e10vq
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 September 30, 2008 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 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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Smaller reporting
company o
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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 November 3, 2008, the
registrant had outstanding 72,205,707 shares of its $5 par
value common stock, registrants only class of common stock.
Commerce
Bancshares, Inc. and Subsidiaries
Form 10-Q
2
PART I:
FINANCIAL
INFORMATION
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Item 1.
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FINANCIAL
STATEMENTS
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Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
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September 30
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December 31
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2008
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2007
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(Unaudited)
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(In thousands)
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ASSETS
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Loans
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$
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10,985,789
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$
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10,605,368
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Allowance for loan losses
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(156,031
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(133,586
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Net loans
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10,829,758
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10,471,782
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Loans held for sale
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392,697
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235,896
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Investment securities:
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Available for sale ($527,351,000 and $524,399,000 pledged in
2008 and 2007, respectively, to secure structured repurchase
agreements)
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3,659,488
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3,165,020
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Trading
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12,353
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26,478
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Non-marketable
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153,423
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105,517
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Total investment securities
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3,825,264
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3,297,015
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Federal funds sold and securities purchased under agreements to
resell
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457,295
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655,165
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Cash and due from banks
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496,970
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673,081
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Land, buildings and equipment, net
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409,676
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406,249
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Goodwill
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125,585
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124,570
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Other intangible assets, net
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18,299
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21,413
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Other assets
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397,856
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319,660
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Total assets
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$
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16,953,400
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$
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16,204,831
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LIABILITIES AND STOCKHOLDERS EQUITY
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Deposits:
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Non-interest bearing demand
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$
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1,187,334
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$
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1,413,849
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Savings, interest checking and money market
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7,451,845
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7,155,366
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Time open and C.D.s of less than $100,000
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2,018,444
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2,374,782
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Time open and C.D.s of $100,000 and over
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1,654,464
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1,607,555
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Total deposits
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12,312,087
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12,551,552
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Federal funds purchased and securities sold under agreements to
repurchase
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1,559,975
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1,239,219
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Other borrowings
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1,250,510
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583,639
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Other liabilities
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232,217
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302,735
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Total liabilities
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15,354,789
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14,677,145
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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, $5 par value
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Authorized 100,000,000 shares; issued
72,186,955 shares in 2008 71,938,743 shares in 2007
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360,935
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359,694
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Capital surplus
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482,441
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475,220
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Retained earnings
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760,145
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669,142
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Treasury stock of 3,779 shares in 2008 and
52,614 shares in 2007, at cost
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(161
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(2,477
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Accumulated other comprehensive income (loss)
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(4,749
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26,107
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Total stockholders equity
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1,598,611
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1,527,686
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Total liabilities and stockholders equity
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$
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16,953,400
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$
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16,204,831
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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 Ended September 30
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For the Nine Months Ended September 30
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(In thousands, except per share data)
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2008
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2007
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2008
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2007
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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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161,816
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$
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188,863
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$
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497,161
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$
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549,142
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Interest and fees on loans held for sale
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3,774
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5,049
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11,314
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17,314
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Interest on investment securities
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41,749
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38,011
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123,956
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112,800
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Interest on federal funds sold and securities purchased under
agreements to resell
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2,125
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6,351
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7,790
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20,093
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Total interest income
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209,464
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238,274
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640,221
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699,349
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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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14,802
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31,173
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49,769
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88,622
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Time open and C.D.s of less than $100,000
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16,128
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28,541
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61,855
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82,777
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Time open and C.D.s of $100,000 and over
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11,542
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18,812
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42,728
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55,291
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Interest on federal funds purchased and securities sold under
agreements to repurchase
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5,417
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20,277
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23,051
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64,021
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Interest on other borrowings
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10,011
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4,209
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26,368
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8,033
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Total interest expense
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57,900
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103,012
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203,771
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298,744
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Net interest income
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151,564
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135,262
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436,450
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400,605
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Provision for loan losses
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29,567
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11,455
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67,567
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28,670
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Net interest income after provision for loan losses
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121,997
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123,807
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368,883
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371,935
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NON-INTEREST INCOME
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Deposit account charges and other fees
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27,854
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30,148
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83,189
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86,740
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Bank card transaction fees
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29,317
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26,409
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85,019
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75,347
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Trust fees
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|
20,518
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|
|
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19,823
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|
|
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60,917
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|
|
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58,448
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Consumer brokerage services
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3,439
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|
|
|
3,056
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|
|
|
10,259
|
|
|
|
9,431
|
|
Trading account profits and commissions
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2,604
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|
|
|
2,174
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|
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9,951
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5,475
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Loan fees and sales
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1,594
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2,919
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|
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4,884
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|
|
6,916
|
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Other
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|
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10,267
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10,608
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|
|
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36,267
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|
|
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31,123
|
|
|
|
Total non-interest income
|
|
|
95,593
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|
|
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95,137
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290,486
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273,480
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INVESTMENT SECURITIES GAINS, NET
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1,149
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|
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|
1,562
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25,480
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|
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4,964
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NON-INTEREST EXPENSE
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Salaries and employee benefits
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83,766
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77,312
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250,023
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230,335
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Net occupancy
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11,861
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11,572
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34,735
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34,205
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Equipment
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6,122
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|
|
5,761
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|
18,273
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17,875
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Supplies and communication
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9,276
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|
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8,546
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|
26,545
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|
|
25,638
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Data processing and software
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14,229
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12,697
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41,951
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|
36,657
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Marketing
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4,926
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4,775
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|
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15,660
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|
13,952
|
|
Loss on purchase of auction rate securities
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|
|
32,967
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33,266
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Indemnification obligation
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|
2,879
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|
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(5,929
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)
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Other
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|
|
18,506
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|
|
|
18,430
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58,186
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|
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53,199
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|
|
|
Total non-interest expense
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|
|
184,532
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|
|
|
139,093
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472,710
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|
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411,861
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|
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Income before income taxes
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|
|
34,207
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|
|
|
81,413
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|
|
|
212,139
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|
|
|
238,518
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|
Less income taxes
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|
|
9,534
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|
|
|
25,515
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|
|
|
67,320
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|
|
|
75,550
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|
|
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NET INCOME
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|
$
|
24,673
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|
|
$
|
55,898
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|
|
$
|
144,819
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|
|
$
|
162,968
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|
|
|
Net income per share basic
|
|
$
|
.34
|
|
|
$
|
.78
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|
|
$
|
2.02
|
|
|
$
|
2.25
|
|
Net income per share diluted
|
|
$
|
.34
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|
|
$
|
.77
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|
|
$
|
2.00
|
|
|
$
|
2.22
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|
|
|
See accompanying notes to consolidated financial
statements.
4
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other
|
|
|
|
|
(In thousands,
|
|
Common
|
|
|
Capital
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
except per share data)
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance January 1, 2008
|
|
$
|
359,694
|
|
|
$
|
475,220
|
|
|
$
|
669,142
|
|
|
$
|
(2,477
|
)
|
|
$
|
26,107
|
|
|
$
|
1,527,686
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
144,819
|
|
|
|
|
|
|
|
|
|
|
|
144,819
|
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,856
|
)
|
|
|
(30,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,427
|
)
|
|
|
|
|
|
|
(8,427
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)
|
Issuance of stock under purchase and equity compensation plans
|
|
|
1,153
|
|
|
|
1,708
|
|
|
|
|
|
|
|
9,991
|
|
|
|
|
|
|
|
12,852
|
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
1,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,456
|
|
Stock-based compensation
|
|
|
|
|
|
|
4,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,897
|
|
Issuance of nonvested stock awards
|
|
|
88
|
|
|
|
(840
|
)
|
|
|
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.750 per share)
|
|
|
|
|
|
|
|
|
|
|
(54,003
|
)
|
|
|
|
|
|
|
|
|
|
|
(54,003
|
)
|
Adoption of SFAS 157 on fair value measurements
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
Adoption of EITF
06-4 on
accounting for split dollar life insurance policy benefits
|
|
|
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
Balance September 30, 2008
|
|
$
|
360,935
|
|
|
$
|
482,441
|
|
|
$
|
760,145
|
|
|
$
|
(161
|
)
|
|
$
|
(4,749
|
)
|
|
$
|
1,598,611
|
|
|
|
Balance January 1, 2007
|
|
$
|
352,330
|
|
|
$
|
427,421
|
|
|
$
|
683,176
|
|
|
$
|
(20,613
|
)
|
|
$
|
(200
|
)
|
|
$
|
1,442,114
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
162,968
|
|
|
|
|
|
|
|
|
|
|
|
162,968
|
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,620
|
|
|
|
13,620
|
|
Amortization of pension loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121,156
|
)
|
|
|
|
|
|
|
(121,156
|
)
|
Issuance of stock under purchase and equity compensation plans
|
|
|
|
|
|
|
(8,486
|
)
|
|
|
|
|
|
|
19,420
|
|
|
|
|
|
|
|
10,934
|
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
1,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,884
|
|
Stock-based compensation
|
|
|
|
|
|
|
4,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,609
|
|
Issuance of nonvested stock awards
|
|
|
|
|
|
|
(3,392
|
)
|
|
|
|
|
|
|
3,392
|
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.714 per share)
|
|
|
|
|
|
|
|
|
|
|
(51,811
|
)
|
|
|
|
|
|
|
|
|
|
|
(51,811
|
)
|
Common stock issued in South Tulsa Financial Corp. acquisition
|
|
|
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
27,917
|
|
|
|
|
|
|
|
27,614
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
Balance September 30, 2007
|
|
$
|
352,330
|
|
|
$
|
421,733
|
|
|
$
|
794,779
|
|
|
$
|
(91,040
|
)
|
|
$
|
13,764
|
|
|
$
|
1,491,566
|
|
|
|
See accompanying notes to consolidated financial
statements.
5
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(Unaudited)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
144,819
|
|
|
$
|
162,968
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
67,567
|
|
|
|
28,670
|
|
Provision for depreciation and amortization
|
|
|
37,991
|
|
|
|
39,072
|
|
Amortization of investment security premiums, net
|
|
|
4,143
|
|
|
|
5,684
|
|
Investment securities gains, net(A)
|
|
|
(25,480
|
)
|
|
|
(4,964
|
)
|
Gain on sale of branch
|
|
|
(6,938
|
)
|
|
|
|
|
Net gains on sales of loans held for sale
|
|
|
(2,544
|
)
|
|
|
(4,530
|
)
|
Originations of loans held for sale
|
|
|
(319,336
|
)
|
|
|
(317,164
|
)
|
Proceeds from sales of loans held for sale
|
|
|
164,824
|
|
|
|
296,652
|
|
Net (increase) decrease in trading securities
|
|
|
13,270
|
|
|
|
(4,702
|
)
|
Stock-based compensation
|
|
|
4,897
|
|
|
|
4,609
|
|
(Increase) decrease in interest receivable
|
|
|
10,161
|
|
|
|
(715
|
)
|
Increase (decrease) in interest payable
|
|
|
(33,957
|
)
|
|
|
11,136
|
|
Increase (decrease) in income taxes payable
|
|
|
(2,156
|
)
|
|
|
4,850
|
|
Net tax benefit related to equity compensation plans
|
|
|
(1,456
|
)
|
|
|
(1,884
|
)
|
Loss on purchase of auction rate securities
|
|
|
33,266
|
|
|
|
|
|
Other changes, net
|
|
|
(645
|
)
|
|
|
(20,802
|
)
|
|
|
Net cash provided by operating activities
|
|
|
88,426
|
|
|
|
198,880
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents paid in acquisitions
|
|
|
|
|
|
|
(14,046
|
)
|
Net cash paid in sale of branch
|
|
|
(54,490
|
)
|
|
|
|
|
Proceeds from sales of investment securities(A)
|
|
|
128,157
|
|
|
|
35,094
|
|
Proceeds from maturities/pay downs of investment securities(A)
|
|
|
1,146,089
|
|
|
|
871,118
|
|
Purchases of investment securities(A)
|
|
|
(1,869,250
|
)
|
|
|
(873,456
|
)
|
Net increase in loans
|
|
|
(448,842
|
)
|
|
|
(620,747
|
)
|
Purchases of land, buildings and equipment
|
|
|
(31,891
|
)
|
|
|
(42,623
|
)
|
Sales of land, buildings and equipment
|
|
|
493
|
|
|
|
4,186
|
|
|
|
Net cash used in investing activities
|
|
|
(1,129,734
|
)
|
|
|
(640,474
|
)
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in non-interest bearing demand, savings,
interest checking and money market deposits
|
|
|
653
|
|
|
|
(264,677
|
)
|
Net increase (decrease) in time open and C.D.s
|
|
|
(273,138
|
)
|
|
|
228,345
|
|
Net increase in federal funds purchased and securities sold
under agreements to repurchase
|
|
|
321,063
|
|
|
|
276,884
|
|
Additional long-term borrowings
|
|
|
375,000
|
|
|
|
300,000
|
|
Repayment of long-term borrowings
|
|
|
(8,126
|
)
|
|
|
(29,015
|
)
|
Net increase in short-term borrowings
|
|
|
299,997
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(8,427
|
)
|
|
|
(121,156
|
)
|
Issuance of stock under stock purchase and equity compensation
plans
|
|
|
12,852
|
|
|
|
10,934
|
|
Net tax benefit related to equity compensation plans
|
|
|
1,456
|
|
|
|
1,884
|
|
Cash dividends paid on common stock
|
|
|
(54,003
|
)
|
|
|
(51,811
|
)
|
|
|
Net cash provided by financing activities
|
|
|
667,327
|
|
|
|
351,388
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(373,981
|
)
|
|
|
(90,206
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,328,246
|
|
|
|
1,154,316
|
|
|
|
Cash and cash equivalents at September 30
|
|
$
|
954,265
|
|
|
$
|
1,064,110
|
|
|
|
(A) Available for sale and non-marketable securities
|
|
|
|
|
|
|
|
|
|
|
Income tax payments, net of refunds
|
|
$
|
70,248
|
|
|
$
|
69,487
|
|
Interest paid on deposits and borrowings
|
|
$
|
237,734
|
|
|
$
|
287,877
|
|
|
|
See accompanying notes to consolidated financial
statements.
6
Commerce
Bancshares, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008 (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 2007 data to conform to
current year presentation. 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 and nine month periods ended
September 30, 2008 are not necessarily indicative of
results to be attained for the full year or any other interim
periods.
The significant accounting policies followed in the preparation
of the quarterly financial statements are disclosed in the 2007
Annual Report on
Form 10-K.
|
|
2.
|
Acquisitions
and Dispositions
|
The Company completed the previously announced sale of its
banking branch in Independence, Kansas, in May 2008. In this
transaction, approximately $23.3 million in loans,
$85.0 million in deposits, and various other assets and
liabilities were sold. The Company paid $54.1 million in
cash, representing the net liabilities sold, and recorded a gain
of $6.9 million, representing the approximate premium paid
by the buyer.
During the second quarter of 2007, the Company acquired South
Tulsa Financial Corporation (South Tulsa). In this transaction,
the Company acquired the outstanding stock of South Tulsa and
issued shares of Company stock valued at $27.6 million. The
Companys acquisition of South Tulsa added
$142.4 million in assets and two branch locations in Tulsa,
Oklahoma. During the third quarter of 2007, the Company acquired
Commerce Bank in Denver, Colorado. In this transaction, the
Company acquired all of the outstanding stock of Commerce Bank
for $29.5 million in cash. The acquisition added
$123.9 million in assets and the Companys first
location in Colorado.
|
|
3.
|
Loans and
Allowance for Loan Losses
|
Major classifications within the Companys loan portfolio
at September 30, 2008 and December 31, 2007 are as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
December 31
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
Business
|
|
$
|
3,455,907
|
|
|
$
|
3,257,047
|
|
Real estate construction
|
|
|
680,089
|
|
|
|
668,701
|
|
Real estate business
|
|
|
2,335,495
|
|
|
|
2,239,846
|
|
Real estate personal
|
|
|
1,505,549
|
|
|
|
1,540,289
|
|
Consumer
|
|
|
1,704,051
|
|
|
|
1,648,072
|
|
Home equity
|
|
|
487,783
|
|
|
|
460,200
|
|
Consumer credit card
|
|
|
805,160
|
|
|
|
780,227
|
|
Overdrafts
|
|
|
11,755
|
|
|
|
10,986
|
|
|
|
Total loans
|
|
$
|
10,985,789
|
|
|
$
|
10,605,368
|
|
|
|
Included in the table above are impaired loans amounting to
$41.6 million at September 30, 2008 and
$19.7 million at December 31, 2007. A loan is impaired
when, based on current information and events, it is probable
that all amounts due under the contractual terms of the
agreement will not be collected.
7
The Companys portfolio of construction loans amounted to
6.2% of total loans outstanding at September 30, 2008. This
portfolio is comprised of land development, residential
construction and commercial construction loans, as shown in the
table that follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
September 30
|
|
|
|
|
|
December 31
|
|
|
|
|
(Dollars in thousands)
|
|
2008
|
|
|
% of Total
|
|
|
2007
|
|
|
% of Total
|
|
|
|
|
Land development
|
|
$
|
241,228
|
|
|
|
35.5
|
%
|
|
$
|
254,072
|
|
|
|
38.0
|
%
|
Residential construction
|
|
|
147,744
|
|
|
|
21.7
|
|
|
|
159,624
|
|
|
|
23.9
|
|
Commercial construction
|
|
|
291,117
|
|
|
|
42.8
|
|
|
|
255,005
|
|
|
|
38.1
|
|
|
|
Total real estate-construction loans
|
|
$
|
680,089
|
|
|
|
100.0
|
%
|
|
$
|
668,701
|
|
|
|
100.0
|
%
|
|
|
In addition to its basic portfolio, the Company originates other
loans which it intends to sell in secondary markets. Loans held
for sale are carried at the lower of cost or fair value, and
their carrying values were $392.7 million at
September 30, 2008 compared to $235.9 million at
December 31, 2007. These loans consist mainly of student
loans, amounting to $387.3 million at September 30,
2008, in addition to $5.4 million in certain fixed rate
residential mortgage loans. While most of the student loans are
currently being sold in accordance with contractual terms and
are carried at cost, an impairment loss of $367 thousand was
recorded on a small portion of these loans at September 30,
2008, as discussed further in Note 14 on Fair Value
Measurements.
