- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 SEPTEMBER 30, 1998
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 43-0889454
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1000 WALNUT, KANSAS CITY, MO 64106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND 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.
Yes X No
As of November 5, 1998, the registrant had outstanding 58,637,957 shares of
its $5 par value common stock, registrant's only class of common stock.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
In the opinion of management, the consolidated financial statements of
Commerce Bancshares, Inc. and Subsidiaries as of September 30, 1998 and
December 31, 1997 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: Consolidated Balance Sheets
Schedule 2: Consolidated Statements of Income
Schedule 3: Statement of Changes in Stockholders' Equity
Schedule 4: Consolidated Statements of Cash Flows
Schedule 5: Notes to Consolidated Financial Statements
Schedule 6: Management's Discussion and Analysis of Financial Condition
and Results of Operations,
including Quantitative and Qualitative Disclosures about Market
Risk
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1998.
The exhibit set forth above was filed as part of Form 10-Q with the
Securities and Exchange Commission but is not included herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCSHARES, INC.
By /s/ J. Daniel Stinnett
___________________________________
J. Daniel Stinnett
Vice President & Secretary
Date: November 10, 1998
By /s/ Jeffery D. Aberdeen
___________________________________
Jeffery D. Aberdeen
Controller
(Chief Accounting Officer)
Date: November 10, 1998
2
SCHEDULE 1
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER
30 December 31
1998 1997
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Loans, net of unearned income........................ $ 6,765,897 $ 6,224,381
Allowance for loan losses............................ (112,963) (105,918)
----------- -----------
NET LOANS........................................ 6,652,934 6,118,463
----------- -----------
Investment securities:
Available for sale................................. 2,584,264 2,614,040
Trading account.................................... 21,992 6,477
Other non-marketable............................... 29,865 44,414
----------- -----------
TOTAL INVESTMENT SECURITIES...................... 2,636,121 2,664,931
----------- -----------
Federal funds sold and securities purchased under
agreements to resell................................ 294,854 132,980
Cash and due from banks.............................. 600,137 978,239
Land, buildings and equipment, net................... 217,639 214,209
Goodwill and core deposit premium, net............... 78,490 85,377
Customers' acceptance liability...................... 1,677 900
Other assets......................................... 145,735 111,842
----------- -----------
TOTAL ASSETS..................................... $10,627,587 $10,306,941
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand........................ $ 1,460,259 $ 2,124,828
Savings and interest bearing demand................ 4,879,279 4,209,141
Time open and C.D.'s of less than $100,000......... 2,190,205 2,150,719
Time open and C.D.'s of $100,000 and over.......... 255,835 215,890
----------- -----------
TOTAL DEPOSITS................................... 8,785,578 8,700,578
Federal funds purchased and securities sold under
agreements to repurchase............................ 600,559 512,558
Long-term debt and other borrowings.................. 18,973 7,207
Accrued interest, taxes and other liabilities........ 182,165 104,914
Acceptances outstanding.............................. 1,677 900
----------- -----------
TOTAL LIABILITIES................................ 9,588,952 9,326,157
----------- -----------
Stockholders' equity:
Preferred stock, $1 par value.
Authorized and unissued 2,000,000 shares.......... -- --
Common stock, $5 par value.
Authorized 80,000,000 shares, issued 58,645,813
shares in 1998
and 58,285,813 shares in 1997..................... 293,229 291,429
Capital surplus.................................... 32,955 48,704
Retained earnings.................................. 718,446 626,387
Treasury stock of 1,067,441 shares in 1998
and 315,894 shares in 1997, at cost............... (52,265) (14,252)
Unearned employee benefits......................... (911) (601)
Unrealized securities gains, net................... 47,181 29,117
----------- -----------
TOTAL STOCKHOLDERS' EQUITY....................... 1,038,635 980,784
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $10,627,587 $10,306,941
=========== ===========
See accompanying notes to financial statements.
3
SCHEDULE 2
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE
MONTHS
ENDED SEPTEMBER FOR THE NINE MONTHS
30 ENDED SEPTEMBER 30
----------------- -------------------
1998 1997 1998 1997
-------- -------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans............... $140,403 $129,733 $ 412,463 $ 370,376
Interest on investment securities........ 38,529 41,555 117,270 124,051
Interest on federal funds sold and
securities purchased under agreements to
resell ................................. 4,536 2,398 11,439 10,410
-------- -------- --------- ---------
TOTAL INTEREST INCOME................ 183,468 173,686 541,172 504,837
-------- -------- --------- ---------
INTEREST EXPENSE
Interest on deposits:
Savings and interest bearing demand.... 36,972 33,782 107,468 99,758
Time open and C.D.'s of less than
$100,000.............................. 29,782 29,743 88,268 87,083
Time open and C.D.'s of $100,000 and
over.................................. 3,442 2,915 9,904 8,269
Interest on federal funds purchased and
securities sold under agreements to
repurchase.............................. 6,591 6,014 19,364 16,305
Interest on long-term debt and other
borrowings.............................. 76 174 293 633
-------- -------- --------- ---------
TOTAL INTEREST EXPENSE............... 76,863 72,628 225,297 212,048
-------- -------- --------- ---------
NET INTEREST INCOME.................. 106,605 101,058 315,875 292,789
Provision for loan losses................ 7,777 7,807 29,903 22,638
-------- -------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES..................... 98,828 93,251 285,972 270,151
-------- -------- --------- ---------
NON-INTEREST INCOME
Trust fees............................... 12,913 10,508 37,639 29,998
Deposit account charges and other fees... 16,078 14,520 46,185 42,463
Credit card transaction fees............. 9,272 7,628 25,268 20,886
Trading account profits and commissions . 1,976 1,808 6,084 5,395
Net gains on securities transactions..... 87 2,386 6,175 2,708
Other.................................... 10,344 9,837 35,019 29,185
-------- -------- --------- ---------
TOTAL NON-INTEREST INCOME............ 50,670 46,687 156,370 130,635
-------- -------- --------- ---------
NON-INTEREST EXPENSE
Salaries and employee benefits .......... 48,644 45,818 147,029 132,524
Net occupancy............................ 6,336 5,742 17,995 16,185
Equipment................................ 4,567 4,118 13,232 12,196
Supplies and communication............... 7,692 6,276 21,891 18,901
Data processing.......................... 7,157 6,341 21,211 17,830
Marketing................................ 3,052 3,559 9,290 9,539
Goodwill and core deposit................ 2,296 2,444 6,887 7,273
Other.................................... 12,201 13,346 38,165 39,203
-------- -------- --------- ---------
TOTAL NON-INTEREST EXPENSE........... 91,945 87,644 275,700 253,651
-------- -------- --------- ---------
Income before income taxes............... 57,553 52,294 166,642 147,135
Less income taxes........................ 19,839 18,072 56,951 51,181
-------- -------- --------- ---------
NET INCOME........................... $ 37,714 $ 34,222 $ 109,691 $ 95,954
======== ======== ========= =========
Net income per share--basic ............. $ .66 $ .59 $ 1.89 $ 1.64
======== ======== ========= =========
Net income per share--diluted ........... $ .64 $ .58 $ 1.85 $ 1.62
======== ======== ========= =========
Cash dividends per common share.......... $ .145 $ .130 $ .435 $ .390
======== ======== ========= =========
See accompanying notes to financial statements.
