e10vq
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark
One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011 OR
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o
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the transition period
from
to
Commission File
No. 0-2989
COMMERCE
BANCSHARES, INC.
(Exact name of registrant as
specified in its charter)
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Missouri
(State
of Incorporation)
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43-0889454
(IRS
Employer Identification No.)
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1000 Walnut,
Kansas City, MO
(Address
of principal executive offices)
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64106
(Zip
Code)
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(816) 234-2000
(Registrants
telephone number, including area code)
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Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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(Do not check if a smaller reporting company)
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Smaller reporting
company o
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
As of April 27, 2011, the
registrant had outstanding 87,118,698 shares of its
$5 par value common stock, registrants only class of
common stock.
Commerce
Bancshares, Inc. and Subsidiaries
Form 10-Q
2
PART I:
FINANCIAL INFORMATION
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Item 1.
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FINANCIAL
STATEMENTS
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Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
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March 31
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December 31
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2011
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2010
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(Unaudited)
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(In thousands)
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ASSETS
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Loans
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$
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9,374,923
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$
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9,410,982
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Allowance for loan losses
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(194,538
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)
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(197,538
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Net loans
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9,180,385
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9,213,444
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Loans held for sale
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53,411
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63,751
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Investment securities:
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Available for sale ($431,614,000 and $429,439,000 pledged in
2011 and 2010, respectively, to secure structured repurchase
agreements)
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7,499,577
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7,294,303
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Trading
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17,000
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11,710
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Non-marketable
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104,721
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103,521
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Total investment securities
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7,621,298
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7,409,534
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Short-term federal funds sold and securities purchased under
agreements to resell
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3,600
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10,135
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Long-term securities purchased under agreements to resell
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700,000
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450,000
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Interest earning deposits with banks
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203,940
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122,076
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Cash and due from banks
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362,148
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328,464
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Land, buildings and equipment, net
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378,721
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383,397
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Goodwill
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125,585
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125,585
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Other intangible assets, net
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10,182
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10,937
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Other assets
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378,026
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385,016
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Total assets
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$
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19,017,296
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$
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18,502,339
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LIABILITIES AND EQUITY
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Deposits:
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Non-interest bearing
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$
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4,558,630
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$
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4,494,028
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Savings, interest checking and money market
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8,074,055
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7,846,831
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Time open and C.D.s of less than $100,000
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1,388,004
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1,465,050
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Time open and C.D.s of $100,000 and over
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1,518,786
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1,279,112
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Total deposits
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15,539,475
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15,085,021
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Federal funds purchased and securities sold under agreements to
repurchase
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923,014
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982,827
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Other borrowings
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111,972
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112,273
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Other liabilities
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372,345
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298,754
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Total liabilities
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16,946,806
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16,478,875
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Commerce Bancshares, Inc. stockholders equity:
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Preferred stock, $1 par value
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Authorized and unissued 2,000,000 shares
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Common stock, $5 par value
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Authorized 100,000,000 shares; issued
87,208,655 shares in 2011 and 86,788,322 shares in 2010
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436,043
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433,942
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Capital surplus
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976,101
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971,293
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Retained earnings
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596,177
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555,778
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Treasury stock of 17,951 shares in 2011 and
61,839 shares in 2010, at cost
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(733
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(2,371
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Accumulated other comprehensive income
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61,134
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63,345
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Total Commerce Bancshares, Inc. stockholders equity
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2,068,722
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2,021,987
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Non-controlling interest
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1,768
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1,477
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Total equity
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2,070,490
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2,023,464
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Total liabilities and equity
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$
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19,017,296
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$
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18,502,339
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See accompanying notes to consolidated financial
statements.
3
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
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For the Three Months
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Ended March 31
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(In thousands, except per share data)
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2011
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2010
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(Unaudited)
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INTEREST INCOME
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Interest and fees on loans
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$
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118,377
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$
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130,922
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Interest and fees on loans held for sale
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298
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1,904
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Interest on investment securities
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54,889
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55,163
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Interest on short-term federal funds sold and securities
purchased under agreements to resell
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10
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15
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Interest on long-term securities purchased under agreements to
resell
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2,162
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Interest on deposits with banks
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90
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65
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Total interest income
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175,826
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188,069
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INTEREST EXPENSE
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Interest on deposits:
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Savings, interest checking and money market
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6,900
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7,096
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Time open and C.D.s of less than $100,000
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3,743
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6,815
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Time open and C.D.s of $100,000 and over
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2,673
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3,923
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Interest on federal funds purchased and securities sold under
agreements to repurchase
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622
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820
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Interest on other borrowings
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915
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6,705
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Total interest expense
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14,853
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25,359
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Net interest income
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160,973
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162,710
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Provision for loan losses
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15,789
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34,322
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Net interest income after provision for loan losses
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145,184
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128,388
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NON-INTEREST INCOME
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Bank card transaction fees
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37,462
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32,490
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Trust fees
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21,572
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19,318
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Deposit account charges and other fees
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19,300
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23,981
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Bond trading income
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4,720
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5,004
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Consumer brokerage services
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2,663
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2,117
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Loan fees and sales
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1,824
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1,839
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Other
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8,365
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8,440
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Total non-interest income
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95,906
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93,189
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INVESTMENT SECURITIES GAINS (LOSSES), NET
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Impairment (losses) reversals on debt securities
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6,305
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1,295
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Less noncredit-related (losses) reversals on securities not
expected to be sold
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(6,579
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)
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(2,752
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)
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Net impairment losses
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(274
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)
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(1,457
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)
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Realized gains (losses) on sales and fair value adjustments
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|
1,601
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(2,208
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)
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Investment securities gains (losses), net
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1,327
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(3,665
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)
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NON-INTEREST EXPENSE
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Salaries and employee benefits
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87,392
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87,438
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Net occupancy
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12,037
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12,098
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Equipment
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5,577
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5,901
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Supplies and communication
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5,532
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7,338
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Data processing and software
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16,467
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16,606
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Marketing
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4,258
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|
|
4,718
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Deposit insurance
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4,891
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|
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4,750
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Indemnification obligation
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(1,359
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)
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Other
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19,165
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16,875
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Total non-interest expense
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|
153,960
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155,724
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Income before income taxes
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88,457
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62,188
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Less income taxes
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27,507
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18,377
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Net income before non-controlling interest
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|
60,950
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43,811
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Less non-controlling interest expense (income)
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497
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(359
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)
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Net income
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$
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60,453
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$
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44,170
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Net income per common share basic
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$
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.69
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$
|
.50
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Net income per common share diluted
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$
|
.69
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$
|
.50
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See accompanying notes to consolidated financial
statements.
4
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
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Commerce Bancshares, Inc. Shareholders
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Accumulated
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Other
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Non-
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(In thousands,
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Common
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Capital
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Retained
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Treasury
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Comprehensive
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Controlling
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|
except per share data)
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Stock
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Surplus
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Earnings
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Stock
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Income (Loss)
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Interest
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|
Total
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance January 1, 2011
|
|
$
|
433,942
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|
|
$
|
971,293
|
|
|
$
|
555,778
|
|
|
$
|
(2,371
|
)
|
|
$
|
63,345
|
|
|
$
|
1,477
|
|
|
$
|
2,023,464
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
60,453
|
|
|
|
|
|
|
|
|
|
|
|
497
|
|
|
|
60,950
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|
Change in unrealized gain (loss) related to available for sale
securities for which a portion of an
other-than-temporary
impairment has been recorded in earnings, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,014
|
|
|
|
|
|
|
|
4,014
|
|
Change in unrealized gain (loss) on all other available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,560
|
)
|
|
|
|
|
|
|
(6,560
|
)
|
Amortization of pension loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
(206
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,311
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,311
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)
|
Issuance of stock under purchase and equity compensation plans
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|
|
1,136
|
|
|
|
3,687
|
|
|
|
|
|
|
|
6,062
|
|
|
|
|
|
|
|
|
|
|
|
10,885
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Net tax benefit related to equity compensation plans
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|
|
|
|
|
|
717
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
717
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Stock-based compensation
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|
|
|
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1,256
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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1,256
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Issuance of nonvested stock awards
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|
|
965
|
|
|
|
(852
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)
|
|
|
|
|
|
|
(113
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.230 per share)
|
|
|
|
|
|
|
|
|
|
|
(20,054
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,054
|
)
|
|
|
Balance March 31, 2011
|
|
$
|
436,043
|
|
|
$
|
976,101
|
|
|
$
|
596,177
|
|
|
$
|
(733
|
)
|
|
$
|
61,134
|
|
|
$
|
1,768
|
|
|
$
|
2,070,490
|
|
|
|
Balance January 1, 2010
|
|
$
|
415,637
|
|
|
$
|
854,490
|
|
|
$
|
568,532
|
|
|
$
|
(838
|
)
|
|
$
|
46,407
|
|
|
$
|
1,677
|
|
|
$
|
1,885,905
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
44,170
|
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
43,811
|
|
Change in unrealized gain (loss) related to available for sale
securities for which a portion of an
other-than-temporary
impairment has been recorded in earnings, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,908
|
|
|
|
|
|
|
|
3,908
|
|
Change in unrealized gain (loss) on all other available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,422
|
|
|
|
|
|
|
|
7,422
|
|
Amortization of pension loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
|
|
(185
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
(878
|
)
|
Issuance of stock under purchase and equity compensation plans
|
|
|
927
|
|
|
|
3,312
|
|
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
4,041
|
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820
|
|
Stock-based compensation
|
|
|
|
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,840
|
|
Issuance of nonvested stock awards
|
|
|
751
|
|
|
|
(613
|
)
|
|
|
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.224 per share)
|
|
|
|
|
|
|
|
|
|
|
(19,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,600
|
)
|
|
|
Balance March 31, 2010
|
|
$
|
417,315
|
|
|
$
|
859,849
|
|
|
$
|
593,102
|
|
|
$
|
(2,052
|
)
|
|
$
|
58,088
|
|
|
$
|
1,133
|
|
|
$
|
1,927,435
|
|
|
|
See accompanying notes to
consolidated financial statements.
5
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
|
(Unaudited)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
60,453
|
|
|
$
|
44,170
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
15,789
|
|
|
|
34,322
|
|
Provision for depreciation and amortization
|
|
|
11,868
|
|
|
|
12,564
|
|
Amortization (accretion) of investment security
premiums/discounts, net
|
|
|
2,713
|
|
|
|
5,463
|
|
Investment securities (gains) losses, net(A)
|
|
|
(1,327
|
)
|
|
|
3,665
|
|
Net gains on sales of loans held for sale
|
|
|
(571
|
)
|
|
|
(569
|
)
|
Originations of loans held for sale
|
|
|
(15,789
|
)
|
|
|
(227,463
|
)
|
Proceeds from sales of loans held for sale
|
|
|
26,751
|
|
|
|
31,883
|
|
Net decrease in trading securities
|
|
|
2,009
|
|
|
|
897
|
|
Stock-based compensation
|
|
|
1,256
|
|
|
|
1,840
|
|
(Increase) decrease in interest receivable
|
|
|
(1,245
|
)
|
|
|
37
|
|
Increase (decrease) in interest payable
|
|
|
69
|
|
|
|
(2,121
|
)
|
Increase in income taxes payable
|
|
|
27,052
|
|
|
|
18,525
|
|
Net tax benefit related to equity compensation plans
|
|
|
(717
|
)
|
|
|
(820
|
)
|
Other changes, net
|
|
|
(26,341
|
)
|
|
|
22,869
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
101,970
|
|
|
|
(54,738
|
)
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities(A)
|
|
|
11,202
|
|
|
|
19,991
|
|
Proceeds from maturities/pay downs of investment securities(A)
|
|
|
610,003
|
|
|
|
375,027
|
|
Purchases of investment securities(A)
|
|
|
(801,432
|
)
|
|
|
(305,499
|
)
|
Net decrease in loans
|
|
|
17,270
|
|
|
|
279,520
|
|
Long-term securities purchased under agreements to resell
|
|
|
(350,000
|
)
|
|
|
|
|
Repayments of long-term securities purchased under agreements to
resell
|
|
|
100,000
|
|
|
|
|
|
Purchases of land, buildings and equipment
|
|
|
(5,819
|
)
|
|
|
(2,782
|
)
|
Sales of land, buildings and equipment
|
|
|
1,686
|
|
|
|
365
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(417,090
|
)
|
|
|
366,622
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in non-interest bearing,
|
|
|
|
|
|
|
|
|
savings, interest checking and money market deposits
|
|
|
334,382
|
|
|
|
(8,713
|
)
|
Net increase (decrease) in time open and C.D.s
|
|
|
162,628
|
|
|
|
(289,019
|
)
|
Net decrease in short-term federal funds purchased and
securities sold
|
|
|
|
|
|
|
|
|
under agreements to repurchase
|
|
|
(59,813
|
)
|
|
|
(104,418
|
)
|
Repayment of long-term borrowings
|
|
|
(301
|
)
|
|
|
(4,555
|
)
|
Purchases of treasury stock
|
|
|
(4,311
|
)
|
|
|
(878
|
)
|
Issuance of stock under stock purchase and equity compensation
plans
|
|
|
10,885
|
|
|
|
4,041
|
|
Net tax benefit related to equity compensation plans
|
|
|
717
|
|
|
|
820
|
|
Cash dividends paid on common stock
|
|
|
(20,054
|
)
|
|
|
(19,600
|
)
|
|
|
Net cash provided by (used in) financing activities
|
|
|
424,133
|
|
|
|
(422,322
|
)
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
109,013
|
|
|
|
(110,438
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
460,675
|
|
|
|
463,834
|
|
|
|
Cash and cash equivalents at March 31
|
|
$
|
569,688
|
|
|
$
|
353,396
|
|
|
|
(A) Available for sale and non-marketable securities
|
|
|
|
|
|
|
|
|
|
|
Income tax net payments (refunds)
|
|
$
|
455
|
|
|
$
|
(169
|
)
|
Interest paid on deposits and borrowings
|
|
$
|
14,784
|
|
|
$
|
27,480
|
|
Loans transferred to foreclosed real estate
|
|
$
|
16,246
|
|
|
$
|
7,442
|
|
|
|
See accompanying notes to
consolidated financial statements.
6
Commerce
Bancshares, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
|
|
1.
|
Principles
of Consolidation and Presentation
|
The accompanying consolidated financial statements include the
accounts of Commerce Bancshares, Inc. and all majority-owned
subsidiaries (the Company). The consolidated financial
statements in this report have not been audited. All significant
intercompany accounts and transactions have been eliminated.
Certain reclassifications were made to 2010 data to conform to
current year presentation. These included the reclassification
of certain non-interest bearing deposits from money market
accounts to non-interest bearing deposits, in order to more
accurately present the Companys balances of non-interest
bearing deposits. In the opinion of management, all adjustments
necessary to present fairly the financial position and the
results of operations for the interim periods have been made.
All such adjustments are of a normal recurring nature. The
results of operations for the three month period ended
March 31, 2011 are not necessarily indicative of results to
be attained for the full year or any other interim period.
The significant accounting policies followed in the preparation
of the quarterly financial statements are disclosed in the 2010
Annual Report on
Form 10-K.
|
|
2.
|
Loans and
Allowance for Loan Losses
|
Major classifications within the Companys held to maturity
loan portfolio at March 31, 2011 and December 31, 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
3,025,633
|
|
|
$
|
2,957,043
|
|
Real estate construction and land
|
|
|
429,735
|
|
|
|
460,853
|
|
Real estate business
|
|
|
2,095,473
|
|
|
|
2,065,837
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
Real estate personal
|
|
|
1,443,980
|
|
|
|
1,440,386
|
|
Consumer
|
|
|
1,124,140
|
|
|
|
1,164,327
|
|
Revolving home equity
|
|
|
468,277
|
|
|
|
477,518
|
|
Consumer credit card
|
|
|
774,101
|
|
|
|
831,035
|
|
Overdrafts
|
|
|
13,584
|
|
|
|
13,983
|
|
|
|
Total loans
|
|
$
|
9,374,923
|
|
|
$
|
9,410,982
|
|
|
|
At March 31, 2011, loans of $3.0 billion were pledged
at the Federal Home Loan Bank as collateral for borrowings and
letters of credit obtained to secure public deposits. Additional
loans of $1.3 billion were pledged at the Federal Reserve
Bank as collateral for discount window borrowings.
7
Allowance
for loan losses
A summary of the activity in the allowance for loan losses
during the three months ended March 31, 2011 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
Personal
|
|
|
|
|
(In thousands)
|
|
Commercial
|
|
|
Banking
|
|
|
Total
|
|
|
|
|
Balance at January 1, 2011
|
|
$
|
119,946
|
|
|
$
|
77,592
|
|
|
$
|
197,538
|
|
|
|
Provision
|
|
|
13,465
|
|
|
|
2,324
|
|
|
|
15,789
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
6,364
|
|
|
|
17,025
|
|
|
|
23,389
|
|
Less recoveries on loans
|
|
|
1,304
|
|
|
|
3,296
|
|
|
|
4,600
|
|
|
|
Net loans charged off
|
|
|
5,060
|
|
|
|
13,729
|
|
|
|
18,789
|
|
|
|
Balance at March 31, 2011
|
|
$
|
128,351
|
|
|
$
|
66,187
|
|
|
$
|
194,538
|
|
|
|
During the three months ended March 31, 2010, the provision
to the allowance was $34.3 million, loans charged off were
$35.5 million, and recoveries on loans were
$4.3 million. As of March 31, 2010, the ending balance
in the allowance was $197.5 million.
