloomington, IL......................... 12 455,709 300,566 258,362
Columbia, MO............................ 15 373,132 343,798 278,268
St. Joseph, MO.......................... 3 322,332 270,455 197,877
Poplar Bluff, MO........................ 7 233,316 211,297 150,207
Joplin, MO.............................. 6 150,185 139,319 97,864
Manhattan, KS........................... 5 142,740 119,556 71,978
Hays, KS................................ 3 101,243 92,124 37,126
Lebanon, MO............................. 3 98,585 90,586 53,936
El Dorado, KS........................... 2 94,148 81,557 37,187
Cassville, MO........................... 3 78,143 71,514 40,129
Hannibal, MO............................ 2 76,175 70,289 47,295
Lawrence, KS............................ 6 65,911 57,548 38,970
Omaha, NE............................... 1 3,725 745 3,157
--------
*Balances have not been reduced for inter-company activity.
OTHER OPERATING SUBSIDIARIES
CBI Insurance Company
CFB Venture Fund I, Inc.
Commerce Property and Casualty Agency, Inc.
Mid-America Financial Corp.
Commerce Mortgage Corp.
3
SCHEDULE 2
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER
JUNE 30 31
1995 1994
----------- ----------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Loans and lease financing, net of unearned............. $5,414,602 $4,432,662
Allowance for loan losses.............................. (99,221) (87,179)
---------- ----------
NET LOANS AND LEASE FINANCING...................... 5,315,381 4,345,483
---------- ----------
Investment securities:
Available for sale................................... 2,585,733 2,621,342
Trading account...................................... 6,556 5,539
Other non-marketable................................. 24,547 18,539
---------- ----------
TOTAL INVESTMENT SECURITIES........................ 2,616,836 2,645,420
---------- ----------
Federal funds sold and securities purchased under
agreements to resell.................................. 225,850 72,265
Cash and due from banks................................ 569,940 565,805
Land, buildings and equipment--net..................... 211,038 191,780
Customers' acceptance liability........................ 5,889 15,213
Other assets........................................... 251,754 199,608
---------- ----------
TOTAL ASSETS....................................... $9,196,688 $8,035,574
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand--non-interest bearing......................... $1,506,368 $1,448,422
Savings and interest bearing demand.................. 3,660,455 3,418,450
Time open and C.D.'s of less than $100,000........... 2,305,658 1,942,986
Time open and C.D.'s of $100,000 and over............ 223,640 180,572
---------- ----------
TOTAL DEPOSITS..................................... 7,696,121 6,990,430
Federal funds purchased and securities sold under
agreements to repurchase.............................. 533,072 290,647
Long-term debt and other borrowings.................... 17,762 6,487
Accrued interest, taxes and other liabilities.......... 59,198 4,213
Acceptances outstanding................................ 5,889 15,213
Minority interest in subsidiaries...................... 436 386
---------- ----------
TOTAL LIABILITIES.................................. 8,312,478 7,307,376
---------- ----------
Stockholders' equity:
Preferred stock, $1 par value.
Authorized and unissued 2,000,000 shares............ -- --
Common stock, $5 par value.
Authorized 60,000,000 shares; issued 36,644,405
shares in 1995 and 33,970,106 shares in 1994....... 183,222 169,851
Capital surplus...................................... 47,355 54,575
Retained earnings.................................... 647,350 576,331
Treasury stock of 375,595 shares in 1995 and 401,087
shares in 1994, at cost............................. (11,515) (12,148)
Unearned employee benefits........................... (829) (295)
Unrealized securities gain (loss)--net of tax........ 18,627 (60,116)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY......................... 884,210 728,198
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $9,196,688 $8,035,574
========== ==========
See accompanying notes to financial statements.
4
SCHEDULE 3
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED JUNE
JUNE 30 30
---------------- -----------------
1995 1994 1995 1994
-------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
INTEREST INCOME
Interest and fees on loans and leases....... $117,699 $79,466 $217,115 $153,499
Interest on investment securities........... 41,611 40,873 82,808 81,419
Interest on federal funds sold and
securities purchased
under agreements to resell................. 1,334 1,152 2,317 2,625
-------- ------- -------- --------
TOTAL INTEREST INCOME................... 160,644 121,491 302,240 237,543
-------- ------- -------- --------
INTEREST EXPENSE
Interest on deposits:
Savings and interest bearing demand....... 29,777 21,979 56,190 43,127
Time open and C.D.'s of less than
$100,000................................. 30,168 18,181 54,355 36,061
Time open and C.D.'s of $100,000 and over. 2,943 1,414 5,146 2,688
Interest on federal funds purchased and
securities sold
under agreements to repurchase............. 6,530 2,028 11,804 3,853
Interest on long-term debt and other
borrowings................................. 338 129 570 261
-------- ------- -------- --------
TOTAL INTEREST EXPENSE.................. 69,756 43,731 128,065 85,990
-------- ------- -------- --------
NET INTEREST INCOME..................... 90,888 77,760 174,175 151,553
Provision for loan losses................... 1,930 2,063 4,763 3,518
-------- ------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES............................ 88,958 75,697 169,412 148,035
-------- ------- -------- --------
NON-INTEREST INCOME
Trust income................................ 7,929 7,023 15,703 14,322
Deposit account charges and other fees...... 11,120 10,132 21,246 19,591
Trading account profits and commissions..... 1,346 1,134 2,714 2,379
Net gains on securities transactions........ 241 950 427 1,321
Miscellaneous credit card income............ 5,466 4,267 10,265 8,140
Other income................................ 5,797 9,044 12,132 14,743
-------- ------- -------- --------
TOTAL NON-INTEREST INCOME............... 31,899 32,550 62,487 60,496
-------- ------- -------- --------
OTHER EXPENSE
Salaries and employee benefits.............. 39,650 37,239 76,796 73,246
Net occupancy expense on bank premises...... 5,034 4,302 9,888 8,610
Equipment expense........................... 3,457 3,214 6,707 6,337
Supplies and communication expense.......... 6,005 4,731 11,310 9,519
Federal deposit insurance expense........... 4,312 3,837 8,246 7,624
Marketing expense........................... 2,408 1,852 4,401 3,726
Other operating expense..................... 17,718 17,272 32,846 30,040
-------- ------- -------- --------
TOTAL OTHER EXPENSE..................... 78,584 72,447 150,194 139,102
-------- ------- -------- --------
Income before income taxes.................. 42,273 35,800 81,705 69,429
Less income taxes........................... 15,514 11,216 29,923 22,799
-------- ------- -------- --------
NET INCOME.............................. $ 26,759 $24,584 $ 51,782 $ 46,630
======== ======= ======== ========
Net income per common and common equivalent
share...................................... $ .73 $ .72 $ 1.45 $ 1.38
======== ======= ======== ========
Weighted average common and common
equivalent shares outstanding.............. 36,614 33,907 35,729 33,761
======== ======= ======== ========
Dividends per common share.................. $ .180 $ .162 $ .360 $ .305
======== ======= ======== ========
See accompanying notes to financial statements.