4
SCHEDULE 3
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NUMBER OF UNEARNED UNREALIZED
SHARES COMMON CAPITAL RETAINED TREASURY EMPLOYEE SECURITIES
ISSUED STOCK SURPLUS EARNINGS STOCK BENEFITS GAINS, NET TOTAL
---------- -------- ------- -------- -------- -------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE JANUARY 1, 1998. 58,285,813 $291,429 $48,704 $626,387 $(14,252) $(601) $29,117 $ 980,784
Net income............. 109,691 109,691
Change in unrealized
securities gains, net. 17,925 17,925
Acquisition............ 360,000 1,800 (11,346) 7,639 16,101 139 14,333
Purchase of treasury
stock................. (63,692) (63,692)
Sales under option and
benefit plans......... (4,414) 9,079 4,665
Issuance of stock under
restricted stock award
plan.................. 11 499 (510) --
Restricted stock award
amortization.......... 200 200
Cash dividends paid
($.435 per share)..... (25,271) (25,271)
---------- -------- ------- -------- -------- ----- ------- ----------
BALANCE SEPTEMBER 30,
1998................... 58,645,813 $293,229 $32,955 $718,446 $(52,265) $(911) $47,181 $1,038,635
========== ======== ======= ======== ======== ===== ======= ==========
See accompanying notes to financial statements.
5
SCHEDULE 4
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
--------------------
1998 1997
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income.............................................. $ 109,691 $ 95,954
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................. 29,903 22,638
Provision for depreciation and amortization........... 24,201 22,688
Accretion of investment security discounts............ (3,186) (4,298)
Amortization of investment security premiums ......... 5,967 7,109
Net gains on sales of investment securities (A) ...... (6,175) (2,708)
Net (increase) decrease in trading account securities. (11,833) 1,152
Decrease in interest receivable....................... 3,022 4,280
Increase in interest payable.......................... 1,439 180
Other changes, net.................................... (10,772) 11,946
--------- ---------
Net cash provided by operating activities........... 142,257 158,941
--------- ---------
INVESTING ACTIVITIES:
Net cash received in acquisitions....................... 4,044 6,200
Proceeds from sales of investment securities (A)........ 269,520 389,065
Proceeds from maturities of investment securities (A)... 783,400 698,430
Purchases of investment securities (A).................. (895,818) (918,288)
Net (increase) decrease in federal funds sold and
securities purchased
under agreements to resell............................. (153,649) 242,095
Net increase in loans................................... (504,108) (480,307)
Purchases of premises and equipment..................... (22,208) (21,161)
Sales of premises and equipment......................... 5,163 7,312
--------- ---------
Net cash used by investing activities............... (513,656) (76,654)
--------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing demand,
savings,
and interest bearing demand deposits................... (40,427) 54,897
Net increase (decrease) in time open and C.D.'s......... 21,293 (25,472)
Net increase (decrease) in federal funds purchased and
securities sold
under agreements to repurchase ........................ 86,185 (49,119)
Repayment of long-term debt............................. (3,440) (3,952)
Additional borrowings................................... 15,245 --
Purchases of treasury stock............................. (62,554) (67,323)
Issuance under stock purchase, option and benefit plans. 2,266 586
Cash dividends paid on common stock .................... (25,271) (22,850)
--------- ---------
Net cash used by financing activities .............. (6,703) (113,233)
--------- ---------
Decrease in cash and cash equivalents............... (378,102) (30,946)
Cash and cash equivalents at beginning of year.......... 978,239 833,260
--------- ---------
Cash and cash equivalents at September 30 .......... $ 600,137 $ 802,314
========= =========
- --------
(A) Available for sale and other non-marketable securities, excluding trading
account securities.
Net cash payments of income taxes for the nine month period were $44,922,000
in 1998 and $36,608,000 in 1997. Interest paid on deposits and borrowings for
the nine month period was $223,732,000 in 1998 and $211,715,000 in 1997.
See accompanying notes to financial statements.
6
SCHEDULE 5
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The accompanying consolidated financial statements include the accounts of
Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company).
All significant intercompany accounts and transactions have been eliminated.
Certain reclassifications were made to 1997 data to conform to current year
presentation. Results of operations for the nine month period ended September
30, 1998 are not necessarily indicative of results to be attained for any
other period.
The significant accounting policies followed in the preparation of the
quarterly financial statements are the same as those disclosed in the 1997
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.