The following table shows the balance in the allowance for loan
losses and the related loan balance at March 31, 2011 and
December 31, 2010, disaggregated on the basis of impairment
methodology. Impaired loans evaluated under
ASC 310-10-35
include loans on non-accrual status which are individually
evaluated for impairment, and other impaired loans deemed to
have similar risk characteristics, which are collectively
evaluated. All other loans are collectively evaluated for
impairment under
ASC 450-20.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
(In thousands)
|
|
Commercial
|
|
|
Banking
|
|
|
Total
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
6,854
|
|
|
$
|
3,290
|
|
|
$
|
10,144
|
|
All other loans
|
|
|
121,497
|
|
|
|
62,897
|
|
|
|
184,394
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
116,094
|
|
|
|
28,663
|
|
|
|
144,757
|
|
All other loans
|
|
|
5,434,747
|
|
|
|
3,795,419
|
|
|
|
9,230,166
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
6,127
|
|
|
$
|
3,243
|
|
|
$
|
9,370
|
|
All other loans
|
|
|
113,819
|
|
|
|
74,349
|
|
|
|
188,168
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
118,532
|
|
|
|
26,828
|
|
|
|
145,360
|
|
All other loans
|
|
|
5,365,201
|
|
|
|
3,900,421
|
|
|
|
9,265,622
|
|
|
|
Impaired
loans
The table below shows the Companys investment in impaired
loans at March 31, 2011 and December 31, 2010. These
loans consist of loans on non-accrual status and other
restructured loans whose terms have been modified and classified
as troubled debt restructurings under
ASC 310-40.
The restructured loans have been extended to borrowers who are
experiencing financial difficulty and who have been granted a
concession. They are largely comprised of certain business,
construction and business real estate loans classified as
substandard. Upon maturity, the loans renewed at interest rates
judged not to be market rates for new debt
8
with similar risk, and as a result were classified as troubled
debt restructurings. These loans totaled $46.6 million and
$41.3 million at March 31, 2011 and December 31,
2010, respectively. These restructured loans are performing in
accordance with their modified terms, and because the Company
believes it probable that all amounts due under the modified
terms of the agreements will be collected, interest on these
loans is being recognized on an accrual basis. Troubled debt
restructurings also include certain credit card loans under
various debt management and assistance programs, which totaled
$20.2 million at March 31, 2011 and $18.8 million
at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Non-accrual loans
|
|
$
|
77,914
|
|
|
$
|
85,275
|
|
Restructured loans
|
|
|
66,843
|
|
|
|
60,085
|
|
|
|
Total impaired loans
|
|
$
|
144,757
|
|
|
$
|
145,360
|
|
|
|
The following table provides additional information about
impaired loans held by the Company at March 31, 2011 and
December 31, 2010, segregated between loans for which an
allowance for credit losses has been provided and loans for
which no allowance has been provided.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Income
|
|
(In thousands)
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Recognized *
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
4,094
|
|
|
$
|
5,765
|
|
|
$
|
|
|
|
$
|
|
|
Real estate construction and land
|
|
|
22,087
|
|
|
|
45,662
|
|
|
|
|
|
|
|
|
|
Real estate business
|
|
|
7,448
|
|
|
|
9,363
|
|
|
|
|
|
|
|
|
|
Real estate personal
|
|
|
755
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,384
|
|
|
$
|
61,545
|
|
|
$
|
|
|
|
$
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
28,728
|
|
|
$
|
32,408
|
|
|
$
|
2,399
|
|
|
$
|
101
|
|
Real estate construction and land
|
|
|
39,074
|
|
|
|
47,761
|
|
|
|
2,999
|
|
|
|
260
|
|
Real estate business
|
|
|
14,663
|
|
|
|
18,398
|
|
|
|
1,456
|
|
|
|
96
|
|
Real estate personal
|
|
|
7,717
|
|
|
|
9,905
|
|
|
|
775
|
|
|
|
18
|
|
Consumer credit card
|
|
|
20,191
|
|
|
|
20,191
|
|
|
|
2,515
|
|
|
|
395
|
|
|
|
|
|
$
|
110,373
|
|
|
$
|
128,663
|
|
|
$
|
10,144
|
|
|
$
|
870
|
|
|
|
Total
|
|
$
|
144,757
|
|
|
$
|
190,208
|
|
|
$
|
10,144
|
|
|
$
|
870
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
3,544
|
|
|
$
|
5,095
|
|
|
$
|
|
|
|
|
|
|
Real estate construction and land
|
|
|
30,979
|
|
|
|
55,790
|
|
|
|
|
|
|
|
|
|
Real estate business
|
|
|
4,245
|
|
|
|
5,295
|
|
|
|
|
|
|
|
|
|
Real estate personal
|
|
|
755
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,523
|
|
|
$
|
66,935
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
18,464
|
|
|
$
|
21,106
|
|
|
$
|
1,665
|
|
|
|
|
|
Real estate construction and land
|
|
|
39,719
|
|
|
|
52,587
|
|
|
|
2,538
|
|
|
|
|
|
Real estate business
|
|
|
21,581
|
|
|
|
25,713
|
|
|
|
1,924
|
|
|
|
|
|
Real estate personal
|
|
|
7,294
|
|
|
|
9,489
|
|
|
|
936
|
|
|
|
|
|
Consumer credit card
|
|
|
18,779
|
|
|
|
18,779
|
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,837
|
|
|
$
|
127,674
|
|
|
$
|
9,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145,360
|
|
|
$
|
194,609
|
|
|
$
|
9,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents interest income
recognized since date of impairment. Interest shown is interest
recognized during the first three months of 2011 on accruing
restructured loans as noted above. |
9
Total average impaired loans, shown in the table below, were
$145.8 million during the three months ended March 31,
2011, compared to total average impaired loans of
$173.0 million during the entire year ended
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
(In thousands)
|
|
Commercial
|
|
|
Banking
|
|
|
Total
|
|
|
|
|
Average impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans
|
|
$
|
75,302
|
|
|
$
|
7,027
|
|
|
$
|
82,329
|
|
Restructured loans
|
|
|
42,936
|
|
|
|
20,528
|
|
|
|
63,464
|
|
|
|
Total at March 31, 2011
|
|
$
|
118,238
|
|
|
$
|
27,555
|
|
|
$
|
145,793
|
|
|
|
Delinquent
and non-accrual loans
The following table provides aging information on the
Companys past due and accruing loans, in addition to the
balances of loans on non-accrual status, at March 31, 2011
and December 31, 2010. As shown below, the March 31,
2011 balance of loans past due
30-89 days
grew $12.5 million, while the balance of loans over
90 days past due and still accruing declined
$1.7 million. The increase in loans
30-89 days
past due was largely due to three business real estate loans
with balances ranging from $3.5 million to
$5.5 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current or
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
30 89
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
30 Days Past
|
|
|
Days Past
|
|
|
and Still
|
|
|
|
|
|
|
|
(In thousands)
|
|
Due
|
|
|
Due
|
|
|
Accruing
|
|
|
Non-accrual
|
|
|
Total
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
2,987,168
|
|
|
$
|
17,932
|
|
|
$
|
734
|
|
|
$
|
19,799
|
|
|
$
|
3,025,633
|
|
Real estate construction and land
|
|
|
384,921
|
|
|
|
9,327
|
|
|
|
95
|
|
|
|
35,392
|
|
|
|
429,735
|
|
Real estate business
|
|
|
2,051,666
|
|
|
|
28,144
|
|
|
|
26
|
|
|
|
15,637
|
|
|
|
2,095,473
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate personal
|
|
|
1,419,923
|
|
|
|
13,550
|
|
|
|
3,421
|
|
|
|
7,086
|
|
|
|
1,443,980
|
|
Consumer
|
|
|
1,109,676
|
|
|
|
11,798
|
|
|
|
2,666
|
|
|
|
|
|
|
|
1,124,140
|
|
Revolving home equity
|
|
|
465,416
|
|
|
|
2,136
|
|
|
|
725
|
|
|
|
|
|
|
|
468,277
|
|
Consumer credit card
|
|
|
752,230
|
|
|
|
10,821
|
|
|
|
11,050
|
|
|
|
|
|
|
|
774,101
|
|
Overdrafts
|
|
|
13,325
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
13,584
|
|
|
|
Total
|
|
$
|
9,184,325
|
|
|
$
|
93,967
|
|
|
$
|
18,717
|
|
|
$
|
77,914
|
|
|
$
|
9,374,923
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
2,927,403
|
|
|
$
|
19,853
|
|
|
$
|
854
|
|
|
$
|
8,933
|
|
|
$
|
2,957,043
|
|
Real estate construction and land
|
|
|
400,420
|
|
|
|
7,464
|
|
|
|
217
|
|
|
|
52,752
|
|
|
|
460,853
|
|
Real estate business
|
|
|
2,040,794
|
|
|
|
8,801
|
|
|
|
|
|
|
|
16,242
|
|
|
|
2,065,837
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate personal
|
|
|
1,413,905
|
|
|
|
15,579
|
|
|
|
3,554
|
|
|
|
7,348
|
|
|
|
1,440,386
|
|
Consumer
|
|
|
1,145,561
|
|
|
|
15,899
|
|
|
|
2,867
|
|
|
|
|
|
|
|
1,164,327
|
|
Revolving home equity
|
|
|
475,764
|
|
|
|
929
|
|
|
|
825
|
|
|
|
|
|
|
|
477,518
|
|
Consumer credit card
|
|
|
806,373
|
|
|
|
12,513
|
|
|
|
12,149
|
|
|
|
|
|
|
|
831,035
|
|
Overdrafts
|
|
|
13,555
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
13,983
|
|
|
|
Total
|
|
$
|
9,223,775
|
|
|
$
|
81,466
|
|
|
$
|
20,466
|
|
|
$
|
85,275
|
|
|
$
|
9,410,982
|
|
|
|
Credit
quality
The following table provides information about the credit
quality of the Commercial loan portfolio, using the
Companys internal rating system as an indicator. The
information below was updated as of March 31,
10
2011 and December 31, 2010 for this indicator. The credit
quality of Personal Banking loans is monitored on the basis of
aging/delinquency, and this information is provided in the table
above.
The internal rating system is a series of grades reflecting
managements risk assessment, based on its analysis of the
borrowers financial condition. The pass
category consists of a range of loan grades that reflect
increasing, though still acceptable, risk. Movement of risk
through the various grade levels in the pass
category is monitored for early identification of credit
deterioration. The special mention rating is
attached to loans where the borrower exhibits material negative
financial trends due to borrower specific or systemic conditions
that, if left uncorrected, threaten its capacity to meet its
debt obligations. The borrower is believed to have sufficient
financial flexibility to react to and resolve its negative
financial situation. It is a transitional grade that is closely
monitored for improvement or deterioration. The
substandard rating is applied to loans where the
borrower exhibits well-defined weaknesses that jeopardize its
continued performance and are of a severity that the distinct
possibility of default exists. Loans are placed on
non-accrual when management does not expect to
collect payments consistent with acceptable and agreed upon
terms of repayment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
Real
|
|
|
Real
|
|
|
|
|
|
|
|
|
|
Estate-
|
|
|
Estate-
|
|
|
|
|
(In thousands)
|
|
Business
|
|
|
Construction
|
|
|
Business
|
|
|
Total
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
2,855,895
|
|
|
$
|
312,648
|
|
|
$
|
1,919,811
|
|
|
$
|
5,088,354
|
|
Special mention
|
|
|
60,584
|
|
|
|
23,746
|
|
|
|
57,490
|
|
|
|
141,820
|
|
Substandard
|
|
|
89,355
|
|
|
|
57,949
|
|
|
|
102,535
|
|
|
|
249,839
|
|
Non-accrual
|
|
|
19,799
|
|
|
|
35,392
|
|
|
|
15,637
|
|
|
|
70,828
|
|
|
|
Total
|
|
$
|
3,025,633
|
|
|
$
|
429,735
|
|
|
$
|
2,095,473
|
|
|
$
|
5,550,841
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
2,801,328
|
|
|
$
|
327,167
|
|
|
$
|
1,878,005
|
|
|
$
|
5,006,500
|
|
Special mention
|
|
|
67,142
|
|
|
|
29,345
|
|
|
|
77,527
|
|
|
|
174,014
|
|
Substandard
|
|
|
79,640
|
|
|
|
51,589
|
|
|
|
94,063
|
|
|
|
225,292
|
|
Non-accrual
|
|
|
8,933
|
|
|
|
52,752
|
|
|
|
16,242
|
|
|
|
77,927
|
|
|
|
Total
|
|
$
|
2,957,043
|
|
|
$
|
460,853
|
|
|
$
|
2,065,837
|
|
|
$
|
5,483,733
|
|
|
|
The Companys holdings of foreclosed real estate totaled
$25.1 million and $12.0 million at March 31, 2011
and December 31, 2010, respectively. Personal property
acquired in repossession, generally autos and marine and
recreational vehicles, totaled $5.0 million and
$10.4 million at March 31, 2011 and December 31,
2010, respectively. These assets are carried at the lower of the
amount recorded at acquisition date or the current fair value
less estimated costs to sell.
Loans
held for sale
In addition to the portfolio of loans which are intended to be
held to maturity, the Company originates loans which it intends
to sell in secondary markets. Loans classified as held for sale
primarily consist of loans originated to students while
attending colleges and universities. Most of this portfolio was
sold in 2010 under contracts with the Federal Department of
Education and various student loan agencies. Significant future
student loan originations are not anticipated, because under
statutory requirements effective July 1, 2010, the Company
is prohibited from making federally guaranteed student loans.
Also included as held for sale are certain fixed rate
residential mortgage loans which are sold in the secondary
market, generally within three months of origination. The
following table presents information about loans held for sale,
including an
11
impairment valuation allowance resulting from declines in fair
value below cost, which is further discussed in Note 13 on
Fair Value Measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Balance outstanding:
|
|
|
|
|
|
|
|
|
Student loans, at cost
|
|
$
|
50,413
|
|
|
$
|
53,901
|
|
Residential mortgage loans, at cost
|
|
|
3,547
|
|
|
|
10,419
|
|
Valuation allowance on student loans
|
|
|
(549
|
)
|
|
|
(569
|
)
|
|
|
Total loans held for sale, at lower of cost or fair value
|
|
$
|
53,411
|
|
|
$
|
63,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Net gains on sales:
|
|
|
|
|
|
|
|
|
Student loans
|
|
$
|
68
|
|
|
$
|
149
|
|
Residential mortgage loans
|
|
|
503
|
|
|
|
420
|
|
|
|
Total gains on sales of loans held for sale, net
|
|
$
|
571
|
|
|
$
|
569
|
|
|
|
Investment securities, at fair value, consisted of the following
at March 31, 2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
461,235
|
|
|
$
|
455,537
|
|
Government-sponsored enterprise obligations
|
|
|
199,169
|
|
|
|
201,895
|
|
State and municipal obligations
|
|
|
1,143,433
|
|
|
|
1,119,485
|
|
Agency mortgage-backed securities
|
|
|
2,618,380
|
|
|
|
2,491,199
|
|
Non-agency mortgage-backed securities
|
|
|
417,675
|
|
|
|
455,790
|
|
Other asset-backed securities
|
|
|
2,449,220
|
|
|
|
2,354,260
|
|
Other debt securities
|
|
|
165,243
|
|
|
|
176,964
|
|
Equity securities
|
|
|
45,222
|
|
|
|
39,173
|
|
|
|
Total available for sale
|
|
|
7,499,577
|
|
|
|
7,294,303
|
|
|
|
Trading
|
|
|
17,000
|
|
|
|
11,710
|
|
Non-marketable
|
|
|
104,721
|
|
|
|
103,521
|
|
|
|
Total investment securities
|
|
$
|
7,621,298
|
|
|
$
|
7,409,534
|
|
|
|
Most of the Companys investment securities are classified
as available for sale, and this portfolio is discussed in more
detail below. Securities which are classified as non-marketable
include Federal Home Loan Bank (FHLB) stock and Federal Reserve
Bank (FRB) stock held for debt and regulatory purposes, which
totaled $45.3 million and $45.2 million at
March 31, 2011 and December 31, 2010, respectively.
Investment in FRB stock is based on the capital structure of the
investing bank, and investment in FHLB stock is tied to the
level of borrowings from the FHLB. Non-marketable securities
also include private equity investments, which amounted to
$59.4 million and $58.2 million at March 31, 2011
and December 31, 2010, respectively.
A summary of the available for sale investment securities by
maturity groupings as of March 31, 2011 is shown below. The
investment portfolio includes agency mortgage-backed securities,
which are guaranteed by agencies such as the FHLMC, FNMA, GNMA
and FDIC, in addition to non-agency mortgage-backed securities
which have no guarantee. Also included are certain other
asset-backed securities, which are
12
primarily collateralized by credit cards, automobiles, and
commercial loans. These securities differ from traditional debt
securities primarily in that they may have uncertain maturity
dates and are priced based on estimated prepayment rates on the
underlying collateral. The Company does not have exposure to
subprime originated mortgage-backed or collateralized debt
obligation instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
U.S. government and federal agency obligations:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
168,963
|
|
|
$
|
169,296
|
|
After 1 but within 5 years
|
|
|
132,811
|
|
|
|
144,121
|
|
After 5 but within 10 years
|
|
|
134,963
|
|
|
|
147,818
|
|
|
|
Total U.S. government and federal agency obligations
|
|
|
436,737
|
|
|
|
461,235
|
|
|
|
Government-sponsored enterprise obligations:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
60,742
|
|
|
|
61,312
|
|
After 1 but within 5 years
|
|
|
125,914
|
|
|
|
127,038
|
|
After 5 but within 10 years
|
|
|
11,380
|
|
|
|
10,819
|
|
|
|
Total government-sponsored enterprise obligations
|
|
|
198,036
|
|
|
|
199,169
|
|
|
|
State and municipal obligations:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
145,698
|
|
|
|
147,420
|
|
After 1 but within 5 years
|
|
|
447,810
|
|
|
|
456,746
|
|
After 5 but within 10 years
|
|
|
308,017
|
|
|
|
303,474
|
|
After 10 years
|
|
|
243,263
|
|
|
|
235,793
|
|
|
|
Total state and municipal obligations
|
|
|
1,144,788
|
|
|
|
1,143,433
|
|
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
2,573,078
|
|
|
|
2,618,380
|
|
Non-agency mortgage-backed securities
|
|
|
413,282
|
|
|
|
417,675
|
|
Other asset-backed securities
|
|
|
2,438,922
|
|
|
|
2,449,220
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
5,425,282
|
|
|
|
5,485,275
|
|
|
|
Other debt securities:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
60,041
|
|
|
|
61,240
|
|
After 1 but within 5 years
|
|
|
95,862
|
|
|
|
104,003
|
|
|
|
Total other debt securities
|
|
|
155,903
|
|
|
|
165,243
|
|
|
|
Equity securities
|
|
|
13,397
|
|
|
|
45,222
|
|
|
|
Total available for sale investment securities
|
|
$
|
7,374,143
|
|
|
$
|
7,499,577
|
|
|
|
Included in U.S. government securities are
$451.4 million, at fair value, of U.S. Treasury
inflation-protected securities. Interest paid on these
securities increases with inflation and decreases with
deflation, as measured by the Consumer Price Index. Included in
state and municipal obligations are $143.2 million, at fair
value, of auction rate securities, which were purchased from
bank customers in 2008. Included in equity securities is common
stock held by the holding company, Commerce Bancshares, Inc.
