e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 2005
Commission File No. 0-2989
COMMERCE BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
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Missouri
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(State of Incorporation) |
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43-0889454
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(IRS Employer Identification No.) |
1000 Walnut,
Kansas City, MO
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(Address of principal executive offices) |
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64106
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(Zip Code) |
(816) 234-2000
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(Registrants telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the
Act:
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NONE
Securities registered pursuant to Section 12(g) of the
Act:
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Title of class
$5 Par Value Common Stock
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act.
Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of February 9, 2006, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was approximately
$2,707,000,000.
As of February 9, 2006, there were 66,865,364 shares of
Registrants $5 Par Value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Registrants definitive proxy statement for
its 2006 annual meeting of shareholders, which will be filed
within 120 days of December 31, 2005, are incorporated
by reference into Part III of this Report.
Commerce Bancshares, Inc.
Form 10-K
2
PART I
Item 1. BUSINESS
General
Commerce Bancshares, Inc. (the Company), a bank
holding company as defined in the Bank Holding Company Act of
1956, as amended, was incorporated under the laws of Missouri on
August 4, 1966. The Company presently owns all of the
outstanding capital stock of three national banking
associations, which are headquartered in Missouri (the
Missouri bank), Kansas (the Kansas
bank), and Nebraska (the Nebraska bank). The
Nebraska bank is limited in its activities to the issuance of
credit cards. The remaining two banking subsidiaries engage in
general banking business, providing a broad range of retail,
corporate, investment, trust, and asset management products and
services to individuals and businesses. The Company also owns,
directly or through its banking subsidiaries, various
non-banking subsidiaries. Their activities include owning real
estate leased to the Companys banking subsidiaries,
underwriting credit life and credit accident and health
insurance, selling property and casualty insurance (relating to
consumer loans made by the banking subsidiaries), venture
capital investment, securities brokerage, mortgage banking, and
leasing activities. The Company owns a second tier holding
company that is the direct owner of both the Missouri and Kansas
banks. A list of the Companys subsidiaries is included as
Exhibit 21.
The Company is the largest bank holding company headquartered in
Missouri. At December 31, 2005, the Company had
consolidated assets of $13.9 billion, loans of
$8.9 billion, deposits of $10.9 billion, and
stockholders equity of $1.3 billion.
The Missouri bank is the Companys largest, with total
assets of $12.4 billion and comprising approximately 91% of
the Companys total banking assets. The banks
facilities are located throughout Missouri, in eastern Kansas,
and in the Peoria and Bloomington areas in Illinois. The Kansas
bank has total assets of $1.2 billion. It has significant
operations and banking facilities in the areas of Wichita, Hays,
Hutchinson, and Garden City, Kansas.
The markets these banks serve, being centrally located in the
Midwest, provide natural sites for production and distribution
facilities and also serve as transportation hubs. The economy
has been well-diversified with many major industries
represented, including telecommunications, automobile
manufacturing, aircraft manufacturing, health care, numerous
service industries, food production and agricultural production
and related industries. In addition, several of the Illinois
markets are located in areas with some of the most productive
farmland in the world. The banks operate in areas with stable
real estate markets, which in the past have avoided the volatile
prices that other parts of the country have experienced.
The Company regularly evaluates the potential acquisition of,
and holds discussions with, various financial institutions
eligible for bank holding company ownership or control. In
addition, the Company regularly considers the potential
disposition of certain of its assets and branches. The
Companys most recent acquisition was in January 2003 when
it purchased The Vaughn Group, Inc., a direct equipment lessor
based in Cincinnati, Ohio with a portfolio of direct financing,
sales type and operating leases. The last bank acquisition was
in March 2001, when the Company acquired Breckenridge Bancshares
Company and its subsidiary, Centennial Bank. For additional
information on acquisition and branch disposition activity,
refer to pages 14 and 56.
Operating Segments
The Company is managed in three operating segments. The Consumer
segment includes the retail branch network, consumer installment
lending, personal mortgage banking, bank card activities,
student lending, and discount brokerage services. It provides
services through a network of 191 full-service branches, a
widespread ATM network of 385 machines, and the use of
alternative delivery channels such as extensive online banking
and telephone banking services. In 2005 this retail segment
contributed 54% of total segment pre-tax income. The Commercial
segment provides a full array of corporate lending,
3
leasing, and international services, as well as business and
government deposit and cash management services. In 2005 it
contributed 37% of total segment pre-tax income. The Money
Management segment provides traditional trust and estate tax
planning services, and advisory and discretionary investment
portfolio management services. This segment also manages the
Companys family of proprietary mutual funds, which are
available for sale to both trust and general retail customers.
Fixed income investments are sold to individuals and
institutional investors through the Capital Markets group, which
is also included in this segment. At December 31, 2005 the
Money Management segment managed investments with a market value
of $10.6 billion and administered an additional
$9.1 billion in non-managed assets. Additional information
relating to operating segments can be found on pages 37 and
71.
Supervision and Regulation
The Company, as a bank holding company, is primarily regulated
by the Board of Governors of the Federal Reserve System under
the Bank Holding Company Act of 1956 (BHC Act). Under the BHC
Act, the Federal Reserve Boards prior approval is required
in any case in which the Company proposes to acquire all or
substantially all of the assets of any bank, acquire direct or
indirect ownership or control of more than 5% of the voting
shares of any bank, or merge or consolidate with any other bank
holding company. The BHC Act also prohibits, with certain
exceptions, the Company from acquiring direct or indirect
ownership or control of more than 5% of any class of voting
shares of any non-banking company. Under the BHC Act, the
Company may not engage in any business other than managing and
controlling banks or furnishing certain specified services to
subsidiaries and may not acquire voting control of non-banking
companies unless the Federal Reserve Board determines such
businesses and services to be closely related to banking. When
reviewing bank acquisition applications for approval, the
Federal Reserve Board considers, among other things, each
subsidiary banks record in meeting the credit needs of the
communities it serves in accordance with the Community
Reinvestment Act of 1977, as amended (CRA). The Missouri, Kansas
and Nebraska bank charters have current CRA ratings of
outstanding.
The Company is required to file with the Federal Reserve Board
various reports and such additional information as the Federal
Reserve Board may require. The Federal Reserve Board also makes
regular examinations of the Company and its subsidiaries. The
Companys three banking subsidiaries are organized as
national banking associations and are subject to regulation,
supervision and examination by the Office of the Comptroller of
the Currency (OCC). All banks are also subject to regulation by
the Federal Deposit Insurance Corporation. In addition, there
are numerous other federal and state laws and regulations which
control the activities of the Company and its banking
subsidiaries, including requirements and limitations relating to
capital and reserve requirements, permissible investments and
lines of business, transactions with affiliates, loan limits,
mergers and acquisitions, issuance of securities, dividend
payments, and extensions of credit. This regulatory framework is
intended primarily for the protection of depositors and the
preservation of the federal deposit insurance funds, and not for
the protection of security holders. Statutory and regulatory
controls increase a bank holding companys cost of doing
business and limit the options of its management to employ
assets and maximize income.
In addition to its regulatory powers, the Federal Reserve
impacts the conditions under which the Company operates by its
influence over the national supply of bank credit. The Federal
Reserve Board employs open market operations in
U.S. government securities, changes in the discount rate on
bank borrowings, changes in the federal funds rate on overnight
inter-bank borrowings, and changes in reserve requirements on
bank deposits in implementing its monetary policy objectives.
These instruments are used in varying combinations to influence
the overall level of the interest rates charged on loans and
paid for deposits, the price of the dollar in foreign exchange
markets and the level of inflation. The monetary policies of the
Federal Reserve have had a significant effect on the operating
results of financial institutions in the past, most notably the
low rate environment in recent years. In view of changing
conditions in the national economy and in the money markets, as
well as the effect of credit policies of monetary and fiscal
authorities, no prediction can be made as to possible future
changes in interest rates, deposit levels or loan demand, or
their effect on the financial statements of the Company.
4
Under Federal Reserve policy, the Company is expected to act as
a source of financial strength to each of its bank subsidiaries
and to commit resources to support each bank subsidiary in
circumstances when it might not otherwise do so. In addition,
any capital loans by a bank holding company to any of its
subsidiary banks are subordinate in right of payment to deposits
and to certain other indebtedness of such subsidiary banks. In
the event of a bank holding companys bankruptcy, any
commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank
will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
The principal source of the Companys cash revenues is
dividends from the subsidiary banks. The Federal Reserve Board
may prohibit the payment of dividends by bank holding companies
if their actions constitute unsafe or unsound practices. The OCC
limits the payment of dividends by bank subsidiaries in any
calendar year to the net profit of the current year combined
with the retained net profits of the preceding two years.
Permission must be obtained from the OCC for dividends exceeding
these amounts. The payment of dividends by the bank subsidiaries
may also be affected by factors such as the maintenance of
adequate capital.
The Company is required to comply with the capital adequacy
standards established by the Federal Reserve. These capital
adequacy guidelines generally require bank holding companies to
maintain total capital equal to 8% of total risk-adjusted assets
and off-balance sheet items (the Total Risk-Based Capital
Ratio), with at least one-half of that amount consisting
of Tier I or core capital and the remaining amount
consisting of Tier II or supplementary capital. Tier I
capital for bank holding companies generally consists of the sum
of common shareholders equity, qualifying non-cumulative
perpetual preferred stock, a limited amount of qualifying
cumulative perpetual preferred stock and minority interests in
the equity accounts of consolidated subsidiaries, less goodwill
and other non-qualifying intangible assets. Tier II capital
generally consists of hybrid capital instruments, term
subordinated debt and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the
risk-based guidelines to take into account different risk
characteristics.
In addition, the Federal Reserve also requires bank holding
companies to comply with minimum leverage ratio requirements.
The leverage ratio is the ratio of a banking organizations
Tier I capital to its total consolidated quarterly average
assets (as defined for regulatory purposes), net of the
allowance for loan losses, goodwill and certain other intangible
assets. The minimum leverage ratio for bank holding companies is
4%. At December 31, 2005 all of the subsidiary banks were
well-capitalized under regulatory capital adequacy
standards, as further discussed on page 74.
These laws and regulations are under constant review by various
agencies and legislatures, and are subject to sweeping change.
The Gramm-Leach-Bliley Financial Modernization Act of 1999 (GLB
Act) contained major changes in laws that previously kept the
banking industry largely separate from the securities and
insurance industries. The GLB Act authorized the creation of a
new kind of financial institution, known as a financial
holding company and a new kind of bank subsidiary called a
financial subsidiary, which may engage in a broader
range of investment banking, insurance agency, brokerage, and
underwriting activities. The GLB Act also included privacy
provisions that limit banks abilities to disclose
non-public information about customers to non-affiliated
entities. Banking organizations are not required to become
financial holding companies, but instead may continue to operate
as bank holding companies, providing the same services they were
authorized to provide prior to the enactment of the GLB Act.
5
In 2001, President Bush signed into law comprehensive
anti-terrorism legislation known as the USA Patriot Act.
Title III of the USA Patriot Act substantially broadened
the scope of U.S. anti-money laundering laws and
regulations by imposing significant new compliance and due
diligence obligations, creating new crimes and penalties and
expanding the extra-territorial jurisdiction of the United
States. The U.S. Treasury Department issued a number of
regulations implementing the USA Patriot Act that apply certain
of its requirements to financial institutions such as the
Companys broker-dealer subsidiary. The regulations impose
new obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent
and report money laundering and terrorist financing. In December
2005, Congress voted to extend some expiring provisions of the
Patriot Act for six months.
The Bankruptcy Abuse Prevention and Consumer Protection Act of
2005, a major reform of the bankruptcy system, was passed by
Congress and signed into law by President Bush in April 2005.
Changes instituted by this new law took effect on
October 17, 2005. Under the new bankruptcy law, bankruptcy
applicants who wish to file under Chapter 7 must meet
certain eligibility requirements under a means test.
While the immediate impact on the banking industry was a surge
in bankruptcy filings in the fourth quarter of 2005, the
long-term effect of the change is expected to be a reduction in
bankruptcy filings, thereby limiting bankruptcy-related loan
charge-offs.
Competition
The Companys locations in regional markets throughout
Missouri, Kansas and central Illinois face intense competition
from hundreds of financial service providers. The Company
competes with national and state banks for deposits, loans and
trust accounts, and with savings and loan associations and
credit unions for deposits. In addition, the Company competes
with other financial intermediaries such as securities brokers
and dealers, personal loan companies, insurance companies,
finance companies, and certain governmental agencies. The
methods of competition center around various factors, such as
customer services, interest rates on loans and deposits, lending
limits and customer convenience, such as location of offices.
The passage of the GLB Act, which removed barriers between
banking and the securities and insurance industries, has
resulted in greater competition among these industries.
Employees
The Company and its subsidiaries employed 4,397 persons on a
full-time basis and 662 persons on a part-time basis at
December 31, 2005. The Company provides a variety of
benefit programs including retirement and 401K plans as well as
group life, health, accident, and other insurance. The Company
also maintains training and educational programs designed to
prepare employees for positions of increasing responsibility.
Available Information
The Companys principal offices are located at 1000 Walnut,
Kansas City, Missouri (telephone number 816-234-2000). The
Company makes available free of charge, through its web site at
www.commercebank.com, reports filed with the Securities and
Exchange Commission as soon as reasonably practicable after the
electronic filing. These filings include the annual report on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K, and all
amendments to those reports.
6
Statistical Disclosure
The information required by Securities Act Guide 3
Statistical Disclosure by Bank Holding Companies is
located on the pages noted below.
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Page | |
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I.
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Distribution of Assets, Liabilities and Stockholders
Equity; Interest Rates and Interest Differential
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16, 42-45 |
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II.
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Investment Portfolio
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28-30, 59-61 |
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III.
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Loan Portfolio
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Types of Loans
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20 |
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Maturities and Sensitivities of Loans to Changes in Interest
Rates
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21 |
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Risk Elements
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26-28 |
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IV.
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Summary of Loan Loss Experience
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24-26 |
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V.
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Deposits
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42-43, 63 |
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VI.
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Return on Equity and Assets
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13 |
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VII.
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Short-Term Borrowings
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63-65 |
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Item 1a. RISK FACTORS
Investments in Commerce Bancshares, Inc. common stock involve
risk. The market price of the Companys common stock may
fluctuate significantly in response to a number of factors,
including:
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Changes in securities analysts estimates of financial
performance |
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Volatility of stock market prices and volumes |
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Rumors or erroneous information |
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Changes in market valuations of similar companies |
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Changes in interest rates |
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New developments in the banking industry |
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Variations in quarterly or annual operating results |
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New litigation or changes in existing litigation |
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Regulatory actions |
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Changes in accounting policies or procedures as may be required
by the Financial Accounting Standards Board or other regulatory
agencies |
Geographical Risk
The Companys main markets are included in the states of
Missouri, Kansas and central Illinois. Since the Company does
not have significant presence in other parts of the country, a
prolonged economic downturn in these markets could negatively
impact the Company.
Industry Risk
The Company operates in the financial services industry, a
rapidly changing environment having numerous competitors
including other banks and insurance companies, securities
dealers, brokers, trust and investment companies and mortgage
bankers. The pace of consolidation among financial service
providers is accelerating and there are many new changes in
technology, product offerings and regulation.
7
The Company must continue to make investments in its products
and delivery systems to stay competitive with the industry as a
whole or its financial performance may suffer.
Regulatory Risk
The Company and its subsidiaries are subject to extensive state
and federal regulation, supervision and legislation that govern
nearly every aspect of its operations. Changes to these laws
could affect the Companys ability to deliver or expand its
services and diminish the value of its business.
Interest Rate Risk
The Companys net interest income is the largest source of
overall revenue to the Company and is mainly based on the
difference between interest earned on loans and investment
securities, and the interest paid on deposits and other
borrowings. Interest rates are beyond the Companys
control, and they fluctuate in response to general economic
conditions and the policies of various governmental and
regulatory agencies, in particular, the Federal Reserve Board.
Changes in monetary policy, including changes in interest rates,
will influence the origination of loans, the purchase of
investments, the generation of deposits, and the rates received
on loans and investment securities and paid on deposits. Refer
to page 35 for a discussion of the Companys interest
rate sensitivity and interest rate risk.
Lending Risk
There are inherent risks associated with the Companys
lending activities. Changes in economic conditions and changes
in interest rates among other things could impact
borrowers capabilities to repay the Company outstanding
loans. For a complete discussion of the risk elements of the
Companys loan portfolio, please refer to page 26.
Litigation Risk
From time to time, the Company is subject to claims and
litigation from customers and other individuals. Whether such
claims and legal action are founded or unfounded, if such claims
and legal actions are not resolved in a manner favorable to the
Company, they may result in significant financial liability
and/or adversely affect the market perception of the Company and
its products and services. Any financial liability or reputation
damage could have a material adverse effect on the
Companys business and financial performance.
Item 1b. UNRESOLVED STAFF COMMENTS
None
8
Item 2. PROPERTIES
The bank subsidiaries maintain their main offices in various
multi-story office buildings. The Missouri bank owns its main
offices and leases unoccupied premises to the public. The larger
offices include:
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Net rentable | |
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% occupied | |
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% occupied | |
Building |
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square footage | |
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in total | |
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by bank | |
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922 Walnut
Kansas City, MO
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256,000 |
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93 |
% |
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91 |
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1000 Walnut
Kansas City, MO
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403,000 |
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77 |
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34 |
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720 Main
Kansas City, MO
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194,000 |
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100 |
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100 |
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811 Main
Kansas City, MO
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225,000 |
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23 |
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23 |
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8000 Forsyth
Clayton, MO
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178,000 |
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95 |
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93 |
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1551 N. Waterfront Pkwy Wichita, KS |
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120,000 |
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100 |
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34 |
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The Nebraska credit card bank leases its offices in Omaha,
Nebraska. Additionally, certain other installment loan, trust
and safe deposit functions operate out of leased offices in
downtown Kansas City. The Company has an additional 184 branch
locations in Missouri, Illinois and Kansas which are owned or
leased, and 151 off-site ATM locations.
In 2005, the Missouri bank purchased a multi-story office
building at 811 Main, which is currently undergoing renovation.
The bank expects to move its backroom check operations from its
building at 720 Main to the new facility and eventually sell the
720 Main building. Also in 2005, the Kansas bank completed
construction on a new multi-story building in Wichita and moved
its principal operations staff to this location.
Item 3. LEGAL PROCEEDINGS
The information required by this item is set forth in
Item 8 under Note 18, Commitments, Contingencies and
Guarantees on page 79.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted during the fourth quarter of 2005 to a
vote of security holders through the solicitation of proxies or
otherwise.
9
Executive Officers of the Registrant
The following are the executive officers of the Company, each of
whom is designated annually, and there are no arrangements or
understandings between any of the persons so named and any other
person pursuant to which such person was designated an executive
officer.
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Name and Age | |
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Positions with Registrant |
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Jeffery D. Aberdeen, 52 |
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Controller of the Company since December 1995. Prior thereto he
was Assistant Controller of the Company. He is Controller of the
Companys subsidiary banks, Commerce Bank, N.A. (Missouri,
Kansas and Omaha). |
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Kevin G. Barth, 45 |
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Executive Vice President of the Company since April 2005 and
Executive Vice President of Commerce Bank, N.A. (Missouri),
since October 1998. Senior Vice President of the Company and
Officer of Commerce Bank, N.A. (Missouri) prior thereto. |
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A. Bayard Clark, 60 |
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Chief Financial Officer, Executive Vice President and Treasurer
of the Company since December 1995. Executive Vice President of
the Company prior thereto. |
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Sara E. Foster, 45 |
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Senior Vice President of the Company since February 1998 and
Vice President of the Company prior thereto. |
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David W. Kemper, 55 |
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Chairman of the Board of Directors of the Company since November
1991, Chief Executive Officer of the Company since June 1986,
and President of the Company since April 1982. He is Chairman of
the Board, President and Chief Executive Officer of Commerce
Bank, N.A. (Missouri). He is the son of James M.
Kemper, Jr. (a former Director and former Chairman of the
Board of the Company) and the brother of Jonathan M.
Kemper, Vice Chairman of the Company. |
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Jonathan M. Kemper, 52 |
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Vice Chairman of the Company since November 1991 and Vice
Chairman of Commerce Bank, N.A. (Missouri) since December 1997.
Prior thereto, he was Chairman of the Board, Chief Executive
Officer, and President of Commerce Bank, N.A. (Missouri). He is
the son of James M. Kemper, Jr. (a former Director and
former Chairman of the Board of the Company) and the brother of
David W. Kemper, Chairman, President, and Chief Executive
Officer of the Company. |
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Charles G. Kim, 45 |
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Executive Vice President of the Company since April 1995 and
Executive Vice President of Commerce Bank, N.A. (Missouri) since
January 2004. Prior thereto, he was Senior Vice President of
Commerce Bank, N.A. (Clayton, MO), a former subsidiary of the
Company. |
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Seth M. Leadbeater, 55 |
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Vice Chairman of the Company since January 2004. Prior thereto
he was Executive Vice President of the Company. He has been Vice
Chairman of Commerce Bank, N.A. (Missouri) since September 2004.
Prior thereto he was Executive Vice President of Commerce Bank,
N.A. (Missouri) and President of Commerce Bank, N.A. (Clayton,
MO). |
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Robert C. Matthews, Jr., 58 |
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Executive Vice President of the Company since December 1989.
Executive Vice President of Commerce Bank, N.A. (Missouri) since
December 1997. |
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Michael J. Petrie, 49 |
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Senior Vice President of the Company since April 1995. Prior
thereto, he was Vice President of the Company. |
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Name and Age | |
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Positions with Registrant |
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Robert J. Rauscher, 48 |
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Senior Vice President of the Company since October 1997. Senior
Vice President of Commerce Bank, N.A. (Missouri) prior thereto. |
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V. Raymond Stranghoener, 54 |
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Executive Vice President of the Company since July 2005 and
Senior Vice President of the Company prior thereto. Prior to his
employment with the Company in October 1999, he was employed at
BankAmerica Corp. as National Executive of the Bank of America
Private Bank Wealth Strategies Group. He joined Boatmens
Trust Company in 1993, which subsequently merged with
BankAmerica Corp. |
PART II
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Item 5. |
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
Commerce Bancshares, Inc.
Common Stock Data
The following table sets forth the high and low prices of actual
transactions for the Companys common stock (CBSH) and
cash dividends paid for the periods indicated (restated for the
5% stock dividend distributed in December 2005).
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Quarter |
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| |
2005
|
|
First |
|
$ |
47.62 |
|
|
$ |
44.11 |
|
|
$ |
.229 |
|
|
|
Second |
|
|
48.50 |
|
|
|
43.94 |
|
|
|
.229 |
|
|
|
Third |
|
|
52.11 |
|
|
|
47.22 |
|
|
|
.229 |
|
|
|
Fourth |
|
|
53.63 |
|
|
|
47.57 |
|
|
|
.229 |
|
|
2004
|
|
First |
|
$ |
45.35 |
|
|
$ |
40.59 |
|
|
$ |
.209 |
|
|
|
Second |
|
|
43.69 |
|
|
|
39.91 |
|
|
|
.209 |
|
|
|
Third |
|
|
44.66 |
|
|
|
40.15 |
|
|
|
.209 |
|
|
|
Fourth |
|
|
47.85 |
|
|
|
42.46 |
|
|
|
.209 |
|
|
2003
|
|
First |
|
$ |
35.57 |
|
|
$ |
30.41 |
|
|
$ |
.143 |
|
|
|
Second |
|
|
35.85 |
|
|
|
30.84 |
|
|
|
.143 |
|
|
|
Third |
|
|
39.56 |
|
|
|
33.08 |
|
|
|
.194 |
|
|
|
Fourth |
|
|
44.75 |
|
|
|
37.72 |
|
|
|
.194 |
|
|
Commerce Bancshares, Inc. common shares are publicly traded on
The Nasdaq Stock Market (NASDAQ). NASDAQ is a highly-regulated
electronic securities market comprised of competing Market
Makers whose trading is supported by a communications network
linking them to quotation dissemination, trade reporting, and
order execution systems. In January 2006, the Securities and
Exchange Commission approved its application to become a
registered national securities exchange. The Company had
4,522 shareholders of record as of December 31, 2005.
11
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 |
|
October 131, 2005
|
|
|
304,361 |
|
|
$ |
51.53 |
|
|
|
304,361 |
|
|
|
4,944,096 |
|
November 130, 2005
|
|
|
521,421 |
|
|
$ |
53.99 |
|
|
|
521,421 |
|
|
|
4,422,675 |
|
December 131, 2005
|
|
|
334,459 |
|
|
$ |
52.81 |
|
|
|
334,459 |
|
|
|
4,088,216 |
|
|
Total
|
|
|
1,160,241 |
|
|
$ |
53.00 |
|
|
|
1,160,241 |
|
|
|
4,088,216 |
|
|
On October 21, 2005, the Company announced that its Board
of Directors had approved a new authorization for the purchase
of up to 5,000,000 shares of Company common stock. The
Company had recently completed the repurchase of
5,000,000 shares pursuant to a prior authorization by the
Board of Directors.
|
|
Item 6. |
SELECTED FINANCIAL DATA |
The required information is set forth below in Item 7.
|
|
Item 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
Commerce Bancshares, Inc. (the Company) operates as a
super-community bank offering an array of sophisticated
financial products delivered with high-quality, personal
customer service. It is the largest bank holding company
headquartered in Missouri, with its principal offices in Kansas
City and St. Louis, Missouri. Customers are served from
approximately 340 locations in Missouri, Kansas, and Illinois,
using delivery platforms which include an extensive network of
branches and ATM machines, full-featured online banking, and a
central contact center.
The core of the Companys competitive advantage is its
concentration on relationship banking with high service levels
and competitive products. In order to enhance shareholder value,
the Company focuses on growing its core revenue by expanding new
and existing customer relationships, utilizing improved
technology, and enhancing customer satisfaction.
Various indicators are used by management in evaluating the
Companys financial condition and operating performance.
Among these indicators are the following:
|
|
|
|
|
Growth in earnings per share Diluted earnings per
share rose 7.1% over 2004 and has risen 8.2%, compounded
annually, over the last 5 years. |
|
|
|
Growth in total revenue Total revenue is comprised
of net interest income and non-interest income, and grew 2.3%
over 2004. It has risen 2.7%, compounded annually, over the last
five years. The growth in total revenue during 2005 resulted
from modest growth in net interest income, coupled with 4.4%
growth in non-interest income. |
|
|
|
Expense control Total non-interest expense grew by
2.9% this year due to prudent management oversight and expanded
use of technology, creating productivity enhancements. Salaries
and employee benefits, the largest expense component, grew by
2.8%. The efficiency ratio was 59.3% in 2005. |
|
|
|
Asset quality Net loan charge-offs in 2005 were $446
thousand less than in 2004, and averaged .38% of loans compared
to .41% in the previous year. Non-performing assets at year end
2005 declined 38% compared to the previous year. |
12
|
|
|
|
|
Shareholder return Total shareholder return,
including the stock price and dividends, totaled 11.3% over the
past 5 years and 14.7% over the past 10 years. |
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
related notes. The historical trends reflected in the financial
information presented below are not necessarily reflective of
anticipated future results.