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------- -----------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
Balance, beginning of period......... $112,990 $103,730 $105,918 $ 98,223
-------- -------- -------- --------
Additions:
Provision for loan losses.......... 7,777 7,807 29,903 22,638
Allowance for loan losses of
acquired banks.................... -- 954 964 4,275
-------- -------- -------- --------
Total additions.................. 7,777 8,761 30,867 26,913
-------- -------- -------- --------
Deductions:
Loan losses........................ 10,594 9,101 31,550 26,031
Less recoveries on loans........... 2,790 2,095 7,728 6,380
-------- -------- -------- --------
Net loan losses.................. 7,804 7,006 23,822 19,651
-------- -------- -------- --------
Balance, September 30................ $112,963 $105,485 $112,963 $105,485
======== ======== ======== ========
At September 30, 1998, non-performing assets were $42,069,000, which was
.62% of total loans and .40% of total assets. This balance consisted of
$18,804,000 in loans not accruing interest, $21,393,000 in loans past due 90
days and still accruing interest, and $1,872,000 in foreclosed real estate.
7
3. INVESTMENT SECURITIES
Investment securities, at fair value, consist of the following at September
30, 1998 and December 31, 1997.
SEPTEMBER 30 December
1998 31 1997
------------ ----------
(IN THOUSANDS)
Available for sale:
U.S. government and federal agency obligations. $1,431,800 $1,461,593
State and municipal obligations................ 102,941 94,115
CMO's and asset-backed securities.............. 890,534 837,056
Other debt securities.......................... 116,395 173,972
Equity securities.............................. 42,594 47,304
Trading account securities....................... 21,992 6,477
Other non-marketable securities.................. 29,865 44,414
---------- ----------
Total investment securities.................. $2,636,121 $2,664,931
========== ==========
4. COMMON STOCK
The shares used in the calculation of basic and diluted income per share are
shown below.
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------- -------------
1998 1997 1998 1997
------ ------ ------ ------
(IN THOUSANDS)
Weighted average common shares outstanding... 57,865 58,386 58,147 58,520
Stock options................................ 917 805 1,006 712
------ ------ ------ ------
58,782 59,191 59,153 59,232
====== ====== ====== ======
On February 6, 1998, the Board of Directors declared a three for two stock
split, effected in the form of a stock dividend, on the Company's $5 par
common stock. Accordingly, the number of shares issued was increased from
39,097,209 to 58,645,813. All share and per share data in this report have
been restated to reflect the stock split.
5. ACQUISITION ACTIVITY
On March 1, 1998, the Company completed its acquisition of City National
Bank of Pittsburg, Kansas, with assets of $120 million. On November 1, 1998,
the Company acquired Columbus State Bank, Columbus, Kansas, Fidelity State
Bank, Garden City, Kansas, and Heritage Bank, Olathe, Kansas. These banks have
combined assets of approximately $310 million and eleven locations. The
acquisitions were accounted for as pooling of interests transactions and will
not have a material impact on the Company's financial statements.
6. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", in the
first quarter of 1998. SFAS No. 130 requires the reporting of comprehensive
income and its components. Comprehensive income is defined as the change in
equity from transactions and other events and circumstances from non-owner
sources, and excludes investments by and distributions to owners.
Comprehensive income includes net income and other items of comprehensive
income meeting the above criteria. The Company's only component of other
comprehensive income is the unrealized holding gains and losses on available
for sale securities.
FOR THE NINE
FOR THE THREE MONTHS MONTHS ENDED
ENDED SEPTEMBER 30 SEPTEMBER 30
--------------------- -----------------
1998 1997 1998 1997
---------- ---------- -------- --------
(IN THOUSANDS)
Net income....................... $ 37,714 $ 34,222 $109,691 $ 95,954
Change in unrealized gains
(losses), net................... 12,086 11,245 17,925 9,023
---------- ---------- -------- --------
Comprehensive income............. $ 49,800 $ 45,467 $127,616 $104,977
========== ========== ======== ========
8
SCHEDULE 6
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
(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 1997 Annual Report on Form 10-K. Results of operations for the nine
month period ended September 30, 1998 are not necessarily indicative of
results to be attained for any other period.
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
PER SHARE DATA
Net income--basic........... $ .66 $ .59 $ 1.89 $ 1.64
Net income--diluted......... .64 .58 1.85 1.62
Cash dividends.............. .145 .130 .435 .390
Book value.................. 18.04 16.65
Market price................ 39.38 37.38
SELECTED RATIOS
(Based on average balance
sheets)
Loans to deposits........... 76.09% 72.00% 75.18% 70.20%
Non-interest bearing
deposits to total deposits. 15.07 21.85 19.54 20.92
Equity to loans............. 15.40 15.95 15.66 16.31
Equity to deposits.......... 11.72 11.49 11.77 11.45
Equity to total assets...... 9.81 9.71 9.87 9.72
Return on total assets...... 1.43 1.39 1.42 1.34
Return on realized
stockholders' equity....... 15.14 14.62 14.95 13.99
Return on total
stockholders' equity....... 14.62 14.32 14.42 13.80
(Based on end-of-period data)
Efficiency ratio............ 57.03 58.61 57.68 58.56
Tier I capital ratio........ 12.11 12.66
Total capital ratio......... 13.38 13.78
Leverage ratio.............. 8.89 8.92
SUMMARY
Consolidated net income for the third quarter of 1998 was $37.7 million; a
$3.5 million or 10.2% increase over the third quarter of 1997. Diluted
earnings per share increased 10.3% to $.64 for the third quarter of 1998
compared to $.58 for the third quarter of 1997. The third quarter of 1998 was
the Company's tenth consecutive quarter of double-digit growth in earnings per
share. Return on average assets for the quarter was 1.43% compared to 1.39%
last year. Return on average realized stockholders' equity for the third
quarter was 15.14% compared to 14.62% last year. The Company's efficiency
ratio was 57.03% for the third quarter of 1998.