5
SCHEDULE 4
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NUMBER OF UNEARNED NET
SHARES COMMON CAPITAL RETAINED TREASURY EMPLOYEE UNREALIZED
ISSUED STOCK SURPLUS EARNINGS STOCK BENEFITS GAIN (LOSS) TOTAL
---------- -------- ------- -------- -------- -------- ----------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE JANUARY 1, 1995. 33,970,106 $169,851 $54,575 $576,331 $(12,148) $ (295) $(60,116) $728,198
Net income............. 51,782 51,782
Year-to-date change in
fair value of
investment securities. 78,705 78,705
Purchases of 569,291
treasury shares....... (17,282) (17,282)
Sales of 144,673
treasury shares under
various stock option
plans................. (1,915) 4,378 2,463
Issuance of 176,854
treasury shares in
purchase acquisition.. (435) 5,315 4,880
Retirement of treasury
shares................ (286,967) (1,435) (7,190) 8,625 --
Issuance of new shares
in pooling
acquisition........... 2,961,266 14,806 2,318 32,360 38 49,522
Purchase of 33,600
treasury shares in
pooling acquisition... (1,000) (1,000)
Issuance of 19,889
shares under
restricted stock award
plan, net of
reversals............. 2 597 (599) --
Restricted stock award
amortization.......... 65 65
Cash dividends paid
($.360 per share)..... (13,123) (13,123)
---------- -------- ------- -------- -------- ------- -------- --------
BALANCE JUNE 30, 1995... 36,644,405 $183,222 $47,355 $647,350 $(11,515) $ (829) $ 18,627 $884,210
========== ======== ======= ======== ======== ======= ======== ========
Balance January 1, 1994. 33,850,360 $169,252 $52,915 $501,500 $ (8,982) $(2,065) $ -- $712,620
Net income............. 46,630 46,630
1/1/94 adoption of SFAS
115-adjustment of
investment securities
to fair value......... 47,116 47,116
Year-to-date change in
fair value of
investment securities. (69,772) (69,772)
Purchases of 960,531
treasury shares....... (28,146) (28,146)
Sales of 105,751
treasury shares to the
employee benefit
plans................. 307 2,788 3,095
Sales of 114,424
treasury shares under
various stock option
plans................. (1,025) 2,675 1,650
Issuance of 682,926
treasury shares in
purchase acquisitions. (366) 15,350 134 15,118
Issuance of new shares
in purchase
acquisition........... 119,746 599 3,116 (156) 3,559
Issuance of 2,887
shares under
restricted stock award
plan.................. 15 71 (86) --
ESOP benefit
allocation............ 18 375 393
Restricted stock award
amortization.......... 50 50
Cash dividends paid
($.305 per share)..... (10,286) (10,286)
---------- -------- ------- -------- -------- ------- -------- --------
Balance June 30, 1994... 33,970,106 $169,851 $54,980 $537,688 $(16,244) $(1,726) $(22,522) $722,027
========== ======== ======= ======== ======== ======= ======== ========
See accompanying notes to financial statements.
6
SCHEDULE 5
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS
ENDED JUNE 30
--------------------
1995 1994
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income.............................................. $ 51,782 $ 46,630
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................. 4,763 3,518
Provision for depreciation and amortization........... 14,787 12,653
Accretion of investment security discounts............ (2,870) (403)
Amortization of investment security premiums.......... 13,152 14,686
Net gains on sales of investment securities (A)....... (427) (1,321)
Net (increase) decrease in trading account securities. (3,496) 776
Decrease in interest receivable....................... 9,537 198
Increase (decrease) in interest payable............... 2,772 (1,877)
Other changes, net.................................... 933 12,946
--------- ---------
Net cash provided by operating activities........... 90,933 87,806
--------- ---------
INVESTING ACTIVITIES:
Net cash received (paid) in acquisitions................ (33,226) 7,757
Proceeds from sales of investment securities (A)........ 443,501 382,679
Proceeds from maturities of investment securities (A)... 316,130 182,097
Purchases of investment securities (A).................. (267,741) (506,034)
Net (increase) decrease in federal funds sold and
securities purchased
under agreements to resell............................. (126,750) 317,357
Net increase in loans................................... (309,348) (140,975)
Purchases of premises and equipment..................... (11,717) (10,318)
Sales of premises and equipment......................... 3,766 5,626
--------- ---------
Net cash provided by investing activities........... 14,615 238,189
--------- ---------
FINANCING ACTIVITIES:
Net decrease in non-interest bearing demand, savings
and interest bearing demand deposits................... (288,256) (177,992)
Net increase (decrease) in time open and C.D.'s......... 110,150 (41,679)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase......... 110,326 (98,757)
Repayment of long-term debt............................. (5,572) (231)
Purchases of treasury stock............................. (17,117) (28,108)
Sales of treasury stock to employee benefit plans....... -- 3,095
Exercise of stock options by employees.................. 2,179 1,505
Cash dividends paid on common stock..................... (13,123) (10,286)
--------- ---------
Net cash used by financing activities............... (101,413) (352,453)
--------- ---------
Increase (decrease) in cash and cash equivalents.... 4,135 (26,458)
Cash and cash equivalents at beginning of year.......... 565,805 534,785
--------- ---------
Cash and cash equivalents at June 30................ $ 569,940 $ 508,327
========= =========
--------
(A) Available for sale and other non-marketable securities, excluding trading
account securities.