Key Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Based on average balance sheets): |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
Return on total assets
|
|
|
1.60 |
% |
|
|
1.56 |
% |
|
|
1.52 |
% |
|
|
1.58 |
% |
|
|
1.52 |
% |
Return on stockholders equity
|
|
|
16.19 |
|
|
|
15.19 |
|
|
|
14.27 |
|
|
|
14.42 |
|
|
|
14.56 |
|
Tier I capital ratio
|
|
|
12.21 |
|
|
|
12.21 |
|
|
|
12.31 |
|
|
|
12.67 |
|
|
|
12.28 |
|
Total capital ratio
|
|
|
13.63 |
|
|
|
13.57 |
|
|
|
13.70 |
|
|
|
14.05 |
|
|
|
13.64 |
|
Leverage ratio
|
|
|
9.43 |
|
|
|
9.60 |
|
|
|
9.71 |
|
|
|
10.18 |
|
|
|
9.81 |
|
Efficiency ratio*
|
|
|
59.30 |
|
|
|
59.16 |
|
|
|
58.83 |
|
|
|
58.62 |
|
|
|
58.79 |
|
Loans to deposits
|
|
|
81.34 |
|
|
|
78.71 |
|
|
|
79.96 |
|
|
|
79.29 |
|
|
|
82.49 |
|
Net yield on interest earning assets (tax equivalent basis)
|
|
|
3.89 |
|
|
|
3.81 |
|
|
|
4.04 |
|
|
|
4.39 |
|
|
|
4.35 |
|
Non-interest bearing deposits to total deposits
|
|
|
6.23 |
|
|
|
12.47 |
|
|
|
10.81 |
|
|
|
9.96 |
|
|
|
11.63 |
|
Equity to total assets
|
|
|
9.87 |
|
|
|
10.25 |
|
|
|
10.68 |
|
|
|
10.97 |
|
|
|
10.46 |
|
Cash dividend payout ratio
|
|
|
28.92 |
|
|
|
28.26 |
|
|
|
25.19 |
|
|
|
21.78 |
|
|
|
22.76 |
|
|
|
|
* |
The efficiency ratio is calculated as non-interest expense
(excluding intangibles amortization) as a percent of net
interest income and non-interest income (excluding gains/losses
on securities transactions). |
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(In thousands, except per share data) |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
Net interest income
|
|
$ |
501,702 |
|
|
$ |
497,331 |
|
|
$ |
502,392 |
|
|
$ |
499,965 |
|
|
$ |
468,775 |
|
Provision for loan losses
|
|
|
28,785 |
|
|
|
30,351 |
|
|
|
40,676 |
|
|
|
34,108 |
|
|
|
36,423 |
|
Non-interest income
|
|
|
341,199 |
|
|
|
326,931 |
|
|
|
301,667 |
|
|
|
280,572 |
|
|
|
274,999 |
|
Non-interest expense
|
|
|
496,522 |
|
|
|
482,769 |
|
|
|
472,144 |
|
|
|
458,200 |
|
|
|
443,097 |
|
Net income
|
|
|
223,247 |
|
|
|
220,341 |
|
|
|
206,524 |
|
|
|
196,310 |
|
|
|
178,712 |
|
Net income per share-basic*
|
|
|
3.21 |
|
|
|
3.00 |
|
|
|
2.71 |
|
|
|
2.49 |
|
|
|
2.23 |
|
Net income per share-diluted*
|
|
|
3.16 |
|
|
|
2.95 |
|
|
|
2.67 |
|
|
|
2.46 |
|
|
|
2.20 |
|
Cash dividends
|
|
|
63,421 |
|
|
|
61,135 |
|
|
|
51,266 |
|
|
|
42,185 |
|
|
|
40,254 |
|
Cash dividends per share*
|
|
|
.914 |
|
|
|
.834 |
|
|
|
.674 |
|
|
|
.535 |
|
|
|
.501 |
|
Market price per share*
|
|
|
52.12 |
|
|
|
47.81 |
|
|
|
44.46 |
|
|
|
33.94 |
|
|
|
32.08 |
|
Book value per share*
|
|
|
19.79 |
|
|
|
19.91 |
|
|
|
19.38 |
|
|
|
18.33 |
|
|
|
16.07 |
|
Common shares outstanding*
|
|
|
67,609 |
|
|
|
71,670 |
|
|
|
74,850 |
|
|
|
77,595 |
|
|
|
79,456 |
|
Total assets
|
|
|
13,885,545 |
|
|
|
14,250,368 |
|
|
|
14,287,164 |
|
|
|
13,308,415 |
|
|
|
12,908,146 |
|
Loans
|
|
|
8,899,183 |
|
|
|
8,305,359 |
|
|
|
8,142,679 |
|
|
|
7,875,944 |
|
|
|
7,638,482 |
|
Investment securities
|
|
|
3,770,181 |
|
|
|
4,837,368 |
|
|
|
5,039,194 |
|
|
|
4,275,248 |
|
|
|
3,732,257 |
|
Deposits
|
|
|
10,851,813 |
|
|
|
10,434,309 |
|
|
|
10,206,208 |
|
|
|
9,913,311 |
|
|
|
10,031,885 |
|
Long-term debt
|
|
|
269,390 |
|
|
|
389,542 |
|
|
|
300,977 |
|
|
|
338,457 |
|
|
|
392,586 |
|
Stockholders equity
|
|
|
1,337,838 |
|
|
|
1,426,880 |
|
|
|
1,450,954 |
|
|
|
1,422,452 |
|
|
|
1,277,157 |
|
Non-performing assets
|
|
|
11,713 |
|
|
|
18,775 |
|
|
|
33,685 |
|
|
|
29,539 |
|
|
|
30,768 |
|
|
|
|
* |
Restated for the 5% stock dividend distributed in December
2005. |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
05-04 | |
|
04-03 | |
|
05-04 | |
|
04-03 | |
| |
Net interest income
|
|
$ |
501,702 |
|
|
$ |
497,331 |
|
|
$ |
502,392 |
|
|
$ |
4,371 |
|
|
$ |
(5,061 |
) |
|
|
.9 |
% |
|
|
(1.0 |
)% |
Provision for loan losses
|
|
|
(28,785 |
) |
|
|
(30,351 |
) |
|
|
(40,676 |
) |
|
|
(1,566 |
) |
|
|
(10,325 |
) |
|
|
(5.2 |
) |
|
|
(25.4 |
) |
Non-interest income
|
|
|
341,199 |
|
|
|
326,931 |
|
|
|
301,667 |
|
|
|
14,268 |
|
|
|
25,264 |
|
|
|
4.4 |
|
|
|
8.4 |
|
Non-interest expense
|
|
|
(496,522 |
) |
|
|
(482,769 |
) |
|
|
(472,144 |
) |
|
|
13,753 |
|
|
|
10,625 |
|
|
|
2.8 |
|
|
|
2.3 |
|
Income taxes
|
|
|
(94,347 |
) |
|
|
(90,801 |
) |
|
|
(84,715 |
) |
|
|
3,546 |
|
|
|
6,086 |
|
|
|
3.9 |
|
|
|
7.2 |
|
|
Net income
|
|
$ |
223,247 |
|
|
$ |
220,341 |
|
|
$ |
206,524 |
|
|
$ |
2,906 |
|
|
$ |
13,817 |
|
|
|
1.3 |
% |
|
|
6.7 |
% |
|
13
The Companys fully diluted earnings per share amounted to
$3.16 in 2005 compared to $2.95 in 2004, an increase of 7.1%.
Net income for 2005 was $223.2 million, which increased
1.3% over 2004, making 2005 the 21st consecutive year of
record earnings. Return on assets amounted to 1.60% compared
with 1.56% last year and the return on equity totaled 16.19%
compared to 15.19% last year. The efficiency ratio was 59.30% in
2005 compared with 59.16% in 2004.
The increase in net income in 2005 compared to 2004 was due to
growth in non-interest income and an improving net interest
margin, combined with effective expense management and a lower
loan loss provision. Non-interest income rose
$14.3 million, or 4.4%, largely due to increases of 10.3%
in bank card fees, 7.2% in deposit account fees, and 6.3% in
trust revenues. The growth in non-interest expense was
constrained to 2.8%, mainly the result of lower costs for
supplies and communications (down 1.2%), coupled with increases
in salaries and benefits (up 2.9%) and modest increases in
occupancy, equipment, and data processing and software costs.
Net interest income increased $4.4 million, reflecting the
effects of higher average overall rates earned on loans and
growth in average loan balances, partly offset by declining
average balances in investment securities. Also, interest
expense on deposit transaction accounts and short-term
borrowings rose, mainly related to increases by the Federal
Reserve in short-term interest rates during 2005. The provision
for loan losses decreased $1.6 million to
$28.8 million, reflecting lower business loan net
charge-offs, partly offset by higher credit card and personal
banking net loan charge-offs. Income tax expense increased 3.9%
in 2005 and resulted in an effective tax rate of 29.7%, which
was comparable to 29.2% in the prior year. Income tax expense in
2005 included the recognition of tax benefits of
$13.7 million, representing the effects of certain
corporate restructuring initiatives, and compares to
$18.9 million of similar benefits recorded in 2004.
Net income in 2004 was $220.3 million, which was a
$13.8 million, or 6.7%, increase over 2003. Diluted
earnings per share increased 10.5% to $2.95 compared to $2.67 in
2003. The increase in net income over 2003 was mainly due to
growth in non-interest income of $25.3 million, or 8.4%,
coupled with lower credit costs and strong expense control. The
increase in non-interest income was largely due to increases in
bank card fees of 16.6% and deposit account fees of 7.9%, partly
offset by declines in bond trading account revenue and loan fees
and sales. Non-interest expense increased 2.3%, mainly due to
increases in data processing costs (up 13.4%) and marketing
costs (up 15.9%). Net interest income declined $5.1 million
from 2003, partly due to slower growth in business and business
real estate loans. In addition, interest expense on deposits and
borrowings rose, as the Federal Reserve began a series of
short-term rate increases in the second half of 2004. The
provision for loan losses decreased $10.3 million to
$30.4 million, largely due to decreases in business real
estate, overdraft and consumer net loan charge-offs. Income tax
expense increased 7.2% and included tax benefits of
$18.9 million relating to the initiatives mentioned above,
compared to similar benefits of $15.2 million in 2003.
Effective January 2003, the Company acquired The Vaughn Group,
Inc. (Vaughn), a direct equipment lessor based in Cincinnati,
Ohio. At acquisition, Vaughn had a lease portfolio that was
principally comprised of $32.8 million of direct financing
leases. These leases are secured mainly by computer hardware and
office equipment. In addition, at the date of acquisition Vaughn
serviced approximately $350 million of lease agreements for
other institutions involving capital equipment, ranging from
production machinery to transportation equipment. The Company
issued a combination of cash and stock to complete this
purchase. Goodwill of $5.3 million was recognized in the
transaction and recorded in the 2003 consolidated balance sheet.
The Company continually evaluates its network of bank branches
throughout Missouri, Kansas and Illinois. As a result of this
evaluation process, the Company may periodically sell the assets
and liabilities of certain branches, or may sell specific
banking facilities. In 2005, the Company sold four bank
facilities, realizing pre-tax gains of $802 thousand on the
sales. The Company sold three bank facilities during 2004,
compared to two in 2003. The gains and losses realized on the
sales of those premises in 2004 and 2003 were not significant.
During 2004, the Company sold a branch with loans of
$12.9 million and deposits of $16.5 million, realizing
a pre-tax gain of $1.1 million.
14
The Company distributed a 5% stock dividend for the twelfth
consecutive year on December 13, 2005. All per share and
average share data in this report has been restated to reflect
the 2005 stock dividend.
Critical Accounting Policies
The Companys consolidated financial statements are
prepared based on the application of certain accounting
policies, the most significant of which are described in
Note 1 to the consolidated financial statements. Certain of
these policies 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 period or in
future periods. The use of estimates, assumptions, and judgments
are necessary most often when financial assets and liabilities
are required to be recorded at, or adjusted to reflect, fair
value. Assets and liabilities carried at fair value inherently
result in more financial statement volatility. Fair values and
the information used to record valuation adjustments for certain
assets and liabilities are based on either quoted market prices
or are provided by other independent third-party sources, when
available. When such information is not available, management
estimates valuation adjustments primarily by using internal cash
flow and other financial modeling techniques. Changes in
underlying factors, assumptions, or estimates in any of these
areas could have a material impact on the Companys future
financial condition and results of operations.
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 and accounting for income taxes.
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, nevertheless,
actual outcomes may differ significantly from estimated results,
especially in the areas of determining allowances for business,
lease, construction and business real estate loans. These loan
types are normally larger and more complex, and their collection
rates are harder to predict. Consumer loans, including personal
mortgage, credit card and personal loans, are individually
smaller and perform in a more homogenous manner, making loss
estimates more predictable. Extensive explanation of the
methodologies used in establishing the allowance is provided in
the Allowance for Loan Losses section of this discussion.
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. Discussion of income taxes is presented
on page 20 of this discussion and in Note 9 on Income
Taxes in the consolidated financial statements.
15
Net Interest Income
Net interest income, the largest source of revenue, results from
the Companys lending, investing, borrowing, and deposit
gathering activities. It is affected by both changes in the
level of interest rates and changes in the amounts and mix of
interest earning assets and interest bearing liabilities. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
| |
|
|
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
|
|
$ |
22,000 |
|
|
$ |
74,224 |
|
|
$ |
96,224 |
|
|
$ |
9,864 |
|
|
$ |
(18,049 |
) |
|
$ |
(8,185 |
) |
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
|
(25,872 |
) |
|
|
(2,148 |
) |
|
|
(28,020 |
) |
|
|
7,762 |
|
|
|
(7,010 |
) |
|
|
752 |
|
|
State and municipal obligations
|
|
|
3,182 |
|
|
|
(682 |
) |
|
|
2,500 |
|
|
|
(506 |
) |
|
|
(223 |
) |
|
|
(729 |
) |
|
Mortgage and asset-backed securities
|
|
|
(1,240 |
) |
|
|
10,391 |
|
|
|
9,151 |
|
|
|
14,141 |
|
|
|
(11,995 |
) |
|
|
2,146 |
|
|
Other securities
|
|
|
1,238 |
|
|
|
5,342 |
|
|
|
6,580 |
|
|
|
(1,222 |
) |
|
|
(1,191 |
) |
|
|
(2,413 |
) |
Federal funds sold and securities purchased under agreements to
resell
|
|
|
543 |
|
|
|
2,247 |
|
|
|
2,790 |
|
|
|
266 |
|
|
|
215 |
|
|
|
481 |
|
|
Total interest income
|
|
|
(149 |
) |
|
|
89,374 |
|
|
|
89,225 |
|
|
|
30,305 |
|
|
|
(38,253 |
) |
|
|
(7,948 |
) |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
4 |
|
|
|
5 |
|
|
|
9 |
|
|
|
78 |
|
|
|
(179 |
) |
|
|
(101 |
) |
|
Interest checking and money market
|
|
|
189 |
|
|
|
25,216 |
|
|
|
25,405 |
|
|
|
538 |
|
|
|
(1,222 |
) |
|
|
(684 |
) |
|
Time open and C.D.s of less than $100,000
|
|
|
247 |
|
|
|
11,426 |
|
|
|
11,673 |
|
|
|
(3,520 |
) |
|
|
(5,996 |
) |
|
|
(9,516 |
) |
|
Time open and C.D.s of $100,000 and over
|
|
|
2,861 |
|
|
|
13,006 |
|
|
|
15,867 |
|
|
|
2,073 |
|
|
|
(1,439 |
) |
|
|
634 |
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
(2,270 |
) |
|
|
28,486 |
|
|
|
26,216 |
|
|
|
3,185 |
|
|
|
4,086 |
|
|
|
7,271 |
|
Other borrowings
|
|
|
(1,021 |
) |
|
|
4,966 |
|
|
|
3,945 |
|
|
|
498 |
|
|
|
(248 |
) |
|
|
250 |
|
|
Total interest expense
|
|
|
10 |
|
|
|
83,105 |
|
|
|
83,115 |
|
|
|
2,852 |
|
|
|
(4,998 |
) |
|
|
(2,146 |
) |
|
Net interest income, fully taxable equivalent basis
|
|
$ |
(159 |
) |
|
$ |
6,269 |
|
|
$ |
6,110 |
|
|
$ |
27,453 |
|
|
$ |
(33,255 |
) |
|
$ |
(5,802 |
) |
|
Net interest income amounted to $501.7 million in 2005,
representing an increase of $4.4 million, or less than 1%,
compared to $497.3 million in 2004. Net interest income
decreased $5.1 million, or 1.0%, in 2004 compared to
$502.4 million in 2003. The increase in net interest income
in 2005 was the result of growth of $96.2 million in tax
equivalent loan interest income as a result of higher rates and
higher average balances, partly offset by a decline of
$9.8 million in tax equivalent interest earned on
investment securities due principally to lower average balances.
Interest on deposits and total borrowings also grew by a
combined $83.1 million as a result of higher rates on all
categories of deposits and borrowings. The increase in rates on
both interest earning assets and interest bearing liabilities
was the result of eight 25 basis point rate increases
initiated by the Federal Reserve in 2005. As a result of these
rate changes and the change in the mix of assets and liabilities
on the Companys balance sheet, the net yield on interest
earning assets was 3.89% in 2005 compared to 3.81% in 2004.
16
During 2004, net interest income decreased slightly from amounts
recorded in 2003 mainly because of downward re-pricing of
interest earning assets during the first half of 2004, and lower
rates on securities purchased during the year. However, during
the second half of 2004, the Federal Reserve initiated five
25 basis point increases, which raised rates earned on many
loans in the Companys loan portfolio tied to variable
rates. The increase in loan yields, however, was partially
offset by an increase in the borrowing costs of federal funds
purchased due to increases in short-term interest rates. Yields
on earning assets declined 29 basis points from 2003, while
rates paid on deposits decreased 12 basis points and rates
paid on other borrowings increased 17 basis points. As a
result, the Companys net interest margin narrowed to 3.81%
from 4.04% in 2003.
Total interest income was $697.6 million in 2005 compared
to $610.1 million in 2004 and $617.4 million in 2003.
Tax equivalent interest income did not materially differ.
Interest income increased in 2005 by $87.5 million, or
14.3%, as a result of a $95.9 million increase in income
from loans offset slightly by an $11.3 million decrease in
interest income from investment securities. The tax equivalent
average rate earned on interest earning assets was 5.40% in 2005
compared to 4.67% in 2004, representing a 73 basis point
increase. Interest income on loans increased as a result of an
86 basis point increase in the average yield, coupled with
a $431.4 million, or 5.3%, increase in the average balance
in 2005 compared to 2004. The increase in interest income on
loans was offset slightly by a decrease in interest income on
investment securities. The tax equivalent average yield on
investment securities increased 27 basis points, which was
offset by a $569.5 million, or 11.6%, decrease in the
investment securities average balance, resulting in an overall
decrease in interest income earned on the investment portfolio
in 2005 compared to 2004. Because of its strong liquidity
position during 2005, the Company has funded its loan growth
principally by reducing its investment securities portfolio
through both maturities and sales. This strategy improved the
overall mix of earning assets and was a contributor to the
increase in net interest margin in 2005.
Interest expense increased $83.1 million, or 73.7%, in 2005
compared to 2004 and was impacted by the rising rate environment
noted above. Interest expense on deposits increased
$53.0 million in 2005 over the previous year as a result of
a 47 basis point average rate increase, coupled with 9.2%
growth in average interest bearing deposit balances. Average
rates paid on premium money market accounts increased
99 basis points, and both average rates and average
balances of short-term certificates of deposit increased.
Additionally, interest expense on other borrowings grew by
$30.2 million, resulting mainly from an increase in rates
of 184 basis points on federal funds purchased. Interest
rates paid on interest bearing deposits and short-term
borrowings will continue to be impacted by the changing interest
rate environment as the Company competes for funding sources to
support loan growth.
Total interest income declined $7.3 million, or 1.2%, in
2004 compared to 2003. The decline was primarily due to
decreases in rates on loans and investment securities. Average
loan balances increased $120.7 million during 2004 compared
to 2003 and this growth generated $9.9 million of interest
income; however, this increase was offset by the effect of lower
rates which reduced interest income by over $18 million.
Yields on investment securities were lower, as maturing
securities were reinvested in lower earning securities.
Additional purchases of securities, funded by growth in deposits
and other borrowed funds, increased the average by
$451.4 million and contributed $20.2 million in
additional interest income.
The average rate incurred on interest bearing liabilities was
1.00% in 2004 compared to 1.06% in 2003. The lower interest rate
environment experienced in the first half of 2004 resulted in an
interest rate decline of 12 basis points on deposits offset
by an increase of 24 basis points on short-term borrowings.
The largest decline in deposit rates was on the Companys
retail (under $100,000) certificate of deposit accounts, where
rates declined 32 basis points. In addition, rates on the
Companys jumbo (over $100,000) certificates of deposit
decreased 15 basis points. The re-pricing of short-term
borrowings as a result of the changing interest rate environment
experienced in 2004, primarily federal funds purchased, resulted
in an increase of $4.1 million in interest expense. Growth
of $277.2 million in the average balance of short-term
borrowings caused interest expense to increase $3.2 million.
17
Provision for Loan Losses
The provision for loan losses was $28.8 million in 2005,
compared with $30.4 million in 2004 and $40.7 million
in 2003. The $1.6 million decline in the 2005 provision for
loan losses reflected lower business loan net charge-offs,
partly offset by increases in credit card and personal banking
loan charge-offs. The provision for loan losses is recorded to
bring the allowance for loan losses to a level deemed adequate
by management based on the factors mentioned in the following
Allowance for Loan Losses section of this discussion.
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
05-04 | |
|
04-03 | |
|
|
|
Deposit account charges and other fees
|
|
$ |
112,979 |
|
|
$ |
105,382 |
|
|
$ |
97,711 |
|
|
|
7.2 |
% |
|
|
7.9 |
% |
|
|
Bank card transaction fees
|
|
|
86,310 |
|
|
|
78,253 |
|
|
|
67,102 |
|
|
|
10.3 |
|
|
|
16.6 |
|
|
|
Trust fees
|
|
|
68,316 |
|
|
|
64,257 |
|
|
|
60,921 |
|
|
|
6.3 |
|
|
|
5.5 |
|
|
|
Trading account profits and commissions
|
|
|
9,650 |
|
|
|
12,288 |
|
|
|
14,740 |
|
|
|
(21.5 |
) |
|
|
(16.6 |
) |
|
|
Consumer brokerage services
|
|
|
9,909 |
|
|
|
9,846 |
|
|
|
9,415 |
|
|
|
.6 |
|
|
|
4.6 |
|
|
|
Loan fees and sales
|
|
|
12,838 |
|
|
|
13,654 |
|
|
|
14,109 |
|
|
|
(6.0 |
) |
|
|
(3.2 |
) |
|
|
Net gains on securities transactions
|
|
|
6,362 |
|
|
|
11,092 |
|
|
|
4,560 |
|
|
|
(42.6 |
) |
|
|
143.2 |
|
|
|
Other
|
|
|
34,835 |
|
|
|
32,159 |
|
|
|
33,109 |
|
|
|
8.3 |
|
|
|
(2.9 |
) |
|
|
|
Total non-interest income
|
|
$ |
341,199 |
|
|
$ |
326,931 |
|
|
$ |
301,667 |
|
|
|
4.4 |
% |
|
|
8.4 |
% |
|
|
|
Total non-interest income excluding net gains on securities
transactions
|
|
$ |
334,837 |
|
|
$ |
315,839 |
|
|
$ |
297,107 |
|
|
|
6.0 |
% |
|
|
6.3 |
% |
|
|
|
Non-interest income as a % of total revenue*
|
|
|
40.5 |
% |
|
|
39.7 |
% |
|
|
37.5 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenue per full-time equivalent employee
|
|
$ |
174.2 |
|
|
$ |
171.0 |
|
|
$ |
161.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Total revenue is calculated as net interest income plus
non-interest income. |
Non-interest income was $341.2 million in 2005, which was a
$14.3 million, or 4.4%, increase over 2004, and included
net securities gains of $6.4 million in 2005 and
$11.1 million in 2004. Excluding these net securities
gains, non-interest income grew 6.0%. In 2005, deposit account
fees increased 7.2%, or $7.6 million, due to a
$15.5 million increase in overdraft and return item fees,
partly offset by a $4.9 million decline in fees earned on
commercial cash management accounts. The growth in overdraft and
return item fees over last year was the result of increasing
transaction volumes during the year and pricing changes
initiated in the third quarter of 2005. The decline in corporate
cash management fee income was largely the effect of the rising
interest rate environment. Compared to the previous year, bank
card fees increased $8.1 million, or 10.3%, mainly due to
higher fees earned on debit, credit and corporate card
transactions, which grew by 14.3%, 10.3% and 16.3%,
respectively. The strong growth in corporate card fees was
attributable to transaction fees from commercial businesses and
non-profit enterprises who are utilizing these electronic
transactions in greater proportions. Debit and credit card
transaction fees continue to grow as a result of greater
utilization rates and related retail sales. Merchant fee income
was flat compared with the previous year and was impacted by
narrowing margins on a growing transaction base.
Trust fees increased $4.1 million, or 6.3%, as a result of
increasing market values of trust account assets and new
business, occurring largely in private client trust product
lines. Private client sales efforts in 2005 resulted in new
annualized fees of $5.0 million, an increase of 37.0% over
sales results in the previous year. Total trust assets,
including managed and custodial accounts, grew to
$19.7 billion, an increase of 7.7%. Trading account fees,
consisting of fees from sales of fixed income securities,
declined 21.5% in 2005 due to lower demand by business and
correspondent bank customers. Consumer brokerage service fees
increased slightly, mainly due to higher revenues from mutual
fund and insurance sales, partly offset by lower annuity sales.
Loan fees and sales declined $816 thousand as gains on student
loan sales declined from $8.5 million in 2004 to
$8.0 million in 2005. Net gains on securities transactions
amounted to $6.4 million in 2005, which was a decrease of
$4.7 million compared to the previous year. During 2005,
the Company undertook initiatives to review and re-position its
investment securities portfo-
18
lio to address such things as concentration, duration and
interest rate risk. Consequently, during 2005 the Company sold
available for sale securities totaling $1.8 billion and
recorded net gains of $5.1 million. These sales were
comprised mainly of $533.9 million in U.S. government
agency securities, $768.4 million in asset-backed
securities, and $359.1 million in inflation-indexed
treasury securities. Also included in 2005 activity were net
gains of $1.3 million recognized on market adjustments and
sales of private equity investments.
In 2004, non-interest income increased $25.3 million, or
8.4%, to $326.9 million. Deposit account fees increased
7.9%, or $7.7 million, due to a $9.8 million increase
in overdraft and return item fees, partly offset by a
$1.5 million decline in fees earned on commercial cash
management accounts. Bank card fees increased
$11.2 million, or 16.6%, mainly due to growth in fees on
credit cardholder transactions, which rose 17.1% over the
previous year. Also, merchant fees and debit card fees increased
18.7% and 14.8%, respectively. In 2004, trust fees increased
$3.3 million, or 5.5%, because of growth in institutional
and private client trust product lines. Trading account fees
declined 16.6% in 2004 due to lower sales activity. Consumer
brokerage service fees increased 4.6% mainly due to higher
revenues from equity security sales. Loan fees and sales
declined slightly mainly due to lower personal mortgage loan
originations, partly offset by higher gains on the sales of
student loans, which increased from $7.0 million in 2003 to
$8.5 million in 2004. Net gains on securities transactions
amounted to $11.1 million in 2004, an increase of
$6.5 million over the previous year. The 2004 activity
included gains of $11.2 million resulting mainly from sales
of inflation-indexed bonds from the banks securities
portfolios, and losses of $317 thousand recognized on private
equity investments. Other non-interest income included a
$1.1 million gain on a bank branch sale in the second
quarter of 2004. In addition, farm management fees declined
$1.2 million due to the sale of the farm management
business in the third quarter of 2003.