The following is a summary of the allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30
|
|
|
For the Nine Months Ended September 30
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance, beginning of period
|
|
$
|
145,198
|
|
|
$
|
132,960
|
|
|
$
|
133,586
|
|
|
$
|
131,730
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses of acquired banks
|
|
|
|
|
|
|
629
|
|
|
|
|
|
|
|
1,857
|
|
Provision for loan losses
|
|
|
29,567
|
|
|
|
11,455
|
|
|
|
67,567
|
|
|
|
28,670
|
|
|
|
Total additions
|
|
|
29,567
|
|
|
|
12,084
|
|
|
|
67,567
|
|
|
|
30,527
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan losses
|
|
|
22,575
|
|
|
|
15,360
|
|
|
|
57,397
|
|
|
|
41,641
|
|
Less recoveries on loans
|
|
|
3,841
|
|
|
|
3,904
|
|
|
|
12,275
|
|
|
|
12,972
|
|
|
|
Net loan losses
|
|
|
18,734
|
|
|
|
11,456
|
|
|
|
45,122
|
|
|
|
28,669
|
|
|
|
Balance, September 30
|
|
$
|
156,031
|
|
|
$
|
133,588
|
|
|
$
|
156,031
|
|
|
$
|
133,588
|
|
|
|
8
Investment securities, at fair value, consist of the following
at September 30, 2008 and December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
December 31
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
8,246
|
|
|
$
|
7,117
|
|
Government-sponsored enterprise obligations
|
|
|
97,808
|
|
|
|
353,200
|
|
State and municipal obligations
|
|
|
1,059,450
|
|
|
|
503,363
|
|
Mortgage-backed securities
|
|
|
2,192,112
|
|
|
|
1,960,120
|
|
Other asset-backed securities
|
|
|
243,795
|
|
|
|
180,365
|
|
Other debt securities
|
|
|
100
|
|
|
|
21,327
|
|
Equity securities
|
|
|
57,977
|
|
|
|
139,528
|
|
|
|
Total available for sale
|
|
|
3,659,488
|
|
|
|
3,165,020
|
|
|
|
Trading
|
|
|
12,353
|
|
|
|
26,478
|
|
Non-marketable
|
|
|
153,423
|
|
|
|
105,517
|
|
|
|
Total investment securities
|
|
$
|
3,825,264
|
|
|
$
|
3,297,015
|
|
|
|
Available for sale equity securities included short-term
investments in mutual funds of $1.4 million at
September 30, 2008 and $58.9 million at
December 31, 2007. Equity securities also included common
and preferred stock held by Commerce Bancshares, Inc. (the
Parent) with a fair value of $56.6 million at
September 30, 2008 and $62.2 million at
December 31, 2007.
As previously announced in Current Report on
Form 8-K
dated August 15, 2008, in the third quarter of 2008 the
Company began a purchase program of auction rate securities
(ARS) from its customers, resulting in the purchase of
$529.9 million at par value. These investments were
recorded at fair value on their purchase date, and the amount by
which par value exceeded fair value was recorded as a
$33.0 million loss in current earnings during the third
quarter of 2008. The program was intended to assist customers
with cash flow needs arising from the current illiquidity in the
ARS market. ARS are long-term variable rate bonds which are tied
to short-term interest rates. In a normal market ARS are sold
through a competitive bidding process, or auction, occurring at
weekly or monthly intervals. However, in February 2008, auctions
for these bonds began to fail as issues within the broader
markets disrupted the ARS market. Currently, there is little, if
any, auction activity for these bonds. The underlying credit
quality of the ARS remains investment grade and interest is
being paid at the maximum failed auction rates. The purchase
program was complete at September 30, 2008, as the Company
had repurchased all such securities it originally sold. At
September 30, 2008, the Companys holdings of ARS
amounted to $510.0 million at fair value, which included
$409.5 million secured by government guaranteed student
loans. These investments are included in the state and municipal
obligations category in the table above.
Non-marketable securities included Federal Home Loan Bank (FHLB)
stock and Federal Reserve Bank stock held for debt and
regulatory purposes, which totaled $95.4 million and
$60.2 million at September 30, 2008 and
December 31, 2007, respectively. Most of the increase over
year end totals was due to higher required holdings of FHLB
stock, tied to higher borrowings from the FHLB. Also included
were venture capital and private equity investments, which
amounted to $58.0 million and $45.3 million at
September 30, 2008 and December 31, 2007,
respectively. During the first nine months of 2008 and 2007, net
gains of $5.7 million and $4.2 million, respectively,
were recognized on venture capital and private equity
investments. The net gains consisted of both realized gains and
losses and fair value adjustments on these investments.
At September 30, 2008, securities carried at
$2.4 billion were pledged to secure public fund deposits,
securities sold under agreements to repurchase, trust funds, and
borrowing capacity at the Federal Reserve Bank. Securities
pledged under agreements pursuant to which the collateral may be
sold or re-pledged by the secured parties approximated
$527.4 million, while the remaining securities were pledged
under agreements pursuant to which the secured parties may not
sell or re-pledge the collateral.
9
|
|
5.
|
Goodwill
and Other Intangible Assets
|
The following table presents information about the
Companys intangible assets which have estimable useful
lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit premium
|
|
$
|
25,720
|
|
|
$
|
(8,363
|
)
|
|
$
|
17,357
|
|
|
$
|
25,720
|
|
|
$
|
(5,182
|
)
|
|
$
|
20,538
|
|
Mortgage servicing rights
|
|
|
1,768
|
|
|
|
(826
|
)
|
|
|
942
|
|
|
|
1,556
|
|
|
|
(681
|
)
|
|
|
875
|
|
|
|
Total
|
|
$
|
27,488
|
|
|
$
|
(9,189
|
)
|
|
$
|
18,299
|
|
|
$
|
27,276
|
|
|
$
|
(5,863
|
)
|
|
$
|
21,413
|
|
|
|
Aggregate amortization expense on intangible assets was
$1.1 million and $1.3 million, respectively, for the
three month periods ended September 30, 2008 and 2007, and
$3.3 million and $3.1 million for the nine month
periods ended September 30, 2008 and 2007. 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
September 30, 2008. 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, pre-payment rates and other
market conditions.
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
2008
|
|
$
|
4,330
|
|
2009
|
|
|
3,803
|
|
2010
|
|
|
3,290
|
|
2011
|
|
|
2,776
|
|
2012
|
|
|
2,244
|
|
|
|
Changes in the carrying amount of goodwill and net other
intangible assets for the nine month period ended
September 30, 2008 are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Core Deposit
|
|
|
Servicing
|
|
(In thousands)
|
|
Goodwill
|
|
|
Premium
|
|
|
Rights
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
124,570
|
|
|
$
|
20,538
|
|
|
$
|
875
|
|
Originations
|
|
|
|
|
|
|
|
|
|
|
212
|
|
Adjustments to prior year acquisitions
|
|
|
1,293
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(3,181
|
)
|
|
|
(145
|
)
|
Other
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
$
|
125,585
|
|
|
$
|
17,357
|
|
|
$
|
942
|
|
|
|
Changes in the carrying amount of goodwill by operating segment
for the nine month period ended September 30, 2008 are as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Money Management
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Goodwill
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
67,653
|
|
|
$
|
56,171
|
|
|
$
|
746
|
|
|
$
|
124,570
|
|
|
|
|
|
Adjustments to 2007 acquisitions
|
|
|
259
|
|
|
|
1,034
|
|
|
|
|
|
|
|
1,293
|
|
|
|
|
|
Other
|
|
|
(147
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
(278
|
)
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
$
|
67,765
|
|
|
$
|
57,074
|
|
|
$
|
746
|
|
|
$
|
125,585
|
|
|
|
|
|
|
|
10
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 September 30, 2008, that net liability was
$3.6 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
$421.1 million at September 30, 2008.
The Company guarantees payments to holders of certain trust
preferred securities issued by two wholly owned grantor trusts.
Preferred securities issued by Breckenridge Capital
Trust I, amounting to $4.0 million, are due in 2030
and may be redeemed beginning in 2010. These securities have a
10.875% interest rate throughout their term. Securities issued
by West Pointe Statutory Trust I, amounting to
$10.0 million, are due in 2034 and may be redeemed
beginning in 2009. These securities have a variable interest
rate, which was 5.069% at September 30, 2008. The rate is
based on LIBOR, and resets on a quarterly basis. The maximum
potential future payments guaranteed by the Company on the two
issues, which includes future interest and principal payments
through maturity, were estimated to be approximately
$36.6 million at September 30, 2008. At
September 30, 2008, the Company had a recorded liability of
$14.1 million in principal and accrued interest to date,
representing amounts owed to the security holders of the two
issues.
In 2007, the Company entered into several risk participation
agreements (RPAs) as guarantor to other financial institutions,
which mitigate those institutions credit risk arising from
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 institution. The Companys exposure is based on swap
notional amounts totaling $31.0 million. At the inception
of each contract, the Company received a fee from the
institution which was recorded as a liability representing the
fair value of the RPA. Any future changes in fair value,
including those due to a change in the third partys
creditworthiness, are recorded in current earnings. At
September 30, 2008, the total liability relating to RPAs
guaranteed by the Company was $186 thousand. 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 September 30,
2008, the Company would have been required to make payments of
approximately $1.5 million.
As a result of an overall reorganization among Visa, Inc. (Visa)
and its affiliates in 2007, the Company has recorded a
commitment to share certain estimated litigation costs of Visa.
At September 30, 2008, the Companys indemnification
obligation relating to this commitment totaled
$15.0 million. This amount represents the Companys
estimate of its share of certain litigation costs in excess of a
cash escrow established in connection with Visas initial
public offering in March 2008. The escrow account is expected to
be replenished in the fourth quarter of 2008, and in that event,
the Companys liability would be reversed to the extent of
its share of the replenishment.
11
The amount of net pension cost (income) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Service cost benefits earned during the period
|
|
$
|
263
|
|
|
$
|
248
|
|
|
$
|
769
|
|
|
$
|
743
|
|
Interest cost on projected benefit obligation
|
|
|
1,337
|
|
|
|
1,145
|
|
|
|
3,925
|
|
|
|
3,436
|
|
Expected return on plan assets
|
|
|
(2,124
|
)
|
|
|
(1,705
|
)
|
|
|
(6,124
|
)
|
|
|
(5,115
|
)
|
Amortization of unrecognized net loss
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
555
|
|
|
|
Net periodic pension cost (income)
|
|
$
|
(524
|
)
|
|
$
|
(127
|
)
|
|
$
|
(1,430
|
)
|
|
$
|
(381
|
)
|
|
|
Substantially all benefits under the Companys defined
benefit pension plan were frozen effective January 1, 2005.
During the first nine months of 2008, 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
2008. The higher income recognized for the defined benefit
pension plan in the three and nine month periods ended
September 30, 2008 compared to the same periods in 2007 was
primarily due to the greater than expected return on plan assets
for the year ended September 30, 2007 (the measurement
date) and an increase in the discount rate assumption.
Statement of Financial Accounting Standards No. 158, which
the Company adopted on December 31, 2006, requires
measurement of plan assets and benefit obligations as of fiscal
year end, beginning in 2008. The Company intends to make this
adjustment on December 31, 2008 and does not expect it to
have a material effect on its consolidated financial statements.
Presented below is a summary of the components used to calculate
basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
(In thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
24,673
|
|
|
$
|
55,898
|
|
|
$
|
144,819
|
|
|
$
|
162,968
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
71,863
|
|
|
|
71,919
|
|
|
|
71,769
|
|
|
|
72,589
|
|
Basic earnings per share
|
|
$
|
.34
|
|
|
$
|
.78
|
|
|
$
|
2.02
|
|
|
$
|
2.25
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
24,673
|
|
|
$
|
55,898
|
|
|
$
|
144,819
|
|
|
$
|
162,968
|
|
|
|
Weighted average common shares outstanding
|
|
|
71,863
|
|
|
|
71,919
|
|
|
|
71,769
|
|
|
|
72,589
|
|
Net effect of nonvested stock and the assumed exercise of
stock-based awards based on the treasury stock
method using the average market price for the respective periods
|
|
|
682
|
|
|
|
788
|
|
|
|
691
|
|
|
|
838
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
72,545
|
|
|
|
72,707
|
|
|
|
72,460
|
|
|
|
73,427
|
|
|
|
Diluted earnings per share
|
|
$
|
.34
|
|
|
$
|
.77
|
|
|
$
|
2.00
|
|
|
$
|
2.22
|
|
|
|
12
|
|
9.
|
Other
Comprehensive Income (Loss)
|
The Companys components of other comprehensive income
(loss) consist of the unrealized holding gains and losses on
available for sale investment securities and the amortization of
accumulated pension loss which has been recognized in net
periodic benefit cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Available for sale investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses)
|
|
$
|
(32,819
|
)
|
|
$
|
33,890
|
|
|
$
|
(52,131
|
)
|
|
$
|
22,755
|
|
Reclassification adjustment for (gains) losses included in net
income
|
|
|
1
|
|
|
|
(678
|
)
|
|
|
2,366
|
|
|
|
(753
|
)
|
|
|
Net unrealized gains (losses) on securities
|
|
|
(32,818
|
)
|
|
|
33,212
|
|
|
|
(49,765
|
)
|
|
|
22,002
|
|
Income tax expense (benefit)
|
|
|
(12,469
|
)
|
|
|
12,621
|
|
|
|
(18,909
|
)
|
|
|
8,382
|
|
|
|
Net holding gains (losses) on investment securities
|
|
|
(20,349
|
)
|
|
|
20,591
|
|
|
|
(30,856
|
)
|
|
|
13,620
|
|
|
|
Prepaid pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of accumulated pension loss
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
555
|
|
Income tax benefit
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
(211
|
)
|
|
|
Accumulated pension loss
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
344
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
(20,349
|
)
|
|
$
|
20,706
|
|
|
$
|
(30,856
|
)
|
|
$
|
13,964
|
|
|
|
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments. The Consumer segment includes the retail
branch network, consumer finance, bank card, student loans and
discount brokerage services. The Commercial segment provides
corporate lending, leasing, and international services, as well
as business, government deposit and cash management services.
The Money Management segment provides traditional trust and
estate tax planning services, and advisory and discretionary
investment management services.
13
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Management
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Three Months Ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
90,152
|
|
|
$
|
48,792
|
|
|
$
|
2,008
|
|
|
$
|
140,952
|
|
|
$
|
10,612
|
|
|
$
|
151,564
|
|
Provision for loan losses
|
|
|
(15,100
|
)
|
|
|
(3,493
|
)
|
|
|
|
|
|
|
(18,593
|
)
|
|
|
(10,974
|
)
|
|
|
(29,567
|
)
|
Non-interest income
|
|
|
45,737
|
|
|
|
24,092
|
|
|
|
24,372
|
|
|
|
94,201
|
|
|
|
1,392
|
|
|
|
95,593
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
|
|
1,149
|
|
Non-interest expense
|
|
|
(82,107
|
)
|
|
|
(42,206
|
)
|
|
|
(50,809
|
)
|
|
|
(175,122
|
)
|
|
|
(9,410
|
)
|
|
|
(184,532
|
)
|
|
|
Income (loss) before income taxes
|
|
$
|
38,682
|
|
|
$
|
27,185
|
|
|
$
|
(24,429
|
)
|
|
$
|
41,438
|
|
|
$
|
(7,231
|
)
|
|
$
|
34,207
|
|
|
|
Three Months Ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
86,477
|
|
|
$
|
48,668
|
|
|
$
|
1,894
|
|
|
$
|
137,039
|
|
|
$
|
(1,777
|
)
|
|
$
|
135,262
|
|
Provision for loan losses
|
|
|
(8,074
|
)
|
|
|
(3,398
|
)
|
|
|
|
|
|
|
(11,472
|
)
|
|
|
17
|
|
|
|
(11,455
|
)
|
Non-interest income
|
|
|
49,546
|
|
|
|
21,470
|
|
|
|
23,228
|
|
|
|
94,244
|
|
|
|
893
|
|
|
|
95,137
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562
|
|
|
|
1,562
|
|
Non-interest expense
|
|
|
(78,101
|
)
|
|
|
(39,482
|
)
|
|
|
(16,301
|
)
|
|
|
(133,884
|
)
|
|
|
(5,209
|
)
|
|
|
(139,093
|
)
|
|
|
Income (loss) before income taxes
|
|
$
|
49,848
|
|
|
$
|
27,258
|
|
|
$
|
8,821
|
|
|
$
|
85,927
|
|
|
$
|
(4,514
|
)
|
|
$
|
81,413
|
|
|
|
Nine Months Ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
260,379
|
|
|
$
|
153,746
|
|
|
$
|
5,454
|
|
|
$
|
419,579
|
|
|
$
|
16,871
|
|
|
$
|
436,450
|
|
Provision for loan losses
|
|
|
(39,426
|
)
|
|
|
(5,814
|
)
|
|
|
|
|
|
|
(45,240
|
)
|
|
|
(22,327
|
)
|
|
|
(67,567
|
)
|
Non-interest income
|
|
|
133,028
|
|
|
|
72,137
|
|
|
|
75,135
|
|
|
|
280,300
|
|
|
|
10,186
|
|
|
|
290,486
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,480
|
|
|
|
25,480
|
|
Non-interest expense
|
|
|
(241,907
|
)
|
|
|
(127,171
|
)
|
|
|
(85,862
|
)
|
|
|
(454,940
|
)
|
|
|
(17,770
|
)
|
|
|
(472,710
|
)
|
|
|
Income (loss) before income taxes
|
|
$
|
112,074
|
|
|
$
|
92,898
|
|
|
$
|
(5,273
|
)
|
|
$
|
199,699
|
|
|
$
|
12,440
|
|
|
$
|
212,139
|
|
|
|
Nine Months Ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
257,729
|
|
|
$
|
144,018
|
|
|
$
|
5,716
|
|
|
$
|
407,463
|
|
|
$
|
(6,858
|
)
|
|
$
|
400,605
|
|
Provision for loan losses
|
|
|
(24,007
|
)
|
|
|
(4,606
|
)
|
|
|
|
|
|
|
(28,613
|
)
|
|
|
(57
|
)
|
|
|
(28,670
|
)
|
Non-interest income
|
|
|
137,992
|
|
|
|
62,342
|
|
|
|
67,794
|
|
|
|
268,128
|
|
|
|
5,352
|
|
|
|
273,480
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,964
|
|
|
|
4,964
|
|
Non-interest expense
|
|
|
(228,071
|
)
|
|
|
(117,670
|
)
|
|
|
(47,858
|
)
|
|
|
(393,599
|
)
|
|
|
(18,262
|
)
|
|
|
(411,861
|
)
|
|
|
Income (loss) before income taxes
|
|
$
|
143,643
|
|
|
$
|
84,084
|
|
|
$
|
25,652
|
|
|
$
|
253,379
|
|
|
$
|
(14,861
|
)
|
|
$
|
238,518
|
|
|
|
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.