Cash payments of income taxes for the six month period were $16,027,000 in
1995 and $26,645,000 in 1994. Interest paid on deposits and borrowings for the
six month period was $125,293,000 in 1995 and $87,867,000 in 1994.
See accompanying notes to financial statements.
7
SCHEDULE 6
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The accompanying consolidated financial statements include the accounts of
Commerce Bancshares, Inc. and all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Certain
reclassifications were made to 1994 data to conform to current year
presentation.
The significant accounting policies followed in the preparation of the
quarterly financial statements are the same as those disclosed in the 1994
Annual Report to stockholders to which reference is made.
2. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the allowance for loan losses (in thousands):
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
--------------- ---------------
1995 1994 1995 1994
------- ------- ------- -------
Balance, beginning of period............. $92,055 $86,993 $87,179 $85,830
------- ------- ------- -------
Additions:
Provision for loan losses.............. 1,930 2,063 4,763 3,518
Allowance for loan losses of acquired
banks................................. 8,195 -- 12,932 1,583
------- ------- ------- -------
Total additions...................... 10,125 2,063 17,695 5,101
------- ------- ------- -------
Deductions:
Loan losses............................ 4,969 4,434 9,173 7,812
Less recoveries on loans............... 2,010 1,417 3,520 2,920
------- ------- ------- -------
Net loan losses...................... 2,959 3,017 5,653 4,892
------- ------- ------- -------
Balance, June 30......................... $99,221 $86,039 $99,221 $86,039
======= ======= ======= =======
At June 30, 1995, interest income was not being recognized on an accrual
basis for loans totaling approximately $14,225,000.
3. INVESTMENT SECURITIES
Investment securities, at fair value, consist of the following at June 30,
1995 and December 31, 1994 (in thousands):
JUNE 30 DECEMBER 31
1995 1994
---------- -----------
Available for sale:
U.S. government and federal agency obligations.. $1,677,862 $1,797,291
Obligations of states and political
subdivisions................................... 150,858 56,422
CMO's and asset-backed securities............... 690,369 692,822
Other debt securities........................... 29,385 45,748
Equity securities............................... 37,259 29,059
Trading account securities........................ 6,556 5,539
Other non-marketable securities................... 24,547 18,539
---------- ----------
Total investment securities................... $2,616,836 $2,645,420
========== ==========
8
4. ACQUISITION ACTIVITY
Effective March 1, 1995, the Company acquired the Cotton Exchange Bank in
Kennett, Missouri, for 176,854 shares of treasury stock and $4.1 million in
cash, using the "purchase" method of accounting. The Peoples Bank of
Bloomington, Illinois, was acquired March 1, 1995, for accounting purposes in a
pooling transaction in which 2,961,266 shares of new common stock were issued.
At acquisition date, these banks had combined assets of $510 million, loans of
$262 million and deposits of $362 million. They did not have a material impact
on the earnings per share of the Company. Therefore, prior year statements were
not restated for these transactions.
On April 17, 1995, the Company acquired the Union National Bank in Wichita,
Kansas, for cash of $86.7 million. The Chillicothe State Bank in Chillicothe,
Illinois, was acquired on May 1, 1995, for $3.3 million in cash. At acquisition
date, these banks had combined assets of $697 million, loans of $416 million
and deposits of $522 million. They were accounted for as "purchases" and did
not have a material effect on the earnings per share of the Company.
9
SCHEDULE 7
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1995
(UNAUDITED)
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
Company's 1994 Annual Report on Form 10-K. Results of operations for the six
month period ended June 30, 1995 are not necessarily indicative of results to
be attained for any other period.
SUMMARY
The Company's consolidated net income for the first six months of 1995
totaled $51.8 million; $5.2 million greater than the same period for 1994. The
increase was mainly due to a $22.6 million increase in net interest income,
partially offset by an $11.1 million increase in other expense and a $7.1
million increase in income tax expense. Net income for the second quarter of
1995 was $2.2 million greater than the second quarter of 1994 due to a $13.1
million increase in net interest income, partially offset by a $6.1 million
increase in other expense and a $4.3 million increase in income tax expense.
Net income for the second quarter of 1995 was $1.7 million greater than the
first quarter of 1995 due to an increase of $7.6 million in net interest
income, partially offset by an increase of $7.0 million in other expense.
The Company is continually evaluating acquisition opportunities, and
frequently conducts due diligence activities in connection with possible
acquisitions both on an assisted and unassisted basis. Acquisition candidates
that may be under consideration at any time include depository institutions,
thrift or savings type associations and related companies. They are generally
based in markets in which the Company presently operates or in markets in
proximity to one of the Company's existing markets.
On March 1, 1995, the Company acquired the Cotton Exchange Bank in Kennett,
Missouri, for 176,854 shares of treasury stock and $4.1 million in cash, using
the purchase method of accounting. The Peoples Bank of Bloomington, Illinois,
was acquired effective March 1, 1995 for accounting purposes, in a pooling
transaction in which 2,961,266 shares of new stock were issued. These
acquisitions brought $510 million in assets to the balance sheet of the
organization but did not have a material impact on the earnings per share of
the Company.
Two additional acquisitions were completed in the second quarter of 1995.
Union National Bank of Wichita, Kansas, was acquired on April 17, 1995, for
cash of $86.7 million and increased assets by approximately $673 million.