Consolidated net income for the first nine months of 1998 was $109.7
million, a 14.3% increase over the first nine months of 1997. Diluted earnings
per share was $1.85 compared to $1.62 last year. Compared to last year, net
interest income increased 7.9%, non-interest income increased 19.7%, and non-
interest expense increased 8.7%. Year to date average loans have grown by
13.9%.
9
A three for two stock split in the form of a 50% stock dividend was
distributed on March 30, 1998. All share and per share data in this report
have been restated to reflect the stock split. The fifth annual consecutive 5%
stock dividend was declared October 2, 1998, payable December 18, 1998.
The Company completed its acquisition of City National Bank of Pittsburg,
Kansas on March 1, 1998. The bank has four locations and approximately $120
million in assets. Stock valued at $34.3 million was exchanged in the
transaction. On November 1, 1998, the Company acquired the Kansas banks of
Columbus State Bank, Fidelity State Bank in Garden City, and Heritage Bank of
Olathe. The banks have combined assets of approximately $310 million and
eleven locations. Stock valued at $49.7 million was exchanged. The above
acquisitions did not have a material impact on the financial statements of the
Company.
NET INTEREST INCOME
The following table summarizes the changes in net interest income on a fully
tax equivalent basis, by major category of interest earning assets and
interest bearing liabilities, identifying changes related to volumes and
rates. Changes not solely due to volume or rate changes are allocated to rate.
Management believes this allocation method, applied on a consistent basis,
provides meaningful comparisons between the respective periods.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 VS. 1997 SEPTEMBER 30, 1998 VS. 1997
------------------------------- ------------------------------
CHANGE DUE TO CHANGE DUE TO
-------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
INTEREST INCOME, FULLY
TAXABLE EQUIVALENT
BASIS:
Loans................. $ 13,959 $ (3,281) $ 10,678 $ 48,031 $ (5,871) $ 42,160
Investment securities:
U.S. government and
federal agency
securities......... (3,161) (490) (3,651) (10,334) (528) (10,862)
State and municipal
obligations........ 7 71 78 (98) 98 --
Other securities.... 642 (78) 564 4,047 (3) 4,044
Federal funds sold and
securities purchased
under agreements to
resell............... 2,308 (170) 2,138 908 121 1,029
--------- --------- --------- --------- -------- ---------
Total interest
income........... 13,755 (3,948) 9,807 42,554 (6,183) 36,371
--------- --------- --------- --------- -------- ---------
INTEREST EXPENSE:
Deposits:
Savings............. 56 (35) 21 277 (48) 229
Interest bearing
demand............. 7,777 (4,608) 3,169 11,374 (3,893) 7,481
Time open & C.D.'s
of less than
$100,000........... 84 (45) 39 1,074 111 1,185
Time open & C.D.'s
of $100,000 and
over............... 507 20 527 1,460 175 1,635
Federal funds
purchased and
securities sold under
agreements to
repurchase........... 573 4 577 2,554 505 3,059
Long-term debt and
other borrowings..... 68 (182) (114) (173) (176) (349)
--------- --------- --------- --------- -------- ---------
Total interest
expense.......... 9,065 (4,846) 4,219 16,566 (3,326) 13,240
--------- --------- --------- --------- -------- ---------
NET INTEREST INCOME,
FULLY TAXABLE
EQUIVALENT BASIS....... $ 4,690 $ 898 $ 5,588 $ 25,988 $ (2,857) $ 23,131
========= ========= ========= ========= ======== =========
10
Net interest income for the third quarter of 1998 was $106.6 million, a 5.5%
increase over the third quarter of 1997, and for the first nine months was
$315.9 million, a 7.9% increase over last year. For the quarter, the tax
equivalent net interest rate margin was 4.51% compared with 4.61% last year,
while the nine month margin was 4.58% in 1998 and 1997.
Total interest income increased $9.8 million, or 5.6%, over the third
quarter of 1997 and increased $36.3 million, or 7.2%, over the first nine
months of 1997. The increases were mainly due to higher loan demand, with
average balances increasing $700.8 million on a quarterly comparison and
$794.5 million year to date. Partially offsetting the increases were declines
in average rates earned on loans and decreases in average balances invested in
U.S. government and federal agency securities. The average tax equivalent
yield on interest earning assets was 7.72% for the third quarter of 1998
compared to 7.90% last year. The nine month yield decreased slightly from
7.87% in 1997 to 7.82% in 1998.
Total interest expense (net of capitalized interest) increased $4.2 million,
or 5.8%, compared to the third quarter of 1997 and increased $13.2 million, or
6.2%, over the first nine months of 1997. A significant portion of the
increase was due to growth in the Company's Premium Money Market deposit
accounts, partially offset by lower rates paid on other interest bearing
demand deposits. The average cost of funds was 3.83% for the third quarter of
1998 and 4.15% for the third quarter of 1997. Average core deposits (deposits
excluding short-term certificates of deposit over $100,000) for the first nine
months of 1998 increased 6.5% compared to the same period last year. Core
deposits supported 92% of average earning assets in 1998.
Summaries of average assets and liabilities and the corresponding average
rates earned/paid appear on pages 18 and 19.
RISK ELEMENTS OF LOAN PORTFOLIO
Non-performing assets include impaired loans (non-accrual loans and loans 90
days delinquent and still accruing interest) and foreclosed real estate. Loans
are placed on non-accrual status when management does not expect to collect
payments consistent with acceptable and agreed upon terms of repayment
(generally, loans that are 90 days past due as to principal and/or interest
payments). These loans were made primarily to borrowers in Missouri, Kansas
and Illinois. The following table presents non-performing assets.