Management periodically makes changes to methods of assigning
costs and income to its business segments to better reflect
operating results. Beginning in 2008, modifications were made to
the funds transfer pricing process which eliminated allocations
to net interest income for capital. This change was also
reflected in the prior year information presented above.
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.
14
|
|
11.
|
Derivative
Instruments
|
The Companys interest rate risk management strategy
includes the ability to modify the re-pricing characteristics of
certain assets and liabilities so that changes in interest rate
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 September 30, 2008, the Company had entered
into two interest rate swaps with a notional amount of
$12.5 million, which are designated as fair value hedges of
certain fixed rate loans. The Company also sells swap contracts
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
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 net income. The
notional amount of these types of swaps at September 30,
2008 was $467.9 million. These swaps are accounted for as
free-standing derivatives and changes in their fair value were
recorded in other non-interest income. The Company is party to
master netting arrangements with its institutional
counterparties; however, the effect of offsetting assets and
liabilities under these arrangements is not significant.
Collateral exchanges typically involve marketable securities.
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.
Effective January 1, 2008, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements. This Statement modified the accounting
for initial recognition of fair value for certain interest rate
swap contracts held by the Company. Former accounting guidance
precluded immediate recognition in earnings of an unrealized
gain or loss, measured as the difference between the transaction
price and fair value of these instruments at initial
recognition. This former guidance was nullified by
SFAS No. 157, which allows for the immediate
recognition of a gain or loss under certain circumstances. In
accordance with the new recognition requirements, the Company
increased equity by $903 thousand on January 1, 2008 to
reflect the swaps at fair value as defined by
SFAS No. 157.
The Companys derivative instruments are listed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Positive
|
|
|
Negative
|
|
|
|
|
|
Positive
|
|
|
Negative
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
|
Interest rate swaps
|
|
$
|
480,424
|
|
|
$
|
7,304
|
|
|
$
|
(7,883
|
)
|
|
$
|
308,361
|
|
|
$
|
4,766
|
|
|
$
|
(6,333
|
)
|
Credit risk participation agreements
|
|
|
48,911
|
|
|
|
124
|
|
|
|
(186
|
)
|
|
|
25,389
|
|
|
|
|
|
|
|
(174
|
)
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
6,821
|
|
|
|
128
|
|
|
|
(112
|
)
|
|
|
12,212
|
|
|
|
105
|
|
|
|
(149
|
)
|
Option contracts
|
|
|
3,300
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
3,120
|
|
|
|
9
|
|
|
|
(9
|
)
|
Mortgage loan commitments
|
|
|
5,336
|
|
|
|
57
|
|
|
|
(3
|
)
|
|
|
7,123
|
|
|
|
18
|
|
|
|
(10
|
)
|
Mortgage loan forward sale contracts
|
|
|
10,452
|
|
|
|
24
|
|
|
|
(36
|
)
|
|
|
15,017
|
|
|
|
25
|
|
|
|
(34
|
)
|
|
|
Total
|
|
$
|
555,244
|
|
|
$
|
7,638
|
|
|
$
|
(8,221
|
)
|
|
$
|
371,222
|
|
|
$
|
4,923
|
|
|
$
|
(6,709
|
)
|
|
|
15
For the third quarter of 2008, income tax expense amounted to
$9.5 million compared to $25.5 million in the third
quarter of 2007. The effective income tax rate for the Company
was 27.9% in the current quarter compared to 31.3% in the same
quarter last year. For the nine months ended September 30,
2008 and 2007, income tax expense amounted to $67.3 million
and $75.6 million, resulting in an effective income tax
rate of 31.7% in both periods.
The Company and its subsidiaries are subject to
U.S. federal income tax as well as income tax of multiple
state and local jurisdictions. Tax years 2005 through 2007
remain open to examination for U.S. federal income tax. Tax
years 2004 through 2007 remain open to examination by
significant state tax jurisdictions.
|
|
13.
|
Stock-Based
Compensation
|
During the first nine months of 2008, stock-based compensation
was issued in the form of stock appreciation rights (SARs) and
nonvested stock. The stock-based compensation expense that has
been charged against income was $1.6 million for each of
the three month periods ended September 30, 2008 and 2007,
and $4.9 million and $4.6 million in the nine months
ended September 30, 2008 and 2007, respectively.
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. 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 were granted for the first time
in 2006, 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. The table below shows the fair values of SARs granted
during the first nine months of 2008 and 2007, including the
model assumptions for those grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
Ended September 30
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
Weighted per share average fair value at grant date
|
|
|
$8.69
|
|
|
|
|
$11.96
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
2.3
|
%
|
|
|
|
1.9
|
%
|
|
Volatility
|
|
|
18.4
|
%
|
|
|
|
19.9
|
%
|
|
Risk-free interest rate
|
|
|
3.5
|
%
|
|
|
|
4.6
|
%
|
|
Expected term
|
|
|
7.2 years
|
|
|
|
|
7.4 years
|
|
|
|
|
A summary of option activity during the first nine months of
2008 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, 2008
|
|
|
2,864,415
|
|
|
$
|
32.40
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(302
|
)
|
|
|
39.03
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(478,909
|
)
|
|
|
28.01
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
2,385,204
|
|
|
$
|
33.28
|
|
|
|
4.1 years
|
|
|
$
|
31,289
|
|
|
|
16
A summary of SAR activity during the first nine months of 2008
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, 2008
|
|
|
979,063
|
|
|
$
|
47.05
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
562,501
|
|
|
|
44.23
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,194
|
)
|
|
|
45.57
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,000
|
)
|
|
|
46.85
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,604
|
)
|
|
|
46.84
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
1,528,766
|
|
|
$
|
46.02
|
|
|
|
8.4 years
|
|
|
$
|
1,216
|
|
|
|
A summary of the status of the Companys nonvested share
awards, as of September 30, 2008, and changes during the
nine month period then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Nonvested at January 1, 2008
|
|
|
226,124
|
|
|
$
|
42.04
|
|
|
|
Granted
|
|
|
36,665
|
|
|
|
44.17
|
|
Vested
|
|
|
(42,786
|
)
|
|
|
34.55
|
|
Forfeited
|
|
|
(1,497
|
)
|
|
|
41.81
|
|
|
|
Nonvested at September 30, 2008
|
|
|
218,506
|
|
|
$
|
43.87
|
|
|
|
|
|
14.
|
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
venture capital/private equity activities, and derivatives are
recorded at fair value on a recurring basis. Additionally, from
time to time, the Company may 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 market
accounting, or write-downs of individual assets.
Effective January 1, 2008, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements. Under SFAS No. 157, fair
value is defined as 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, which are in accordance with SFAS No. 157.
SFAS No. 157 establishes a three-level valuation
hierarchy for disclosure of fair value measurements. 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, and inputs that are observable for the assets or
liabilities, either directly or indirectly (such as interest
rates, yield curves, and prepayment speeds).
|
17
|
|
|
|
|
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 market observable 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.
The following disclosures exclude certain nonfinancial assets
and liabilities which are deferred under the provisions of FASB
Staff Position
157-2. These
include foreclosed real estate, long-lived assets, goodwill, and
core deposit premium, which are written down to fair value upon
impairment. The FASBs deferral is intended to allow
additional time to consider the effect of various implementation
issues relating to these nonfinancial instruments, and defers
disclosures under SFAS No. 157 until fiscal periods
beginning after December 31, 2008.
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
Available for sale securities are accounted for in accordance
with SFAS 115, with changes in fair value recorded in other
comprehensive income. This portfolio comprises the majority of
the assets which the Company records at fair value. Most of the
portfolio, which includes federal agencies, mortgage-backed and
asset-backed securities, are priced utilizing industry-standard
models that consider various assumptions, include 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. Municipal and
corporate securities are valued using a type of matrix, or grid,
pricing in which securities are benchmarked against the treasury
rate based on credit rating. These model and matrix 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 exchange-traded equities.
At September 30, 2008, the Company held certain auction
rate securities (ARS) in its available for sale portfolio,
totaling $510.0 million, or 13.9% of the portfolio. Nearly
all of these securities were purchased from customers during the
third quarter of 2008. The auction process by which the ARS are
normally priced has failed since the first quarter of 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 currently estimated using a discounted
cash flows analysis. The analysis compares the present value of
cash flows based on mandatory rates paid under failing auctions
with the present value of estimated cash flows for similar
securities, after adjustment for liquidity premium and
nonperformance risk. The cash flows for most issues were
projected over a period of approximately 3 years, based on
the Companys estimate of an expected market recovery
period, or in some cases, a shorter period if refinancing by
specific issuers is expected. The discount rate was based on the
published Treasury rate for the period commensurate with the
estimated holding period. In developing the inputs, discussions
were held with traders, both internal and external to the
Company, who are familiar with the ARS markets. Because many of
the inputs significant to the measurement are not observable,
these measurements are classified as Level 3 measurements.
18
Trading
securities
The majority of the securities in the Companys trading
portfolio are priced by averaging several broker quotes for
identical instruments, and are classified as Level 2
measurements. During most of 2008, this portfolio also included
certain auction rate securities, whose fair value measurement
was classified as Level 3 and estimated in the manner
described above. In the third quarter of 2008 these securities
were transferred to the available for sale portfolio, as their
decline in marketability made the likelihood of selling these in
the near term more remote. The securities were transferred at
their fair value, which was estimated to be $7.7 million on
the transfer date. Prior to their transfer a loss in fair value,
totaling $695 thousand, was recorded in current earnings.
Venture
capital/private equity securities
These securities are held by the 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 venture
companies of similar size. The multiples are considered in
conjunction with current operating performance, future
expectations, financing and sales transactions, and other
company-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 minimal holdings of liabilities related to
credit risk guarantees, as discussed in Note 6, are valued
under an internally developed methodology 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 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 also
recorded a corresponding nonfinancial liability, representing
the Companys liability to the plan participants.
19
The table below presents the carrying values of assets and
liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting
|
|
|
|
|
|
|
Date Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(In thousands)
|
|
9/30/08
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
3,659,488
|
|
|
$
|
32,574
|
|
|
$
|
3,116,888
|
|
|
$
|
510,026
|
|
Trading securities
|
|
|
12,353
|
|
|
|
|
|
|
|
12,353
|
|
|
|
|
|
Venture capital investments
|
|
|
51,961
|
|
|
|
|
|
|
|
|
|
|
|
51,961
|
|
Derivatives
|
|
|
7,638
|
|
|
|
|
|
|
|
7,433
|
|
|
|
205
|
|
Assets held in trust
|
|
|
2,777
|
|
|
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
3,734,217
|
|
|
|
35,351
|
|
|
|
3,136,674
|
|
|
|
562,192
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
8,221
|
|
|
|
|
|
|
|
7,996
|
|
|
|
225
|
|
|
|
Total liabilities
|
|
$
|
8,221
|
|
|
$
|
|
|
|
$
|
7,996
|
|
|
$
|
225
|
|
|
|
20
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)
|
|
|
|
Available
|
|
|
|
|
|
Venture
|
|
|
|
|
|
|
|
|
|
for Sale
|
|
|
Trading
|
|
|
Capital
|
|
|
|
|
|
|
|
(In thousands)
|
|
Securities
|
|
|
Securities
|
|
|
Investments
|
|
|
Derivatives
|
|
|
Total
|
|
|
|
|
For the three months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
9,682
|
|
|
$
|
8,122
|
|
|
$
|
48,374
|
|
|
$
|
12
|
|
|
$
|
66,190
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(402
|
)
|
|
|
1,176
|
|
|
|
(126
|
)
|
|
|
648
|
|
Included in other comprehensive income
|
|
|
(4,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,380
|
)
|
Purchases, issuances, and settlements, net
|
|
|
497,004
|
|
|
|
|
|
|
|
2,411
|
|
|
|
94
|
|
|
|
499,509
|
|
Transfer from trading to available for sale
|
|
|
7,720
|
|
|
|
(7,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
$
|
510,026
|
|
|
$
|
|
|
|
$
|
51,961
|
|
|
$
|
(20
|
)
|
|
$
|
561,967
|
|
|
|
Total gains or losses for the three month period included in
earnings attributable to the change in unrealized gains or
losses relating to assets still held at September 30, 2008
|
|
$
|
(402
|
)
|
|
$
|
|
|
|
$
|
1,176
|
|
|
$
|
46
|
|
|
$
|
820
|
|
|
|
For the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,603
|
|
|
$
|
(175
|
)
|
|
$
|
37,428
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(695
|
)
|
|
|
5,676
|
|
|
|
61
|
|
|
|
5,042
|
|
Included in other comprehensive income
|
|
|
(4,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,410
|
)
|
Purchases, issuances, and settlements, net
|
|
|
506,716
|
|
|
|
|
|
|
|
8,682
|
|
|
|
94
|
|
|
|
515,492
|
|
Transfer from trading to available for sale
|
|
|
7,720
|
|
|
|
(7,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
8,415
|
|
|
|
|
|
|
|
|
|
|
|
8,415
|
|
|
|
Balance at September 30, 2008
|
|
$
|
510,026
|
|
|
$
|
|
|
|
$
|
51,961
|
|
|
$
|
(20
|
)
|
|
$
|
561,967
|
|
|
|
Total gains or losses for the nine month period included in
earnings attributable to the change in unrealized gains or
losses relating to assets still held at September 30, 2008
|
|
$
|
(695
|
)
|
|
$
|
|
|
|
$
|
5,676
|
|
|
$
|
59
|
|
|
$
|
5,040
|
|
|
|
21
Gains and losses on the Level 3 assets and liabilities in
the table above are reported in the following income categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on
|
|
|
Account
|
|
|
|
|
|
Other
|
|
|
Investment
|
|
|
|
|
|
|
Investment
|
|
|
Profits and
|
|
|
Loan Fees
|
|
|
Non-Interest
|
|
|
Securities
|
|
|
|
|
(In thousands)
|
|
Securities
|
|
|
Commissions
|
|
|
and Sales
|
|
|
Income
|
|
|
Gains, Net
|
|
|
Total
|
|
|
|
|
For the three months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses included in earnings
|
|
$
|
|
|
|
$
|
(402
|
)
|
|
$
|
(130
|
)
|
|
$
|
4
|
|
|
$
|
1,176
|
|
|
$
|
648
|
|
|
|
Change in unrealized gains or losses relating to assets still
held at September 30, 2008
|
|
$
|
|
|
|
$
|
(402
|
)
|
|
$
|
42
|
|
|
$
|
4
|
|
|
$
|
1,176
|
|
|
$
|
820
|
|
|
|
For the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses included in earnings
|
|
$
|
(99
|
)
|
|
$
|
(695
|
)
|
|
$
|
44
|
|
|
$
|
17
|
|
|
$
|
5,775
|
|
|
$
|
5,042
|
|
|
|
Change in unrealized gains or losses relating to assets still
held at September 30, 2008
|
|
$
|
(99
|
)
|
|
$
|
(695
|
)
|
|
$
|
42
|
|
|
$
|
17
|
|
|
$
|
5,775
|
|
|
$
|
5,040
|
|
|
|
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 instruments measured at
fair value on a nonrecurring basis.
Collateral
dependent impaired loans
While the overall loan portfolio is not carried at fair value,
adjustments are recorded on certain loans to reflect partial
write-downs that are based on the value of the underlying
collateral. 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. The carrying value of these impaired
loans was $41.6 million at September 30, 2008.
Charge-offs on impaired loans were $2.4 million during the
current quarter and $6.2 million during the nine month
period ending September 30, 2008, while their related
allowance was $81 thousand higher at September 30, 2008
compared to December 31, 2007.
Private
equity investments and restricted stock
These assets are included in non-marketable investment
securities in the consolidated balance sheets. They include
private equity investments held by the Parent company which are
carried at cost, reduced by other than temporary impairment.
These investments are periodically evaluated for impairment
based on their estimated fair value. The valuation methodology
is described above under the recurring measurements for
Venture capital/private equity securities. Also
included is stock issued by the Federal Reserve and Federal Home
Loan Banks which is held by the bank subsidiaries as required
for regulatory purposes. There are generally restrictions on the
sale and/or
liquidation of these investments, and their carrying value
approximates fair value. Fair value measurements for these
securities are classified as Level 3. Fair value
adjustments recorded during 2008 were not significant.
22
Loans
held for sale
Loans held for sale are carried at the lower of cost or market
value. The portfolio consists primarily of student loans, and to
a lesser extent, residential real estate loans. In the absence
of quoted prices, the fair value of student loans held for sale
is based on specific prices mandated in underlying sale
contracts with investors in the secondary market. As such, these
measurements are classified as Level 2. Beginning early in
the second quarter of 2008, the secondary market for student
loans was disrupted by liquidity concerns. Consequently, one of
the investors who purchase loans from the Company was unable to
consistently purchase loans under existing contractual terms. As
a result, impairment losses were recorded on certain student
loans held for sale, amounting to $170 thousand during the
current quarter and $367 thousand during the nine month period
ending September 30, 2008. The fair value of these impaired
loans at September 30, 2008 was $10.4 million. The
fair value measurement method developed by the Company was based
on a discounted cash flows analysis and is classified as
Level 3. 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.
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. No fair value
adjustments were recorded during 2008.
Item 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF CONSOLIDATED 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 2007
Annual Report on
Form 10-K.
Results of operations for the three and nine month periods ended
September 30, 2008 are not necessarily indicative of
results to be attained for any other period. In its third
quarter earnings announcement on October 15, 2008, the
Company noted the unknown potential effect on its third quarter
earnings of recent litigation settlement between Visa, Inc.
(Visa) and Discover Financial Services. The terms of the
litigation settlement, disclosed by Visa after the
Companys earnings announcement, resulted in a
$2.9 million increase to the Companys indemnification
obligation for certain litigation costs, which has been
reflected in the financial statements and discussions contained
in this report.
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
23
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 financial assets and liabilities
are required to be recorded at, or adjusted to reflect, fair
value. 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.
Valuation
of Investment Securities
The Company carries its investment securities at fair value, and
in accordance with the requirements of SFAS No. 157,
the Company 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, 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.
SFAS 157, which requires fair value measurements to be
classified as Level 1 (quoted prices), Level 2 (based
on observable inputs) or Level 3 (based on unobservable,
internally-derived inputs) is discussed in more detail in
Note 14 to the consolidated financial statements.