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
05-04 | |
|
04-03 | |
|
|
|
Salaries
|
|
$ |
234,440 |
|
|
$ |
225,526 |
|
|
$ |
224,884 |
|
|
|
4.0 |
% |
|
|
.3 |
% |
|
|
Employee benefits
|
|
|
38,737 |
|
|
|
39,943 |
|
|
|
39,715 |
|
|
|
(3.0 |
) |
|
|
.6 |
|
|
|
Net occupancy
|
|
|
40,621 |
|
|
|
39,558 |
|
|
|
38,736 |
|
|
|
2.7 |
|
|
|
2.1 |
|
|
|
Equipment
|
|
|
23,201 |
|
|
|
22,903 |
|
|
|
24,104 |
|
|
|
1.3 |
|
|
|
(5.0 |
) |
|
|
Supplies and communication
|
|
|
33,342 |
|
|
|
33,760 |
|
|
|
33,474 |
|
|
|
(1.2 |
) |
|
|
.9 |
|
|
|
Data processing and software
|
|
|
48,244 |
|
|
|
46,000 |
|
|
|
40,567 |
|
|
|
4.9 |
|
|
|
13.4 |
|
|
|
Marketing
|
|
|
17,294 |
|
|
|
16,688 |
|
|
|
14,397 |
|
|
|
3.6 |
|
|
|
15.9 |
|
|
|
Other
|
|
|
60,643 |
|
|
|
58,391 |
|
|
|
56,267 |
|
|
|
3.9 |
|
|
|
3.8 |
|
|
|
|
Total non-interest expense
|
|
$ |
496,522 |
|
|
$ |
482,769 |
|
|
$ |
472,144 |
|
|
|
2.8 |
% |
|
|
2.3 |
% |
|
|
|
Efficiency ratio
|
|
|
59.3 |
% |
|
|
59.2 |
% |
|
|
58.8 |
% |
|
|
|
|
|
|
|
|
|
|
Salaries and benefits as a % of total non-interest expense
|
|
|
55.0 |
% |
|
|
55.0 |
% |
|
|
56.0 |
% |
|
|
|
|
|
|
|
|
|
|
Number of full-time equivalent employees
|
|
|
4,839 |
|
|
|
4,821 |
|
|
|
4,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense was $496.5 million in 2005, an
increase of $13.8 million, or 2.8%, over 2004. Compared
with the prior year, salary and employee benefits expense
increased $7.7 million, or 2.9%, as a result of higher
staff salaries expense, partly offset by declines in retirement
and medical insurance costs. Net occupancy expense rose 2.7%
over the prior year, mainly as a result of higher depreciation
and utilities expense on two new office buildings. These
increases were partly offset by lower net rent expense as
certain banking offices were moved from leased facilities to the
new buildings and office space was leased to outside tenants.
Equipment expense increased 1.3%, with the slight increase due
to higher costs for small equipment purchases and maintenance
contract expense. Data processing costs increased
$2.2 million, or 4.9%, due to higher bank card processing
costs (up $1.8 million and related to the higher bank card
revenues) and higher online banking processing fees, partly
offset by lower software license fees. Marketing expense
increased only $606 thousand, or 3.6%, compared to the previous
year. Other non-interest
19
expense increased $2.3 million, or 3.9%, over the prior
year mainly due to increases in proprietary mutual fund expense
subsidies, operating losses (mostly bank card fraud), and
minority interest expense relating to investment gains recorded
by venture capital affiliates. These increases were partly
offset by decreases in loan collection expense and professional
fees, in addition to higher capitalized loan costs.
Non-interest expense rose 2.3% in 2004 to a total of
$482.8 million, compared to $472.1 million in 2003.
Compared with the prior year, salary and employee benefits
expense grew slightly as a result of higher staff salaries
expense and workmans compensation insurance expense,
offset by declines in incentive payments and pension plan
expense. Net occupancy expense rose 2.1% over the prior year,
mainly due to higher net rent expense resulting from the sale of
a bank facility early in 2004, which resulted in lower outside
tenant rent income and higher rent expense as banking operations
in this facility were moved to other leased facilities.
Equipment expense declined $1.2 million, or 5.0%, due to
lower depreciation expense on computer hardware. Data processing
costs increased $5.4 million, or 13.4%, due to higher bank
card processing costs (up $2.3 million) and higher
technology software expense. Marketing expense increased
$2.3 million, or 15.9%, compared to the previous year as a
result of incentives paid on new product offerings and expanded
marketing efforts. Other non-interest expense increased
$2.2 million over the prior period mainly due to lower
capitalized loan costs and increases in loan collection expense
and operating losses. These increases were partly offset by
lower professional fees, operating lease depreciation, and
minority interest expense resulting from venture capital
activity.
Income Taxes
Income tax expense was $94.3 million, compared to
$90.8 million in 2004 and $84.7 million in 2003.
Income tax expense in 2005 increased 3.9% over 2004, compared to
a 2.1% increase in pre-tax income. The effective tax rate on
income from operations was 29.7%, 29.2% and 29.1% in 2005, 2004
and 2003, respectively. The Companys effective tax rates
were lower than the federal statutory rate of 35% mainly due to
tax exempt interest on state and municipal obligations, state
and federal tax credits realized and the recognition of
additional tax benefits from various corporate reorganization
initiatives.
In 2005, the Company recognized certain net tax benefits
associated with various corporate reorganization initiatives
amounting to $13.7 million. Similar tax benefits amounting
to $18.9 million and $15.2 million were recognized in
2004 and 2003, respectively. It is not expected that material
tax benefits of this nature will continue beyond 2005.
Financial Condition
Loan Portfolio Analysis
A schedule of average balances invested in each category of
loans appears on page 42. Classifications of consolidated
loans by major category at December 31 for each of the past
five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Balance at December 31 | |
|
|
| |
(In thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
Business
|
|
$ |
2,527,654 |
|
|
$ |
2,246,287 |
|
|
$ |
2,102,605 |
|
|
$ |
2,277,365 |
|
|
$ |
2,402,932 |
|
Real estate construction
|
|
|
424,561 |
|
|
|
427,124 |
|
|
|
427,083 |
|
|
|
404,519 |
|
|
|
412,700 |
|
Real estate business
|
|
|
1,919,045 |
|
|
|
1,743,293 |
|
|
|
1,875,069 |
|
|
|
1,736,646 |
|
|
|
1,505,443 |
|
Real estate personal
|
|
|
1,358,511 |
|
|
|
1,340,574 |
|
|
|
1,338,604 |
|
|
|
1,282,223 |
|
|
|
1,287,954 |
|
Consumer
|
|
|
1,287,348 |
|
|
|
1,193,822 |
|
|
|
1,150,732 |
|
|
|
1,088,808 |
|
|
|
1,021,195 |
|
Home equity
|
|
|
448,507 |
|
|
|
411,541 |
|
|
|
352,047 |
|
|
|
305,274 |
|
|
|
256,906 |
|
Student
|
|
|
330,238 |
|
|
|
357,991 |
|
|
|
355,763 |
|
|
|
268,719 |
|
|
|
236,549 |
|
Credit card
|
|
|
592,465 |
|
|
|
561,054 |
|
|
|
526,653 |
|
|
|
502,058 |
|
|
|
483,219 |
|
Overdrafts
|
|
|
10,854 |
|
|
|
23,673 |
|
|
|
14,123 |
|
|
|
10,332 |
|
|
|
31,584 |
|
|
Total loans, net of unearned income
|
|
$ |
8,899,183 |
|
|
$ |
8,305,359 |
|
|
$ |
8,142,679 |
|
|
$ |
7,875,944 |
|
|
$ |
7,638,482 |
|
|
20
The contractual maturities of loan categories at
December 31, 2005, and a breakdown of those loans between
fixed rate and floating rate loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Principal Payments Due | |
|
|
|
|
| |
|
|
|
|
In | |
|
After One | |
|
After | |
|
|
|
|
One Year | |
|
Year Through | |
|
Five | |
|
|
(In thousands) |
|
or Less | |
|
Five Years | |
|
Years | |
|
Total | |
| |
Business
|
|
$ |
1,428,534 |
|
|
$ |
1,024,159 |
|
|
$ |
74,961 |
|
|
$ |
2,527,654 |
|
Real estate construction
|
|
|
211,111 |
|
|
|
210,930 |
|
|
|
2,520 |
|
|
|
424,561 |
|
Real estate business
|
|
|
548,778 |
|
|
|
1,206,500 |
|
|
|
163,767 |
|
|
|
1,919,045 |
|
Real estate personal
|
|
|
107,402 |
|
|
|
277,457 |
|
|
|
973,652 |
|
|
|
1,358,511 |
|
|
Total business and real estate loans
|
|
$ |
2,295,825 |
|
|
$ |
2,719,046 |
|
|
$ |
1,214,900 |
|
|
|
6,229,771 |
|
|
Consumer(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,287,348 |
|
Home
equity(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,507 |
|
Student(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,238 |
|
Credit
card(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592,465 |
|
Overdrafts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,854 |
|
|
Total loans, net of unearned income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,899,183 |
|
|
Loans with fixed rates
|
|
$ |
393,496 |
|
|
$ |
1,291,689 |
|
|
$ |
413,219 |
|
|
$ |
2,098,404 |
|
Loans with floating rates
|
|
|
1,902,329 |
|
|
|
1,427,357 |
|
|
|
801,681 |
|
|
|
4,131,367 |
|
|
Total business and real estate loans
|
|
$ |
2,295,825 |
|
|
$ |
2,719,046 |
|
|
$ |
1,214,900 |
|
|
$ |
6,229,771 |
|
|
|
|
|
|
(1) |
Consumer loans with floating rates totaled
$104.2 million |
|
(2) |
Home equity loans with floating rates totaled
$442.7 million |
|
(3) |
Student loans with floating rates totaled
$327.4 million |
|
(4) |
Credit card loans with floating rates totaled
$470.5 million |
Total period end loans increased $593.8 million, or 7.1%,
during 2005 compared to an increase of $162.7 million, or
2.0%, during 2004. Growth in these loan balances at
December 31, 2005 compared to the previous year end came
principally from business, business real estate and consumer
loans. At the end of the third quarter of 2005, the Company
elected to make certain reclassifications among loan categories
to better realign loan reporting with related collateral and
purpose and to reclassify certain construction loans that had
moved into amortizing term loans following project completion.
The reclassifications transferred approximately $11 million
and $27 million, respectively, from the business and
construction loan categories to the business real estate loan
category.
Excluding these reclassification effects, business loans grew
$292.5 million, or 13.0%, and business real estate loans
grew $137.7 million, or 7.9%, both mainly as a result of
improving economic conditions, with added borrowings from
existing customers and new customer activity. The growth in
business real estate loans occurred mainly during the fourth
quarter of 2005; balances during the first three quarters of
2005 were stable but lower than in 2004. Lease balances,
included in the business category, increased $38.5 million,
or 21.1%, compared with the previous year end balance.
Construction loans rose $24.1 million, or 5.7%. Consumer
loans grew $93.5 million, or 7.8%, during the year mainly
as a result of continued growth in marine and recreational
vehicle lending. Home equity loans grew to $448.5 million,
an increase of $37.0 million, or 9.0%, over year end 2004.
Personal real estate loans grew by $17.9 million, as
customer originations in 2005 were slightly higher than in 2004.
Credit card loans increased $31.4 million, or 5.6%, and saw
solid growth, especially at year end when holiday activity is
normally at its peak. Student loans declined by
$27.8 million, or 7.8%, mainly due to loan sales from the
portfolio.
The growth in total loans in 2004 compared to 2003 was primarily
the result of increases in business, consumer, home equity and
credit card loans.
21
The Company currently generates approximately 31% of its loan
portfolio in the St. Louis regional market and 29% in the
Kansas City regional market. The portfolio is diversified from a
business and retail standpoint, with 55% in loans to businesses
and 45% in loans to consumers. A balanced approach to loan
portfolio management and an historical aversion toward credit
concentrations, from an industry, geographic and product
perspective, have contributed to low levels of problem loans and
loan losses.
Total business loans amounted to $2.5 billion at
December 31, 2005 and include loans used mainly to fund
customer accounts receivable, inventories, and capital
expenditures. This portfolio also includes sales type and direct
financing leases totaling $221.3 million, which are used by
commercial customers to finance capital purchases ranging from
computer equipment to office and transportation equipment. These
leases comprise 2.5% of the Companys total loan portfolio.
Business loans are made primarily to customers in the regional
trade area of the Company, generally the central Midwest,
encompassing the states of Missouri, Kansas, Illinois, and
nearby Midwestern markets, including Iowa, Oklahoma and Indiana.
The portfolio is diversified from an industry standpoint and
includes businesses engaged in manufacturing, wholesaling,
retailing, agribusiness, insurance, financial services, public
utilities, and other service businesses. Emphasis is upon
middle-market and community businesses with known local
management and financial stability. The Company participates in
credits of large, publicly traded companies when business
operations are maintained in the local communities or regional
markets and opportunities to provide other banking services are
present. Consistent with managements strategy and emphasis
upon relationship banking, most borrowing customers also
maintain deposit accounts and utilize other banking services.
There were net loan recoveries in this category of
$3.0 million in 2005 compared to net charge-offs of
$5.6 million in 2004, mainly because a $6.0 million
charge-off in 2004 on a single business loan was partially
recovered in 2005. Non-accrual business loans decreased to
$5.9 million (.2% of business loans) at December 31,
2005, and included $2.8 million in leases. Total business
non-accrual loans were $9.5 million (.4% of business loans)
at December 31, 2004. Opportunities for growth in business
loans will be based upon strong solicitation efforts in a highly
competitive market environment for quality loans. Asset quality
is, in part, a function of managements consistent
application of underwriting standards and credit terms through
stages in economic cycles. Therefore, portfolio growth in 2006
will be dependent upon 1) the strength of the economy,
2) the actions of the Federal Reserve with regard to
targets for economic growth, interest rates, and inflationary
tendencies, and 3) the competitive environment.
The portfolio of loans in this category amounted to
$424.6 million at December 31, 2005 and comprised 4.8%
of the Companys total loan portfolio. This group of loans
includes residential construction loans totaling
$113.0 million at December 31, 2005, or 27% of the
category, and commercial construction and land development loans
totaling $311.6 million, or 73%. These loans are
predominantly made to businesses in the local markets of the
Companys banking subsidiaries. Commercial construction
loans are made during the construction phase for small and
medium-sized office and medical buildings, manufacturing and
warehouse facilities, apartment complexes, shopping centers,
hotels and motels, and other commercial properties. Exposure to
larger speculative office properties remains low. Residential
construction and land development loans are primarily for
projects located in the Kansas City and St. Louis
metropolitan areas. Credit losses in this portfolio are normally
low, and there were no net charge-offs in 2005 compared to $4
thousand net charge-offs in 2004. No construction loans were on
non-accrual status at year end 2005, compared to $685 thousand
at year end 2004.
Total business real estate loans were $1.9 billion at
December 31, 2005 and comprised 21.6% of the Companys
total loan portfolio. This category includes mortgage loans for
small and medium-sized office and medical buildings,
manufacturing and warehouse facilities, shopping centers, hotels
and motels, and other commercial properties. Emphasis is placed
on owner-occupied and income producing commercial real
22
estate properties which present lower risk levels. The borrowers
and/or the properties are generally located in the local and
regional markets of the affiliate banks. At December 31,
2005, non-accrual balances amounted to $3.1 million, or .2%
of the loans in this category, compared to $6.6 million at
year end 2004. The Company experienced $497 thousand net
charge-offs in 2005 compared to net recoveries of $231 thousand
in 2004.
At December 31, 2005, there were $1.4 billion in
outstanding personal real estate loans, which comprised 15.3% of
the Companys total loan portfolio. The mortgage loans in
this category are extended, predominately, for owner-occupied
residential properties. The Company originates both adjustable
rate and fixed rate mortgage loans. The Company retains
adjustable rate mortgage loans, and may from time to time retain
certain fixed rate loans (typically
15-year fixed rate
loans) as directed by its Asset/ Liability Management Committee.
Other fixed rate loans in the portfolio have resulted from
previous bank acquisitions. At December 31, 2005, 63% of
the portfolio was comprised of adjustable rate loans while 37%
was comprised of fixed rate loans. Levels of mortgage loan
origination activity were virtually the same in both 2005 and
2004, with originations of $367 million in 2005 compared
with $366 million in 2004. Growth in mortgage loan
originations was limited in 2005 as a result of the rising
interest rate environment. The Company typically does not
experience significant loan losses in this category. There were
net charge-offs of $30 thousand in 2005 compared to $217
thousand in 2004. The non-accrual balances of loans in this
category decreased to $261 thousand at December 31, 2005,
compared to $458 thousand at year end 2004. The five year
history of net charge-offs in the personal real estate loan
category reflects nominal losses, and the credit quality of
these loans is considered to be strong.
Total personal banking loans, which include consumer, revolving
home equity and student loans, totaled $2.1 billion at
December 31, 2005 and increased on average 7.1% during
2005. These categories comprised 23.2% of the total loan
portfolio at December 31, 2005. Consumer loans consist of
auto, marine, recreational vehicle (RV) and fixed rate home
equity loans, and totaled $1.3 billion at year end 2005.
Approximately 65% are originated indirectly from auto and other
dealers, while the remaining 35% are direct loans made to
consumers. Approximately 50% of the consumer portfolio consists
of automobile loans, 26% in marine and RV loans and 7% in fixed
rate home equity lending. Revolving home equity loans, of which
99% are adjustable rate loans, totaled $448.5 million at
year end 2005. An additional $567.6 million was outstanding
in unused lines of credit, which can be drawn at the discretion
of the borrower. Home equity loans are secured mainly by second
mortgages (and less frequently, first mortgages) on residential
property of the borrower. The underwriting terms for the home
equity line product permit borrowing availability, in the
aggregate, generally up to 80% or 90% of the appraised value of
the collateral property, although a small percentage may permit
borrowing up to 100% of appraised value. Given reasonably stable
real estate values over time, the collateral margin improves
with the regular amortization of mortgages against the
properties. The Company originates loans to students attending
colleges and universities, which totaled $330.2 million at
year end 2005. These loans are normally sold to the secondary
market when the students graduate and the loans enter into
repayment status. Nearly all of these loans are based on a
variable rate.
Net charge-offs for total personal banking loans were
$8.8 million in 2005 compared to $7.5 million in 2004.
Net charge-offs increased to .43% of average personal banking
loans in 2005 compared to .39% in 2004. Consistent with industry
trends, the higher personal banking loan net charge-offs
occurred from an increase in bankruptcy notices received mainly
in the fourth quarter 2005 in conjunction with the enactment of
new bankruptcy legislation, which took effect during the same
quarter.
Total credit card loans amounted to $592.5 million at
December 31, 2005 and comprised 6.7% of the Companys
total loan portfolio. The credit card portfolio is concentrated
within regional markets served by
23
the Company. The Company offers a variety of credit card
products, including affinity cards, corporate purchase cards,
and standard and premium credit cards. It emphasizes its credit
card relationship product, Special Connections, in which the
customer maintains a deposit relationship with a subsidiary
bank. The Special Connections product allows the customer ATM
access using the same card. The Company has found this product
to be more profitable by incurring fewer credit losses than
other card products, and it allows for better cross sale into
other bank products. Approximately 61% of the households in
Missouri that own a Commerce credit card product also maintain a
deposit relationship with a subsidiary bank. Approximately 79%
of the outstanding credit card loans have a floating interest
rate. Net charge-offs amounted to $24.4 million in 2005,
which was a $5.0 million increase over 2004. The increase
in credit card loan net charge-offs occurred mainly in the
fourth quarter 2005 and was reflective of higher bankruptcy
notices received in conjunction with the new bankruptcy
legislation noted above. The ratio of net loan charge-offs to
total average loans of 4.4% in 2005 and 3.8% in 2004 remained
below national loss averages. The Company refrains from national
pre-approved mailing techniques which have caused some of the
credit card problems experienced by other banking companies.
With bankruptcy legislation now in place which makes bankruptcy
filings more difficult, the Company believes this new
environment will result in lower loan losses in the future.
Allowance for Loan Losses
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 an allocated and an unallocated
component. To determine the allocated component of the
allowance, the Company combines estimates of the reserves needed
for loans evaluated on an individual basis with 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 commercial and
commercial real estate loans on non-accrual status or graded
substandard and delinquent 60 days or more. 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 categories
and industry concentrations. Although management has allocated a
portion of the allowance to specific loan categories, the
adequacy of the allowance must be considered in its entirety.
The Companys estimate of the allowance for loan losses and
the corresponding provision for loan losses rests upon various
judgments and assumptions made by management. Factors that
influence these judgments include past loan loss experience,
current loan portfolio composition and characteristics, trends
in portfolio risk ratings, levels of non-performing assets,
prevailing regional and national economic conditions, and the
Companys ongoing examination process including that of its
regulators. The Company has internal credit administration and
loan review staffs that continuously review loan quality and
report the results of their reviews and examinations to the
Companys senior management and Board of Directors. Such
reviews also assist management in establishing the level of the
allowance. The Companys subsidiary banks continue to be
subject to examination by the Office of the Comptroller of the
Currency (OCC) and examinations are conducted throughout
the year targeting various segments of the loan portfolio for
review. In addition to the examination of subsidiary banks by
the OCC, the parent holding company and its non-bank
subsidiaries are examined by the Federal Reserve Bank.
The allowance for loan losses was $128.4 million and
$132.4 million at December 31, 2005 and 2004,
respectively, and was 1.44% and 1.59% of loans outstanding. The
decline in the allowance in 2005 resulted mainly from an
improvement in the credit quality of the loan portfolio,
evidenced by a decrease in net loan charge-offs and a 38%
decrease in non-performing assets. The allowance for loan losses
covered non-performing loans by 1305% at year end 2005 and 751%
at year end 2004. Net charge-offs totaled $32.7 million in
2005, and decreased $446 thousand compared to $33.2 million
in 2004. The ratio of net charge-offs to average loans
outstanding in 2005 was .38% compared to .41% in 2004 and .46%
in 2003. The provision
24
for loan losses was $28.8 million, compared to a provision
of $30.4 million in 2004 and $40.7 million in 2003.
Approximately 75% of total net loan charge-offs were related to
credit card loans. Net credit card charge-offs increased to
4.40% of average credit card loans in 2005 compared to 3.77% in
2004. This increase was partially a result of the increased
bankruptcies claimed in 2005 as a result of the new bankruptcy
legislation, which took effect in the fourth quarter. The
delinquency rate on credit card loans at year end 2005 was 2.76%
compared to 2.45% at year end 2004.
Net charge-offs for overdrafts increased $1.4 million in
2005 compared to 2004 as a result of an increase in charge-offs
coupled with a decrease in recoveries. Charge-offs increased
partially due to the increase in bankruptcies filed in 2005 and
partially due to the Companys increased efforts to charge
accounts off when the account becomes 60 days past due as
opposed to its previous practice of charging off accounts at
90 days past due.
Business loan charge-offs decreased $8.7 million during
2005 compared with 2004, mainly the result of one large loan
charge-off of $6.0 million recorded in 2004. In 2005,
recoveries of $2.4 million on this loan and previously
charged off lease loans were recorded, resulting in the
significant increase in loan recoveries compared with the
previous year.
The Company considers the allowance for loan losses of
$128.4 million adequate to cover losses inherent in the
loan portfolio at December 31, 2005.
The following schedule provides a breakdown of the allowance for
loan losses by loan category and the percentage of each loan
category to total loans outstanding at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
|
|
Loan Loss | |
|
% of Loans | |
|
Loan Loss | |
|
% of Loans | |
|
Loan Loss | |
|
% of Loans | |
|
Loan Loss | |
|
% of Loans | |
|
Loan Loss | |
|
% of Loans | |
|
|
Allowance | |
|
to Total | |
|
Allowance | |
|
to Total | |
|
Allowance | |
|
to Total | |
|
Allowance | |
|
to Total | |
|
Allowance | |
|
to Total | |
|
|
Allocation | |
|
Loans | |
|
Allocation | |
|
Loans | |
|
Allocation | |
|
Loans | |
|
Allocation | |
|
Loans | |
|
Allocation | |
|
Loans | |
| |
Business
|
|
$ |
26,211 |
|
|
|
28.4 |
% |
|
$ |
39,312 |
|
|
|
27.0 |
% |
|
$ |
39,411 |
|
|
|
25.8 |
% |
|
$ |
36,359 |
|
|
|
28.9 |
% |
|
$ |
36,245 |
|
|
|
31.5 |
% |
RE construction
|
|
|
3,375 |
|
|
|
4.8 |
|
|
|
1,420 |
|
|
|
5.2 |
|
|
|
4,717 |
|
|
|
5.3 |
|
|
|
4,731 |
|
|
|
5.1 |
|
|
|
4,732 |
|
|
|
5.4 |
|
RE business
|
|
|
19,432 |
|
|
|
21.6 |
|
|
|
15,910 |
|
|
|
21.0 |
|
|
|
20,971 |
|
|
|
23.0 |
|
|
|
20,913 |
|
|
|
22.1 |
|
|
|
20,907 |
|
|
|
19.7 |
|
RE personal
|
|
|
4,815 |
|
|
|
15.3 |
|
|
|
7,620 |
|
|
|
16.1 |
|
|
|
4,423 |
|
|
|
16.4 |
|
|
|
3,871 |
|
|
|
16.3 |
|
|
|
3,367 |
|
|
|
16.9 |
|
Personal banking
|
|
|
25,364 |
|
|
|
23.2 |
|
|
|
22,652 |
|
|
|
23.6 |
|
|
|
21,793 |
|
|
|
22.8 |
|
|
|
20,343 |
|
|
|
21.1 |
|
|
|
18,710 |
|
|
|
19.8 |
|
Credit card
|
|
|
35,513 |
|
|
|
6.6 |
|
|
|
28,895 |
|
|
|
6.8 |
|
|
|
26,544 |
|
|
|
6.5 |
|
|
|
23,337 |
|
|
|
6.4 |
|
|
|
21,004 |
|
|
|
6.3 |
|
Overdrafts
|
|
|
2,739 |
|
|
|
.1 |
|
|
|
4,895 |
|
|
|
.3 |
|
|
|
4,796 |
|
|
|
.2 |
|
|
|
4,498 |
|
|
|
.1 |
|
|
|
4,442 |
|
|
|
.4 |
|
Unallocated
|
|
|
10,998 |
|
|
|
|
|
|
|
11,690 |
|
|
|
|
|
|
|
12,566 |
|
|
|
|
|
|
|
16,566 |
|
|
|
|
|
|
|
20,566 |
|
|
|
|
|
|
Total
|
|
$ |
128,447 |
|
|
|
100.0 |
% |
|
$ |
132,394 |
|
|
|
100.0 |
% |
|
$ |
135,221 |
|
|
|
100.0 |
% |
|
$ |
130,618 |
|
|
|
100.0 |
% |
|
$ |
129,973 |
|
|
|
100.0 |
% |
|
25
The schedule which follows summarizes the relationship between
loan balances and activity in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Years Ended December 31 | |
|
|
| |
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
Net loans outstanding at end of
year(A)
|
|
$ |
8,899,183 |
|
|
$ |
8,305,359 |
|
|
$ |
8,142,679 |
|
|
$ |
7,875,944 |
|
|
$ |
7,638,482 |
|
|
Average loans
outstanding(A)
|
|
$ |
8,561,482 |
|
|
$ |
8,130,113 |
|
|
$ |
8,009,459 |
|
|
$ |
7,761,742 |
|
|
$ |
7,809,931 |
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$ |
132,394 |
|
|
$ |
135,221 |
|
|
$ |
130,618 |
|
|
$ |
129,973 |
|
|
$ |
128,445 |
|
|
|
Additions to allowance through charges to expense
|
|
|
28,785 |
|
|
|
30,351 |
|
|
|
40,676 |
|
|
|
34,108 |
|
|
|
36,423 |
|
|
Allowances of acquired companies
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
2,519 |
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
1,083 |
|
|
|
8,047 |
|
|
|
9,297 |
|
|
|
7,324 |
|
|
|
7,554 |
|
|
|
Real estate construction
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
65 |
|
|
|
127 |
|
|
|
Real estate business
|
|
|
827 |
|
|
|
747 |
|
|
|
1,525 |
|
|
|
973 |
|
|
|
751 |
|
|
|
Real estate personal
|
|
|
87 |
|
|
|
355 |
|
|
|
660 |
|
|
|
296 |
|
|
|
389 |
|
|
|
Personal
banking(B)
|
|
|
13,475 |
|
|
|
12,764 |
|
|
|
13,856 |
|
|
|
11,979 |
|
|
|
13,959 |
|
|
|
Credit card
|
|
|
28,263 |
|
|
|
23,682 |
|
|
|
23,689 |
|
|
|
22,305 |
|
|
|
23,030 |
|
|
|
Overdrafts
|
|
|
3,485 |
|
|
|
2,551 |
|
|
|
4,830 |
|
|
|
4,943 |
|
|
|
4,985 |
|
|
|
|
|
Total loans charged off
|
|
|
47,220 |
|
|
|
48,153 |
|
|
|
53,857 |
|
|
|
47,885 |
|
|
|
50,795 |
|
|
|
Recovery of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
4,099 |
|
|
|
2,405 |
|
|
|
4,192 |
|
|
|
1,283 |
|
|
|
1,667 |
|
|
|
Real estate construction
|
|
|
|
|
|
|
3 |
|
|
|
122 |
|
|
|
123 |
|
|
|
78 |
|
|
|
Real estate business
|
|
|
330 |
|
|
|
978 |
|
|
|
1,009 |
|
|
|
677 |
|
|
|
661 |
|
|
|
Real estate personal
|
|
|
57 |
|
|
|
138 |
|
|
|
196 |
|
|
|
66 |
|
|
|
19 |
|
|
|
Personal
banking(B)
|
|
|
4,675 |
|
|
|
5,288 |
|
|
|
5,386 |
|
|
|
5,080 |
|
|
|
5,144 |
|
|
|
Credit card
|
|
|
3,851 |
|
|
|
4,249 |
|
|
|
4,202 |
|
|
|
5,164 |
|
|
|
4,150 |
|
|
|
Overdrafts
|
|
|
1,476 |
|
|
|
1,914 |
|
|
|
2,177 |
|
|
|
2,029 |
|
|
|
1,662 |
|
|
|
|
|
Total recoveries
|
|
|
14,488 |
|
|
|
14,975 |
|
|
|
17,284 |
|
|
|
14,422 |
|
|
|
13,381 |
|
|
|
|
Net loans charged off
|
|
|
32,732 |
|
|
|
33,178 |
|
|
|
36,573 |
|
|
|
33,463 |
|
|
|
37,414 |
|
|
|
Balance at end of year
|
|
$ |
128,447 |
|
|
$ |
132,394 |
|
|
$ |
135,221 |
|
|
$ |
130,618 |
|
|
$ |
129,973 |
|
|
Ratio of net charge-offs to average loans outstanding
|
|
|
.38% |
|
|
|
.41% |
|
|
|
.46% |
|
|
|
.43% |
|
|
|
.48% |
|
Ratio of allowance to loans at end of year
|
|
|
1.44% |
|
|
|
1.59% |
|
|
|
1.66% |
|
|
|
1.66% |
|
|
|
1.70% |
|
Ratio of provision to average loans outstanding
|
|
|
.34% |
|
|
|
.37% |
|
|
|
.51% |
|
|
|
.44% |
|
|
|
.47% |
|
|
|
|
(A) |
Net of unearned income; before deducting allowance for loan
losses |
(B) |
Personal banking loans include consumer, home equity, and
student |
Risk Elements Of Loan Portfolio
Management reviews the loan portfolio continuously for evidence
of problem loans. During the ordinary course of business,
management becomes aware of borrowers that may not be able to
meet the contractual requirements of loan agreements. Such loans
are placed under close supervision with consideration given to
placing the loan on non-accrual status, the need for an
additional allowance for loan loss, and (if appropriate) partial
or full loan charge-off. 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.