SEPTEMBER 30, 1998 December 31, 1997
------------------ -----------------
(IN THOUSANDS)
Non-accrual loans................... $18,804 $23,382
Past due 90 days and still accruing
interest........................... 21,393 24,383
------- -------
Total impaired loans.............. 40,197 47,765
Foreclosed real estate.............. 1,872 994
------- -------
Total non-performing assets....... $42,069 $48,759
======= =======
Non-performing assets to total
loans.............................. .62% .78%
Non-performing assets to total
assets............................. .40% .47%
The level of non-performing assets decreased $6.7 million, or 13.7%, from
year end 1997 totals. Most of the decrease occurred in the non-accrual loan
category. Non-accrual loans at September 30, 1998 consisted mainly of
construction and land development loans ($8.1 million), business loans ($5.9
million) and business real estate loans ($3.5 million). Loans which were 90 or
more days past due included credit card loans of $7.0 million, business loans
of $5.0 million and business real estate loans of $3.7 million.
A subsidiary bank issues Visa and MasterCard credit cards, and credit card
loans outstanding were $507.5 million at September 30, 1998. 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 $15.6 million, or 3.1% of credit
card loans at September 30, 1998. The annualized
11
net charge-off ratio for credit card loans was 3.93% for the first nine months
of 1998 compared to 3.84% for the first nine months of 1997. 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.
PROVISION/ALLOWANCE FOR LOAN LOSSES
NINE MONTHS ENDED
THREE MONTHS ENDED SEPTEMBER 30
------------------------------------------- ------------------
June 30, 1998 SEPT. 30, 1998 Sept. 30, 1997 1998 1997
------------- -------------- -------------- -------- --------
(DOLLARS IN THOUSANDS)
Provision for loan
losses................. $11,410 $7,777 $7,807 $ 29,903 $ 22,638
Net charge-offs......... 6,989 7,804 7,006 23,822 19,651
Net annualized charge-
offs as a percentage of
average loans.......... .43% .47% .47% .49% .46%
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 current 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, 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), and reviews
and examinations by bank regulatory authorities. The allowance for loan losses
as a percentage of loans outstanding was 1.67% at September 30, 1998, compared
to 1.70% at year-end 1997 and 1.73% at September 30, 1997. The allowance at
September 30, 1998 was 269% of non-performing assets. 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.
NON-INTEREST INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- ----------------------------
1998 1997 % Change 1998 1997 % Change
------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Trust fees.............. $12,913 $10,508 22.9% $ 37,639 $ 29,998 25.5%
Deposit account charges
and other fees......... 16,078 14,520 10.7 46,185 42,463 8.8
Credit card transaction
fees................... 9,272 7,628 21.6 25,268 20,886 21.0
Trading account profits
and commissions........ 1,976 1,808 9.3 6,084 5,395 12.8
Net gains on securities
transactions........... 87 2,386 (96.4) 6,175 2,708 128.0
Other................... 10,344 9,837 5.2 35,019 29,185 20.0
------- ------- -------- --------
TOTAL NON-INTEREST
INCOME............... $50,670 $46,687 8.5 $156,370 $130,635 19.7
======= ======= ======== ========
As a % of operating
income (net interest
income plus non-
interest income)....... 32.2% 31.6% 33.1% 30.9%
======= ======= ======== ========
Non-interest income rose 19.7% over the first nine months of last year and
8.5% over the third quarter of last year. Trust fees increased $7.6 million
over the nine months of 1997 and $2.4 million over the third quarter of 1997,
mainly due to account growth and increases in the value of assets managed.
Growth in merchant income and sales volume contributed to increases in credit
card transaction fees of $4.4 million over the nine months of 1997 and $1.6
million over the third quarter of 1997. Deposit account charges rose $3.7
million over the nine months of 1997 and $1.6 million over the third quarter
of 1997. Sales of debt securities by the affiliate banks and sales of equity
securities by the Parent and a venture capital subsidiary resulted in a $3.5
million increase in securities gains over the prior nine month period.
12
NON-INTEREST EXPENSE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ --------------------------
1998 1997 % Change 1998 1997 % Change
------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Salaries and employee
benefits.................. $48,644 $45,818 6.2% $147,029 $132,524 10.9%
Net occupancy.............. 6,336 5,742 10.3 17,995 16,185 11.2
Equipment.................. 4,567 4,118 10.9 13,232 12,196 8.5
Supplies and communication. 7,692 6,276 22.6 21,891 18,901 15.8
Data processing............ 7,157 6,341 12.9 21,211 17,830 19.0
Marketing.................. 3,052 3,559 (14.2) 9,290 9,539 (2.6)
Goodwill and core deposit.. 2,296 2,444 (6.1) 6,887 7,273 (5.3)
Other...................... 12,201 13,346 (8.6) 38,165 39,203 (2.6)
------- ------- -------- --------
TOTAL NON-INTEREST
EXPENSE................. $91,945 $87,644 4.9 $275,700 $253,651 8.7
======= ======= ======== ========
Full-time equivalent
employees................. 5,247 5,066 3.6 5,184 4,959 4.5
======= ======= ======== ========
Non-interest expense rose $22.0 million, or 8.7%, compared to the first nine
months of 1997 and increased $4.3 million, or 4.9%, compared to the third
quarter of 1997. Salaries and employee benefits increased $14.5 million over
the first nine months of 1997 and increased $2.8 million over the third
quarter of 1997. Incentive compensation on new business, additional employees
and merit increases contributed to the salary increases. Supplies and
communication expense increased $3.0 million over the first nine months of
1997 and increased $1.4 million over the third quarter of 1997, and included
increases in office supplies, telephone, postage and courier expense. Data
processing expense increased $3.4 million and $816 thousand over the 1997 year
and quarter to date periods, partly because of higher charges by information
service providers. The efficiency ratio was 57.03% in the third quarter of
1998 compared to 58.61% in the third quarter of 1997 and 58.26% in the second
quarter of 1998.