Available for sale securities are reported at fair value, with
changes in fair value reported in other comprehensive income.
Most of the 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 $3.1 billion, or 85.2% of
the portfolio at September 30, 2008, and were classified as
Level 2 measurements. The Company also holds
$510.0 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
24
were significant to the overall measurement. The Company
periodically evaluates the available for sale portfolio for
other than temporary impairment. The review includes an analysis
of the facts and circumstances of each individual security such
as the severity of loss, the length of time the fair value has
been below cost, the creditworthiness of the issuer, and the
Companys intent and ability to hold the security to
maturity. Impairment which is deemed other than temporary is
reflected in current earnings and reported in securities gains
and losses in the consolidated statements of income.
The Company, through its direct holdings and its Small Business
Investment subsidiaries, has numerous private equity and venture
capital investments, categorized as non-marketable securities in
the accompanying consolidated balance sheets. These investments
are reported at fair value, and totaled $58.0 million at
September 30, 2008. Changes in fair value are reflected in
current earnings, and reported in securities gains and losses in
the consolidated statements of income. Because there is no
observable market data for these securities, their fair values
are internally developed using available information and
managements judgment. 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 team, and other economic and
market factors may affect the amounts that will ultimately be
realized from these investments.
Accounting
for Income Taxes
The objectives of accounting for income taxes are to recognize
the amount of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an
entitys financial statements or tax returns. Judgment is
required in assessing the future tax consequences of events that
have been recognized in the Companys financial statements
or tax returns. Fluctuations in the actual outcome of these
future tax consequences, including the effects of IRS
examinations and examinations by other state agencies, could
materially impact the Companys financial position and its
results of operations. Further discussion of income taxes is
presented in the Income Taxes section of this discussion.
25
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$
|
.34
|
|
|
$
|
.78
|
|
|
$
|
2.02
|
|
|
$
|
2.25
|
|
Net income diluted
|
|
|
.34
|
|
|
|
.77
|
|
|
|
2.00
|
|
|
|
2.22
|
|
Cash dividends
|
|
|
.250
|
|
|
|
.238
|
|
|
|
.750
|
|
|
|
.714
|
|
Book value
|
|
|
|
|
|
|
|
|
|
|
22.17
|
|
|
|
20.75
|
|
Market price
|
|
|
|
|
|
|
|
|
|
|
46.40
|
|
|
|
43.70
|
|
Selected Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Based on average balance sheets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to deposits*
|
|
|
93.29
|
%
|
|
|
88.67
|
%
|
|
|
92.46
|
%
|
|
|
88.06
|
%
|
Non-interest bearing deposits to total deposits
|
|
|
5.49
|
|
|
|
5.53
|
|
|
|
5.44
|
|
|
|
5.44
|
|
Equity to loans*
|
|
|
14.23
|
|
|
|
13.86
|
|
|
|
14.11
|
|
|
|
14.05
|
|
Equity to deposits
|
|
|
13.28
|
|
|
|
12.29
|
|
|
|
13.05
|
|
|
|
12.37
|
|
Equity to total assets
|
|
|
9.86
|
|
|
|
9.46
|
|
|
|
9.73
|
|
|
|
9.54
|
|
Return on total assets
|
|
|
.60
|
|
|
|
1.43
|
|
|
|
1.18
|
|
|
|
1.42
|
|
Return on total stockholders equity
|
|
|
6.07
|
|
|
|
15.10
|
|
|
|
12.16
|
|
|
|
14.88
|
|
(Based on end-of-period data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income to revenue**
|
|
|
38.68
|
|
|
|
41.29
|
|
|
|
39.96
|
|
|
|
40.57
|
|
Efficiency ratio***
|
|
|
74.23
|
|
|
|
59.81
|
|
|
|
64.57
|
|
|
|
60.64
|
|
Tier I capital ratio
|
|
|
|
|
|
|
|
|
|
|
10.65
|
|
|
|
10.34
|
|
Total capital ratio
|
|
|
|
|
|
|
|
|
|
|
11.94
|
|
|
|
11.55
|
|
Leverage ratio
|
|
|
|
|
|
|
|
|
|
|
9.11
|
|
|
|
8.79
|
|
|
|
|
|
|
* |
|
Includes loans held for
sale. |
** |
|
Revenue includes net interest
income and non-interest income. |
*** |
|
The efficiency ratio is
calculated as non-interest expense (excluding intangibles
amortization) as a percent of revenue. |
Results
of Operations
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
|
Nine Months Ended September 30
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
|
Net interest income
|
|
$
|
151,564
|
|
|
$
|
135,262
|
|
|
|
12.1
|
%
|
|
$
|
436,450
|
|
|
$
|
400,605
|
|
|
|
8.9
|
%
|
Provision for loan losses
|
|
|
(29,567
|
)
|
|
|
(11,455
|
)
|
|
|
158.1
|
|
|
|
(67,567
|
)
|
|
|
(28,670
|
)
|
|
|
135.7
|
|
Non-interest income
|
|
|
95,593
|
|
|
|
95,137
|
|
|
|
.5
|
|
|
|
290,486
|
|
|
|
273,480
|
|
|
|
6.2
|
|
Investment securities gains, net
|
|
|
1,149
|
|
|
|
1,562
|
|
|
|
(26.4
|
)
|
|
|
25,480
|
|
|
|
4,964
|
|
|
|
413.3
|
|
Non-interest expense
|
|
|
(184,532
|
)
|
|
|
(139,093
|
)
|
|
|
32.7
|
|
|
|
(472,710
|
)
|
|
|
(411,861
|
)
|
|
|
14.8
|
|
Income taxes
|
|
|
(9,534
|
)
|
|
|
(25,515
|
)
|
|
|
(62.6
|
)
|
|
|
(67,320
|
)
|
|
|
(75,550
|
)
|
|
|
(10.9
|
)
|
|
|
Net income
|
|
$
|
24,673
|
|
|
$
|
55,898
|
|
|
|
(55.9
|
)%
|
|
$
|
144,819
|
|
|
$
|
162,968
|
|
|
|
(11.1
|
)%
|
|
|
For the quarter ended September 30, 2008, net income
amounted to $24.7 million, a decrease of
$31.2 million, or 55.9%, from the third quarter of the
previous year. For the current quarter, the annualized return on
average assets was .60%, the annualized return on average equity
was 6.07%, and the efficiency ratio was 74.23%. The current
quarter included a non-cash pre-tax loss of $33.0 million
as a result of the Companys previously announced purchase
of auction rate securities from its customers.
26
Excluding this loss, the annualized return on average assets was
1.10%, the annualized return on average equity was 11.18%, and
the efficiency ratio was 60.89%. Compared to the third quarter
of last year, net interest income increased $16.3 million,
or 12.1%, mainly due to lower rates paid on deposits and
borrowings coupled with higher average loan balances, but offset
by lower rates earned on the loan portfolio. Non-interest income
increased $456 thousand, or .5%, with double-digit growth in
bank card fees, bond trading income and brokerage fees, offset
by a 7.6% decrease in deposit account fees. The provision for
loan losses was $29.6 million in the current quarter, an
$18.1 million increase over the third quarter of last year,
and exceeded net loan charge-offs by $10.8 million.
Non-interest expense grew by $45.4 million, or 32.7%,
largely due to the $33.0 million loss related to the
purchase of auction rate securities. Exclusive of this item,
non-interest expense would have grown $12.5 million, or
9.0%, over the third quarter of last year, due to higher
salaries and employee benefits expense and an increase in an
indemnification obligation (discussed below). Diluted earnings
per share was $.34, a decrease of 55.8% from $.77 per share in
the third quarter of 2007. On an after-tax basis, the loss
on the purchase of auction rate securities lowered diluted
earnings per share by $.29.
Net income for the first nine months of 2008 was
$144.8 million, an $18.1 million, or 11.1%, decrease
from the first nine months of 2007. For the first nine months of
2008, the annualized return on average assets was 1.18%, the
annualized return on average equity was 12.16%, and the
efficiency ratio was 64.57%. Diluted earnings per share was
$2.00, a decrease of 9.9% from $2.22 per share during the first
nine months of 2007. The decrease in net income was primarily
due to a $60.8 million increase in non-interest expense,
coupled with a $38.9 million increase in the provision for
loan losses. Non-interest expense included auction rate security
losses and higher salaries and benefits expense, offset by a
$5.9 million reversal of indemnification charges (discussed
below). These expenses were partially offset by a
$35.8 million increase in net interest income, largely due
to the same factors mentioned in the quarterly discussion above,
and a $17.0 million increase in non-interest income. In
addition, securities gains increased $20.5 million, mainly
due to the Visa stock redemption mentioned below.
In the fourth quarter of 2007, the Company established an
indemnification obligation of $21.0 million for its share
of certain estimated litigation costs of Visa, Inc. (Visa)
arising from the Companys relationship as a member bank
and resulting from a reorganization among Visa and its
affiliates. In the first quarter of 2008, Visa made an initial
public offering (IPO). In conjunction with the IPO, the
Companys shares of Class B Visa stock were redeemed,
resulting in a $22.2 million pre-tax gain. In addition,
Visa escrowed approximately $3.0 billion in cash from the
offering to be used to fund certain estimated litigation costs,
and the Company consequently reduced its indemnification
obligation by $8.8 million.
On October 14, 2008, the settlement amount of a suit
between Visa and Discover Financial Services was announced. As a
result, the Company increased its indemnification obligation by
$2.9 million in the third quarter of 2008, lowering diluted
earnings per share by $.02 for the quarter. On an after-tax
basis, the Visa transactions contributed $17.7 million to
net income in the first nine months of 2008, while the auction
rate securities losses reduced net income by $21.0 million,
which on a combined basis lowered diluted earnings per share by
$.04 for the year to date period.
The Company regularly evaluates the potential acquisition of
various financial institutions, and the disposition of certain
of its branch assets and liabilities. During the second quarter
of 2008, the Company sold its banking branch in Independence,
located in southeast Kansas, which had $23.3 million in
loans and $85.0 million in deposits. The Company paid cash
of $54.1 million in the transaction, representing the net
liabilities sold, and recorded a gain of $6.9 million.
During the second quarter of 2007, the Company acquired South
Tulsa Financial Corporation (South Tulsa). In this transaction,
the Company acquired the outstanding stock of South Tulsa and
issued shares of Company stock valued at $27.6 million. The
Companys acquisition of South Tulsa added
$142.4 million in assets and two branch locations in Tulsa,
Oklahoma. During the third quarter of 2007, the Company acquired
Commerce Bank in Denver, Colorado. In this transaction, the
Company acquired all of the outstanding stock of Commerce Bank
for $29.5 million in cash. The acquisition added
$123.9 million in assets and the Companys first
location in Colorado.
27
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
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008 vs. 2007
|
|
|
September 30, 2008 vs. 2007
|
|
|
|
Change due to
|
|
|
|
|
|
Change due to
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
(In thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
Interest income, fully taxable equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
14,133
|
|
|
$
|
(41,014
|
)
|
|
$
|
(26,881
|
)
|
|
$
|
50,056
|
|
|
$
|
(101,715
|
)
|
|
$
|
(51,659
|
)
|
Loans held for sale
|
|
|
1,006
|
|
|
|
(2,281
|
)
|
|
|
(1,275
|
)
|
|
|
(42
|
)
|
|
|
(5,958
|
)
|
|
|
(6,000
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
|
(2,845
|
)
|
|
|
|
|
|
|
(2,845
|
)
|
|
|
(6,489
|
)
|
|
|
152
|
|
|
|
(6,337
|
)
|
State and municipal obligations
|
|
|
1,171
|
|
|
|
947
|
|
|
|
2,118
|
|
|
|
(331
|
)
|
|
|
1,702
|
|
|
|
1,371
|
|
Mortgage and asset-backed securities
|
|
|
4,343
|
|
|
|
1,433
|
|
|
|
5,776
|
|
|
|
13,567
|
|
|
|
4,420
|
|
|
|
17,987
|
|
Other securities
|
|
|
(78
|
)
|
|
|
(635
|
)
|
|
|
(713
|
)
|
|
|
1,195
|
|
|
|
(2,467
|
)
|
|
|
(1,272
|
)
|
|
|
Total interest on investment securities
|
|
|
2,591
|
|
|
|
1,745
|
|
|
|
4,336
|
|
|
|
7,942
|
|
|
|
3,807
|
|
|
|
11,749
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
(1,035
|
)
|
|
|
(3,191
|
)
|
|
|
(4,226
|
)
|
|
|
(2,910
|
)
|
|
|
(9,393
|
)
|
|
|
(12,303
|
)
|
|
|
Total interest income
|
|
|
16,695
|
|
|
|
(44,741
|
)
|
|
|
(28,046
|
)
|
|
|
55,046
|
|
|
|
(113,259
|
)
|
|
|
(58,213
|
)
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
25
|
|
|
|
(244
|
)
|
|
|
(219
|
)
|
|
|
8
|
|
|
|
(637
|
)
|
|
|
(629
|
)
|
Interest checking and money market
|
|
|
2,159
|
|
|
|
(18,311
|
)
|
|
|
(16,152
|
)
|
|
|
6,137
|
|
|
|
(44,361
|
)
|
|
|
(38,224
|
)
|
Time open & C.D.s of less than $100,000
|
|
|
(4,260
|
)
|
|
|
(8,153
|
)
|
|
|
(12,413
|
)
|
|
|
(5,592
|
)
|
|
|
(15,330
|
)
|
|
|
(20,922
|
)
|
Time open & C.D.s of $100,000 and over
|
|
|
874
|
|
|
|
(8,144
|
)
|
|
|
(7,270
|
)
|
|
|
4,043
|
|
|
|
(16,606
|
)
|
|
|
(12,563
|
)
|
|
|
Total interest on deposits
|
|
|
(1,202
|
)
|
|
|
(34,852
|
)
|
|
|
(36,054
|
)
|
|
|
4,596
|
|
|
|
(76,934
|
)
|
|
|
(72,338
|
)
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
(3,343
|
)
|
|
|
(11,517
|
)
|
|
|
(14,860
|
)
|
|
|
(8,655
|
)
|
|
|
(32,315
|
)
|
|
|
(40,970
|
)
|
Other borrowings
|
|
|
9,191
|
|
|
|
(3,389
|
)
|
|
|
5,802
|
|
|
|
25,714
|
|
|
|
(7,379
|
)
|
|
|
18,335
|
|
|
|
Total interest expense
|
|
|
4,646
|
|
|
|
(49,758
|
)
|
|
|
(45,112
|
)
|
|
|
21,655
|
|
|
|
(116,628
|
)
|
|
|
(94,973
|
)
|
|
|
Net interest income, fully taxable equivalent basis
|
|
$
|
12,049
|
|
|
$
|
5,017
|
|
|
$
|
17,066
|
|
|
$
|
33,391
|
|
|
$
|
3,369
|
|
|
$
|
36,760
|
|
|
|
28
Net interest income in the third quarter of 2008 amounted to
$151.6 million, an increase of $16.3 million, or
12.1%, compared to the third quarter of last year. During the
third quarter of 2008, the net yield on earning assets was 4.02%
on a tax equivalent basis, compared to 3.77% in the same period
last year. This increase was primarily the result of lower rates
paid on deposits and other borrowings, coupled with an increase
in average loan balances, but offset by lower rates earned on
loans. Total interest income on loans (tax equivalent) for the
third quarter of 2008 decreased $26.9 million, mainly due
to lower rates earned on virtually all loan products, which fell
141 basis points overall. Most of the rate declines were
seen in business, business real estate, construction, home
equity and consumer credit card loans. This effect was partly
offset by higher average balances in the overall portfolio,
which rose on average by $699.3 million over the third
quarter of last year. Interest income on investment securities
(tax equivalent) increased $4.3 million as a result of a
$184.0 million increase in average balances and a
25 basis point rise in average rates earned. On average,
mortgage and asset-backed securities rose $358.4 million
and state and municipal obligations rose $105.2 million,
partly offset by a $280.2 million decline in federal agency
securities. Interest income on federal funds sold and securities
purchased under agreements to resell (resale agreements)
declined $4.2 million, due to both lower rates earned and
lower average balances.
Interest expense on deposits declined $36.1 million in the
third quarter of 2008 due to a 129 basis point decline in
rates paid on deposit products, especially affecting money
market accounts and certificates of deposit. Interest expense on
other borrowings declined $9.1 million in the third quarter
of 2008 compared to the same period last year mainly as a result
of lower rates paid on federal funds purchased and repurchase
agreements. However, interest expense paid on advances from the
Federal Home Loan Bank (FHLB) increased as a result of growth of
$664.8 million in average advances outstanding, offset by
lower rates paid on the advances. The overall tax equivalent
yield on earning assets in the third quarter of 2008 declined
108 basis points to 5.52%, while the overall cost of
interest bearing liabilities decreased 143 basis points to
1.65%.
Net interest income for the first nine months of 2008 amounted
to $436.5 million compared with $400.6 million in
2007, an increase of $35.8 million, or 8.9%. For the first
nine months of 2008, the net yield on earning assets (tax
equivalent) was 3.89%, compared with 3.81% in the same period
last year. The increase in net interest income for the first
nine months of 2008 followed similar trends as the quarterly
discussion above, as lower rates paid on interest bearing
liabilities, coupled with growth in average loan balances,
helped to increase net interest income overall. For the first
nine months of 2008, total interest income decreased
$59.1 million, or 8.5%, mainly due to lower interest earned
on loans but offset by higher average balances in loans and
investment securities. Interest on loans (tax equivalent)
declined $51.7 million in 2008 compared with 2007 as a
result of lower yields on all lending products, especially
business, business real estate, construction, home equity and
consumer credit card loans. Average yields declined
120 basis points overall during the first nine months of
2008 compared to 2007. However, growth in average balances of
the Companys overall loan portfolio, which rose
$843.5 million, partly offset the effects of lower yields.
Interest on the investment portfolio (tax equivalent) increased
$11.7 million due to higher average balances, which rose
$171.0 million overall, in addition to higher average rates
earned, which rose 21 basis points. Interest on overnight
investments decreased $12.3 million, mainly due to declines
in rates earned and balances invested in resale agreements.