26
Accrual of interest on consumer installment loans is suspended
when any payment of principal or interest is more than
120 days delinquent. Credit card loans and the related
accrued interest are charged off when the receivable is more
than 180 days past due. After a loan is placed on
non-accrual status, any interest previously accrued but not yet
collected is reversed against current income. Interest is
included in income only as received and only after all previous
loan charge-offs have been recovered, so long as management is
satisfied there is no impairment of collateral values. The loan
is returned to accrual status only when the borrower has brought
all past due principal and interest payments current and, in the
opinion of management, the borrower has demonstrated the ability
to make future payments of principal and interest as scheduled.
The following schedule shows non-performing assets and loans
past due 90 days and still accruing interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
December 31 | |
|
|
| |
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$ |
5,916 |
|
|
$ |
9,547 |
|
|
$ |
19,162 |
|
|
$ |
15,224 |
|
|
$ |
22,633 |
|
|
Real estate construction
|
|
|
|
|
|
|
685 |
|
|
|
795 |
|
|
|
301 |
|
|
|
501 |
|
|
Real estate business
|
|
|
3,149 |
|
|
|
6,558 |
|
|
|
9,372 |
|
|
|
10,646 |
|
|
|
5,377 |
|
|
Real estate personal
|
|
|
261 |
|
|
|
458 |
|
|
|
2,447 |
|
|
|
1,428 |
|
|
|
147 |
|
|
Consumer
|
|
|
519 |
|
|
|
370 |
|
|
|
747 |
|
|
|
466 |
|
|
|
161 |
|
|
Total non-accrual loans
|
|
|
9,845 |
|
|
|
17,618 |
|
|
|
32,523 |
|
|
|
28,065 |
|
|
|
28,819 |
|
|
Real estate acquired in foreclosure
|
|
|
1,868 |
|
|
|
1,157 |
|
|
|
1,162 |
|
|
|
1,474 |
|
|
|
1,949 |
|
|
|
Total non-performing assets
|
|
$ |
11,713 |
|
|
$ |
18,775 |
|
|
$ |
33,685 |
|
|
$ |
29,539 |
|
|
$ |
30,768 |
|
|
Non-performing assets as a percentage of total loans
|
|
|
.13% |
|
|
|
.23% |
|
|
|
.41% |
|
|
|
.38% |
|
|
|
.40% |
|
|
Non-performing assets as a percentage of total assets
|
|
|
.08% |
|
|
|
.13% |
|
|
|
.24% |
|
|
|
.22% |
|
|
|
.24% |
|
|
Past due 90 days and still accruing interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$ |
1,026 |
|
|
$ |
357 |
|
|
$ |
817 |
|
|
$ |
4,777 |
|
|
$ |
1,715 |
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
554 |
|
|
Real estate business
|
|
|
1,075 |
|
|
|
520 |
|
|
|
3,934 |
|
|
|
3,734 |
|
|
|
1,790 |
|
|
Real estate personal
|
|
|
2,998 |
|
|
|
3,165 |
|
|
|
5,750 |
|
|
|
4,727 |
|
|
|
6,116 |
|
|
Consumer
|
|
|
813 |
|
|
|
916 |
|
|
|
1,079 |
|
|
|
1,282 |
|
|
|
1,144 |
|
|
Home equity
|
|
|
685 |
|
|
|
317 |
|
|
|
218 |
|
|
|
91 |
|
|
|
127 |
|
|
Student
|
|
|
74 |
|
|
|
199 |
|
|
|
1,252 |
|
|
|
27 |
|
|
|
533 |
|
|
Credit card
|
|
|
7,417 |
|
|
|
7,311 |
|
|
|
7,735 |
|
|
|
7,734 |
|
|
|
7,647 |
|
|
Overdrafts
|
|
|
|
|
|
|
282 |
|
|
|
78 |
|
|
|
56 |
|
|
|
73 |
|
|
Total past due 90 days and still accruing interest
|
|
$ |
14,088 |
|
|
$ |
13,067 |
|
|
$ |
20,901 |
|
|
$ |
22,428 |
|
|
$ |
19,699 |
|
|
The effect on interest income in 2005 of loans on non-accrual
status at year end is presented below:
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Gross amount of interest that would have been recorded at
original rate
|
|
$ |
1,140 |
|
|
|
Interest that was reflected in income
|
|
|
123 |
|
|
|
|
Interest income not recognized
|
|
$ |
1,017 |
|
|
|
|
Total non-accrual loans at year end 2005 decreased
$7.8 million from 2004 levels. This decline resulted from
reductions of $3.6 million in business non-accrual loans,
$3.4 million in business real estate loans, and $685
thousand in construction loans. The overall decline in
non-accrual loans was due to sales to other financial
institutions, charge-offs, or transference to foreclosure
status. Real estate that was acquired in foreclosure, which is
comprised mainly of small residential properties, increased $711
thousand over year end 2004. Total non-performing assets remain
low compared to the Companys peers, with the
non-performing loans to total loans ratio at .11%. Loans past
due 90 days and still accruing interest increased
$1.0 million at year end 2005 compared to 2004. This
increase was mainly due to higher delinquencies in business,
business real estate and home equity loans.
27
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. These loans totaled $52.8 million at
December 31, 2005 compared with $63.9 million at
December 31, 2004. These loans are primarily classified as
substandard for regulatory purposes. 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.
At December 31, 2005, the banking subsidiaries held fixed
rate residential real estate loans of approximately
$6.2 million at lower of cost or market, which are to be
sold to secondary markets within approximately three months.
There were no loan concentrations of multiple borrowers in
similar activities at December 31, 2005, which exceeded 10%
of total loans. The Companys aggregate legal lending limit
to any single or related borrowing entities is in excess of
$175 million. The largest exposures generally do not exceed
$70 million.
Investment Securities Analysis
During 2005, total investment securities decreased
$997.1 million to $3.8 billion (excluding unrealized
gains/losses) compared to $4.8 billion at the previous year
end. The decrease was due to higher sales and maturities of
securities during the year, with the proceeds used to fund loan
growth and reduce the level of short-term borrowings. Also
during 2005, the Company undertook initiatives to review and
re-position its investment securities portfolio to address such
things as concentration, duration and interest rate risk.
Consequently, during 2005, the Company sold available for sale
securities totaling $1.8 billion and recorded net gains of
$5.1 million. These sales were comprised mainly of
$533.9 million in U.S. government agency securities,
$768.4 million in asset-backed securities, and
$359.1 million in inflation-indexed treasury securities.
Also as a result of the re-positioning, the Company purchased
$2.0 billion of available for sale securities during the
year. The purchases were comprised mainly of $1.0 billion
in mortgage-backed securities, $518.1 million in other
asset-backed securities, and $202.3 million in municipal
securities. The average tax equivalent yield on total investment
securities was 4.05% in 2005 and 3.78% in 2004.
At December 31, 2005, the fair value of available for sale
securities was $3.7 billion, and included a net unrealized
loss in fair value of $6.3 million, compared to a net gain
of $63.8 million at December 31, 2004. The amount of
the related after tax unrealized loss reported in
stockholders equity was $3.9 million at year end
2005. The unrealized loss in fair value was the result of
unrealized losses of $53.2 million in the bank portfolios,
partly offset by unrealized gains of $42.9 million on
marketable equity securities held by Commerce Bancshares, Inc.,
the parent holding company (the Parent). Most of the
unrealized loss in fair value on available for sale investment
securities related to mortgage and asset-backed securities and
federal agency securities in the bank portfolios. The market
value of the available for sale portfolio will vary according to
changes in market interest rates and the mix and duration of
investments in the portfolio. Available for sale securities
which are due during the next 12 months total approximately
$649 million, and management expects these proceeds to meet
most of the Companys liquidity needs.
Non-marketable securities, which totaled $77.3 million at
December 31, 2005, included $45.4 million in Federal
Reserve Bank stock and Federal Home Loan Bank stock held by
bank subsidiaries in accordance with debt and regulatory
requirements. These are restricted securities which, lacking a
market, are carried at cost. Other non-marketable securities are
generally held by the Parent and non-bank subsidiaries and
include non-marketable venture capital investments, which are
carried at estimated fair value.
28
Investment securities at year end for the past two years are
shown below:
|
|
|
|
|
|
|
|
|
| |
|
|
December 31 | |
|
|
| |
(In thousands) |
|
2005 | |
|
2004 | |
| |
Amortized Cost
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations*
|
|
$ |
845,612 |
|
|
$ |
1,716,937 |
|
State and municipal obligations
|
|
|
251,803 |
|
|
|
65,549 |
|
Mortgage-backed securities
|
|
|
1,662,454 |
|
|
|
1,337,951 |
|
Other asset-backed securities
|
|
|
691,877 |
|
|
|
1,325,804 |
|
Other debt securities
|
|
|
57,485 |
|
|
|
61,400 |
|
Equity securities
|
|
|
242,254 |
|
|
|
256,502 |
|
Trading securities
|
|
|
24,959 |
|
|
|
9,403 |
|
|
Total
|
|
$ |
3,776,444 |
|
|
$ |
4,773,546 |
|
|
Fair Value
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations*
|
|
$ |
834,657 |
|
|
$ |
1,746,365 |
|
State and municipal obligations
|
|
|
249,018 |
|
|
|
66,389 |
|
Mortgage-backed securities
|
|
|
1,631,675 |
|
|
|
1,336,982 |
|
Other asset-backed securities
|
|
|
684,724 |
|
|
|
1,323,999 |
|
Other debt securities
|
|
|
56,583 |
|
|
|
61,083 |
|
Equity securities
|
|
|
288,565 |
|
|
|
293,147 |
|
Trading securities
|
|
|
24,959 |
|
|
|
9,403 |
|
|
Total
|
|
$ |
3,770,181 |
|
|
$ |
4,837,368 |
|
|
|
|
|
|
|
* |
This category includes obligations of government sponsored
enterprises, such as FNMA and FHLMC, which are not backed by the
full faith and credit of the United States government. Such
obligations are separately disclosed in Note 4 on
Investment Securities in the consolidated financial
statements. |
|
A summary of maturities by category of investment securities and
the weighted average yield for each range of maturities as of
December 31, 2005, is presented in Note 4 on
Investment Securities in the consolidated financial statements.
Mortgage and asset-backed securities comprised 61% of the
investment portfolio at December 31, 2005, with a weighted
average yield of 4.22% and an estimated average maturity of
2.5 years; U.S. government and federal agency
obligations comprised 22% with a weighted average yield of 3.58%
and an estimated average maturity of 2.4 years.
Other debt securities, as shown in the table above, include
corporate bonds, notes, commercial paper and debentures related
to venture capital funding. Equity securities are comprised of
short-term investments in money market mutual funds (which
totaled $111.7 million at year end 2005), Federal Reserve
Bank stock, Federal Home Loan Bank stock, publicly traded
stock and venture capital equity investments. Investments in
mutual funds and traded equities are primarily held by the
Parent. During 2005, the average yield on other debt securities
was 5.14%, and the average tax equivalent yield on equity
securities was 4.60%.
The Company engages in private equity and venture capital
activities through direct venture investments and three venture
capital subsidiaries. CFB Venture Fund I, Inc., a
wholly-owned subsidiary, held $4.7 million in venture
capital investments at December 31, 2005. Another
subsidiary, CFB Venture Fund II, L.P. is a limited
partnership venture fund with 47% outside ownership. This
partnership held venture capital investments of
$4.4 million at year end 2005 and is fully funded. A new
series partnership, CFB Venture Fund, L.P., was organized in
2005 with approximately 20% outside ownership. Two new funds are
active in this partnership, which held combined investments of
$21.7 million at December 31, 2005. The Company plans
to fund an additional $21.1 million to the new partnership
in the future. In addition to investments held by its venture
capital subsidiaries, the Company has direct investments in
several private equity concerns, which totaled $5.8 million
at year end 2005. Most of the venture capital and private equity
investments are not readily marketable. While the nature of
these investments carries a higher degree of risk than the
normal lending portfolio, this risk is mitigated by the overall
size of the
29
investments and oversight provided by management, which believes
the potential for long-term gains in these investments outweighs
the potential risks.
Deposits and Borrowings
Deposits are the primary funding source for the Companys
banks, and are acquired from a broad base of local markets,
including both individual and corporate customers. Total
deposits were $10.9 billion at December 31, 2005,
compared to $10.4 billion last year, reflecting an increase
of $417.5 million, or 4.0%. On a yearly average basis,
deposits increased $195.8 million during 2005 compared to
2004. At the beginning of 2005, the Company re-characterized
certain additional demand and interest checking accounts as
money market accounts, in accordance with Federal Reserve rules.
As a result, an additional $530 million of demand deposits
and $344 million of interest checking accounts were
reclassified as money market accounts during the first quarter
of 2005. Excluding these and other ongoing reclassifications
permissible under Federal Reserve rules, the increase in average
deposits in 2005 compared to 2004 grew 1.9% and was fueled by
growth in short-term certificate of deposit accounts and
interest checking accounts, partly offset by a decline in money
market accounts.
The following table shows year end deposits by type as a
percentage of total deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
Non-interest bearing demand
|
|
|
12.9 |
% |
|
|
18.6 |
% |
|
|
Savings, interest checking and money market
|
|
|
59.8 |
|
|
|
58.2 |
|
|
|
Time open and C.D.s of less than $100,000
|
|
|
16.9 |
|
|
|
15.9 |
|
|
|
Time open and C.D.s of $100,000 and over
|
|
|
10.4 |
|
|
|
7.3 |
|
|
|
|
Total deposits
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
Core deposits (defined as all non-interest and interest bearing
deposits, excluding short-term C.D.s of $100,000 and over)
supported 76% of average earning assets in 2005 and 75% in 2004.
Average balances by major deposit category for the last six
years appear at the end of this discussion. A maturity schedule
of time deposits outstanding at December 31, 2005 is
included in Note 7 on Deposits in the consolidated
financial statements.
Short-term borrowings consist of federal funds purchased and
securities sold under agreements to repurchase. Balances
outstanding at year end 2005 were $1.3 billion, a
$587.5 million decrease from $1.9 billion outstanding
at year end 2004. Balances in these accounts, which generally
have overnight maturities, can fluctuate significantly on a
day-to-day basis. The
average balance of federal funds purchased and repurchase
agreements was $1.6 billion during 2005, decreasing
$217.6 million from 2004 averages. The average rate paid on
these borrowings was 3.03% during 2005 and 1.23% during 2004.
Subsidiary banks also borrow from the Federal Home
Loan Bank (FHLB). At year end 2005 these advances totaled
$251.8 million, of which $238.2 million is due in
2006. The debt maturing in 2006 may be refinanced or may be
repaid with funds generated by maturities of loans or investment
securities or by deposit growth. Of the FHLB advances
outstanding at year end, $200.0 million had a floating rate
and $51.8 million had a fixed rate. The average rate paid
on FHLB advances was 3.40% during 2005 and 1.94% during 2004.
The weighted average year end rate on outstanding FHLB advances
at December 31, 2005 was 4.19%. Long-term debt also
includes $11.1 million borrowed from insurance companies by
a venture capital subsidiary in order to fund certain investing
activity as a Missouri Certified Capital Company.
30
Liquidity and Capital Resources
Liquidity Management
Liquidity is managed within the Company in order to satisfy cash
flow requirements of deposit and borrowing customers while at
the same time meeting its own cash flow needs. The Company
maintains its liquidity position by providing a variety of
sources including:
|
|
|
|
|
A portfolio of liquid assets including marketable investment
securities and overnight investments, |
|
|
|
A large customer deposit base and limited exposure to large,
volatile certificates of deposit, |
|
|
|
Lower long-term borrowings that might place a demand on Company
cash flow, |
|
|
|
Low relative loan to deposit ratio promoting strong liquidity, |
|
|
|
Excellent debt ratings from both Standard & Poors
and Moodys national rating services, and |
|
|
|
Available borrowing capacity from outside sources. |
The Companys most liquid assets include available for sale
marketable investment securities, federal funds sold, and
securities purchased under agreements to resell (resale
agreements). At December 31, 2005 and 2004, such assets
were as follows:
|
|
|
|
|
|
|
|
|
| |
(In thousands) |
|
2005 | |
|
2004 | |
| |
Available for sale investment securities
|
|
$ |
3,667,901 |
|
|
$ |
4,754,941 |
|
Federal funds sold and resale agreements
|
|
|
128,862 |
|
|
|
68,905 |
|
|
Total
|
|
$ |
3,796,763 |
|
|
$ |
4,823,846 |
|
|
Federal funds sold and resale agreements normally have overnight
maturities and are used for general daily liquidity purposes.
The Companys available for sale investment portfolio has
maturities of approximately $649 million which come due
during 2006 and offers substantial resources to meet either new
loan demand or reductions in the Companys deposit funding
base. Furthermore, in the normal course of business the Company
pledges portions of its investment securities portfolio to
secure public fund deposits, securities sold under agreements to
repurchase, trust funds, and borrowing capacity at the Federal
Reserve. Total pledged investment securities for these purposes
comprised 64% of the total investment portfolio, leaving
approximately $1.4 billion of unpledged securities.
Additionally, the Company maintains a large base of core
customer deposits, defined as demand, interest checking,
savings, and money market deposit accounts. At December 31,
2005, such deposits totaled $7.9 billion and represented
73% of the Companys total deposits. At December 31,
2004 these deposits totaled $8.0 billion. These core
deposits are normally less volatile, often with customer
relationships tied to other products offered by the Company
promoting long lasting relationships and stable funding sources.
Time open and certificates of deposit of $100,000 or greater
totaled $1.1 billion and $762.4 million at
December 31, 2005 and 2004, respectively. These deposits
are normally considered more volatile and higher costing, but
comprised just 10.4% and 7.3% of total deposits at
December 31, 2005 and 2004, respectively.
At December 31, 2005 and 2004, the Companys outside
borrowings were comprised of federal funds purchased, securities
sold under agreements to repurchase, and longer-term debt as
follows:
|
|
|
|
|
|
|
|
|
| |
(In thousands) |
|
2005 | |
|
2004 | |
| |
Federal funds purchased
|
|
$ |
849,504 |
|
|
$ |
1,557,635 |
|
Securities sold under agreements to repurchase
|
|
|
476,923 |
|
|
|
356,243 |
|
Other borrowings
|
|
|
269,390 |
|
|
|
389,542 |
|
|
Total
|
|
$ |
1,595,817 |
|
|
$ |
2,303,420 |
|
|
Federal funds purchased are funds generally borrowed overnight
and are obtained mainly from upstream correspondent banks to
assist in balancing overall bank liquidity needs. Securities
sold under agreements to repurchase are comprised mainly of
non-insured customer funds, normally with overnight maturities,
and the Company pledges portions of its own investment portfolio
to secure these deposits.
31
These funds are offered to customers wishing to earn interest in
highly liquid balances and are used by the Company as a funding
source considered to be stable, but short-term in nature. The
increase in securities sold under agreements to repurchase in
2005 was partly due to funds received from a single customer,
while the level of federal funds borrowings was lowered with the
proceeds of maturities and sales from the investment securities
portfolio. The Company has relationships with various
correspondent banks that are considered sources of overnight
federal funds borrowings.
The Companys long-term debt is comprised mainly of
borrowings from the FHLB and other debt related to the
Companys leasing and venture capital business. At
December 31, 2005 and 2004, debt from the FHLB amounted to
$251.8 million and $366.9 million respectively. Most
of the FHLB debt outstanding at year end 2005 is based on
variable rates and matures in 2006. The overall long-term debt
position of the Company is small relative to the Companys
overall liability position.
In addition to the sources and uses of funds as noted above, the
Company had an average loans to deposits ratio of 81% at
December 31, 2005, which is considered in the banking
industry to be a conservative measure of good liquidity. Also,
the Company receives outside ratings from both
Standard & Poors and Moodys on both the
consolidated company and its lead bank, Commerce Bank, N.A.
(Missouri). These ratings are as follows:
|
|
|
|
|
|
|
|
|
|
| |
|
|
Standard & | |
|
|
|
|
Poors | |
|
Moodys | |
| |
Commerce Bancshares, Inc.
|
|
|
|
|
|
|
|
|
|
Short term/commercial paper
|
|
|
A-1 |
|
|
|
Prime-1 |
|
Commerce Bank, N. A.
|
|
|
|
|
|
|
|
|
|
Counterparty credit rating
|
|
|
A/A-1 |
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
Aa-3 |
|
|
The Company considers these ratings to be indications of a sound
capital base and good liquidity. The Company believes that these
ratings would enable its commercial paper to be readily
marketable should the need arise. No commercial paper was
outstanding over the past three years.
In addition to the sources of liquidity as noted above, the
Company has temporary borrowing capacity at the Federal Reserve
discount window of $1.1 billion, for which it has pledged
$339.2 million in loans and $862.0 million in
investment securities. Also, because of its lack of significant
long-term debt, the Company believes that, through its Capital
Markets Group, it could generate additional liquidity from
sources such as jumbo certificates of deposit or
privately-placed corporate notes.
The cash flows from the operating, investing and financing
activities of the Company resulted in a net increase in cash and
cash equivalents of $19.4 million in 2005, as reported in
the consolidated statements of cash flows on page 50 of
this report. Operating activities, consisting mainly of net
income adjusted for certain non-cash items, provided cash flow
of $293.6 million and has historically been a stable source
of funds. Investing activities, consisting mainly of purchases
and maturities of available for sale investment securities and
changes in the level of the Companys loan portfolio,
provided total cash of $308.8 million in 2005. Investing
activities are somewhat unique to financial institutions in
that, while large sums of cash flow are normally used to fund
growth in investment securities, loans, or other bank assets,
they are normally dependent on financing activities described
below.
Financing activities used total cash of $583.0 million,
resulting from a $587.5 million decrease in borrowings of
federal funds purchased and securities sold under agreements to
repurchase and repayments of $115.2 million on FHLB
advances. In addition, the Companys treasury stock
repurchase program required $234.5 million, and cash
dividend payments amounted to $63.4 million. Partly
offsetting these cash outflows was a $399.7 million
increase in deposits. Future short-term liquidity needs for
daily operations are not expected to vary significantly and the
Company maintains adequate liquidity to meet these cash flows.
The Companys sound equity base, along with its low debt
level, common and preferred stock availability, and excellent
debt ratings, provide several alternatives for future financing.
Future acquisitions may utilize partial funding through one or
more of these options.
32
Cash requirements for treasury stock purchases, net of cash
received in connection with stock programs, and dividend
payments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(In millions) |
|
2005 | |
|
2004 | |
|
2003 | |
| |
Purchases of treasury stock
|
|
$ |
234.5 |
|
|
$ |
173.8 |
|
|
$ |
125.7 |
|
Exercise of stock options and sales to affiliate non- employee
directors
|
|
|
(18.4 |
) |
|
|
(15.3 |
) |
|
|
(8.7 |
) |
Cash dividends
|
|
|
63.4 |
|
|
|
61.1 |
|
|
|
51.3 |
|
|
Total
|
|
$ |
279.5 |
|
|
$ |
219.6 |
|
|
$ |
168.3 |
|
|
The Parent faces unique liquidity constraints due to legal
limitations on its ability to borrow funds from its banking
subsidiaries. The Parent obtains funding to meet its obligations
from two main sources: dividends received from bank and non-bank
subsidiaries (within regulatory limitations) and from management
fees charged to subsidiaries as reimbursement for services
provided by the Parent, as presented below:
|
|
|
|
|
|
|
|
|
| |
(In millions) |
|
2005 | |
|
2004 | |
| |
Dividends received from subsidiaries
|
|
$ |
220.0 |
|
|
$ |
253.3 |
|
Management fees
|
|
|
33.0 |
|
|
|
33.0 |
|
|
Total
|
|
$ |
253.0 |
|
|
$ |
286.3 |
|
|
These sources of funds are used mainly to purchase treasury
stock and pay cash dividends on outstanding common stock as
noted above. At December 31, 2005, the Parent had no third
party short-term borrowings or long-term debt and maintained
$223.0 million in available for sale investment securities.
This portfolio consisted of money market mutual funds, publicly
traded stock, and debt securities, of which 39% is expected to
mature in 2006.
Company senior management is responsible for measuring and
monitoring the liquidity profile of the organization with
oversight by the Companys Asset/Liability Committee
(ALCO). This is done through a series of controls, including a
written Contingency Funding Policy and risk monitoring
procedures, including daily, weekly and monthly reporting. In
addition, the Company prepares forecasts which project changes
in the balance sheet affecting liquidity, and which allow the
Company to better plan for forecasted changes.