YEAR 2000 READINESS DISCLOSURE*
Introduction
A comprehensive plan to attain Year 2000 compliance has been developed and
the process of assessment, renovation, validation and implementation is
underway for all major financial, operational and information systems. Year
2000 compliance generally means that computers and embedded computer chips
will distinguish between the year 1900 and the year 2000. The plan encompasses
two main areas of operation, the Information Services Project, which includes
centralized equipment and systems, and the Corporate Business Unit Project,
which includes decentralized systems such as elevators, environmental systems,
alarms, vaults, personal computers and related software and systems. These
projects have four general phases: (1) assessment, which includes inventorying
business processes and elements that must be modified, identifying resource
needs, establishing priorities and time frames, and evaluating vendor and
customer efforts; (2) renovation, which includes the modification, replacement
or elimination of items that are determined not to be year 2000 compliant; (3)
validation, which is the testing of items by simulating date and data
conditions for the Year 2000; and (4) implementation, which involves putting
the renovated systems and equipment into operation. In addition, the Company
plans integrated implementation to ensure that validated items operate
correctly in relation with one another.
Year 2000 planning began in 1996 and has been an ongoing process. The
Company and its subsidiaries are subject to regulatory examinations by various
external regulatory agencies, including the Federal Reserve and the Office of
the Comptroller of the Currency. These regulatory agencies have adopted and
implemented
- --------
*This statement is made pursuant to the Year 2000 Information and Readiness
Disclosure Act. This statement originated from the Company and concerns (1)
assessments, projections, or estimates of year 2000 processing capabilities;
(2) plans, objectives, or timetables for implementing or verifying year 2000
processing capabilities; (3) test plans, dates, or results; and/or (4)
reviews and comments concerning year 2000 processing capabilities as defined
by the Act.
13
regulations that require the Company to address, on a priority basis, the Year
2000 problem. Regulatory examinations have included a review of the Company's
Year 2000 efforts. These regulatory agencies will continue to perform
frequent, periodic examinations to assess the Company's compliance with
regulatory requirements.
State of Readiness
Both the Information Services and the Corporate Business Unit Projects have
completed the assessment phase for both internal and vendor-supplied items.
The renovation, validation, and implementation phases are currently in
progress. Mission critical items (defined to be those programs and processes
that are essential to activities which present significant financial risk or
risk in reputation) have been identified in the assessment phase. At September
30, 1998, approximately 33% of mission critical items in the two projects were
in the renovation phase, 20% of mission critical items were in the validation
phase, and 47% of mission critical items had been implemented. These
percentages refer to individual systems or hardware and are not necessarily
indicative of time or money spent. The Company currently expects to
substantially complete both renovation and validation of internal mission
critical systems by December 31, 1998, with implementation currently
anticipated to occur by March 31, 1999. The additional step of integrated
implementation, running related and interdependent programs in sequence, will
then begin as the individual systems are implemented.
The Company interfaces with many third parties, including customers, supply
vendors, service providers, and counterparties. Some of its major systems are
provided by third parties. In 1996, the Company began its communication with
significant third parties to determine the extent to which the Company may be
affected by those third parties' failure to remediate their own Year 2000
issues. The Company will continue to monitor the progress of third party
testing and implementation procedures throughout 1999. The Company cannot at
present determine the financial effect if significant third party remediation
efforts fail.
Costs to Address Year 2000 Issues
The total cost of the Company's Year 2000 project is currently estimated to
range between $4 and $5 million. Since inception through September 30, 1998,
the cost has totaled approximately $1.4 million. This cost does not include
computer equipment and software that is replaced within scheduled time frames
in the normal course of business. A significant portion of these costs are not
likely to be incremental costs to the Company, but rather will represent the
redeployment of existing Company resources. System renovation costs for the
Company are relatively low because a significant portion of the Company's
software is vendor-supplied.
Risks of Company's Year 2000 Issues
The Company's estimate of Year 2000 project costs and the dates set forth
above by which certain phases of the project are expected to be completed are
based on management's best current estimates. Actual results could differ from
those anticipated. The failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity and financial condition. The
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity and financial condition due to the general uncertainty
inherent in the Year 2000 problem. The Company believes that, with the
completion of the Year 2000 project as scheduled, the possibility of
significant interruptions and failures of normal operations should be reduced.
Year 2000 Contingency Plans
The Company began contingency planning in mid-1997 to address the risk of a
significant Year 2000 failure. At September 30, 1998, contingency plans had
been developed for mission critical items, and these plans continue to be
reevaluated and improved. Most of the contingency plans involve development of
manual procedures or use of alternate systems. Viable contingency plans are
difficult to develop for certain third party failures, especially in the
financial market and utility infrastructures.
14
Readers are cautioned that forward-looking statements contained in the Year
2000 discussion above should be read in conjunction with the Company's
disclosures under the heading: "Cautionary Statement Pursuant to Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995".
LIQUIDITY AND CAPITAL RESOURCES
The liquid assets of the Parent consist primarily of commercial paper,
overnight repurchase agreements and equity securities, most of which are
readily marketable. The fair value of these investments was $114.7 million at
September 30, 1998 compared to $92.4 million at December 31, 1997. Included in
the fair values were unrealized net gains of $23.6 million at September 30,
1998 and $20.7 million at December 31, 1997. The Parent's liabilities totaled
$23.4 million at September 30, 1998, compared to $89.6 million at June 30,
1998 and $10.6 million at December 31, 1997. Liabilities at June 30, 1998
included $72.6 million advanced mainly from subsidiary bank holding companies
in order to combine resources for short-term investment in liquid assets.
These advances were repaid from subsidiary bank holding company dividend
proceeds in the third quarter, and have a balance of $5.6 million at September
30, 1998. The Parent had no short-term borrowings from affiliate banks or
long-term debt during 1998. The Parent'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
investment securities. These liquid assets had a fair value of $2.74 billion
at September 30, 1998 and $2.66 billion at December 31, 1997. The available
for sale bank portfolio included an unrealized net gain in fair value of $52.7
million at September 30, 1998 compared to an unrealized net gain of $20.0
million at December 31, 1997. U.S. government and federal agency securities
comprised 58% and CMO's and asset-backed securities comprised 36% of the
banking subsidiaries' available for sale portfolio at September 30, 1998. The
estimated average maturity of the available for sale investment portfolio was
2.5 years at September 30, 1998 and 2.6 years at December 31, 1997.