Interest expense on deposits for the first nine months of 2008
declined $72.3 million due to lower rates paid, especially
on the Companys money market accounts and certificates of
deposit. The overall decline of 92 basis points was
slightly offset by a $390.6 million increase in money
market account balances. Interest expense on borrowings for the
first nine months of 2008 decreased $22.6 million as a
result of lower rates paid on both federal funds purchased and
repurchase agreements, in addition to lower borrowings of
federal funds purchased. These declines were offset by higher
interest expense on FHLB debt, as these advances grew
$620.7 million on average as the Company employed
initiatives to diversify funding sources from short-term federal
funds purchased into longer term advances. For the first nine
months of 2008, the overall tax equivalent yield on earning
assets declined 92 basis points to 5.68%, while the overall
cost of interest bearing liabilities also decreased
110 basis points to 1.95%.
Summaries of average assets and liabilities and the
corresponding average rates earned/paid appear on the last page
of this discussion.
29
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30
|
|
|
Ended September 30
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
|
Deposit account charges and other fees
|
|
$
|
27,854
|
|
|
$
|
30,148
|
|
|
|
(7.6
|
)%
|
|
$
|
83,189
|
|
|
$
|
86,740
|
|
|
|
(4.1
|
)%
|
Bank card transaction fees
|
|
|
29,317
|
|
|
|
26,409
|
|
|
|
11.0
|
|
|
|
85,019
|
|
|
|
75,347
|
|
|
|
12.8
|
|
Trust fees
|
|
|
20,518
|
|
|
|
19,823
|
|
|
|
3.5
|
|
|
|
60,917
|
|
|
|
58,448
|
|
|
|
4.2
|
|
Consumer brokerage services
|
|
|
3,439
|
|
|
|
3,056
|
|
|
|
12.5
|
|
|
|
10,259
|
|
|
|
9,431
|
|
|
|
8.8
|
|
Trading account profits and commissions
|
|
|
2,604
|
|
|
|
2,174
|
|
|
|
19.8
|
|
|
|
9,951
|
|
|
|
5,475
|
|
|
|
81.8
|
|
Loan fees and sales
|
|
|
1,594
|
|
|
|
2,919
|
|
|
|
(45.4
|
)
|
|
|
4,884
|
|
|
|
6,916
|
|
|
|
(29.4
|
)
|
Other
|
|
|
10,267
|
|
|
|
10,608
|
|
|
|
(3.2
|
)
|
|
|
36,267
|
|
|
|
31,123
|
|
|
|
16.5
|
|
|
|
Total non-interest income
|
|
$
|
95,593
|
|
|
$
|
95,137
|
|
|
|
.5
|
%
|
|
$
|
290,486
|
|
|
$
|
273,480
|
|
|
|
6.2
|
%
|
|
|
Non-interest income as a % of total revenue*
|
|
|
38.7
|
%
|
|
|
41.3
|
%
|
|
|
|
|
|
|
40.0
|
%
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
* |
|
Total revenue is calculated as
net interest income and non-interest income. |
For the third quarter of 2008, total non-interest income was
$95.6 million, an increase of $456 thousand, or .5%,
compared with $95.1 million in the same quarter last year.
The increase in non-interest income over the third quarter of
last year resulted mainly from continued double-digit growth in
bank card, brokerage and bond trading income. Bank card fees
increased $2.9 million, or 11.0%, over the third quarter of
last year, primarily due to growth in fees earned on debit,
merchant and corporate card transactions, which grew by 9.5%,
9.1% and 27.3%, respectively. Trust fees for the quarter
increased 3.5% over the same period last year, mainly as a
result of growth in personal trust fees, which increased 7.2%,
but were partly offset by lower institutional trust fee income.
Deposit account fees decreased $2.3 million, or 7.6%, as a
result of a 10.9% decline in overdraft fees, offset by growth in
corporate cash management fees of 5.9%. Overdraft fee income has
been negatively impacted by lower transaction volume compared to
the prior period. Brokerage fee income for the quarter totaled
$3.4 million, an increase of 12.5% over the same period
last year, and bond trading income totaled $2.6 million in
the current quarter, an increase of 19.8% over the same period
last year. Loan fees and sales were lower by $1.3 million
from the same period last year, which was the result of a
decrease in gains on student loan sales as fewer loans were sold
in the current quarter. Other non-interest income decreased $341
thousand from the third quarter of 2007, mainly due to small
declines in official check sales, equipment rental income and
lower gains recorded on the sales of leased equipment. Small
increases occurred in cash sweep commissions and fair value
gains on interest rate swaps.
Non-interest income for the nine months ended September 30,
2008 was $290.5 million compared to $273.5 million in
the first nine months of 2007, resulting in a
$17.0 million, or 6.2%, increase. Deposit account fees
declined $3.6 million, or 4.1%, as a result of lower
overdraft fee revenue, which fell $6.4 million, or 10.6%,
but was partly offset by higher cash management fees, which rose
$3.6 million, or 18.9%. Bank card fees rose
$9.7 million, or 12.8% overall, due to increases of 11.6%,
12.5% and 28.9%, respectively, in debit, merchant and corporate
card transaction fees. Trust fees increased $2.5 million,
or 4.2%, mainly due to growth in personal and corporate trust
fees. Bond trading income rose $4.5 million due to
increased sales activity, while consumer brokerage income grew
$828 thousand, mainly as a result of higher annuity and bond
sales fee income. Loan fees and sales decreased by
$2.0 million, as gains on student loan sales declined from
$3.7 million in the first nine months of 2007 to
$1.7 million in 2008. Other non-interest income increased
$5.1 million compared to the prior period, mainly due to a
$6.9 million gain recognized in the second quarter of 2008
on the sale of a bank branch, as mentioned previously. Partly
offsetting this increase was an impairment charge of
$1.1 million on an office building held for sale, formerly
housing the Companys main check processing operations,
which was recognized in the first quarter of 2008. Smaller
increases occurred in cash sweep commissions, swap fair value
gains and tax credit sales income, partly offset by lower
official check sales and equipment rental income.
30
Investment
Securities Gains and Losses, Net
Net gains and losses on investment securities during the three
and nine month periods ended September 30, 2008 and 2007
are shown in the table below. A net gain of $1.1 million
was recorded in the third quarter of 2008, compared to a net
gain of $1.6 million in the third quarter of 2007. On a
year to date basis, net securities gains of $25.5 million
were recorded in the nine months ended September 30, 2008
compared to $5.0 million recorded in the same period in
2007. Most of the net gain in 2008 occurred because of the
redemption of Visa Class B stock in conjunction with the
Visa IPO in March 2008, resulting in a $22.2 million gain.
Sales of preferred equity securities and federal agency
securities from the available for sale portfolio in 2008
generated realized losses of $3.5 million and realized
gains of $1.1 million, respectively. Also shown below are
net gains and losses relating to non-marketable private equity
and venture capital investments, which are primarily held by the
Parents majority-owned venture capital subsidiaries. These
include fair value adjustments, in addition to gains and losses
realized upon disposition. The minority interest expense
pertaining to the securities gains during the first nine months
of 2008 and 2007 totaled $660 thousand and $208 thousand,
respectively, and was reported in other non-interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30
|
|
|
Ended September 30
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity securities
|
|
$
|
|
|
|
$
|
(314
|
)
|
|
$
|
(3,504
|
)
|
|
$
|
(663
|
)
|
Common stock
|
|
|
(1
|
)
|
|
|
986
|
|
|
|
(1
|
)
|
|
|
1,807
|
|
Other bonds
|
|
|
|
|
|
|
7
|
|
|
|
1,139
|
|
|
|
(391
|
)
|
Non-marketable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity and venture capital investments
|
|
|
1,150
|
|
|
|
883
|
|
|
|
5,650
|
|
|
|
4,211
|
|
Visa Class B stock
|
|
|
|
|
|
|
|
|
|
|
22,196
|
|
|
|
|
|
|
|
Total investment securities gains, net
|
|
$
|
1,149
|
|
|
$
|
1,562
|
|
|
$
|
25,480
|
|
|
$
|
4,964
|
|
|
|
Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30
|
|
|
Ended September 30
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
83,766
|
|
|
$
|
77,312
|
|
|
|
8.3
|
%
|
|
$
|
250,023
|
|
|
$
|
230,335
|
|
|
|
8.5
|
%
|
Net occupancy
|
|
|
11,861
|
|
|
|
11,572
|
|
|
|
2.5
|
|
|
|
34,735
|
|
|
|
34,205
|
|
|
|
1.5
|
|
Equipment
|
|
|
6,122
|
|
|
|
5,761
|
|
|
|
6.3
|
|
|
|
18,273
|
|
|
|
17,875
|
|
|
|
2.2
|
|
Supplies and communication
|
|
|
9,276
|
|
|
|
8,546
|
|
|
|
8.5
|
|
|
|
26,545
|
|
|
|
25,638
|
|
|
|
3.5
|
|
Data processing and software
|
|
|
14,229
|
|
|
|
12,697
|
|
|
|
12.1
|
|
|
|
41,951
|
|
|
|
36,657
|
|
|
|
14.4
|
|
Marketing
|
|
|
4,926
|
|
|
|
4,775
|
|
|
|
3.2
|
|
|
|
15,660
|
|
|
|
13,952
|
|
|
|
12.2
|
|
Loss on purchase of auction rate securities
|
|
|
32,967
|
|
|
|
|
|
|
|
N.M.
|
|
|
|
33,266
|
|
|
|
|
|
|
|
N.M.
|
|
Indemnification obligation
|
|
|
2,879
|
|
|
|
|
|
|
|
N.M.
|
|
|
|
(5,929
|
)
|
|
|
|
|
|
|
N.M.
|
|
Other
|
|
|
18,506
|
|
|
|
18,430
|
|
|
|
.4
|
|
|
|
58,186
|
|
|
|
53,199
|
|
|
|
9.4
|
|
|
|
Total non-interest expense
|
|
$
|
184,532
|
|
|
$
|
139,093
|
|
|
|
32.7
|
%
|
|
$
|
472,710
|
|
|
$
|
411,861
|
|
|
|
14.8
|
%
|
|
|
Non-interest expense for the quarter amounted to
$184.5 million, which represented an increase of
$45.4 million, or 32.7%, over the expense recorded in the
third quarter of last year. Non-interest expense for the current
quarter included a non-cash loss of $33.0 million related
to the purchase of auction rate securities from customers. The
securities were purchased at par value from the customers, and
this loss represents the amount by which par value exceeded
estimated fair value on the purchase date. Exclusive of this
item, non-interest expense would have amounted to
$151.6 million, or an increase of $12.5 million over
the same period
31
last year. Compared with the third quarter of last year,
salaries and benefits expense increased $6.5 million, or
8.3%, resulting partly from increased staffing related to the
effects of several growth initiatives, higher incentives earned
and increased medical insurance costs. Occupancy costs increased
$289 thousand, or 2.5%, compared to the same quarter last year,
mainly as a result of higher building services expense.
Equipment costs increased $361 thousand, or 6.3%, and supplies
and communication expense increased $730 thousand, or 8.5%, as
both were affected by certain non-recurring expense reductions
recorded in the previous year, totaling $605 thousand combined.
Exclusive of these non-recurring reductions in the prior year,
equipment expense would have been flat with the prior year,
while supplies and communication expense would have shown growth
of 4.8%. Data processing expense increased $1.5 million, or
12.1%, mainly due to higher bank card processing costs which
increased in relation to higher bank card revenues this quarter.
Exclusive of bank card costs, core data processing expense
increased 5.1% as a result of investments in new software
programs. Marketing costs increased $151 thousand, or 3.2%,
while other non-interest expense increased only slightly.
As mentioned in previous reports, also included in non-interest
expense are adjustments to the Companys estimate of its
share of certain litigation costs arising from its member bank
relationship with Visa. A charge of $21.0 million was
recorded in the fourth quarter of 2007 to establish the
Companys obligation for its portion of litigation costs
relating to various suits against Visa. The obligation was
reduced in the first quarter of 2008 upon the funding of an
escrow for these suits in conjunction with Visas initial
public offering, and was increased in the third quarter of 2008
upon Visas settlement of a suit with Discover Financial
Services. As a result of these events, the Company recorded an
increase of $2.9 million in the obligation in the current
quarter, and has recorded an overall reduction in the obligation
of $5.9 million during the first nine months of 2008.
Total non-interest expense was $472.7 million in the first
nine months of 2008, which was an increase of
$60.8 million, or 14.8%, over the first nine months of
2007. As mentioned previously, the current period expense
included a non-cash loss of $33.3 million related to the
purchase of auction rate securities. Excluding this item,
non-interest expense would have been $439.4 million, or an
increase of $27.6 million, or 6.7%, over the same period
last year. Salaries and benefits expense grew
$19.7 million, or 8.5%, due to merit increases, higher
incentive payments, and increased medical insurance costs.
Full-time equivalent employees totaled 5,202 and 5,077 at
September 30, 2008 and 2007, respectively. Occupancy costs
grew by $530 thousand, or 1.5%, over the same period last year,
mainly as a result of higher real estate taxes and building
services expense. Small variances occurred in supplies and
communication expense, which increased $907 thousand due to
higher courier expense, and in equipment expense, which
increased $398 thousand due to higher repair and maintenance
costs. Data processing and software expense increased
$5.3 million, or 14.4%, due to higher bank card processing
fees and software investments. Marketing expense increased
$1.7 million, resulting from promotional efforts to attract
new deposits and credit card business in the first six months of
2008. Other non-interest expense increased $5.0 million
over the first nine months of 2007, partly due to an impairment
charge of $2.5 million related to foreclosed land sold in
the third quarter of 2008. Other increases occurred in travel
and entertainment, recruiting costs, minority interest expense,
and credit card rewards expense, partly offset by a decline in
professional fees.
32
Provision
and Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
June 30
|
|
|
September 30
|
|
|
September 30
|
|
(In thousands)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Provision for loan losses
|
|
$
|
29,567
|
|
|
$
|
18,000
|
|
|
$
|
11,455
|
|
|
$
|
67,567
|
|
|
$
|
28,670
|
|
|
|
Net loan charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
1,775
|
|
|
|
1,049
|
|
|
|
1,853
|
|
|
|
2,315
|
|
|
|
2,546
|
|
Real estate-construction
|
|
|
1,217
|
|
|
|
203
|
|
|
|
605
|
|
|
|
2,194
|
|
|
|
1,475
|
|
Real estate-business
|
|
|
257
|
|
|
|
39
|
|
|
|
744
|
|
|
|
1,198
|
|
|
|
307
|
|
Consumer credit card
|
|
|
8,314
|
|
|
|
7,935
|
|
|
|
5,331
|
|
|
|
22,842
|
|
|
|
17,092
|
|
Consumer
|
|
|
6,060
|
|
|
|
4,530
|
|
|
|
2,318
|
|
|
|
14,546
|
|
|
|
5,996
|
|
Home equity
|
|
|
208
|
|
|
|
136
|
|
|
|
131
|
|
|
|
338
|
|
|
|
241
|
|
Real estate-personal
|
|
|
182
|
|
|
|
73
|
|
|
|
71
|
|
|
|
356
|
|
|
|
125
|
|
Overdrafts
|
|
|
721
|
|
|
|
526
|
|
|
|
403
|
|
|
|
1,333
|
|
|
|
887
|
|
|
|
Total net loan charge-offs
|
|
$
|
18,734
|
|
|
$
|
14,491
|
|
|
$
|
11,456
|
|
|
$
|
45,122
|
|
|
$
|
28,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
June 30
|
|
|
September 30
|
|
|
September 30
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Annualized net loan charge-offs*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
.20
|
%
|
|
|
.12
|
%
|
|
|
.24
|
%
|
|
|
.09
|
%
|
|
|
.11
|
%
|
Real estate-construction
|
|
|
.69
|
|
|
|
.12
|
|
|
|
.34
|
|
|
|
.42
|
|
|
|
.29
|
|
Real estate-business
|
|
|
.04
|
|
|
|
.01
|
|
|
|
.13
|
|
|
|
.07
|
|
|
|
.02
|
|
Consumer credit card
|
|
|
4.19
|
|
|
|
4.06
|
|
|
|
3.15
|
|
|
|
3.92
|
|
|
|
3.51
|
|
Consumer
|
|
|
1.40
|
|
|
|
1.09
|
|
|
|
.57
|
|
|
|
1.16
|
|
|
|
.52
|
|
Home equity
|
|
|
.17
|
|
|
|
.12
|
|
|
|
.12
|
|
|
|
.10
|
|
|
|
.07
|
|
Real estate-personal
|
|
|
.05
|
|
|
|
.02
|
|
|
|
.02
|
|
|
|
.03
|
|
|
|
.01
|
|
Overdrafts
|
|
|
23.17
|
|
|
|
19.84
|
|
|
|
11.05
|
|
|
|
14.37
|
|
|
|
9.34
|
|
|
|
Total annualized net loan charge-offs
|
|
|
.68
|
%
|
|
|
.53
|
%
|
|
|
.44
|
%
|
|
|
.55
|
%
|
|
|
.38
|
%
|
|
|
|
|
|
* |
|
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 with
similar risk characteristics.
Loans subject to individual evaluation are defined by the
Company as impaired, and generally consist of business,
construction and commercial real estate loans on non-accrual
status. These 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 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.
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 process of determining adequate levels of the allowance for
loan losses is subject to regular review by the Companys
Credit Administration personnel and outside regulators.
33
Net loan charge-offs in the third quarter of 2008 amounted to
$18.7 million, compared with $14.5 million in the
prior quarter and $11.5 million in the third quarter of
last year. The $7.3 million increase in net charge-offs in
the third quarter of 2008 compared to the same quarter of last
year was primarily due to increases of $3.0 million in
consumer credit card loan net charge-offs and $3.7 million
in consumer banking loan net charge-offs. Included in the
increase in consumer loan net charge-offs was an increase of
$2.7 million in marine and recreational vehicle (RV) loan
charge-offs. The current quarter also included a
$1.0 million construction loan charge-off and a
$1.1 million business loan charge-off. For the third
quarter of 2008, annualized net charge-offs on average consumer
credit card loans were 4.19%, compared with 4.06% in the
previous quarter and 3.15% in the same period last year.
Additionally, consumer banking loan net charge-offs for the
quarter amounted to 1.40% of average consumer loans, compared to
1.09% in the previous quarter and .57% in the same quarter last
year. Annualized charge-offs on marine and RV loans, which
comprise approximately 50% of consumer banking loans, were 1.73%
of average marine and RV loans in the current quarter, compared
to 1.40% in the previous quarter and .57% in the same quarter
last year.