Capital Management
The Company maintains strong regulatory capital ratios,
including those of its principal banking subsidiaries, in excess
of the well-capitalized guidelines under federal
banking regulations. The Companys capital ratios at the
end of the last three years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-Capitalized |
|
|
Regulatory |
|
|
2005 |
|
2004 |
|
2003 |
|
Guidelines |
|
Risk-based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital
|
|
|
12.21 |
% |
|
|
12.21 |
% |
|
|
12.31 |
% |
|
|
6.00 |
% |
|
Total capital
|
|
|
13.63 |
|
|
|
13.57 |
|
|
|
13.70 |
|
|
|
10.00 |
|
|
Leverage ratio
|
|
|
9.43 |
|
|
|
9.60 |
|
|
|
9.71 |
|
|
|
5.00 |
|
|
Common equity/assets
|
|
|
9.87 |
|
|
|
10.25 |
|
|
|
10.68 |
|
|
|
|
|
|
Dividend payout ratio
|
|
|
28.92 |
|
|
|
28.26 |
|
|
|
25.19 |
|
|
|
|
|
|
33
The components of the Companys regulatory risked-based
capital and risk-weighted assets at the end of the last three
years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2005 |
|
2004 |
|
2003 |
|
Regulatory risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital
|
|
$ |
1,295,898 |
|
|
$ |
1,342,275 |
|
|
$ |
1,331,439 |
|
|
Tier II capital
|
|
|
150,510 |
|
|
|
149,734 |
|
|
|
150,161 |
|
|
Total capital
|
|
|
1,446,408 |
|
|
|
1,492,009 |
|
|
|
1,481,600 |
|
|
Total risk-weighted assets
|
|
|
10,611,322 |
|
|
|
10,993,542 |
|
|
|
10,813,111 |
|
|
In October 2005, the Board of Directors authorized the
Company to purchase additional shares of common stock under its
repurchase program, which brought the total purchase
authorization to 5,000,000 shares. The Company has
routinely used these shares to fund the Companys annual 5%
stock dividend and various stock option programs. During 2005,
approximately 4,643,000 shares were acquired under Board
authorizations at an average price of $50.51.
The Companys common stock dividend policy reflects its
earnings outlook, desired payout ratios, the need to maintain
adequate capital levels and alternative investment options. Per
share cash dividends paid by the Company increased 9.6% during
2005 compared with 2004.
Commitments, Contractual Obligations, 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 totaling $6.9 billion (including approximately
$3.4 billion in unused approved credit card lines) and
standby letters of credit totaling $412.0 million at
December 31, 2005. The Company has various other financial
instruments with off-balance sheet risk, such as commercial
letters of credit and commitments to purchase and sell
when-issued securities. Since many commitments expire unused or
only partially used, these totals do not necessarily reflect
future cash requirements. 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.
A table summarizing contractual cash obligations of the Company
at December 31, 2005 and the expected timing of these
payments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
After One |
|
After Three |
|
|
|
|
In One |
|
Year |
|
Years |
|
After |
|
|
|
|
Year or |
|
Through |
|
Through |
|
Five |
|
|
(In thousands) |
|
Less |
|
Three Years |
|
Five Years |
|
Years |
|
Total |
|
Long-term debt obligations*
|
|
$ |
238,875 |
|
|
$ |
18,571 |
|
|
$ |
|
|
|
$ |
11,944 |
|
|
$ |
269,390 |
|
Operating lease obligations
|
|
|
5,178 |
|
|
|
8,705 |
|
|
|
5,853 |
|
|
|
25,264 |
|
|
|
45,000 |
|
Purchase obligations
|
|
|
21,012 |
|
|
|
15,561 |
|
|
|
1,520 |
|
|
|
|
|
|
|
38,093 |
|
Time open and C.D.s *
|
|
|
2,441,267 |
|
|
|
423,675 |
|
|
|
94,104 |
|
|
|
2,507 |
|
|
|
2,961,553 |
|
|
Total
|
|
$ |
2,706,332 |
|
|
$ |
466,512 |
|
|
$ |
101,477 |
|
|
$ |
39,715 |
|
|
$ |
3,314,036 |
|
|
|
|
* |
Includes principal payments only. |
The Company has investments in several low-income housing
partnerships within the area served by the banking affiliates.
At December 31, 2005, these investments totaled
$3.5 million and were recorded as other assets in the
Companys consolidated balance sheet. These partnerships
supply funds for the construction and operation of apartment
complexes that provide affordable housing to that segment of the
population with lower family income. If these developments
successfully attract a specified percentage of residents falling
in that lower income range, state and/or federal income tax
credits are made available to the partners. The tax credits are
normally recognized over ten years, and they play an important
part in the anticipated yield from these investments. In order
to continue receiving the tax credits each year over the life of
the partnership, the low-income residency targets must be
maintained. Under the terms of the partnership agreements, the
Company has a commitment to fund a specified amount that will be
due in
34
installments over the life of the agreements, which ranges from
10 to 15 years. These unfunded commitments are recorded as
liabilities on the Companys consolidated balance sheet,
and aggregated $2.5 million at December 31, 2005.
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 are retained
for use by the Company. During 2005, purchases and sales of tax
credits amounted to $22.5 million and $20.3 million,
respectively, generating combined gains on sales and tax savings
of $1.3 million. At December 31, 2005, the Company had
outstanding purchase commitments totaling $59.2 million.
The Parent has investments in several private equity concerns
which are classified as non-marketable securities in the
Companys consolidated balance sheet. Under the terms of
the agreements with six of these concerns, the Parent has
unfunded commitments outstanding of $3.4 million at
December 31, 2005. The Parent also plans to fund
$21.1 million to venture capital subsidiaries over the next
several years.
Interest Rate Sensitivity
The Companys Asset/Liability Management Committee (ALCO)
measures and manages the Companys interest rate risk on a
monthly basis to identify trends and establish strategies to
maintain stability in earnings throughout various rate
environments. Analytical modeling techniques provide management
insight into the Companys exposure to changing rates.
These techniques include net interest income simulations and
market value analyses. Management has set guidelines specifying
acceptable limits within which net interest income and market
value may change under various rate change scenarios. These
measurement tools indicate that the Company is currently within
acceptable risk guidelines as set by management.
The Companys main interest rate measurement tool, income
simulations, projects net interest income under various rate
change scenarios in order to quantify the magnitude and timing
of potential rate-related changes. Income simulations are able
to capture option risks within the balance sheet where expected
cash flows may be altered under various rate environments.
Modeled rate movements include shocks, ramps and
twists. Shocks are intended to capture interest rate risk
under extreme conditions by immediately shifting rates up and
down, while ramps measure the impact of gradual changes and
twists measure yield curve risk. The size of the balance sheet
is assumed to remain constant so that results are not influenced
by growth predictions. The table below shows the expected effect
that gradual basis point shifts in the LIBOR/swap curve over a
twelve month period would have on the Companys net
interest income, given a static balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
September 30, 2005 |
|
December 31, 2004 |
|
|
|
|
|
|
|
|
|
Increase |
|
% of Net Interest |
|
Increase |
|
% of Net Interest |
|
Increase |
|
% of Net Interest |
(Dollars in millions) |
|
(Decrease) |
|
Income |
|
(Decrease) |
|
Income |
|
(Decrease) |
|
Income |
|
200 basis points rising
|
|
$ |
(5.8 |
) |
|
|
(1.14 |
)% |
|
$ |
(7.0 |
) |
|
|
(1.40 |
)% |
|
$ |
(8.7 |
) |
|
|
(1.78 |
)% |
100 basis points rising
|
|
|
(1.9 |
) |
|
|
(.37 |
) |
|
|
(2.9 |
) |
|
|
(.58 |
) |
|
|
(4.3 |
) |
|
|
(.88 |
) |
100 basis points falling
|
|
|
(1.7 |
) |
|
|
(.33 |
) |
|
|
(.4 |
) |
|
|
(.07 |
) |
|
|
2.6 |
|
|
|
.53 |
|
|
The Company also employs a sophisticated simulation technique
known as a stochastic income simulation. This technique allows
management to see a range of results from hundreds of income
simulations. The stochastic simulation creates a vector of
potential rate paths around the markets best guess
(forward rates) concerning the future path of interest rates and
allows rates to randomly follow paths throughout the vector.
This allows for the modeling of non-biased rate forecasts around
the market consensus. Results give management insight into a
likely range of rate-related risk as well as worst and best-case
rate scenarios.
The Company also uses market value analyses to help identify
longer-term risks that may reside on the balance sheet. This is
considered a secondary risk measurement tool by management. The
Company measures the market value of equity as the net present
value of all asset and liability cash flows dis-
35
counted along the current LIBOR/swap curve plus appropriate
market risk spreads. It is the change in the market value of
equity under different rate environments, or effective duration,
that gives insight into the magnitude of risk to future earnings
due to rate changes. Market value analyses also help management
understand the price sensitivity of non-marketable bank products
under different rate environments.
The Company continues to be susceptible to lower net interest
income in a rising rate environment. However, this risk has been
reduced over the last four quarters of 2005. At
December 31, 2005, the Company calculated that a gradual
increase in rates of 100 basis points would reduce net
interest income by $1.9 million, or .37%, compared with a
reduction of $4.3 million calculated at December 31,
2004. Also, a 200 basis point gradual rise in rates
calculated at December 31, 2005 would reduce net interest
income by $5.8 million, or 1.1%, down from a reduction of
$8.7 million last year.
The improvement in the overall interest rate risk is the result
of several changes in 2005, including a $569.0 million
reduction in average available for sale investment securities,
which carry mostly fixed rate investments, and growth of
$431.4 million in average loans, which have greater
re-pricing opportunities. Also, the average balance of
short-term borrowings, mostly federal funds purchased, declined
by $217.6 million in 2005, thereby limiting the expense
impact of rising short-term interest rates. The Company remains
somewhat susceptible to interest rate risk from falling rates
because of 2005 growth in both certificates of deposit with
fixed interest costs and the loan portfolio with its ability to
re-price downward. The current size and characteristics of the
investment portfolio help to provide a natural hedge in limiting
this risk.
Overall, the Companys balance sheet remains
well-diversified with moderate interest rate risk and is
well-positioned for future growth. The use of derivative
products is limited and the deposit base is strong and stable.
The loan to deposit ratio is still at relatively low levels,
which should present the Company with opportunities to fund
future loan growth at reasonable costs as a strong economy
increases business borrowing.
Derivative Financial Instruments
The Company maintains an overall interest rate risk management
strategy that permits the use of derivative instruments to
modify exposure to interest rate risk. 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 rates do not adversely
affect the net interest margin and cash flows. Interest rate
swaps are used on a limited basis as part of this strategy. As
of December 31, 2005, the Company had entered into two
interest rate swaps with a notional amount of $15.4 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, the effect of these transactions on net
income is minimal. The notional amount of these types of swaps
at December 31, 2005 was $147.3 million.
The Company enters into foreign exchange derivative instruments
as an accommodation to customers and offsets the related foreign
exchange risk by entering into offsetting third-party forward
contracts with approved reputable counterparties. In addition,
the Company takes proprietary positions in such contracts based
on market expectations. This trading activity is managed within
a policy of specific controls and limits. Most of the foreign
exchange contracts outstanding at December 31, 2005 mature
within 90 days, and the longest period to maturity is
6 months.
Additionally, interest rate lock commitments issued on
residential mortgage loans held for resale are considered
derivative instruments. The interest rate exposure on these
commitments is economically hedged primarily with forward sale
contracts in the secondary market.
The Company is exposed to credit risk in the event of
nonperformance by counterparties to financial instruments. The
Company controls the credit risk of its financial contracts
through credit approvals, limits and monitoring procedures.
Because the Company generally enters into transactions only with
high
36
quality counterparties, there have been no losses associated
with counterparty nonperformance on derivative financial
instruments. The amount of credit risk associated with these
instruments is limited to the cost of replacing a contract in a
gain position, on which a counterparty may default.
The following table summarizes the notional amounts and
estimated fair values of the Companys derivative
instruments at December 31, 2005 and 2004. Notional amount,
along with the other terms of the derivative, is used to
determine the amounts to be exchanged between the
counterparties. Because the notional amount does not represent
amounts exchanged by the parties, it is not a measure of loss
exposure related to the use of derivatives nor of exposure to
liquidity risk. Positive fair values are recorded in other
assets and negative fair values are recorded in other
liabilities in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Positive | |
|
Negative | |
|
|
|
Positive | |
|
Negative | |
|
|
Notional | |
|
Fair | |
|
Fair | |
|
Notional | |
|
Fair | |
|
Fair | |
(In thousands) |
|
Amount | |
|
Value | |
|
Value | |
|
Amount | |
|
Value | |
|
Value | |
| |
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
$ |
162,698 |
|
|
$ |
798 |
|
|
$ |
(1,782 |
) |
|
$ |
49,963 |
|
|
$ |
649 |
|
|
$ |
(1,273 |
) |
|
Option contracts
|
|
|
6,970 |
|
|
|
6 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
14,184 |
|
|
|
159 |
|
|
|
(77 |
) |
|
|
13,031 |
|
|
|
171 |
|
|
|
(173 |
) |
|
Option contracts
|
|
|
2,560 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
2,853 |
|
|
|
12 |
|
|
|
(12 |
) |
Mortgage loan commitments
|
|
|
5,353 |
|
|
|
12 |
|
|
|
|
|
|
|
8,319 |
|
|
|
1 |
|
|
|
(13 |
) |
Mortgage loan forward sale contracts
|
|
|
9,251 |
|
|
|
7 |
|
|
|
(18 |
) |
|
|
15,728 |
|
|
|
39 |
|
|
|
(4 |
) |
|
Total at December 31
|
|
$ |
201,016 |
|
|
$ |
985 |
|
|
$ |
(1,886 |
) |
|
$ |
89,894 |
|
|
$ |
872 |
|
|
$ |
(1,475 |
) |
|
Operating Segments
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments. The results are determined based on the
Companys management accounting process, which assigns
balance sheet and income statement items to each responsible
segment. These segments are defined by customer base and product
type. The management process measures the performance of the
operating segments based on the management structure of the
Company and is not necessarily comparable with similar
information for any other financial institution. Each segment is
managed by executives who, in conjunction with the Chief
Executive Officer, make strategic business decisions regarding
that segment. The three reportable operating segments are
Consumer, Commercial and Money Management. Additional
information is presented in Note 13 on Segments in the
consolidated financial statements.
The Company uses a funds transfer pricing method to value funds
used (e.g., loans, fixed assets, cash, etc.) and funds provided
(deposits, borrowings, and equity) by the business segments and
their components. This process assigns a specific value to each
new source or use of funds with a maturity, based on current
LIBOR interest rates, thus determining an interest spread at the
time of the transaction. Non-maturity assets and liabilities are
assigned to LIBOR based funding pools. This method helps to
provide a more accurate means of valuing fund sources and uses
in a varying interest rate environment. The Company also assigns
loan charge-offs and recoveries directly to each operating
segment instead of allocating a portion of actual loan loss
provision to the segments. The operating segments also include a
number of allocations of income and expense from various support
and overhead centers within the Company. Management periodically
makes changes to the method of assigning costs and income to its
business segments to better reflect operating results. If
appropriate, these changes are reflected in the prior year
information in the table below.
37
The table below is a summary of segment pre-tax income for the
past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
% Change | |
|
|
| |
(Dollars in thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
|
05-04 | |
|
04-03 | |
| |
Consumer
|
|
$ |
192,717 |
|
|
$ |
138,646 |
|
|
$ |
109,220 |
|
|
|
39.0 |
% |
|
|
26.9 |
% |
Commercial
|
|
|
133,527 |
|
|
|
114,881 |
|
|
|
121,190 |
|
|
|
16.2 |
|
|
|
(5.2 |
) |
Money management
|
|
|
32,199 |
|
|
|
29,136 |
|
|
|
26,846 |
|
|
|
10.5 |
|
|
|
8.5 |
|
|
|
Total segments
|
|
|
358,443 |
|
|
|
282,663 |
|
|
|
257,256 |
|
|
|
26.8 |
|
|
|
9.9 |
|
|
Other/elimination
|
|
|
(40,849 |
) |
|
|
28,479 |
|
|
|
33,983 |
|
|
|
NM |
|
|
|
(16.2 |
) |
|
Income before income taxes
|
|
$ |
317,594 |
|
|
$ |
311,142 |
|
|
$ |
291,239 |
|
|
|
2.1 |
% |
|
|
6.8 |
% |
|
The Consumer segment includes the retail branch network,
consumer finance, bankcard, student loans and discount brokerage
services. Pre-tax income for 2005 was $192.7 million, an
increase of $54.1 million, or 39.0%, over 2004. This growth
was mainly due to growth in net interest income of
$52.1 million and an $18.9 million increase in
non-interest income. Partly offsetting these increases were a
$9.6 million increase in non-interest expense and a
$7.3 million increase in net loan charge-offs. The increase
in net interest income resulted mainly from a $93.7 million
increase in allocated funding credits assigned to the deposit
portfolio, which more than offset growth in deposit interest.
The rising interest rate environment assigns a greater value,
and thus income, to customer deposits in this segment.
Non-interest income increased 12.2%, primarily due to higher
overdraft and return item fees and bank card fees. Non-interest
expense increased 3.6% over the prior year due to higher
salaries expense, bankcard processing expense, online banking
processing costs, and corporate management fees. These increases
were partly offset by decreases in assigned overhead costs. Net
loan charge-offs increased $7.3 million in 2005 over the
previous year and were directly related to the higher consumer
and credit card loan charge-offs in the fourth quarter as a
result of higher bankruptcy notices received. Total average
assets directly related to the segment rose 3.3% over 2004.
Average segment loans increased 5.2% compared to 2004 mainly as
a result of growth in consumer, home equity and credit card
loans, while average deposits increased only slightly.
Pre-tax income for 2004 was $138.6 million, an increase of
$29.4 million, or 26.9%, over 2003. This increase was due
in part to improved net interest income, growth in non-interest
income and lower net loan charge-offs, but offset by higher
non-interest expense. Net interest income increased
$20.2 million, or 7.8%, as a result of lower deposit
interest expense coupled with a decline in funding costs
allocated to the loan portfolio and loan growth. Net charge-offs
decreased $3.4 million, mainly due to lower consumer loan
losses. Non-interest income increased $13.2 million, mainly
due to higher overdraft and return item fees and bank card fees.
Also, higher gains were reported on sales of student loans and
fixed assets. This increase in revenue was partly offset by
lower mortgage banking revenue. Non-interest expense increased
$7.3 million due to higher management fees, marketing
expense, loan servicing fees, occupancy expense, lower deferred
loan origination costs, and a higher allocation for online
banking expenses than in 2003. These increases were partly
offset by decreases in check processing and data processing
charges. Total average assets directly related to the segment
rose 5.0% over 2003. Average segment loans increased 5.2%
compared to 2003 mainly as a result of growth in consumer loans,
while average deposits remained flat.
The Commercial segment provides corporate lending, leasing,
international services, and corporate cash management services.
Pre-tax income increased $18.6 million, or 16.2%, over
2004. This increase resulted from growth in net interest income
and lower net loan charge-offs, coupled with well-controlled
expense growth but lower non-interest income. The growth in net
interest income, as in the Consumer segment, resulted from an
increase in the cost of funds credit assigned to the
segments deposits due to the rising rate environment in
2005. This credit increased by $22.2 million in 2005
compared with the growth in deposit interest expense of
$4.8 million, thus creating a larger interest spread on
deposits. Net loan charge-offs were $5.6 million in 2004
compared to net recoveries of $2.3 million in 2005, and
resulted from
38
a large loan charge-off in 2004 which was partly recovered in
2005. Non-interest income decreased $3.2 million, or 4.1%,
as a result of lower commercial cash management fees, partly
offset by growth in commercial bank card transaction fee income.
Non-interest expense increased $2.0 million, or 1.5%, due
to higher salaries expense, commercial deposit account
processing fees and overhead cost allocations. Partly offsetting
these expense increases were lower operating losses and higher
deferred loan origination costs. During 2005, total average
loans increased 5.2%, compared to a 1.6% decrease during 2004.
The increase in loans during 2005 resulted mainly from growth in
business loans and construction real estate loans, partly offset
by a decline in business real estate loans. Average deposits
increased 1.8% during 2005 compared to a 9.0% increase during
2004, as growth in business demand accounts slowed in 2005.
In 2004, pre-tax income decreased $6.3 million, or 5.2%,
from 2003 primarily due to an increase in non-interest expense,
which grew $16.7 million, or 14.2%. Net interest income
increased $5.5 million, or 3.2%, due to an increase in the
credit for funds assigned to the segments deposit
portfolio due to strong growth in average deposits. Non-interest
income grew $4.8 million, or 6.8%, and resulted from higher
commercial bank card fee income offset by lower commercial cash
management fees. Non-interest expense increased
$16.7 million due to higher assigned costs for check
processing, internal management, and bank card and commercial
loan servicing. During 2004, total average loans decreased 1.6%,
compared to a 1.4% increase during 2003. Average deposits
increased 9.0% during 2004, compared to a 9.4% increase during
2003.
The Money Management segment consists of the trust and capital
markets activities. The Trust group provides trust and estate
planning services, and advisory and discretionary investment
management services. It also provides investment management
services to The Commerce Funds, a series of mutual funds with
$1.8 billion in total assets. The Capital Markets Group
sells primarily fixed-income securities to individuals,
corporations, correspondent banks, public institutions, and
municipalities, and also provides investment safekeeping and
bond accounting services. Pre-tax income for the segment was
$32.2 million in 2005 compared to $29.1 million in
2004, an increase of $3.1 million, or 10.5%. The increase
was due to growth in net interest income coupled with higher
non-interest income of $1.5 million and slightly lower
non-interest expense. The improvement in net interest income
resulted from higher funding credits assigned to the deposit
portfolio of this segment. The growth in non-interest income
occurred mainly in private client revenues and proprietary
mutual fund administration fees, partly offset by lower bond
trading revenues in the Capital Markets Group. Non-interest
expense decreased slightly due to lower incentive compensation
costs and trust processing costs, partly offset by higher
proprietary mutual funds expense subsidies. Average assets
decreased $9.3 million during 2005 because of lower trading
account investments and overnight investments of liquid funds.
Average deposits increased $84.2 million during 2005,
mainly due to continuing growth in short-term certificates of
deposit over $100,000.
Pre-tax income for the segment was $29.1 million in 2004
compared to $26.8 million in 2003, an increase of
$2.3 million, or 8.5%. The increase was due to a reduction
in non-interest expense of $2.4 million which was directly
related to lower costs for salaries and benefits of
$1.9 million. While non-interest income was essentially
flat with the previous year, trust revenue grew
$3.3 million, or 5.4%, but was offset by lower bond trading
revenue, which declined $2.0 million, or 14.3%. Average
assets decreased slightly during 2004 because of lower trading
account investments, partly offset by higher overnight
investments of liquid funds. Average deposits increased
$62.6 million during 2004, mainly due to higher balances in
short-term certificates of deposit over $100,000 and
non-interest bearing demand deposit accounts.
The Other/elimination category shown in the table above includes
various support and overhead operating units which are mainly
comprised of various operating expenses such as salaries,
occupancy, etc. Also included in this category is the
Companys investment securities portfolio, which totaled
$3.8 billion at December 31, 2005. The pre-tax
profitability in the Other/elimination category decreased
$69.3 million in 2005 compared to 2004. This decline was
mainly the result of higher cost of funds charges assigned to
this category and allocated to the investment portfolio, coupled
with lower net gains on securities transactions. Interest earned
on the investment portfolio is primarily based on fixed rates.
However, the cost of
39
funds charges assigned are variable and in a rising rate
environment have increased significantly this year, causing most
of the decline in pre-tax profitability for this category.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued
Interpretation No. 46R (FIN 46R), Consolidation
of Variable Interest Entities, in December 2003.
FIN 46R clarified the requirements that investments in
variable interest entities (VIE) be consolidated by the
entity that has a variable interest that will absorb a majority
of the VIEs expected losses if they occur, receive a
majority of the VIEs expected returns, or both. Public
companies were required to apply the unmodified provisions of
the Interpretation to special-purpose entities by
the end of the first reporting period ending after
December 15, 2003. Public companies, other than small
business issuers, were required to apply the revised
Interpretation by the end of the first reporting period
beginning after March 15, 2004 to all entities that were
not special-purpose entities.
As mentioned in last years Annual Report on
Form 10-K, the
Company has several Small Business Investment Company
(SBIC) related private equity investments and other
investments in low-income housing partnerships which would
receive consolidated treatment under provisions of FIN 46R.
The FASB, however, has elected to reconsider provisions of
FIN 46R concerning SBIC related private equity investments.
The FASB does not currently require these types of investments
to be consolidated and has not resolved the accounting treatment
for the investments. If consolidation is ultimately required for
any of these investments, the Companys assets,
liabilities, revenues and expenses would be adjusted to reflect
the consolidation of these investments; however, it is not
expected that net income would be significantly affected. The
Company does not have any other significant investments in
unconsolidated entities meeting the requirements of FIN 46R.
In December 2003, the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants issued
Statement of Position
(SOP) 03-03,
Accounting for Certain Loans and Debt Securities Acquired
in a Transfer.
SOP 03-03
addresses the accounting for acquired loans that show evidence
of having deteriorated in terms of credit quality since their
origination (i.e. impaired loans).
SOP 03-03 requires
acquired loans to be recorded at their fair value, defined as
the present value of future cash flows.
SOP 03-03
prohibits the carryover of an allowance for loan loss on certain
acquired loans, as credit losses are considered in the future
cash flows assessment.
SOP 03-03 is
effective for loans that are acquired in fiscal years beginning
after December 15, 2004. The adoption of this Statement did
not have an impact on the Companys financial statements.
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (revised), Share-Based
Payment. The revision requires entities to recognize the
cost in their statements of income of employee services received
in exchange for awards of equity instruments, based on the grant
date fair value of those awards. The Statement requires several
accounting changes in the areas of award modifications and
forfeitures. It contains additional guidance in several areas,
including measuring fair value, classifying an award as equity
or as a liability, and attributing compensation cost to
reporting periods. For calendar year companies, the Statement is
effective January 1, 2006. The Company implemented
provisions of the original Statement 123 beginning in 2003
and has recorded the cost of such awards in its statements of
income. The Company does not expect that adoption of the revised
Statement will have a material effect on its consolidated
financial statements in 2006.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error
Corrections. The Statement changes the requirements for
the accounting for and reporting of a change in accounting
principle. This Statement requires retrospective application to
prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. This statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions.
The Statement carries forward previously issued guidance on
reporting changes in accounting estimate (which
40
shall be accounted for in the period of change and future
periods, if affected) and errors in previously issued financial
statements (which shall be reported as a prior period adjustment
by restating the prior period financial statements). For
calendar year companies, the Statement is effective for
accounting changes and corrections of errors made after
January 1, 2006. The Company does not expect that adoption
of the Statement will have a material effect on its consolidated
financial statements.
Effects of Inflation
The impact of inflation on financial institutions differs
significantly from that exerted on industrial entities.
Financial institutions are not heavily involved in large capital
expenditures used in the production, acquisition or sale of
products. Virtually all assets and liabilities of financial
institutions are monetary in nature and represent obligations to
pay or receive fixed and determinable amounts not affected by
future changes in prices. Changes in interest rates have a
significant effect on the earnings of financial institutions.
Higher interest rates generally follow the rising demand of
borrowers and the corresponding increased funding requirements
of financial institutions. Although interest rates are viewed as
the price of borrowing funds, the behavior of interest rates
differs significantly from the behavior of the prices of goods
and services. Prices of goods and services may be directly
related to that of other goods and services while the price of
borrowing relates more closely to the inflation rate in the
prices of those goods and services. As a result, when the rate
of inflation slows, interest rates tend to decline while
absolute prices for goods and services remain at higher levels.
Interest rates are also subject to restrictions imposed through
monetary policy, usury laws and other artificial constraints.
Corporate Governance
The Company has adopted a number of corporate governance
measures. Information on corporate governance is available on
the Companys web site www.commercebank.com under Investor
Relations.
Forward-Looking Statements
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 which are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers should not rely solely on
the forward-looking statements and should consider all
uncertainties and risks discussed throughout this report.
Forward-looking statements speak only as of the date they are
made. The Company does not undertake to update forward-looking
statements to reflect circumstances or events that occur after
the date the forward-looking statements are made or to reflect
the occurrence of unanticipated events. Such possible events or
factors include: changes in economic conditions in the
Companys market area; changes in policies by regulatory
agencies, governmental legislation and regulation; fluctuations
in interest rates; changes in liquidity requirements; demand for
loans in the Companys market area; changes in accounting
and tax principles; estimates made on income taxes; and
competition with other entities that offer financial services.