(the Parent), with a fair value of $35.2 million at
March 31, 2011.
13
For securities classified as available for sale, the following
table shows the unrealized gains and losses (pre-tax) in
accumulated other comprehensive income, by security type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
436,737
|
|
|
$
|
24,498
|
|
|
$
|
|
|
|
$
|
461,235
|
|
Government-sponsored enterprise obligations
|
|
|
198,036
|
|
|
|
1,912
|
|
|
|
(779
|
)
|
|
|
199,169
|
|
State and municipal obligations
|
|
|
1,144,788
|
|
|
|
17,183
|
|
|
|
(18,538
|
)
|
|
|
1,143,433
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
2,573,078
|
|
|
|
53,438
|
|
|
|
(8,136
|
)
|
|
|
2,618,380
|
|
Non-agency mortgage-backed securities
|
|
|
413,282
|
|
|
|
11,455
|
|
|
|
(7,062
|
)
|
|
|
417,675
|
|
Other asset-backed securities
|
|
|
2,438,922
|
|
|
|
11,052
|
|
|
|
(754
|
)
|
|
|
2,449,220
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
5,425,282
|
|
|
|
75,945
|
|
|
|
(15,952
|
)
|
|
|
5,485,275
|
|
|
|
Other debt securities
|
|
|
155,903
|
|
|
|
9,340
|
|
|
|
|
|
|
|
165,243
|
|
Equity securities
|
|
|
13,397
|
|
|
|
31,825
|
|
|
|
|
|
|
|
45,222
|
|
|
|
Total
|
|
$
|
7,374,143
|
|
|
$
|
160,703
|
|
|
$
|
(35,269
|
)
|
|
$
|
7,499,577
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
434,878
|
|
|
$
|
20,659
|
|
|
$
|
|
|
|
$
|
455,537
|
|
Government-sponsored enterprise obligations
|
|
|
200,061
|
|
|
|
2,364
|
|
|
|
(530
|
)
|
|
|
201,895
|
|
State and municipal obligations
|
|
|
1,117,020
|
|
|
|
19,108
|
|
|
|
(16,643
|
)
|
|
|
1,119,485
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
2,437,123
|
|
|
|
57,516
|
|
|
|
(3,440
|
)
|
|
|
2,491,199
|
|
Non-agency mortgage-backed securities
|
|
|
459,363
|
|
|
|
10,940
|
|
|
|
(14,513
|
)
|
|
|
455,790
|
|
Other asset-backed securities
|
|
|
2,342,866
|
|
|
|
12,445
|
|
|
|
(1,051
|
)
|
|
|
2,354,260
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
5,239,352
|
|
|
|
80,901
|
|
|
|
(19,004
|
)
|
|
|
5,301,249
|
|
|
|
Other debt securities
|
|
|
165,883
|
|
|
|
11,081
|
|
|
|
|
|
|
|
176,964
|
|
Equity securities
|
|
|
7,569
|
|
|
|
31,604
|
|
|
|
|
|
|
|
39,173
|
|
|
|
Total
|
|
$
|
7,164,763
|
|
|
$
|
165,717
|
|
|
$
|
(36,177
|
)
|
|
$
|
7,294,303
|
|
|
|
The Companys impairment policy requires a review of all
securities for which fair value is less than amortized cost.
Special emphasis and analysis is placed on securities whose
credit rating has fallen below A3/A-, whose fair values have
fallen more than 20% below purchase price for an extended period
of time, or have been identified based on managements
judgment. These securities are placed on a watch list, and for
all such securities, detailed cash flow models are prepared
which use inputs specific to each security. Inputs to these
models include factors such as cash flow received, contractual
payments required, and various other information related to the
underlying collateral (including current delinquencies),
collateral loss severity rates (including loan to values),
expected delinquency rates, credit support from other tranches,
and prepayment speeds. Stress tests are performed at varying
levels of delinquency rates, prepayment speeds and loss
severities in order to gauge probable ranges of credit loss. At
March 31, 2011, the fair value of securities on this watch
list was $288.2 million.
As of March 31, 2011, the Company had recorded
other-than-temporary
impairment (OTTI) on certain non-agency mortgage-backed
securities, part of the watch list mentioned above, which had an
aggregate fair value of $154.9 million. The credit-related
portion of the impairment totaled $7.8 million and was
recorded in earnings. The noncredit-related portion of the
impairment totaled $5.6 million on a pre-tax basis, and has
been recognized in accumulated other comprehensive income. The
Company does not intend to sell these securities and believes it
is not more likely than not that it will be required to sell the
securities before the recovery of their amortized cost bases.
14
The credit portion of the loss on these securities was based on
the cash flows projected to be received over the estimated life
of the securities, discounted to present value, and compared to
the current amortized cost bases of the securities. Significant
inputs to the cash flow models used to calculate the credit
losses on these securities included the following:
|
|
|
|
|
|
Significant Inputs
|
|
Range
|
|
|
Prepayment CPR
|
|
|
2% - 33%
|
|
Projected cumulative default
|
|
|
12% - 52%
|
|
Credit support
|
|
|
0% - 10%
|
|
Loss severity
|
|
|
33% - 57%
|
|
|
|
The following table shows changes in the credit losses recorded
in the three months ended March 31, 2011 and 2010, for
which a portion of an OTTI was recognized in other comprehensive
income.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Balance at January 1
|
|
$
|
7,542
|
|
|
$
|
2,473
|
|
Credit losses on debt securities for which impairment was not
previously recognized
|
|
|
|
|
|
|
20
|
|
Credit losses on debt securities for which impairment was
previously recognized
|
|
|
274
|
|
|
|
1,437
|
|
|
|
Balance at March 31
|
|
$
|
7,816
|
|
|
$
|
3,930
|
|
|
|
Securities with unrealized losses recorded in accumulated other
comprehensive income are shown in the table below, along with
the length of the impairment period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(In thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
At March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise obligations
|
|
$
|
59,465
|
|
|
$
|
779
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,465
|
|
|
$
|
779
|
|
State and municipal obligations
|
|
|
379,092
|
|
|
|
7,434
|
|
|
|
98,054
|
|
|
|
11,104
|
|
|
|
477,146
|
|
|
|
18,538
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
860,561
|
|
|
|
8,136
|
|
|
|
|
|
|
|
|
|
|
|
860,561
|
|
|
|
8,136
|
|
Non-agency mortgage-backed securities
|
|
|
23,296
|
|
|
|
6
|
|
|
|
150,538
|
|
|
|
7,056
|
|
|
|
173,834
|
|
|
|
7,062
|
|
Other asset-backed securities
|
|
|
320,738
|
|
|
|
747
|
|
|
|
24,965
|
|
|
|
7
|
|
|
|
345,703
|
|
|
|
754
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
1,204,595
|
|
|
|
8,889
|
|
|
|
175,503
|
|
|
|
7,063
|
|
|
|
1,380,098
|
|
|
|
15,952
|
|
|
|
Total
|
|
$
|
1,643,152
|
|
|
$
|
17,102
|
|
|
$
|
273,557
|
|
|
$
|
18,167
|
|
|
$
|
1,916,709
|
|
|
$
|
35,269
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise obligations
|
|
$
|
10,850
|
|
|
$
|
530
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,850
|
|
|
$
|
530
|
|
State and municipal obligations
|
|
|
345,775
|
|
|
|
7,470
|
|
|
|
82,269
|
|
|
|
9,173
|
|
|
|
428,044
|
|
|
|
16,643
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
660,326
|
|
|
|
3,440
|
|
|
|
|
|
|
|
|
|
|
|
660,326
|
|
|
|
3,440
|
|
Non-agency mortgage-backed securities
|
|
|
15,893
|
|
|
|
36
|
|
|
|
170,545
|
|
|
|
14,477
|
|
|
|
186,438
|
|
|
|
14,513
|
|
Other asset-backed securities
|
|
|
487,822
|
|
|
|
1,029
|
|
|
|
24,928
|
|
|
|
22
|
|
|
|
512,750
|
|
|
|
1,051
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
1,164,041
|
|
|
|
4,505
|
|
|
|
195,473
|
|
|
|
14,499
|
|
|
|
1,359,514
|
|
|
|
19,004
|
|
|
|
Total
|
|
$
|
1,520,666
|
|
|
$
|
12,505
|
|
|
$
|
277,742
|
|
|
$
|
23,672
|
|
|
$
|
1,798,408
|
|
|
$
|
36,177
|
|
|
|
The total available for sale portfolio consisted of
approximately 1,350 individual securities at March 31,
2011. The portfolio included 289 securities, having an aggregate
fair value of $1.9 billion, that were in a loss position at
March 31, 2011. Securities identified as
other-than-temporarily
impaired which have been in a
15
loss position for 12 months or longer totaled
$131.4 million at fair value, or 1.8% of the total
available for sale portfolio value. Securities with temporary
impairment which have been in a loss position for 12 month
or longer totaled $142.2 million, or 1.9% of the total
portfolio value.
The Companys holdings of state and municipal obligations
included gross unrealized losses of $18.5 million at
March 31, 2011. Of these losses, $11.1 million related
to auction rate securities (ARS) and $7.4 million related
to other state and municipal obligations. This portfolio,
exclusive of ARS, totaled $1.0 billion at fair value, or
13.3% of total available for sale securities. The average credit
quality of the portfolio, excluding ARS, is Aa2 as rated by
Moodys. The portfolio is diversified in order to reduce
risk, and information about the largest holdings, by state and
economic sector, is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
% of
|
|
|
Life
|
|
|
Rating
|
|
|
|
Portfolio
|
|
|
(in years)
|
|
|
(Moodys)
|
|
|
|
|
At March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
11.1
|
%
|
|
|
5.6
|
|
|
|
Aa1
|
|
Florida
|
|
|
7.0
|
|
|
|
5.1
|
|
|
|
Aa3
|
|
Washington
|
|
|
5.4
|
|
|
|
2.1
|
|
|
|
Aa2
|
|
Illinois
|
|
|
5.2
|
|
|
|
5.7
|
|
|
|
Aa2
|
|
Arizona
|
|
|
4.7
|
|
|
|
3.7
|
|
|
|
Aa3
|
|
|
|
General obligation
|
|
|
25.8
|
%
|
|
|
3.7
|
|
|
|
Aa2
|
|
Housing
|
|
|
19.3
|
|
|
|
5.2
|
|
|
|
Aa1
|
|
Transportation
|
|
|
16.6
|
|
|
|
3.6
|
|
|
|
Aa3
|
|
Lease
|
|
|
12.3
|
|
|
|
3.2
|
|
|
|
Aa3
|
|
Refunded
|
|
|
6.9
|
|
|
|
2.2
|
|
|
|
Aaa
|
|
|
|
The remaining unrealized losses on the Companys
investments, as shown in the preceding tables, are largely
contained in the portfolio of non-agency mortgage-backed
securities. These securities are not guaranteed by an outside
agency and are dependent on payments received from the
underlying mortgage collateral. While virtually all of these
securities, at purchase date, were comprised of senior tranches
and were highly rated by various rating agencies, the adverse
housing market, liquidity pressures and overall economic climate
has resulted in low fair values for these securities. Also, as
mentioned above, the Company maintains a watch list comprised
mostly of these securities, and has recorded OTTI losses on
certain of these securities. The Company continues to closely
monitor the performance of these securities. Additional OTTI
losses may arise in future periods, due to further deterioration
in expected cash flows, loss severities and delinquency levels
of the securities underlying collateral, which would
negatively affect the Companys financial results.
The following table presents proceeds from sales of securities
and the components of investment securities gains and losses
which have been recognized in earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Proceeds from sales of available for sale securities
|
|
$
|
11,202
|
|
|
$
|
19,991
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
Gains realized on sales
|
|
$
|
176
|
|
|
$
|
510
|
|
Losses realized on sales
|
|
|
|
|
|
|
(102
|
)
|
Other-than-temporary
impairment recognized on debt securities
|
|
|
(274
|
)
|
|
|
(1,457
|
)
|
Non-marketable:
|
|
|
|
|
|
|
|
|
Fair value adjustments, net
|
|
|
1,425
|
|
|
|
(2,616
|
)
|
|
|
Investment securities gains (losses), net
|
|
$
|
1,327
|
|
|
$
|
(3,665
|
)
|
|
|
16
At March 31, 2011, securities carried at $3.2 billion
were pledged to secure public fund deposits, securities sold
under agreements to repurchase, trust funds, and borrowings at
the FRB and FHLB. Securities pledged under agreements pursuant
to which the collateral may be sold or re-pledged by the secured
parties approximated $431.6 million, while the remaining
securities were pledged under agreements pursuant to which the
secured parties may not sell or re-pledge the collateral. Except
for obligations of various government-sponsored enterprises such
as FNMA, FHLB and FHLMC, no investment in a single issuer
exceeds 10% of stockholders equity.
|
|
4.
|
Goodwill
and Other Intangible Assets
|
The following table presents information about the
Companys intangible assets which have estimable useful
lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Valuation
|
|
|
Net
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Valuation
|
|
|
Net
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Allowance
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Allowance
|
|
|
Amount
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit premium
|
|
$
|
25,720
|
|
|
$
|
(16,819
|
)
|
|
$
|
|
|
|
$
|
8,901
|
|
|
$
|
25,720
|
|
|
$
|
(16,108
|
)
|
|
$
|
|
|
|
$
|
9,612
|
|
Mortgage servicing rights
|
|
|
3,089
|
|
|
|
(1,674
|
)
|
|
|
(134
|
)
|
|
|
1,281
|
|
|
|
3,082
|
|
|
|
(1,572
|
)
|
|
|
(185
|
)
|
|
|
1,325
|
|
|
|
Total
|
|
$
|
28,809
|
|
|
$
|
(18,493
|
)
|
|
$
|
(134
|
)
|
|
$
|
10,182
|
|
|
$
|
28,802
|
|
|
$
|
(17,680
|
)
|
|
$
|
(185
|
)
|
|
$
|
10,937
|
|
|
|
Aggregate amortization expense on intangible assets was $813
thousand and $905 thousand, respectively, for the three month
periods ended March 31, 2011 and 2010. The following table
shows the estimated annual amortization expense for the next
five fiscal years. This expense is based on existing asset
balances and the interest rate environment as of March 31,
2011. The Companys actual amortization expense in any
given period may be different from the estimated amounts
depending upon the acquisition of intangible assets, changes in
mortgage interest rates, prepayment rates and other market
conditions.
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
2011
|
|
$
|
2,863
|
|
2012
|
|
|
2,329
|
|
2013
|
|
|
1,799
|
|
2014
|
|
|
1,324
|
|
2015
|
|
|
977
|
|
|
|
Changes in the carrying amount of goodwill and net other
intangible assets for the three month period ended
March 31, 2011 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Core Deposit
|
|
|
Servicing
|
|
(In thousands)
|
|
Goodwill
|
|
|
Premium
|
|
|
Rights
|
|
|
|
|
Balance at January 1, 2011
|
|
$
|
125,585
|
|
|
$
|
9,612
|
|
|
$
|
1,325
|
|
Originations
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Amortization
|
|
|
|
|
|
|
(711
|
)
|
|
|
(102
|
)
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
Balance at March 31, 2011
|
|
$
|
125,585
|
|
|
$
|
8,901
|
|
|
$
|
1,281
|
|
|
|
17
Goodwill allocated to the Companys operating segments at
March 31, 2011 and December 31, 2010 is shown below.
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
67,765
|
|
Commercial segment
|
|
|
57,074
|
|
Wealth segment
|
|
|
746
|
|
|
|
Total goodwill
|
|
$
|
125,585
|
|
|
|
The Company, as a provider of financial services, routinely
issues financial guarantees in the form of financial and
performance standby letters of credit. Standby letters of credit
are contingent commitments issued by the Company generally to
guarantee the payment or performance obligation of a customer to
a third party. While these represent a potential outlay by the
Company, a significant amount of the commitments may expire
without being drawn upon. The Company has recourse against the
customer for any amount it is required to pay to a third party
under a standby letter of credit. The letters of credit are
subject to the same credit policies, underwriting standards and
approval process as loans made by the Company. Most of the
standby letters of credit are secured and in the event of
nonperformance by the customers, the Company has rights to the
underlying collateral, which could include commercial real
estate, physical plant and property, inventory, receivables,
cash and marketable securities.
Upon issuance of standby letters of credit, the Company
recognizes a liability for the fair value of the obligation
undertaken, which is estimated to be equivalent to the amount of
fees received from the customer over the life of the agreement.
At March 31, 2011 that net liability was $4.2 million,
which will be accreted into income over the remaining life of
the respective commitments. The contractual amount of these
letters of credit, which represents the maximum potential future
payments guaranteed by the Company, was $323.3 million at
March 31, 2011.
The Company periodically enters into risk participation
agreements (RPAs) as a guarantor to other financial
institutions, in order to mitigate those institutions
credit risk associated with interest rate swaps with third
parties. The RPA stipulates that, in the event of default by the
third party on the interest rate swap, the Company will
reimburse a portion of the loss borne by the financial
institution. These interest rate swaps are normally
collateralized (generally with real property, inventories and
equipment) by the third party, which limits the credit risk
associated with the Companys RPAs. The third parties
usually have other borrowing relationships with the Company. The
Company monitors overall borrower collateral, and at
March 31, 2011, believes sufficient collateral is available
to cover potential swap losses. The RPAs are carried at fair
value throughout their term, with all changes in fair value,
including those due to a change in the third partys
creditworthiness, recorded in current earnings. The terms of the
RPAs, which correspond to the terms of the underlying swaps,
range from 5 to 10 years. At March 31, 2011, the
liability recorded for guarantor RPAs was $125 thousand, and the
notional amount of the underlying swaps was $42.8 million.