Chillicothe State Bank of Chillicothe, Illinois, was purchased on May 1, 1995,
for $3.3 million in cash and brought $24 million in assets to the organization.
These acquisitions did not have a material impact on the earnings per share of
the Company.
As of July 1, 1995, the Commerce Bank locations in the Metro Kansas City area
have merged together to form one bank, thus better serving those customers at
approximately 50 sites on both sides of the Missouri-Kansas state line.
INTEREST INCOME AND EARNING ASSETS
Total interest income increased $64.7 million, or 27.2%, compared to the
first six months of 1994 due to an increase of 109 basis points in tax
equivalent rates earned and an increase of $703.7 million in average earning
asset balances, (which caused an increase of $28.9 million in tax equivalent
interest income). Excluding banks acquired after January 1, 1994, total
interest income increased $36.1 million, or 15.4%, in the first six months of
1995 over the same period in 1994. Compared to the second quarter of 1994,
interest income increased $39.2 million due to an increase of $1.02 billion in
average earning asset balances and an increase of 110 basis points in tax
equivalent rates earned. Total interest income increased $19.0 million over the
first quarter of 1995 mainly due to a $686.3 million increase in average
earning asset balances. The average
10
tax equivalent yield was 7.93% for the first six months of 1995, 6.84% for the
first six months of 1994, 8.04% for the second quarter of 1995, 6.94% for the
second quarter of 1994 and 7.80% for the first quarter of 1995.
Loans, the highest yielding category of earning assets, were 64% of average
earning assets for the first six months of 1995. Loan and lease interest income
increased $63.6 million over the first six months of 1994 due to an increase of
$879.1 million in average loan balances and an increase of 123 basis points in
average tax equivalent rates earned. Increases in business loan rates accounted
for a significant portion of the rate increase. The 1995 to 1994 year to year
comparative increase is $44.8 million when the effect of 1994 and 1995
acquisitions is excluded. Loan and lease interest income increased $38.2
million over the second quarter of 1994 due to an increase of $1.16 billion in
average balances and an increase of 121 basis points in tax equivalent rates
earned. Compared to the first quarter of 1995, loan interest income increased
$18.3 million mainly due to a $677.4 million increase in average loan balances.
Interest income on investment securities increased $1.4 million over the
first six months of 1994 due to an increase of 37 basis points in tax
equivalent rates earned (mainly in U. S. government and federal agency and
CMO's and asset-backed securities), partially offset by a decrease of $101.2
million in average balances invested (mainly in U. S. government and federal
agency securities). If the effect of 1994 and 1995 acquisitions is excluded,
investment securities interest income decreased $7.9 million in 1995 compared
to 1994. Interest income on investment securities increased $738 thousand over
the second quarter of 1994 and increased $414 thousand over the first quarter
of 1995 due to increases in tax equivalent rates earned, partially offset by
decreases in average balances invested. The unrealized loss in fair value of
available for sale investment securities improved from a $97.1 million loss at
December 31, 1994, to an unrealized gain of $28.2 million at June 30, 1995. The
amount of the related after tax unrealized gain reported in stockholders'
equity at June 30, 1995, was $18.6 million.
Interest income on federal funds sold and securities purchased under
agreements to resell decreased $308 thousand from the first six months of 1994
due to a decrease of $74.2 million in average balances invested, partially
offset by an increase of 265 basis points in average rates earned. Compared to
the second quarter of 1994, federal funds sold and resell agreement interest
income increased $182 thousand due to an increase in average rates earned,
partially offset by a decrease in the average balances invested. Federal funds
sold and resell agreement interest income increased $351 thousand compared to
the first quarter of 1995 mainly due to a $21.3 million increase in average
balances invested.
Summaries of average earning assets and liabilities and the corresponding
average rates earned/paid appear on pages 12 through 15.
RISK ELEMENTS OF LOAN PORTFOLIO
The loan portfolio contained loans on non-accrual status of $14.2 million at
June 30, 1995, compared to $11.4 million at December 31, 1994. These loans were
placed on non-accrual status because management does not expect to collect
payments consistent with acceptable and agreed upon terms of repayment
(generally, loans that are 90 days past due as to principal and/or interest
payments). Loans which were 90 days past due and still accruing interest
amounted to $14.3 million at June 30, 1995, and were made primarily to
borrowers in Missouri and the surrounding region. The subsidiary banks issue
Visa and MasterCard credit cards, and the balance of these consumer loans
generated through credit card sales drafts and cash advances was $408.5 million
at June 30, 1995. Because credit card loans traditionally have a higher than
average ratio of net charge-offs to loans outstanding, management requires that
a specific allowance for losses on credit card loans be maintained, which was
$10.4 million, or 2.5% of credit card loans at June 30, 1995. Included in the
"Personal" loan category is a home equity loan product, the "Anytime Line",
which had $153.7 million in loans outstanding and $249.0 million in unused
lines of credit at June 30, 1995. At June 30, 1995, a mortgage banking
subsidiary held residential real estate loans of $9.1 million at lower of cost
or market, which are to be resold to secondary markets within approximately
three months. Foreclosed real estate amounted to approximately $5.9 million at
June 30, 1995. The risk presented by the above loans and foreclosed real estate
is not considered by management to be materially adverse in relation to normal
credit risks generally taken by lenders.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
SIX MONTHS 1995 SIX MONTHS 1994
------------------------------- -------------------------------
INTEREST AVG. RATES INTEREST AVG. RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
---------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS:
Loans and leases:
Business (including
foreign) (A).......... $1,625,307 $ 67,851 8.42% $1,376,252 $ 45,228 6.63%
Construction and
development........... 127,071 6,026 9.56 105,644 3,841 7.33
Real estate--business.. 665,806 29,838 9.04 524,379 19,660 7.56
Real estate--personal.. 916,550 34,875 7.67 738,938 25,568 6.98
Personal banking....... 1,207,634 51,852 8.66 961,664 37,006 7.76
Credit card............ 397,803 27,460 13.92 354,197 22,867 13.02
---------- -------- ----- ---------- -------- -----
Total loans and
leases.............. 4,940,171 217,902 8.89 4,061,074 154,170 7.66
---------- -------- ----- ---------- -------- -----
Investment securities:..