41
AVERAGE BALANCE SHEETS AVERAGE RATES AND
YIELDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Years Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Interest | |
|
Rates | |
|
|
|
Interest | |
|
Rates | |
|
|
|
Interest | |
|
Rates | |
|
|
Average | |
|
Income/ | |
|
Earned/ | |
|
Average | |
|
Income/ | |
|
Earned/ | |
|
Average | |
|
Income/ | |
|
Earned/ | |
(Dollars in thousands) |
|
Balance | |
|
Expense | |
|
Paid | |
|
Balance | |
|
Expense | |
|
Paid | |
|
Balance | |
|
Expense | |
|
Paid | |
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(B)
|
|
$ |
2,336,681 |
|
|
$ |
125,417 |
|
|
|
5.37 |
% |
|
$ |
2,119,823 |
|
|
$ |
88,199 |
|
|
|
4.16 |
% |
|
$ |
2,173,765 |
|
|
$ |
90,860 |
|
|
|
4.18 |
% |
|
Real estate construction
|
|
|
480,864 |
|
|
|
28,422 |
|
|
|
5.91 |
|
|
|
427,976 |
|
|
|
18,068 |
|
|
|
4.22 |
|
|
|
404,058 |
|
|
|
17,324 |
|
|
|
4.29 |
|
|
Real estate business
|
|
|
1,794,269 |
|
|
|
106,167 |
|
|
|
5.92 |
|
|
|
1,823,302 |
|
|
|
90,601 |
|
|
|
4.97 |
|
|
|
1,831,575 |
|
|
|
93,731 |
|
|
|
5.12 |
|
|
Real estate personal
|
|
|
1,351,809 |
|
|
|
71,879 |
|
|
|
5.32 |
|
|
|
1,334,859 |
|
|
|
69,273 |
|
|
|
5.19 |
|
|
|
1,304,677 |
|
|
|
73,568 |
|
|
|
5.64 |
|
|
Consumer
|
|
|
1,242,163 |
|
|
|
80,431 |
|
|
|
6.48 |
|
|
|
1,188,018 |
|
|
|
75,633 |
|
|
|
6.37 |
|
|
|
1,129,267 |
|
|
|
79,571 |
|
|
|
7.05 |
|
|
Home equity
|
|
|
429,911 |
|
|
|
26,463 |
|
|
|
6.16 |
|
|
|
381,111 |
|
|
|
17,481 |
|
|
|
4.59 |
|
|
|
324,375 |
|
|
|
14,372 |
|
|
|
4.43 |
|
|
Student
|
|
|
357,319 |
|
|
|
17,050 |
|
|
|
4.77 |
|
|
|
326,120 |
|
|
|
9,790 |
|
|
|
3.00 |
|
|
|
339,577 |
|
|
|
9,606 |
|
|
|
2.83 |
|
|
Credit card
|
|
|
554,471 |
|
|
|
66,552 |
|
|
|
12.00 |
|
|
|
515,585 |
|
|
|
57,112 |
|
|
|
11.08 |
|
|
|
490,534 |
|
|
|
55,310 |
|
|
|
11.28 |
|
|
Overdrafts
|
|
|
13,995 |
|
|
|
|
|
|
|
|
|
|
|
13,319 |
|
|
|
|
|
|
|
|
|
|
|
11,631 |
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
8,561,482 |
|
|
|
522,381 |
|
|
|
6.10 |
|
|
|
8,130,113 |
|
|
|
426,157 |
|
|
|
5.24 |
|
|
|
8,009,459 |
|
|
|
434,342 |
|
|
|
5.42 |
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government & federal agency
|
|
|
1,066,304 |
|
|
|
39,968 |
|
|
|
3.75 |
|
|
|
1,721,301 |
|
|
|
67,988 |
|
|
|
3.95 |
|
|
|
1,543,269 |
|
|
|
67,236 |
|
|
|
4.36 |
|
|
State & municipal
obligations(B)
|
|
|
137,007 |
|
|
|
5,910 |
|
|
|
4.31 |
|
|
|
70,846 |
|
|
|
3,410 |
|
|
|
4.81 |
|
|
|
80,687 |
|
|
|
4,139 |
|
|
|
5.13 |
|
|
Mortgage and asset-backed securities
|
|
|
2,812,757 |
|
|
|
114,978 |
|
|
|
4.09 |
|
|
|
2,846,093 |
|
|
|
105,827 |
|
|
|
3.72 |
|
|
|
2,504,514 |
|
|
|
103,681 |
|
|
|
4.14 |
|
|
Trading securities
|
|
|
10,624 |
|
|
|
422 |
|
|
|
3.98 |
|
|
|
14,250 |
|
|
|
498 |
|
|
|
3.50 |
|
|
|
17,003 |
|
|
|
662 |
|
|
|
3.90 |
|
|
Other marketable
securities(B)
|
|
|
216,984 |
|
|
|
9,316 |
|
|
|
4.29 |
|
|
|
163,843 |
|
|
|
3,747 |
|
|
|
2.29 |
|
|
|
220,499 |
|
|
|
4,603 |
|
|
|
2.09 |
|
|
Non-marketable securities
|
|
|
78,709 |
|
|
|
4,617 |
|
|
|
5.87 |
|
|
|
75,542 |
|
|
|
3,530 |
|
|
|
4.67 |
|
|
|
74,501 |
|
|
|
4,923 |
|
|
|
6.61 |
|
|
Total investment securities
|
|
|
4,322,385 |
|
|
|
175,211 |
|
|
|
4.05 |
|
|
|
4,891,875 |
|
|
|
185,000 |
|
|
|
3.78 |
|
|
|
4,440,473 |
|
|
|
185,244 |
|
|
|
4.17 |
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
116,553 |
|
|
|
4,102 |
|
|
|
3.52 |
|
|
|
84,113 |
|
|
|
1,312 |
|
|
|
1.56 |
|
|
|
63,232 |
|
|
|
831 |
|
|
|
1.31 |
|
|
Total interest earning assets
|
|
|
13,000,420 |
|
|
|
701,694 |
|
|
|
5.40 |
|
|
|
13,106,101 |
|
|
|
612,469 |
|
|
|
4.67 |
|
|
|
12,513,164 |
|
|
|
620,417 |
|
|
|
4.96 |
|
|
Less allowance for loan losses
|
|
|
(129,272 |
) |
|
|
|
|
|
|
|
|
|
|
(132,554 |
) |
|
|
|
|
|
|
|
|
|
|
(132,057 |
) |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
22,607 |
|
|
|
|
|
|
|
|
|
|
|
90,692 |
|
|
|
|
|
|
|
|
|
|
|
143,309 |
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
508,389 |
|
|
|
|
|
|
|
|
|
|
|
553,074 |
|
|
|
|
|
|
|
|
|
|
|
513,733 |
|
|
|
|
|
|
|
|
|
Land, buildings and equipment net
|
|
|
369,471 |
|
|
|
|
|
|
|
|
|
|
|
340,188 |
|
|
|
|
|
|
|
|
|
|
|
336,665 |
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
201,829 |
|
|
|
|
|
|
|
|
|
|
|
191,655 |
|
|
|
|
|
|
|
|
|
|
|
167,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
13,973,444 |
|
|
|
|
|
|
|
|
|
|
$ |
14,149,156 |
|
|
|
|
|
|
|
|
|
|
$ |
13,542,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$ |
403,158 |
|
|
|
1,259 |
|
|
|
.31 |
|
|
$ |
401,935 |
|
|
|
1,250 |
|
|
|
.31 |
|
|
$ |
380,323 |
|
|
|
1,351 |
|
|
|
.36 |
|
|
Interest checking and money market
|
|
|
6,745,714 |
|
|
|
52,112 |
|
|
|
.77 |
|
|
|
6,171,456 |
|
|
|
26,707 |
|
|
|
.43 |
|
|
|
6,015,827 |
|
|
|
27,391 |
|
|
|
.46 |
|
|
Time open & C.D.s of less than $100,000
|
|
|
1,736,804 |
|
|
|
50,597 |
|
|
|
2.91 |
|
|
|
1,678,659 |
|
|
|
38,924 |
|
|
|
2.32 |
|
|
|
1,838,137 |
|
|
|
48,440 |
|
|
|
2.64 |
|
|
Time open & C.D.s of $100,000 and over
|
|
|
983,703 |
|
|
|
30,779 |
|
|
|
3.13 |
|
|
|
788,800 |
|
|
|
14,912 |
|
|
|
1.89 |
|
|
|
699,241 |
|
|
|
14,278 |
|
|
|
2.04 |
|
|
Total interest bearing deposits
|
|
|
9,869,379 |
|
|
|
134,747 |
|
|
|
1.37 |
|
|
|
9,040,850 |
|
|
|
81,793 |
|
|
|
.90 |
|
|
|
8,933,528 |
|
|
|
91,460 |
|
|
|
1.02 |
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,609,868 |
|
|
|
48,776 |
|
|
|
3.03 |
|
|
|
1,827,428 |
|
|
|
22,560 |
|
|
|
1.23 |
|
|
|
1,550,211 |
|
|
|
15,289 |
|
|
|
.99 |
|
|
Other
borrowings(C)
|
|
|
366,072 |
|
|
|
12,464 |
|
|
|
3.40 |
|
|
|
419,215 |
|
|
|
8,519 |
|
|
|
2.03 |
|
|
|
395,026 |
|
|
|
8,269 |
|
|
|
2.09 |
|
|
Total borrowings
|
|
|
1,975,940 |
|
|
|
61,240 |
|
|
|
3.10 |
|
|
|
2,246,643 |
|
|
|
31,079 |
|
|
|
1.38 |
|
|
|
1,945,237 |
|
|
|
23,558 |
|
|
|
1.21 |
|
|
Total interest bearing liabilities
|
|
|
11,845,319 |
|
|
|
195,987 |
|
|
|
1.65 |
% |
|
|
11,287,493 |
|
|
|
112,872 |
|
|
|
1.00 |
% |
|
|
10,878,765 |
|
|
|
115,018 |
|
|
|
1.06 |
% |
|
Non-interest bearing demand deposits
|
|
|
655,729 |
|
|
|
|
|
|
|
|
|
|
|
1,288,434 |
|
|
|
|
|
|
|
|
|
|
|
1,083,207 |
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
93,708 |
|
|
|
|
|
|
|
|
|
|
|
123,048 |
|
|
|
|
|
|
|
|
|
|
|
133,813 |
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,378,688 |
|
|
|
|
|
|
|
|
|
|
|
1,450,181 |
|
|
|
|
|
|
|
|
|
|
|
1,446,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
13,973,444 |
|
|
|
|
|
|
|
|
|
|
$ |
14,149,156 |
|
|
|
|
|
|
|
|
|
|
$ |
13,542,758 |
|
|
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
|
|
|
|
$ |
505,707 |
|
|
|
|
|
|
|
|
|
|
$ |
499,597 |
|
|
|
|
|
|
|
|
|
|
$ |
505,399 |
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
3.89 |
% |
|
|
|
|
|
|
|
|
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
|
|
4.04 |
% |
|
Percentage increase (decrease) in net interest margin (T/E)
compared to the prior year
|
|
|
|
|
|
|
|
|
|
|
1.22 |
% |
|
|
|
|
|
|
|
|
|
|
(1.15 |
)% |
|
|
|
|
|
|
|
|
|
|
.69 |
% |
|
|
|
(A) |
Loans on non-accrual status are included in the computation
of average balances. Included in interest income above are loan
fees and late charges, net of amortization of deferred loan
origination costs, which are immaterial. Credit card income from
merchant discounts and net interchange fees are not included in
loan income. |
(B) |
Interest income and yields are presented on a fully-taxable
equivalent basis using the Federal statutory income tax rate.
Business loan interest income includes tax free loan income of
$2,393,000 in 2005, $2,379,000 in 2004, $2,466,000 in 2003,
$3,355,000 in 2002 and $3,937,000 in 2001, including tax
equivalent adjustments of $1,097,000 in 2005, $819,000 in 2004,
$847,000 in 2003, |
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Years Ended December 31 | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
Average | |
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
Balance | |
|
|
Interest | |
|
Rates | |
|
|
|
Interest | |
|
Rates | |
|
|
|
Interest | |
|
Rates | |
|
Five Year | |
Average | |
|
Income/ | |
|
Earned/ | |
|
Average | |
|
Income/ | |
|
Earned/ | |
|
Average | |
|
Income/ | |
|
Earned/ | |
|
Compound | |
Balance | |
|
Expense | |
|
Paid | |
|
Balance | |
|
Expense | |
|
Paid | |
|
Balance | |
|
Expense | |
|
Paid | |
|
Growth Rate | |
| |
$ |
2,433,041 |
|
|
$ |
115,058 |
|
|
|
4.73 |
% |
|
$ |
2,566,503 |
|
|
$ |
169,747 |
|
|
|
6.61 |
% |
|
$ |
2,636,931 |
|
|
$ |
216,146 |
|
|
|
8.20 |
% |
|
|
(2.39 |
)% |
|
474,307 |
|
|
|
23,894 |
|
|
|
5.04 |
|
|
|
409,262 |
|
|
|
29,598 |
|
|
|
7.23 |
|
|
|
382,106 |
|
|
|
33,364 |
|
|
|
8.73 |
|
|
|
4.71 |
|
|
1,483,012 |
|
|
|
88,645 |
|
|
|
5.98 |
|
|
|
1,398,366 |
|
|
|
103,551 |
|
|
|
7.41 |
|
|
|
1,267,872 |
|
|
|
104,757 |
|
|
|
8.26 |
|
|
|
7.19 |
|
|
1,247,209 |
|
|
|
82,382 |
|
|
|
6.61 |
|
|
|
1,339,436 |
|
|
|
98,283 |
|
|
|
7.34 |
|
|
|
1,417,548 |
|
|
|
105,229 |
|
|
|
7.42 |
|
|
|
(.95 |
) |
|
1,046,173 |
|
|
|
83,266 |
|
|
|
7.96 |
|
|
|
1,095,809 |
|
|
|
92,339 |
|
|
|
8.43 |
|
|
|
1,126,886 |
|
|
|
94,084 |
|
|
|
8.35 |
|
|
|
1.97 |
|
|
283,466 |
|
|
|
14,336 |
|
|
|
5.06 |
|
|
|
239,599 |
|
|
|
18,077 |
|
|
|
7.54 |
|
|
|
214,655 |
|
|
|
20,364 |
|
|
|
9.49 |
|
|
|
14.90 |
|
|
316,910 |
|
|
|
13,124 |
|
|
|
4.14 |
|
|
|
280,846 |
|
|
|
18,223 |
|
|
|
6.49 |
|
|
|
267,254 |
|
|
|
21,717 |
|
|
|
8.13 |
|
|
|
5.98 |
|
|
463,474 |
|
|
|
52,337 |
|
|
|
11.29 |
|
|
|
460,157 |
|
|
|
61,789 |
|
|
|
13.43 |
|
|
|
469,401 |
|
|
|
69,309 |
|
|
|
14.77 |
|
|
|
3.39 |
|
|
14,150 |
|
|
|
|
|
|
|
|
|
|
|
19,953 |
|
|
|
|
|
|
|
|
|
|
|
19,388 |
|
|
|
|
|
|
|
|
|
|
|
(6.31 |
) |
|
|
7,761,742 |
|
|
|
473,042 |
|
|
|
6.09 |
|
|
|
7,809,931 |
|
|
|
591,607 |
|
|
|
7.58 |
|
|
|
7,802,041 |
|
|
|
664,970 |
|
|
|
8.52 |
|
|
|
1.88 |
|
|
|
1,233,040 |
|
|
|
57,159 |
|
|
|
4.64 |
|
|
|
892,248 |
|
|
|
48,666 |
|
|
|
5.45 |
|
|
|
913,285 |
|
|
|
56,486 |
|
|
|
6.18 |
|
|
|
3.15 |
|
|
41,103 |
|
|
|
3,079 |
|
|
|
7.49 |
|
|
|
55,379 |
|
|
|
4,225 |
|
|
|
7.63 |
|
|
|
72,209 |
|
|
|
5,641 |
|
|
|
7.81 |
|
|
|
13.67 |
|
|
2,118,460 |
|
|
|
112,703 |
|
|
|
5.32 |
|
|
|
1,284,355 |
|
|
|
77,066 |
|
|
|
6.00 |
|
|
|
1,034,172 |
|
|
|
64,336 |
|
|
|
6.22 |
|
|
|
22.15 |
|
|
10,931 |
|
|
|
532 |
|
|
|
4.86 |
|
|
|
15,924 |
|
|
|
774 |
|
|
|
4.86 |
|
|
|
11,000 |
|
|
|
765 |
|
|
|
6.95 |
|
|
|
(.69 |
) |
|
124,648 |
|
|
|
4,258 |
|
|
|
3.42 |
|
|
|
159,897 |
|
|
|
6,742 |
|
|
|
4.22 |
|
|
|
86,133 |
|
|
|
5,895 |
|
|
|
6.84 |
|
|
|
20.30 |
|
|
66,666 |
|
|
|
2,781 |
|
|
|
4.17 |
|
|
|
68,299 |
|
|
|
3,246 |
|
|
|
4.75 |
|
|
|
68,013 |
|
|
|
3,786 |
|
|
|
5.57 |
|
|
|
2.96 |
|
|
|
3,594,848 |
|
|
|
180,512 |
|
|
|
5.02 |
|
|
|
2,476,102 |
|
|
|
140,719 |
|
|
|
5.68 |
|
|
|
2,184,812 |
|
|
|
136,909 |
|
|
|
6.27 |
|
|
|
14.62 |
|
|
|
84,278 |
|
|
|
1,486 |
|
|
|
1.76 |
|
|
|
541,930 |
|
|
|
22,386 |
|
|
|
4.13 |
|
|
|
227,623 |
|
|
|
14,517 |
|
|
|
6.38 |
|
|
|
(12.53 |
) |
|
|
11,440,868 |
|
|
|
655,040 |
|
|
|
5.73 |
|
|
|
10,827,963 |
|
|
|
754,712 |
|
|
|
6.97 |
|
|
|
10,214,476 |
|
|
|
816,396 |
|
|
|
7.99 |
|
|
|
4.94 |
|
|
|
(129,960 |
) |
|
|
|
|
|
|
|
|
|
|
(129,978 |
) |
|
|
|
|
|
|
|
|
|
|
(125,887 |
) |
|
|
|
|
|
|
|
|
|
|
.53 |
|
|
114,908 |
|
|
|
|
|
|
|
|
|
|
|
56,296 |
|
|
|
|
|
|
|
|
|
|
|
(3,146 |
) |
|
|
|
|
|
|
|
|
|
|
NM |
|
|
511,798 |
|
|
|
|
|
|
|
|
|
|
|
532,715 |
|
|
|
|
|
|
|
|
|
|
|
533,028 |
|
|
|
|
|
|
|
|
|
|
|
(.94 |
) |
|
329,553 |
|
|
|
|
|
|
|
|
|
|
|
286,166 |
|
|
|
|
|
|
|
|
|
|
|
244,877 |
|
|
|
|
|
|
|
|
|
|
|
8.57 |
|
|
146,671 |
|
|
|
|
|
|
|
|
|
|
|
162,661 |
|
|
|
|
|
|
|
|
|
|
|
162,709 |
|
|
|
|
|
|
|
|
|
|
|
4.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,413,838 |
|
|
|
|
|
|
|
|
|
|
$ |
11,735,823 |
|
|
|
|
|
|
|
|
|
|
$ |
11,026,057 |
|
|
|
|
|
|
|
|
|
|
|
4.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
353,779 |
|
|
|
2,146 |
|
|
|
.61 |
|
|
$ |
323,462 |
|
|
|
3,345 |
|
|
|
1.03 |
|
|
$ |
316,532 |
|
|
|
5,484 |
|
|
|
1.73 |
|
|
|
4.96 |
% |
|
5,762,465 |
|
|
|
43,101 |
|
|
|
.75 |
|
|
|
5,253,024 |
|
|
|
97,746 |
|
|
|
1.86 |
|
|
|
4,896,337 |
|
|
|
144,398 |
|
|
|
2.95 |
|
|
|
6.62 |
|
|
2,046,041 |
|
|
|
70,367 |
|
|
|
3.44 |
|
|
|
2,259,161 |
|
|
|
121,851 |
|
|
|
5.39 |
|
|
|
2,068,653 |
|
|
|
112,182 |
|
|
|
5.42 |
|
|
|
(3.44 |
) |
|
651,336 |
|
|
|
18,252 |
|
|
|
2.80 |
|
|
|
530,874 |
|
|
|
27,699 |
|
|
|
5.22 |
|
|
|
328,652 |
|
|
|
18,275 |
|
|
|
5.56 |
|
|
|
24.52 |
|
|
|
8,813,621 |
|
|
|
133,866 |
|
|
|
1.52 |
|
|
|
8,366,521 |
|
|
|
250,641 |
|
|
|
3.00 |
|
|
|
7,610,174 |
|
|
|
280,339 |
|
|
|
3.68 |
|
|
|
5.34 |
|
|
|
771,646 |
|
|
|
9,853 |
|
|
|
1.28 |
|
|
|
601,865 |
|
|
|
19,164 |
|
|
|
3.18 |
|
|
|
772,296 |
|
|
|
44,594 |
|
|
|
5.77 |
|
|
|
15.82 |
|
|
371,902 |
|
|
|
9,363 |
|
|
|
2.52 |
|
|
|
301,363 |
|
|
|
13,956 |
|
|
|
4.63 |
|
|
|
110,444 |
|
|
|
6,955 |
|
|
|
6.30 |
|
|
|
27.08 |
|
|
|
1,143,548 |
|
|
|
19,216 |
|
|
|
1.68 |
|
|
|
903,228 |
|
|
|
33,120 |
|
|
|
3.67 |
|
|
|
882,740 |
|
|
|
51,549 |
|
|
|
5.84 |
|
|
|
17.49 |
|
|
|
9,957,169 |
|
|
|
153,082 |
|
|
|
1.54 |
% |
|
|
9,269,749 |
|
|
|
283,761 |
|
|
|
3.06 |
% |
|
|
8,492,914 |
|
|
|
331,888 |
|
|
|
3.91 |
% |
|
|
6.88 |
|
|
|
974,941 |
|
|
|
|
|
|
|
|
|
|
|
1,101,174 |
|
|
|
|
|
|
|
|
|
|
|
1,331,220 |
|
|
|
|
|
|
|
|
|
|
|
(13.20 |
) |
|
120,143 |
|
|
|
|
|
|
|
|
|
|
|
137,832 |
|
|
|
|
|
|
|
|
|
|
|
98,208 |
|
|
|
|
|
|
|
|
|
|
|
(.93 |
) |
|
1,361,585 |
|
|
|
|
|
|
|
|
|
|
|
1,227,068 |
|
|
|
|
|
|
|
|
|
|
|
1,103,715 |
|
|
|
|
|
|
|
|
|
|
|
4.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,413,838 |
|
|
|
|
|
|
|
|
|
|
$ |
11,735,823 |
|
|
|
|
|
|
|
|
|
|
$ |
11,026,057 |
|
|
|
|
|
|
|
|
|
|
|
4.85 |
% |
|
|
|
|
|
$ |
501,958 |
|
|
|
|
|
|
|
|
|
|
$ |
470,951 |
|
|
|
|
|
|
|
|
|
|
$ |
484,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.39 |
% |
|
|
|
|
|
|
|
|
|
|
4.35 |
% |
|
|
|
|
|
|
|
|
|
|
4.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.58 |
% |
|
|
|
|
|
|
|
|
|
|
(2.80 |
)% |
|
|
|
|
|
|
|
|
|
|
2.88 |
% |
|
|
|
|
|
|
|
|
$1,142,000 in 2002 and
$1,266,000 in 2001. State and municipal interest income includes
tax equivalent adjustments of $1,445,000 in 2005, $1,093,000 in
2004, $1,301,000 in 2003, $999,000 in 2002 and $1,325,000 in
2001. Interest income on other marketable securities includes
tax equivalent adjustments of $1,586,000 in 2005, $467,000 in
2004, $859,000 in 2003, $346,000 in 2002 and $332,000 in
2001. |
(C) |
Interest expense of $123,000,
$113,000, $494,000 and $747,000 which was capitalized on
construction projects in 2005, 2004, 2002 and 2001,
respectively, is not deducted from the interest expense shown
above. |
43
QUARTERLY AVERAGE BALANCE SHEETS AVERAGE RATES
AND YIELDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 | |
|
|
| |
|
|
Fourth Quarter | |
|
Third Quarter | |
|
Second Quarter | |
|
First Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Rates | |
|
|
|
Rates | |
|
|
|
Rates | |
|
|
|
Rates | |
|
|
Average | |
|
Earned/ | |
|
Average | |
|
Earned/ | |
|
Average | |
|
Earned/ | |
|
Average | |
|
Earned/ | |
(Dollars in millions) |
|
Balance | |
|
Paid | |
|
Balance | |
|
Paid | |
|
Balance | |
|
Paid | |
|
Balance | |
|
Paid | |
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$ |
2,436 |
|
|
|
5.84 |
% |
|
$ |
2,357 |
|
|
|
5.50 |
% |
|
$ |
2,305 |
|
|
|
5.12 |
% |
|
$ |
2,246 |
|
|
|
4.96 |
% |
|
Real estate construction
|
|
|
483 |
|
|
|
6.58 |
|
|
|
519 |
|
|
|
6.10 |
|
|
|
479 |
|
|
|
5.68 |
|
|
|
443 |
|
|
|
5.19 |
|
|
Real estate business
|
|
|
1,877 |
|
|
|
6.32 |
|
|
|
1,775 |
|
|
|
6.02 |
|
|
|
1,766 |
|
|
|
5.74 |
|
|
|
1,758 |
|
|
|
5.56 |
|
|
Real estate personal
|
|
|
1,361 |
|
|
|
5.37 |
|
|
|
1,367 |
|
|
|
5.31 |
|
|
|
1,344 |
|
|
|
5.28 |
|
|
|
1,335 |
|
|
|
5.30 |
|
|
Consumer
|
|
|
1,281 |
|
|
|
6.67 |
|
|
|
1,268 |
|
|
|
6.52 |
|
|
|
1,225 |
|
|
|
6.38 |
|
|
|
1,193 |
|
|
|
6.31 |
|
|
Home equity
|
|
|
447 |
|
|
|
6.84 |
|
|
|
437 |
|
|
|
6.34 |
|
|
|
423 |
|
|
|
5.89 |
|
|
|
413 |
|
|
|
5.47 |
|
|
Student
|
|
|
325 |
|
|
|
5.27 |
|
|
|
321 |
|
|
|
5.08 |
|
|
|
374 |
|
|
|
4.57 |
|
|
|
410 |
|
|
|
4.31 |
|
|
Credit card
|
|
|
561 |
|
|
|
12.36 |
|
|
|
556 |
|
|
|
12.20 |
|
|
|
554 |
|
|
|
11.82 |
|
|
|
547 |
|
|
|
11.61 |
|
|
Overdrafts
|
|
|
13 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
Total loans
|
|
|
8,784 |
|
|
|
6.47 |
|
|
|
8,615 |
|
|
|
6.21 |
|
|
|
8,482 |
|
|
|
5.93 |
|
|
|
8,361 |
|
|
|
5.76 |
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government & federal agency
|
|
|
849 |
|
|
|
3.58 |
|
|
|
919 |
|
|
|
3.47 |
|
|
|
1,130 |
|
|
|
4.58 |
|
|
|
1,374 |
|
|
|
3.35 |
|
|
State & municipal
obligations(A)
|
|
|
246 |
|
|
|
4.32 |
|
|
|
164 |
|
|
|
4.21 |
|
|
|
71 |
|
|
|
4.44 |
|
|
|
64 |
|
|
|
4.43 |
|
|
Mortgage and asset-backed securities
|
|
|
2,574 |
|
|
|
4.24 |
|
|
|
2,905 |
|
|
|
4.14 |
|
|
|
2,925 |
|
|
|
4.11 |
|
|