The maximum potential future payment guaranteed by the Company
cannot be readily estimated, but is dependent upon the fair
value of the interest rate swaps at the time of default. If an
event of default on all contracts had occurred at March 31,
2011, the Company would have been required to make payments of
approximately $3.1 million.
At December 31, 2010 the Company carried a liability of
$4.4 million representing its obligation to share certain
estimated litigation costs of Visa, Inc. (Visa). An escrow
account established by Visa is used to fund actual litigation
settlements as they occur. The escrow account was funded
initially with proceeds from an initial public offering and
subsequently funded with contributions by Visa. The
Companys indemnification obligation is periodically
adjusted to reflect changes in estimates of litigation costs and
is reduced as funding occurs in the escrow account. Additional
funding occurred during March 2011 when Visa contributed
$400 million to the escrow account. As a result, the
Company reduced its obligation by $1.4 million at that
18
time, bringing its liability balance to $3.1 million as of
March 31, 2011. The Company currently anticipates that its
proportional share of eventual escrow funding will more than
offset its liability related to the Visa litigation.
The amount of net pension cost for the three months ended
March 31, 2011 and 2010 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Service cost benefits earned during the period
|
|
$
|
88
|
|
|
$
|
183
|
|
Interest cost on projected benefit obligation
|
|
|
1,362
|
|
|
|
1,367
|
|
Expected return on plan assets
|
|
|
(1,675
|
)
|
|
|
(1,640
|
)
|
Amortization of unrecognized net loss
|
|
|
540
|
|
|
|
567
|
|
|
|
Net periodic pension cost
|
|
$
|
315
|
|
|
$
|
477
|
|
|
|
Substantially all benefits accrued under the Companys
defined benefit pension plan were frozen effective
January 1, 2005, and the remaining benefits were frozen
effective January 1, 2011. During the first three months of
2011, the Company made no funding contributions to its defined
benefit pension plan, and made minimal funding contributions to
a supplemental executive retirement plan (the CERP), which
carries no segregated assets. The Company has no plans to make
any further contributions, other than those related to the CERP,
during the remainder of 2011.
19
Presented below is a summary of the components used to calculate
basic and diluted income per share. The Company applies the
two-class method of computing income per share, as nonvested
share-based awards that contain nonforfeitable rights to
dividends are considered securities which participate in
undistributed earnings with common stock. The two-class method
requires the calculation of separate income per share amounts
for the nonvested share-based awards and for common stock.
Income per share attributable to common stock is shown in the
table below. Nonvested share-based awards are further discussed
in Note 12.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands, except per share data)
|
|
2011
|
|
|
2010
|
|
|
|
|
Basic income per common share:
|
|
|
|
|
|
|
|
|
Net income attributable to Commerce Bancshares, Inc.
|
|
$
|
60,453
|
|
|
$
|
44,170
|
|
Less income allocated to nonvested restricted stockholders
|
|
|
404
|
|
|
|
234
|
|
|
|
Net income available to common stockholders
|
|
$
|
60,049
|
|
|
$
|
43,936
|
|
|
|
Distributed income
|
|
$
|
19,907
|
|
|
$
|
19,487
|
|
Undistributed income
|
|
$
|
40,142
|
|
|
$
|
24,449
|
|
|
|
Weighted average common shares outstanding
|
|
|
86,467
|
|
|
|
87,017
|
|
|
|
Distributed income per share
|
|
$
|
.23
|
|
|
$
|
.22
|
|
Undistributed income per share
|
|
|
.46
|
|
|
|
.28
|
|
|
|
Basic income per common share
|
|
$
|
.69
|
|
|
$
|
.50
|
|
|
|
Diluted income per common share:
|
|
|
|
|
|
|
|
|
Net income attributable to Commerce Bancshares, Inc.
|
|
$
|
60,453
|
|
|
$
|
44,170
|
|
Less income allocated to nonvested restricted stockholders
|
|
|
403
|
|
|
|
234
|
|
|
|
Net income available to common stockholders
|
|
$
|
60,050
|
|
|
$
|
43,936
|
|
|
|
Distributed income
|
|
$
|
19,907
|
|
|
$
|
19,487
|
|
Undistributed income
|
|
$
|
40,143
|
|
|
$
|
24,449
|
|
|
|
Weighted average common shares outstanding
|
|
|
86,467
|
|
|
|
87,017
|
|
Net effect of the assumed exercise of stock-based
awards based on the treasury stock method using the
average market price for the respective periods
|
|
|
369
|
|
|
|
475
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
86,836
|
|
|
|
87,492
|
|
|
|
Distributed income per share
|
|
$
|
.23
|
|
|
$
|
.22
|
|
Undistributed income per share
|
|
|
.46
|
|
|
|
.28
|
|
|
|
Diluted income per common share
|
|
$
|
.69
|
|
|
$
|
.50
|
|
|
|
The diluted income per common share computation for the periods
ended March 31, 2011 and 2010 exclude 820 thousand and
1.7 million, respectively, in unexercised stock options and
SARs because their inclusion would have been anti-dilutive to
income per share.
|
|
8.
|
Other
Comprehensive Income (Loss)
|
Activity in other comprehensive income (loss) for the first
three months of 2011 and 2010 is shown in the table below. The
first component of other comprehensive income is the unrealized
holding gains and losses on available for sale securities. These
gains and losses have been separated into two groups in the
table below, as required by current accounting guidance for
other-than-temporary
impairment (OTTI) on debt securities. Under this guidance,
credit-related losses on debt securities with OTTI are recorded
in current earnings, while the noncredit-related portion of the
overall gain or loss in fair value is recorded in other
comprehensive
20
income (loss). Changes in the noncredit-related gain or loss in
fair value of these securities, after OTTI was initially
recognized, are shown separately in the table below. The
remaining unrealized holding gains and losses shown in the table
apply to available for sale investment securities for which OTTI
has not been recorded (and include holding gains and losses on
certain securities prior to the recognition of OTTI).
In the calculation of other comprehensive income, certain
reclassification adjustments are made to avoid double counting
gains and losses that are included as part of net income for a
period that also had been included as part of other
comprehensive income in that period or earlier periods. These
reclassification amounts are shown separately in the table below.
The second component of other comprehensive income is pension
gains and losses that arise during the period but are not
recognized as components of net periodic benefit cost, and
corresponding adjustments when these gains and losses are
subsequently amortized to net periodic benefit cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Available for sale debt securities for which a portion of
OTTI has been recorded in earnings:
|
|
|
|
|
|
|
|
|
Unrealized holding gains subsequent to initial OTTI recognition
|
|
$
|
6,475
|
|
|
$
|
6,302
|
|
Income tax expense
|
|
|
(2,461
|
)
|
|
|
(2,394
|
)
|
|
|
Net unrealized gains
|
|
|
4,014
|
|
|
|
3,908
|
|
|
|
Other available for sale investment securities:
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses)
|
|
|
(10,405
|
)
|
|
|
12,380
|
|
Reclassification adjustment for gains included in net income
|
|
|
(176
|
)
|
|
|
(408
|
)
|
|
|
Net unrealized gains (losses) on securities
|
|
|
(10,581
|
)
|
|
|
11,972
|
|
Income tax (expense) benefit
|
|
|
4,021
|
|
|
|
(4,550
|
)
|
|
|
Net unrealized gains (losses)
|
|
|
(6,560
|
)
|
|
|
7,422
|
|
|
|
Prepaid pension cost:
|
|
|
|
|
|
|
|
|
Amortization of accumulated pension loss
|
|
|
540
|
|
|
|
567
|
|
Income tax expense
|
|
|
(205
|
)
|
|
|
(216
|
)
|
|
|
Pension loss amortization
|
|
|
335
|
|
|
|
351
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
(2,211
|
)
|
|
$
|
11,681
|
|
|
|
At March 31, 2011, accumulated other comprehensive income
was $61.1 million, net of tax. It was comprised of
$3.5 million in unrealized holding losses on available for
sale debt securities for which a portion of OTTI has been
recorded in earnings, $81.2 million in unrealized holding
gains on other available for sale securities, and
$16.6 million in accumulated pension loss.
21
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments: Consumer, Commercial and Wealth. The
Consumer segment includes the consumer portion of the retail
branch network (loans, deposits, and other personal banking
services), indirect and other consumer financing, consumer debit
and credit bank cards, and student lending. The Commercial
segment provides corporate lending (including the Small Business
Banking product line within the branch network), leasing,
international services, and business, government deposit, and
related commercial cash management services, as well as Merchant
and Commercial bank card products. The Wealth segment provides
traditional trust and estate tax planning, advisory and
discretionary investment management, as well as discount
brokerage services, and the Private Banking product portfolio.
The Capital Markets Group, which sells fixed income securities
and provides investment safekeeping and bond accounting
services, was transferred from the Wealth segment to the
Commercial segment effective January 1, 2011. The
information for 2010 in the table below has been revised to
reflect this transfer.
The following table presents selected financial information by
segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment
revenues among the three segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Wealth
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Three Months Ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
71,522
|
|
|
$
|
68,159
|
|
|
$
|
9,549
|
|
|
$
|
149,230
|
|
|
$
|
11,743
|
|
|
$
|
160,973
|
|
Provision for loan losses
|
|
|
(13,637
|
)
|
|
|
(5,119
|
)
|
|
|
(28
|
)
|
|
|
(18,784
|
)
|
|
|
2,995
|
|
|
|
(15,789
|
)
|
Non-interest income
|
|
|
31,994
|
|
|
|
39,146
|
|
|
|
25,186
|
|
|
|
96,326
|
|
|
|
(420
|
)
|
|
|
95,906
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,327
|
|
|
|
1,327
|
|
Non-interest expense
|
|
|
(69,827
|
)
|
|
|
(55,714
|
)
|
|
|
(22,215
|
)
|
|
|
(147,756
|
)
|
|
|
(6,204
|
)
|
|
|
(153,960
|
)
|
|
|
Income before income taxes
|
|
$
|
20,052
|
|
|
$
|
46,472
|
|
|
$
|
12,492
|
|
|
$
|
79,016
|
|
|
$
|
9,441
|
|
|
$
|
88,457
|
|
|
|
Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
81,033
|
|
|
$
|
63,134
|
|
|
$
|
9,013
|
|
|
$
|
153,180
|
|
|
$
|
9,530
|
|
|
$
|
162,710
|
|
Provision for loan losses
|
|
|
(19,278
|
)
|
|
|
(11,928
|
)
|
|
|
(58
|
)
|
|
|
(31,264
|
)
|
|
|
(3,058
|
)
|
|
|
(34,322
|
)
|
Non-interest income
|
|
|
34,380
|
|
|
|
35,307
|
|
|
|
22,229
|
|
|
|
91,916
|
|
|
|
1,273
|
|
|
|
93,189
|
|
Investment securities losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,665
|
)
|
|
|
(3,665
|
)
|
Non-interest expense
|
|
|
(73,829
|
)
|
|
|
(54,036
|
)
|
|
|
(21,811
|
)
|
|
|
(149,676
|
)
|
|
|
(6,048
|
)
|
|
|
(155,724
|
)
|
|
|
Income before income taxes
|
|
$
|
22,306
|
|
|
$
|
32,477
|
|
|
$
|
9,373
|
|
|
$
|
64,156
|
|
|
$
|
(1,968
|
)
|
|
$
|
62,188
|
|
|
|
The information presented above was derived from the internal
profitability reporting system used by management to monitor and
manage the financial performance of the Company. This
information is based on internal management accounting policies,
which have been developed to reflect the underlying economics of
the businesses. The policies address the methodologies applied
in connection with funds transfer pricing and assignment of
overhead costs among segments. Funds transfer pricing was used
in the determination of net interest income by assigning a
standard cost (credit) for funds used (provided) by assets and
liabilities based on their maturity, prepayment
and/or
repricing characteristics. In the second quarter of 2010, the
Company determined that the internal interest rate ascribed to
business units for providing non-contractual deposit funds
should be adjusted to make it more reactive to market changes
and reflect recent economic conditions. The resulting change to
segment net interest income lowered total segment contribution
and redistributed income among segments. The information for the
first three months of 2010 in the table above has been revised
to reflect the lower rate environment during that period.
The segment activity, as shown above, includes both direct and
allocated items. Amounts in the Other/Elimination
column include activity not related to the segments, such as
that relating to administrative functions, the investment
securities portfolio, and the effect of certain expense
allocations to the segments. The provision for loan losses in
this category contains the difference between loan charge-offs
and recoveries
22
assigned directly to the segments and the recorded provision for
loan loss expense. Included in this categorys net interest
income are earnings of the investment portfolio, which are not
allocated to a segment.
The performance measurement of the operating segments is based
on the management structure of the Company and is not
necessarily comparable with similar information for any other
financial institution. The information is also not necessarily
indicative of the segments financial condition and results
of operations if they were independent entities.
|
|
10.
|
Derivative
Instruments
|
The notional amounts of the Companys derivative
instruments are shown in the table below. These contractual
amounts, along with other terms of the derivative, are used to
determine amounts to be exchanged between counterparties, and
are not a measure of loss exposure. The largest group of
notional amounts relate to interest rate swaps, which are
discussed in more detail below. Through its International
Department, the Company enters into foreign exchange contracts
consisting mainly of contracts to purchase or deliver foreign
currencies for customers at specific future dates. Also,
mortgage loan commitments and forward sales contracts result
from the Companys mortgage banking operation, in which
fixed rate personal real estate loans are originated and sold to
other institutions. The Company also contracts with other
financial institutions, as a guarantor or beneficiary, to share
credit risk associated with certain interest rate swaps. The
Companys risks and responsibilities as guarantor are
further discussed in Note 5 on Guarantees.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Interest rate swaps
|
|
$
|
528,231
|
|
|
$
|
498,071
|
|
Interest rate caps
|
|
|
31,236
|
|
|
|
31,736
|
|
Credit risk participation agreements
|
|
|
46,306
|
|
|
|
40,661
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
49,040
|
|
|
|
25,867
|
|
Option contracts
|
|
|
3,100
|
|
|
|
|
|
Mortgage loan commitments
|
|
|
8,283
|
|
|
|
12,125
|
|
Mortgage loan forward sale contracts
|
|
|
13,254
|
|
|
|
24,112
|
|
|
|
Total notional amount
|
|
$
|
679,450
|
|
|
$
|
632,572
|
|
|
|
The Companys interest rate risk management strategy
includes the ability to modify the repricing characteristics of
certain assets and liabilities so that changes in interest rates
do not adversely affect the net interest margin and cash flows.
Interest rate swaps are used on a limited basis as part of this
strategy. At March 31, 2011, the Company had entered into
three interest rate swaps with a notional amount of
$15.4 million, included in the table above, which are
designated as fair value hedges of certain fixed rate loans.
Gains and losses on these derivative instruments, as well as the
offsetting loss or gain on the hedged loans attributable to the
hedged risk, are recognized in current earnings. These gains and
losses are reported in interest and fees on loans in the
accompanying statements of income. The table below shows gains
and losses related to fair value hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Gain (loss) on interest rate swaps
|
|
$
|
187
|
|
|
$
|
(81
|
)
|
Gain (loss) on loans
|
|
|
(181
|
)
|
|
|
73
|
|
|
|
Amount of hedge ineffectiveness
|
|
$
|
6
|
|
|
$
|
(8
|
)
|
|
|
The Companys other derivative instruments are accounted
for as free-standing derivatives, and changes in their fair
value are recorded in current earnings. These instruments
include interest rate swap contracts sold to customers who wish
to modify their interest rate sensitivity. These swaps are
offset by matching contracts purchased by the Company from other
financial institutions. Because of the
23
matching terms of the offsetting contracts, in addition to
collateral provisions which mitigate the impact of
non-performance risk, changes in fair value subsequent to
initial recognition have a minimal effect on earnings. The
notional amount of these types of swaps at March 31, 2011
was $512.8 million. The Company is party to master netting
arrangements with its institutional counterparties; however, the
Company does not offset assets and liabilities under these
arrangements. Collateral, usually in the form of marketable
securities, is posted by the counterparty with liability
positions, in accordance with contract thresholds. At
March 31, 2011, the Company had net liability positions
with its financial institution counterparties totaling
$14.8 million and had posted $15.1 million in
collateral.
Many of the Companys interest rate swap contracts with
large financial institutions contain contingent features
relating to debt ratings or capitalization levels. Under these
provisions, if the Companys debt rating falls below
investment grade or if the Company ceases to be
well-capitalized under risk-based capital
guidelines, certain counterparties can require immediate and
ongoing collateralization on interest rate swaps in net
liability positions, or can require instant settlement of the
contracts. The Company maintains debt ratings and capital well
above these minimum requirements.
The banking customer counterparties are engaged in a variety of
businesses, including real estate, building materials,
communications, consumer products, and manufacturing. The
manufacturing group is the largest, with a combined notional
amount of 24.3% of the total customer swap portfolio. If this
group of manufacturing counterparties failed to perform, and if
the underlying collateral proved to be of no value, the Company
would incur a loss of $2.7 million, based on amounts at
March 31, 2011.