U.S. government &
federal agency........ 1,761,859 53,783 6.16 2,211,493 63,868 5.82
State & municipal
obligations (A)....... 107,391 4,071 7.64 44,455 1,722 7.81
CMO's and asset-backed
securities............ 755,081 23,595 6.30 486,577 14,163 5.87
Trading account
securities (A)........ 3,261 106 6.54 4,266 83 3.92
Other marketable
securities (A)........ 82,007 2,508 6.17 66,684 1,989 6.01
Other non-marketable
securities............ 23,320 298 2.58 20,596 386 3.78
---------- -------- ----- ---------- -------- -----
Total investment
securities.......... 2,732,919 84,361 6.22 2,834,071 82,211 5.85
---------- -------- ----- ---------- -------- -----
Federal funds sold and
securities purchased
under agreements to
resell................. 75,660 2,317 6.18 149,881 2,625 3.53
---------- -------- ----- ---------- -------- -----
Total interest
earning assets...... 7,748,750 304,580 7.93 7,045,026 239,006 6.84
-------- ----- -------- -----
Less allowance for loan
losses................. (93,529) (86,447)
Unrealized gain (loss)
on investment
securities............. (51,000) 25,607
Cash and due from banks. 572,182 553,002
Land, buildings and
equipment--net......... 201,222 195,153
Other assets............ 193,907 143,104
---------- ----------
Total assets......... $8,571,532 $7,875,445
========== ==========
LIABILITIES AND EQUITY:
Interest bearing
deposits:
Savings................ $ 306,510 3,898 2.56 $ 269,797 3,143 2.35
Interest bearing
demand................ 3,202,548 52,292 3.29 3,288,048 39,984 2.45
Time open & C.D.'s of
less than $100,000.... 2,130,456 54,355 5.14 1,777,674 36,061 4.09
Time open & C.D.'s of
$100,000 and over..... 200,886 5,146 5.17 147,815 2,688 3.67
---------- -------- ----- ---------- -------- -----
Total interest
bearing deposits.... 5,840,400 115,691 3.99 5,483,334 81,876 3.01
---------- -------- ----- ---------- -------- -----
Borrowings:
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 439,118 11,804 5.42 265,481 3,853 2.93
Long-term debt and
other borrowings...... 16,957 575 6.84 6,949 268 7.78
---------- -------- ----- ---------- -------- -----
Total borrowings..... 456,075 12,379 5.47 272,430 4,121 3.05
---------- -------- ----- ---------- -------- -----
Total interest
bearing liabilities. 6,296,475 128,070 4.10% 5,755,764 85,997 3.01%
-------- ----- -------- -----
Demand--non-interest
bearing deposits....... 1,429,960 1,327,491
Other liabilities....... 41,122 46,176
Stockholders' equity.... 803,975 746,014
---------- ----------
Total liabilities and
equity.............. $8,571,532 $7,875,445
========== ==========
Net interest margin
(T/E).................. $176,510 $153,009
======== ========
Net yield on interest
earning assets......... 4.59% 4.38%
===== =====
--------
(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
12
ANALYSIS OF VARIANCE IN NET INTEREST MARGIN (T/E) DUE TO VOLUMES AND RATES
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 VS 1994
-----------------------------
INCREASE OR
(DECREASE) DUE
TO CHANGE IN
----------------- TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (B) (DECREASE)
------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
VARIANCE IN INTEREST INCOME ON:
Loans and leases:
Business (including foreign) (A)................. $ 7,887 $14,736 $22,623
Construction and development..................... 779 1,406 2,185
Real estate--business............................ 5,302 4,876 10,178
Real estate--personal............................ 6,148 3,159 9,307
Personal banking................................. 9,465 5,381 14,846
Credit card...................................... 2,815 1,778 4,593
------- ------- -------
Total loans and leases......................... 32,396 31,336 63,732
------- ------- -------
Investment securities:
U.S. government & federal agency................. (12,977) 2,892 (10,085)
State & municipal obligations (A)................ 2,437 (88) 2,349
CMO's and asset-backed securities................ 7,856 1,576 9,432
Trading account securities (A)................... (20) 43 23
Other marketable securities (A).................. 457 62 519
Other non-marketable securities.................. 51 (139) (88)
------- ------- -------
Total investment securities.................... (2,196) 4,346 2,150
------- ------- -------
Federal funds sold and securities purchased under
agreements to resell............................. (1,264) 956 (308)
------- ------- -------
Total interest income.......................... 28,936 36,638 65,574
------- ------- -------
VARIANCE IN INTEREST EXPENSE ON:
Interest bearing deposits:
Savings.......................................... 428 327 755
Interest bearing demand.......................... (1,129) 13,437 12,308
Time open & C.D.'s of less than $100,000......... 6,507 11,787 18,294
Time open & C.D.'s of $100,000 and over.......... 824 1,634 2,458
------- ------- -------
Total interest bearing deposits................ 6,630 27,185 33,815
------- ------- -------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase.................. 2,609 5,342 7,951
Long-term debt and other borrowings.............. 386 (79) 307
------- ------- -------
Total borrowings............................... 2,995 5,263 8,258
------- ------- -------
Total interest expense......................... 9,625 32,448 42,073
------- ------- -------
Change in net interest margin (T/E)............... $19,311 $ 4,190 $23,501
======= ======= =======
Percentage increase in net interest margin (T/E)
over the same period of the prior year........... 15.36%
=======
--------
(A) Stated on a tax equivalent basis.
(B) Changes not solely due to volume or rate changes are allocated to rate.