|
2,848 |
|
|
|
3.87 |
|
|
Trading securities
|
|
|
13 |
|
|
|
4.24 |
|
|
|
11 |
|
|
|
4.01 |
|
|
|
8 |
|
|
|
3.98 |
|
|
|
11 |
|
|
|
3.66 |
|
|
Other marketable
securities(A)
|
|
|
210 |
|
|
|
5.55 |
|
|
|
222 |
|
|
|
4.68 |
|
|
|
219 |
|
|
|
3.82 |
|
|
|
218 |
|
|
|
3.13 |
|
|
Non-marketable securities
|
|
|
81 |
|
|
|
8.77 |
|
|
|
81 |
|
|
|
3.51 |
|
|
|
76 |
|
|
|
5.45 |
|
|
|
77 |
|
|
|
5.67 |
|
|
Total investment securities
|
|
|
3,973 |
|
|
|
4.26 |
|
|
|
4,302 |
|
|
|
4.02 |
|
|
|
4,429 |
|
|
|
4.24 |
|
|
|
4,592 |
|
|
|
3.72 |
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
109 |
|
|
|
4.23 |
|
|
|
127 |
|
|
|
3.74 |
|
|
|
145 |
|
|
|
3.22 |
|
|
|
85 |
|
|
|
2.79 |
|
|
Total interest earning assets
|
|
|
12,866 |
|
|
|
5.77 |
|
|
|
13,044 |
|
|
|
5.46 |
|
|
|
13,056 |
|
|
|
5.33 |
|
|
|
13,038 |
|
|
|
5.02 |
|
|
Less allowance for loan losses
|
|
|
(127 |
) |
|
|
|
|
|
|
(128 |
) |
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
|
(132 |
) |
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
(3 |
) |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
48 |
|
|
|
|
|
Cash and due from banks
|
|
|
493 |
|
|
|
|
|
|
|
478 |
|
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
560 |
|
|
|
|
|
Land, buildings and equipment net
|
|
|
377 |
|
|
|
|
|
|
|
376 |
|
|
|
|
|
|
|
370 |
|
|
|
|
|
|
|
354 |
|
|
|
|
|
Other assets
|
|
|
209 |
|
|
|
|
|
|
|
197 |
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
Total assets
|
|
$ |
13,815 |
|
|
|
|
|
|
$ |
13,987 |
|
|
|
|
|
|
$ |
14,024 |
|
|
|
|
|
|
$ |
14,070 |
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$ |
388 |
|
|
|
.31 |
|
|
$ |
404 |
|
|
|
.31 |
|
|
$ |
417 |
|
|
|
.31 |
|
|
$ |
404 |
|
|
|
.31 |
|
|
Interest checking and money market
|
|
|
6,701 |
|
|
|
.94 |
|
|
|
6,759 |
|
|
|
.83 |
|
|
|
6,821 |
|
|
|
.70 |
|
|
|
6,702 |
|
|
|
.61 |
|
|
Time open & C.D.s under $100,000
|
|
|
1,796 |
|
|
|
3.27 |
|
|
|
1,753 |
|
|
|
3.02 |
|
|
|
1,732 |
|
|
|
2.79 |
|
|
|
1,665 |
|
|
|
2.53 |
|
|
Time open & C.D.s $100,000 & over
|
|
|
968 |
|
|
|
3.71 |
|
|
|
903 |
|
|
|
3.26 |
|
|
|
1,086 |
|
|
|
2.95 |
|
|
|
979 |
|
|
|
2.63 |
|
|
Total interest bearing deposits
|
|
|
9,853 |
|
|
|
1.62 |
|
|
|
9,819 |
|
|
|
1.42 |
|
|
|
10,056 |
|
|
|
1.29 |
|
|
|
9,750 |
|
|
|
1.13 |
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,579 |
|
|
|
3.76 |
|
|
|
1,724 |
|
|
|
3.27 |
|
|
|
1,481 |
|
|
|
2.75 |
|
|
|
1,655 |
|
|
|
2.31 |
|
|
Other borrowings
|
|
|
325 |
|
|
|
3.96 |
|
|
|
371 |
|
|
|
3.53 |
|
|
|
380 |
|
|
|
3.24 |
|
|
|
389 |
|
|
|
2.96 |
|
|
Total borrowings
|
|
|
1,904 |
|
|
|
3.80 |
|
|
|
2,095 |
|
|
|
3.32 |
|
|
|
1,861 |
|
|
|
2.85 |
|
|
|
2,044 |
|
|
|
2.43 |
|
|
Total interest bearing liabilities
|
|
|
11,757 |
|
|
|
1.97 |
% |
|
|
11,914 |
|
|
|
1.76 |
% |
|
|
11,917 |
|
|
|
1.53 |
% |
|
|
11,794 |
|
|
|
1.36 |
% |
|
Non-interest bearing demand deposits
|
|
|
617 |
|
|
|
|
|
|
|
602 |
|
|
|
|
|
|
|
633 |
|
|
|
|
|
|
|
773 |
|
|
|
|
|
Other liabilities
|
|
|
90 |
|
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
92 |
|
|
|
|
|
|
|
95 |
|
|
|
|
|
Stockholders equity
|
|
|
1,351 |
|
|
|
|
|
|
|
1,375 |
|
|
|
|
|
|
|
1,382 |
|
|
|
|
|
|
|
1,408 |
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
13,815 |
|
|
|
|
|
|
$ |
13,987 |
|
|
|
|
|
|
$ |
14,024 |
|
|
|
|
|
|
$ |
14,070 |
|
|
|
|
|
|
Net interest margin (T/E)
|
|
$ |
129 |
|
|
|
|
|
|
$ |
127 |
|
|
|
|
|
|
$ |
128 |
|
|
|
|
|
|
$ |
122 |
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
3.93 |
% |
|
|
|
|
|
|
3.79 |
% |
|
(A) Includes tax equivalent calculations.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 | |
|
|
| |
|
|
Fourth Quarter | |
|
Third Quarter | |
|
Second Quarter | |
|
First Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Rates | |
|
|
|
Rates | |
|
|
|
Rates | |
|
|
|
Rates | |
|
|
Average | |
|
Earned/ | |
|
Average | |
|
Earned/ | |
|
Average | |
|
Earned/ | |
|
Average | |
|
Earned/ | |
(Dollars in millions) |
|
Balance | |
|
Paid | |
|
Balance | |
|
Paid | |
|
Balance | |
|
Paid | |
|
Balance | |
|
Paid | |
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$ |
2,185 |
|
|
|
4.53 |
% |
|
$ |
2,083 |
|
|
|
4.14 |
% |
|
$ |
2,125 |
|
|
|
4.00 |
% |
|
$ |
2,086 |
|
|
|
3.96 |
% |
|
Real estate construction
|
|
|
420 |
|
|
|
4.73 |
|
|
|
427 |
|
|
|
4.21 |
|
|
|
439 |
|
|
|
3.95 |
|
|
|
426 |
|
|
|
4.00 |
|
|
Real estate business
|
|
|
1,756 |
|
|
|
5.24 |
|
|
|
1,806 |
|
|
|
4.99 |
|
|
|
1,851 |
|
|
|
4.80 |
|
|
|
1,881 |
|
|
|
4.86 |
|
|
Real estate personal
|
|
|
1,340 |
|
|
|
5.17 |
|
|
|
1,339 |
|
|
|
5.15 |
|
|
|
1,329 |
|
|
|
5.20 |
|
|
|
1,331 |
|
|
|
5.25 |
|
|
Consumer
|
|
|
1,205 |
|
|
|
6.32 |
|
|
|
1,210 |
|
|
|
6.25 |
|
|
|
1,184 |
|
|
|
6.35 |
|
|
|
1,152 |
|
|
|
6.55 |
|
|
Home equity
|
|
|
406 |
|
|
|
4.91 |
|
|
|
390 |
|
|
|
4.64 |
|
|
|
371 |
|
|
|
4.37 |
|
|
|
357 |
|
|
|
4.38 |
|
|
Student
|
|
|
344 |
|
|
|
3.71 |
|
|
|
290 |
|
|
|
3.09 |
|
|
|
289 |
|
|
|
2.58 |
|
|
|
382 |
|
|
|
2.61 |
|
|
Credit card
|
|
|
522 |
|
|
|
11.30 |
|
|
|
520 |
|
|
|
11.06 |
|
|
|
509 |
|
|
|
10.76 |
|
|
|
511 |
|
|
|
11.19 |
|
|
Overdrafts
|
|
|
14 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
Total loans
|
|
|
8,192 |
|
|
|
5.47 |
|
|
|
8,076 |
|
|
|
5.24 |
|
|
|
8,108 |
|
|
|
5.11 |
|
|
|
8,144 |
|
|
|
5.15 |
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government & federal agency
|
|
|
1,717 |
|
|
|
3.85 |
|
|
|
1,637 |
|
|
|
3.84 |
|
|
|
1,756 |
|
|
|
4.58 |
|
|
|
1,776 |
|
|
|
3.53 |
|
|
State & municipal
obligations(A)
|
|
|
69 |
|
|
|
4.46 |
|
|
|
72 |
|
|
|
4.87 |
|
|
|
70 |
|
|
|
4.97 |
|
|
|
72 |
|
|
|
4.95 |
|
|
Mortgage and asset-backed securities
|
|
|
2,726 |
|
|
|
3.67 |
|
|
|
2,829 |
|
|
|
3.76 |
|
|
|
2,986 |
|
|
|
3.65 |
|
|
|
2,845 |
|
|
|
3.79 |
|
|
Trading securities
|
|
|
13 |
|
|
|
3.10 |
|
|
|
10 |
|
|
|
3.45 |
|
|
|
25 |
|
|
|
3.67 |
|
|
|
8 |
|
|
|
3.67 |
|
|
Other marketable
securities(A)
|
|
|
195 |
|
|
|
2.78 |
|
|
|
158 |
|
|
|
2.23 |
|
|
|
138 |
|
|
|
2.08 |
|
|
|
164 |
|
|
|
1.92 |
|
|
Non-marketable securities
|
|
|
75 |
|
|
|
4.70 |
|
|
|
75 |
|
|
|
5.23 |
|
|
|
78 |
|
|
|
4.18 |
|
|
|
75 |
|
|
|
4.59 |
|
|
Total investment securities
|
|
|
4,795 |
|
|
|
3.73 |
|
|
|
4,781 |
|
|
|
3.77 |
|
|
|
5,053 |
|
|
|
3.96 |
|
|
|
4,940 |
|
|
|
3.66 |
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
64 |
|
|
|
2.23 |
|
|
|
101 |
|
|
|
1.69 |
|
|
|
111 |
|
|
|
1.23 |
|
|
|
61 |
|
|
|
1.24 |
|
|
Total interest earning assets
|
|
|
13,051 |
|
|
|
4.81 |
|
|
|
12,958 |
|
|
|
4.67 |
|
|
|
13,272 |
|
|
|
4.64 |
|
|
|
13,145 |
|
|
|
4.57 |
|
|
Less allowance for loan losses
|
|
|
(132 |
) |
|
|
|
|
|
|
(132 |
) |
|
|
|
|
|
|
(133 |
) |
|
|
|
|
|
|
(133 |
) |
|
|
|
|
Unrealized gain on investment securities
|
|
|
81 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
131 |
|
|
|
|
|
Cash and due from banks
|
|
|
576 |
|
|
|
|
|
|
|
557 |
|
|
|
|
|
|
|
550 |
|
|
|
|
|
|
|
529 |
|
|
|
|
|
Land, buildings and equipment net
|
|
|
344 |
|
|
|
|
|
|
|
341 |
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
337 |
|
|
|
|
|
Other assets
|
|
|
192 |
|
|
|
|
|
|
|
190 |
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
185 |
|
|
|
|
|
|
Total assets
|
|
$ |
14,112 |
|
|
|
|
|
|
$ |
13,969 |
|
|
|
|
|
|
$ |
14,324 |
|
|
|
|
|
|
$ |
14,194 |
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$ |
398 |
|
|
|
.31 |
|
|
$ |
406 |
|
|
|
.31 |
|
|
$ |
411 |
|
|
|
.31 |
|
|
$ |
393 |
|
|
|
.31 |
|
|
Interest checking and money market
|
|
|
6,205 |
|
|
|
.51 |
|
|
|
6,205 |
|
|
|
.44 |
|
|
|
6,164 |
|
|
|
.39 |
|
|
|
6,111 |
|
|
|
.39 |
|
|
Time open & C.D.s under $100,000
|
|
|
1,657 |
|
|
|
2.38 |
|
|
|
1,657 |
|
|
|
2.29 |
|
|
|
1,686 |
|
|
|
2.29 |
|
|
|
1,715 |
|
|
|
2.32 |
|
|
Time open & C.D.s $100,000 & over
|
|
|
754 |
|
|
|
2.21 |
|
|
|
815 |
|
|
|
1.90 |
|
|
|
841 |
|
|
|
1.71 |
|
|
|
745 |
|
|
|
1.76 |
|
|
Total interest bearing deposits
|
|
|
9,014 |
|
|
|
.99 |
|
|
|
9,083 |
|
|
|
.90 |
|
|
|
9,102 |
|
|
|
.86 |
|
|
|
8,964 |
|
|
|
.87 |
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,792 |
|
|
|
1.82 |
|
|
|
1,662 |
|
|
|
1.31 |
|
|
|
1,912 |
|
|
|
.93 |
|
|
|
1,947 |
|
|
|
.92 |
|
|
Other borrowings
|
|
|
390 |
|
|
|
2.53 |
|
|
|
392 |
|
|
|
1.96 |
|
|
|
454 |
|
|
|
1.84 |
|
|
|
441 |
|
|
|
1.85 |
|
|
Total borrowings
|
|
|
2,182 |
|
|
|
1.95 |
|
|
|
2,054 |
|
|
|
1.43 |
|
|
|
2,366 |
|
|
|
1.11 |
|
|
|
2,388 |
|
|
|
1.09 |
|
|
Total interest bearing liabilities
|
|
|
11,196 |
|
|
|
1.18 |
% |
|
|
11,137 |
|
|
|
1.00 |
% |
|
|
11,468 |
|
|
|
.91 |
% |
|
|
11,352 |
|
|
|
.91 |
% |
|
Non-interest bearing demand deposits
|
|
|
1,351 |
|
|
|
|
|
|
|
1,292 |
|
|
|
|
|
|
|
1,276 |
|
|
|
|
|
|
|
1,234 |
|
|
|
|
|
Other liabilities
|
|
|
110 |
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
143 |
|
|
|
|
|
Stockholders equity
|
|
|
1,455 |
|
|
|
|
|
|
|
1,429 |
|
|
|
|
|
|
|
1,452 |
|
|
|
|
|
|
|
1,465 |
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
14,112 |
|
|
|
|
|
|
$ |
13,969 |
|
|
|
|
|
|
$ |
14,324 |
|
|
|
|
|
|
$ |
14,194 |
|
|
|
|
|
|
Net interest margin (T/E)
|
|
$ |
125 |
|
|
|
|
|
|
$ |
124 |
|
|
|
|
|
|
$ |
127 |
|
|
|
|
|
|
$ |
124 |
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
3.80 |
% |
|
|
|
|
|
|
3.82 |
% |
|
|
|
|
|
|
3.85 |
% |
|
|
|
|
|
|
3.78 |
% |
|
(A) Includes tax equivalent calculations.
45
SUMMARY OF QUARTERLY STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Quarter Ended | |
Year Ended December 31, 2005 |
|
| |
(In thousands, except per share data) |
|
12/31/05 | |
|
9/30/05 | |
|
6/30/05 | |
|
3/31/05 | |
| |
Interest income
|
|
$ |
185,343 |
|
|
$ |
178,570 |
|
|
$ |
172,800 |
|
|
$ |
160,853 |
|
Interest expense
|
|
|
(58,337 |
) |
|
|
(52,738 |
) |
|
|
(45,413 |
) |
|
|
(39,376 |
) |
|
Net interest income
|
|
|
127,006 |
|
|
|
125,832 |
|
|
|
127,387 |
|
|
|
121,477 |
|
Non-interest income
|
|
|
88,633 |
|
|
|
86,895 |
|
|
|
84,980 |
|
|
|
80,691 |
|
Salaries and employee benefits
|
|
|
(68,730 |
) |
|
|
(66,682 |
) |
|
|
(67,585 |
) |
|
|
(70,180 |
) |
Other expense
|
|
|
(58,471 |
) |
|
|
(55,705 |
) |
|
|
(55,427 |
) |
|
|
(53,742 |
) |
Provision for loan losses
|
|
|
(11,980 |
) |
|
|
(8,934 |
) |
|
|
(5,503 |
) |
|
|
(2,368 |
) |
|
Income before income taxes
|
|
|
76,458 |
|
|
|
81,406 |
|
|
|
83,852 |
|
|
|
75,878 |
|
Income taxes
|
|
|
(20,216 |
) |
|
|
(18,615 |
) |
|
|
(29,484 |
) |
|
|
(26,032 |
) |
|
Net income
|
|
$ |
56,242 |
|
|
$ |
62,791 |
|
|
$ |
54,368 |
|
|
$ |
49,846 |
|
|
Net income per share basic*
|
|
$ |
.83 |
|
|
$ |
.90 |
|
|
$ |
.78 |
|
|
$ |
.70 |
|
Net income per share diluted*
|
|
$ |
.81 |
|
|
$ |
.89 |
|
|
$ |
.77 |
|
|
$ |
.69 |
|
|
Weighted average shares basic*
|
|
|
68,210 |
|
|
|
69,244 |
|
|
|
70,071 |
|
|
|
71,023 |
|
Weighted average shares diluted*
|
|
|
69,040 |
|
|
|
70,194 |
|
|
|
71,036 |
|
|
|
72,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Quarter Ended | |
Year Ended December 31, 2004 |
|
| |
(In thousands, except per share data) |
|
12/31/04 | |
|
9/30/04 | |
|
6/30/04 | |
|
3/31/04 | |
| |
Interest income
|
|
$ |
157,271 |
|
|
$ |
151,592 |
|
|
$ |
152,440 |
|
|
$ |
148,787 |
|
Interest expense
|
|
|
(33,069 |
) |
|
|
(27,908 |
) |
|
|
(25,979 |
) |
|
|
(25,803 |
) |
|
Net interest income
|
|
|
124,202 |
|
|
|
123,684 |
|
|
|
126,461 |
|
|
|
122,984 |
|
Non-interest income
|
|
|
77,753 |
|
|
|
78,920 |
|
|
|
84,289 |
|
|
|
85,969 |
|
Salaries and employee benefits
|
|
|
(66,208 |
) |
|
|
(65,549 |
) |
|
|
(65,696 |
) |
|
|
(68,016 |
) |
Other expense
|
|
|
(56,221 |
) |
|
|
(54,943 |
) |
|
|
(55,240 |
) |
|
|
(50,896 |
) |
Provision for loan losses
|
|
|
(7,215 |
) |
|
|
(6,606 |
) |
|
|
(6,280 |
) |
|
|
(10,250 |
) |
|
Income before income taxes
|
|
|
72,311 |
|
|
|
75,506 |
|
|
|
83,534 |
|
|
|
79,791 |
|
Income taxes
|
|
|
(19,651 |
) |
|
|
(12,987 |
) |
|
|
(29,696 |
) |
|
|
(28,467 |
) |
|
Net income
|
|
$ |
52,660 |
|
|
$ |
62,519 |
|
|
$ |
53,838 |
|
|
$ |
51,324 |
|
|
Net income per share basic*
|
|
$ |
.73 |
|
|
$ |
.85 |
|
|
$ |
.73 |
|
|
$ |
.69 |
|
Net income per share diluted*
|
|
$ |
.71 |
|
|
$ |
.84 |
|
|
$ |
.72 |
|
|
$ |
.68 |
|
|
Weighted average shares basic*
|
|
|
72,422 |
|
|
|
73,190 |
|
|
|
73,873 |
|
|
|
74,643 |
|
Weighted average shares diluted*
|
|
|
73,530 |
|
|
|
74,235 |
|
|
|
74,901 |
|
|
|
75,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Quarter Ended | |
Year Ended December 31, 2003 |
|
| |
(In thousands, except per share data) |
|
12/31/03 | |
|
9/30/03 | |
|
6/30/03 | |
|
3/31/03 | |
| |
Interest income
|
|
$ |
153,649 |
|
|
$ |
148,529 |
|
|
$ |
159,648 |
|
|
$ |
155,584 |
|
Interest expense
|
|
|
(26,142 |
) |
|
|
(26,541 |
) |
|
|
(30,961 |
) |
|
|
(31,374 |
) |
|
Net interest income
|
|
|
127,507 |
|
|
|
121,988 |
|
|
|
128,687 |
|
|
|
124,210 |
|
Non-interest income
|
|
|
76,420 |
|
|
|
76,940 |
|
|
|
73,701 |
|
|
|
74,606 |
|
Salaries and employee benefits
|
|
|
(64,964 |
) |
|
|
(65,036 |
) |
|
|
(66,006 |
) |
|
|
(68,593 |
) |
Other expense
|
|
|
(51,801 |
) |
|
|
(51,394 |
) |
|
|
(52,209 |
) |
|
|
(52,141 |
) |
Provision for loan losses
|
|
|
(11,002 |
) |
|
|
(9,655 |
) |
|
|
(9,999 |
) |
|
|
(10,020 |
) |
|
Income before income taxes
|
|
|
76,160 |
|
|
|
72,843 |
|
|
|
74,174 |
|
|
|
68,062 |
|
Income taxes
|
|
|
(22,299 |
) |
|
|
(17,895 |
) |
|
|
(23,687 |
) |
|
|
(20,834 |
) |
|
Net income
|
|
$ |
53,861 |
|
|
$ |
54,948 |
|
|
$ |
50,487 |
|
|
$ |
47,228 |
|
|
Net income per share basic*
|
|
$ |
.72 |
|
|
$ |
.72 |
|
|
$ |
.66 |
|
|
$ |
.61 |
|
Net income per share diluted*
|
|
$ |
.70 |
|
|
$ |
.71 |
|
|
$ |
.66 |
|
|
$ |
.60 |
|
|
Weighted average shares basic*
|
|
|
75,321 |
|
|
|
76,102 |
|
|
|
76,581 |
|
|
|
77,402 |
|
Weighted average shares diluted*
|
|
|
76,497 |
|
|
|
77,104 |
|
|
|
77,388 |
|
|
|
78,224 |
|
|
|
|
* |
Restated for the 5% stock dividend distributed in 2005. |
46
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information required by this item is set forth on pages 35
through 37 of Managements Discussion and Analysis of
Consolidated Financial Condition and Results of Operations.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Commerce Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of
Commerce Bancshares, Inc. and Subsidiaries (the Company) as of
December 31, 2005 and 2004, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2005 and 2004,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated
February 27, 2006 expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.
Kansas City, Missouri
February 27, 2006
47
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
|
(In thousands) | |
ASSETS
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$ |
8,899,183 |
|
|
$ |
8,305,359 |
|
Allowance for loan losses
|
|
|
(128,447 |
) |
|
|
(132,394 |
) |
|
Net loans
|
|
|
8,770,736 |
|
|
|
8,172,965 |
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
3,667,901 |
|
|
|
4,754,941 |
|
|
Trading
|
|
|
24,959 |
|
|
|
9,403 |
|
|
Non-marketable
|
|
|
77,321 |
|
|
|
73,024 |
|
|
Total investment securities
|
|
|
3,770,181 |
|
|
|
4,837,368 |
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
128,862 |
|
|
|
68,905 |
|
Cash and due from banks
|
|
|
545,273 |
|
|
|
585,815 |
|
Land, buildings and equipment net
|
|
|
374,192 |
|
|
|
336,446 |
|
Goodwill
|
|
|
48,522 |
|
|
|
48,522 |
|
Other assets
|
|
|
247,779 |
|
|
|
200,347 |
|
|
Total assets
|
|
$ |
13,885,545 |
|
|
$ |
14,250,368 |
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$ |
1,399,934 |
|
|
$ |
1,943,771 |
|
|
Savings, interest checking and money market
|
|
|
6,490,326 |
|
|
|
6,072,115 |
|
|
Time open and C.D.s of less than $100,000
|
|
|
1,831,980 |
|
|
|
1,656,002 |
|
|
Time open and C.D.s of $100,000 and over
|
|
|
1,129,573 |
|
|
|
762,421 |
|
|
Total deposits
|
|
|
10,851,813 |
|
|
|
10,434,309 |
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,326,427 |
|
|
|
1,913,878 |
|
Other borrowings
|
|
|
269,390 |
|
|
|
389,542 |
|
Other liabilities
|
|
|
100,077 |
|
|
|
85,759 |
|
|
Total liabilities
|
|
|
12,547,707 |
|
|
|
12,823,488 |
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1 par value
|
|
|
|
|
|
|
|
|
|
|
Authorized and unissued 2,000,000 shares
|
|
|
|
|
|
|
|
|
|
Common stock, $5 par value
|
|
|
|
|
|
|
|
|
|
|
Authorized 100,000,000 shares; issued
69,409,882 shares in 2005 and 2004
|
|
|
347,049 |
|
|
|
347,049 |
|
|
Capital surplus
|
|
|
388,552 |
|
|
|
388,614 |
|
|
Retained earnings
|
|
|
693,021 |
|
|
|
703,293 |
|
|
Treasury stock of 1,716,413 shares in 2005 and
1,072,098 shares in 2004, at cost
|
|
|
(86,901 |
) |
|
|
(51,646 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
(3,883 |
) |
|
|
39,570 |
|
|
Total stockholders equity
|
|
|
1,337,838 |
|
|
|
1,426,880 |
|
|
Total liabilities and stockholders equity
|
|
$ |
13,885,545 |
|
|
$ |
14,250,368 |
|
|
See accompanying notes to consolidated financial
statements.