The fair values of the Companys derivative instruments,
whose notional amounts are listed above, are shown in the
following table. Information about the valuation methods used to
determine fair value is provided in Note 13 on Fair Value
Measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
March 31
|
|
|
Dec. 31
|
|
|
|
|
March 31
|
|
|
Dec. 31
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
(In thousands)
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other assets
|
|
$
|
|
|
|
$
|
|
|
|
Other liabilities
|
|
$
|
(972
|
)
|
|
$
|
(1,159
|
)
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
$
|
(972
|
)
|
|
$
|
(1,159
|
)
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other assets
|
|
$
|
15,666
|
|
|
$
|
17,712
|
|
|
Other liabilities
|
|
$
|
(15,745
|
)
|
|
$
|
(17,799
|
)
|
Interest rate caps
|
|
Other assets
|
|
|
87
|
|
|
|
84
|
|
|
Other liabilities
|
|
|
(87
|
)
|
|
|
(84
|
)
|
Credit risk participation agreements
|
|
Other assets
|
|
|
4
|
|
|
|
|
|
|
Other liabilities
|
|
|
(125
|
)
|
|
|
(130
|
)
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
Other assets
|
|
|
1,312
|
|
|
|
492
|
|
|
Other liabilities
|
|
|
(1,016
|
)
|
|
|
(359
|
)
|
Option contracts
|
|
Other assets
|
|
|
5
|
|
|
|
|
|
|
Other liabilities
|
|
|
(5
|
)
|
|
|
|
|
Mortgage loan commitments
|
|
Other assets
|
|
|
115
|
|
|
|
101
|
|
|
Other liabilities
|
|
|
|
|
|
|
(30
|
)
|
Mortgage loan forward sale contracts
|
|
Other assets
|
|
|
26
|
|
|
|
434
|
|
|
Other liabilities
|
|
|
(28
|
)
|
|
|
(23
|
)
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
17,215
|
|
|
$
|
18,823
|
|
|
|
|
$
|
(17,006
|
)
|
|
$
|
(18,425
|
)
|
|
|
Total derivatives
|
|
|
|
$
|
17,215
|
|
|
$
|
18,823
|
|
|
|
|
$
|
(17,978
|
)
|
|
$
|
(19,584
|
)
|
|
|
24
The effects of derivative instruments on the consolidated
statements of income are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or
|
|
Amount of Gain or (Loss)
|
|
|
|
(Loss) Recognized in
|
|
Recognized in Income on
|
|
|
|
Income on Derivative
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
|
|
Months
|
|
|
|
|
|
Ended
|
|
|
|
|
|
March 31
|
|
(In thousands)
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Derivatives in fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest and fees on loans
|
|
$
|
187
|
|
|
$
|
(81
|
)
|
|
|
Total
|
|
|
|
$
|
187
|
|
|
$
|
(81
|
)
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other non-interest income
|
|
$
|
389
|
|
|
$
|
190
|
|
Interest rate caps
|
|
Other non-interest income
|
|
|
|
|
|
|
|
|
Credit risk participation agreements
|
|
Other non-interest income
|
|
|
6
|
|
|
|
5
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
Other non-interest income
|
|
|
164
|
|
|
|
276
|
|
Option contracts
|
|
Other non-interest income
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
Loan fees and sales
|
|
|
44
|
|
|
|
84
|
|
Mortgage loan forward sale contracts
|
|
Loan fees and sales
|
|
|
(413
|
)
|
|
|
(102
|
)
|
|
|
Total
|
|
|
|
$
|
190
|
|
|
$
|
453
|
|
|
|
For the first quarter of 2011, income tax expense amounted to
$27.5 million compared to $18.4 million in the first
quarter of 2010. The effective tax rate for the Company,
including the effect of non-controlling interest, was 31.3% in
the current quarter compared to 29.4% in the same quarter last
year.
|
|
12.
|
Stock-Based
Compensation
|
The Company normally issues most of its annual stock-based
compensation awards during the first quarter. Stock-based
compensation has historically been issued in the form of
options, stock appreciation rights (SARs) and nonvested stock.
During the first quarters of 2011 and 2010, stock-based
compensation was issued solely in the form of nonvested stock
awards. The stock-based compensation expense that has been
charged against income was $1.3 million in the first three
months of 2011 and $1.8 million in the first three months
of 2010.
25
The 2011 stock awards generally vest in 5 to 7 years and
contain restrictions as to transferability, sale, pledging, or
assigning, among others, prior to the end of the vesting period.
Dividend and voting rights are conferred upon grant. A summary
of the status of the Companys nonvested share awards, as
of March 31, 2011, and changes during the three month
period then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Nonvested at January 1, 2011
|
|
|
470,406
|
|
|
$
|
36.00
|
|
Granted
|
|
|
193,609
|
|
|
|
40.58
|
|
Vested
|
|
|
(23,323
|
)
|
|
|
40.31
|
|
Forfeited
|
|
|
(3,510
|
)
|
|
|
37.71
|
|
|
|
Nonvested at March 31, 2011
|
|
|
637,182
|
|
|
$
|
37.21
|
|
|
|
SARs and stock options are granted with an exercise price equal
to the market price of the Companys stock at the date of
grant and have
10-year
contractual terms. SARs, which the Company granted in 2006
through 2008 and on a limited basis in 2009, vest on a graded
basis over 4 years of continuous service. All SARs must be
settled in stock under provisions of the plan. Stock options,
which were granted in 2005 and previous years, vest on a graded
basis over 3 years of continuous service. In determining
compensation cost, the Black-Scholes option-pricing model is
used to estimate the fair value of SARs and options on date of
grant.
A summary of option activity during the first three months of
2011 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
(Dollars in thousands, except per share data)
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
1,806,110
|
|
|
$
|
30.96
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(382,375
|
)
|
|
|
29.29
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
1,423,735
|
|
|
$
|
31.41
|
|
|
|
2.6 years
|
|
|
$
|
12,861
|
|
|
|
A summary of SAR activity during the first three months of 2011
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
(Dollars in thousands, except per share data)
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
1,710,108
|
|
|
$
|
39.71
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,953
|
)
|
|
|
38.01
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(5,156
|
)
|
|
|
40.28
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,150
|
)
|
|
|
37.38
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
1,693,849
|
|
|
$
|
39.72
|
|
|
|
5.9 years
|
|
|
$
|
1,454
|
|
|
|
|
|
13.
|
Fair
Value Measurements
|
The Company uses fair value measurements to record fair value
adjustments to certain financial and nonfinancial assets and
liabilities and to determine fair value disclosures. Various
financial instruments such as available for sale and trading
securities, certain non-marketable securities relating to
private equity activities, and derivatives are recorded at fair
value on a recurring basis. Additionally, from time to time, the
Company may
26
be required to record at fair value other assets and liabilities
on a nonrecurring basis, such as loans held for sale, mortgage
servicing rights and certain other investment securities. These
nonrecurring fair value adjustments typically involve lower of
cost or fair value accounting, or write-downs of individual
assets.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Depending
on the nature of the asset or liability, the Company uses
various valuation techniques and assumptions when estimating
fair value. For accounting disclosure purposes, a three-level
valuation hierarchy of fair value measurements has been
established. The valuation hierarchy is based upon the
transparency of inputs to the valuation of an asset or liability
as of the measurement date. The three levels are defined as
follows:
|
|
|
|
|
Level 1 inputs to the valuation methodology are
quoted prices for identical assets or liabilities in active
markets.
|
|
|
|
Level 2 inputs to the valuation methodology
include quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, and inputs that
are observable for the assets or liabilities, either directly or
indirectly (such as interest rates, yield curves, and prepayment
speeds).
|
|
|
|
Level 3 inputs to the valuation methodology are
unobservable and significant to the fair value. These may be
internally developed, using the Companys best information
and assumptions that a market participant would consider.
|
When determining the fair value measurements for assets and
liabilities required or permitted to be recorded or disclosed at
fair value, the Company considers the principal or most
advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the
asset or liability. When possible, the Company looks to active
and observable markets to price identical assets or liabilities.
When identical assets and liabilities are not traded in active
markets, the Company looks to observable market data for similar
assets and liabilities. Nevertheless, certain assets and
liabilities are not actively traded in observable markets and
the Company must use alternative valuation techniques to derive
an estimated fair value measurement.
Valuation
methods for instruments measured at fair value on a recurring
basis
Following is a description of the Companys valuation
methodologies used for instruments measured at fair value on a
recurring basis:
Available
for sale investment securities
For available for sale securities, changes in fair value,
including that portion of
other-than-temporary
impairment unrelated to credit loss, are recorded in other
comprehensive income. As mentioned in Note 3 on Investment
Securities, the Company records the credit-related portion of
other-than-temporary
impairment in current earnings. This portfolio comprises the
majority of the assets which the Company records at fair value.
Most of the portfolio, which includes government-sponsored
enterprise, mortgage-backed and asset-backed securities, are
priced utilizing industry-standard models that consider various
assumptions, including time value, yield curves, volatility
factors, prepayment speeds, default rates, loss severity,
current market and contractual prices for the underlying
financial instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable
in the marketplace, can be derived from observable data, or are
supported by observable levels at which transactions are
executed in the marketplace. These measurements are classified
as Level 2 in the fair value hierarchy. Where quoted prices
are available in an active market, the measurements are
classified as Level 1. Most of the Level 1
measurements apply to common stock and U.S. Treasury
obligations.
Valuation methods and inputs, by class of security:
|
|
|
|
|
U.S. government and federal agency obligations
U.S. treasury bills, bonds and notes, including U.S.
Treasury
inflation-protected
securities, are valued using live data from active market makers
and inter-dealer brokers. Valuations for stripped coupon
|
27
|
|
|
|
|
and principal issues are derived from yield curves generated
from various dealer contacts and live data sources.
|
|
|
|
|
|
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations are evaluated
using cash flow valuation models. Inputs used are live market
data, cash settlements, Treasury market yields, and floating
rate indices such as LIBOR, CMT, and Prime.
|
|
|
|
State and municipal obligations, excluding auction rate
securities
A yield curve is generated and applied to bond sectors, and
individual bond valuations are extrapolated. Inputs used to
generate the yield curve are bellwether issue levels,
established trading spreads between similar issuers or credits,
historical trading spreads over widely accepted market
benchmarks, new issue scales, and verified bid information. Bid
information is verified by corroborating the data against
external sources such as broker-dealers, trustees/paying agents,
issuers, or non-affiliated bondholders.
|
|
|
|
Mortgage and asset-backed securities
Collateralized mortgage obligations and other asset-backed
securities are valued at the tranche level. For each tranche
valuation, the process generates predicted cash flows for the
tranche, applies a market based (or benchmark) yield/spread for
each tranche, and incorporates deal collateral performance and
tranche level attributes to determine tranche-specific spreads
to adjust the benchmark yield. Tranche cash flows are generated
from new deal files and prepayment/default assumptions. Tranche
spreads are based on tranche characteristics such as average
life, type, volatility, ratings, underlying collateral and
performance, and prevailing market conditions. The appropriate
tranche spread is applied to the corresponding benchmark, and
the resulting value is used to discount the cash flows to
generate an evaluated price.
|
Valuation of agency pass-through securities, typically issued
under GNMA, FNMA, FHLMC, and SBA programs, are primarily derived
from information from the To Be Announced (TBA) market. This
market consists of generic mortgage pools which have not been
received for settlement. Snapshots of the TBA market, using live
data feeds distributed by multiple electronic platforms, and in
conjunction with other indices, are used to compute a price
based on discounted cash flow models.
|
|
|
|
|
Other debt securities
Other debt securities are valued using active markets and
inter-dealer brokers as well as bullet spread scales and option
adjusted spreads. The spreads and models use yield curves, terms
and conditions of the bonds, and any special features (i.e.,
call or put options, redemption features, etc.).
|
|
|
|
Equity securities
Equity securities are priced using the market prices for
each security from the major stock exchanges or other electronic
quotation systems. These are generally classified as
Level 1 measurements. Stocks which trade infrequently are
classified as Level 2.
|
At March 31, 2011, the Company held certain auction rate
securities (ARS) in its available for sale portfolio, totaling
$143.2 million. The auction process by which the ARS are
normally priced has not functioned since 2008, and the fair
value of these securities cannot be based on observable market
prices due to the illiquidity in the market. The fair values of
the ARS are estimated using a discounted cash flows analysis.
Estimated cash flows are based on mandatory interest rates paid
under failing auctions and projected over an estimated market
recovery period. The cash flows are discounted at an estimated
market rate reflecting adjustments for liquidity premium and
nonperformance risk. Because many of the inputs significant to
the measurement are not observable, these measurements are
classified as Level 3 measurements.
Trading
securities
The securities in the Companys trading portfolio are
priced by averaging several broker quotes for similar
instruments, and are classified as Level 2 measurements.
28
Private
equity investments
These securities are held by the Companys venture capital
subsidiaries and are included in non-marketable investment
securities in the consolidated balance sheets. Valuation of
these nonpublic investments requires significant management
judgment due to the absence of quoted market prices. Each
quarter, valuations are performed utilizing available market
data and other factors. Market data includes published trading
multiples for private equity investments of similar size. The
multiples are considered in conjunction with current operating
performance, future expectations, financing and sales
transactions, and other investment-specific issues. The Company
applies its valuation methodology consistently from period to
period, and believes that its methodology is similar to that
used by other market participants. These fair value measurements
are classified as Level 3.
Derivatives
The Companys derivative instruments include interest rate
swaps, foreign exchange forward contracts, commitments and sales
contracts related to personal mortgage loan origination
activity, and certain credit risk guarantee agreements. When
appropriate, the impact of credit standing as well as any
potential credit enhancements, such as collateral, has been
considered in the fair value measurement.
|
|
|
|
|
Valuations for interest rate swaps are derived from proprietary
models whose significant inputs are readily observable market
parameters, primarily yield curves. The results of the models
are constantly validated through comparison to active trading in
the marketplace. These fair value measurements are classified as
Level 2.
|
|
|
|
Fair value measurements for foreign exchange contracts are
derived from a model whose primary inputs are quotations from
global market makers, and are classified as Level 2.
|
|
|
|
The fair values of mortgage loan commitments and forward sales
contracts on the associated loans are based on quoted prices for
similar loans in the secondary market. However, these prices are
adjusted by a factor which considers the likelihood that a
commitment will ultimately result in a closed loan. This
estimate is based on the Companys historical data and its
judgment about future economic trends. Based on the unobservable
nature of this adjustment, these measurements are classified as
Level 3.
|
|
|
|
The Companys contracts related to credit risk guarantees
are valued under a proprietary model which uses significant
unobservable inputs and assumptions about the creditworthiness
of the counterparty to the guaranteed interest rate swap
contract. Consequently, these measurements are classified as
Level 3.
|
Assets
held in trust
Assets held in an outside trust for the Companys deferred
compensation plan consist of investments in mutual funds. The
fair value measurements are based on quoted prices in active
markets and classified as Level 1. The Company has recorded
an asset representing the total investment amount. The Company
has also recorded a corresponding nonfinancial liability,
representing the Companys liability to the plan
participants.