Management believes this allocation method, applied on a consistent basis,
provides meaningful comparisons between the respective periods.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
THREE MONTHS ENDED JUNE 30, 1995 AND MARCH 31, 1995
SECOND QUARTER 1995 FIRST QUARTER 1995
------------------------------- -------------------------------
INTEREST AVG. RATES INTEREST AVG. RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
---------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS:
Loans and leases:
Business (including
foreign) (A).... ..... $1,764,666 $ 37,405 8.50% $1,484,400 $ 30,446 8.32%
Construction and
development........... 124,676 2,948 9.48 129,493 3,078 9.64
Real estate--business.. 715,818 16,320 9.14 615,238 13,518 8.91
Real estate--personal.. 983,982 19,047 7.76 848,369 15,828 7.57
Personal banking....... 1,282,396 28,074 8.78 1,132,041 23,778 8.52
Credit card............ 405,447 14,343 14.19 390,074 13,117 13.64
---------- -------- ----- ---------- -------- -----
Total loans and
leases.............. 5,276,985 118,137 8.98 4,599,615 99,765 8.80
---------- -------- ----- ---------- -------- -----
Investment securities:
U.S. government &
federal agency........ 1,721,733 26,572 6.19 1,802,431 27,211 6.12
State & municipal
obligations (A)....... 141,060 2,792 7.94 73,348 1,279 7.07
CMO's and asset-backed
securities............ 760,937 11,902 6.27 749,160 11,693 6.33
Trading account
securities (A)........ 3,286 61 7.45 3,236 45 5.65
Other marketable
securities (A)........ 74,764 1,118 6.00 89,330 1,390 6.31
Other non-marketable
securities............ 25,030 187 3.00 21,591 111 2.08
---------- -------- ----- ---------- -------- -----
Total investment
securities.......... 2,726,810 42,632 6.27 2,739,096 41,729 6.18
---------- -------- ----- ---------- -------- -----
Federal funds sold and
securities purchased
under agreements to
resell................. 86,232 1,334 6.20 64,971 983 6.14
---------- -------- ----- ---------- -------- -----
Total interest
earning assets...... 8,090,027 162,103 8.04 7,403,682 142,477 7.80
-------- ----- -------- -----
Less allowance for loan
losses................. (98,541) (88,461)
Unrealized loss on
investment securities.. (18,714) (83,645)
Cash and due from banks. 589,434 554,738
Land, buildings and
equipment--net......... 208,561 193,801
Other assets............ 220,970 166,543
---------- ----------
Total assets......... $8,991,737 $8,146,658
========== ==========
LIABILITIES AND EQUITY:
Interest bearing
deposits:
Savings................ $ 329,934 2,101 2.56 $ 282,826 1,797 2.58
Interest bearing
demand................ 3,289,088 27,676 3.38 3,115,046 24,616 3.20
Time open & C.D.'s of
less than $100,000.... 2,266,837 30,168 5.34 1,992,560 24,187 4.92
Time open & C.D.'s of
$100,000 and over..... 217,137 2,943 5.44 184,454 2,203 4.84
---------- -------- ----- ---------- -------- -----
Total interest
bearing deposits.... 6,102,996 62,888 4.13 5,574,886 52,803 3.84
---------- -------- ----- ---------- -------- -----
Borrowings:
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 474,654 6,530 5.52 403,187 5,274 5.30
Long-term debt and
other borrowings...... 18,425 341 7.42 15,473 234 6.14
---------- -------- ----- ---------- -------- -----
Total borrowings..... 493,079 6,871 5.59 418,660 5,508 5.34
---------- -------- ----- ---------- -------- -----
Total interest
bearing liabilities. 6,596,075 69,759 4.24% 5,993,546 58,311 3.95%
-------- ----- -------- -----
Demand--non-interest
bearing deposits....... 1,494,111 1,365,096
Other liabilities....... 53,525 28,582
Stockholders' equity.... 848,026 759,434
---------- ----------
Total liabilities and
equity.............. $8,991,737 $8,146,658
========== ==========
Net interest margin
(T/E).................. $ 92,344 $ 84,166
======== ========
Net yield on interest
earning assets......... 4.58% 4.61%
===== =====
-------
(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
14
ANALYSIS OF VARIANCE IN NET INTEREST MARGIN (T/E) DUE TO VOLUMES AND RATES
THREE MONTHS ENDED JUNE 30, 1995 AND MARCH 31, 1995
CURRENT QUARTER VS
PRIOR QUARTER
-----------------------------
INCREASE OR
(DECREASE) DUE
TO CHANGE IN
----------------- TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (B) (DECREASE)
------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
VARIANCE IN INTEREST INCOME ON:
Loans and leases:
Business (including foreign) (A)................. $ 5,814 $ 1,145 $ 6,959
Construction and development..................... (116) (14) (130)
Real estate--business............................ 2,234 568 2,802
Real estate--personal............................ 2,559 660 3,219
Personal banking................................. 3,194 1,102 4,296
Credit card...................................... 523 703 1,226
------- ------- -------
Total loans and leases......................... 14,208 4,164 18,372
------- ------- -------
Investment securities:
U.S. government & federal agency................. (1,231) 592 (639)
State & municipal obligations (A)................ 1,194 319 1,513
CMO's and asset-backed securities................ 186 23 209
Trading account securities (A)................... 1 15 16
Other marketable securities (A).................. (229) (43) (272)
Other non-marketable securities.................. 18 58 76
------- ------- -------
Total investment securities.................... (61) 964 903
------- ------- -------
Federal funds sold and securities purchased under
agreements to resell............................. 326 25 351
------- ------- -------
Total interest income.......................... 14,473 5,153 19,626
------- ------- -------
VARIANCE IN INTEREST EXPENSE ON:
Interest bearing deposits:
Savings.......................................... 303 1 304
Interest bearing demand.......................... 1,308 1,752 3,060
Time open & C.D.'s of less than $100,000......... 3,403 2,578 5,981
Time open & C.D.'s of $100,000 and over.......... 393 347 740
------- ------- -------
Total interest bearing deposits................ 5,407 4,678 10,085
------- ------- -------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase.................. 966 290 1,256
Long-term debt and other borrowings.............. 45 62 107
------- ------- -------
Total borrowings............................... 1,011 352 1,363
------- ------- -------
Total interest expense......................... 6,418 5,030 11,448
------- ------- -------
Change in net interest margin (T/E)............... $ 8,055 $ 123 $ 8,178
======= ======= =======
Percentage increase in net interest margin (T/E)
over the prior quarter........................... 9.72%
=======
--------
(A) Stated on a tax equivalent basis.