The provision for loan losses for the quarter totaled
$29.6 million, and was $11.6 million higher than the
previous quarter and $18.1 million higher than the third
quarter of 2007. The amount of the provision to expense in each
quarter was determined by managements review and analysis
of the adequacy of the allowance for loan losses, involving all
the activities and factors described above regarding that
process. During the current quarter and as a result of its
regular review, the Company increased the allowance by
$10.8 million, mainly due to increasing levels of watch
list loans (including substandard-classed loans) and
deteriorating general economic conditions.
Net charge-offs during the first nine months of 2008 amounted to
$45.1 million, compared to $28.7 million in the
comparable prior year period. The increase occurred because of
higher consumer credit card, consumer banking and real estate
net loan charge-offs in 2008, which increased $5.8 million,
$8.6 million, and $1.8 million, respectively. The
provision for loan losses was $67.6 million in the first
nine months of 2008 compared to $28.7 million in the same
period in 2007. The provision for loan losses in the first nine
months of 2008 exceeded net loan charge-offs in the same period
by $22.4 million.
The allowance for loan losses at September 30, 2008
amounted to $156.0 million, or 1.42% of total loans
(excluding loans held for sale), compared to
$133.6 million, or 1.26%, at December 31, 2007 and
$133.6 million, or 1.28%, at September 30, 2007. The
increase in the allowance compared to previous periods resulted
primarily from higher provisions, as noted above. The Company
considers the allowance for loan losses adequate to cover losses
inherent in the loan portfolio at September 30, 2008.
34
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 of collection, or
they are 1-4 family first mortgage loans or consumer loans that
are exempt under regulatory rules from being classified as
non-accrual.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
December 31
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
5,140
|
|
|
$
|
4,700
|
|
Real estate construction
|
|
|
22,148
|
|
|
|
7,769
|
|
Real estate business
|
|
|
11,275
|
|
|
|
5,628
|
|
Consumer
|
|
|
1,038
|
|
|
|
547
|
|
Real estate personal
|
|
|
1,999
|
|
|
|
1,095
|
|
|
|
Total non-accrual loans
|
|
|
41,600
|
|
|
|
19,739
|
|
|
|
Foreclosed real estate
|
|
|
4,622
|
|
|
|
13,678
|
|
|
|
Total non-performing assets
|
|
$
|
46,222
|
|
|
$
|
33,417
|
|
|
|
Non-performing assets to total loans
|
|
|
.42
|
%
|
|
|
.32
|
%
|
Non-performing assets to total assets
|
|
|
.27
|
%
|
|
|
.21
|
%
|
|
|
Loans past due 90 days and still accruing interest:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
5,917
|
|
|
$
|
1,427
|
|
Real estate construction
|
|
|
1,364
|
|
|
|
768
|
|
Real estate business
|
|
|
4,403
|
|
|
|
281
|
|
Consumer credit card
|
|
|
11,262
|
|
|
|
10,664
|
|
Consumer
|
|
|
2,093
|
|
|
|
1,914
|
|
Student
|
|
|
13
|
|
|
|
1
|
|
Home equity
|
|
|
441
|
|
|
|
700
|
|
Real estate personal
|
|
|
6,385
|
|
|
|
5,131
|
|
|
|
Total loans past due 90 days and still accruing
interest
|
|
$
|
31,878
|
|
|
$
|
20,886
|
|
|
|
Non-accrual loans, which are also considered impaired, totaled
$41.6 million at September 30, 2008, and increased
$21.9 million over amounts recorded at December 31,
2007. The increase over December 31, 2007 resulted from
increases of $14.4 million in construction and
$5.6 million in business real estate non-accrual loans. At
September 30, 2008 non-accrual loans were comprised mainly
of construction loans (53.2%), business real estate loans
(27.1%) and business loans (12.4%). Foreclosed real estate
declined $9.1 million to a balance of $4.6 million at
September 30, 2008. The decline was mainly due to sales of
several large properties with a carrying value of
$9.8 million at sale date, in addition to a
$2.5 million impairment charge on one of the properties
sold.
Total loans past due 90 days or more and still accruing
interest amounted to $31.9 million as of September 30,
2008, and increased $11.0 million over December 31,
2007. The increase in the past due totals at September 30,
2008 compared to December 31, 2007 resulted mainly from
increases of $4.5 million in business, $4.1 million in
business real estate and $1.3 million in personal real
estate loan delinquencies.
35
In addition to the non-accrual 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 $252.2 million at September 30,
2008 compared with $127.2 million at December 31,
2007, resulting in an increase of 98%. Most of the increase
occurred in construction real estate loans, which rose from
$36.7 million at year end to $128.4 million at
September 30, 2008. The overall balance at
September 30, 2008 also included $49.5 million in
business real estate loans and $46.1 million in business
loans.
Income
Taxes
Income tax expense was $9.5 million in the third quarter of
2008, compared to $27.1 million in the second quarter of
2008 and $25.5 million in the third quarter of 2007. The
Companys effective income tax rate was 27.9% in the third
quarter of 2008, compared with 32.6% in the second quarter of
2008 and 31.3% in the third quarter of 2007. The lower effective
tax rate in the current quarter was the result of lower pre-tax
income, largely due to the loss on auction rate securities and
the higher loan loss provision recorded in the current quarter.
Income tax expense was $67.3 million in the first nine
months of 2008 compared to $75.6 million in the previous
year, resulting in an effective income tax rate of 31.7% in both
periods.
36
Financial
Condition
Balance
Sheet
Total assets of the Company were $17.0 billion at
September 30, 2008 compared to $16.2 billion at
December 31, 2007. Earning assets at September 30,
2008 were $15.7 billion and consisted of 73% in loans and
24% in investment securities, compared to $14.7 billion at
December 31, 2007.
During the first nine months of 2008, total period end loans,
including held for sale, increased $537.2 million, or 5.0%,
compared with balances at December 31, 2007. The increase
was primarily the result of growth of $198.9 million in
business loans, $158.3 million in student loans,
$95.6 million in business real estate loans,
$56.0 million in consumer loans, $27.6 million in home
equity, and $24.9 million in consumer credit card loans.
Growth in business loans was reflective of continued customer
demand and higher line of credit usage, while the increase in
student lending was due to continued loan originations, the
majority of which occurred in the first and third quarters of
2008. Consumer loan growth reflected overall higher lending
totals for marine and RV loans, which increased
$56.0 million, or 7.0%, over December 31, 2007.
However, during the third quarter of 2008, the Company reduced
its originations of certain types of marine and RV loans due to
current market conditions. Growth in consumer credit cards
reflected positive results from marketing promotions during the
first six months of 2008.
On an average basis, loans (including held for sale) increased
$842.7 million, or 8.1%, during the first nine months of
2008 compared to the same period in 2007. Loan growth occurred
in nearly all loan categories, with increases of
$433.0 million in business loans, $146.2 million in
consumer banking loans, $128.7 million in consumer credit
card loans, and $82.7 million in business real estate loans.
Available for sale investment securities, excluding fair value
adjustments, increased $544.2 million, or 17.5%, at
September 30, 2008 compared to December 31, 2007. This
growth was mainly due to increases in municipal obligations and
mortgage-backed securities totaling $830.9 million, but
offset by a reduction in federal agency securities of
$255.8 million. Municipal obligations increased
$565.1 million mainly due to the acquisition of auction
rate securities in 2008, which totaled $514.4 million,
excluding fair value adjustments, at September 30, 2008.
Non-marketable securities, mostly consisting of various
investments in private equity concerns, Federal Reserve Bank
stock and FHLB stock, increased $47.9 million, or 45.4%,
partly due to a $30.1 million increase in FHLB stock that
was tied to increased borrowings from the FHLB.
On an average basis, available for sale investment securities,
excluding fair value adjustments, increased $119.1 million,
or 3.7%, during the first nine months of 2008 compared to the
same period in 2007. Mortgage-backed securities increased
$404.2 million, while federal agency securities decreased
$213.9 million.
Total deposits decreased by $239.5 million, or 1.9%, at
September 30, 2008 compared to December 31, 2007. The
decrease in deposits from year end 2007 balances was partially
due to the bank branch sale mentioned above, in which deposits
of $85.0 million were sold. On an overall basis, decreases
of $356.3 million in certificates of deposit of less than
$100,000 and $226.5 million in non-interest bearing demand
accounts were offset by increases of $340.8 million in
money market deposit accounts as customers shifted out of
certificates of deposit and into money market accounts.
On an average basis, total deposits increased
$348.3 million, or 2.9%, during the first nine months of
2008 compared to the same period in 2007, mainly due to
increases of $102.1 million in jumbo certificates of
deposit and $390.6 million in money market accounts. These
average increases were partially offset by decreases of
$166.9 million in certificates of deposit of less than
$100,000.
Compared to 2007 year end balances, total short-term
borrowings at September 30, 2008 increased
$320.8 million due to an increase of $402.2 million in
federal funds purchased, offset by an $81.4 million
decrease in repurchase agreements. However, on an average basis,
short-term borrowings were lower by $217.0 million during
the first nine months of 2008 compared to the same period in
2007, resulting from lower average levels of federal funds
purchased. Other borrowings increased $666.9 million over
2007 year end balances due to increases in advances from
the FHLB, which were used to fund continued loan growth.
37
Liquidity
and Capital Resources
Liquidity
Management
The Companys most liquid assets are comprised of available
for sale marketable investment securities, federal funds sold,
and securities purchased under agreements to resell, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
June 30
|
|
|
December 31
|
|
(In thousands)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Liquid assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
186,295
|
|
|
$
|
195,165
|
|
|
$
|
261,165
|
|
Securities purchased under agreements to resell
|
|
|
271,000
|
|
|
|
271,000
|
|
|
|
394,000
|
|
Available for sale investment securities
|
|
|
3,659,488
|
|
|
|
3,628,061
|
|
|
|
3,165,020
|
|
|
|
Total
|
|
$
|
4,116,783
|
|
|
$
|
4,094,226
|
|
|
$
|
3,820,185
|
|
|
|
Federal funds sold and resale agreements totaled
$457.3 million at September 30, 2008. These
investments normally have overnight maturities and are used for
general daily liquidity purposes. The fair value of the
available for sale investment portfolio was $3.7 billion at
September 30, 2008, and included an unrealized net loss of
$1.3 million. The overall net loss includes a
$46.7 million unrealized loss on mortgage and asset-backed
securities held by the banking affiliates and a
$48.0 million unrealized gain on common stock held by the
Parent. The portfolio includes maturities of approximately
$416 million over the next 12 months, which offer
substantial resources to meet either new loan demand or
reductions in the Companys deposit funding base. The
Company pledges portions of its investment securities portfolio
to secure public fund deposits, securities sold under agreements
to repurchase, trust funds, letters of credit issued by the
FHLB, and borrowing capacity at the Federal Reserve Bank. At
September 30, 2008, total investment securities pledged for
these purposes were as follows:
|
|
|
|
|
|
|
|
|
September 30
|
|
(In thousands)
|
|
2008
|
|
|
|
|
Investment securities pledged for the purpose of securing:
|
|
|
|
|
Federal Reserve Bank borrowings
|
|
$
|
181,007
|
|
FHLB borrowings and letters of credit
|
|
|
240,077
|
|
Repurchase agreements
|
|
|
1,376,411
|
|
Other deposits
|
|
|
642,684
|
|
|
|
Total pledged, at fair value
|
|
$
|
2,440,179
|
|
|
|
At September 30, 2008, the Companys unpledged
securities in the available for sale portfolio totaled
approximately $1.2 billion, consisting mainly of municipal
obligations, which included $510.0 million of auction rate
securities.
Liquidity is also available from the Companys large base
of core customer deposits, defined as demand, interest checking,
savings, and money market deposit accounts. At
September 30, 2008, such deposits totaled $8.6 billion
and represented 70.2% of the Companys total deposits.
These core deposits are normally less volatile and are often
tied to other products of the Company through long lasting
relationships. Time open and certificates of deposit of $100,000
and over totaled $1.7 billion at September 30, 2008.
These accounts are normally considered more volatile and higher
costing, and comprised 13.4% of total deposits at
September 30, 2008.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
June 30
|
|
|
December 31
|
|
(In thousands)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Core deposit base:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
1,187,334
|
|
|
$
|
1,398,766
|
|
|
$
|
1,413,849
|
|
Interest checking
|
|
|
499,609
|
|
|
|
448,285
|
|
|
|
580,048
|
|
Savings and money market
|
|
|
6,952,236
|
|
|
|
7,032,780
|
|
|
|
6,575,318
|
|
|
|
Total
|
|
$
|
8,639,179
|
|
|
$
|
8,879,831
|
|
|
$
|
8,569,215
|
|
|
|
Other important components of liquidity are the level of
borrowings from third party sources and the availability of
future credit. The Companys outside borrowings are
comprised of federal funds purchased, securities sold under
agreements to repurchase, and FHLB advances, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
June 30
|
|
|
December 31
|
|
(In thousands)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$
|
528,270
|
|
|
$
|
32,665
|
|
|
$
|
126,077
|
|
Securities sold under agreements to repurchase
|
|
|
1,031,705
|
|
|
|
1,581,136
|
|
|
|
1,113,142
|
|
Federal Reserve treasury auction
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
FHLB advances
|
|
|
1,228,433
|
|
|
|
853,579
|
|
|
|
561,475
|
|
Subordinated debentures
|
|
|
14,310
|
|
|
|
14,310
|
|
|
|
14,310
|
|
Other long-term debt
|
|
|
7,767
|
|
|
|
7,796
|
|
|
|
7,851
|
|
|
|
Total
|
|
$
|
2,810,485
|
|
|
$
|
2,689,486
|
|
|
$
|
1,822,855
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase are generally borrowed overnight, and amounted to
$1.6 billion at September 30, 2008. Federal funds
purchased are unsecured overnight borrowings obtained mainly
from upstream correspondent banks with which the Company
maintains approved lines of credit. Securities sold under
agreements to repurchase are secured by a portion of the
Companys investment portfolio and are comprised of both
non-insured customer funds, totaling $531.7 million at
September 30, 2008, and structured repurchase agreements of
$500.0 million purchased from an upstream financial
institution. The Company may periodically borrow additional
short-term
funds from the Federal Reserve Bank through its treasury auction
facility or the discount window, although no such borrowings
were outstanding at the current quarter end. The Company also
borrows on a secured basis through advances from the FHLB, which
totaled $1.2 billion at September 30, 2008. Most of
these advances have fixed interest rates and mature in 2008
through 2010. In addition, the Company has $14.3 million in
outstanding subordinated debentures issued to wholly-owned
grantor trusts, funded by preferred securities issued by the
trusts. Other outstanding long-term borrowings relate mainly to
the Companys leasing and venture capital operations.
39
The Company pledges certain assets, including loans and
investment securities, to both the Federal Reserve Bank and the
FHLB as security to establish lines of credit and borrow from
these entities. Based on the amount and type of collateral
pledged, the FHLB establishes a collateral value from which the
Company may draw advances against the collateral. Also, this
collateral is used to enable the FHLB to issue letters of credit
in favor of public fund depositors of the Company. The Federal
Reserve Bank also establishes a collateral value of assets
pledged and permits borrowings from either the discount window
or the treasury auction facility. The following table reflects
the collateral value of assets pledged, borrowings, and letters
of credit outstanding, in addition to the estimated future
funding capacity available to the Company at September 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
FHLB
|
|
|
Reserve
|
|
|
|
|
Collateral value pledged
|
|
$
|
2,262,472
|
|
|
$
|
1,162,501
|
|
Advances outstanding
|
|
|
(1,228,433
|
)
|
|
|
|
|
Letters of credit issued
|
|
|
(772,735
|
)
|
|
|
|
|
|
|
Available for future advances
|
|
$
|
261,304
|
|
|
$
|
1,162,501
|
|
|
|
In addition to those mentioned above, several other sources of
liquidity are available. The Company has strong long-term
deposit ratings from Moodys and Standard &
Poors of Aa2 and A+, respectively. Additionally, its sound
commercial paper rating of
A-1 from
Standard & Poors and short-term rating of
P-1 from
Moodys would help ensure the ready marketability of its
commercial paper, should the need arise. No commercial paper has
been issued or outstanding during the past ten years. Neither
the Company nor its principal banking subsidiary, Commerce Bank,
N.A., has any subordinated debt or hybrid instruments which
could affect future borrowing capacity. Because of its lack of
significant long-term debt, the Company believes that it could
generate additional liquidity through its Capital Markets Group
from sources such as jumbo certificates of deposit or privately
placed debt offerings. Future financing could also include the
issuance of common or preferred stock.
Cash and cash equivalents (defined as Cash and due from
banks and Federal funds sold and securities
purchased under agreements to resell as segregated in the
accompanying balance sheets) was $954.3 million at
September 30, 2008 compared to $1.3 billion at
December 31, 2007. The $374.0 million decrease
resulted from changes in the various cash flows produced by the
operating, investing and financing activities of the Company, as
shown in the accompanying statement of cash flows for
September 30, 2008. The cash flow provided by operating
activities is considered a very stable source of funds and
consists mainly of net income adjusted for certain non-cash
items. Operating activities provided cash flow of
$88.4 million during the first nine months of 2008.
Investing activities, consisting mainly of purchases, sales and
maturities of available for sale securities and changes in the
level of the loan portfolio, used total cash of
$1.1 billion. Most of the cash outflow was due to
$448.8 million in loan growth and $1.9 billion of
investment securities purchases, partly offset by
$1.3 billion in proceeds from sales, maturities, and pay
downs of investment securities. Financing activities provided
cash of $667.3 million, resulting from $675.0 million
in additional FHLB advances and a net increase of
$321.0 million in overnight borrowings. These cash inflows
were partly offset by a net decrease of $273.1 million in
certificates of deposit and cash dividend payments of
$54.0 million. Future short-term liquidity needs arising
from daily operations are not expected to vary significantly,
and the Company believes it will be able to meet these cash flow
needs.
40
Capital
Management
The Company maintains strong regulatory capital ratios,
including those of its principal banking subsidiaries, which
exceed the well-capitalized guidelines under federal banking
regulations. Information about the Companys risk-based
capital is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Ratios
|
|
|
|
|
|
|
|
|
|
for
|
|
|
|
September 30
|
|
|
December 31
|
|
|
Well-Capitalized
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Banks
|
|
|
|
|
Risk-adjusted assets
|
|
$
|
13,881,204
|
|
|
$
|
13,330,968
|
|
|
|
|
|
Tier I capital
|
|
|
1,478,462
|
|
|
|
1,375,035
|
|
|
|
|
|
Total capital
|
|
|
1,657,181
|
|
|
|
1,532,189
|
|
|
|
|
|
Tier I capital ratio
|
|
|
10.65
|
%
|
|
|
10.31
|
%
|
|
|
6.00
|
%
|
Total capital ratio
|
|
|
11.94
|
%
|
|
|
11.49
|
%
|
|
|
10.00
|
%
|
Leverage ratio
|
|
|
9.11
|
%
|
|
|
8.76
|
%
|
|
|
5.00
|
%
|
|
|
The Company maintains a treasury stock buyback program, and in
February 2008 was authorized by the Board of Directors to
repurchase up to 3,000,000 shares of its common stock.