29
The table below presents the March 31, 2011 and
December 31, 2010 carrying values of assets and liabilities
measured at fair value on a recurring basis. There were no
transfers among levels during the first three months of 2011 or
the twelve months ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(In thousands)
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
461,235
|
|
|
$
|
453,776
|
|
|
$
|
7,459
|
|
|
$
|
|
|
Government-sponsored enterprise obligations
|
|
|
199,169
|
|
|
|
|
|
|
|
199,169
|
|
|
|
|
|
State and municipal obligations
|
|
|
1,143,433
|
|
|
|
|
|
|
|
1,000,226
|
|
|
|
143,207
|
|
Agency mortgage-backed securities
|
|
|
2,618,380
|
|
|
|
|
|
|
|
2,618,380
|
|
|
|
|
|
Non-agency mortgage-backed securities
|
|
|
417,675
|
|
|
|
|
|
|
|
417,675
|
|
|
|
|
|
Other asset-backed securities
|
|
|
2,449,220
|
|
|
|
|
|
|
|
2,449,220
|
|
|
|
|
|
Other debt securities
|
|
|
165,243
|
|
|
|
|
|
|
|
165,243
|
|
|
|
|
|
Equity securities
|
|
|
45,222
|
|
|
|
28,352
|
|
|
|
16,870
|
|
|
|
|
|
Trading securities
|
|
|
17,000
|
|
|
|
|
|
|
|
17,000
|
|
|
|
|
|
Private equity investments
|
|
|
55,507
|
|
|
|
|
|
|
|
|
|
|
|
55,507
|
|
Derivatives*
|
|
|
17,215
|
|
|
|
|
|
|
|
17,070
|
|
|
|
145
|
|
Assets held in trust
|
|
|
4,764
|
|
|
|
4,764
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
7,594,063
|
|
|
|
486,892
|
|
|
|
6,908,312
|
|
|
|
198,859
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives*
|
|
|
17,978
|
|
|
|
|
|
|
|
17,825
|
|
|
|
153
|
|
|
|
Total liabilities
|
|
$
|
17,978
|
|
|
$
|
|
|
|
$
|
17,825
|
|
|
$
|
153
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
455,537
|
|
|
$
|
448,087
|
|
|
$
|
7,450
|
|
|
$
|
|
|
Government-sponsored enterprise obligations
|
|
|
201,895
|
|
|
|
|
|
|
|
201,895
|
|
|
|
|
|
State and municipal obligations
|
|
|
1,119,485
|
|
|
|
|
|
|
|
969,396
|
|
|
|
150,089
|
|
Agency mortgage-backed securities
|
|
|
2,491,199
|
|
|
|
|
|
|
|
2,491,199
|
|
|
|
|
|
Non-agency mortgage-backed securities
|
|
|
455,790
|
|
|
|
|
|
|
|
455,790
|
|
|
|
|
|
Other asset-backed securities
|
|
|
2,354,260
|
|
|
|
|
|
|
|
2,354,260
|
|
|
|
|
|
Other debt securities
|
|
|
176,964
|
|
|
|
|
|
|
|
176,964
|
|
|
|
|
|
Equity securities
|
|
|
39,173
|
|
|
|
22,900
|
|
|
|
16,273
|
|
|
|
|
|
Trading securities
|
|
|
11,710
|
|
|
|
|
|
|
|
11,710
|
|
|
|
|
|
Private equity investments
|
|
|
53,860
|
|
|
|
|
|
|
|
|
|
|
|
53,860
|
|
Derivatives*
|
|
|
18,823
|
|
|
|
|
|
|
|
18,288
|
|
|
|
535
|
|
Assets held in trust
|
|
|
4,213
|
|
|
|
4,213
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
7,382,909
|
|
|
|
475,200
|
|
|
|
6,703,225
|
|
|
|
204,484
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives*
|
|
|
19,584
|
|
|
|
|
|
|
|
19,401
|
|
|
|
183
|
|
|
|
Total liabilities
|
|
$
|
19,584
|
|
|
$
|
|
|
|
$
|
19,401
|
|
|
$
|
183
|
|
|
|
|
|
|
* |
|
The fair value of each class of
derivative is shown in Note 10. |
30
The changes in Level 3 assets and liabilities measured at
fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
State and
|
|
|
Private
|
|
|
|
|
|
|
|
|
|
Municipal
|
|
|
Equity
|
|
|
|
|
|
|
|
(In thousands)
|
|
Obligations
|
|
|
Investments
|
|
|
Derivatives
|
|
|
Total
|
|
|
|
|
For the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
$
|
150,089
|
|
|
$
|
53,860
|
|
|
$
|
352
|
|
|
$
|
204,301
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
1,425
|
|
|
|
(363
|
)
|
|
|
1,062
|
|
Included in other comprehensive income
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,271
|
)
|
Investment securities called
|
|
|
(5,918
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,918
|
)
|
Discount accretion
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
Purchases of private equity securities
|
|
|
|
|
|
|
179
|
|
|
|
|
|
|
|
179
|
|
Capitalized interest/dividends
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
Purchase of risk participation agreement
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
79
|
|
Sale of risk participation agreement
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
(76
|
)
|
|
|
Balance at March 31, 2011
|
|
$
|
143,207
|
|
|
$
|
55,507
|
|
|
$
|
(8
|
)
|
|
$
|
198,706
|
|
|
|
Total gains or losses for the three months included in earnings
attributable to the change in unrealized gains or losses
relating to assets still held at March 31, 2011
|
|
$
|
|
|
|
$
|
1,425
|
|
|
$
|
119
|
|
|
$
|
1,544
|
|
|
|
For the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
$
|
167,836
|
|
|
$
|
44,827
|
|
|
$
|
108
|
|
|
$
|
212,771
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(2,616
|
)
|
|
|
(13
|
)
|
|
|
(2,629
|
)
|
Included in other comprehensive income
|
|
|
(8,487
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,487
|
)
|
Investment securities called
|
|
|
(1,375
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,375
|
)
|
Discount accretion
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
Purchases of private equity securities
|
|
|
|
|
|
|
2,704
|
|
|
|
|
|
|
|
2,704
|
|
Capitalized interest/dividends
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
209
|
|
Sale of risk participation agreement
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
(110
|
)
|
|
|
Balance at March 31, 2010
|
|
$
|
158,111
|
|
|
$
|
45,124
|
|
|
$
|
(15
|
)
|
|
$
|
203,220
|
|
|
|
Total gains or losses for the three months included in earnings
attributable to the change in unrealized gains or losses
relating to assets still held at March 31, 2010
|
|
$
|
|
|
|
$
|
(2,616
|
)
|
|
$
|
195
|
|
|
$
|
(2,421
|
)
|
|
|
31
Gains and losses on the Level 3 assets and liabilities in
the table above are reported in the following income categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Other Non-
|
|
|
Gains
|
|
|
|
|
|
|
Loan Fees
|
|
|
Interest
|
|
|
(Losses),
|
|
|
|
|
(In thousands)
|
|
and Sales
|
|
|
Income
|
|
|
Net
|
|
|
Total
|
|
|
|
|
For the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses included in earnings
|
|
$
|
(369
|
)
|
|
$
|
6
|
|
|
$
|
1,425
|
|
|
$
|
1,062
|
|
|
|
Change in unrealized gains or losses relating to assets still
held at March 31, 2011
|
|
$
|
113
|
|
|
$
|
6
|
|
|
$
|
1,425
|
|
|
$
|
1,544
|
|
|
|
For the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses included in earnings
|
|
$
|
(18
|
)
|
|
$
|
5
|
|
|
$
|
(2,616
|
)
|
|
$
|
(2,629
|
)
|
|
|
Change in unrealized gains or losses relating to assets still
held at March 31, 2010
|
|
$
|
190
|
|
|
$
|
5
|
|
|
$
|
(2,616
|
)
|
|
$
|
(2,421
|
)
|
|
|
Valuation
methods for instruments measured at fair value on a nonrecurring
basis
Following is a description of the Companys valuation
methodologies used for other financial and nonfinancial
instruments measured at fair value on a nonrecurring basis.
Collateral
dependent impaired loans
While the overall loan portfolio is not carried at fair value,
the Company periodically records nonrecurring adjustments to the
carrying value of loans based on fair value measurements for
partial charge-offs of the uncollectible portions of those
loans. Nonrecurring adjustments also include certain impairment
amounts for collateral dependent loans when establishing the
allowance for loan losses. Such amounts are generally based on
the fair value of the underlying collateral supporting the loan.
In determining the value of real estate collateral, the Company
relies on external appraisals and assessment of property values
by its internal staff. In the case of non-real estate
collateral, reliance is placed on a variety of sources,
including external estimates of value and judgments based on the
experience and expertise of internal specialists. Because many
of these inputs are not observable, the measurements are
classified as Level 3. Changes in fair value recognized for
partial charge-offs of loans and loan impairment reserves on
loans held by the Company at March 31, 2011 and 2010 are
shown in the table below.
Loans
held for sale
Loans held for sale are carried at the lower of cost or fair
value. The portfolio has historically consisted primarily of
student loans, and to a lesser extent, residential real estate
loans. Most of the Companys student loan portfolio was
sold under contract to the Federal Department of Education and
various student loan agencies during 2010. A portion of the
student loan portfolio is under contract to agencies which have
been unable to consistently purchase loans under existing
contractual terms. These loans have been evaluated using a fair
value measurement method based on a discounted cash flows
analysis, which is classified as Level 3. The fair value of
these loans was $11.8 million at March 31, 2011, net
of an impairment reserve of $549 thousand. The measurement of
fair value for other student loans is based on the specific
prices mandated in the underlying sale contracts, the estimated
exit price, and is classified as Level 2. Fair value
measurements on mortgage loans held for sale are based on quoted
market prices for similar loans in the secondary market and are
classified as Level 2.
Private
equity investments and restricted stock
These assets are included in non-marketable investment
securities in the consolidated balance sheets. They include
investments in private equity concerns held by the Parent
company which are carried at cost, reduced by
other-than-temporary
impairment. These investments are periodically evaluated for
impairment
32
based on their estimated fair value as determined by review of
available information, most of which is provided as monthly or
quarterly internal financial statements, annual audited
financial statements, investee tax returns, and in certain
situations, through research into and analysis of the assets and
investments held by those private equity concerns. Restricted
stock consists of stock issued by the Federal Reserve Bank and
FHLB which is held by the bank subsidiary as required for
regulatory purposes. Generally, there are restrictions on the
sale and/or
liquidation of these investments, and they are carried at cost,
reduced by
other-than-temporary
impairment. Fair value measurements for these securities are
classified as Level 3.
Mortgage
servicing rights
The Company initially measures its mortgage servicing rights at
fair value, and amortizes them over the period of estimated net
servicing income. They are periodically assessed for impairment
based on fair value at the reporting date. Mortgage servicing
rights do not trade in an active market with readily observable
prices. Accordingly, the fair value is estimated based on a
valuation model which calculates the present value of estimated
future net servicing income. The model incorporates assumptions
that market participants use in estimating future net servicing
income, including estimates of prepayment speeds, market
discount rates, cost to service, float earnings rates, and other
ancillary income, including late fees. The fair value
measurements are classified as Level 3.
Goodwill
and core deposit premium
Valuation of goodwill to determine impairment is performed on an
annual basis, or more frequently if there is an event or
circumstance that would indicate impairment may have occurred.
The process involves calculations to determine the fair value of
each reporting unit on a stand-alone basis. A combination of
formulas using current market multiples, based on recent sales
of financial institutions within the Companys geographic
marketplace, is used to estimate the fair value of each
reporting unit. That fair value is compared to the carrying
amount of the reporting unit, including its recorded goodwill.
Impairment is considered to have occurred if the fair value of
the reporting unit is lower than the carrying amount of the
reporting unit. The fair value of the Companys common
stock relative to its computed book value per share is also
considered as part of the overall evaluation. These measurements
are classified as Level 3.
Core deposit premiums are recognized at the time a portfolio of
deposits is acquired, using valuation techniques which calculate
the present value of the estimated net cost savings attributable
to the core deposit base, relative to alternative costs of funds
and tax benefits, if applicable, over the expected remaining
economic life of the depositors. Subsequent evaluations are made
when facts or circumstances indicate potential impairment may
have occurred. The Company uses estimates of discounted future
cash flows, comparisons with alternative sources for deposits,
consideration of income potential generated in other product
lines by current customers, geographic parameters, and other
demographics to estimate a current fair value of a specific
deposit base. If the calculated fair value is less than the
carrying value, impairment is considered to have occurred. This
measurement is classified as Level 3.
Foreclosed
assets
Foreclosed assets consist of loan collateral which has been
repossessed through foreclosure. This collateral is comprised of
commercial and residential real estate and other non-real estate
property, including auto, marine and recreational vehicles.
Foreclosed assets are recorded as held for sale initially at the
lower of the loan balance or fair value of the collateral less
estimated selling costs. Subsequent to foreclosure, valuations
are updated periodically, and the assets may be marked down
further, reflecting a new cost basis. Fair value measurements
may be based upon appraisals, third-party price opinions, or
internally developed pricing methods. These measurements are
classified as Level 3.
33
Long-lived
assets
In accordance with
ASC 360-10-35,
investments in branch facilities and various office buildings
are written down to estimated fair value, or estimated fair
value less cost to sell if the property is held for sale. Fair
value is estimated in a process which considers current local
commercial real estate market conditions and the judgment of the
sales agent on pricing and sales strategy. These fair value
measurements are classified as Level 3.
For assets measured at fair value on a nonrecurring basis during
the first three months of 2011 and 2010, and still held as of
March 31, 2011 and 2010, the following table provides the
adjustments to fair value recognized during the respective
periods, the level of valuation assumptions used to determine
each adjustment, and the carrying value of the related
individual assets or portfolios at March 31, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
(In thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
41,091
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,091
|
|
|
$
|
(5,458
|
)
|
Mortgage servicing rights
|
|
|
1,281
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
|
51
|
|
Foreclosed assets
|
|
|
2,301
|
|
|
|
|
|
|
|
|
|
|
|
2,301
|
|
|
|
(288
|
)
|
Long-lived assets
|
|
|
3,300
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
|
|
(1,000
|
)
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
26,244
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,244
|
|
|
$
|
(9,179
|
)
|
Mortgage servicing rights
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
1,501
|
|
|
|
(42
|
)
|
Foreclosed assets
|
|
|
8,646
|
|
|
|
|
|
|
|
|
|
|
|
8,646
|
|
|
|
(780
|
)
|
|
|
|
|
14.
|
Fair
Value of Financial Instruments
|
The carrying amounts and estimated fair values of financial
instruments held by the Company, in addition to a discussion of
the methods used and assumptions made in computing those
estimates, are set forth below.
Loans
The fair value of loans are estimated by discounting the
expected future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. This method of
estimating fair value does not incorporate the exit-price
concept of fair value prescribed by ASC 820 Fair
Value Measurements and Disclosures.
Investment
Securities
A detailed description of the fair value measurement of the debt
and equity instruments in the available for sale and trading
sections of the investment security portfolio is provided in
Note 13 on Fair Value Measurements. A schedule of
investment securities by category and maturity is provided in
Note 3 on Investment Securities.
Federal
Funds Sold and Securities Purchased under Agreements to Resell,
Interest Earning Deposits With Banks and Cash and Due From
Banks
The carrying amounts of short-term federal funds sold and
securities purchased under agreements to resell, interest
earning deposits with banks, and cash and due from banks
approximate fair value. Federal
34
funds sold and securities purchased under agreements to resell
classified as short-term generally mature in 90 days or
less. The fair value of long-term securities purchased under
agreements to resell is estimated by discounting contractual
maturities using an estimate of the current market rate for
similar instruments.
Accrued
Interest Receivable/Payable
The carrying amounts of accrued interest receivable and accrued
interest payable approximate their fair values because of the
relatively short time period between the accrual period and the
expected receipt or payment due date.
Derivative
Instruments
A description of the fair value measurement of derivative
instruments is provided in Note 13 on Fair Value
Measurements. Fair values are generally estimated using
observable market prices or pricing models.
Deposits
The fair value of deposits with no stated maturity is equal to
the amount payable on demand. Such deposits include savings and
interest and non-interest bearing demand deposits. These fair
value estimates do not recognize any benefit the Company
receives as a result of being able to administer, or control,
the pricing of these accounts. The fair value of certificates of
deposit is based on the discounted value of cash flows, taking
early withdrawal optionality into account. Discount rates are
based on the Companys approximate cost of obtaining
similar maturity funding in the market.
Borrowings
The fair value of short-term borrowings such as federal funds
purchased and securities sold under agreements to repurchase,
which generally mature or reprice within 90 days,
approximates their carrying value. The fair value of long-term
structured repurchase agreements and other long-term debt is
estimated by discounting contractual maturities using an
estimate of the current market rate for similar instruments.
35
The estimated fair values of the Companys financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Carrying
|
|
|
Estimated
|
|
(In thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Loans, including held for sale
|
|
$
|
9,428,334
|
|
|
$
|
9,476,195
|
|
Available for sale investment securities
|
|
|
7,499,577
|
|
|
|
7,499,577
|
|
Trading securities
|
|
|
17,000
|
|
|
|
17,000
|
|
Non-marketable securities
|
|
|
104,721
|
|
|
|
104,721
|
|
Short-term federal funds sold and securities purchased under
agreements to resell
|
|
|
3,600
|
|
|
|
3,600
|
|
Long-term securities purchased under
|
|
|
|
|
|
|
|
|
agreements to resell
|
|
|
700,000
|
|
|
|
704,975
|
|
Interest earning deposits with banks
|
|
|
203,940
|
|
|
|
203,940
|
|
Cash and due from banks
|
|
|
362,148
|
|
|
|
362,148
|
|
Accrued interest receivable
|
|
|
63,757
|
|
|
|
63,757
|
|
Derivative instruments
|
|
|
17,215
|
|
|
|
17,215
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
4,558,630
|
|
|
$
|
4,558,630
|
|
Savings, interest checking and money market deposits
|
|
|
8,074,055
|
|
|
|
8,074,055
|
|
Time open and C.D.s
|
|
|
2,906,790
|
|
|
|
2,918,922
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
923,014
|
|
|
|
928,349
|
|
Other borrowings
|
|
|
111,972
|
|
|
|
120,893
|
|
Accrued interest payable
|
|
|
12,177
|
|
|
|
12,177
|
|
Derivative instruments
|
|
|
17,978
|
|
|
|
17,978
|
|
|
|
Off-Balance
Sheet Financial Instruments
The fair value of letters of credit and commitments to extend
credit is based on the fees currently charged to enter into
similar agreements. The aggregate of these fees is not material.
Limitations
Fair value estimates are made at a specific point in time based
on relevant market information. They do not reflect any premium
or discount that could result from offering for sale at one time
the Companys entire holdings of a particular financial
instrument. Because no market exists for many of the
Companys financial instruments, fair value estimates are
based on judgments regarding future expected loss experience,
risk characteristics and economic conditions. These estimates
are subjective, involve uncertainties and cannot be determined
with precision. Changes in assumptions could significantly
affect the estimates.
On April 6, 2010 a suit was filed against Commerce Bank,
N.A. (the Bank) in the U.S. District Court for the Western
District of Missouri by a customer alleging that overdraft fees
relating to debit card transactions have been unfairly assessed
by the Bank. The suit seeks
class-action
status for Bank customers who may have been similarly affected.
A second suit alleging the same facts and also seeking
class-action
status was filed on June 4, 2010 in Missouri state court.
As these cases are in a very early stage, a probable outcome is
presently not determinable. The Company has other lawsuits
pending at March 31, 2011, arising in the normal course of
business. In the opinion of management, after consultation with
legal counsel, none of these suits will have a significant
effect on the financial condition or results of operations of
the Company.
36
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
related notes and with the statistical information and financial
data appearing in this report as well as the Companys 2010
Annual Report on
Form 10-K.
Results of operations for the three month period ended
March 31, 2011 are not necessarily indicative of results to
be attained for any other period.
Forward
Looking Information
This report may contain forward-looking statements
that are subject to risks and uncertainties and include
information about possible or assumed future results of
operations. Many possible events or factors could affect the
future financial results and performance of the Company. This
could cause results or performance to differ materially from
those expressed in the forward-looking statements. Words such as
expects, anticipates,
believes, estimates, variations of such
words and other similar expressions are intended to identify
such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers should not rely solely on
the forward-looking statements and should consider all
uncertainties and risks discussed throughout this report.
Forward-looking statements speak only as of the date they are
made. The Company does not undertake to update forward-looking
statements to reflect circumstances or events that occur after
the date the forward-looking statements are made or to reflect
the occurrence of unanticipated events. Such possible events or
factors include: changes in economic conditions in the
Companys market area, changes in policies by regulatory
agencies, governmental legislation and regulation, fluctuations
in interest rates, changes in liquidity requirements, demand for
loans in the Companys market area, and competition with
other entities that offer financial services.
Critical
Accounting Policies
The Companys consolidated financial statements are
prepared based on the application of certain accounting
policies, some of which require numerous estimates and strategic
or economic assumptions that may prove inaccurate or be subject
to variations which may significantly affect the Companys
reported results and financial position for the current period
or future periods. The use of estimates, assumptions, and
judgments are necessary when assets and liabilities are required
to be recorded at, or adjusted to reflect, fair value. Current
economic conditions may require the use of additional estimates,
and some estimates may be subject to a greater degree of
uncertainty due to the current instability of the economy. The
Company has identified several policies as being critical
because they require management to make particularly difficult,
subjective
and/or
complex judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts
would be reported under different conditions or using different
assumptions. These policies relate to the allowance for loan
losses, the valuation of certain investment securities, and
accounting for income taxes.