(B) Changes not solely due to volume or rate changes are allocated to rate.
Management believes this allocation method, applied on a consistent basis,
provides meaningful comparisons between the respective periods.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
PROVISION FOR LOAN LOSSES
Management records the provision for loan losses, on an individual bank
basis, in amounts that result in an allowance for loan losses sufficient to
cover all potential net charge-offs and risks believed to be inherent in the
loan portfolio of each bank. Management's evaluation includes such factors as
past loan loss experience as related to current loan portfolio mix, evaluation
of actual and potential losses in the loan portfolio, prevailing regional and
national economic conditions that might have an impact on the portfolio,
regular reviews and examinations of the loan portfolio conducted by internal
loan reviewers supervised by Commerce Bancshares, Inc. (the Parent), reviews
and examinations by bank regulatory authorities, and other factors that
management believes deserve current recognition. As a result of these factors,
the provision for loan losses increased $1.2 million compared to the first six
months of 1994, decreased $133 thousand from the second quarter of 1994 and
decreased $903 thousand from the first quarter of 1995. The allowance for loan
losses as a percentage of loans and leases outstanding was 1.83% at June 30,
1995, compared to 1.97% at year-end 1994 and 2.03% at June 30, 1994. Management
believes that the allowance for loan losses, which is a general reserve, is
adequate to cover actual and potential losses in the loan portfolio under
current conditions. Other than as previously noted, management is not aware of
any significant risks in the current loan portfolio due to concentrations of
loans within any particular industry, nor of any separate types of loans within
a particular category of non-performing loans that are unusually significant as
to possible loan losses when compared to the entire loan portfolio. Net charge-
offs on loans totaled $5.7 million for the first six months of 1995 compared to
net charge-offs of $4.9 million for the first six months of 1994, $3.0 million
for the second quarter of 1995, $3.0 million for the second quarter of 1994 and
$2.7 million for the first quarter of 1995.
INTEREST EXPENSE AND RELATED LIABILITIES
Total interest expense (net of capitalized interest) increased $42.1 million,
or 48.9%, compared to the first six months of 1994 due mainly to increases in
average rates paid. Excluding banks acquired after January 1, 1994, total
interest expense increased $28.5 million, or 33.7%, in the first six months of
1995 compared to the first six months of 1994. Total interest expense increased
$26.0 million and $11.4 million over the 1994 second and 1995 first quarters,
respectively, due to increases in both average rates paid and average balances
of interest bearing liabilities. The average cost of funds was 4.10% for the
first six months of 1995, 3.01% for the first six months of 1994, 4.24% for the
second quarter of 1995, 3.05% for the second quarter of 1994 and 3.95% for the
first quarter of 1995.
Average core deposits (deposits excluding short-term certificates of deposit
over $100,000) for the first six months of 1995 were $7.2 billion, an increase
of 6.1% over the same period last year. Core deposits supported 93% of average
earning assets in 1995. Interest on deposits increased $33.8 million over the
first six months of 1994. Average rates paid on time open and certificates of
deposit under $100,000 increased 105 basis points and rates paid on interest
bearing demand deposits increased 84 basis points. A significant portion of the
increase in average deposits was due to acquisitions in 1994 and 1995; if their
effect is excluded, deposit interest expense increased $22.3 million in 1995
compared to 1994. Deposit interest expense increased $21.3 million over the
second quarter of 1994 and increased $10.1 million over the first quarter of
1995 mainly due to increases in average rates paid on time open and
certificates of deposit under $100,000, rates paid on interest bearing demand
deposits and average balances of time open and certificates of deposit under
$100,000.
Interest expense on federal funds purchased and securities sold under
agreements to repurchase increased $8.0 million over the first six months of
1994, increased $4.5 million over the second quarter of 1994, and increased
$1.3 million over the first quarter of 1995 due to both increases in average
rates paid and increases in average borrowings.
16
NON-INTEREST INCOME
Non-interest income increased $2.0 million compared to the first six months
of 1994. Miscellaneous credit card income increased $2.1 million, deposit
account charges and other fees increased $1.7 million and trust income
increased $1.4 million. These increases were partially offset by an $894
thousand decrease in gains on securities transactions and a $2.6 million
decrease in other income (which included a $985 thousand decrease in gains on
loan and lease sales and $1.1 million in fees collected in 1994 in conjunction
with the payoff of a specific loan). Excluding the non-interest income of banks
acquired after January 1, 1994, non-interest income decreased $1.7 million
compared to the first six months of 1994. Most of the above-mentioned increase
in deposit account charges and other fees and trust income was due to activity
at recently acquired banks. Non-interest income decreased $651 thousand
compared to the second quarter of 1994 mainly due to a decrease of $3.2 million
in other income, which included a $2.1 million decrease in gains on loan and
lease sales and the fee decrease mentioned above. These decreases were
partially offset by an increase of $1.2 million in miscellaneous credit card
income. Compared to the first quarter of 1995, non-interest income increased
$1.3 million due to increases of $994 thousand in deposit account charges and
other fees and $667 thousand in miscellaneous credit card income, partially
offset by an $866 thousand decrease in gains on loan and lease sales. During
the first six months of 1995, the affiliate banks sold securities from the
available for sale category for proceeds of $432.3 million and realized net
gains of $254 thousand. The Parent sold securities for proceeds of $11.2
million, realizing a net gain of $173 thousand. During the first six months of
1994, the affiliate banks sold securities from the available for sale category
for proceeds of $380.2 million and realized net gains of $1.0 million. The
Parent and a non-bank subsidiary sold equity securities for proceeds of $2.5
million and realized net gains of $305 thousand.