In February 1998, the Board of Directors announced the approval of
additional purchases of the Company's common stock, bringing the total
purchase authorization to 3,000,000 shares. At September 30, 1998, the Company
had acquired 1,064,416 shares under this authorization. The Company has
routinely used these reacquired shares to fund annual stock dividends and
employee benefit programs.
The Company had an equity to asset ratio of 9.87% based on 1998 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.
MIN. RATIOS FOR
SEPTEMBER 30 DECEMBER 31 WELL-CAPITALIZED
1998 1997 BANKS
------------ ----------- ----------------
(DOLLARS IN THOUSANDS)
Risk-Adjusted Assets............ $7,553,427 $7,178,225
Tier I Capital.................. 914,860 868,535
Total Capital................... 1,010,886 949,291
Tier I Capital Ratio............ 12.11% 12.10% 6.00%
Total Capital Ratio............. 13.38% 13.22% 10.00%
Leverage Ratio.................. 8.89% 8.81% 5.00%
The Company's cash and cash equivalents (defined as "Cash and due from
banks") were $600.1 million at September 30, 1998, a decrease of $378.1
million from December 31, 1997. Contributing to the net cash outflow were a
$504.1 million increase in loans, net of repayments, a $153.6 million increase
in federal funds and resell agreements, and treasury stock purchases of $62.6
million. Partially offsetting these net outflows were $157.1 million in
maturities and sales of investment securities, net of purchases, and $142.3
million generated from operating activities. Total assets increased $320.6
million over December 31, 1997.
15
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 $2.66
billion, standby letters of credit totaled $232.1 million, and commercial
letters of credit totaled $21.5 million at September 30, 1998. 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 $393.8 million at September 30, 1998. The current credit exposure (or
replacement cost) across all off-balance-sheet derivative contracts covered by
the risk-based capital standards was $6.0 million at September 30, 1998.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's assets and liabilities are principally financial in nature and
the resulting net interest income thereon is subject to changes in market
interest rates and the mix of various assets and liabilities. Interest rates
in the financial markets affect the Company's decisions on pricing its assets
and liabilities which impacts net interest income, a significant cash flow
source for the Company. As a result, a substantial portion of the Company's
risk management activities relates to managing interest rate risk.
The Company's Asset/Liability Management Committee monitors the interest
rate sensitivity of the Company's balance sheet monthly using earnings
simulation models and interest sensitivity GAP analysis. Using these tools,
management attempts to optimize the asset/liability mix to minimize the
impacts of significant rate movements within a broad range of interest rate
scenarios.
One set of simulation models is prepared to determine the impact on net
interest income for the coming twelve months under several interest rate
scenarios. One such scenario uses rates and volumes at September 30, 1998 for
the twelve month projection. When this position is subjected to a graduated
shift in interest rates of 100 basis points rising and 100 basis points
falling, the annual impact to the Company's net interest income is as follows:
$ IN % OF NET
SCENARIO MILLIONS INT. INCOME
-------- -------- -----------
100 basis points rising.............................. $4.8 1.07%
100 basis points falling............................. (1.2) (.27)
Currently, the Company does not have significant risks related to foreign
exchange, commodities or equity risk exposures.
IMPACT OF ACCOUNTING STANDARDS
In January 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 127, "Deferral of the Effective Date of Certain
Provisions of FAS Statement 125". SFAS No. 125 provided consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The adoption of Statement No. 127 did not have a
material effect on the Company's financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", will be adopted January 1, 2000. It establishes accounting and
reporting standards for derivative instruments and hedging activities. All
derivatives must be measured at fair value and recognized as either assets or
liabilities. The Company's volume and activity in the derivatives market is
low, and it does not expect the adoption of SFAS 133 to have a material effect
on the financial statements.
16
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. Such statements are subject to certain risks and
uncertainties, including changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market area, and
competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.
17
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NINE MONTHS 1998 NINE MONTHS 1997
-------------------------------- -------------------------------
INTEREST AVG. RATES INTEREST AVG. RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
----------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS:
Loans:
Business (A)........... $ 2,181,961 $128,000 7.84% $1,782,825 $105,850 7.94%
Construction and
development........... 241,561 15,079 8.35 242,912 15,643 8.61
Real estate--business.. 946,610 59,441 8.40 803,068 51,468 8.57
Real estate--personal.. 1,238,250 70,243 7.58 1,045,829 61,747 7.89
Personal banking....... 1,372,536 88,437 8.61 1,292,420 83,243 8.61
Credit card............ 512,815 52,094 13.58 532,202 53,183 13.36
----------- -------- ----- ---------- -------- -----
Total loans.......... 6,493,733 413,294 8.51 5,699,256 371,134 8.71
----------- -------- ----- ---------- -------- -----
Investment securities:
U.S. government &
federal agency........ 1,420,763 65,924 6.20 1,641,828 76,786 6.25
State & municipal
obligations (A)....... 98,079 5,854 7.98 99,752 5,854 7.85
CMO's and asset-backed
securities............ 859,149 40,644 6.32 772,528 36,513 6.32
Trading account
securities............ 10,891 408 5.01 7,843 316 5.38
Other marketable
securities (A)........ 118,363 5,299 5.99 110,901 4,981 6.00
Other non-marketable