Allowance
for Loan Losses
The Company performs periodic and systematic detailed reviews of
its loan portfolio to assess overall collectability. The level
of the allowance for loan losses reflects the Companys
estimate of the losses inherent in the loan portfolio at any
point in time. While these estimates are based on substantive
methods for determining allowance requirements, actual outcomes
may differ significantly from estimated results, especially when
determining allowances for business, lease, construction and
business real estate loans. These loans are normally larger and
more complex, and their collection rates are harder to predict.
Personal loans, including personal mortgage, credit card and
consumer loans, are individually smaller and perform in a more
homogenous manner, making loss estimates more predictable.
Further discussion of the methodologies used in establishing the
allowance is provided in the Provision and Allowance for Loan
Losses section of this discussion.
37
Valuation
of Investment Securities
The Company carries its investment securities at fair value, and
employs valuation techniques which utilize observable inputs
when those inputs are available. These observable inputs reflect
assumptions market participants would use in pricing the
security and are developed based on market data obtained from
sources independent of the Company. When such information is not
available, the Company employs valuation techniques which
utilize unobservable inputs, or those which reflect the
Companys own assumptions about market participants, based
on the best information available in the circumstances. These
valuation methods typically involve cash flow and other
financial modeling techniques. Changes in underlying factors,
assumptions, estimates, or other inputs to the valuation
techniques could have a material impact on the Companys
future financial condition and results of operations. Assets and
liabilities carried at fair value inherently result in more
financial statement volatility. Under the fair value measurement
hierarchy, fair value measurements are classified as
Level 1 (quoted prices), Level 2 (based on observable
inputs) or Level 3 (based on unobservable,
internally-derived inputs), as discussed in more detail in
Note 13 to the consolidated financial statements. Most of
the available for sale investment portfolio is priced utilizing
industry-standard models that consider various assumptions which
are observable in the marketplace, or can be derived from
observable data. Such securities totaled approximately
$6.9 billion, or 91.7% of the available for sale portfolio
at March 31, 2011, and were classified as Level 2
measurements. The Company also holds $143.2 million in
auction rate securities. These were classified as Level 3
measurements, as no market currently exists for these
securities, and fair values were derived from internally
generated cash flow valuation models which used unobservable
inputs which were significant to the overall measurement.
Changes in the fair value of available for sale securities,
excluding credit losses relating to
other-than-temporary
impairment, are reported in other comprehensive income. The
Company periodically evaluates the available for sale portfolio
for
other-than-temporary
impairment. Evaluation for
other-than-temporary
impairment is based on the Companys intent to sell the
security and whether it is likely that it will be required to
sell the security before the anticipated recovery of its
amortized cost basis. If either of these conditions is met, the
entire loss (the amount by which the amortized cost exceeds the
fair value) must be recognized in current earnings. If neither
condition is met, but the Company does not expect to recover the
amortized cost basis, the Company must determine whether a
credit loss has occurred. This credit loss is the amount by
which the amortized cost basis exceeds the present value of cash
flows expected to be collected from the security. The credit
loss, if any, must be recognized in current earnings, while the
remainder of the loss, related to all other factors, is
recognized in other comprehensive income.
The estimation of whether a credit loss exists and the period
over which the security is expected to recover requires
significant judgment. The Company must consider available
information about the collectability of the security, including
information about past events, current conditions, and
reasonable forecasts, which includes payment structure,
prepayment speeds, expected defaults, and collateral values.
Changes in these factors could result in additional impairment,
recorded in current earnings, in future periods.
At March 31, 2011, non-agency guaranteed mortgage-backed
securities with a par value of $169.4 million were
identified as
other-than-temporarily
impaired. The credit-related impairment loss on these securities
amounted to $7.8 million, which was recorded in the
consolidated income statement in investment securities gains
(losses), net. The noncredit-related loss on these securities,
which was recorded in other comprehensive income, was
$5.6 million on a pre-tax basis.
The Company, through its direct holdings and its Small Business
Investment subsidiaries, has numerous private equity
investments, categorized as non-marketable securities in the
accompanying consolidated balance sheets. These investments
totaled $59.4 million at March 31, 2011, and most are
carried at fair value. Changes in fair value are reflected in
current earnings, and reported in investment securities gains
(losses), net in the consolidated income statements. Because
there is no observable market data for these securities, their
fair values are internally developed using available information
and managements judgment, and are classified as
Level 3 measurements. Although management believes its
estimates of fair value reasonably reflect the fair value of
these securities, key assumptions regarding the projected
financial performance of these companies, the evaluation of the
investee companys management
38
team, and other economic and market factors may affect the
amounts that will ultimately be realized from these investments.
Accounting
for Income Taxes
Accrued income taxes represent the net amount of current income
taxes which are expected to be paid attributable to operations
as of the balance sheet date. Deferred income taxes represent
the expected future tax consequences of events that have been
recognized in the financial statements or income tax returns.
Current and deferred income taxes are reported as either a
component of other assets or other liabilities in the
consolidated balance sheets, depending on whether the balances
are assets or liabilities. Judgment is required in applying
generally accepted accounting principles in accounting for
income taxes. The Company regularly monitors taxing authorities
for changes in laws and regulations and their interpretations by
the judicial systems. The aforementioned changes, and changes
that may result from the resolution of income tax examinations
by federal and state taxing authorities, may impact the estimate
of accrued income taxes and could materially impact the
Companys financial position and results of operations.
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
.69
|
|
|
$
|
.50
|
|
Net income per common share diluted
|
|
|
.69
|
|
|
|
.50
|
|
Cash dividends
|
|
|
.230
|
|
|
|
.224
|
|
Book value
|
|
|
23.77
|
|
|
|
22.03
|
|
Market price
|
|
|
40.44
|
|
|
|
39.18
|
|
Selected Ratios
|
|
|
|
|
|
|
|
|
(Based on average balance sheets)
|
|
|
|
|
|
|
|
|
Loans to
deposits(1)
|
|
|
62.47
|
%
|
|
|
74.98
|
%
|
Non-interest bearing deposits to total deposits
|
|
|
29.20
|
|
|
|
27.77
|
|
Equity to
loans(1)
|
|
|
21.62
|
|
|
|
18.38
|
|
Equity to deposits
|
|
|
13.51
|
|
|
|
13.79
|
|
Equity to total assets
|
|
|
11.06
|
|
|
|
10.70
|
|
Return on total assets
|
|
|
1.32
|
|
|
|
1.00
|
|
Return on total equity
|
|
|
11.95
|
|
|
|
9.32
|
|
(Based on
end-of-period
data)
|
|
|
|
|
|
|
|
|
Non-interest income to
revenue(2)
|
|
|
37.34
|
|
|
|
36.42
|
|
Efficiency
ratio(3)
|
|
|
59.64
|
|
|
|
60.48
|
|
Tier I risk-based capital ratio
|
|
|
14.75
|
|
|
|
13.43
|
|
Total risk-based capital ratio
|
|
|
16.12
|
|
|
|
14.79
|
|
Tangible common equity to assets
ratio(4)
|
|
|
10.24
|
|
|
|
9.99
|
|
Tier I leverage ratio
|
|
|
10.27
|
|
|
|
9.81
|
|
|
|
|
|
|
(1) |
|
Includes loans held for
sale. |
(2) |
|
Revenue includes net interest
income and non-interest income. |
(3) |
|
The efficiency ratio is
calculated as non-interest expense (excluding intangibles
amortization) as a percent of revenue. |
(4) |
|
The tangible common equity ratio
is calculated as stockholders equity reduced by goodwill
and other intangible assets (excluding mortgage servicing
rights) divided by total assets reduced by goodwill and other
intangible assets (excluding mortgage servicing
rights). |
39
Results
of Operations
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Increase
|
|
|
|
March 31
|
|
|
(Decrease)
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Net interest income
|
|
$
|
160,973
|
|
|
$
|
162,710
|
|
|
$
|
(1,737
|
)
|
|
|
(1.1
|
)%
|
Provision for loan losses
|
|
|
(15,789
|
)
|
|
|
(34,322
|
)
|
|
|
(18,533
|
)
|
|
|
(54.0
|
)
|
Non-interest income
|
|
|
95,906
|
|
|
|
93,189
|
|
|
|
2,717
|
|
|
|
2.9
|
|
Investment securities gains (losses), net
|
|
|
1,327
|
|
|
|
(3,665
|
)
|
|
|
4,992
|
|
|
|
N.M.
|
|
Non-interest expense
|
|
|
(153,960
|
)
|
|
|
(155,724
|
)
|
|
|
(1,764
|
)
|
|
|
(1.1
|
)
|
Income taxes
|
|
|
(27,507
|
)
|
|
|
(18,377
|
)
|
|
|
9,130
|
|
|
|
49.7
|
|
Non-controlling interest income (expense)
|
|
|
(497
|
)
|
|
|
359
|
|
|
|
(856
|
)
|
|
|
N.M.
|
|
|
|
Net income
|
|
$
|
60,453
|
|
|
$
|
44,170
|
|
|
$
|
16,283
|
|
|
|
36.9
|
%
|
|
|
For the quarter ended March 31, 2011, net income amounted
to $60.5 million, an increase of $16.3 million, or
36.9%, compared to the first quarter of the previous year. For
the current quarter, the annualized return on average assets was
1.32%, the annualized return on average equity was 11.95%, and
the efficiency ratio was 59.64%. Diluted earnings per share was
$.69, an increase of 38.0% compared to $.50 per share in the
first quarter of 2010.
Net income for first quarter of 2011 compared to the same period
last year included a decline of $1.7 million, or 1.1%, in
net interest income resulting from lower earnings on the
Companys loan portfolio, partly offset by lower rates paid
on deposits and lower average balances of FHLB advances.
Non-interest income increased $2.7 million, or 2.9%, due to
solid growth in bank card and trust fees, which grew 15.3% and
11.7%, respectively. Non-interest expense declined
$1.8 million, or 1.1%, from amounts recorded in the same
period last year and was also lower than expense amounts in the
last three quarters. The decline compared to the first quarter
of 2010 was mainly due to a $1.4 million reduction in a
Visa indemnification obligation, in addition to lower supplies
and communication costs. These declines were partly offset by
higher contribution expense resulting from the donation of
appreciated securities and a termination fee paid on the early
cancellation of a securities resell agreement. Investment
securities gains grew $5.0 million, mainly due to fair
value adjustments on private equity investments. The provision
for loan losses totaled $15.8 million, a decrease of
$18.5 million from the first quarter of 2010.
During the first quarter of 2011, the Companys sole bank
subsidiary (the Bank) applied to the Federal Reserve Bank of
Kansas City and State of Missouri Division of Finance to become
a state chartered Federal Reserve member bank. If the
application is accepted, the Banks main regulator will
change from the Office of the Comptroller to both the Federal
Reserve of Kansas City and the Missouri Division of Finance. The
Banks deposits continue to be fully insured by the FDIC in
accordance with applicable laws and regulations. The Bank
expects to receive its new state banking charter on or before
June 30, 2011. The Company expects to reduce its
examination fees by approximately $1.5 million on an
annualized basis as a result of this change.
40
Net
Interest Income
The following table summarizes the changes in net interest
income on a fully taxable equivalent basis, by major category of
interest earning assets and interest bearing liabilities,
identifying changes related to volumes and rates. Changes not
solely due to volume or rate changes are allocated to rate.
Analysis
of Changes in Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2011 vs. 2010
|
|
|
|
Change due to
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
(In thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
Interest income, fully taxable equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(5,053
|
)
|
|
$
|
(7,188
|
)
|
|
$
|
(12,241
|
)
|
Loans held for sale
|
|
|
(1,679
|
)
|
|
|
73
|
|
|
|
(1,606
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
|
(24
|
)
|
|
|
1,975
|
|
|
|
1,951
|
|
Government-sponsored enterprise obligations
|
|
|
269
|
|
|
|
(269
|
)
|
|
|
|
|
State and municipal obligations
|
|
|
2,663
|
|
|
|
(1,121
|
)
|
|
|
1,542
|
|
Mortgage and asset-backed securities
|
|
|
5,559
|
|
|
|
(9,471
|
)
|
|
|
(3,912
|
)
|
Other securities
|
|
|
(306
|
)
|
|
|
821
|
|
|
|
515
|
|
|
|
Total interest on investment securities
|
|
|
8,161
|
|
|
|
(8,065
|
)
|
|
|
96
|
|
|
|
Short-term federal funds sold and securities purchased under
agreements to resell
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
Long-term securities purchased under agreements to resell
|
|
|
2,162
|
|
|
|
|
|
|
|
2,162
|
|
Interest earning deposits with banks
|
|
|
23
|
|
|
|
2
|
|
|
|
25
|
|
|
|
Total interest income
|
|
|
3,610
|
|
|
|
(15,179
|
)
|
|
|
(11,569
|
)
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
10
|
|
|
|
51
|
|
|
|
61
|
|
Interest checking and money market
|
|
|
1,008
|
|
|
|
(1,265
|
)
|
|
|
(257
|
)
|
Time open & C.D.s of less than $100,000
|
|
|
(989
|
)
|
|
|
(2,083
|
)
|
|
|
(3,072
|
)
|
Time open & C.D.s of $100,000 and over
|
|
|
370
|
|
|
|
(1,620
|
)
|
|
|
(1,250
|
)
|
|
|
Total interest on deposits
|
|
|
399
|
|
|
|
(4,917
|
)
|
|
|
(4,518
|
)
|
|
|
Federal funds purchased and securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements to repurchase
|
|
|
(78
|
)
|
|
|
(120
|
)
|
|
|
(198
|
)
|
Other borrowings
|
|
|
(5,576
|
)
|
|
|
(222
|
)
|
|
|
(5,798
|
)
|
|
|
Total interest expense
|
|
|
(5,255
|
)
|
|
|
(5,259
|
)
|
|
|
(10,514
|
)
|
|
|
Net interest income, fully taxable equivalent basis
|
|
$
|
8,865
|
|
|
$
|
(9,920
|
)
|
|
$
|
(1,055
|
)
|
|
|
Net interest income for the first quarter of 2011 was
$161.0 million, a $1.7 million, or 1.1%, decrease from
the first quarter of 2010. On a tax equivalent (T/E) basis,
net interest income totaled $166.5 million, up slightly
over $166.0 million in the previous quarter and down
$1.1 million from the same quarter last year. This decline
from the same period last year was mainly the result of lower
loan yields and loan balances, in conjunction with lower rates
paid on deposits and a reduction in average borrowings. The
Companys net interest rate margin was 3.85% for the first
quarter of 2011, compared to 3.83% in the previous quarter and
4.03% in the first quarter of 2010.
Total interest income (T/E) decreased $11.6 million,
or 6.0%, from the first quarter of 2010. Interest income on
loans, including loans held for sale, declined
$13.8 million, due to a decrease of $964.3 million, or
9.2%, in average loan balances, coupled with a decrease in
average rates earned. The overall average rate earned on the
loan portfolio was 5.13% compared to 5.19% in the first quarter
of 2010. The largest declines in
41
average loan balances compared to the first quarter of 2010
occurred in construction real estate loans, consumer loans and
student loans, which decreased by $182.2 million,
$159.5 million, and $754.3 million, respectively. The
decline in the student loan portfolios resulted from sales from
these portfolios during the fourth quarter of 2010. Average
business loan balances increased $222.2 million, or 7.8%,
the impact of which was partially offset by a decrease in the
average rate earned on those loans. Interest on construction
loans in the current quarter included $404 thousand received on
the pay off of a non-accrual loan. Average consumer credit card
balances increased $12.3 million compared to the first
quarter of 2010, while the average rate earned on these balances
decreased to 10.92% from 12.58%, reflecting the impact of new
credit card regulations enacted in 2010.
Interest income on investment securities (T/E) was
$59.0 million during the first quarter of 2011 compared to
$58.9 million during the same period last year. The average
balance of the total portfolio increased $1.0 billion, or
16.3%, compared to the first quarter of 2010. This growth mainly
occurred in mortgage and asset-backed securities and state and
municipal obligations, which increased by $793.6 million
and $214.2 million, respectively. The effect of higher
balances was largely offset by lower overall average yields,
which declined to 3.28% compared to 3.81% during the first
quarter of 2010. The current quarter also included an increase
of $1.9 million in interest earned on inflation-protected
securities, in addition to $683 thousand in additional interest
as a result of a corporate bond called at a premium.
In order to diversify its investment portfolio, the Company
began investing in long-term securities purchased under
agreements to resell in the second half of 2010. The average
balance of these agreements during the first quarter of 2011 was
$567.8 million while the average rate earned was 1.54%,
generating $2.2 million in interest income during the
period. These agreements, which are collateralized and due from
other large financial institutions, have remaining terms ranging
from 1.5 to 3 years.
The average tax equivalent yield on total interest earning
assets was 4.20% in the first quarter of 2011 compared to 4.64%
in the first quarter of 2010.
Total interest expense decreased $10.5 million, or 41.4%,
compared to the first quarter of 2010, primarily due to a
$4.5 million decrease in interest expense on interest
bearing deposits, coupled with a $6.0 million decrease in
interest expense on borrowings. The decrease in interest expense
on deposits resulted from a 22 basis point decrease in
average rates paid. Average balances of interest checking and
money market accounts increased $877.0 million and average
time open and certificates of deposit balances decreased
$230.2 million. Interest expense on borrowings declined
mainly due to lower FHLB advances, which declined
$619.7 million, partly due to scheduled maturities of
advances and partly due to the early pay off of
$125.0 million in the fourth quarter of 2010. The overall
average rate incurred on all interest bearing liabilities
decreased to .51% in the first quarter of 2011 compared to .86%
in the first quarter of 2010.
Summaries of average assets and liabilities and the
corresponding average rates earned/paid appear on the last page
of this discussion.