48
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Years Ended December 31 | |
|
|
| |
(In thousands, except per share data) |
|
2005 | |
|
2004 | |
|
2003 | |
| |
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
521,283 |
|
|
$ |
425,338 |
|
|
$ |
433,495 |
|
Interest on investment securities
|
|
|
172,181 |
|
|
|
183,440 |
|
|
|
183,084 |
|
Interest on federal funds sold and securities purchased under
agreements to resell
|
|
|
4,102 |
|
|
|
1,312 |
|
|
|
831 |
|
|
Total interest income
|
|
|
697,566 |
|
|
|
610,090 |
|
|
|
617,410 |
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest checking and money market
|
|
|
53,371 |
|
|
|
27,957 |
|
|
|
28,742 |
|
|
Time open and C.D.s of less than $100,000
|
|
|
50,597 |
|
|
|
38,924 |
|
|
|
48,440 |
|
|
Time open and C.D.s of $100,000 and over
|
|
|
30,779 |
|
|
|
14,912 |
|
|
|
14,278 |
|
Interest on federal funds purchased and securities sold under
agreements to repurchase
|
|
|
48,776 |
|
|
|
22,560 |
|
|
|
15,289 |
|
Interest on other borrowings
|
|
|
12,341 |
|
|
|
8,406 |
|
|
|
8,269 |
|
|
Total interest expense
|
|
|
195,864 |
|
|
|
112,759 |
|
|
|
115,018 |
|
|
Net interest income
|
|
|
501,702 |
|
|
|
497,331 |
|
|
|
502,392 |
|
Provision for loan losses
|
|
|
28,785 |
|
|
|
30,351 |
|
|
|
40,676 |
|
|
Net interest income after provision for loan losses
|
|
|
472,917 |
|
|
|
466,980 |
|
|
|
461,716 |
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit account charges and other fees
|
|
|
112,979 |
|
|
|
105,382 |
|
|
|
97,711 |
|
Bank card transaction fees
|
|
|
86,310 |
|
|
|
78,253 |
|
|
|
67,102 |
|
Trust fees
|
|
|
68,316 |
|
|
|
64,257 |
|
|
|
60,921 |
|
Trading account profits and commissions
|
|
|
9,650 |
|
|
|
12,288 |
|
|
|
14,740 |
|
Consumer brokerage services
|
|
|
9,909 |
|
|
|
9,846 |
|
|
|
9,415 |
|
Loan fees and sales
|
|
|
12,838 |
|
|
|
13,654 |
|
|
|
14,109 |
|
Net gains on securities transactions
|
|
|
6,362 |
|
|
|
11,092 |
|
|
|
4,560 |
|
Other
|
|
|
34,835 |
|
|
|
32,159 |
|
|
|
33,109 |
|
|
Total non-interest income
|
|
|
341,199 |
|
|
|
326,931 |
|
|
|
301,667 |
|
|
NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
273,177 |
|
|
|
265,469 |
|
|
|
264,599 |
|
Net occupancy
|
|
|
40,621 |
|
|
|
39,558 |
|
|
|
38,736 |
|
Equipment
|
|
|
23,201 |
|
|
|
22,903 |
|
|
|
24,104 |
|
Supplies and communication
|
|
|
33,342 |
|
|
|
33,760 |
|
|
|
33,474 |
|
Data processing and software
|
|
|
48,244 |
|
|
|
46,000 |
|
|
|
40,567 |
|
Marketing
|
|
|
17,294 |
|
|
|
16,688 |
|
|
|
14,397 |
|
Other
|
|
|
60,643 |
|
|
|
58,391 |
|
|
|
56,267 |
|
|
Total non-interest expense
|
|
|
496,522 |
|
|
|
482,769 |
|
|
|
472,144 |
|
|
Income before income taxes
|
|
|
317,594 |
|
|
|
311,142 |
|
|
|
291,239 |
|
Less income taxes
|
|
|
94,347 |
|
|
|
90,801 |
|
|
|
84,715 |
|
|
Net income
|
|
$ |
223,247 |
|
|
$ |
220,341 |
|
|
$ |
206,524 |
|
|
Net income per share basic
|
|
$ |
3.21 |
|
|
$ |
3.00 |
|
|
$ |
2.71 |
|
Net income per share diluted
|
|
$ |
3.16 |
|
|
$ |
2.95 |
|
|
$ |
2.67 |
|
|
See accompanying notes to consolidated financial
statements.
49
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Years Ended December 31 | |
|
|
| |
(In thousands) |
|
2005 | |
|
2004 | |
|
2003 | |
| |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
223,247 |
|
|
$ |
220,341 |
|
|
$ |
206,524 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
28,785 |
|
|
|
30,351 |
|
|
|
40,676 |
|
|
Provision for depreciation and amortization
|
|
|
42,318 |
|
|
|
41,562 |
|
|
|
41,378 |
|
|
Amortization of investment security premiums, net
|
|
|
16,730 |
|
|
|
25,840 |
|
|
|
29,646 |
|
|
Provision (benefit) for deferred income taxes
|
|
|
(1,757 |
) |
|
|
2,717 |
|
|
|
(11,626 |
) |
|
Net gains on securities transactions
|
|
|
(6,362 |
) |
|
|
(11,092 |
) |
|
|
(4,560 |
) |
|
Net gains on sales of mortgage loans held for sale
|
|
|
(1,401 |
) |
|
|
(1,535 |
) |
|
|
(4,016 |
) |
|
Proceeds from sales of mortgage loans held for sale
|
|
|
94,763 |
|
|
|
98,792 |
|
|
|
238,002 |
|
|
Originations of mortgage loans held for sale
|
|
|
(88,504 |
) |
|
|
(95,802 |
) |
|
|
(205,393 |
) |
|
Net (increase) decrease in trading securities
|
|
|
(15,536 |
) |
|
|
1,289 |
|
|
|
(633 |
) |
|
Stock based compensation
|
|
|
6,628 |
|
|
|
6,465 |
|
|
|
6,092 |
|
|
Decrease in interest receivable
|
|
|
676 |
|
|
|
1,630 |
|
|
|
392 |
|
|
Increase (decrease) in interest payable
|
|
|
16,213 |
|
|
|
(372 |
) |
|
|
(8,837 |
) |
|
Increase (decrease) in income taxes payable
|
|
|
22 |
|
|
|
(20,039 |
) |
|
|
6,993 |
|
|
Net tax benefit related to stock option plans
|
|
|
(4,288 |
) |
|
|
(2,305 |
) |
|
|
(1,524 |
) |
|
Other changes, net
|
|
|
(17,900 |
) |
|
|
(33,187 |
) |
|
|
(35,898 |
) |
|
Net cash provided by operating activities
|
|
|
293,634 |
|
|
|
264,655 |
|
|
|
297,216 |
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash received in acquisitions
|
|
|
|
|
|
|
|
|
|
|
5,199 |
|
Cash paid in sales of branches
|
|
|
|
|
|
|
(2,280 |
) |
|
|
|
|
Proceeds from sales of available for sale securities
|
|
|
1,816,865 |
|
|
|
252,464 |
|
|
|
243,456 |
|
Proceeds from maturities of available for sale securities
|
|
|
1,197,556 |
|
|
|
1,451,726 |
|
|
|
1,683,626 |
|
Purchases of available for sale securities
|
|
|
(2,012,483 |
) |
|
|
(1,570,659 |
) |
|
|
(2,755,260 |
) |
Net increase in loans
|
|
|
(631,391 |
) |
|
|
(210,252 |
) |
|
|
(290,450 |
) |
Purchases of land, buildings and equipment
|
|
|
(64,231 |
) |
|
|
(33,471 |
) |
|
|
(36,111 |
) |
Sales of land, buildings and equipment
|
|
|
2,475 |
|
|
|
2,260 |
|
|
|
3,373 |
|
|
Net cash provided by (used in) investing activities
|
|
|
308,791 |
|
|
|
(110,212 |
) |
|
|
(1,146,167 |
) |
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in non-interest bearing demand, savings,
interest checking and money market deposits
|
|
|
(143,463 |
) |
|
|
233,672 |
|
|
|
447,080 |
|
Net increase (decrease) in time open and C.D.s
|
|
|
543,130 |
|
|
|
15,042 |
|
|
|
(146,750 |
) |
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase
|
|
|
(587,451 |
) |
|
|
(192,166 |
) |
|
|
654,110 |
|
Repayment of long-term borrowings
|
|
|
(119,985 |
) |
|
|
(111,260 |
) |
|
|
(285,186 |
) |
Additional long-term borrowings
|
|
|
|
|
|
|
100,000 |
|
|
|
225,248 |
|
Net increase (decrease) in short-term borrowings
|
|
|
|
|
|
|
(2,876 |
) |
|
|
69,125 |
|
Purchases of treasury stock
|
|
|
(234,501 |
) |
|
|
(173,829 |
) |
|
|
(125,724 |
) |
Issuance of stock under stock purchase and option plans
|
|
|
18,393 |
|
|
|
15,281 |
|
|
|
8,682 |
|
Net tax benefit related to stock option plans
|
|
|
4,288 |
|
|
|
2,305 |
|
|
|
1,524 |
|
Cash dividends paid on common stock
|
|
|
(63,421 |
) |
|
|
(61,135 |
) |
|
|
(51,266 |
) |
|
Net cash provided by (used in) financing activities
|
|
|
(583,010 |
) |
|
|
(174,966 |
) |
|
|
796,843 |
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
19,415 |
|
|
|
(20,523 |
) |
|
|
(52,108 |
) |
Cash and cash equivalents at beginning of year
|
|
|
654,720 |
|
|
|
675,243 |
|
|
|
727,351 |
|
|
Cash and cash equivalents at end of year
|
|
$ |
674,135 |
|
|
$ |
654,720 |
|
|
$ |
675,243 |
|
|
See accompanying notes to consolidated financial
statements.
50
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accumulated | |
|
|
|
|
Other | |
|
|
|
|
Common | |
|
Capital | |
|
Retained | |
|
Treasury | |
|
Comprehensive | |
|
|
(In thousands, except per share data) |
|
Stock | |
|
Surplus | |
|
Earnings | |
|
Stock | |
|
Income (Loss) | |
|
Total | |
| |
Balance, December 31, 2002
|
|
$ |
336,192 |
|
|
$ |
288,241 |
|
|
$ |
707,433 |
|
|
$ |
(5,507 |
) |
|
$ |
96,093 |
|
|
$ |
1,422,452 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
206,524 |
|
|
|
|
|
|
|
|
|
|
|
206,524 |
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,222 |
) |
|
|
(23,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,724 |
) |
|
|
|
|
|
|
(125,724 |
) |
Cash dividends paid ($.674 per share)
|
|
|
|
|
|
|
|
|
|
|
(51,266 |
) |
|
|
|
|
|
|
|
|
|
|
(51,266 |
) |
Net tax benefit related to stock option plans
|
|
|
|
|
|
|
1,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,524 |
|
Stock based compensation
|
|
|
|
|
|
|
6,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,092 |
|
Issuance under stock purchase, option and award plans, net
|
|
|
|
|
|
|
(9,706 |
) |
|
|
|
|
|
|
18,388 |
|
|
|
|
|
|
|
8,682 |
|
Purchase acquisition
|
|
|
748 |
|
|
|
5,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
5% stock dividend, net
|
|
|
6,243 |
|
|
|
65,934 |
|
|
|
(155,555 |
) |
|
|
83,270 |
|
|
|
|
|
|
|
(108 |
) |
|
Balance, December 31, 2003
|
|
|
343,183 |
|
|
|
357,337 |
|
|
|
707,136 |
|
|
|
(29,573 |
) |
|
|
72,871 |
|
|
|
1,450,954 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
220,341 |
|
|
|
|
|
|
|
|
|
|
|
220,341 |
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,301 |
) |
|
|
(33,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173,829 |
) |
|
|
|
|
|
|
(173,829 |
) |
Cash dividends paid ($.834 per share)
|
|
|
|
|
|
|
|
|
|
|
(61,135 |
) |
|
|
|
|
|
|
|
|
|
|
(61,135 |
) |
Net tax benefit related to stock option plans
|
|
|
|
|
|
|
2,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,305 |
|
Stock based compensation
|
|
|
|
|
|
|
6,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,465 |
|
Issuance under stock purchase, option and award plans, net
|
|
|
|
|
|
|
(17,850 |
) |
|
|
|
|
|
|
33,131 |
|
|
|
|
|
|
|
15,281 |
|
5% stock dividend, net
|
|
|
3,866 |
|
|
|
40,357 |
|
|
|
(163,049 |
) |
|
|
118,625 |
|
|
|
|
|
|
|
(201 |
) |
|
Balance, December 31, 2004
|
|
|
347,049 |
|
|
|
388,614 |
|
|
|
703,293 |
|
|
|
(51,646 |
) |
|
|
39,570 |
|
|
|
1,426,880 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
223,247 |
|
|
|
|
|
|
|
|
|
|
|
223,247 |
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,453 |
) |
|
|
(43,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234,501 |
) |
|
|
|
|
|
|
(234,501 |
) |
Cash dividends paid ($.914 per share)
|
|
|
|
|
|
|
|
|
|
|
(63,421 |
) |
|
|
|
|
|
|
|
|
|
|
(63,421 |
) |
Net tax benefit related to stock option plans
|
|
|
|
|
|
|
4,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,288 |
|
Stock based compensation
|
|
|
|
|
|
|
6,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,628 |
|
Issuance under stock purchase, option and award plans, net
|
|
|
|
|
|
|
(18,656 |
) |
|
|
|
|
|
|
37,049 |
|
|
|
|
|
|
|
18,393 |
|
5% stock dividend, net
|
|
|
|
|
|
|
7,678 |
|
|
|
(170,098 |
) |
|
|
162,197 |
|
|
|
|
|
|
|
(223 |
) |
|
Balance, December 31, 2005
|
|
$ |
347,049 |
|
|
$ |
388,552 |
|
|
$ |
693,021 |
|
|
$ |
(86,901 |
) |
|
$ |
(3,883 |
) |
|
$ |
1,337,838 |
|
|
See accompanying notes to consolidated financial
statements.
51
Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Commerce Bancshares, Inc. (the Company) conducts its principal
activities through its banking and non-banking subsidiaries from
approximately 340 locations throughout Missouri, Illinois and
Kansas. Principal activities include retail and commercial
banking, investment management, securities brokerage, mortgage
banking, credit related insurance, venture capital and real
estate activities.
The Company follows accounting principles generally accepted in
the United States of America (GAAP) and reporting practices
applicable to the banking industry. The preparation of financial
statements under GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and notes. While the consolidated financial
statements reflect managements best estimates and
judgment, actual results could differ from those estimates. The
consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries (after elimination
of all material intercompany balances and transactions). Certain
amounts for prior years have been reclassified to conform to the
current year presentation.
|
|
|
Cash and Cash Equivalents |
In the accompanying consolidated statements of cash flows, cash
and cash equivalents include Cash and due from banks
and Federal funds sold and securities purchased under
agreements to resell as segregated in the accompanying
consolidated balance sheets.
|
|
|
Loans and Related Earnings |
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balances, net of
undisbursed loan proceeds, the allowance for loan losses, and
any deferred fees and costs on originated loans. Origination fee
income received on loans and amounts representing the estimated
direct costs of origination are deferred and amortized to
interest income over the life of the loan using the interest
method, or recognized when the loan is sold.
Interest on loans is accrued based upon the principal amount
outstanding. Interest income is recognized primarily on the
level yield method. Loan and commitment fees on commercial and
consumer loans, net of costs, are deferred and recognized in
income over the term of the loan or commitment as an adjustment
of yield. Annual fees charged on certain credit card loans are
capitalized to principal and amortized over 12 months to
loan fees and sales in the accompanying consolidated income
statements. Other credit card fees, such as cash advance fees
and late payment fees, are recognized in income as an adjustment
of yield when charged to the cardholders account.
Residential mortgage loans held for sale are valued at the lower
of aggregate cost or fair value. The Company generally has
commitments to sell fixed rate residential mortgage loans held
for sale in the secondary market. Gains or losses on sales are
recognized upon delivery and included in loan fees and sales.
Loans, including those that are considered to be impaired, are
evaluated regularly by management. Business, lease, construction
and business real estate loans are placed on non-accrual status
when the collection of interest or principal is 90 days or
more past due, unless the loan is adequately secured and in the
process of collection. Accrual of interest on consumer
installment loans is suspended when any payment of principal or
interest is more than 120 days delinquent. When a loan is
placed on non-accrual status, any interest previously accrued
but not collected is reversed against current income. Loans are
52
returned to accrual status when all the principal and interest
amounts contractually due are brought current and future
payments are reasonably assured. Interest payments received on
non-accrual loans are generally applied to principal unless the
remaining principal balance has been determined to be fully
collectible. Credit card loans are charged off against the
allowance for loan losses when the receivable is more than
180 days past due. The interest and fee income previously
capitalized but not collected on credit card charge-offs is
reversed against interest income.
|
|
|
Allowance/Provision for Loan Losses |
The allowance for loan losses is maintained at a level believed
to be appropriate by management to provide for probable loan
losses inherent in the portfolio as of the balance sheet date,
including known or anticipated problem loans as well as for
loans which are not currently known to require specific
allowances. Managements judgment as to the amount of the
allowance, including the allocated and unallocated elements, is
a result of ongoing review of larger individual loans,
collateral values, the overall risk characteristics of the
portfolio, changes in the character or size of the portfolio,
the level of impaired and non-performing assets, historical
charge-off amounts, geographic location, prevailing economic
conditions and other relevant factors. Loans are considered
impaired when it becomes probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. Included in impaired loans are all
non-accrual business, lease, construction, and business real
estate loans. Consumer, personal real estate, home equity,
student and credit card loans (collectively personal loans) are
excluded from the definition of an impaired loan. Impairment is
measured as the present value of the expected future cash flows
at the loans initial effective interest rate or the fair
value of the collateral for collateral-dependent loans. Personal
loans are segregated by loan type and by sub-type, and are
evaluated on a group basis. Loans are charged off to the extent
they are deemed to be uncollectible. The amount of the allowance
for loan losses is highly dependent on managements
estimates of variables affecting valuation, appraisals of
collateral, evaluations of performance and status, and the
amount and timing of future cash flows expected to be received
on impaired loans. Such estimates, appraisals, evaluations, and
cash flows may be subject to frequent adjustments due to
changing economic prospects of borrowers or properties. These
estimates are reviewed periodically and adjustments, if
necessary, are recorded in the provision for loan losses in the
periods in which they become known.
|
|
|
Operating, Direct Financing and Sales Type Leases |
The net investment in direct financing and sales type leases is
included in loans on the Companys consolidated balance
sheet, and consists of the present value of the future minimum
lease payments plus the present value of the estimated residual.
Revenue consists of interest earned on the present value of the
lease payments and residual, and is recognized over the lease
term as a constant percentage return on the net investment. The
net investment in operating leases is included in other assets
on the Companys consolidated balance sheet. It is carried
at cost, less the amount depreciated to date. Depreciation is
recognized, on the straight-line basis, over the lease term to
the Companys estimate of the equipments residual
value at lease termination. Operating lease revenue consists of
the contractual lease payments and is recognized over the lease
term in other non-interest income. Residual value, representing
the estimated value of the equipment upon termination of the
lease, is recorded at the inception of each lease based on an
amount estimated by management utilizing contract terms, past
customer experience, and general market data. It is reviewed,
and adjusted if necessary, on an annual basis.
|
|
|
Investments in Debt and Equity Securities |
The Company has classified the majority of its investment
portfolio as available for sale. From time to time, the Company
sells securities and utilizes the proceeds to reduce borrowings,
fund loan growth, or modify its interest rate profile.
Securities classified as available for sale are carried at fair
value. Their related unrealized gains and losses, net of tax,
are reported in accumulated other comprehensive income, a
component of stockholders equity. Premiums and discounts
are amortized to interest income over the
53
estimated lives of the securities. Realized gains and losses,
including other-than-temporary declines in value, are calculated
using the specific identification method and included in
non-interest income.
Non-marketable securities include certain venture capital
investments, consisting of both debt and equity instruments,
which are accounted for at fair value. Fair value is determined
based on observable market values or at estimated fair values,
in the absence of readily ascertainable market values. Changes
in fair value and gains and losses from sales are recognized in
non-interest income. Other non-marketable securities acquired
for debt and regulatory purposes are accounted for at cost.
Trading account securities, which are bought and held
principally for the purpose of resale in the near term, are
carried at fair value. Gains and losses, both realized and
unrealized, are recorded in non-interest income.
|
|
|
Land, Buildings and Equipment |
Land is stated at cost, and buildings and equipment are stated
at cost less accumulated depreciation. Depreciation is computed
using straight-line and accelerated methods. The Company
generally assigns depreciable lives of 30 years for
buildings, 10 years for building improvements, and 3 to
8 years for equipment. Maintenance and repairs are charged
to expense as incurred.
Foreclosed assets consist of property that has been repossessed.
Collateral obtained through foreclosure is comprised of
commercial and residential real estate and other non-real estate
property, including automobiles. The assets are initially
recorded at the lower of the related loan balance or market
value of the collateral less estimated selling costs, with any
valuation adjustments charged to the allowance for loan losses.
Market values are estimated primarily based on appraisals when
available or quoted market prices of liquid assets.
Subsequently, foreclosed assets are valued at the lower of the
amount recorded at acquisition date or the current market value
less estimated costs to sell. Further valuation adjustments on
these assets and gains and losses realized on sales are recorded
in other non-interest expense.
Goodwill and intangible assets that have indefinite useful lives
are not amortized, but are tested at least annually for
impairment. Intangible assets that have finite useful lives,
such as core deposit intangibles and mortgage servicing rights,
are amortized over their estimated useful lives. Core deposit
intangibles, which were fully amortized at December 31,
2005, were amortized over a maximum of 10 years using
accelerated methods for all periods presented.
When facts and circumstances indicate potential impairment of
amortizable intangible assets, the Company evaluates the
recoverability of the asset carrying value, using estimates of
undiscounted future cash flows over the remaining asset life.
Any impairment loss is measured by the excess of carrying value
over fair value. Goodwill impairment tests are performed on an
annual basis or when events or circumstances dictate. In these
tests, the fair values of each reporting unit, or segment, is
compared to the carrying amount of that reporting unit in order
to determine if impairment is indicated. If so, the implied fair
value of the reporting units goodwill is compared to its
carrying amount and the impairment loss is measured by the
excess of the carrying value over fair value.
Amounts provided for income tax expense are based on income
reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred
income taxes are provided for temporary differences between the
financial reporting bases and income tax bases of the
Companys assets and liabilities. Deferred tax assets and
liabilities are measured using the tax rates and laws that are
expected to be in effect when the differences are anticipated to
reverse. The effect on
54
deferred tax assets and liabilities of a change in tax rates is
recognized as income or expense in the period that includes the
change.
The Company and its eligible subsidiaries file consolidated
income tax returns. Accordingly, amounts equal to tax benefits
of those subsidiaries having taxable losses or credits are
reimbursed by other subsidiaries that incur tax liabilities. A
valuation allowance is recorded when necessary to reduce
deferred tax assets to amounts which are deemed more likely than
not to be realized.
The Company is exposed to market risk, including changes in
interest rates and currency exchange rates. To manage the
volatility relating to these exposures, the Companys risk
management policies permit its use of derivative products. The
Company manages potential credit exposure through established
credit approvals, risk control limits and other monitoring
procedures. The Company uses derivatives on a limited basis
mainly to stabilize interest rate margins and hedge against
interest rate movements. The Company more often manages normal
asset and liability positions by altering the products it offers
and by selling portions of specific loan or investment
portfolios as necessary.
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities, requires that all derivative financial
instruments be recorded on the balance sheet at fair value, with
the adjustment to fair value recorded in current earnings.
Derivatives that qualify under the Statement in a hedging
relationship can be designated, based on the exposure being
hedged, as fair value or cash flow hedges. Under the fair value
hedging model, gains or losses attributable to the change in
fair value of the derivative, as well as gains and losses
attributable to the change in fair value of the hedged item, are
recognized in current earnings. Under the cash flow hedging
model, the effective portion of the gain or loss related to the
derivative is recognized as a component of other comprehensive
income. The ineffective portion is recognized in current
earnings.
To be eligible for hedge accounting treatment the Company must
specifically designate a derivative as a hedging instrument as
well as identify the exact risk being hedged. The derivative
instrument then must meet explicit effectiveness requirements
under Statement 133 to qualify for hedge accounting. At
December 31, 2005, the Company had two interest rate swaps
designated as fair value hedges.
Derivative contracts are also offered to customers to assist in
hedging their risks of adverse changes in interest rates and
foreign exchange rates. The Company serves as an intermediary
between its customers and the markets. Each contract between the
Company and its customers is offset by a contract between the
Company and various counterparties. These contracts do not
qualify for hedge accounting. They are carried at fair value
with changes in fair value recorded in other non-interest
income. Since each customer contract is paired with an
offsetting contract, there is no significant impact to net
income.
The Company enters into interest rate lock commitments on
mortgage loans, which are commitments to originate loans whereby
the interest rate on the loan is determined prior to funding.
The Company also has corresponding forward sales contracts
related to these interest rate lock commitments. Both the
mortgage loan commitments and the related sales contracts are
accounted for as derivatives and carried at fair value with
changes in fair value recorded in loan fees and sales.
Staff Accounting Bulletin No. 105, Application
of Accounting Principles to Loan Commitments
(SAB 105) provided additional guidance in determining the
fair value of mortgage loan commitments. The guidance prohibits
the inclusion of the expected cash flows related to the
associated servicing of the loan when determining the fair value
of the loan commitment. This change in accounting tends to
reduce the fair value of the loan commitment and defers the
income recognition resulting from the valuation of the
commitment. SAB 105 was effective for loan commitments
accounted for as derivatives and entered into on or after
April 1, 2004, at which time the Company began excluding
these expected cash flows in its determination of fair value.
55
The Company has several stock-based employee compensation plans,
which are described more fully in Note 11, Stock Option
Plans, Restricted Stock Awards and Directors Stock Purchase
Plan. The Company accounts for these plans under the fair value
recognition provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation.
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
(revised), Share-Based Payment. The revision
disallows the expense recognition alternatives permitted in the
original statement and requires entities to recognize
stock-based compensation cost in their statements of income. The
revision contains additional guidance in several areas including
award modifications and forfeitures, measuring fair value,
classifying an award as equity or as a liability, and
attributing compensation cost to reporting periods. It also
contains additional disclosure requirements. The Company does
not expect that adoption of the revision in January 2006 will
have a material effect on its consolidated financial statements.
Purchases of the Companys common stock are recorded at
cost. Upon re-issuance, treasury stock is reduced based upon the
average cost basis of shares held.
Basic income per share is computed using the weighted average
number of common shares outstanding during each year. Diluted
income per share includes the effect of all dilutive potential
common shares (primarily stock options) outstanding during each
year. All per share data has been restated to reflect the 5%
stock dividend distributed in December 2005.
Effective January 1, 2003, the Company acquired 100% of the
outstanding stock of The Vaughn Group, Inc. (Vaughn), a direct
equipment lessor based in Cincinnati, Ohio. At acquisition,
Vaughn had a lease portfolio which included direct financing
leases, sales type leases, and operating leases. The largest
component was direct financing leases of $32.8 million,
consisting mainly of data processing hardware. In addition,
Vaughn serviced approximately $350 million of lease
agreements for other institutions involving capital equipment,
ranging from production machinery to transportation equipment.
The Company issued stock valued at $6.0 million and paid
cash of $2.5 million in the acquisition. The acquisition
was accounted for as a purchase. Goodwill of $5.3 million
was recognized as a result of the transaction. No other
separately identified intangible assets were recorded in
connection with the acquisition.
|
|
3. |
Loans and Allowance for Loan Losses |
Major classifications of loans at December 31, 2005 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
| |
(In thousands) |
|
2005 | |
|
2004 | |
| |
Business
|
|
$ |
2,527,654 |
|
|
$ |
2,246,287 |
|
Real estate construction
|
|
|
424,561 |
|
|
|
427,124 |
|
Real estate business
|
|
|
1,919,045 |
|
|
|
1,743,293 |
|
Real estate personal
|
|
|
1,358,511 |
|
|
|
1,340,574 |
|
Consumer
|
|
|
1,287,348 |
|
|
|
1,193,822 |
|
Home equity
|
|
|
448,507 |
|
|
|
411,541 |
|
Student
|
|
|
330,238 |
|
|
|
357,991 |
|
Credit card
|
|
|
592,465 |
|
|
|
561,054 |
|
Overdrafts
|
|
|
10,854 |
|
|
|
23,673 |
|
|
Total loans
|
|
$ |
8,899,183 |
|
|
$ |
8,305,359 |
|
|
56
Loans to directors and executive officers of the Parent and its
significant subsidiaries and to their associates are summarized
as follows:
|
|
|
|
|
| |
(In thousands) |
|
|
| |
Balance at January 1, 2005
|
|
$ |
103,780 |
|
Additions
|
|
|
117,363 |
|
Amounts collected
|
|
|
(128,121 |
) |
Amounts written off
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
93,022 |
|
|
Management believes all loans to directors and executive
officers have been made in the ordinary course of business with
normal credit terms, including interest rate and collateral
considerations, and do not represent more than a normal risk of
collection. There were no outstanding loans at December 31,
2005 to principal holders of the Companys common stock.
The Companys lending activity is generally centered in
Missouri, Illinois, Kansas and other nearby states including
Iowa, Oklahoma, Colorado, Indiana, and others. The Company
maintains a diversified portfolio with limited industry
concentrations of credit risk. Loans and loan commitments are
extended under the Companys normal credit standards,
controls, and monitoring features. Most loan commitments are
short and intermediate term in nature. Loan maturities, with the
exception of residential mortgages, generally do not exceed five
years. Collateral is commonly required and would include such
assets as marketable securities and cash equivalent assets,
accounts receivable and inventory, equipment, other forms of
personal property, and real estate. At December 31, 2005,
unfunded loan commitments totaled $6,889,826,000 (which included
$3,355,751,000 in unused approved lines of credit related to
credit card loan agreements) which could be drawn by customers
subject to certain re