During 2008, the Company reduced its purchases under this
program, and in the current quarter purchased only
2,000 shares of treasury stock at an average cost of $41.62
per share. At September 30, 2008, 2,903,946 shares
remained available for purchase under the current Board
authorization.
The Companys common stock dividend policy reflects its
earnings outlook, desired payout ratios, the need to maintain
adequate capital levels, and alternative investment options. The
Company increased its per share cash dividend to $.25 in the
first quarter of 2008, an increase of 5.0% compared to the
fourth quarter of 2007, and maintained the same dividend payout
in the second and third quarters of 2008. The year 2008
represents the 40th consecutive year of per share dividend
increases.
Commitments
and Off-Balance Sheet Arrangements
Various commitments and contingent liabilities arise in the
normal course of business which are not required to be recorded
on the balance sheet. The most significant of these are loan
commitments, which at September 30, 2008 totaled
$8.0 billion (including approximately $3.8 billion in
unused approved credit card lines of credit). In addition, the
Company enters into standby and commercial letters of credit
with its business customers. These contracts amounted to
$421.1 million and $25.2 million, respectively, at
September 30, 2008. Since many commitments expire unused or
only partially used, these totals do not necessarily reflect
future cash requirements. The carrying value of the guarantee
obligations associated with the standby letters of credit, which
has been recorded as a liability on the balance sheet, amounted
to $3.6 million at September 30, 2008. Management does
not anticipate any material losses arising from commitments and
contingent liabilities and believes there are no material
commitments to extend credit that represent risks of an unusual
nature.
The Company periodically purchases various state tax credits
arising from third-party property redevelopment. Most of the tax
credits are resold to third parties, although some may be
retained for use by the Company. During the first nine months of
2008, purchases and sales of tax credits amounted to
$31.4 million and $32.5 million, respectively, and at
September 30, 2008, outstanding purchase commitments
totaled $125.1 million. The Company has additional funding
commitments arising from several investments in private equity
concerns, classified as non-marketable investment securities in
the accompanying consolidated balance sheets. These funding
commitments amounted to $2.0 million at September 30,
2008. The Company also has unfunded commitments relating to its
investments in low-income housing partnerships, which amounted
to $1.9 million at September 30, 2008.
41
Segment
Results
The table below is a summary of segment pre-tax income results
for the first nine months of 2008 and 2007. As mentioned in
Note 10 in the notes to the consolidated financial
statements, the 2008 and 2007 results in this table reflect a
modification to the funds transfer pricing process.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Management
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Nine Months Ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
260,379
|
|
|
$
|
153,746
|
|
|
$
|
5,454
|
|
|
$
|
419,579
|
|
|
$
|
16,871
|
|
|
$
|
436,450
|
|
Provision for loan losses
|
|
|
(39,426
|
)
|
|
|
(5,814
|
)
|
|
|
|
|
|
|
(45,240
|
)
|
|
|
(22,327
|
)
|
|
|
(67,567
|
)
|
Non-interest income
|
|
|
133,028
|
|
|
|
72,137
|
|
|
|
75,135
|
|
|
|
280,300
|
|
|
|
10,186
|
|
|
|
290,486
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,480
|
|
|
|
25,480
|
|
Non-interest expense
|
|
|
(241,907
|
)
|
|
|
(127,171
|
)
|
|
|
(85,862
|
)
|
|
|
(454,940
|
)
|
|
|
(17,770
|
)
|
|
|
(472,710
|
)
|
|
|
Income (loss) before income taxes
|
|
$
|
112,074
|
|
|
$
|
92,898
|
|
|
$
|
(5,273
|
)
|
|
$
|
199,699
|
|
|
$
|
12,440
|
|
|
$
|
212,139
|
|
|
|
Nine Months Ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
257,729
|
|
|
$
|
144,018
|
|
|
$
|
5,716
|
|
|
$
|
407,463
|
|
|
$
|
(6,858
|
)
|
|
$
|
400,605
|
|
Provision for loan losses
|
|
|
(24,007
|
)
|
|
|
(4,606
|
)
|
|
|
|
|
|
|
(28,613
|
)
|
|
|
(57
|
)
|
|
|
(28,670
|
)
|
Non-interest income
|
|
|
137,992
|
|
|
|
62,342
|
|
|
|
67,794
|
|
|
|
268,128
|
|
|
|
5,352
|
|
|
|
273,480
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,964
|
|
|
|
4,964
|
|
Non-interest expense
|
|
|
(228,071
|
)
|
|
|
(117,670
|
)
|
|
|
(47,858
|
)
|
|
|
(393,599
|
)
|
|
|
(18,262
|
)
|
|
|
(411,861
|
)
|
|
|
Income (loss) before income taxes
|
|
$
|
143,643
|
|
|
$
|
84,084
|
|
|
$
|
25,652
|
|
|
$
|
253,379
|
|
|
$
|
(14,861
|
)
|
|
$
|
238,518
|
|
|
|
Increase (decrease) in income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
(31,569
|
)
|
|
$
|
8,814
|
|
|
$
|
(30,925
|
)
|
|
$
|
(53,680
|
)
|
|
$
|
27,301
|
|
|
$
|
(26,379
|
)
|
|
|
Percent
|
|
|
(22.0
|
)%
|
|
|
10.5
|
%
|
|
|
(120.6
|
)%
|
|
|
(21.2
|
)%
|
|
|
N.M.
|
|
|
|
(11.1
|
)%
|
|
|
Consumer
For the nine months ended September 30, 2008, income before
income taxes for the Consumer segment decreased
$31.6 million, or 22.0%, compared to the same period in the
prior year. This decrease was due to increases of
$13.8 million in non-interest expense and
$15.4 million in the provision for loan losses. In
addition, non-interest income declined $5.0 million, while
net interest income increased $2.7 million. The increase in
net interest income resulted mainly from a $60.4 million
decline in deposit interest expense, partly offset by a
$49.6 million decrease in net allocated funding credits
assigned to the Consumer segments deposit and loan
portfolios, in addition to an $8.4 million decrease in loan
interest income. The decrease in non-interest income resulted
largely from lower deposit account fees (mostly overdraft and
return item charges) and lower gains on student loan sales,
partly offset by an increase in bank card fee income (primarily
debit card and merchant fees). Non-interest expense increased
$13.8 million, or 6.1%, over the previous year mainly due
to higher bank card transaction fees, salaries expense, teller
services fees, corporate management fees and telephone support
fees. These increases were partly offset by declines in bank
card servicing fees and bank card fraud losses. Net loan
charge-offs increased $15.4 million, or 64.2%, in the
Consumer segment, with most of the increase due to higher
consumer credit card, marine and RV loan charge-offs.
42
Commercial
For the nine months ended September 30, 2008, income before
income taxes for the Commercial segment increased
$8.8 million, or 10.5%, compared to the same period in the
previous year. Most of the increase was due to a
$9.7 million, or 6.8%, increase in net interest income and
a $9.8 million increase in non-interest income. The
increase in net interest income resulted from lower net
allocated funding costs of $52.0 million and lower deposit
interest expense of $5.0 million, partly offset by a
$47.2 million decline in loan interest income. Non-interest
income increased by 15.7% over the previous year largely due to
higher deposit account fees (mainly commercial cash management
fees) and bank card fees (mainly corporate card fees). Partly
offsetting these increases in income was an increase in
non-interest expense, which rose $9.5 million, or 8.1%,
over the same period in the previous year. This increase
included a $2.5 million impairment charge on foreclosed
land (sold in the current quarter), in addition to higher
salaries expense and bank card servicing fees, party offset by a
decline in deposit account processing costs. Net loan
charge-offs were $5.8 million in the first nine months of
2008 compared to $4.6 million in the first nine months of
2007.
Money
Management
The Money Management segment reported a pre-tax loss of
$5.3 million for the first nine months of 2008, which was a
decline of $30.9 million compared to pre-tax profitability
of $25.7 million in the first nine months of 2007. The loss
was the result of an increase in non-interest expense of
$38.0 million, which was mainly due to a non-cash loss of
$33.0 million related to the purchase of auction rate
securities from Capital Markets customers recorded in the third
quarter of 2008. The securities were purchased at par value from
the customers, and this loss represents the amount by which par
value exceeded estimated fair value on the purchase date. In
addition, salaries expense increased, while allocated trust
processing costs declined. Net interest income, which declined
$262 thousand, or 4.6%, from the prior year, was lower due to an
$18.1 million decline in income on overnight investments,
partly offset by a $9.9 million decline in overnight
borrowings expense, a $4.3 million decrease in deposit
interest expense and higher assigned net funding credits of
$3.4 million. Non-interest income increased
$7.3 million, or 10.8%, over the previous year primarily
due to higher trust fees and bond trading income.
The Other/elimination category shown in the table above includes
support and overhead operating units of the Company, in addition
to the investment securities portfolio and other items not
allocated to the segments. For the first nine months of 2008,
the pre-tax profitability in this category was
$27.3 million higher than in the previous period. The
increase was partly due to unallocated amounts recorded in
conjunction with the Visa IPO and Discover settlement, which
included a securities gain of $22.0 million and a
$5.9 million reduction in the indemnification obligation.
In addition, net interest income in this category increased
$23.7 million partly as a result of higher earnings on the
Companys investment portfolio and lower interest expense
on overnight borrowings not allocated to a segment. These
effects were partly offset by the higher provision for loan
losses shown in this category, resulting from the excess of the
overall provision over the actual net charge-offs allocated to
the segments. In accordance with the Companys transfer
pricing policies, the excess of the total provision over
charge-offs is not allocated to a business segment. The excess
provision totaled $22.3 million and related mainly to
estimated losses on commercial-type loans.
Impact
of Recently Issued Accounting Standards
In June 2006, the FASB issued Financial Accounting Standards
Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48), which prescribes the
recognition threshold and measurement attributes necessary for
recognition in the financial statements of a tax position taken,
or expected to be taken, in a tax return. Under FIN 48, an
income tax position will be recognized if it is more likely than
not that it will be sustained upon IRS examination, based upon
its technical merits. Once that status is met, the amount
recorded will be the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate
settlement. It also provides guidance on derecognition,
classification, interest and penalties, interim period
accounting, disclosure, and transition requirements. As a result
of the Companys adoption of FIN 48, additional income
tax benefits of $446 thousand were recognized as of
January 1, 2007 as an increase to equity.
43
The Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value Measurements, on
January 1, 2008. This Statement defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. It emphasizes that fair value is a
market-based measurement and should be determined based on
assumptions that a market participant would use when pricing an
asset or liability. Additionally, it establishes a fair value
hierarchy that provides the highest priority to measurements
using quoted prices in active markets and the lowest priority to
measurements based on unobservable data. The Statement does not
require any new fair value measurements. The Statement also
modifies the guidance for initial recognition of fair value for
certain derivative contracts held by the Company. Former
accounting guidance precluded immediate recognition in earnings
of an unrealized gain or loss, measured as the difference
between the transaction price and fair value of these
instruments at initial recognition. This guidance was nullified
by the Statement. In accordance with the new recognition
requirements of the Statement, the Company increased equity by
$903 thousand on January 1, 2008.
The Company adopted Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, at
December 31, 2006. The Statement requires an employer to
recognize the overfunded or underfunded status of a defined
benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that
funded status in the year in which the changes occur through
other comprehensive income. The Companys initial
recognition at December 31, 2006 of the funded status of
its defined benefit pension plan reduced its prepaid pension
asset by $17.5 million, reduced deferred tax liabilities by
$6.6 million, and reduced the equity component of
accumulated other comprehensive income by $10.9 million.
Beginning in 2008, the Statement also requires an employer to
measure plan assets and obligations as of the date of its fiscal
year end statement of financial position. In order to transition
to a fiscal year end measurement date, the Company plans to use
earlier measurements to allocate net periodic benefit cost for
the period between September 30, 2007 (the previous
measurement date) and December 31, 2008 proportionately
between retained earnings and net periodic benefit cost
recognized during 2008. The Company plans to record the
transition adjustment to retained earnings on December 31,
2008 and does not expect it to have a material effect on the
Companys consolidated financial statements.
In September 2006, the Emerging Issues Task Force (EITF) reached
a consensus on EITF Issue
06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. This EITF Issue addresses accounting for
separate agreements which split life insurance policy benefits
between an employer and employee. The Issue requires the
employer to recognize a liability for future benefits payable to
the employee based on the substantive agreement with the
employee, because the postretirement benefit obligation is not
effectively settled through the purchase of the insurance
policy. The EITF Issue was effective January 1, 2008, and
the Companys adoption on that date resulted in a reduction
to equity of $716 thousand.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115.
This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value, on
an
instrument-by-instrument
basis. Once an entity has elected to record eligible items at
fair value, the decision is irrevocable and the entity should
report unrealized gains and losses for which the fair value
option has been elected in earnings. The Statements
objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Boards
long-term
measurement objectives for accounting for financial instruments.
The Statement may be applied to financial instruments existing
at the January 1, 2008 adoption date, financial instruments
recognized after the adoption date, and upon certain other
events. As of the adoption date and subsequent to that date, the
Company has chosen not to elect the fair value option, but
continues to consider future election and the effect on its
consolidated financial statements.
44
In November 2007, the Securities and Exchange Commission staff
issued Staff Accounting Bulletin No. 109
(SAB 109). SAB 109 provides revised guidance on the
valuation of written loan commitments accounted for at fair
value through earnings. Former guidance under SAB 105
indicated that the expected net future cash flows related to the
associated servicing of the loan should not be incorporated into
the measurement of the fair value of a derivative loan
commitment. The new guidance under SAB 109 requires these
cash flows to be included in the fair value measurement, and the
SAB requires this view to be applied on a prospective basis to
derivative loan commitments issued or modified after
January 1, 2008. The Companys application of
SAB 109 in 2008 did not have a material effect on its
consolidated financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141(revised), Business
Combinations. The Statement retains the fundamental
requirements in Statement 141 that the acquisition method of
accounting be used for business combinations, but broadens the
scope of Statement 141 and contains improvements to the
application of this method. The Statement requires an acquirer
to recognize the assets acquired, the liabilities assumed, and
any non-controlling interest in the acquiree at the acquisition
date, measured at their fair values as of that date. Costs
incurred to effect the acquisition are to be recognized
separately from the acquisition. Assets and liabilities arising
from contractual contingencies must be measured at fair value as
of the acquisition date. Contingent consideration must also be
measured at fair value as of the acquisition date. The Statement
also changes the accounting for negative goodwill arising from a
bargain purchase, requiring recognition in earnings instead of
allocation to assets acquired. For business combinations
achieved in stages (step acquisitions), the assets and
liabilities must be recognized at the full amounts of their fair
values, while under former guidance the entity was acquired in a
series of purchases, with costs and fair values being identified
and measured at each step. The Statement applies to business
combinations occurring after January 1, 2009.
Also in December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB No. 51. The Statement clarifies that
a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. The Statement
establishes a single method of accounting for changes in a
parents ownership interest if the parent retains its
controlling interest, deeming these to be equity transactions.
Such changes include the parents purchases and sales of
ownership interests in its subsidiary and the subsidiarys
acquisition and issuance of its ownership interests. The
Statement also requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated. It changes
the way the consolidated income statement is presented,
requiring consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the
noncontrolling interest, and requires disclosure of these
amounts on the face of the consolidated statement of income. The
Statement is effective on January 1, 2009. The Company does
not expect adoption of the Statement to have a significant
effect on its consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133. This Statement requires
enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items
are accounted for, and how these activities affect its financial
position, financial performance, and cash flows. The Statement
is effective for financial statements issued in 2009. The
Company does not expect adoption of the Statement to have a
significant effect on its consolidated financial statements.
45
In June 2008, the FASB posted Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. This
pronouncement defines unvested stock awards which contain
nonforfeitable rights to dividends as securities which
participate in undistributed earnings. Such participating
securities must be included in the computation of earnings per
share under the two-class method. The two-class method is an
earnings allocation formula that determines earnings per share
for common stock and participating securities according to
dividends declared and participation rights in undistributed
earnings. The Company is required to apply the two-class method
to its computation of earnings per share effective
January 1, 2009, and does not expect its application to
have a significant effect on the computation of earnings per
share attributable to common shareholders.
In September 2008, the FASB issued Staff Position
No. FAS 133-1
and
FIN 45-4,
which requires additional disclosures about credit derivatives
and guarantees, effective for the December 31, 2008 and
subsequent reporting periods. Its provisions require additional
disclosures which address the potential adverse effects of
changes in credit risk on the financial position, financial
performance, and cash flows on the sellers of credit derivatives
and certain guarantees subject to FIN 45. The Company does
not expect the application of these requirements to have a
significant effect on its consolidated financial statements.