securities............ 31,645 1,405 5.94 43,140 1,902 5.89
----------- -------- ----- ---------- -------- -----
Total investment
securities.......... 2,538,890 119,534 6.29 2,675,992 126,352 6.31
----------- -------- ----- ---------- -------- -----
Federal funds sold and
securities purchased
under agreements to
resell................. 275,195 11,439 5.56 252,418 10,410 5.51
----------- -------- ----- ---------- -------- -----
Total interest
earning assets...... 9,307,818 544,267 7.82 8,627,666 507,896 7.87
-------- ----- -------- -----
Less allowance for loan
losses................. (109,343) (101,152)
Unrealized gain on
investment securities.. 58,623 19,925
Cash and due from banks. 607,309 621,282
Land, buildings and
equipment, net......... 216,928 212,912
Other assets............ 215,095 185,436
----------- ----------
Total assets......... $10,296,430 $9,566,069
=========== ==========
LIABILITIES AND EQUITY:
Interest bearing
deposits:
Savings................ $ 315,489 5,671 2.40 $ 300,177 5,442 2.42
Interest bearing
demand................ 4,212,577 101,797 3.23 3,754,341 94,316 3.36
Time open & C.D.'s of
less than $100,000.... 2,180,206 88,268 5.41 2,158,266 87,083 5.39
Time open & C.D.'s of
$100,000 and over..... 241,324 9,904 5.49 207,169 8,269 5.34
----------- -------- ----- ---------- -------- -----
Total interest
bearing deposits.... 6,949,596 205,640 3.96 6,419,953 195,110 4.06
----------- -------- ----- ---------- -------- -----
Borrowings:
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 516,094 19,364 5.02 444,607 16,305 4.90
Long-term debt and
other borrowings...... 9,144 325 4.75 12,290 674 7.33
----------- -------- ----- ---------- -------- -----
Total borrowings..... 525,238 19,689 5.01 456,897 16,979 4.97
----------- -------- ----- ---------- -------- -----
Total interest
bearing liabilities. 7,474,834 225,329 4.03% 6,876,850 212,089 4.12%
-------- ----- -------- -----
Non-interest bearing
demand deposits........ 1,688,182 1,698,485
Other liabilities....... 116,724 61,198
Stockholders' equity.... 1,016,690 929,536
----------- ----------
Total liabilities and
equity.............. $10,296,430 $9,566,069
=========== ==========
Net interest margin
(T/E).................. $318,938 $295,807
======== ========
Net yield on interest
earning assets......... 4.58% 4.58%
===== =====
- --------
(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
18
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
THIRD QUARTER 1998 THIRD QUARTER 1997
-------------------------------- -------------------------------
INTEREST AVG. RATES INTEREST AVG. RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
----------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS:
Loans:
Business (A)........... $ 2,223,565 $ 43,673 7.79% $1,869,426 $ 37,362 7.93%
Construction and
development........... 248,608 5,163 8.24 304,273 6,621 8.63
Real estate--business.. 954,814 19,980 8.30 841,965 18,126 8.54
Real estate--personal.. 1,279,439 23,758 7.37 1,078,175 21,388 7.87
Personal banking....... 1,430,893 31,196 8.65 1,324,392 28,539 8.55
Credit card............ 507,775 16,906 13.21 526,070 17,962 13.55
----------- -------- ----- ---------- -------- -----
Total loans.......... 6,645,094 140,676 8.40 5,944,301 129,998 8.68
----------- -------- ----- ---------- -------- -----
Investment securities:
U.S. government &
federal agency........ 1,388,667 21,390 6.11 1,589,310 25,041 6.25
State & municipal
obligations (A)....... 101,665 2,030 7.92 101,318 1,952 7.64
CMO's and asset-backed
securities............ 855,975 13,491 6.25 824,154 13,069 6.29
Trading account
securities............ 12,662 162 6.00 9,667 136 5.58
Other marketable
securities (A)........ 117,968 1,753 5.90 100,974 1,500 5.89
Other non-marketable
securities............ 32,200 479 5.90 43,126 616 5.67
----------- -------- ----- ---------- -------- -----
Total investment
securities.......... 2,509,137 39,305 6.21 2,668,549 42,314 6.29
----------- -------- ----- ---------- -------- -----
Federal funds sold and
securities purchased
under agreements to
resell................. 325,354 4,536 5.53 165,849 2,398 5.74
----------- -------- ----- ---------- -------- -----
Total interest
earning assets...... 9,479,585 184,517 7.72 8,778,699 174,710 7.90
-------- ----- -------- -----
Less allowance for loan
losses................. (112,231) (103,517)
Unrealized gain on
investment securities.. 58,574 32,711
Cash and due from banks. 561,341 661,212
Land, buildings and
equipment, net......... 218,352 214,681
Other assets............ 221,509 183,429
----------- ----------
Total assets......... $10,427,130 $9,767,215
=========== ==========
LIABILITIES AND EQUITY:
Interest bearing
deposits:
Savings................ $ 317,675 1,914 2.39 $ 308,472 1,893 2.43
Interest bearing
demand................ 4,659,678 35,058 2.98 3,746,843 31,889 3.38
Time open & C.D.'s of
less than $100,000.... 2,190,781 29,782 5.39 2,184,602 29,743 5.40
Time open & C.D.'s of
$100,000 and over..... 249,164 3,442 5.48 212,270 2,915 5.45
----------- -------- ----- ---------- -------- -----
Total interest
bearing deposits.... 7,417,298 70,196 3.75 6,452,187 66,440 4.09
----------- -------- ----- ---------- -------- -----
Borrowings:
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 530,942 6,591 4.93 484,712 6,014 4.92
Long-term debt and
other borrowings...... 13,996 76 7.53 10,305 190 7.31
----------- -------- ----- ---------- -------- -----
Total borrowings..... 544,938 6,667 4.85 495,017 6,204 4.97
----------- -------- ----- ---------- -------- -----
Total interest
bearing liabilities. 7,962,236 76,863 3.83% 6,947,204 72,644 4.15%
-------- ----- -------- -----
Non-interest bearing
demand deposits........ 1,316,402 1,804,323
Other liabilities....... 125,099 67,308
Stockholders' equity.... 1,023,393 948,380
----------- ----------
Total liabilities and
equity.............. $10,427,130 $9,767,215
=========== ==========
Net interest margin
(T/E).................. $107,654 $102,066
======== ========
Net yield on interest
earning assets......... 4.51% 4.61%
===== =====
- --------
(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
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