OTHER EXPENSE
Other expense increased $11.1 million compared to the first six months of
1994 due to an increase of $3.6 million in salaries and employee benefits, a
$1.8 million increase in supplies and communication expense, a $1.3 million
increase in net occupancy expense on bank premises, and a $2.8 million increase
in other operating expense (which included increases in various outside fees
and goodwill/core deposit premium amortization, partially offset by a decrease
in charitable contribution expense). A portion of the above increases were due
to expenses at acquired banks. Excluding the expenses of banks acquired after
January 1, 1994, total other expense decreased $3.2 million in the first six
months of 1995 compared to the same period in 1994. Excluding the 1994 and 1995
acquisitions, salaries and employee benefits declined by $2.1 million with a
decrease of 273 full-time equivalent employees. Compared to the second quarter
of 1994, other expense increased $6.1 million mainly due to a $2.4 million
increase in salaries and employee benefits and a $1.3 million increase in
supplies and communication expense. Other expense increased $7.0 million over
the first quarter of 1995 mainly due to an increase of $2.5 million in salaries
and employee benefits and a $2.6 million increase in other operating expense
(including increased goodwill/core deposit premium amortization).
INCOME TAXES
Income tax expense increased $7.1 million compared to the first six months of
1994, increased $4.3 million compared to the second quarter of 1994 and
increased $1.1 million over the first quarter of 1995 due to increases in
taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The liquid assets of the Parent company consist primarily of short-term
investments, U.S. government and federal agency securities and equity
securities, most of which are readily marketable. The fair value of these
investments was $53.9 million at June 30, 1995 compared to $122.8 million at
December 31, 1994. Cash requirements for bank acquisitions during the first six
months of 1995 caused most of the decrease. The Parent company liabilities
totaled $38.4 million at June 30, 1995, compared to $9.9 million at December
31, 1994.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
This increase was mainly due to transfers of funds from subsidiary bank holding
companies in order to combine resources for short-term investment in liquid
assets. The Parent company had no short-term borrowings from affiliate banks or
long-term debt at June 30, 1995. The Parent company's commercial paper, which
management believes is readily marketable, has a P1 rating from Moody's and an
A1 rating from Standard & Poor's. The Company is also rated A by Thomson
BankWatch with a corresponding short-term rating of TBW-1. This credit
availability should provide adequate funds to meet any outstanding or future
commitments of the Parent.
The liquid assets held by bank subsidiaries include federal funds sold and
securities purchased under agreements to resell and available for sale
securities, which consist mainly of U.S. government and federal agency
securities and CMO's and asset-backed securities. These liquid assets had a
fair value of $2.76 billion at June 30, 1995, compared to $2.64 billion at
December 31, 1994. The available for sale bank portfolio included an unrealized
net gain of $16.9 million at June 30, 1995.
In June, 1995, the Board of Directors authorized the Company to purchase up
to 2,000,000 shares of common stock in either the open market or privately
negotiated transactions. This action began after the completion of the stock
repurchase program authorized in 1994. It reflects the Company's view that the
stock is undervalued and that such purchases will enhance long-term shareholder
value and provide future funding for stock acquisitions and employee benefit
programs.
The Company (on a consolidated basis) had an equity to asset ratio of 9.38%
based on 1995 average balances. As shown in the following table, the Company's
capital exceeded the minimum risk-based capital and leverage requirements of
the regulatory agencies:
JUNE 30, JUNE 30,
1995 1994
---------- ----------
(DOLLARS IN
THOUSANDS)
Risk-Adjusted Assets.............................. $6,021,365 $4,880,126
Tier I Capital.................................... 758,939 708,507
Total Capital..................................... 831,734 768,443
Tier I Capital Ratio.............................. 12.60% 14.52%
Total Capital Ratio............................... 13.81% 15.75%
Leverage Ratio.................................... 8.55% 9.08%
The Company's cash and cash equivalents (defined as "Cash and due from
banks") were $569.9 million at June 30, 1995, an increase of $4.1 million over
the balance at December 31, 1994. Contributing to the net cash inflow were
proceeds of $759.6 million from sales and maturities of investment securities,
a net increase of $110.2 million in time open and certificates of deposit and a
net increase of $110.3 million in borrowings of federal funds purchased and
securities sold under agreements to repurchase. These cash inflows were
partially offset by purchases of investment securities of $267.7 million,
$309.3 million in additional loans made, net of repayments, and a net decrease
of $288.3 million in demand deposits.
The Company has various commitments and contingent liabilities which are
properly not reflected on the balance sheet. Loan commitments (excluding lines
of credit related to credit card loan agreements) totaled approximately $1.86
billion, standby letters of credit totaled $127.5 million, and commercial
letters of credit totaled $27.1 million at June 30, 1995. The Company has
little risk exposure in off-balance-sheet derivative contracts. The notional
value of these contracts (interest rate and foreign exchange rate contracts)
was $172.8 million at June 30, 1995. The current credit exposure (or
replacement cost) across all off-balance-sheet derivative contracts covered by
the risk-based capital standards was $5.7 million at June 30, 1995. Management
does not anticipate any material losses to arise from these contingent items
and believes there are no material commitments to extend credit that represent
risks of an unusual nature.
18
INDEX TO EXHIBITS
10 - MATERIAL CONTRACTS
(C) COPY OF COMMERCE BANCSHARES, INC. 1987 NON-QUALIFIED STOCK
OPTION PLAN AS AMENDED AND RESTATED IN ITS ENTIRETY AT THE
SHAREHOLDER MEETING ON APRIL 19, 1995
(H) COPY OF COMMERCE BANCSHARES, INC. 1996 INCENTIVE STOCK OPTION
PLAN - A NEW PLAN ADOPTED BY THE SHAREHOLDERS ON APRIL 19, 1995
27 - FINANCIAL DATA SCHEDULE
19