46
AVERAGE
BALANCE SHEETS AVERAGE RATES AND YIELDS
Three
Months Ended September 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2008
|
|
|
Third Quarter 2007
|
|
|
|
|
|
|
Interest
|
|
|
Avg. Rates
|
|
|
|
|
|
Interest
|
|
|
Avg. Rates
|
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$
|
3,473,797
|
|
|
$
|
40,857
|
|
|
|
4.68
|
%
|
|
$
|
3,103,903
|
|
|
$
|
53,104
|
|
|
|
6.79
|
%
|
Real estate construction
|
|
|
698,420
|
|
|
|
8,393
|
|
|
|
4.78
|
|
|
|
705,232
|
|
|
|
13,274
|
|
|
|
7.47
|
|
Real estate business
|
|
|
2,324,683
|
|
|
|
33,879
|
|
|
|
5.80
|
|
|
|
2,220,136
|
|
|
|
39,674
|
|
|
|
7.09
|
|
Real estate personal
|
|
|
1,508,736
|
|
|
|
21,805
|
|
|
|
5.75
|
|
|
|
1,538,279
|
|
|
|
22,941
|
|
|
|
5.92
|
|
Consumer
|
|
|
1,717,075
|
|
|
|
30,533
|
|
|
|
7.07
|
|
|
|
1,605,879
|
|
|
|
30,165
|
|
|
|
7.45
|
|
Home equity
|
|
|
479,025
|
|
|
|
5,683
|
|
|
|
4.72
|
|
|
|
446,208
|
|
|
|
8,538
|
|
|
|
7.59
|
|
Consumer credit card
|
|
|
790,303
|
|
|
|
21,369
|
|
|
|
10.76
|
|
|
|
670,973
|
|
|
|
21,704
|
|
|
|
12.83
|
|
Overdrafts
|
|
|
12,381
|
|
|
|
|
|
|
|
|
|
|
|
14,468
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
11,004,420
|
|
|
|
162,519
|
|
|
|
5.88
|
|
|
|
10,305,078
|
|
|
|
189,400
|
|
|
|
7.29
|
|
|
|
Loans held for sale
|
|
|
352,283
|
|
|
|
3,774
|
|
|
|
4.26
|
|
|
|
293,610
|
|
|
|
5,049
|
|
|
|
6.82
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
|
117,311
|
|
|
|
1,204
|
|
|
|
4.08
|
|
|
|
397,470
|
|
|
|
4,049
|
|
|
|
4.04
|
|
State and municipal
obligations(A)
|
|
|
700,250
|
|
|
|
8,763
|
|
|
|
4.98
|
|
|
|
595,076
|
|
|
|
6,645
|
|
|
|
4.43
|
|
Mortgage and asset-backed securities
|
|
|
2,453,686
|
|
|
|
31,068
|
|
|
|
5.04
|
|
|
|
2,095,312
|
|
|
|
25,292
|
|
|
|
4.79
|
|
Trading securities
|
|
|
23,278
|
|
|
|
198
|
|
|
|
3.38
|
|
|
|
16,343
|
|
|
|
219
|
|
|
|
5.32
|
|
Other marketable
securities(A)
|
|
|
81,552
|
|
|
|
668
|
|
|
|
3.26
|
|
|
|
134,156
|
|
|
|
2,171
|
|
|
|
6.42
|
|
Non-marketable securities
|
|
|
144,476
|
|
|
|
2,004
|
|
|
|
5.52
|
|
|
|
98,177
|
|
|
|
1,193
|
|
|
|
4.82
|
|
|
|
Total investment securities
|
|
|
3,520,553
|
|
|
|
43,905
|
|
|
|
4.96
|
|
|
|
3,336,534
|
|
|
|
39,569
|
|
|
|
4.71
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
419,628
|
|
|
|
2,125
|
|
|
|
2.01
|
|
|
|
511,834
|
|
|
|
6,351
|
|
|
|
4.92
|
|
|
|
Total interest earning assets
|
|
|
15,296,884
|
|
|
|
212,323
|
|
|
|
5.52
|
|
|
|
14,447,056
|
|
|
|
240,369
|
|
|
|
6.60
|
|
|
|
Less allowance for loan losses
|
|
|
(144,174
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,878
|
)
|
|
|
|
|
|
|
|
|
Unrealized gain on investment securities
|
|
|
17,356
|
|
|
|
|
|
|
|
|
|
|
|
13,461
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
464,422
|
|
|
|
|
|
|
|
|
|
|
|
471,745
|
|
|
|
|
|
|
|
|
|
Land, buildings and equipment, net
|
|
|
411,578
|
|
|
|
|
|
|
|
|
|
|
|
403,781
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
341,033
|
|
|
|
|
|
|
|
|
|
|
|
325,857
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
16,387,099
|
|
|
|
|
|
|
|
|
|
|
$
|
15,529,022
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY:
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
410,201
|
|
|
|
321
|
|
|
|
.31
|
|
|
$
|
392,317
|
|
|
|
540
|
|
|
|
.55
|
|
Interest checking and money market
|
|
|
7,498,605
|
|
|
|
14,481
|
|
|
|
.77
|
|
|
|
7,025,694
|
|
|
|
30,633
|
|
|
|
1.73
|
|
Time open and C.D.s of less than $100,000
|
|
|
2,041,276
|
|
|
|
16,128
|
|
|
|
3.14
|
|
|
|
2,389,019
|
|
|
|
28,541
|
|
|
|
4.74
|
|
Time open and C.D.s of $100,000 and over
|
|
|
1,554,804
|
|
|
|
11,542
|
|
|
|
2.95
|
|
|
|
1,485,637
|
|
|
|
18,812
|
|
|
|
5.02
|
|
|
|
Total interest bearing deposits
|
|
|
11,504,886
|
|
|
|
42,472
|
|
|
|
1.47
|
|
|
|
11,292,667
|
|
|
|
78,526
|
|
|
|
2.76
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,368,050
|
|
|
|
5,417
|
|
|
|
1.58
|
|
|
|
1,628,453
|
|
|
|
20,277
|
|
|
|
4.94
|
|
Other
borrowings(B)
|
|
|
1,103,224
|
|
|
|
10,011
|
|
|
|
3.61
|
|
|
|
346,076
|
|
|
|
4,209
|
|
|
|
4.83
|
|
|
|
Total borrowings
|
|
|
2,471,274
|
|
|
|
15,428
|
|
|
|
2.48
|
|
|
|
1,974,529
|
|
|
|
24,486
|
|
|
|
4.92
|
|
|
|
Total interest bearing liabilities
|
|
|
13,976,160
|
|
|
|
57,900
|
|
|
|
1.65
|
%
|
|
|
13,267,196
|
|
|
|
103,012
|
|
|
|
3.08
|
%
|
|
|
Non-interest bearing demand deposits
|
|
|
668,191
|
|
|
|
|
|
|
|
|
|
|
|
660,681
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
126,280
|
|
|
|
|
|
|
|
|
|
|
|
132,545
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,616,468
|
|
|
|
|
|
|
|
|
|
|
|
1,468,600
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
16,387,099
|
|
|
|
|
|
|
|
|
|
|
$
|
15,529,022
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
|
|
|
|
$
|
154,423
|
|
|
|
|
|
|
|
|
|
|
$
|
137,357
|
|
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
4.02
|
%
|
|
|
|
|
|
|
|
|
|
|
3.77
|
%
|
|
|
|
|
(A)
|
Stated on a tax equivalent basis
using a federal income tax rate of 35%.
|
(B)
|
Interest expense capitalized on
construction projects is not deducted from the interest expense
shown above.
|
47
AVERAGE
BALANCE SHEETS AVERAGE RATES AND YIELDS
Nine
Months Ended September 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months 2008
|
|
|
Nine Months 2007
|
|
|
|
|
|
|
Interest
|
|
|
Avg. Rates
|
|
|
|
|
|
Interest
|
|
|
Avg. Rates
|
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$
|
3,509,030
|
|
|
$
|
131,475
|
|
|
|
5.00
|
%
|
|
$
|
3,075,994
|
|
|
$
|
156,998
|
|
|
|
6.82
|
%
|
Real estate construction
|
|
|
694,119
|
|
|
|
26,783
|
|
|
|
5.15
|
|
|
|
670,077
|
|
|
|
37,436
|
|
|
|
7.47
|
|
Real estate business
|
|
|
2,280,431
|
|
|
|
103,853
|
|
|
|
6.08
|
|
|
|
2,197,714
|
|
|
|
116,109
|
|
|
|
7.06
|
|
Real estate personal
|
|
|
1,515,084
|
|
|
|
66,310
|
|
|
|
5.85
|
|
|
|
1,514,058
|
|
|
|
67,372
|
|
|
|
5.95
|
|
Consumer
|
|
|
1,676,139
|
|
|
|
90,131
|
|
|
|
7.18
|
|
|
|
1,529,894
|
|
|
|
84,193
|
|
|
|
7.36
|
|
Home equity
|
|
|
468,060
|
|
|
|
18,273
|
|
|
|
5.21
|
|
|
|
440,030
|
|
|
|
25,381
|
|
|
|
7.71
|
|
Consumer credit card
|
|
|
779,025
|
|
|
|
62,265
|
|
|
|
10.68
|
|
|
|
650,345
|
|
|
|
63,260
|
|
|
|
13.01
|
|
Overdrafts
|
|
|
12,387
|
|
|
|
|
|
|
|
|
|
|
|
12,701
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
10,934,275
|
|
|
|
499,090
|
|
|
|
6.10
|
|
|
|
10,090,813
|
|
|
|
550,749
|
|
|
|
7.30
|
|
|
|
Loans held for sale
|
|
|
332,134
|
|
|
|
11,314
|
|
|
|
4.55
|
|
|
|
332,944
|
|
|
|
17,314
|
|
|
|
6.95
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
|
206,627
|
|
|
|
6,336
|
|
|
|
4.10
|
|
|
|
423,310
|
|
|
|
12,673
|
|
|
|
4.00
|
|
State and municipal
obligations(A)
|
|
|
590,902
|
|
|
|
21,817
|
|
|
|
4.93
|
|
|
|
600,622
|
|
|
|
20,446
|
|
|
|
4.55
|
|
Mortgage and asset-backed securities
|
|
|
2,449,704
|
|
|
|
92,026
|
|
|
|
5.02
|
|
|
|
2,075,947
|
|
|
|
74,039
|
|
|
|
4.77
|
|
Trading securities
|
|
|
31,834
|
|
|
|
958
|
|
|
|
4.02
|
|
|
|
19,768
|
|
|
|
719
|
|
|
|
4.86
|
|
Other marketable
securities(A)
|
|
|
107,434
|
|
|
|
2,984
|
|
|
|
3.71
|
|
|
|
135,689
|
|
|
|
6,136
|
|
|
|
6.05
|
|
Non-marketable securities
|
|
|
128,525
|
|
|
|
5,406
|
|
|
|
5.62
|
|
|
|
88,645
|
|
|
|
3,765
|
|
|
|
5.68
|
|
|
|
Total investment securities
|
|
|
3,515,026
|
|
|
|
129,527
|
|
|
|
4.92
|
|
|
|
3,343,981
|
|
|
|
117,778
|
|
|
|
4.71
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
444,042
|
|
|
|
7,790
|
|
|
|
2.34
|
|
|
|
523,747
|
|
|
|
20,093
|
|
|
|
5.13
|
|
|
|
Total interest earning assets
|
|
|
15,225,477
|
|
|
|
647,721
|
|
|
|
5.68
|
|
|
|
14,291,485
|
|
|
|
705,934
|
|
|
|
6.60
|
|
|
|
Less allowance for loan losses
|
|
|
(140,166
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,150
|
)
|
|
|
|
|
|
|
|
|
Unrealized gain on investment securities
|
|
|
39,898
|
|
|
|
|
|
|
|
|
|
|
|
18,799
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
460,038
|
|
|
|
|
|
|
|
|
|
|
|
461,347
|
|
|
|
|
|
|
|
|
|
Land, buildings and equipment, net
|
|
|
411,778
|
|
|
|
|
|
|
|
|
|
|
|
396,968
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
343,106
|
|
|
|
|
|
|
|
|
|
|
|
304,465
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
16,340,131
|
|
|
|
|
|
|
|
|
|
|
$
|
15,340,914
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY:
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
400,551
|
|
|
|
998
|
|
|
|
.33
|
|
|
$
|
398,660
|
|
|
|
1,627
|
|
|
|
.55
|
|
Interest checking and money market
|
|
|
7,363,577
|
|
|
|
48,771
|
|
|
|
.88
|
|
|
|
6,971,670
|
|
|
|
86,995
|
|
|
|
1.67
|
|
Time open and C.D.s of less than $100,000
|
|
|
2,181,529
|
|
|
|
61,855
|
|
|
|
3.79
|
|
|
|
2,348,467
|
|
|
|
82,777
|
|
|
|
4.71
|
|
Time open and C.D.s of $100,000 and over
|
|
|
1,576,578
|
|
|
|
42,728
|
|
|
|
3.62
|
|
|
|
1,474,521
|
|
|
|
55,291
|
|
|
|
5.01
|
|
|
|
Total interest bearing deposits
|
|
|
11,522,235
|
|
|
|
154,352
|
|
|
|
1.79
|
|
|
|
11,193,318
|
|
|
|
226,690
|
|
|
|
2.71
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,471,561
|
|
|
|
23,051
|
|
|
|
2.09
|
|
|
|
1,688,512
|
|
|
|
64,021
|
|
|
|
5.07
|
|
Other
borrowings(B)
|
|
|
944,516
|
|
|
|
26,368
|
|
|
|
3.73
|
|
|
|
225,125
|
|
|
|
8,033
|
|
|
|
4.77
|
|
|
|
Total borrowings
|
|
|
2,416,077
|
|
|
|
49,419
|
|
|
|
2.73
|
|
|
|
1,913,637
|
|
|
|
72,054
|
|
|
|
5.03
|
|
|
|
Total interest bearing liabilities
|
|
|
13,938,312
|
|
|
|
203,771
|
|
|
|
1.95
|
%
|
|
|
13,106,955
|
|
|
|
298,744
|
|
|
|
3.05
|
%
|
|
|
Non-interest bearing demand deposits
|
|
|
663,087
|
|
|
|
|
|
|
|
|
|
|
|
643,702
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
148,510
|
|
|
|
|
|
|
|
|
|
|
|
126,139
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,590,222
|
|
|
|
|
|
|
|
|
|
|
|
1,464,118
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
16,340,131
|
|
|
|
|
|
|
|
|
|
|
$
|
15,340,914
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
|
|
|
|
$
|
443,950
|
|
|
|
|
|
|
|
|
|
|
$
|
407,190
|
|
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
(A)
|
Stated on a tax equivalent basis
using a federal income tax rate of 35%.
|
(B)
|
Interest expense capitalized on
construction projects is not deducted from the interest expense
shown above.
|
48
|
|
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest rate risk management focuses on maintaining consistent
growth in net interest income within Board-approved policy
limits. The Company primarily uses earnings simulation models to
analyze net interest sensitivity to movement in interest rates.
The Company performs monthly simulations which model interest
rate movements and risk in accordance with changes to its
balance sheet composition. For further discussion of the
Companys market risk, see the Interest Rate Sensitivity
section of Managements Discussion and Analysis of
Consolidated Financial Condition and Results of Operations
included in the Companys 2007 Annual Report on
Form 10-K.
The table below shows the effect that gradual rising
and/or
falling interest rates over a twelve month period would have on
the Companys net interest income given a static balance
sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
$ Change in
|
|
|
% Change in
|
|
|
$ Change in
|
|
|
% Change in
|
|
|
$ Change in
|
|
|
% Change in
|
|
|
|
Net Interest
|
|
|
Net Interest
|
|
|
Net Interest
|
|
|
Net Interest
|
|
|
Net Interest
|
|
|
Net Interest
|
|
(Dollars in millions)
|
|
Income
|
|
|
Income
|
|
|
Income
|
|
|
Income
|
|
|
Income
|
|
|
Income
|
|
|
|
|
200 basis points rising
|
|
$
|
8.7
|
|
|
|
1.46
|
%
|
|
$
|
6.1
|
|
|
|
1.01
|
%
|
|
$
|
2.3
|
|
|
|
.40
|
%
|
100 basis points rising
|
|
|
4.7
|
|
|
|
.79
|
|
|
|
3.7
|
|
|
|
.60
|
|
|
|
2.0
|
|
|
|
.34
|
|
100 basis points falling
|
|
|
(3.1
|
)
|
|
|
(.51
|
)
|
|
|
(.8
|
)
|
|
|
(.14
|
)
|
|
|
(1.2
|
)
|
|
|
(.20
|
)
|
|
|
The table above reflects the expectation that the Companys
net interest income would continue to improve as a result of
rising rates, however, the Companys risk to falling rates
showed an increase in overall risk. As of September 30,
2008, under a 200 basis point rising rate scenario, net
interest income is expected to increase by $8.7 million,
compared with increases of $6.1 million and
$2.3 million at June 30, 2008 and December 31,
2007, respectively. Under a 100 basis point increase, as of
September 30, 2008 net interest income is expected to
increase $4.7 million compared with increases of
$3.7 million at June 30, 2008 and $2.0 million at
December 31, 2007. The Companys exposure to falling
rates during the current quarter increased over the prior
quarter, as under a 100 basis point falling rate scenario,
net interest income would decrease by $3.1 million compared
with an $800 thousand decline in the previous quarter.
As shown in the table above, at September 30, 2008 under
the rising rate scenarios, the Companys net interest
income is expected to increase due to several factors, including
growth in loan balances with variable rates or short-term fixed
rates, and growth in non-maturity deposits, which have lower
rates and can re-price upwards more slowly. Also during the
third quarter of 2008, certificates of deposit balances, which
carry higher rates, declined while other borrowed funds, mostly
with lower fixed rates, increased. The same factors which
increased the modeled interest income under rising rate
scenarios also helped to increase interest rate risk in a
falling rate environment. The higher risk to falling rates this
quarter was mainly the result of an increase in loans, a decline
in federal funds purchased and repurchase agreements, which
essentially have variable rates, and an increase in other
borrowings, which have fixed rates. However, the fact that rates
on such products as interest checking, savings and certain money
market accounts were already low, limits further rate declines
in the modeling assumptions. The Company believes that its
approach to interest rate risk has appropriately considered its
susceptibility to both rising and falling rates and has adopted
strategies which minimize impacts of interest rate risk.
|
|
Item 4.
|
CONTROLS
AND PROCEDURES
|
An evaluation was performed under the supervision and with the
participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in
Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of September 30, 2008. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures were
effective. There were not any significant changes in the
Companys internal control over financial reporting that
occurred during the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
49
PART II:
OTHER
INFORMATION
|
|
Item 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
The following table sets forth information about the
Companys purchases of its $5 par value common stock,
its only class of stock registered pursuant to Section 12
of the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
Maximum Number that
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
as part of Publicly
|
|
|
May Yet Be Purchased
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Announced Program
|
|
|
Under the Program
|
|
|
|
|
July 1 31, 2008
|
|
|
1,132
|
|
|
$
|
39.34
|
|
|
|
1,132
|
|
|
|
2,904,814
|
|
August 1 31, 2008
|
|
|
668
|
|
|
$
|
44.46
|
|
|
|
668
|
|
|
|
2,904,146
|
|
September 1 30, 2008
|
|
|
200
|
|
|
$
|
45.00
|
|
|
|
200
|
|
|
|
2,903,946
|
|
|
|
Total
|
|
|
2,000
|
|
|
$
|
41.62
|
|
|
|
2,000
|
|
|
|
2,903,946
|
|
|
|
In February 2008, the Board of Directors approved the purchase
of up to 3,000,000 shares of the Companys common
stock. At September 30, 2008, 2,903,946 shares remain
available to be purchased under the current authorization.