42
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
|
Ended March 31
|
|
|
(Decrease)
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Bank card transaction fees
|
|
$
|
37,462
|
|
|
$
|
32,490
|
|
|
$
|
4,972
|
|
|
|
15.3
|
%
|
Trust fees
|
|
|
21,572
|
|
|
|
19,318
|
|
|
|
2,254
|
|
|
|
11.7
|
|
Deposit account charges and other fees
|
|
|
19,300
|
|
|
|
23,981
|
|
|
|
(4,681
|
)
|
|
|
(19.5
|
)
|
Bond trading income
|
|
|
4,720
|
|
|
|
5,004
|
|
|
|
(284
|
)
|
|
|
(5.7
|
)
|
Consumer brokerage services
|
|
|
2,663
|
|
|
|
2,117
|
|
|
|
546
|
|
|
|
25.8
|
|
Loan fees and sales
|
|
|
1,824
|
|
|
|
1,839
|
|
|
|
(15
|
)
|
|
|
(.8
|
)
|
Other
|
|
|
8,365
|
|
|
|
8,440
|
|
|
|
(75
|
)
|
|
|
(.9
|
)
|
|
|
Total non-interest income
|
|
$
|
95,906
|
|
|
$
|
93,189
|
|
|
$
|
2,717
|
|
|
|
2.9
|
%
|
|
|
Non-interest income as a % of total revenue*
|
|
|
37.3
|
%
|
|
|
36.4
|
%
|
|
|
|
|
|
|
|
|
Total revenue per full-time equivalent employee
|
|
$
|
53.4
|
|
|
$
|
50.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Total revenue includes net
interest income and non-interest income. |
For the first quarter of 2011, total non-interest income
amounted to $95.9 million compared with $93.2 million
in the same quarter last year, which was an increase of
$2.7 million, or 2.9%. Bank card fees for the quarter
increased $5.0 million, or 15.3%, over the first quarter of
last year, primarily due to strong growth in transaction fees
earned on corporate card and debit card transactions, which grew
by 31.3% and 10.7%, respectively. Corporate card fees, which
totaled $13.4 million this quarter, saw continued growth in
transaction volumes from existing customers and activity from
new customers. Debit card income in the first quarter of 2011
totaled $14.3 million and reflected continued volume
growth. Credit card fees also increased 6.7% over the same
quarter last year. Trust fees for the quarter increased
$2.3 million, or 11.7%, over the same quarter last year
which resulted from double digit growth in both personal and
institutional trust business, but continued to be negatively
affected by low interest rates on money market investments held
in trust accounts. Deposit account fees declined
$4.7 million, or 19.5%, from the same period last year due
to a $4.3 million decline in overdraft fee income. The
reduction in overdraft fees was the result of the Companys
implementation on July 1, 2010 of new overdraft regulations
on debit card transactions. Corporate cash management fees,
which comprised 41% of total deposit account fees, declined $659
thousand from the previous year. Bond trading income for the
current quarter totaled $4.7 million, a decrease of $284
thousand, or 5.7%, due to lower sales volume. Consumer brokerage
services revenue increased $546 thousand, or 25.8%, mainly due
to growth in advisory, annuity and mutual fund fees. Loan fees
and sales revenue totaled $1.8 million this quarter, down
slightly from the same period last year, but included revenue
only from mortgage banking and commercial loan commitment fees,
as the Company exited from the student lending business last
year. Other non-interest income for the current quarter
decreased slightly from the same quarter last year, and included
an impairment charge of $1.0 million on a Kansas City
office building which was largely offset by a gain of $924
thousand on the sale of two branch properties in the
Companys Illinois market.
Investment
Securities Gains (Losses), Net
Net gains and losses on investment securities which were
recognized in earnings during the three months ended
March 31, 2011 and 2010 are shown in the table below. Net
securities gains amounted to $1.3 million in the first
quarter of 2011, compared to losses of $3.7 million in the
same quarter last year. During the current quarter, additional
credit-related impairment losses of $274 thousand were recorded
on certain non-agency guaranteed mortgage-backed securities
which have been identified as
other-than-temporarily
impaired. These identified securities have a total par value of
$169.4 million. The cumulative credit-related impairment
loss on these securities, recorded in earnings, amounted to
$7.8 million, while the cumulative noncredit-related loss
on these securities, which has been recorded in other
comprehensive income (loss), was $5.6 million. Also shown
below are net gains and losses relating to non-marketable
private equity investments, which are primarily held by the
Parents majority-owned
43
venture capital subsidiaries. These include fair value
adjustments, in addition to gains and losses realized upon
disposition. The portion of this activity attributable to
minority interests is reported as non-controlling interest in
the consolidated income statement, resulting in expense of $338
thousand during the first quarter of 2011 and income of $425
thousand for the same period last year.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
176
|
|
|
$
|
408
|
|
OTTI losses on non-agency mortgage-backed bonds
|
|
|
(274
|
)
|
|
|
(1,457
|
)
|
Non-marketable:
|
|
|
|
|
|
|
|
|
Private equity investments
|
|
|
1,425
|
|
|
|
(2,616
|
)
|
|
|
Total investment securities gains (losses), net
|
|
$
|
1,327
|
|
|
$
|
(3,665
|
)
|
|
|
Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
|
Ended March 31
|
|
|
(Decrease)
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
87,392
|
|
|
$
|
87,438
|
|
|
$
|
(46
|
)
|
|
|
(.1
|
)%
|
Net occupancy
|
|
|
12,037
|
|
|
|
12,098
|
|
|
|
(61
|
)
|
|
|
(.5
|
)
|
Equipment
|
|
|
5,577
|
|
|
|
5,901
|
|
|
|
(324
|
)
|
|
|
(5.5
|
)
|
Supplies and communication
|
|
|
5,532
|
|
|
|
7,338
|
|
|
|
(1,806
|
)
|
|
|
(24.6
|
)
|
Data processing and software
|
|
|
16,467
|
|
|
|
16,606
|
|
|
|
(139
|
)
|
|
|
(.8
|
)
|
Marketing
|
|
|
4,258
|
|
|
|
4,718
|
|
|
|
(460
|
)
|
|
|
(9.7
|
)
|
Deposit insurance
|
|
|
4,891
|
|
|
|
4,750
|
|
|
|
141
|
|
|
|
3.0
|
|
Indemnification obligation
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
(1,359
|
)
|
|
|
N.M.
|
|
Other
|
|
|
19,165
|
|
|
|
16,875
|
|
|
|
2,290
|
|
|
|
13.6
|
|
|
|
Total non-interest expense
|
|
$
|
153,960
|
|
|
$
|
155,724
|
|
|
$
|
(1,764
|
)
|
|
|
(1.1
|
)%
|
|
|
Non-interest expense for the first quarter of 2011 amounted to
$154.0 million, a decrease of $1.8 million, or 1.1%,
compared with $155.7 million recorded in the first quarter
of last year. In the first quarter of 2011, non-interest expense
included an additional $1.4 million reduction in expense related
to the Visa indemnification obligation. Salaries and benefits
expense was well controlled in the current quarter, decreasing
slightly, mainly due to lower salary costs but offset by higher
incentive compensation. Full-time equivalent employees totaled
4,814 at March 31, 2011 compared to 5,094 at March 31,
2010. Equipment expense decreased $324 thousand, or 5.5%, from
the same quarter last year, mainly due to lower equipment rental
expense and lower depreciation expense on data processing
equipment. Supplies and communication expense declined
$1.8 million, or 24.6%, reflecting a continuation of
initiatives to reduce paper supplies, customer checks, and
postage costs. Marketing costs decreased $460 thousand, or 9.7%,
while FDIC insurance expense increased $141 thousand, or 3.0%.
Data processing and software costs decreased slightly, which was
mainly the result of lower student loan servicing costs, partly
offset by higher bank card processing fees (related to higher
bank card revenues). Other non-interest expense increased
$2.3 million, or 13.6%, over the same quarter last year and
included a termination fee of $910 thousand on the cancellation
of a securities resell agreement, expense of $877 thousand
related to the donation of appreciated securities to a related
charitable foundation, and higher credit card fraud losses.
Other non-interest expense also included foreclosed real estate
and other repossessed property expense totaling
$1.2 million in the current quarter, compared to
$1.5 million in the same period last year.
44
Provision
and Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31
|
|
|
Mar. 31
|
|
|
Dec. 31
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
|
Provision for loan losses
|
|
$
|
15,789
|
|
|
$
|
34,322
|
|
|
$
|
21,647
|
|
|
|
Net loan charge-offs (recoveries):
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
2,010
|
|
|
|
267
|
|
|
|
1,514
|
|
Real estate-construction and land
|
|
|
1,986
|
|
|
|
10,966
|
|
|
|
1,589
|
|
Real estate-business
|
|
|
1,064
|
|
|
|
431
|
|
|
|
1,829
|
|
Consumer credit card
|
|
|
9,038
|
|
|
|
13,065
|
|
|
|
9,736
|
|
Consumer
|
|
|
4,013
|
|
|
|
5,524
|
|
|
|
5,295
|
|
Revolving home equity
|
|
|
367
|
|
|
|
580
|
|
|
|
469
|
|
Student
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Real estate-personal
|
|
|
274
|
|
|
|
201
|
|
|
|
961
|
|
Overdrafts
|
|
|
37
|
|
|
|
227
|
|
|
|
254
|
|
|
|
Total net loan charge-offs
|
|
$
|
18,789
|
|
|
$
|
31,264
|
|
|
$
|
21,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31
|
|
|
Mar. 31
|
|
|
Dec. 31
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
|
Annualized net loan charge-offs*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
.27
|
%
|
|
|
.04
|
%
|
|
|
.21
|
%
|
Real estate-construction and land
|
|
|
1.78
|
|
|
|
7.02
|
|
|
|
1.27
|
|
Real estate-business
|
|
|
.21
|
|
|
|
.08
|
|
|
|
.36
|
|
Consumer credit card
|
|
|
4.73
|
|
|
|
6.95
|
|
|
|
4.97
|
|
Consumer
|
|
|
1.42
|
|
|
|
1.71
|
|
|
|
1.76
|
|
Revolving home equity
|
|
|
.31
|
|
|
|
.48
|
|
|
|
.39
|
|
Real estate-personal
|
|
|
.08
|
|
|
|
.05
|
|
|
|
.26
|
|
Overdrafts
|
|
|
2.11
|
|
|
|
12.11
|
|
|
|
12.49
|
|
|
|
Total annualized net loan charge-offs
|
|
|
.81
|
%
|
|
|
1.27
|
%
|
|
|
.92
|
%
|
|
|
|
|
|
* |
|
as a percentage of average loans
(excluding loans held for sale) |
The Company has an established process to determine the amount
of the allowance for loan losses, which assesses the risks and
losses inherent in its portfolio. This process provides an
allowance consisting of a specific allowance component based on
certain individually evaluated loans and a general component
based on estimates of reserves needed for pools of loans.
Loans subject to individual evaluation generally consist of
business, construction, commercial real estate and personal real
estate loans on non-accrual status. These impaired loans are
evaluated individually for the impairment of repayment potential
and collateral adequacy, and in conjunction with current
economic conditions and loss experience, allowances are
estimated. Loans which are not individually evaluated are
segregated by loan type and
sub-type,
and are collectively evaluated. These include certain troubled
debt restructurings, which are collectively evaluated because
they have similar risk characteristics. Loans not individually
evaluated are aggregated and reserves are recorded using a
consistent methodology that considers historical loan loss
experience by loan type, delinquencies, current economic
factors, loan risk ratings and industry concentrations.
The Companys estimate of the allowance for loan losses and
the corresponding provision for loan losses is based upon
various judgments and assumptions made by management. Factors
that influence these judgments include past loan loss
experience, current loan portfolio composition and
characteristics, trends in portfolio risk ratings, levels of
non-performing assets, and prevailing regional and national
economic
45
conditions. The Company has internal credit administration and
loan review staffs that continuously review loan quality and
report the results of their reviews and examinations to the
Companys senior management and Board of Directors. Such
reviews also assist management in establishing the level of the
allowance. In using this process and the information available,
management must consider various assumptions and exercise
considerable judgment to determine the overall level of the
allowance for loan losses. Because of these subjective factors,
actual outcomes of inherent losses can differ from original
estimates. The Companys subsidiary bank continues to be
subject to examination by several regulatory agencies, and
examinations are conducted throughout the year, targeting
various segments of the loan portfolio for review. Note 1
in the 2010 Annual Report on
Form 10-K
contains additional discussion on the allowance and charge-off
policies.
Net loan charge-offs in the first quarter of 2011 amounted to
$18.8 million, compared with $21.6 million in the
prior quarter and $31.3 million in the first quarter of
last year. The $2.9 million decrease in net loan
charge-offs in the first quarter of 2011 compared to the
previous quarter was mainly the result of lower consumer and
consumer credit card loan losses, which decreased by
$1.3 million and $698 thousand, respectively, reflecting
continued improved delinquency and loss rates. Business real
estate net loan charge-offs also declined by $765 thousand. Net
loan losses on construction loans increased $397 thousand and
totaled $2.0 million during the quarter, reflecting
continued weakness in the housing sector and lower collateral
values. The ratio of annualized net loan charge-offs to total
average loans was .81% in the current quarter compared to .92%
in the previous quarter and 1.27% in the same quarter last year.
For the first quarter of 2011, annualized net charge-offs on
average consumer credit card loans amounted to 4.73%, compared
with 4.97% in the previous quarter and 6.95% in the same period
last year. Consumer loan net charge-offs for the quarter
amounted to 1.42% of average consumer loans, compared to 1.76%
in the previous quarter and 1.71% in the same quarter last year.
The provision for loan losses for the current quarter totaled
$15.8 million, a decrease of $5.9 million from the
previous quarter and $18.5 million lower than in the same
period last year. The current quarter provision for loan losses
was $3.0 million less than net loan charge-offs for the
current quarter, thereby reducing the allowance to
$194.5 million. At March 31, 2011 the allowance for
loan losses was 2.08% of total loans, excluding loans held for
sale, and was 250% of total non-accrual loans.
Risk
Elements of Loan Portfolio
The following table presents non-performing assets and loans
which are past due 90 days and still accruing interest.
Non-performing assets include non-accruing loans and foreclosed
real estate. Loans are placed on non-accrual status when
management does not expect to collect payments consistent with
acceptable and agreed upon terms of repayment. Loans that are
90 days past due as to principal
and/or
interest payments are generally placed on non-accrual, unless
they are both well-secured and in the process
46
of collection, or they are consumer loans that are exempt under
regulatory rules from being classified as non-accrual.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
19,799
|
|
|
$
|
8,933
|
|
Real estate construction and land
|
|
|
35,392
|
|
|
|
52,752
|
|
Real estate business
|
|
|
15,637
|
|
|
|
16,242
|
|
Real estate personal
|
|
|
7,086
|
|
|
|
7,348
|
|
|
|
Total non-accrual loans
|
|
|
77,914
|
|
|
|
85,275
|
|
|
|
Foreclosed real estate
|
|
|
25,061
|
|
|
|
12,045
|
|
|
|
Total non-performing assets
|
|
$
|
102,975
|
|
|
$
|
97,320
|
|
|
|
Non-performing assets as a percentage of total loans
|
|
|
1.10
|
%
|
|
|
1.03
|
%
|
Non-performing assets as a percentage of total assets
|
|
|
.54
|
%
|
|
|
.53
|
%
|
|
|
Loans past due 90 days and still accruing interest:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
734
|
|
|
$
|
854
|
|
Real estate construction and land
|
|
|
95
|
|
|
|
217
|
|
Real estate business
|
|
|
26
|
|
|
|
|
|
Real estate personal
|
|
|
3,421
|
|
|
|
3,554
|
|
Consumer
|
|
|
2,666
|
|
|
|
2,867
|
|
Revolving home equity
|
|
|
725
|
|
|
|
825
|
|
Consumer credit card
|
|
|
11,050
|
|
|
|
12,149
|
|
|
|
Total loans past due 90 days and still accruing
interest
|
|
$
|
18,717
|
|
|
$
|
20,466
|
|
|
|
Non-accrual loans, which are also classified as impaired,
totaled $77.9 million at March 31, 2011, and decreased
$7.4 million from amounts recorded at December 31,
2010. The decline from December 31, 2010 occurred mainly in
construction and land real estate non-accrual loans, which
decreased $17.4 million, partly offset by an increase of
$10.9 million in business loans. At March 31, 2011,
non-accrual loans were comprised mainly of construction and land
real estate loans (45.4%), business loans (25.4%) and business
real estate loans (20.1%). Foreclosed real estate increased
$13.0 million to a balance of $25.1 million at
March 31, 2011. The overall increase of $5.7 million
in total non-performing assets was mainly related to one
construction loan participated to several other banks. The
balance of this loan totaled $6.0 million, net of
participated amounts of $5.9 million, and was on
non-accrual status. During the quarter, this loan was foreclosed
on, and the full fair value of the property ($11.9 million)
was transferred to foreclosed real estate, thus increasing total
non-performing assets by the participated amounts. The
participating banks interest in this property has been
recorded as a liability on the Companys balance sheet.
Total loans past due 90 days or more and still accruing
interest amounted to $18.7 million as of March 31,
2011, which decreased $1.7 million when compared to
December 31, 2010, resulting mainly from a decline in
consumer credit card loan delinquencies.
In addition to the non-performing and past due loans mentioned
above, the Company also has identified loans for which
management has concerns about the ability of the borrowers to
meet existing repayment terms. They are primarily classified as
substandard under the Companys internal rating system. The
loans are generally secured by either real estate or other
borrower assets, reducing the potential for loss should they
become non-performing. Although these loans are generally
identified as potential problem loans, they may never become
non-performing. Such loans totaled $259.3 million at
March 31, 2011 compared with $233.5 million at
December 31, 2010, resulting in an increase of
$25.8 million, or 11.1%. The rise was largely
47
due to an increase of $9.7 million in business loans,
$8.5 million in business real estate loans and
$6.4 million in construction and land real estate loans.
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|
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March 31
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|
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December 31
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
|
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Potential problem loans:
|
|
|
|
|
|
|
|
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Business
|
|
$
|
89,355
|
|
|
$
|
79,640
|
|
Real estate construction and land
|
|
|
57,949
|
|
|
|
51,589
|
|
Real estate business
|
|
|
102,535
|
|
|
|
94,063
|
|
Real estate personal
|
|
|
9,351
|
|